What to do with too much cash?

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Donut
Posts: 9
Joined: Sat Aug 04, 2018 1:59 am

What to do with too much cash?

Post by Donut » Sat Aug 04, 2018 3:00 am

Hi all, I have a bit of a unique situation. I do understand it's not the absolute worst situation to be in, but I'm still at a huge loss on what I should do...

My husband and I are in our early 30s and have no kids. We have always been very thrifty, but unfortunately not investment savvy. We max out our Roth IRAs and 401K each year, and the only debt we have is a mortgage at a 2.875% rate that we only got 2 years ago and paid a lot of points on (so we have no intention of paying it off within the next 8 years - it's a 10/1 ARM - but probably will just pay off the balance when the rate inevitably goes up in 2026). After all retirement contributions, taxes, and day-to-day expenses, our bank account goes up around $4K a month.

Herein lies the problem. For years, this money was just being direct deposited into a no-interest checking account. We spent from it when we needed to, but otherwise we just let it sit there. I know this is not what should have happened, but what's done is done. So about 2 years ago after we used a chunk of it to pay the down payment on our new house, I decided to finally try to figure out what to do with the extra cash left over.

Fast forward 2 years, and I've been trying to invest some of it, but it's just overwhelming, and I really don't know what to do especially when I'm not sure if we're just at the peak of a bull market right now. If all the markets were plummeting right now, it'd be so much easier! In the past, a lot of our retirement funds went into bonds. I don't feel a need to move those funds out of the bonds they're already in, but at this point I don't want anything to go into additional bonds since we are clearly way too bond-overweight, especially at our age. Also, one of our retirement accounts is entirely in VWILX (6 figures worth). So I figure we do have some international exposure already as well.

Anyway, at last count, I realized we still have about $360K right now sitting in what I would consider to be pure cash. In the past 2 years, we've at least moved most of it out of the no-interest checking account, but most of it is currently sitting in stuff like 1.75% savings accounts and various money market accounts. I did buy some sector ETFs like VDE, VNQ, VDC, and VOX at various points over the past couple years when each dipped a bit, but there's still so much cash remaining. I know, I know, I shouldn't try to time the market, and I should just be buying VTI or something. But VTI seemed so expensive, and I always got nervous and thought it just wasn't the right time. :(

We currently have taxable brokerage accounts at Vanguard, Fidelity, and Merrill Edge. We are Platinum Honors status with Merrill, so ETF/equity trades are all commission-free (well, up to 100 a month, but I doubt we should be trading that actively anyway). I am fully aware we should have just been pumping stuff into VTI once in a while, but dealing with such large numbers is scary when I keep thinking this bull market can't keep going. If it were just the $4K extra we get a month, I might've been able to talk myself into doing that, but at this point, I'd have to put in over $30K a month just to be fully invested within a year.

Anyway, I thought Fidelity's recent zero-fee funds were interesting. I guess my question is just...if you found yourself in my situation and happened to wake up one day in your 30s to realize you have far too much cash on hand (and your only existing investments are bonds and VWILX), what would you do? Would you stick about $30K/month into something like FZROX (maybe a little FZILX and even some VSS) until it was all used up? Try to do even more than that per month? Less per month? Or something totally different?

The only short-term liquidity need we can anticipate is about $400K to pay off our mortgage balance in 2026. Of course, considering we basically already have that in cash, I suppose I could just go ahead and only invest our incoming cash in FZROX each month and just let the existing $360K sit around until we need it...but that seems silly since meanwhile we would still be paying our 2.875% mortgage rate...

Thanks so much for any advice!

student
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Re: What to do with too much cash?

Post by student » Sat Aug 04, 2018 6:18 am

First, you should determine your asset allocation. You may want to use the following as a guideline. Suppose you want to retire in 2040. Then go to major fund companies (Vanguard, Fidelity, Schwab, TIAA, T. Rowe Price, American Century etc) and look at the asset allocation in their 2040 target fund. You will notice that the range is relatively large. American Century is much more conservative than Fidelity.

As for the cash, I would probably put $60,000 as emergency fund. For the other $300,000, you have to decide whether you want this to go to pay off your mortgage in 8 years or use it for long time investment. If you are unsure, you may want to consider the following to give yourself some flexibility.

1) For $150,000, divide it into 4 parts and buy 1 year CD at a place like marcus.com paying 2.45%, every quarter. This gives you a short CD ladder to capture potential (expected?) interest rate hike.

2) For $150,000, invest it by spreading over 1-2 years monthly based on the AA determined above. This is not optimal based on historical data and it is purely for psychological reason.

3) Invest new money based on the AA determined above (with yearly update).

dogagility
Posts: 184
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Re: What to do with too much cash?

Post by dogagility » Sat Aug 04, 2018 6:37 am

Donut wrote:
Sat Aug 04, 2018 3:00 am
I guess my question is just...if you found yourself in my situation and happened to wake up one day in your 30s to realize you have far too much cash on hand (and your only existing investments are bonds and VWILX), what would you do?
First, congratulations on being awesome savers!

My overarching advice would be to psychologically internalize two concepts: 1) nobody can predict the immediate future of the markets, and 2) the stock market's history is one of an increase in value over long periods of time. Therefore, don't think you can time the market and don't stress about putting significant amounts of your retirement funds into stock index funds. Once internalized, I think you will find investing stress-free.

As for the actual mechanics of investing... yes, you should find your comfortable asset allocation that doesn't give you a reason to constantly be checking balances or worrying about how the the daily news noise might be affecting your investments. Some people are 100% allocated to equity, while others find some amount of bonds helps them "sleep at night" should another 2007-9 event occur. Again, psychology is a big player here as well as your investing time horizon.

Once you find your asset allocation sweet spot, Bogleheads would recommend viewing your entire retirement portfolio (taxable and non-taxable) as one entity, and invest in a small number of low cost index funds that meets your asset allocation. Preferably, bonds should be in non-taxable and stocks in taxable.

Then, direct allocations each month according to your plan and forget about them.

There are other nuances to investing that you can read in the great wikis on this site.
Taking "risk" since 1995.

Blueraidermike
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Joined: Fri Jun 08, 2018 11:31 am

Re: What to do with too much cash?

Post by Blueraidermike » Sat Aug 04, 2018 6:59 am

I am assuming since you have been maxing out your IRA/401K accounts for a number of years and only being early 30s are in a great position for retirement. I would take 40-60K set up an emergency fund and take the rest and dump in on your home. Then take the extra 4K per month and finish off your mortgage ASAP. If your plan it to pay it off in 8 years why wait?

Look, I know the math says you can make more investing it, but the truth is you guys are maxing out your other savings, you haven't been earning anything on this for years and you expressed to pay off your mortgage in 8 years. Move your timeline up...get it done. Then take the 4K plus the amount you were paying on your mortgage and invest it.

Cop51
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Location: NJ

Re: What to do with too much cash?

Post by Cop51 » Sat Aug 04, 2018 7:39 am

Maxing out 11k Roth and 37k for your 401k for you and your spouse is an extreme accomplishment. I would also consider taking advantage of HSA if available. From their with the cash it depends on your objective and goals. Paying down debt on the home is an option even if it’s good debt. Just do what you’re comfortable with. Do find youre desired AA and use the cash to help you get to it.

Donut
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Re: What to do with too much cash?

Post by Donut » Sat Aug 04, 2018 9:16 am

student wrote:
Sat Aug 04, 2018 6:18 am
2) For $150,000, invest it by spreading over 1-2 years monthly based on the AA determined above. This is not optimal based on historical data and it is purely for psychological reason.
Sorry for this naive question, but what is actually optimal based on historical data? I agree though, so much of this for me is entirely psychological! Thank you for the CD ladder suggestion; I hadn't thought of something like that, and it would at least beat out these savings/money market accounts.
dogagility wrote:
Sat Aug 04, 2018 6:37 am
First, congratulations on being awesome savers!
My overarching advice would be to psychologically internalize two concepts
Thank you! And I'm actually a little astounded that it's so clear it's the psychology that's really in my way, lol. I think part of our issue though in figuring out what sort of AA we want is that we just don't have any tangible goals. My husband has no particular goal of when to retire. I'm sure he doesn't want to be working into his late 60s and 70s, but for now, he's happy doing what he's doing. To be completely honest, I would guess that if he really wanted to retire right this moment, we could make it work out, especially if we moved somewhere much cheaper (currently in the Bay Area, CA). But he feels no particular need to retire yet. As it is, he's in a job where if he wants to take a random day off just because he wants to sleep in, he can usually already do that. So it's not particularly high-stress for him.

I myself am actually not employed...I suppose you could say I'm already retired. I take care of the home (although I'm actually terrible at that), but I have a side hobby (job?) of...well, saving, I guess. But that's the problem: I've always been great at saving, but until recently, I never paid attention to what I should be doing with what we saved. I actually spend my time looking for coupons, sales, and other good deals to cheaply take care of our everyday needs like food and clothing; that's how we've kept our expenses so low for years and saved so much (for example, we haven't spent real money on toilet paper in over a decade - you'd be amazed how much can be gotten for free with coupons given enough time/effort devoted to it ;)). I resell some of the good deals I find too, so I add a small stream of income that way as well, but I'm pretty sure my savings still tend to outweigh my earnings. It's just what I enjoy doing, and I doubt it's something I'd stop doing, no matter how much we've managed to save up.

Anyway, that's why the task of figuring out our investments has fallen on me. My husband goes to a job he mostly enjoys, then comes home to spend most of his free time playing video games and board games, which is perfectly fine because that's just what he enjoys doing. We both dislike travel and are much happier sitting at home in front of our computers. We don't even know yet if we want any kids (though we're getting up there in age, so maybe we should figure that out soon).

So anyway, I think this probably sounds like I just need some life advice outside the scope of a financial forum. :P But maybe this is why this is so difficult for me. I don't know what I want investment-wise because we don't know what we want life-wise. I just want our money to not be sitting around uselessly, or to look back several decades from now and think we should've done things way differently (which is how I already feel now regarding what we should've been doing in our 20s, when we simply let all our money pile up in a zero-interest checking account).

So I suppose let's pretend for a moment that we're less crazy, and perhaps my husband wants to retire in 2040. Vanguard's 2040 target fund seems extremely straightforward, with more than half in domestic equities, a third in international equities, and the rest in bonds. Right now we already have a ton of bonds, some international equities, and the remainder in cash...which I guess is why I thought it may be best to just start pumping the cash into domestic equities, which is what we're sorely lacking. Although it wouldn't get us to an ideal AA yet, it'd be getting us closer than where we currently are. Is that a reasonable way to go about this? I just can't figure out how quickly to stick this cash into the domestic equities and when to do how much. As you all seem to have noticed, I think this is a purely psychological barrier for me though.
Blueraidermike wrote:
Sat Aug 04, 2018 6:59 am
If your plan it to pay it off in 8 years why wait?
Look, I know the math says you can make more investing it
There's actually a reason for this, but it is probably psychological as well, and you hit part of it on the nose too. When we were deciding what mortgage terms to go with, we did the math and decided it made sense to pay a lot of points (i.e., prepaid interest) to get a much lower rate for 10 years. So we need to keep this mortgage for at least 5 years or so to even break even on the fact that we paid so much of the interest already upfront. And as you noted, our math told us we should be able to do something reasonable with the money in the meantime that would be better than 2.875%. I guess I'll need to run the math and see what it'd look like if we paid off the mortgage a little faster...even breaking even on the prepaid interest wouldn't be a horrible thing, I suppose.
Cop51 wrote:
Sat Aug 04, 2018 7:39 am
Maxing out 11k Roth and 37k for your 401k for you and your spouse is an extreme accomplishment. I would also consider taking advantage of HSA if available. From their with the cash it depends on your objective and goals. Paying down debt on the home is an option even if it’s good debt. Just do what you’re comfortable with. Do find youre desired AA and use the cash to help you get to it.
Thanks, though I have to confess that it's only 18K on the 401K since only my husband is employed. I don't think we have an HSA available either, though to be honest, so far in our lives, our medical expenses have been extremely low (knock on wood), and I'd be hesitant to put too much into an account that's usable only on medical. Thanks for the additional vote on the "good debt" too...I think I've been so adamant about not paying that off until our 10 years of good rates are up that I'm losing sight of any sort of big picture here. Hmm.

PFInterest
Posts: 2518
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Re: What to do with too much cash?

Post by PFInterest » Sat Aug 04, 2018 9:32 am

Donut wrote:
Sat Aug 04, 2018 3:00 am
My husband and I are in our early 30s and have no kids.
We max out our Roth IRAs and 401K each year, and the only debt we have is a mortgage at a 2.875% - it's a 10/1 ARM - 2026).
$4K a month. [ extra ]
Also, one of our retirement accounts is entirely in VWILX (6 figures worth).

$360K right now sitting in what I would consider to be pure cash.
I know, I know, I shouldn't try to time the market, and I should just be buying VTI or something. But VTI seemed so expensive, and I always got nervous and thought it just wasn't the right time. :(

We currently have taxable brokerage accounts at Vanguard, Fidelity, and Merrill Edge. We are Platinum Honors status with Merrill, so ETF/equity trades are all commission-free (well, up to 100 a month, but I doubt we should be trading that actively anyway).

The only short-term liquidity need we can anticipate is about $400K to pay off our mortgage balance in 2026.
- i took the liberty to edit your post down to actionable parts.
- please edit your post to look like this, it will be much more helpful: viewtopic.php?t=6212
- you need to decide what your asset allocation (AA) is. otherwise no one can help you.
- the simple answer is, while you have made a costly mistake, you by no means have done anything disastrous.

once you clean up your post, get a handle of where all your money is exactly and what your AA should look like then we can build a picture for you out of the puzzle pieces.

also, the mathmatically correct answer is to lump sum back into the market. you do not sound behaviorally capable of that. another common method is to do 50% now, then some percentage over the next 6-12 months. either way, you need to get over the fact that the cash wont be there, it will be invested, where it can grow AND shrink at the markets will.

Donut
Posts: 9
Joined: Sat Aug 04, 2018 1:59 am

Re: What to do with too much cash?

Post by Donut » Sat Aug 04, 2018 9:49 am

By the way, there is something I've been doing that I didn't mention because I figured I'd be judged for it. I did spend a few months buying some individual equities at times when I thought they were bargains, and I sold some too because I wanted to lock in some gains. I actually didn't do too horribly and did make a profit. But I think you all know what the issue is. I still didn't beat the S&P 500 during the same time period, and I spent much more time doing it.

So I suppose the real true answer is to just set aside an emergency fund, then put the entirety of the remainder into domestic equities (since I already have international equities and bonds) ASAP all at once?

Yes, absolutely, my issue then is that I feel like I should have just done that 10 years ago, or 2 years ago, or 2 months ago, or yesterday. But just verifying then, this is indeed the answer, and I knew that all along?

By the way, I have no issue with the idea of not having access to my money, which may have shrunk. My issue is with fearing that the peak is right this moment. If everything were to drop 20% on Monday, I'd happily dump everything in. So I need to just get over it, right?

KSH85
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Re: What to do with too much cash?

Post by KSH85 » Sat Aug 04, 2018 10:24 am

Two quick questions:

1) Why do you have three separate brokerage accounts? If there's not some specific reason it might be easier to have everything in the same place where you can look at it in a glance. Vanguard is always great if you're satisfied you can get by with their funds, or if the status with ML makes it a better option (especially if you're getting some bonus on other BOA accounts as a result) that sounds like a great option too. It just sounds like you have enough going on without having to manage things across a bunch of different accounts.

2) How much cash will you need in 8 years to retire the rest of your mortgage? If you're committed to paying off the mortgage then, it's at least defensible to take the necessary cash and do a CD ladder or something similar (I'm partial to doing a two year every 6 months, but that's pure aesthetic preference).

Donut
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Re: What to do with too much cash?

Post by Donut » Sat Aug 04, 2018 10:47 am

KSH85 wrote:
Sat Aug 04, 2018 10:24 am
1) Why do you have three separate brokerage accounts? If there's not some specific reason it might be easier to have everything in the same place where you can look at it in a glance. Vanguard is always great if you're satisfied you can get by with their funds, or if the status with ML makes it a better option (especially if you're getting some bonus on other BOA accounts as a result) that sounds like a great option too. It just sounds like you have enough going on without having to manage things across a bunch of different accounts.
My husband had the Vanguard account before we were married, and I had the Fidelity account. We later opened the Merrill account jointly to take advantage of a promotion for a $1K bonus when transferring $200K, plus they let us trade all ETFs and individual equities for free, which we can't do elsewhere. I realize it means there's more to keep track of, but to be honest, I think it's actually kind of nice to have accounts at all 3, since it means we have access to different things and could transfer cash into any of them to take advantage - e.g., any of Vanguard's nice low-cost funds, Fidelity's new zero-fee funds, Merrill's commission-free trades. At any rate, I think at this point, since we already have investments in all of them, it'd be a lot more work to try to consolidate than to just pick one and click a few buttons (and wait a few days) if we'd rather cash be in one over another.
KSH85 wrote:
Sat Aug 04, 2018 10:24 am
2) How much cash will you need in 8 years to retire the rest of your mortgage? If you're committed to paying off the mortgage then, it's at least defensible to take the necessary cash and do a CD ladder or something similar (I'm partial to doing a two year every 6 months, but that's pure aesthetic preference).
Around 400K. (We currently still owe 530K on it, but 8 more years of monthly payments would bring that down to the 400K.) I think I've been naively thinking we could put existing cash into domestic equities and then in 2024 or so start liquidating some to prepare for paying off the mortgage balance when our rate inevitably increases in 2026. But I'd have no guarantee that those domestic equities would be up in 2024-2026, so this is a bad plan, right? Of course, we wouldn't have a hard deadline of 2026 either; it's just that our ARM will very likely have an increased rate then. So if it's a particularly bad time to liquidate then, we could just continue paying the mortgage for a few more years at a higher rate.

Darn it! I thought that paying off this mortgage in 8 years was the only thing I was pretty sure about in terms of life goals (I was more sure on that than what I'm going to have for dinner tonight), but now I don't even know...

Bacchus01
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Re: What to do with too much cash?

Post by Bacchus01 » Sat Aug 04, 2018 10:58 am

We were almost in the same spot you are about 6-8 years ago.

Ultimately I took a couple days over Christmas holiday in 2012 or so. I read every piece of the wiki I could. I wrote an investment plan with my wife.

We had about $500K sitting in cash at the time.

After making some moves I’m our tax deferred accounts, starting an HSA, funding 529s, and doing backdoor Roths, we dumped $400k of that $500k into TSM and haven’t looked back.

H-Town
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Re: What to do with too much cash?

Post by H-Town » Sat Aug 04, 2018 11:02 am

Best thing to do now is to learn more about investing. Your mind set right now is all about preserving assets. Nothing about that. But here a few points to consider:

1) If you have a sense of long-term investing, you'll be confident that high price market right now will be a low price point 20-40 years from now.
2) You cannot keep up with inflation in the long run if you don't have the power of stock/bond market behind you.
3) The power of compounding. If you invest in stock market, your wealth can be doubled every 10-12 years (using rule of 72). If you leave your asset in cash, you will lose half of your purchasing power every two decade (again with rule of 72).
4) Now that you understand how risky the market can be; but on the other side of the coin, it will be rewarding. If you don't need the money and let it ride through bull and bear markets, you'll be surprised how much wealth you've been accumulating in 10-20 years.

Start with Bogleheads Guide to Investing book. Implement 3 or 4 fund portfolios or use a Target Date Retirement Fund. If you get a hang of it, then go further to learn about tax efficiency and Roth conversion strategies, etc.

Donut
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Re: What to do with too much cash?

Post by Donut » Sat Aug 04, 2018 11:03 am

Bacchus01 wrote:
Sat Aug 04, 2018 10:58 am
After making some moves I’m our tax deferred accounts, starting an HSA, funding 529s, and doing backdoor Roths, we dumped $400k of that $500k into TSM and haven’t looked back.
Phew, I'm so glad to hear I'm not the only one who's found myself in this situation. Do you mind if I ask - did you do it all in one lump sum, and how did you choose when to do it? Did you just finish up the rest of the stuff, and then it was simply time? Thank you!

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BL
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Re: What to do with too much cash?

Post by BL » Sat Aug 04, 2018 11:12 am

I am not so sure you would dump everything in at a 20% drop. Wouldn't you be afraid it would soon drop 20% more? It can be really scary.

I don't know what you have because I consider "ticker letters" a foreign language.

However, just start with something. Maybe $10,000 as that would buy a Vanguard admiral fund such as Total Stock Market. If it is a fund, AFAIK (as far as I know), you could set up automatic purchases pulled from your bank account or perhaps you would consider keeping money in the Prime Money Market (2.06% interest now) and pull it from there.

You could also set the 401k to purchase Total US or S&P 500 funds, since you have so much fixed income. It can easily be changed to fixed income once you are caught up on equities.

The "rule of thumb" of age in bonds (fixed income) might be something to consider. Some may consider it conservative, while you may consider it aggressive. So, 65% of your RETIREMENT funds could be in Total Stock and Total International index mutual funds with low ERs (expense ratios). Or even 50/50, just get started. Just a suggestion to get you started. Assuming you are high-income, there is also a Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) that is about half equity/half muni bond so the ups and downs of the stock market would not be as noticeable and painful. In IRAs, you could also consider a Target Date fund, or Life Strategy (aggressive (20% bonds), moderate (40% bonds), or conservative (60% bonds).

You might also think about giving Vanguard PAS $50-100k (or more) to invest for you at a cost of 0.3%/year. This would be sort of a training wheels for a bike if you wish to do this on your own but just can't get started. You could quit after a year or whatever, and still have a decent portfolio there that you wouldn't have to unwind (unlike many other "advisors" portfolios). They wouldn't lead you into expensive investment or insurance products, or otherwise try to act in a non-fiduciary way, unlike many others.

HSA can be saved for retirement: medical free of tax and otherwise it would be the taxed like an IRA. So it is essentially another way to save for retirement, but can be taken out any time to pay for medical if you save your receipts. Also, you pay neither income tax nor SS/medicare taxes on it, so it costs much less that you think. (If low income, not paying SS is not an advantage, generally speaking.)
Last edited by BL on Sat Aug 04, 2018 11:21 am, edited 1 time in total.

PFInterest
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Re: What to do with too much cash?

Post by PFInterest » Sat Aug 04, 2018 11:21 am

Donut wrote:
Sat Aug 04, 2018 9:49 am
I did spend a few months buying some individual equities [,,,] and I sold some too because I wanted to lock in some gains.
I actually didn't do too horribly and did make a profit.
I still didn't beat the S&P 500 during the same time period, and I spent much more time doing it.

By the way, I have no issue with the idea of not having access to my money, which may have shrunk. My issue is with fearing that the peak is right this moment. If everything were to drop 20% on Monday, I'd happily dump everything in. So I need to just get over it, right?
so you lost money.
equities will drop 50% multiple times in your life. if you cannot handle that loss then you adjust your AA accordingly.
the best time to invest was yesterday. the next best is today.
your 30yo for crying out loud, this retirement money wont be touched for 30+ more years.

PFInterest
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Re: What to do with too much cash?

Post by PFInterest » Sat Aug 04, 2018 11:32 am

Donut wrote:
Sat Aug 04, 2018 10:47 am
Darn it! I thought that paying off this mortgage in 8 years was the only thing I was pretty sure about in terms of life goals (I was more sure on that than what I'm going to have for dinner tonight), but now I don't even know...
you do realize when the ARM starts increasing its not like it doubles or triples. look at your paperwork, it will say what the expected rate rise should be, a max per year, and whatever the maximum it can hit.

you will likely come out far ahead NOT paying down the mortgage and investing instead. and even if the market tanks at your 8 year deadline, again, the ARM is not suddenly going to explode.

PFInterest
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Re: What to do with too much cash?

Post by PFInterest » Sat Aug 04, 2018 11:33 am

Bacchus01 wrote:
Sat Aug 04, 2018 10:58 am
We were almost in the same spot you are about 6-8 years ago.

Ultimately I took a couple days over Christmas holiday in 2012 or so. I read every piece of the wiki I could. I wrote an investment plan with my wife.

We had about $500K sitting in cash at the time.

After making some moves I’m our tax deferred accounts, starting an HSA, funding 529s, and doing backdoor Roths, we dumped $400k of that $500k into TSM and haven’t looked back.
while the correct move, dont forget thats easy to say when all you have known is a bull market since 2012.

Donut
Posts: 9
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Re: What to do with too much cash?

Post by Donut » Sat Aug 04, 2018 12:02 pm

BL wrote:
Sat Aug 04, 2018 11:12 am
I don't know what you have because I consider "ticker letters" a foreign language.
Sorry about that. Basically, I have a lot of bonds already (six figures); many are municipal. I also have six figures in an international growth fund. I have a smattering of other stuff (five figures), but mostly in the "cheaper" sectors like energy, real estate, consumer staples, telecom. What I don't have is a domestic equity index or "expensive" sectors like tech. I have had a mental issue buying things that are high, because I always think what goes up must come down. I know I need to get over it. But I honestly think I would be OK with something falling an additional 20% as long as I didn't buy it at the peak but did so halfway down. I believe this because I've had it happen while dabbling in those equity trades I tried out (but probably shouldn't have). In fact, when it happened, what I did was buy more. But I guess at some point, if I've really put in everything, I won't be able to buy more. I think this is a block for me too and the biggest reason why I'm so scared to just do it in one lump sum.

Thank you so much for the detailed suggestions. I know I just have to start. I also didn't know all that about the HSA, thanks! I don't think it's an option for us anyway with my husband's current employer, but it could be something to consider in the future.
PFInterest wrote:
Sat Aug 04, 2018 11:21 am
your 30yo for crying out loud, this retirement money wont be touched for 30+ more years.
But this is the part that is unknown for me. How can I really know when I will want to use it? Up until 2.5 years ago, we thought we didn't want to buy a house in California either. Then I had a couple spats with our apartment management (for example, they tried to tow my car out of the parking lot because it looked too run-down), and meanwhile they also increased our rent drastically. I expect rent increases of course, but having a major fallout with apartment management was not necessarily on my radar. So we more or less impulse-purchased a house, and to be perfectly honest, it was pretty convenient just having the down payment already sitting in a checking account ready to use. But my point here is that there are things that can happen (like an unexpected spat over an ugly car), and I can't know when or if they will happen. How can I truly know right now that my husband won't want to retire in just a few years? I am impressed by those of you who have an idea of when you want to retire and what you want to do!

dogagility
Posts: 184
Joined: Fri Feb 24, 2017 6:41 am

Re: What to do with too much cash?

Post by dogagility » Sat Aug 04, 2018 12:43 pm

Donut wrote:
Sat Aug 04, 2018 12:02 pm
But my point here is that there are things that can happen (like an unexpected spat over an ugly car), and I can't know when or if they will happen. How can I truly know right now that my husband won't want to retire in just a few years? I am impressed by those of you who have an idea of when you want to retire and what you want to do!
No worries, Donut. You don't have to change your investment strategy ASAP. I suggest you take some time to consider your current finances, read the wiki on this site, discuss goals for your money with your husband, and then post back to this site using the format mentioned by a poster above: viewtopic.php?t=6212.

People here will be in a much better position to give you advice about an appropriate AA and specific advice about investment funds at that point.
:sharebeer
Taking "risk" since 1995.

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vineviz
Posts: 1987
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Re: What to do with too much cash?

Post by vineviz » Sat Aug 04, 2018 12:50 pm

Donut wrote:
Sat Aug 04, 2018 9:16 am
student wrote:
Sat Aug 04, 2018 6:18 am
2) For $150,000, invest it by spreading over 1-2 years monthly based on the AA determined above. This is not optimal based on historical data and it is purely for psychological reason.
Sorry for this naive question, but what is actually optimal based on historical data?
The OPTIMAL solution from a financial perspective is to invest the money, all of it, as soon as it is available.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

student
Posts: 2573
Joined: Fri Apr 03, 2015 6:58 am

Re: What to do with too much cash?

Post by student » Sat Aug 04, 2018 1:09 pm

vineviz wrote:
Sat Aug 04, 2018 12:50 pm
Donut wrote:
Sat Aug 04, 2018 9:16 am
student wrote:
Sat Aug 04, 2018 6:18 am
2) For $150,000, invest it by spreading over 1-2 years monthly based on the AA determined above. This is not optimal based on historical data and it is purely for psychological reason.
Sorry for this naive question, but what is actually optimal based on historical data?
The OPTIMAL solution from a financial perspective is to invest the money, all of it, as soon as it is available.
Yes. This is what I meant.

Living Free
Posts: 115
Joined: Thu Jul 19, 2018 7:31 pm

Re: What to do with too much cash?

Post by Living Free » Sat Aug 04, 2018 1:28 pm

A few things to consider:

1) You mention having short term savings on hand to pay off your mortgage in several years. Do you think that these investments can provide a guaranteed, after tax return in that amount of time that will exceed the 2.875% annually? An interesting perspective on this issues can be found here: https://earlyretirementnow.com/2016/11/ ... portfolio/. There is though the additional consideration of liquidity when you have it in savings vs having it in equity in your home (ie, you can't eat the walls of your house if you're strapped for cash...though HELOCs exist).

2) You seem to acknowledge that you are trying to time the market with the stock purchases. You note that US stocks seem expensive. Keep in mind that just because something is up in value or expensive does not mean that it will lose value in the near future. People have been saying that US stocks have been overvalued for several years. Look what happened in 2017 (S&P 500 was up over 20%).

3) you can always do some combination of paying off mortgage early and investing in stocks. again as per #1 above the return on your mortgage now exceeds the pre tax return on your high yield savings account.

4) generally people keep money in cash for "safety" purposes. It is safe in the short term as it protects against market volatility. But keep in mind that you are losing purchasing value every year to inflation. From what I can tell (quick google search) inflation was near 3% in 2017; again exceeding your return in your high yield savings account (and again, exceeding your pre tax return from that; it's even worse after you pax tax for that interest).

PFInterest
Posts: 2518
Joined: Sun Jan 08, 2017 12:25 pm

Re: What to do with too much cash?

Post by PFInterest » Sat Aug 04, 2018 3:40 pm

Donut wrote:
Sat Aug 04, 2018 12:02 pm

But this is the part that is unknown for me. How can I really know when I will want to use it?
brokerage accounts can be liquidated at any time.
you can also pull money out of retirement accounts penalty free.

so that doesnt really make sense as an excuse either.

Bacchus01
Posts: 1915
Joined: Mon Dec 24, 2012 9:35 pm

Re: What to do with too much cash?

Post by Bacchus01 » Sat Aug 04, 2018 7:24 pm

Donut wrote:
Sat Aug 04, 2018 11:03 am
Bacchus01 wrote:
Sat Aug 04, 2018 10:58 am
After making some moves I’m our tax deferred accounts, starting an HSA, funding 529s, and doing backdoor Roths, we dumped $400k of that $500k into TSM and haven’t looked back.
Phew, I'm so glad to hear I'm not the only one who's found myself in this situation. Do you mind if I ask - did you do it all in one lump sum, and how did you choose when to do it? Did you just finish up the rest of the stuff, and then it was simply time? Thank you!
Yep, one big lump sum. Cleaned it all up over a couple months, then one big lump. Our timeframe was 30-40 years later, so it really doesn’t matter whether the market was high or low.

Bacchus01
Posts: 1915
Joined: Mon Dec 24, 2012 9:35 pm

Re: What to do with too much cash?

Post by Bacchus01 » Sat Aug 04, 2018 7:25 pm

PFInterest wrote:
Sat Aug 04, 2018 11:33 am
Bacchus01 wrote:
Sat Aug 04, 2018 10:58 am
We were almost in the same spot you are about 6-8 years ago.

Ultimately I took a couple days over Christmas holiday in 2012 or so. I read every piece of the wiki I could. I wrote an investment plan with my wife.

We had about $500K sitting in cash at the time.

After making some moves I’m our tax deferred accounts, starting an HSA, funding 529s, and doing backdoor Roths, we dumped $400k of that $500k into TSM and haven’t looked back.
while the correct move, dont forget thats easy to say when all you have known is a bull market since 2012.

Nope, wouldn’t have mattered.

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