BP Community,

I am in the process of paying off my HELOC and shifting from debt paydown to saving up cash. My current goal would be to save up enough money to pay back my wife's 401K loan and then continue saving until we have a down payment to purchase our next rental property. While I'm in savings mode I want to maximize my returns by putting my money to work until it grows to the point of paying off her loan. We owe about $42K on that loan still.

I know conventional wisdom when saving for short term goals are to put the money in a savings account to protect against downside. Investing in the stock market short term greatly increases risk and tends to be more like gambling then investing. I also know that if you are going to invest for less than a year you will pay ordinary income tax on any gains vs. long-term capital gains. The same is true for interest paid on savings accounts. Lastly, I know the market is extremely overvalued right now.

My strategy for investing at a high level is low-cost index funds held forever in my 401K, Roth IRA, HSA, and taxable brokerage combined with long term rentals. My current rental property portfolio equity and stock investments over all those accounts is currently 50% – 50% split. I am not a gambler when it comes to my investments.

Having said that I am contemplating putting my saving in the market vs. a savings account short term for a few reasons. While I have been enjoying rentals and all the benefits that come with them financially, especially from a tax perspective, investing in the market would be more passive. Also, I am not getting rid of my rentals, and I can enjoy those benefits off of the properties I currently have. I could start saving, seeing the growth, and pivot to just keep dollar cost averaging into the market vs. purchasing another rental. We currently have 5 properties, 7 doors. We currently have the income from our W2’s that if the market was to correct and we would lose money we could absorb the hit. I think there could be more upside than downside based on market averages. The market has only had negative returns 22% of the time in the last 45 years. In that same time frame, it’s only had returns less than current savings interest rates 31% of the time.

I haven’t made a decision yet, but I wanted to use data to evaluate what direction we are going to go. Which made me think about making this post. I built a calculator that isn’t perfect but is directionally correct for how I am evaluating risk. I pulled the S&P 500 returns data going back to 1980. The worst year in the market over that time was 2008 at -38.49% returns, with the best being 1995 at 34.11%. This calculator allows you to adjust how much you plan to save per year and what your savings interest rate is on the savings side. This will break your annual savings into weekly buckets and apply the interest to calculate what your account value would be at the end of the year. On the investment side it mirrors the deposits but allows you to adjust your starting point for the market returns by adjusting the year in the blue box. Your total projection will adjust based on how the market did that year. To make adjustments to the calculator only change the inputs in the blue box.

The data from the S&P 500 is on the tabs at the bottom. With doing the work to put this together I figured I would share it with the group as maybe someone else could get value out of it. Below is a picture of what the calculator looks like. I can’t add an attachment to this post but if anyone wants the calculator just DM me.