Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

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accrue
Posts: 5
Joined: Sat Jul 07, 2018 4:42 pm

Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by accrue » Sat Jul 07, 2018 6:02 pm

Hi everyone. New to the board and investing.

Emergency funds: >12 months
Debt: none
Tax Filing Status: Single, no kids
Tax Rate: ~30% Federal, 5-10% State (range for privacy)
State of Residence: -
Age: 33
Desired Asset allocation: 30% stocks / 70% bonds
Desired International allocation: 33% of stocks
Other notes: I currently rent and do not plan to make any major purchases in the next 2-3 years. I'm not looking to accelerate retirement and expect to be able to earn a pretty good living as long as I'm healthy. I've bought "Random Walk" and the Bogleheads book, though probably won't be able to read them in the near term.

I recently received a windfall of about $1m before taxes (all sitting in a Chase savings account right now) that will qualify for long-term capital gains. Additionally, I'm in a relatively unique situation where the windfall has a second tranche that's payable pending conditions that I think will largely correlate with the overall US market--my guess is, so long as the stock market does not see a >20% correction, there will be an additional windfall of about $0.5-1m pre-tax cash paid out in the next 2-3 years.

Furthermore, I had previously joined as a relatively early employee at what is now a growth stage startup. I have a regressive equity cliff structure whereby most of my upside will not fully vest until 2-3 years from now. Assuming I don't get fired before then (which I optimistically hope is a <25% probability, but maybe it's closer to 50%), I feel reasonably certain that my full equity stake will be worth $1-2m at exit in ~4 years. Despite its being a startup, it is near profitability today, and there are a few strategic acquirers that have already shown interest. The company's customer base is relatively affluent and what we sell is somewhat in the middle between discretionary and necessity. All in all. I think a successful liquidity event is as likely as it gets for a startup our stage, assuming the market does not see a >20% correction in the next 4 years.

I took economics in college but don't have first hand experience with investment. Based on what I read, it seems like I should put all my money in passive index funds, maybe balanced by stock/bond/domestic/international based on my life situation. However, because I may receive as much as $3m more over the next 4 years if the market does not crash and I do not get canned, I'm thinking of taking a hedge against a downturn for the existing $1m windfall:

a) At a minimum, I plan to invest mostly in investment grade fixed income. I was actually originally thinking about going 100% FI, since the way I look at it, if the market doesn't crash and I don't get fired, then I'd expect at least another $1m coming in that almost feel like a super risk equity, so my portfolio would be more like 50% FI and 50% "stock" even if the initial $1m all goes to FI; but reading various resources (including helpful posters over at Reddit's personal finance board) seemed to me like that's too extreme. My goal is solely to beat inflation and take nearly no risk. I'm not worried about missing out on higher gains from the equities market, since if the market performs well, I stand to earn a lot more from the second tranche and the startup equity stake. NB: if I do get fired, I would change this allocation and shift more toward equities.

b) I'm also wondering if it may be crazy to hedge further and take some kind of short position via puts on the indices on the market. This way, if the market does drop say 20% in 2020, and $0 out of the potential $3m materializes, perhaps the original $1m minus taxes will see a nice gain, especially compared to the broader market. I'd like to stay with mainstream brokerages and investment vehicles though, and won't have time to become an actually sophisticated investor, so maybe this is ill-advised.

I've already spoken to a J.P. Morgan asset manager through the Chase Private Client relationship, and will speak to a tax planner soon. But it's always seemed to me that getting advice from two people, even if they're professionals, is not as good as internet diligence. Please see below for my questions:

1. Does anyone have general comments on my hedge plan above? I'm assuming the default recommendation is to avoid timing the market and put everything in index funds, though I wonder if my unique situation may mean that I should think about minimizing equities and even do some hedging?

2. The J.P. Morgan asset manager pitched me on this treasuries fund with a 2 year average bond duration that pays about 2.5% interest, with 35 bps in fees (which the manager claimed was his own "preferred rate" and thus a discount over rack). I bank with Chase so there is a convenience factor in leaving everything in the same place, and to some extent would prefer to at least keep the private client relationship (min asset of $250k across checking/savings/brokerage) to get convenience factors like no wire/ATM fee and free safe deposit boxes, though am definitely willing to let it go if these features end up costing more than they're worth. However, on Vanguard everything is 4 to 7 bps. Call it a 30 bps difference, which on a million is $3k per year! I will ask the manager next time I see him what justifies that premium, but wanted to ask here too. Surely a large institution like Chase can't just expect to charge 7+x the fees when another large institution like Vanguard does not? What am I missing? It can't purely be an information asymmetry can it? I mean I get it if I'm looking at actively managed stock funds or emerging market corporate bonds, but this is just a collection of US treasuries! Can't imagine there being any "alpha". So I guess my question is, is there any reason to not go with Vanguard 100% of the way?

3. MF or ETF? Looking through various resources, it seems like VG's MF is unique in that it has many of ETF's upsides too (i.e. same low price), and that one could always convert to ETF if they want to for some reason. So my plan is to go all MF, but wanted to get a validation. I'm not going to do any sophisticated order types or want exposure to niche markets.

4. A friend told me that if I paid more than 10% of last year's taxes, I could skip quarterly estimated taxes on the windfall and instead make a payment at the end of the year, thus allowing me to invest the tax liability over the next ~6 months to realize some float gains. If anyone has experience on this, please let me know if there are any gotchas. I imagine I wouldn't want any risk here--probably some super short term bonds or maybe even CDs...? I think I see some 2% rate 6-mo CD available on Vanguard, though technically I only have 5 months left till EOY. There is a 1 and 3 month option, so would I buy the 3 month, and then reinvest it into 1 month twice? Seems like a lot of "work", so maybe there is a simpler instrument that can realize the max gains assuming I must pay the government $350k in cash by Dec 31 regardless of market conditions or interest rates? Or maybe this is an example of something that I should just keep at Chase--assuming they're not charging 7+x the fees like they are with the bond index fund!

5. Re: taxes, a planner a friend recommend probably charges a few hundred dollars per hour. Is there consensus on if that's money that I should definitely spend, as opposed to say, try to read up on the information myself and DIY? If the former, what do you think is the right amount to budget for this kind of advice this year and over the next few years? Should I also plan to hire an accountant to file my taxes over the next few years? Again, what sort of budget would you say is right for that?

6. Is Vanguard's personal advisor services recommended? I didn't see the wiki pop up on the top few google results. The threads that turn up seem to have somewhat mixed opinions, with a possible consensus being that it's worth it to try it for a few years to learn from them and then leave. I suppose I'm curious if my situation here is "complex" enough where the +25 bps premium would be worth it.

7. This is asking a very unrepresentative sample, but is the consensus on this board that almost everyone (outside of those rich enough to have family offices) should try to manage their investments themselves (by manage, I don't mean picking individual stocks, but learning enough to make the decision to buy particular ETFs for instance and deciding on an allocation)? I'm not an investment professional by trade; if there were a different web forum for my vocation and a lot of people tried to learn to do it themselves, I'd probably say it's "inefficient", and that they're better off sharpening their day jobs' skills and use the extra pay to outsource work to "professionals" like me for my experience. In my own network, when I meet more successful and wealthier individuals, it seems like many still try to do a lot of personal investing, such as angel investments or even slightly scammy sounding foreign investment schemes. I suppose to distill it down, is the consensus here that it's indisputably worth the time for me to read up on a bunch of investment books and get smart on this? I imagine few would make the same recommendations for say medicine or law...

8. Does anyone worry about security of having 90% of net worth in Vanguard? Having money all in Chase feels a bit safer for some reason (even if FDIC only goes up to $250k). I have 2FA turned on, but still feel like Vanguard is this ethereal entity without local offices. Does anyone intentionally spread money to say Fidelity and Schwab solely for the sake of "institutional diversification"?

Sorry--I started with a few questions but then kept adding more as they came up. Would appreciate answers to individual questions too! Thank you!

Lafder
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Location: East of the Rio Grande

Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Lafder » Sat Jul 07, 2018 6:51 pm

Welcome here!

Your desired 30/70 is extremely conservative. But that is ok if you feel most safe there. Age in bonds down to age -(15-20) is often rec here which could be a portfolio of 80/20- 70/30 for you. You are way above that in bonds. Bonds do grow over time. And they do not drop as much as stocks can in big market crashes.

I prefer Vanguard to Chase due to their fee structure.

I prefer the simplicity of a 3 fund portfolio. This is a great discussion, and there is more on the wiki. If you read it all the way through it will likely discuss every question you can think of. viewtopic.php?f=10&t=88005

You do not need to pay a financial advisor, and certainly not annual management fees. If you can post your holdings here a few times a year you can get multiple perspectives for free :) I know you can afford to pay for an advisor, there is just no need to pay for that service ad you get unbiased feedback here since we don't make more commission if you follow our advice.

I believe you mean if you pay 110% of last years tax obligation in estimated payments, you do not owe penalties if you owe at the end of the year. And I believe it is called the "safe harbor rule." I pay 110% of last year's taxes in my estimates each year for this reason.

An estate planning attorney is important to be sure you have everything set up as you wish. As well as an accountant you trust.

lafder

mortfree
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by mortfree » Sat Jul 07, 2018 6:59 pm

Please steer clear of any advisor. They are most likely drooling over your account.

In addition to the AUM, they’ll put you in funds that charge fees for buying and/or selling. They’ll churn your account to make it look like active trading but they just want more $$

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happyisland
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by happyisland » Sat Jul 07, 2018 7:00 pm

How much is that J.P. Morgan asset manager charging you? If it has anything to do with AUM, I would RUN, not walk away from them. Take it from someone who spent over a decade having their "assets managed" by Merrill Lynch.

Lafder
Posts: 3749
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Lafder » Sat Jul 07, 2018 7:07 pm

To comment on your actual questions :) ........................

1. Does anyone have general comments on my hedge plan above? I'm assuming the default recommendation is to avoid timing the market and put everything in index funds, though I wonder if my unique situation may mean that I should think about minimizing equities and even do some hedging?

((I am a chicken about lump sum investing 1 million dollars. SO I would make a plan to invest over the next 6-12 months on a set schedule. It is said lump sum beats dollar cost averaging 2/3 of the time. But if the market crashes after you buy in, even with your conservative AA, it will hurt ))

2. The J.P. Morgan asset manager pitched me on this treasuries fund with a 2 year average bond duration that pays about 2.5% interest, with 35 bps in fees (which the manager claimed was his own "preferred rate" and thus a discount over rack). I bank with Chase so there is a convenience factor in leaving everything in the same place, and to some extent would prefer to at least keep the private client relationship (min asset of $250k across checking/savings/brokerage) to get convenience factors like no wire/ATM fee and free safe deposit boxes, though am definitely willing to let it go if these features end up costing more than they're worth. However, on Vanguard everything is 4 to 7 bps. Call it a 30 bps difference, which on a million is $3k per year! I will ask the manager next time I see him what justifies that premium, but wanted to ask here too. Surely a large institution like Chase can't just expect to charge 7+x the fees when another large institution like Vanguard does not? What am I missing? It can't purely be an information asymmetry can it? I mean I get it if I'm looking at actively managed stock funds or emerging market corporate bonds, but this is just a collection of US treasuries! Can't imagine there being any "alpha". So I guess my question is, is there any reason to not go with Vanguard 100% of the way?

((I guarantee you can get lower fees than through Chase. Even bank CDs have better interest rates than they used to and can be FDIC insured. Yes they really just charge those fees because they can. Not because they provide more service. You can always get CDs at a Chase bank if you can find high enough interest rates and you really want to support Chase. I have not heard of them having the highest CD interest rates))

3. MF or ETF? Looking through various resources, it seems like VG's MF is unique in that it has many of ETF's upsides too (i.e. same low price), and that one could always convert to ETF if they want to for some reason. So my plan is to go all MF, but wanted to get a validation. I'm not going to do any sophisticated order types or want exposure to niche markets.

((I prefer MF. It is MUCH easier to do orders in dollar amounts and not have to specify share prices. There are MF with the same fees as ETF so no cost savings. Some people appreciate the closer control of sales price with ETFs. I find it too many variables to keep track of.))

4. A friend told me that if I paid more than 10% of last year's taxes, I could skip quarterly estimated taxes on the windfall and instead make a payment at the end of the year, thus allowing me to invest the tax liability over the next ~6 months to realize some float gains. If anyone has experience on this, please let me know if there are any gotchas. I imagine I wouldn't want any risk here--probably some super short term bonds or maybe even CDs...? I think I see some 2% rate 6-mo CD available on Vanguard, though technically I only have 5 months left till EOY. There is a 1 and 3 month option, so would I buy the 3 month, and then reinvest it into 1 month twice? Seems like a lot of "work", so maybe there is a simpler instrument that can realize the max gains assuming I must pay the government $350k in cash by Dec 31 regardless of market conditions or interest rates? Or maybe this is an example of something that I should just keep at Chase--assuming they're not charging 7+x the fees like they are with the bond index fund!

((Safe Harbor rule I commented on in my first post. I would talk to an accountant since the penalty on misunderstanding when the tax is due is a lot on such a big number))

5. Re: taxes, a planner a friend recommend probably charges a few hundred dollars per hour. Is there consensus on if that's money that I should definitely spend, as opposed to say, try to read up on the information myself and DIY? If the former, what do you think is the right amount to budget for this kind of advice this year and over the next few years? Should I also plan to hire an accountant to file my taxes over the next few years? Again, what sort of budget would you say is right for that?

((I would start by getting feedback here then only pay an hourly planner if you are not confident of the info you get here. I say yes to an accountant at least for this year. But others prefer doing it themselves))

6. Is Vanguard's personal advisor services recommended? I didn't see the wiki pop up on the top few google results. The threads that turn up seem to have somewhat mixed opinions, with a possible consensus being that it's worth it to try it for a few years to learn from them and then leave. I suppose I'm curious if my situation here is "complex" enough where the +25 bps premium would be worth it.
((It is 0.3% each and every year and no I do no think it is worth it. You can choose an all in one fund if you want to be hands off))

7. This is asking a very unrepresentative sample, but is the consensus on this board that almost everyone (outside of those rich enough to have family offices) should try to manage their investments themselves (by manage, I don't mean picking individual stocks, but learning enough to make the decision to buy particular ETFs for instance and deciding on an allocation)? I'm not an investment professional by trade; if there were a different web forum for my vocation and a lot of people tried to learn to do it themselves, I'd probably say it's "inefficient", and that they're better off sharpening their day jobs' skills and use the extra pay to outsource work to "professionals" like me for my experience. In my own network, when I meet more successful and wealthier individuals, it seems like many still try to do a lot of personal investing, such as angel investments or even slightly scammy sounding foreign investment schemes. I suppose to distill it down, is the consensus here that it's indisputably worth the time for me to read up on a bunch of investment books and get smart on this? I imagine few would make the same recommendations for say medicine or law...

((It does not take nearly the time you are imagining. Once you make an investment plan (that you ought to be able to do in under 20 hours of reading here), there is little to do and you can manage your investments with less than one hour per quarter. Many of us spend much more time reading and or posting on bogleheads than touching our investments. Even if you choose to pay for management, only you can decide if it is worth the cost for you, I suggest you understand investing so you know what they are doing with your money!))

8. Does anyone worry about security of having 90% of net worth in Vanguard? Having money all in Chase feels a bit safer for some reason (even if FDIC only goes up to $250k). I have 2FA turned on, but still feel like Vanguard is this ethereal entity without local offices. Does anyone intentionally spread money to say Fidelity and Schwab solely for the sake of "institutional diversification"?

((I do. That is why I keep some at my bank and some at Fidelity. :) I worry more there would be some massive computer hack that would limit my access til it was straightened out. I do not worry about Vanguard failing and me losing my investments))

My shorter reply was when I thought I had to walk out the door, then I realized I had more time than I thought.............

lafder

smectym
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by smectym » Sat Jul 07, 2018 8:01 pm

Cash is a great way to hedge against a market correction. A good strategy upon receiving a windfall is to put the whole thing into a three- or six-month treasury bill and take a deep breath. That will give you some time to reflect and strategize.

If you take your money to Vanguard and engage PAS, they will invest whatever lump sum you give them right away. Of course you don't have to turn over your entire $1M (right away, or ever) if you're cautious (and a temperate, measured amount of caution [well short of paralysis and paranoia, of course]) is a virtue.

Another approach is to park your money in a Vanguard money market fund (I recommend Treasury Money Market, though Prime will get you several more basis points in yield), which asset level would give you "Flagship" status if you don't have that already. Flagship status gives you a free consultation with a Certified Financial Planner. The CFP will come up with a comprehensive suggested investment plan for you, at no charge, and you will have a video conference to bat around your questions and ideas. I went through that exercise some years back and found it rewarding.

Smectym

radiowave
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by radiowave » Sat Jul 07, 2018 8:41 pm

Re asset allocation, agree with above 30/70 is very conservative for your age, perhaps 60/40 (stock/bonds) ratio would give you reasonable returns and have enough bonds to stabilize your portfolio in the next few decades.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

letsgobobby
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by letsgobobby » Sat Jul 07, 2018 8:52 pm

You can keep Chase PC and buy vanguard funds.

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Sandtrap
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Sandtrap » Sat Jul 07, 2018 8:58 pm

Read and read and memorize.
MANAGING A WINDFALL
https://www.bogleheads.org/wiki/Managing_a_windfall

averagedude
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by averagedude » Sat Jul 07, 2018 9:21 pm

This seems simple to me. Looks like you have more than enough. This is conservative, but why not go with a three fund 50/50 portfolio and rebalance every year. You could do ALOT worse. The worst 10 year performance of this portfolio, is still positive. Dont take out any loans and try to live on a 5% withdrawal rate. Don' count your chickens before they hatch on that 3 million you expect later. If you are lucky to get it, try to live on 3% of that ($120000 a year) and adjust for inflation later. If the market is kind, you should be able to live a lifestyle that is way above average for a person living in the United States. In fact, in the world, you would be the envied one percenter. IMO, don't dollar cost average, just lump sum it in the market.

sambb
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by sambb » Sat Jul 07, 2018 9:27 pm

place it all in tax managed balanced and then learn here for the next 3 years before doing anything else. Do not make any moves, while you learn. You will be happy you did this.

nasrullah
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by nasrullah » Sat Jul 07, 2018 11:32 pm

You are 33 years old, no major expenses or debts, not married, no children, and well employed.

See Bogleheads Investment Philosophy https://www.bogleheads.org/wiki/Boglehe ... hilosophy

Specifically #2, #3, #5, #6, #9, and #10

Almost every AA evaluation tool would tell you to be invested with a 80/20 (or higher) AA. Factoring in Social Security Jack Bogle's guide is Age in Bonds - 10 (still conservative). Going age in bonds with 70/30 would be very conservative. You need enough equity exposure for your funds to grow. You have enough timeline and no pressing life issues that would require you to tilt your AA to an active retirement portfolio.

I really don't understand where all the "is Vanguard safe" stuff comes from. Their online system isn't flashy but if you're following the Boglehead way you shouldn't be actively trading your funds anyways. If Vanguard disappears from the planet we've got bigger issues - like how much food, water and ammo do you have stockpiled issues.

I highly recommend that you have a series of long conversations with Vanguard PAS. They are excellent. With north of $1m in assets you are going to get excellent care and attention from Vanguard as a whole (not to say sub $1m there's an issue). VPAS really helped me understand AA and how to determine my risk profile based on my real long and short term goals. It's a minimal expense to get very sound advice and support. And even better, you can cancel it at any time when you're ready to go out on your own.
"We have a lot to do, and very little time, so we must work slowly." Liviu Ciulei | | Thanks vineviz (https://www.bogleheads.org/forum/memberlist.php?mode=viewprofile&u=134698) for the quote.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Ben Mathew » Sun Jul 08, 2018 11:46 am

accrue wrote:
Sat Jul 07, 2018 6:02 pm
However, because I may receive as much as $3m more over the next 4 years if the market does not crash and I do not get canned, I'm thinking of taking a hedge against a downturn for the existing $1m windfall:

a) At a minimum, I plan to invest mostly in investment grade fixed income. I was actually originally thinking about going 100% FI, since the way I look at it, if the market doesn't crash and I don't get fired, then I'd expect at least another $1m coming in that almost feel like a super risk equity, so my portfolio would be more like 50% FI and 50% "stock" even if the initial $1m all goes to FI; but reading various resources (including helpful posters over at Reddit's personal finance board) seemed to me like that's too extreme. My goal is solely to beat inflation and take nearly no risk. I'm not worried about missing out on higher gains from the equities market, since if the market performs well, I stand to earn a lot more from the second tranche and the startup equity stake. NB: if I do get fired, I would change this allocation and shift more toward equities.
100% bonds does not sound extreme to me at all given that you are highly exposed to the stock market through your other payouts. It is what I would do in your situation.
accrue wrote:
Sat Jul 07, 2018 6:02 pm
b) I'm also wondering if it may be crazy to hedge further and take some kind of short position via puts on the indices on the market. This way, if the market does drop say 20% in 2020, and $0 out of the potential $3m materializes, perhaps the original $1m minus taxes will see a nice gain, especially compared to the broader market. I'd like to stay with mainstream brokerages and investment vehicles though, and won't have time to become an actually sophisticated investor, so maybe this is ill-advised.
Options can be dangerous if you are not very familiar with it. First off, I think if you are trying to insure, you should buy puts as well as sell calls. There is no need to introduce the non-linearity of the payouts of buying puts alone. The combination of buying puts as well as selling calls will lead to a more natural (smoother) payoff. But I would strongly advise against the options route because there are a lot of things that can go wrong. For example, if you need to insure against a downturn over the next 4 years, but your strategy involves buying and selling options that expire in a month, then renewing those positions more when those options expire, etc., you would not be protected if the downturn happens smoothly. If the market loses 1% per month and is down 48% in four years, you might not get much. Short term options are highly sensitive to volatility. Smooth downward trajectories won't pay off like you might expect. So I would avoid trying to insure with options--they look simple but are quite complicated in practice. I would suggest you stick to 100% bonds. What's the worst that can happen? The stock market tanks and you still have $1M. Do you really need an extra $200K from options?
accrue wrote:
Sat Jul 07, 2018 6:02 pm
I've already spoken to a J.P. Morgan asset manager through the Chase Private Client relationship, and will speak to a tax planner soon. But it's always seemed to me that getting advice from two people, even if they're professionals, is not as good as internet diligence. Please see below for my questions:

1. Does anyone have general comments on my hedge plan above? I'm assuming the default recommendation is to avoid timing the market and put everything in index funds, though I wonder if my unique situation may mean that I should think about minimizing equities and even do some hedging?

2. The J.P. Morgan asset manager pitched me on this treasuries fund with a 2 year average bond duration that pays about 2.5% interest, with 35 bps in fees (which the manager claimed was his own "preferred rate" and thus a discount over rack). I bank with Chase so there is a convenience factor in leaving everything in the same place, and to some extent would prefer to at least keep the private client relationship (min asset of $250k across checking/savings/brokerage) to get convenience factors like no wire/ATM fee and free safe deposit boxes, though am definitely willing to let it go if these features end up costing more than they're worth. However, on Vanguard everything is 4 to 7 bps. Call it a 30 bps difference, which on a million is $3k per year! I will ask the manager next time I see him what justifies that premium, but wanted to ask here too. Surely a large institution like Chase can't just expect to charge 7+x the fees when another large institution like Vanguard does not? What am I missing? It can't purely be an information asymmetry can it? I mean I get it if I'm looking at actively managed stock funds or emerging market corporate bonds, but this is just a collection of US treasuries! Can't imagine there being any "alpha". So I guess my question is, is there any reason to not go with Vanguard 100% of the way?
Drop the J.P. Morgan adviser. You should only ever use a fee-only (not fee-based) financial planner that charges you by the hour, does not charge % of assets, and does not get commissions. You can probably do what you need to do without a financial planner though. If you decide to go 100% bonds, the main issue I think will be tax management. Bonds are usually not tax efficient compared to stocks (interest is taxed as ordinary income while qualified dividends and capital gains are taxed at lower rates.) But in your case, you don't have much choice. Look into how you can best invest bonds in taxable account. Once you figure that out, just open a Vanguard account and buy the appropriate bond index funds.
accrue wrote:
Sat Jul 07, 2018 6:02 pm
3. MF or ETF? Looking through various resources, it seems like VG's MF is unique in that it has many of ETF's upsides too (i.e. same low price), and that one could always convert to ETF if they want to for some reason. So my plan is to go all MF, but wanted to get a validation. I'm not going to do any sophisticated order types or want exposure to niche markets.
I prefer mutual funds. I used to buy Vanguard ETFs in a TD Ameritrade brokerage account. I moved to Vanguard and now just invest in their mutual funds directly. I greatly prefer the ease and convenience of not having to buy and sell ETFs on the stock market.
accrue wrote:
Sat Jul 07, 2018 6:02 pm
7. This is asking a very unrepresentative sample, but is the consensus on this board that almost everyone (outside of those rich enough to have family offices) should try to manage their investments themselves (by manage, I don't mean picking individual stocks, but learning enough to make the decision to buy particular ETFs for instance and deciding on an allocation)? I'm not an investment professional by trade; if there were a different web forum for my vocation and a lot of people tried to learn to do it themselves, I'd probably say it's "inefficient", and that they're better off sharpening their day jobs' skills and use the extra pay to outsource work to "professionals" like me for my experience. In my own network, when I meet more successful and wealthier individuals, it seems like many still try to do a lot of personal investing, such as angel investments or even slightly scammy sounding foreign investment schemes. I suppose to distill it down, is the consensus here that it's indisputably worth the time for me to read up on a bunch of investment books and get smart on this? I imagine few would make the same recommendations for say medicine or law...
You would think that's how it should work. But unfortunately, the financial advisory business is awash with bad actors, probably because consumers cannot recognize bad advice and hidden fees. The problem exists in other fields too. Some doctors will order unnecessary tests, and some mechanics will fleece you. But it just seems a lot worse in finance. Plus it's easy enough to learn the basics of finance and do it yourself. You can't do your own surgery. But you sure can learn the basics of finance. Finding that rare good adviser is a lot harder than figuring out what you need to do and doing it.
accrue wrote:
Sat Jul 07, 2018 6:02 pm
8. Does anyone worry about security of having 90% of net worth in Vanguard? Having money all in Chase feels a bit safer for some reason (even if FDIC only goes up to $250k). I have 2FA turned on, but still feel like Vanguard is this ethereal entity without local offices. Does anyone intentionally spread money to say Fidelity and Schwab solely for the sake of "institutional diversification"?
I worry a bit, but that has not stopped me from keeping everything at Vanguard. I value the simplicity of having all my accounts in one place over institutional diversification. You can find some threads here on this issue.

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Sandtrap
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Sandtrap » Sun Jul 08, 2018 2:42 pm

sambb wrote:
Sat Jul 07, 2018 9:27 pm
place it all in tax managed balanced and then learn here for the next 3 years before doing anything else. Do not make any moves, while you learn. You will be happy you did this.
+1
Simplicity.
j

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welderwannabe
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by welderwannabe » Sun Jul 08, 2018 4:56 pm

radiowave wrote:
Sat Jul 07, 2018 8:41 pm
Re asset allocation, agree with above 30/70 is very conservative for your age, perhaps 60/40 (stock/bonds) ratio would give you reasonable returns and have enough bonds to stabilize your portfolio in the next few decades.
+1. 60/40 or 50/50.

I am not sure 30/70 is as safe as you think it is...
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by welderwannabe » Sun Jul 08, 2018 4:59 pm

accrue wrote:
Sat Jul 07, 2018 6:02 pm

4. A friend told me that if I paid more than 10% of last year's taxes, I could skip quarterly estimated taxes on the windfall and instead make a payment at the end of the year, thus allowing me to invest the tax liability over the next ~6 months to realize some float gains. If anyone has experience on this, please let me know if there are any gotchas. I imagine I wouldn't want any risk here--probably some super short term bonds or maybe even CDs...? I think I see some 2% rate 6-mo CD available on Vanguard, though technically I only have 5 months left till EOY. There is a 1 and 3 month option, so would I buy the 3 month, and then reinvest it into 1 month twice? Seems like a lot of "work", so maybe there is a simpler instrument that can realize the max gains assuming I must pay the government $350k in cash by Dec 31 regardless of market conditions or interest rates? Or maybe this is an example of something that I should just keep at Chase--assuming they're not charging 7+x the fees like they are with the bond index fund!
Thats correct and it is called 'Safe Harbor'. I did the same thing this year. Go with a 6 month Treasury Bill. The other benefit is Treasury Bill Interest is taxable when the bond matures, pushing that income until the next tax year when maybe your rate will be lower.

You shouldn't have to pay until April 15th next year...not sure where the Dec31 date came from. When you are in safe harbor you won't get hit with penalties or interest provided you pay by your normal tax due date (Again, April 15th).
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Jablean » Sun Jul 08, 2018 6:40 pm

I'm reading that if the market drops 20% you get more money? But if it only drops 15% you don't get anything?

And this is the reason you are so conservative in your stock/bond ratio because you are hoping that it drops 20% and you don't want to be against yourself.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by accrue » Mon Jul 09, 2018 10:20 am

I can already tell I'll be sucked into this forum :) Went through similar phases with a few other topic-specific forums though have grown out of them over time, but I suspect one never grows out of investing ;)

Thanks to everyone's answers--hope to pay it back one day as I become more knowledgeable and could share my experience with the forum.

@Lafder Appreciate the detailed reply. I took some notes on the 3 fund portfolio and am planning to go this route, though my allocation will probably be skewed heavily bonds for the reasons I've outlined. But the simplicity is very nice--I could always learn to get fancy when I learn more!

Regarding DCA, I do like more conservative positions for sure, though because all the asset is in a savings account right now, I feel a bit bad about leaving most of it sitting around for say the next 6 months as I contribute a little at a time. Although doing so precisely protects me from any imminent downturn. Will need to think a bit more…

Agreed on simplicity of MF being a major plus for me right now.

Regarding time investment, I have definitely spent more than 20 hours already reading through everything :) Probably at about 40 right now, with more to come. But I do believe this time has good ROI!

@mortfree Will do. Seems like a bogleheads consensus--wonder how many people here are actually advisors themselves and feel bad every time they see the value and motivation of their services questions :P

@happyisland It's AUM--35 bps for bond funds; forgot what he said for this equities fund but believe it's higher.

@smectym Interesting. Will call and learn more about Flagship. Good idea about parking money in T Bills or Treasury Money Market--will ask about that first when I speak to VG.

@radiowave Thanks for the input.

@letsgobobby Hmm, will need to research more on this. I imagine some of the VG perks, such as Flagship status, would require the assets be parked directly in VG and not through Chase? Anyways, I'm learning so many neat tips & tricks!

@Sandtrap Thanks--all good advice!

@averagedude Yeah I'm praying for good health because I am very lucky! Having the security of being able to safely do 3% withdrawal will be really nice, though I don't think I would want to retire.

@sambb Thanks. Will put vast majority in Bogleheads-approved funds until I learn more.

@nasrullah Good read. I'm especially impressed by how short that wiki article is--simplicity takes time! Will check out PAS. Wonder how the access to advisor through Flagship is different from paying the 30 bps through PAS? Will find out more on the call…

@Ben Matthew Thanks for your detailed feedback! I think puts/calls gets too much into the sophisticated territory for me, especially given the timing nuance you outlined. Agree with simply going heavier on bond, and made a note to ask about tax efficiency.

@welderwannabe Hmm, a couple of people I spoke to said Dec 31. Of course I'd prefer to wait till Apr 15! Will look into this a bit more. Thanks for sharing.

@Jablean It's not really a hard set rule, but that if the market does well, I get paid more, and if it corrects, I probably don't get much if anything, so I'm trying to hedge against going long in all my positions (investments vs. second tranche/job equity)

Thanks again everyone! You're all awesome!

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by ssquared87 » Mon Jul 09, 2018 10:41 am

Not mentioned above - make sure you have proper insurance coverage to protect your assets. A $1M umbrella policy is extremely cheap (think i'm paying $250 a year). $2M coverage probably isn't much more.

Another consideration. If you are not maxing out your 401k, you may want to do that also. You can contribute 18.5k/year and deduct that from your taxes, but you can contribute an additional $37k for a total of $55k....anything over the 18.5k would be considered after tax so you dont get to deduct it on your taxes now, but in the future lets say you leave your company or your company allows in-service distributions, you can move that after tax money into a roth, then you never would pay capital gains on the returns.

The other benefit of shifting money into the 401k is that it is protected from creditors in case of bankruptcy or lawsuits etc.

Look up Mega Backdoor Roth for more details

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Lafder » Wed Jul 11, 2018 8:01 am

Regarding this "Wonder how the access to advisor through Flagship is different from paying the 30 bps through PAS"

A flagship advisor or an advisor you call at VG can help explain things. But they are more careful not to give you a financial plan/suggestions for your investments. There are specific financial advisors that you get more free access to as a Flagship client. They used to offer me 1 free financial advisor session a year which is a deeper over view of your goals vs holdings to see if they match and how to get them there if they don't. Flagship advisors can reach out to you from time to time, but they don;t keep track of your AA and if it matches what you said you wanted. (Vanguard has computerized tools that remind you if you are on track for the goals you set by the way, every time you log onto their website)

PAS is entirely different. PAS you pay a set 0.3% fee per year and they help you set up a plan and will proactively contact you if your accounts deviate from the plan and tell you what changes to make to get back on your plan. Yes you can change your AA such as if you stick with 30/70, down the road they can change to whatever you want. I imagine whoever you speak with will nudge you to increase stocks :)

The issue I have with paying PAS is that the deciding what you want and getting there is the hard part, and you can get help on that here or pay a one time financial advisor. Once you decide what you want, checking and rarely rebalancing every 6-12 months is easy and not worth 0.3% a year to me. You can simply check your holdings yourself. There are portfolio analysis tools that calculate your AA at most financial companies so you barely need to do calculations yourself :) You can set dividends not to reinvest and then invest quarterly or semiannually in whatever asset is low to do ongoing rebalancing without having to sell anything.

What is your perceived benefit of using Chase? I think you are missing some of the fees they charge which are unnecessary. Why not just invest directly at a company like Vanguard or Fidelity? Both are known for less fees that Chase. Read the fine print on your costs with Chase. Management fees as well as ER (expense ratio fees) that you may never see come out of your accounts are taken before they report your balances.

Money market or CDs will have more returns than a regular bank account while you sort out what to do. And may be FDIC insured. Speaking of which, do you have it in one account or 4? By having different accounts such as each can have a POD or TOD listed differently, you can extend your FDIC insurance limits at one bank if that is a concern. Of course if a big bank like Chase fails and needs FDIC insurance to kick in, there will be bigger issues in the financial world than FDIC insurance on your accounts...............

lafder

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Tamarind » Wed Jul 11, 2018 8:36 am

OP, I think you're making this too complicated. You don't need an AUM advisor, or a complex hedging strategy.

Pick an asset allocation that makes you feel safe. For you, (given that if things go well you'll have more money than you need and if things don't you have many years to earn, learn, and improve), I suggest 50/50 stocks/bonds. Don't forget international. Then:

A) Plop your windfall in a Vanguard brokerage account, buy according to your allocation, and forget about it. Make sure you max out your tax-deferred accounts going forward.

B) If that seems too hard, sign up for Vanguard PAS and let them do it for you. You'll get the same outcome but you won't have to push the button yourself. You can cancel the service later when you feel more comfortable without changing anything else.

C) If even 50% stocks seems too risky to you, then spread the money out into 5 savings accounts (stay under FDIC limit). You can leave it in savings or buy some 2 or 3 year CDs. Come back when the future payout is no longer future and reevaluate.

The purpose of all of these possible paths is simple and twofold:
1) get the money invested and off your mind so you can focus on doing your job well and contributing to the odds of that future payout
2) stop you from doing something expensively stupid

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Luke Duke » Wed Jul 11, 2018 9:50 am

welderwannabe wrote:
Sun Jul 08, 2018 4:56 pm
radiowave wrote:
Sat Jul 07, 2018 8:41 pm
Re asset allocation, agree with above 30/70 is very conservative for your age, perhaps 60/40 (stock/bonds) ratio would give you reasonable returns and have enough bonds to stabilize your portfolio in the next few decades.
+1. 60/40 or 50/50.

I am not sure 30/70 is as safe as you think it is...
I'd say that it's pretty safe over a 3 year period. I am assuming that he will reevaluate his plan at that point after he knows how much additional money he may (or may not) have received from his inheritance and employer.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by MotoTrojan » Wed Jul 11, 2018 11:00 am

Another vote here to do something like tax-managed balanced fund (50/50 I believe) and keep learning. 30/70 is really low. Better than tax-managed would be to setup your own 2-3 fund portfolio though, so that you can best benefit from tax-loss harvesting should the market go south. I also would lump-sum but 6 months won't kill you and maybe you'll get lucky.

Do not use an adviser.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by WhiteMaxima » Wed Jul 11, 2018 11:09 am

Three shares of BRKA. You can't timing the market. Looking back, anytime is good time to buy stock.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by ofcmetz » Wed Jul 11, 2018 11:52 am

Welcome to the forum. The two books you bought will give you a nice base of knowledge to get started. Like you said, this is a forum that you don't really grow out of. I do find myself always coming back to this one unlike others I've participated in.

If one is new to investing it is better to error on the more conservative side when it comes to determining your asset allocation (think how beginning investors like me who were 100% in stock funds felt in 2008). As you become more experienced and used to the inevitable market drops then you can decide if you want to be more aggressive. I think your 30% stocks / 70% fixed income idea sounds very reasonable for the reasons you listed. If you can't stomach equity risks until you learn more and become more experienced, then don't. If the next few years work out then you've won the game anyway right?
Never underestimate the power of the force of low cost index funds.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by HereToLearn » Wed Jul 11, 2018 12:29 pm

I have no investment advice, but do want to agree with those telling you that you do not need to park a lot of money at Chase. I have banked with Chase & Citi, and neither one offered a service you could not find elsewhere for better terms.

I still use a local branch of a national bank for all of my banking, but I only keep enough there to pay the monthly bills. I transfer money over from Ally as needed.

I still like the ability to have a document notarized or pick up rolls of quarters when my college son needs them for laundry. I now pay for the safe deposit box, but the annual fee is far less than the interest lost by keeping enough at the bank to 'earn' a free safe deposit box.

accrue
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by accrue » Fri Jul 13, 2018 5:45 pm

@ssquared87: Very interesting suggestions. Did not know that 401k is shielded from bankruptcy/lawsuits. Great call on the umbrella insurance too. And yes, will look into the mega backdoor. Wonder who named it :P

@Lafder: Thanks. Spoke to Vanguard a couple of times and they said more or less what you told me. The CFP told me he'd send me a VG whitepaper that shows how the 30bps pays for itself in the form of greater returns. Will read through and see if it's persuasive. I think maybe things like dollar cost averaging and tax loss harvesting management might be time consuming enough where this service might possibly pay for itself…?

With Chase I was referring less to waived fees on brokerage, but fees with banking, like free wires, third party ATM fees, free cashier's checks, etc. But yeah it's not that important in the grand scheme of things.

I think after moving most assets to Vanguard I'll for sure fall under the $250k FDIC.

@Tamarind: Good approach. I think I'm likely going to end up in between the complete DIY mantra here at the forum and the ultra-simple approach you outlined :)

@Luke Duke: Yessir. I'm embarrassed to say that I've compulsively logged onto VG multiple times a day lately out of curiosity on how the portfolio is doing. I expect that'll fall back down to maybe a couple of times a month in a month. My point being, I doubt I'll not thinking about the portfolio for long stretches time and so will be able to reallocate when life changes.

@MotoTrojan: I read up on TLH and see the benefit in at least locking in $3k in losses every year since I exchange top marginal tax rate today for long term capital gains years down the road.

@WhiteMaxima: Interesting idea. Haven't thought about that. It's kind of a less diversified fund, except with no fund fees heh?

@ofcmetz: Thanks!

@HereToLearn: Yeah it probably makes sense to save ~25 bps than to save a handful of dollars here or there on waived banking fees!

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by jharkin » Sat Jul 14, 2018 6:24 am

You have 3-4mm in equity grants coming, and plan to work another 30 years regardless??

You can basically do anything with it. Just go 60/40 and park it all in the 3 fund: vanguard total market, total international, total bond. All admiral shares and your total expenses will be 0.05 :) rather than the 1% or more advisors will get you into.

Rebalance that a couple times a year and otherwise forget about it.

Then max every tax advantaged vehicle you can... 401k, backdoor Roth, HSA. After tax 401 if allowed.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by TomatoTomahto » Sat Jul 14, 2018 6:46 am

OP, re JPM private client banking: we had access to this service, at very reduced rates. We still did not use it. They are masters at hiding fees and expenses.

We are very lucky tp be financially independent. Still, we find that a very simple portfolio works for us. Rather than spending time worrying about asset allocation percentages, I suggest that you look into the liability matching portfolio. What we have implemented is a substantial fixed income allocation, in our case $3 million, and everything else goes into equities (2 of the 3 funds, plus some PRIMECAP). No need to rebalance, no need to worry about it before we enter the decumulation phase.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by car733 » Sat Jul 14, 2018 9:00 am

What I would do if I were you:

- Open a Vanguard account and create a 3-funds portfolio
- Instead of hedging, I would invest with dollar cost average
- Leave enough money in cash for a down payment
- Start looking for a place to buy

Enjoy!

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by msk » Sat Jul 14, 2018 9:26 am

Slight inconsistency: looking forward to equity grants in the next couple of years but terrified of a stock market collapse. A major stock market collapse ought to threaten both the equity grant and your job? OK, that sounds excessively pessimistic? But only with such extreme pessimism should one go 80% bonds...

IMHO there is saving, and saving-and-investing. The latter is what youngsters in their 30s should do, aggressively investing in stocks, RE, whatever. The former, simply saving, never builds wealth, though in the short term it may give a sense of security; bonds. In the long term, decades later, with inflation, you may live to rue the waste in investment time...

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Dottie57 » Sat Jul 14, 2018 9:42 am

The 35 basis points is the expense ratio for the fund. The AUM is in addition to the expense ratio. Confirm what the advisors fee is for helping you manage your money. Carefully read any document you are asked to sign.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Quaestner » Sat Jul 14, 2018 12:42 pm

You're young and still have lots of human capital in front of you. Still, I hear you saying your happy to have that million, excited to maybe hit it big later, but aware there is some risk that you won't. I'm a pretty risk adverse school teacher, and don't know much about options as a hedging strategy (they might be just what you need). Although I'm aware that investing a lump sum now, usually beats averaging into the market, given that a ">20%" correction could impact your future severely, I'd be very conservative with that million. Why not put it in safe treasuries and gradually invest 25-50K/month into your desired asset allocation and see how things play out over the next couple years? You'll have a bit of regret if the market goes up and your million doesn't. (But then there's that huge reward coming!) However, you might have even more regret if your equity doesn't vest, you do get fired, and the (currently expensive) market dives down along with your million. I don't think standard investing advice applies in your unique situation. Be careful.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by VaR » Sat Jul 14, 2018 8:31 pm

Other responders have done a decent job of responding to most of your investment questions, but I'll respond to the few that haven't gotten great responses yet.

1. Regarding institutional diversity, remember that there's a difference between having your money deposited at a bank (even Chase), where you're actually giving your money to the bank and are subject to credit risk on deposits exceeding the FDIC $250,000 limit unless you use some easy tricks. This is different from when you deposit your money in a brokerage account or mutual fund account where your money is invested on your behalf, but the funds and the investments remain yours.

2. I know some have advised you against getting professional advice, but I advise you to consult with at least one fee-only financial advisor. It's not strictly necessary if you read the great advice you get here, but they'd likely make sure to get all the important information from you and might hit some points that we would miss. Also you will likely get good reinforcement to the advice you will get here.

3. Hedging the single-security risk of your equity compensation using a market-proxy is probably a bad idea. That said, it's not incorrect to consider your future equity compensation as having equity-like risk and to compensate for it by adjusting your asset allocation to reduce equity risk. I recently read a book that discussed this but I can't remember which one it is. If I find the reference I will post it here. At any rate, note that even under your analysis, your company shares the downside risk of the equity market but is not guaranteed to share in the upside risk since it may not do well even if other companies do.

4. For your cash there are a lot of great options that others here are better at describing (involving CDs or brokered CDs), but to me there's nothing simpler than parking my cash in a Vanguard money market account - the Treasury one, the Federal one, the Prime one, and the Municipal one are all fine choices.

I don't think Vanguard PAS is necessary, but I could see value in your interacting with a PAS advisor. You could start off by just giving them the minimum $50,000 and seeing how it goes.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by KyleAAA » Sat Jul 14, 2018 8:53 pm

I think your idea to take less equity risk in light of your situation is reasonable. Your idea to buy puts on the market as a hedge is not.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by MossySF » Sat Jul 14, 2018 9:21 pm

Put in Prime MM now. Dollar cost average every quarter over a 2 year period. There was a previous thread where I analyze 0-10 year DCAs using stock history since 1871 ... 2 years seemed to be the sweet spot for balancing out downside protection versus losing out on future gains. If you still feel queasy, I'd be ok to going out to 3 years but nothing beyond that.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by Prudence » Sat Jul 14, 2018 9:35 pm

You are young and it appears that you don't have any big expenditures in your budget over the next several years. So, I would subtract any needed cash reserves and invest the rest in one, two or three index funds. I like ETFs but I think a mutual fund is fine (total world or total US). A 90 to 100% allocation to stocks should give you the best return, based on history, if held ten years plus. Sure, there will be periods when the market drops 50% but this is not relevant if the holding period is sufficiently long. You can reduce your exposure to equities as you approach retirement or have a specific need for cash (e.g. buy a house).

You should avoid all financial advisors and any complexities such as market timing and hedging. (Full disclosure, my funds are mostly in CDs and a guaranteed rate fund because I am retired and don't want exposure to this equity market at this time). If I was your age, my investment portfolio would be 90 to 100% equity index funds.

accrue
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by accrue » Fri Jul 20, 2018 11:09 pm

@jharkin: Sounds like a plan!

@TomatoTomahto: OK. I was thinking about keeping the min $250k for private client but agree the cost for doing so is just too high in asset management fees.
Mm. I think it might be a bit early for me to think about liability matching portfolio. Let me know if I'm thinking about this incorrectly, but my objective is not to secure a consistent income to retire early, but just to let the portfolio grow. I don't really think I face much liquidity risks in the near term.

@car733: Other than #4 I agree. Prefer renting for the time being due to building amenities.

@msk: Hi, I don't completely follow what you mean by slight inconsistency. I definitely agree just saving and not investing is incorrect though.

@Dottie57: Gee, I think I'll stick with Vanguard Admiral MFs so I don't have to peruse documents :)

@Quaestner: That's how I'm thinking about it too. Aiming to be conservative for sure. I might DCA in the sense that I'll sell off bonds to buy equities if the latter dips meaningfully.

@VaR: Re: #2, where do you suggest I find fee-only advisors? AFAICT Vanguard advisors charge 30 bps in AUM, so aren't fee-only, right?
Re #3, true, and there are risks other than company performance, such as my personal performance :) I would definitely rebalance the investment portfolio if either risk manifests.
Re #4, I did set aside $50k in VG's muni money market and it literally has not moved a single cent for the past 10 days. Does it only reprice once a month or something? I see it's 1 on the 1-5 risk/reward scale, but still did not expect it to have seemingly zero volatility!

@KyleAAA: Agreed thanks.

@MossySF: Good idea. I'll put at least parts into Prime MM. 2.05% SEC yield is higher than the 1.8% Marcus offers on its savings so seems like a no brainer compared to leaving at Chase savings.

@Prudence: Thanks for sharing.

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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by tibbitts » Fri Jul 20, 2018 11:40 pm

Does anyone worry about security of having 90% of net worth in Vanguard? Having money all in Chase feels a bit safer for some reason
Well, as far as I know Chase is the custodian for Vanguard funds, and therefore is actually responsible for the funds' assets.

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BL
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by BL » Sat Jul 21, 2018 1:26 am

Here is a great 16-page pdf for new investors that you will definitely have time to read, maybe more than once! (Dr Bernstein's writing is also on the recommended book list in the Wiki):
https://www.etf.com/docs/IfYouCan.pdf

I would use the Boglehead book as a reference and look at a topic at a time as it presents itself. Of course, it is great to read all through it for an overview of many topics. I also like Jane Bryant Quinn's books on personal finance to keep as a handy reference on various topics; she is a bit of a Boglehead as well. The Wiki here is the most reliable information on this site; the rest of us are really just a bunch of anonymous contributors that haven't been vetted. I like to check how long they have been a member and how many times they have written, but on smaller screens that doesn't show up unless you click on their name. After a while you get familiar with the names that show up a lot and give pretty good advice. There are a lot of smart folks here that like to give back as they have gained much from this site, so there is a lot of good personalized advice.

There are a lot of advisers that are out to benefit themselves so buyer beware! I would trust Vanguard's advisors but otherwise would worry about that nice guy or gal who wants to advise you and manage your money. It is your risk but they make money whether you gain or lose. You need to know enough about the basics of investing to judge them, and then they may not be worth the money they charge, either visible or invisible charges.

If you are considered an accredited investor, or some such term, the SEC no longer worries about the products they sell you so it can be a risky ride. Buyer beware!

VaR
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Re: Received $1m windfall with additional upside; looking for feedback on plan to hedge against market correction

Post by VaR » Sat Jul 21, 2018 1:46 am

accrue wrote:
Fri Jul 20, 2018 11:09 pm
@VaR: Re: #2, where do you suggest I find fee-only advisors? AFAICT Vanguard advisors charge 30 bps in AUM, so aren't fee-only, right?
As per this thread, the top recommendations seem to be finding one through http://www.napfa.org/ or https://www.garrettplanningnetwork.com//
Re #4, I did set aside $50k in VG's muni money market and it literally has not moved a single cent for the past 10 days. Does it only reprice once a month or something? I see it's 1 on the 1-5 risk/reward scale, but still did not expect it to have seemingly zero volatility!
The muni money market fund is a money market fund so it will likely stay at $1.

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