Where to invest an extra 50k?

I have 50k to invest. I am not looking for a quick profit. I don't need the money for 20-30 years Should I use it to put a down payment on a home ( rental income ) investment. Or should I put the money in a small or mid cap mutual fund. Which one has more potential? Stocks or real estate ? I know the real estate choice gives me the benefit of tax breaks and write offs. What other factors should I consider?

This is completely an investment with long term intentions

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  • 3 years ago
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    If you are interested in real estate, you need to remember that it is not a passive investment like stocks, you will have to collect rent, make repairs, deal with tenants, advertise when the place is vacant and so on. It is a business, and you should not take getting into it lightly. As far as tax breaks and write-offs, I would not factor those into the decision. For example, depreciation looks great on paper - you get to deduct X% of the cost of the house each year from your income from the rental. However, when you sell the house in 10 or 20 years, you will have to pay taxes on the gains from zero, since you will have largely depreciated it by then. So then you lose 15% or 20% of the value of the asset to taxes - that doesn't sound like a "break" to me, it sounds like Uncle Sam giving it to you up the @ss.

    I would stick with passive investments. Here is a plan I suggest: Put all of the $50K into Vanguard, a great mutual fund company with low management fees (over 20 years those lower fees will make a big difference in your earnings). Start with the money in their Total Bond Index fund. Then do two things: Every 2 months, move $3,000 from the bond fund to an INDEXED stock fund (I suggest the Vanguard 500, which is indexed to the SandP 500, the 500 largest US companies). While this is going on, watch interest rates - if rates start rising, bond fund prices will fall and you will need to get the money out of the bond fund. But you should be okay for the next 18-24 months, which is how long it will take you to move mostly into stocks. At some point, you may want to go into a couple of other Vanguard index funds - maybe 15% of your holdings in their international index, maybe keep 10% or so in the bond fund, etc. Keep it down to 3-4 core funds.

    If the market goes bad in the next 20 years (and at some point it will), then think about pulling out, but don't panic. There have only been 3 times in the past 50 years where pulling out would have helped - in the late 70s, late 90s, and 2007-2008. Your long time frame gives you a cushion to ride out moderately bad times, but don't blindly hold when there is a crash coming.

    Good luck to you.

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