Savings / Cash Building Tips

[Tucker Cummings]

Just having this thought today on building my cash reserves for investing and wanted to throw the thoughts into BP.

I've been saving my personal cash reserves for a while so I could buy my own properties and BRRRR/flip them using my own money. I have them in a high interest savings account, and by high interest I mean it was 2% pre-COVID and now it's 0.82%. The thought crossed my mind about "what if I tried to accelerate growth moderately by keeping half my reserves in the stock market, in index funds?" The purpose of doing this is to acquire funds for down payments or powerful cash offers on property.

On one hand you have higher growth rate, on the other hand you carry the risk of an unforeseen downturn. Keeping half in just traditional cash would help mitigate loss.

Traditional financial advice tells us not to invest anything we’ll need in the next 5 years. Traditional financial advice also tells us that our primary residence is the best investment we’ll ever make and that getting a 9-5 job and working endlessly through my most lively years to retire in my most crippled is the dream.

I’m a younger/newer investor, just trying to seek methods for quicker, but sensible wealth creation. So my question is - Does anybody do this? What’s been your experience? What do people see as pros and cons? Let’s open the discussion.

[Randall Alan]

I'm not sure there is a winning hand with savings accounts... most anything is better than .8%.  The stock market goes up and down, but always has come back up... so that is definitely a better path in my book.  My question would be what other resources do you have?  For instance, do you have a 401K through work?  IF - and it's definitely an IF - you are a disciplined person, pulling money from a 401K - this year in particular might be something to consider given that they have waived the 10% early withdrawal penalty.  Its just a faster path in my opinion.  Hunt down a great deal.  In my book / area that looks like this:  A C class property that you can buy for under $75k, that will rent for $1,000 a month.  The numbers on that look like this:  with 20% down (about $17k) down, you will net about 50% of your $1,000 after Principle, Interest, Taxes, and Insurance.  Factoring in a maintenance reserve of about $100, that gives you an average monthly profit of $400.  Across the year, that's a $4,800 return on a $17,000 investment... or about a 28% return.  Yes, there will be months things break that you might not always net $400... but there will be others where nothing breaks too.  I can find these types of deals on a regular basis, and on occasion much better.  I have one I bought for $50k that rents for $1,400!  Those are more rare...but the $75k renting for $1000 a month is out there regularly in my area.  Just saying that this beats the average stock market return of 7% all day long!  Look for other sources of down payment if you don't have it.  Maybe a parent? A relative?  Offer to put them on the deed if you have to and pay them what they would make in the stock market on their investment.  Get creative... but the faster you get in the game, the sooner you'll be reaping the rewards.

Randy