Mutual Funds with Extra Cash

Money, it’s an issue whether you have it or not. If you don’t have it you want it. If you’ve got it you want to figure out how best to use it. In my case at the moment, it is the later.

I’ve got $7k in extra money and need to figure out what to do with it. I’ve been so busy with life these days that I’ve had this money sitting in my account for over a month just earning ING’s 4.5% interest. While this is better than sitting under my pillow, it has still been weighing on my mind that I haven’t done anything with it.

We sat down this morning and discussed what some of my options are:

1) Pay off some of my student loans.

2) Pay off some of the principle on our mortgage.

3) Max out my ROTH IRA for the year and then figure out what to do with the rest.

4) Buy stocks or mutual funds.

5) Go to Vegas.

6) Some combination of the above.

When deciding what to do, it makes the most sense to go back to what your goals/needs are at the time. All of the above, aside from Vegas, would help us to attain our long term finance goals. There are some pay-offs depending on which option is chosen.

In the end, one of the important things is having some sort of liquidity. Given our finances, I personally don’t have any liquid options if an emergency comes up. Sure, James & I have accounts that we could access for this, but there is something about having your own options. Plus, the option of mutual funds excites me to get more into this area independently. I have a small amount with sharebuilder thus far, but can’t say that I’m too impressed by them.

I looked at my options and decided to first go with maxing out my ROTH IRA. This is obviously a no brainer, and while I know that I would find a way to max it out by next spring, it feels good to have that goal accomplished already. I just added to my ROTH that I already have with ING to do so. I already had $320 in this year’s ROTH and have an automatic payment of $25 each month, so I put in $3,500 to max out for 2007.

I also opened up a mutual fund with ING. I looked at the more aggressive options and wasn’t really impressed. I thus checked out the index funds for small, medium and large cap stocks. I then compared the three on yahoo and it appears that the small cap is ahead in the game. I know from other reading that these fluctuate on which is better, but I couldn’t help with going with the one that looks best overall at the moment. I ended up buying $3,500 IDSOX.

Thus, sorting out what to do with my money has now been solved. Funds have been purchased and now I can go back to writing papers for the weekend. Hopefully laying out my thinking process helps others consider what is best for them.

Have a great weekend!

Miel