Advice on investment strategy - first time poster

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bdwb
Posts: 2
Joined: Fri Jan 12, 2018 10:47 pm

Advice on investment strategy - first time poster

Post by bdwb » Fri Jan 12, 2018 11:35 pm

I am a first time poster but have been following the forum for quite a while and learning a ton – thank you! Hoping to get some opinions/advice on my investment strategy. BACKGROUND: 51 years old – $1.2M invested in the following: 30% Total Stock Market Index Fund (VTSMX), 20% Vanguard Total International Stock Index (VGTSX), 35% Vanguard Total Bond Market (VBMFX) and 15% Vanguard Total International Bond Index (VTIBX). $500k in cash – low interest bank savings account (I know this is bad), $300k in real estate (own a home that mother in law lives in – will sell home when she passes in the future and then invest) and I owe $340k on my home which is worth about $950k - will be paid off at age 60 (3.25 interest rate). For the most part no additional debt. Plan to retire at 65 and will be saving at least $80k - $100k per year going forward. Believe I will need $125k to $150k per year when I retire to live.

Questions:
1. I planned to use the $500k in cash to pay off my mortgage – but have decided not to do this – thoughts on how to invest? I have unfortunately been a very conservative investor and this is my tendency – afraid to throw this money in the market at a high point, despite many articles on this forum saying that it is best to get the $ in the market vs. trying to time it. I am ready to move to a wiser approach – thoughts on where to put it? I would likely want to keep $150k as emergency fund.

2. I am following the Vanguard Total Portfolio Recommendation for the most part and I am comfortable with this. Thoughts?

3. Other ideas? Thanks for the help

zuma
Posts: 319
Joined: Thu Dec 29, 2016 12:15 pm

Re: Advice on investment strategy - first time poster

Post by zuma » Sat Jan 13, 2018 8:36 am

Are you comfortable with your 50/50 AA?

If yes, then why not simply invest the $500k accordingly? Your 4-fund approach is perfectly reasonable and you already know that timing the market is a bad idea. You could DCA the money if you're particularly worried about short-term losses, but most here would recommend putting it all in now.

It not, then maybe you should reconsider your need/willingness/ability to take risk in order to meet your goals.

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ruralavalon
Posts: 12198
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Advice on investment strategy - first time poster

Post by ruralavalon » Sat Jan 13, 2018 8:58 am

Welcome to the forum :) .
bdwb wrote:
Fri Jan 12, 2018 11:35 pm
I am a first time poster but have been following the forum for quite a while and learning a ton – thank you! Hoping to get some opinions/advice on my investment strategy. BACKGROUND: 51 years old – $1.2M invested in the following: 30% Total Stock Market Index Fund (VTSMX), 20% Vanguard Total International Stock Index (VGTSX), 35% Vanguard Total Bond Market (VBMFX) and 15% Vanguard Total International Bond Index (VTIBX). $500k in cash – low interest bank savings account (I know this is bad), $300k in real estate (own a home that mother in law lives in – will sell home when she passes in the future and then invest) and I owe $340k on my home which is worth about $950k - will be paid off at age 60 (3.25 interest rate). For the most part no additional debt. Plan to retire at 65 and will be saving at least $80k - $100k per year going forward. Believe I will need $125k to $150k per year when I retire to live.

Questions:
1. I planned to use the $500k in cash to pay off my mortgage – but have decided not to do this – thoughts on how to invest? I have unfortunately been a very conservative investor and this is my tendency – afraid to throw this money in the market at a high point, despite many articles on this forum saying that it is best to get $ in the market vs. trying to time it. I am ready to move to a wiser approach – thoughts on where to put it? I would likely want to keep $150k as emergency fund.

2. I am following the Vanguard Total Portfolio Recommendation for the most part and I am comfortable with this. Thoughts?

3. Other ideas? Thanks for the help
At age 51, and planning to retire at 65, an asset allocation of 50/50 is within the range of what is reasonable in my opinion.

An emergency fund of $150k is large but reasonable in my opinion.

1) Investing in a lump sum rather than stages works out better about 2/3 of the time. You could Google to find the Vanguard paper "Dollar-cost Averaging Just Means Taking Risk Later". There is no telling if now is within the 1/3 of the times when investing the lump sum would not be better.

The compromise solution is to invest part now in a lump sum, and then invest the rest in stages. For example invest 50% now in a lump sum, and then invest another 5% every month for the next 10 months.

2) I would not use the international bond fund. It adds extra complexity and expense, with no readily apparent benefit in my opinion. There has been a lot of discussion here about international bonds, you can use the Google search box (upper right, this page) to find more discussion than you probably want on that subject.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

bdwb
Posts: 2
Joined: Fri Jan 12, 2018 10:47 pm

Re: Advice on investment strategy - first time poster

Post by bdwb » Sat Jan 13, 2018 1:23 pm

Appreciate the guidance. I will research the international fund as you highlighted- and will likely dca to get the cash in play. What are the groups thoughts on how to invest the emergency fund? CD?

mega317
Posts: 1478
Joined: Tue Apr 19, 2016 10:55 am

Re: Advice on investment strategy - first time poster

Post by mega317 » Sat Jan 13, 2018 2:22 pm

Actually I think paying off the mortgage makes more sense for you than for many other posters who ask about it. 3.25% with 9 years left is a good deal.

I wouldn't keep a separate emergency fund with 500k in taxable investments but it is reasonable. Worrying about how it's invested is not reasonable. This is less 10% of your portfolio, worrying about a difference of 1-2%, taxable, isn't worth it. High yield savings, CDs, stocks, it's all fine.

$125k per year means you need about 3 million at a 4% withdrawal. You can get there but at 80-100k savings it's kind of close, depends on the market the next 14 years. And you have to account for taxes as a retirement expense.

Beehave
Posts: 118
Joined: Mon Jun 19, 2017 12:46 pm

Re: Advice on investment strategy - first time poster

Post by Beehave » Sat Jan 13, 2018 3:08 pm

My advice would be:
- pay off the mortgage with your cash on hand (except if you like *** below)
- build an FDIC-insured CD ladder with the remaining cash
- keep your 50-50 stock/bond allocation
- figure out your likely Social Security and pension benefits (choose an appropriate Soc'l Sec strategy when you are closing in on collecting - - too much uncertainty to finalize on a strategy now). Factor this into your future annual requirements/resources calculations.
- *** run a bunch of what-if scenarios for annuities on immediateannuities.com. Run them now for different ages and start dates. If interest rates spike in the next year or two or whatever run similar annuity test cases to see if an annuity has become a bargain. If you like what you see grab an annuity (now a bargain) with that cash you've held onto. You can also DCA at that time into immediate and/or deferred annuities rather than just buy one if interest rates are steadily rising. If the annuity option is appealing, don't pay off the mortgage and instead hold onto the cash awaiting this possible opportunity.

Above all, if I were you I would not all of a sudden change allocation and strategy that have gotten you this far. You've been prudent and successful. Stay that way.

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