Hi everyone. I recently made $250,000 from some small investments that worked out well. I’m looking for the best way to generate passive income from it.
I’m 29 years old, married, and no kids yet (maybe in a year or two)! I have about $60,000 in student debt at a low interest rate. My wife and I make around $130,000 before taxes. She doesn’t want to work full-time after becoming a mom, which would drop our income to about $80,000 a year. My wife wants a house and some land, which I don’t mind.
I want to know if investing the $250,000 in the stock market is the best option. I’m also open to starting a small business. I’ve never owned a business or run one before, but I’m willing to learn. What do you think is best: starting a business, investing in the stock market, or house hacking? I don’t want the money to just sit around without working for me.
If you invest your $250k and leave it in the S&P 500 until you’re 67, you could have $2,000,000. That includes inflation but doesn’t account for any major market changes. I’m not a fiduciary, but if you use a 4% withdrawal rate, you’d have $80,000 a year to take out without touching your principal. After taxes, that’s about $60,000 a year, or around $5,000 a month.
I’d put $200k in VTI (my favorite) or VOO and let it grow. Keep the remaining $50k in a high-yield savings account (HYSA) or money market account to earn interest (around $250 a month or $3,000 a year) and use that to enjoy life with your family.
If you’re thinking about starting a business, set a limit on your budget. You can start a business with $5k or $50k, but if you lose the $50k, you’re left with nothing.
I recommend applying for a job with someone who owns a business you’re interested in. You can learn the ropes, understand the finances, and see what a successful customer acquisition strategy looks like while getting paid.
After about 6 to 12 months, you’ll have the knowledge to start your own business and avoid common mistakes.
It sounds like you can afford a home, but it also depends on where you live. Consider your options carefully: do you want a lot of yard work every weekend, or would a suburban home work for you? Is being in a good school district important, or is being close to stores more of a priority for you?
@PennyPorter
This is great advice and deserves more attention. OP, I suggest checking out the r/bogleheads subreddit for a lot of helpful resources. I would strongly advise against starting a new business, as it can quickly become a second job for both you and your spouse before you see any profit (if you see it at all).
The $50k I would keep in a HYSA / Money Market account so it earns interest (around $250 a month / $3,000 a year) and I would use these funds to enrich my life with my family.
That’s a 6% return over a year. I’m not sure where you’re getting that kind of rate on a HYSA.
I don’t think that’s good advice. I understand your perspective, but if you’re earning more in the stock market than you’re losing in debt payments, then stocks could be a better choice. I know I make more with my safe stocks than I would if I paid off my car loan, which has a low interest rate.
What’s your timeline for buying a house? When do you need the cash? What’s the interest rate on the loan?
If you need the money for a down payment in 5 years or less, it’s better to keep it in a money market account that pays 4%+. Figure out how much down payment you need, how much you want in an emergency fund, and then invest the rest in index funds.