AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Hi Scott,

I have been your reader for a few years.  Thank you for your great financial advices.

I am married with 2 young kids.  We are in the late 30's and make about 95k per year.  We bought an apartment in the Seattle area for around 300K last year.  We paid 20% down and have a fixed 30 yr loan at 5.375%.  We don't have any other debt.  We participate in 401k only at around 3% to take advantage of company match, and we have fully invested in Roth IRA for the past few years.  We have about 300k in retirement and taxable accts.

My question is that should we make additional payments towards the loan?  We plan to stay in the apartment for another 5 or so years and then move to a different house in a better school district.  If not, should I put the extra money in TIPS or something else to save for the down payment in 5 years or into equities?

 Thank you!

CML,

You're making all the right, and prudent, moves. I make particular reference to your choice to limit your 401(k) contributions to an amount that will capture the match but putting further savings into a Roth. For people your age and in your income bracket future tax rates are a major question and you should NOT assume that future tax rates will be the same or lower. So putting money into a Roth is a really good idea.

With a 5 year horizon the most conservative thing to do is to pay down the mortgage, saving a certain 5.375 percent in interest. That's way more than you'll earn on a safe Treasury investment and that's an investment of comparable risk. You might earn more in stocks, but the risk is much greater.

Scott

Thanks so much Scott!