Sitting on $1.5m cash - need help

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Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Sitting on $1.5m cash - need help

Post by visa890 » Fri Apr 26, 2019 9:24 pm

First time poster, but I have been lurking. Our initial plan was to buy a house with cash, so we started saving since 2017, but then we changed our minds and will be doing the standard 20% down. Now, this leaves us with $1m+ in cash. Have about 92K sitting in retirement accounts in cash, and rest is at Ally.

Instead of just winging it, I figure I would finally register and ask for advice.

Laying it all out:



Emergency funds: $300K in Ally 2.3% CD
Debt: 0
Tax Filing Status: MFJ
Tax Rate: 31% Federal, State is about 10%? :x
Age: Both 37
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 50-60% INTL with 1/3 EM. Also want a little SCV tilt

Current assets

Taxable
$1.1m cash at Ally

His solo 401k
FDRXX FIDELITY GOVERNMENT CASH RESERVES 55K
DLS WISDOMTREE TR INTL SMALLCAP DIVID FD $58K
FSKAX FIDELITY TOTAL MARKET INDEX FUND $33K
FSPSX FIDELITY INTERNATL INDEX FUND $32K
FSSNX FIDELITY SMALL CAP INDEX FUND $35K
FXNAX FIDELITY U.S. BOND INDEX FUND $4K

His Roth IRA
$40K - earmarked

His 401k work
80/20 stocks/bonds – pooled account about $100K


Her 403b
TIAA Access Large-Cap Value Index Fund T1 $140K
TIAA Access Small-Cap Blend Index Fund T1 $142K
TIAA Stable Value $10K

Her 457b
Vanguard Institutional Equity - $70K

Her solo 401K
FDRXX FIDELITY GOVERNMENT CASH RESERVES $37K
DLS WISDOMTREE TR INTL SMALLCAP DIVID FD $36K


Her Roth IRA at Vanguard
about $30k – earmarked


529 Plans
2 year old - NY state - 100K
6 month old - NY state - 100K
these are both in the vanilla small cap portfolio



Available funds
TIAA
Equities (12)

CREF Equity Index R3 (Variable Annuities)
+0.23% $0.00

CREF Global Equities R3 (Variable Annuities)
+0.34% $0.00

CREF Growth R3 (Variable Annuities) +0.26% $0.00

CREF Stock R3 (Variable Annuities) +0.31% $0.00

TIAA Access International Equity Index Fund T1 (Variable Annuities)
+0.16% $0.00

TIAA Access Large-Cap Growth Index Fund T1 (Variable Annuities) +0.15% $0.00

TIAA Access Large-Cap Value Index Fund T1 (Variable Annuities)
+0.15% $48,863.89

TIAA Access S&P 500 Index Fund T1 (Variable Annuities)
+0.15% $0.00

TIAA Access Small-Cap Blend Index Fund T1 (Variable Annuities)
+0.16% $50,176.96

TIAA Access Vanguard Selected Value T1 (Variable Annuities)
+0.46% $0.00

TIAA Access-American Funds Euro Pacific Growth T1 (Variable Annuities)
+0.59% $0.00

TIAA Access-T. Rowe Price Institutional Large Cap Growth T1 (Variable Annuities)
+0.66% $0.00
Fixed Income (3)

CREF Bond Market R3 (Variable Annuities)
Average +0.31% $0.00

CREF Inflation-Linked Bond R3 (Variable Annuities)

Morningstar rating equal to 3 stars
Average +0.24% $0.00

TIAA Access Bond Index T1 (Variable Annuities)
+0.22% $0.00
Guaranteed (2)

TIAA Stable Value
$0.00

TIAA Traditional
$0.00
Money Market (2)

CREF Money Market R3 (Variable Annuities)
+0.24% $0.00

TIAA Access Money Market Fund T1 (Variable Annuities)
+0.25% $0.00
Multi-Asset (1)

CREF Social Choice R3 (Variable Annuities)
+0.27% $0.00

Real Estate (1)

TIAA Real Estate (Variable Annuities) 0.79%



QUESTIONS
1. We NEED a house. Have outgrown where we are now. Assuming house is $2m, a 20% down payment would $400k plus another $100K for anything extraneous, which bring the total to about $500K for “house”. I currently have this at Ally. This leaves another 500K in cash at Ally. I need to invest the other $500K at Fidelity in a taxable. How best to allocated assuming I want 80/20 with 50-60% INTL with 1/3 of that EM?
2. Do I need a $300K emergency fund? Our main expense right now is rent and we have no debt. Do I need this $300K PLUS the $500K house fund? Can I invest more?
3. How do I best reach 80/20 across multiple accounts?
4. Do I need a financial advisor?
5. Her 457b has a ROTH 457b option. Should we be doing Roth 457b?
6. We need to open up new solo 401K plans as biz structure changed for 2019. Should we open with a Roth option to avoid the "deduction reduction" issue?
7. Fido has a bonus if you move over $1m. Should I move $1m over from Ally to Fido?

Please also advise on anything else.


I am sure I missed a lot, but it took me one plus hour to put this together. Please ask and I will edit.

Thanks for your time.
Last edited by visa890 on Sun Jun 02, 2019 8:15 pm, edited 1 time in total.

Dottie57
Posts: 6332
Joined: Thu May 19, 2016 5:43 pm

Re: Sitting on $1.5m cash - need help

Post by Dottie57 » Fri Apr 26, 2019 9:48 pm

What is your income and your expenses? Split your expenses into fixed and discretionary.
Savings rate?
Children?
Why $2m. Fora house -lots of money in one asset.

Asking lots of questions since context matters.

anonenigma
Posts: 663
Joined: Thu Apr 21, 2011 11:58 pm

Re: Sitting on $1.5m cash - need help

Post by anonenigma » Fri Apr 26, 2019 9:54 pm

You're way above FDIC insurance limits.

financeidiot
Posts: 192
Joined: Sat Dec 24, 2016 12:10 pm

Re: Sitting on $1.5m cash - need help

Post by financeidiot » Fri Apr 26, 2019 9:59 pm

1. What is your goal? What are you trying to accomplish? -> If you're no longer seeking to buy a house, what are you looking to do instead? Why did you make this decision?
2. What's his income & her income? -> Helps to know the value of Roth vs. traditional contributions.
3. What are annual expenses? -> An emergency fund is typically 3-6 months of expenses.

phisher4
Posts: 57
Joined: Tue Oct 18, 2016 7:05 pm

Re: Sitting on $1.5m cash - need help

Post by phisher4 » Fri Apr 26, 2019 10:09 pm

Taking a mortgage versus buying in cash requires you to answer the following question:

If I wasn't buying a house, would I be willing to borrow money to invest it in the market?

Think long and hard about your decision. An intellectual, dispassionate investor may say yes. I would suspect that many of us would say no since we are not interested in leveraged investing.

IngognitoUSA
Posts: 173
Joined: Sat Mar 11, 2017 7:54 am

Re: Sitting on $1.5m cash - need help

Post by IngognitoUSA » Fri Apr 26, 2019 10:09 pm

Your property tax will be crazy in NJ. Be sure you want and need a $2m house. We almost bought one, glad we bailed.

User avatar
Mlm
Posts: 388
Joined: Sat Apr 09, 2016 6:00 pm

Re: Sitting on $1.5m cash - need help

Post by Mlm » Fri Apr 26, 2019 10:21 pm

Why did you change your mind?

k3vb0t
Posts: 347
Joined: Mon Jun 02, 2014 4:42 pm

Re: Sitting on $1.5m cash - need help

Post by k3vb0t » Sat Apr 27, 2019 6:43 am

If Ally goes bust you’re set to lose $850k. I’d get under FDIC limits ASAP.

Jack FFR1846
Posts: 9476
Joined: Tue Dec 31, 2013 7:05 am

Re: Sitting on $1.5m cash - need help

Post by Jack FFR1846 » Sat Apr 27, 2019 7:06 am

Are you sure Fidelity offers anything to move there? I'm seeing promotions in blogs like Husslermoneyblog that are outdated and now wrong. Going through their link to Fidelity shows 500 trades for 2 years. No money.

TDAmeritrade and Schwab do offer money (Schwab only if you have no accounts there).
Bogle: Smart Beta is stupid

zlandar
Posts: 59
Joined: Wed Apr 10, 2019 8:51 am

Re: Sitting on $1.5m cash - need help

Post by zlandar » Sat Apr 27, 2019 7:40 am

I would max out both of your tax-deferred accounts. You list a solo 401k; do you have the option of profit sharing to increase the deferred amount?

If you are using Fidelity for your brokerage I would split it 65/35 FZROX/FZILX (the zero fee index total US/international funds). The international fund is 23% EM so you do not need a separate EM fund. Fidelity probably has a similar tool like Vanguard's portfolio watch that allows you to link outside accounts so you can get an overall picture of your stocks/bonds.

You don't need a $300k emergency fund. $100k in the bank is plenty IMO. You could put half of it in an Ally savings account and the other half in checking. Since you are already an Ally customer it takes a few minutes to open a savings account and move the money in. You can set up the savings account to automatically move money into the checking account if needed. Your brokerage account is also a big emergency fund you could tap in a true emergency. You can sell funds/ETFs and move the money back into your checking in 2-3 days.

Whether you need a FA is a tricky question. If you can find a FA who simplifies your investment/retirement portfolio for a flat fee (not assets under management) sure. Most of the FAs I have encountered will only work for an AUM fee.

You have done a great job saving a large chunk of your take home pay. It's time to put it in index funds/ETFs to generate a higher return over the long haul.

finite_difference
Posts: 1360
Joined: Thu Jul 09, 2015 7:00 pm

Re: Sitting on $1.5m cash - need help

Post by finite_difference » Sat Apr 27, 2019 9:56 am

1. I would buy a $1,000,000 house and put the rest in Total US Stock Market or Total World and Total Bond. You can get a very nice house in a great area for $1m. You will also save a ton on property tax and mortgage interest.
2. Choose a house that reduces your commute as much as possible while also being in a great area. Train >= light rail/subway > bus >>>>>>> car. 100% self autonomous cars could change that equation somewhat but I think that’s about 10 years away (2030). And I’d still prefer a subway/train.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Sandtrap
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Re: Sitting on $1.5m cash - need help

Post by Sandtrap » Sat Apr 27, 2019 10:10 am

visa890 wrote:
Fri Apr 26, 2019 9:24 pm
First time poster,. . . . .
QUESTIONS
1. We NEED a house. Have outgrown where we are now. Assuming house is $2m, a 20% down payment would $400k plus another $100K for anything extraneous, which bring the total to about $500K for “house”. I currently have this at Ally. This leaves another 500K in cash at Ally. I need to invest the other $500K at Fidelity in a taxable. How best to allocated assuming I want 80/20 with 50-60% INTL with 1/3 of that EM?
2. Do I need a $300K emergency fund? Our main expense right now is rent and we have no debt. Do I need this $300K PLUS the $500K house fund? Can I invest more?
3. How do I best reach 80/20 across multiple accounts?
4. Do I need a financial advisor?
5. Her 457b has a ROTH 457b option. Should we be doing Roth 457b?
6. We need to open up new solo 401K plans as biz structure changed for 2019. Should we open with a Roth option to avoid the "deduction reduction" issue?
7. Fido has a bonus if you move over $1m. Should I move $1m over from Ally to Fido?

Please also advise on anything else.
I am sure I missed a lot, but it took me one plus hour to put this together. Please ask and I will edit.
Thanks for your time.
0. Welcome. You've come to the right place. Great minds here.

1. Regardless of cost and financing options, suggest take care of this expense first before you invest the remaining funds and before you make any portfolio adjustments.
You have young children and a growing family, etc. Priorities. Take care of the big puzzle piece first
Often, by doing this, the rest of the puzzle falls into place easily. Take on the "elephant" one section at a time.

2. See #1. No. Yes. After you buy the house and things settle. Even after buying the house, you will have other immediate expenses that are house and moving related.

3. Incrementally with a focus on simplicity and efficiency.

4. No. You do not. You already are quite savvy and will get exponentially more informed here.

7. Not now. See #1. Then #3.

Have you shopped for a home yet? What are your home requirements? How long do you expect to stay in this home? (really important)?
Do you plan to relocate in the future? When?
How long is your existing rental lease?
How will you transition from the existing dwelling to the new one?
What is your time frame for purchasing a new home and moving? (now, soon, maybe soon, 6 sos, 1 year, etc?)

As others have suggested, without a little more info/context, suggestions are going to be guessing and vague and assumptive vs accurate and actionable to your unique situation.
Wiki Bogleheads Wiki: Everything You Need to Know

cashmoney
Posts: 280
Joined: Thu Jun 29, 2017 11:15 pm

Re: Sitting on $1.5m cash - need help

Post by cashmoney » Sat Apr 27, 2019 10:30 am

Jack FFR1846 wrote:
Sat Apr 27, 2019 7:06 am
Are you sure Fidelity offers anything to move there? I'm seeing promotions in blogs like Husslermoneyblog that are outdated and now wrong. Going through their link to Fidelity shows 500 trades for 2 years. No money.

TDAmeritrade and Schwab do offer money (Schwab only if you have no accounts there).


I called my local Fidelity office about a month ago and they were willing to give 2500 for 1 mil. promotion even though it is not advertised.

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goodenyou
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Re: Sitting on $1.5m cash - need help

Post by goodenyou » Sat Apr 27, 2019 10:37 am

A $2M house in NJ will be a noose around your neck just in property tax and maintenance alone. The P&I on the $1.6M mortgage alone is close to $90,000+ per year. You may be making a lot of money, but I would want to have significant job security in a job making the high end of 6 figures before I signed up for that.

The real evaluation lies in your employment, salary and job security. Do you want that much real estate exposure in a state with a mass exodus from crushing tax burdens driven by property taxes? Are you buying a house at the sacrifice of financial security and wealth-building?
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

S_Track
Posts: 252
Joined: Sat Feb 18, 2017 12:33 pm

Re: Sitting on $1.5m cash - need help

Post by S_Track » Sat Apr 27, 2019 3:33 pm

k3vb0t wrote:
Sat Apr 27, 2019 6:43 am
If Ally goes bust you’re set to lose $850k. I’d get under FDIC limits ASAP.
Curious about this, would you feel move comfortable with the cash in a VG money market fund or would you rather see it in a FDIC accounts?

pdavi21
Posts: 1061
Joined: Sat Jan 30, 2016 4:04 pm

Re: Sitting on $1.5m cash - need help

Post by pdavi21 » Sat Apr 27, 2019 3:37 pm

Correction, you want help. No one with $1.5 million USD in cash needs help.

Want a house, buy a house.
I'd figure out an AA and invest the rest in that if I were you.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

k3vb0t
Posts: 347
Joined: Mon Jun 02, 2014 4:42 pm

Re: Sitting on $1.5m cash - need help

Post by k3vb0t » Sat Apr 27, 2019 4:41 pm

S_Track wrote:
Sat Apr 27, 2019 3:33 pm
k3vb0t wrote:
Sat Apr 27, 2019 6:43 am
If Ally goes bust you’re set to lose $850k. I’d get under FDIC limits ASAP.
Curious about this, would you feel move comfortable with the cash in a VG money market fund or would you rather see it in a FDIC accounts?
I'd have it spread out across multiple institutions to minimize risk. Having spent about 30 seconds thinking about it, I'd be comfortable with a chunk of it in a MMF like VMMXX based on my (limited) understanding of how Vanguard's funds work, but I wouldn't put 100% anywhere. I especially wouldn't keep a massive chunk above FDIC limits due to the limited recourse you have if the bank goes bust. 2008 could, in theory, happen again.

Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Sun Apr 28, 2019 7:51 pm

financeidiot wrote:
Fri Apr 26, 2019 9:59 pm
1. What is your goal? What are you trying to accomplish? -> If you're no longer seeking to buy a house, what are you looking to do instead? Why did you make this decision?
2. What's his income & her income? -> Helps to know the value of Roth vs. traditional contributions.
3. What are annual expenses? -> An emergency fund is typically 3-6 months of expenses.
Never have given the goal question a thought. I suppose I am trying to raise a family and provide as best for them as possible.

His is about $1m or so. Her's will likely be $200K moving forward

Annual expenses - maybe like 70-100K on the higher end
pdavi21 wrote:
Sat Apr 27, 2019 3:37 pm
Correction, you want help. No one with $1.5 million USD in cash needs help.

Want a house, buy a house.
I'd figure out an AA and invest the rest in that if I were you.
Ok noted thanks
goodenyou wrote:
Sat Apr 27, 2019 10:37 am
A $2M house in NJ will be a noose around your neck just in property tax and maintenance alone. The P&I on the $1.6M mortgage alone is close to $90,000+ per year. You may be making a lot of money, but I would want to have significant job security in a job making the high end of 6 figures before I signed up for that.

The real evaluation lies in your employment, salary and job security. Do you want that much real estate exposure in a state with a mass exodus from crushing tax burdens driven by property taxes? Are you buying a house at the sacrifice of financial security and wealth-building?
$2m is on the highEST end. I am budgeting this but the house will likely be lower and this overbudget helps me sleep better. Taxes will be about $40K. Very expensive I agree.

I don't think I am buying a house that would sacrifice my financial security. Wealth building - I suppose this is arguable as the money could be better spend in an ETF, but the house can also appreciate etc etc
cashmoney wrote:
Sat Apr 27, 2019 10:30 am
Jack FFR1846 wrote:
Sat Apr 27, 2019 7:06 am
Are you sure Fidelity offers anything to move there? I'm seeing promotions in blogs like Husslermoneyblog that are outdated and now wrong. Going through their link to Fidelity shows 500 trades for 2 years. No money.

TDAmeritrade and Schwab do offer money (Schwab only if you have no accounts there).


I called my local Fidelity office about a month ago and they were willing to give 2500 for 1 mil. promotion even though it is not advertised.
This is correct. They will give $2.5K
Sandtrap wrote:
Sat Apr 27, 2019 10:10 am
visa890 wrote:
Fri Apr 26, 2019 9:24 pm
First time poster,. . . . .
QUESTIONS
1. We NEED a house. Have outgrown where we are now. Assuming house is $2m, a 20% down payment would $400k plus another $100K for anything extraneous, which bring the total to about $500K for “house”. I currently have this at Ally. This leaves another 500K in cash at Ally. I need to invest the other $500K at Fidelity in a taxable. How best to allocated assuming I want 80/20 with 50-60% INTL with 1/3 of that EM?
2. Do I need a $300K emergency fund? Our main expense right now is rent and we have no debt. Do I need this $300K PLUS the $500K house fund? Can I invest more?
3. How do I best reach 80/20 across multiple accounts?
4. Do I need a financial advisor?
5. Her 457b has a ROTH 457b option. Should we be doing Roth 457b?
6. We need to open up new solo 401K plans as biz structure changed for 2019. Should we open with a Roth option to avoid the "deduction reduction" issue?
7. Fido has a bonus if you move over $1m. Should I move $1m over from Ally to Fido?

Please also advise on anything else.
I am sure I missed a lot, but it took me one plus hour to put this together. Please ask and I will edit.
Thanks for your time.
0. Welcome. You've come to the right place. Great minds here.

1. Regardless of cost and financing options, suggest take care of this expense first before you invest the remaining funds and before you make any portfolio adjustments.
You have young children and a growing family, etc. Priorities. Take care of the big puzzle piece first
Often, by doing this, the rest of the puzzle falls into place easily. Take on the "elephant" one section at a time.

2. See #1. No. Yes. After you buy the house and things settle. Even after buying the house, you will have other immediate expenses that are house and moving related.

3. Incrementally with a focus on simplicity and efficiency.

4. No. You do not. You already are quite savvy and will get exponentially more informed here.

7. Not now. See #1. Then #3.

Have you shopped for a home yet? What are your home requirements? How long do you expect to stay in this home? (really important)?
Do you plan to relocate in the future? When?
How long is your existing rental lease?
How will you transition from the existing dwelling to the new one?
What is your time frame for purchasing a new home and moving? (now, soon, maybe soon, 6 sos, 1 year, etc?)

As others have suggested, without a little more info/context, suggestions are going to be guessing and vague and assumptive vs accurate and actionable to your unique situation.
Very helpful thanks!

We have been shopping a bit. Started looking back in 2017! Requirement - at least 4 beds/3bath/nice yard. Expect to stay forever. No plans to relocate as of now. Rental lease is worked out so we can give 3 months notice. We would use a moving company to transition. Time frame to house - now/soon/yesterday


finite_difference wrote:
Sat Apr 27, 2019 9:56 am
1. I would buy a $1,000,000 house and put the rest in Total US Stock Market or Total World and Total Bond. You can get a very nice house in a great area for $1m. You will also save a ton on property tax and mortgage interest.
2. Choose a house that reduces your commute as much as possible while also being in a great area. Train >= light rail/subway > bus >>>>>>> car. 100% self autonomous cars could change that equation somewhat but I think that’s about 10 years away (2030). And I’d still prefer a subway/train.
$1m house will land us in a fixer upper or outside of a top school district. I drive into NY so no commuter anything for me sadly

zlandar wrote:
Sat Apr 27, 2019 7:40 am
I would max out both of your tax-deferred accounts. You list a solo 401k; do you have the option of profit sharing to increase the deferred amount?

If you are using Fidelity for your brokerage I would split it 65/35 FZROX/FZILX (the zero fee index total US/international funds). The international fund is 23% EM so you do not need a separate EM fund. Fidelity probably has a similar tool like Vanguard's portfolio watch that allows you to link outside accounts so you can get an overall picture of your stocks/bonds.

You don't need a $300k emergency fund. $100k in the bank is plenty IMO. You could put half of it in an Ally savings account and the other half in checking. Since you are already an Ally customer it takes a few minutes to open a savings account and move the money in. You can set up the savings account to automatically move money into the checking account if needed. Your brokerage account is also a big emergency fund you could tap in a true emergency. You can sell funds/ETFs and move the money back into your checking in 2-3 days.

Whether you need a FA is a tricky question. If you can find a FA who simplifies your investment/retirement portfolio for a flat fee (not assets under management) sure. Most of the FAs I have encountered will only work for an AUM fee.

You have done a great job saving a large chunk of your take home pay. It's time to put it in index funds/ETFs to generate a higher return over the long haul.
Maxing out all tax deferred. Solo 401k gets the max profit sharing every year. Thanks for the other suggestions. I think if I open a taxable I would go with ETFs over funds
Mlm wrote:
Fri Apr 26, 2019 10:21 pm
Why did you change your mind?
I am not getting this question thanks

phisher4 wrote:
Fri Apr 26, 2019 10:09 pm



Taking a mortgage versus buying in cash requires you to answer the following question:

If I wasn't buying a house, would I be willing to borrow money to invest it in the market?

Think long and hard about your decision. An intellectual, dispassionate investor may say yes. I would suspect that many of us would say no since we are not interested in leveraged investing.
I disagree. Real estate is a leverage play.

Dottie57 wrote:
Fri Apr 26, 2019 9:48 pm
What is your income and your expenses? Split your expenses into fixed and discretionary.
Savings rate?
Children?
Why $2m. Fora house -lots of money in one asset.

Asking lots of questions since context matters.
Income is about $1-1.5m
Savings rate - well we basically saved all this cash starting 2017
two children - may have another
$2m is on the higher end

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goodenyou
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Re: Sitting on $1.5m cash - need help

Post by goodenyou » Sun Apr 28, 2019 8:06 pm

With a $1-1.5 million per year income, a $2million house in NJ is no problem. It's the cost of doing business and getting into elite school districts.

You got this! Go for it!
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

Grt2bOutdoors
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Location: New York

Re: Sitting on $1.5m cash - need help

Post by Grt2bOutdoors » Sun Apr 28, 2019 8:25 pm

How secure is primary breadwinners income?
If secure, go ahead and buy. If insecure, reduce size of home purchase.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

zlandar
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Joined: Wed Apr 10, 2019 8:51 am

Re: Sitting on $1.5m cash - need help

Post by zlandar » Sun Apr 28, 2019 8:27 pm

If you are running your own company you might want to look into a cash balance plan if you want to increase your tax-deferred income:

https://www.whitecoatinvestor.com/cash- ... practices/

inbox788
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Re: Sitting on $1.5m cash - need help

Post by inbox788 » Sun Apr 28, 2019 8:50 pm

1) Increase your emergency fund to include/add 2-3 years of mortgage payments.
2) Put down a bigger down payment instead of bonds. With $1.5M, 0.4M was going towards 20% down, so your remaining $1.1M means about $0.2xM bonds in 80/20. Just put down 30-35% and borrow less.
3) Invest the rest 100% equities (SP500, VTSMX, or VT).
4) Pay down the mortgage before investing in bonds that return less than the mortgage rate.

https://www.bogleheads.org/wiki/Owning_ ... e_bonds.29

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Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Mon Apr 29, 2019 12:18 pm

Grt2bOutdoors wrote:
Sun Apr 28, 2019 8:25 pm
How secure is primary breadwinners income?
If secure, go ahead and buy. If insecure, reduce size of home purchase.
Pretty secure I would guess.
zlandar wrote:
Sun Apr 28, 2019 8:27 pm
If you are running your own company you might want to look into a cash balance plan if you want to increase your tax-deferred income:

https://www.whitecoatinvestor.com/cash- ... practices/
Too young right now cash bla plans

inbox788 wrote:
Sun Apr 28, 2019 8:50 pm
1) Increase your emergency fund to include/add 2-3 years of mortgage payments.
2) Put down a bigger down payment instead of bonds. With $1.5M, 0.4M was going towards 20% down, so your remaining $1.1M means about $0.2xM bonds in 80/20. Just put down 30-35% and borrow less.
3) Invest the rest 100% equities (SP500, VTSMX, or VT).
4) Pay down the mortgage before investing in bonds that return less than the mortgage rate.

https://www.bogleheads.org/wiki/Owning_ ... e_bonds.29

viewtopic.php?t=277163
viewtopic.php?t=236421
viewtopic.php?t=142124
Assuming 15k mortgage payments plus 10K expenses monthly (all overestimation), I have one year worth in EF right now.

Interesting concept you pointed out. I will have to plug in some numbers and play around with it.

Topic Author
visa890
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Re: Sitting on $1.5m cash - need help

Post by visa890 » Mon Apr 29, 2019 12:20 pm

Thanks all. It seems like people are commenting more on the house than investments and allocation. Would appreciate some advice on that aspect more than the house. I want to know how I should invest the cash we have now in our solo 401ks, how to adjust the current investments, etc etc

Also, wife has ROTH 457b option - is that better in our case?

User avatar
Ged
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Location: Roke

Re: Sitting on $1.5m cash - need help

Post by Ged » Mon Apr 29, 2019 12:50 pm

visa890 wrote:
Mon Apr 29, 2019 12:20 pm
Also, wife has ROTH 457b option - is that better in our case?
Can't tell without knowing the details. If it is a private employer the plan may be subject to forfeiture if the employer goes bankrupt. These plans are not recommended because of this risk.

If it is a public employer then it depends on costs. The 457b plans I've seen all have high fees, however it is possible there are plans that do not.

Thegame14
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Re: Sitting on $1.5m cash - need help

Post by Thegame14 » Mon Apr 29, 2019 1:27 pm

with that income you can do whatever you want, I would mitigate risk and put like 30% down. I would max both tax deferred to the most possible, including HSA, FSA, then the rest Id put like 50/50% in taxable and money market, and each month I would throw an extra few thousand at the mortgage, to bring it down sooner, also take out a 15 year loan to save interest. Id also spend on things that save you time, that commute sucks, so Id have a lawn service, cleaning service, etc. to maximize time with family when not working. what is your plan for how long to work, that is a insane income, but you are also so young, you could probably retire by 40/45 easily but I assume you aren't since you didn't mention it. That is a lot of income to mess with, I wouldn't know what to do with it, it is so much income, so it would be hard to retire and give it up, but also so much income that you can only spend so much and have time to enjoy what you spend it on. I would also have 529 fully funded for the kids, make sure you have proper life insurance, and will set up. To me you need more estate planning than what to do with the cash.

swaption
Posts: 1200
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Re: Sitting on $1.5m cash - need help

Post by swaption » Mon Apr 29, 2019 2:04 pm

I'd propose an allocation below 80%. This really speaks to the inquiry of others, what are your goals? With your income, I'd be less concerned with what you do now as I would be formulating a plan for the future. You will have a tremendous amount of after tax savings, and you will need a robust plan for this. It might be worth thinking about what the difference is in terms of expected return for 60/40 as compared to 80/20. I'd scrap the emergency fund and move forward with a more conservative and robust plan. Your high net worth neighbors might buy themselves some mistaken notion of protection by paying up for the expertise of a hedge fund or a money manager. You're far better off buying yourself peace of mind, instead of paying excessive fees to buy them their own $2 mm house.

At this point, think of the notion of "winning by not losing". In some ways you have already won, so now just don't lose. That means thinking through things like a recession/depression scenario. In that type of world, those with long treasuries may be the ones in the best shape. It's sort of like the equivalent of life insurance for your portfolio. Not such a bad thing if it turns out to be a bad investment, but don't cut corners.

e5116
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Re: Sitting on $1.5m cash - need help

Post by e5116 » Mon Apr 29, 2019 2:38 pm

k3vb0t wrote:
Sat Apr 27, 2019 4:41 pm
S_Track wrote:
Sat Apr 27, 2019 3:33 pm
k3vb0t wrote:
Sat Apr 27, 2019 6:43 am
If Ally goes bust you’re set to lose $850k. I’d get under FDIC limits ASAP.
Curious about this, would you feel move comfortable with the cash in a VG money market fund or would you rather see it in a FDIC accounts?
I'd have it spread out across multiple institutions to minimize risk. Having spent about 30 seconds thinking about it, I'd be comfortable with a chunk of it in a MMF like VMMXX based on my (limited) understanding of how Vanguard's funds work, but I wouldn't put 100% anywhere. I especially wouldn't keep a massive chunk above FDIC limits due to the limited recourse you have if the bank goes bust. 2008 could, in theory, happen again.
In 2008, which was the largest bank financial crisis many of us have seen in our lifetimes, what was the largest bank where people actually lost money who were above the FDIC limit? Honest question because my hunch is that basically all the big boys (Wachovia, WaMu, IndyMac) got acquired and nobody lost anything - their accounts just got moved. My point is that while I understand everybody on here says to stay under the FDIC limit, the risk of going above it with a large bank is basically minuscule (I think). I personally wouldn't sweat it at all. There were some small community banks that didn't get acquired and depositor's lost money probably.

wolf359
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Joined: Sun Mar 15, 2015 8:47 am

Re: Sitting on $1.5m cash - need help

Post by wolf359 » Mon Apr 29, 2019 3:22 pm

e5116 wrote:
Mon Apr 29, 2019 2:38 pm
k3vb0t wrote:
Sat Apr 27, 2019 4:41 pm
S_Track wrote:
Sat Apr 27, 2019 3:33 pm
k3vb0t wrote:
Sat Apr 27, 2019 6:43 am
If Ally goes bust you’re set to lose $850k. I’d get under FDIC limits ASAP.
Curious about this, would you feel move comfortable with the cash in a VG money market fund or would you rather see it in a FDIC accounts?
I'd have it spread out across multiple institutions to minimize risk. Having spent about 30 seconds thinking about it, I'd be comfortable with a chunk of it in a MMF like VMMXX based on my (limited) understanding of how Vanguard's funds work, but I wouldn't put 100% anywhere. I especially wouldn't keep a massive chunk above FDIC limits due to the limited recourse you have if the bank goes bust. 2008 could, in theory, happen again.
In 2008, which was the largest bank financial crisis many of us have seen in our lifetimes, what was the largest bank where people actually lost money who were above the FDIC limit? Honest question because my hunch is that basically all the big boys (Wachovia, WaMu, IndyMac) got acquired and nobody lost anything - their accounts just got moved. My point is that while I understand everybody on here says to stay under the FDIC limit, the risk of going above it with a large bank is basically minuscule (I think). I personally wouldn't sweat it at all. There were some small community banks that didn't get acquired and depositor's lost money probably.
There's no need to accept the risk of being above FDIC limits, though, when it's so easy to stay under them.

Option 1: There's been discussion of opening a Fidelity account. Fidelity offers brokered CDs. You could easily buy brokered CDs from banks around the country, manage them from your Fidelity account, and stay under the $250K limit per CD.

Option 2: You could use the Certificate of Deposit Account Registry Service (CDARS). If your bank offers it, deposits above $250K are deposited at other banks that belong to the service, keeping amounts in coverage.

Disclaimer: I've researched these in the past, and I believe they work as advertised, but have no experience with actually using them.

ncbill
Posts: 506
Joined: Sun Jul 06, 2008 4:03 pm

Re: Sitting on $1.5m cash - need help

Post by ncbill » Mon Apr 29, 2019 3:55 pm

Again, there's an easy way to hold millions in FDIC insured deposits at one institution:

"If you have deposits at a single bank in a single ownership capacity, then you have access up to $250,000 in FDIC insurance at that bank.

But with the ICS®, or Insured Cash Sweep®, service, you can access multi-million-dollar FDIC protection by working directly with just one bank that offers ICS."

https://www.insuredcashsweep.com/home/how-ics-works

As other posters note, CDARS is a similar service for CDs.

jpsc
Posts: 124
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Re: Sitting on $1.5m cash - need help

Post by jpsc » Mon Apr 29, 2019 5:55 pm

I'm surprise that no one mention Spyder dividend (SPYD) and Vanguard Dividend growth, Vanguard international dividend high yield (VIGI) for dividend income. From that $1.5M if you buy those dividend ETF, and use the dividend income, you don't actually need income from a job.

Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Mon Apr 29, 2019 6:23 pm

Ged wrote:
Mon Apr 29, 2019 12:50 pm
visa890 wrote:
Mon Apr 29, 2019 12:20 pm
Also, wife has ROTH 457b option - is that better in our case?
Can't tell without knowing the details. If it is a private employer the plan may be subject to forfeiture if the employer goes bankrupt. These plans are not recommended because of this risk.

If it is a public employer then it depends on costs. The 457b plans I've seen all have high fees, however it is possible there are plans that do not.
Public employer with very good options i.e. Vanguard Institutional Equity and other low cost funds. I can post the list if you'd like.


swaption wrote:
Mon Apr 29, 2019 2:04 pm
I'd propose an allocation below 80%. This really speaks to the inquiry of others, what are your goals? With your income, I'd be less concerned with what you do now as I would be formulating a plan for the future. You will have a tremendous amount of after tax savings, and you will need a robust plan for this. It might be worth thinking about what the difference is in terms of expected return for 60/40 as compared to 80/20. I'd scrap the emergency fund and move forward with a more conservative and robust plan. Your high net worth neighbors might buy themselves some mistaken notion of protection by paying up for the expertise of a hedge fund or a money manager. You're far better off buying yourself peace of mind, instead of paying excessive fees to buy them their own $2 mm house.

At this point, think of the notion of "winning by not losing". In some ways you have already won, so now just don't lose. That means thinking through things like a recession/depression scenario. In that type of world, those with long treasuries may be the ones in the best shape. It's sort of like the equivalent of life insurance for your portfolio. Not such a bad thing if it turns out to be a bad investment, but don't cut corners.
Appreciate the input. I don't understand the bold part.

I appreciate the kind words, but it doesn't "feel" like I have won. I guess a depression would be good for me as it will allow me to buy at cheap prices?

So, if not 80% equity, what would you recommend?


Thegame14 wrote:
Mon Apr 29, 2019 1:27 pm
with that income you can do whatever you want, I would mitigate risk and put like 30% down. I would max both tax deferred to the most possible, including HSA, FSA, then the rest Id put like 50/50% in taxable and money market, and each month I would throw an extra few thousand at the mortgage, to bring it down sooner, also take out a 15 year loan to save interest. Id also spend on things that save you time, that commute sucks, so Id have a lawn service, cleaning service, etc. to maximize time with family when not working. what is your plan for how long to work, that is a insane income, but you are also so young, you could probably retire by 40/45 easily but I assume you aren't since you didn't mention it. That is a lot of income to mess with, I wouldn't know what to do with it, it is so much income, so it would be hard to retire and give it up, but also so much income that you can only spend so much and have time to enjoy what you spend it on. I would also have 529 fully funded for the kids, make sure you have proper life insurance, and will set up. To me you need more estate planning than what to do with the cash.
Thanks for the input. What risk would I mitigate by putting 30% down?
Tax deferred are being maxed. So in a taxable buy which ETF at Fido? ITOT?
Can I, for peace of mind, get a 30 year mortgage and pay it off in 15 WITHOUT being penalized or paying extra? This is a math question
I agree totally about valuing time over money.
Commute does suck I agree but this is it for now.
Don't think I would retire that soon, but can scale back for sure i.e. go 0.6 FTE
529 - we just put 100K each for the kids last year.
Life Insurance - check
Estate planning - we kept it simple, but have a will, and the usual so check






I am aware of the FDIC risk, but just not sure where else to put the monies. Should I move $1m over to Fido? That way, if we don't buy a house soon, I can maybe get the $2.5K bonus? I can open a couple of brokerage plus CMA account and invest. But, then again, a poster above mentioned, to keep it steady until the house is purchased....not sure

smectym
Posts: 405
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Re: Sitting on $1.5m cash - need help

Post by smectym » Mon Apr 29, 2019 6:48 pm

“Aware of FDIC risk but not sure where to put the monies”

To negate FDIC risk, puit in Treasurys, through Treasury Direct. You can keep it all in one-month bills if you want (or 3 month, or 6 month...) and there are no commissions or fees. And you earn highly competitive rates.

I’m not a big fan of CDAR’s and other services that give you higher levels of FDIC insurance because you end up receiving an extremely low rate on your cash as a trade-off.

https://www.treasurydirect.gov/

Smectym

inbox788
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Re: Sitting on $1.5m cash - need help

Post by inbox788 » Mon Apr 29, 2019 7:46 pm

wolf359 wrote:
Mon Apr 29, 2019 3:22 pm
There's no need to accept the risk of being above FDIC limits, though, when it's so easy to stay under them.
IMO, there's no need for OP to put more than the FDIC limit in FDIC accounts. Put the rest to work.

swaption
Posts: 1200
Joined: Tue Jul 29, 2008 11:48 am

Re: Sitting on $1.5m cash - need help

Post by swaption » Tue Apr 30, 2019 9:15 am

visa890 wrote:
Mon Apr 29, 2019 6:23 pm
swaption wrote:
Mon Apr 29, 2019 2:04 pm
I'd propose an allocation below 80%. This really speaks to the inquiry of others, what are your goals? With your income, I'd be less concerned with what you do now as I would be formulating a plan for the future. You will have a tremendous amount of after tax savings, and you will need a robust plan for this. It might be worth thinking about what the difference is in terms of expected return for 60/40 as compared to 80/20. I'd scrap the emergency fund and move forward with a more conservative and robust plan. Your high net worth neighbors might buy themselves some mistaken notion of protection by paying up for the expertise of a hedge fund or a money manager. You're far better off buying yourself peace of mind, instead of paying excessive fees to buy them their own $2 mm house.

At this point, think of the notion of "winning by not losing". In some ways you have already won, so now just don't lose. That means thinking through things like a recession/depression scenario. In that type of world, those with long treasuries may be the ones in the best shape. It's sort of like the equivalent of life insurance for your portfolio. Not such a bad thing if it turns out to be a bad investment, but don't cut corners.
Appreciate the input. I don't understand the bold part.

I appreciate the kind words, but it doesn't "feel" like I have won. I guess a depression would be good for me as it will allow me to buy at cheap prices?

So, if not 80% equity, what would you recommend?
While perhaps not feeling like you have already won, whether you win or not will have little to do with your investing approach, hence my reference to be more focused on not losing. Based on the information you have provided, what will make you win is your job, and sustaining that should be your focus. My sense at this point is that you might be well served by a very good, fee only advisor. Based on the information you have rpovided, you could easily be saving on the order of $500k per year, so in a very short period of time that can become real money. It also increases the cost of even small mistakes and the value of such mundane things as tax strategies. It will also enable you to primarily focus on your aforementioned primary mission, your career, which can be particularly valuable in times of volatility. For you to somewhat cavalierly say that a depression would merely offer you the opportunity to buy at cheap prices I'd say is indicative of some level of naivety that might not be well suited to going it alone.

I can speak to the bold text. You'll be 80% equities (presumably mostly passive given that you are here) and 80% leveraged in a $2 million home. You are all in om the long side of the world. While optimism is great, there are many in the hardened high net worth country club crowd that will consider you a fool. They will wax poetic about market neutral strategies, and all sorts of things, particularly when the the **** hits the fan. That's when all us passive index folks get labeled as hopeless lemmings. To some extent they are right, but they are also wrong. The answer is portfolio composition. You are far better off constructing an all weather portfolio that maybe gives up a little bit in terms of expected return than burning fees on complex hedge fund strategies under some misguided notion that professional management will offer you protection. I'm not sure what the right allocation is for you, that's why you hire an advisor. But let's say the equity risk premium is something like 3% (that is the expected return of equities in excess of risk free treasuries), then back of the envelop before any consideration of a rebalancing benefit, the difference in expected return between 80/20 and 60/40 is 0.6% per annum. Maybe you can consider that the small price of not losing, which in your case probably means you win.

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Ged
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Location: Roke

Re: Sitting on $1.5m cash - need help

Post by Ged » Tue Apr 30, 2019 2:52 pm

visa890 wrote:
Mon Apr 29, 2019 6:23 pm
Ged wrote:
Mon Apr 29, 2019 12:50 pm
visa890 wrote:
Mon Apr 29, 2019 12:20 pm
Also, wife has ROTH 457b option - is that better in our case?
Can't tell without knowing the details. If it is a private employer the plan may be subject to forfeiture if the employer goes bankrupt. These plans are not recommended because of this risk.

If it is a public employer then it depends on costs. The 457b plans I've seen all have high fees, however it is possible there are plans that do not.
Public employer with very good options i.e. Vanguard Institutional Equity and other low cost funds. I can post the list if you'd like.
The funds sound good. When my wife was in a similar plan the plan administrative fees were far higher than the fund costs so pay attention to those.

finite_difference
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Joined: Thu Jul 09, 2015 7:00 pm

Re: Sitting on $1.5m cash - need help

Post by finite_difference » Tue Apr 30, 2019 4:49 pm

finite_difference wrote: ↑
1. I would buy a $1,000,000 house and put the rest in Total US Stock Market or Total World and Total Bond. You can get a very nice house in a great area for $1m. You will also save a ton on property tax and mortgage interest.
2. Choose a house that reduces your commute as much as possible while also being in a great area. Train >= light rail/subway > bus >>>>>>> car. 100% self autonomous cars could change that equation somewhat but I think that’s about 10 years away (2030). And I’d still prefer a subway/train.
$1m house will land us in a fixer upper or outside of a top school district. I drive into NY so no commuter anything for me sadly
I know for a fact that you can get a great house in a great school district for $1m (or less) in NJ.

But with your income of ~$1.5m/year, I don’t think ~$2m is a stretch at all so I am revising my advice — buy whatever makes you happy and minimizes your commute!
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

IngognitoUSA
Posts: 173
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Re: Sitting on $1.5m cash - need help

Post by IngognitoUSA » Wed May 01, 2019 9:26 am

Was this asked already, what generates $1.5M income per year?

Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Wed May 01, 2019 2:53 pm

swaption wrote:
Tue Apr 30, 2019 9:15 am
visa890 wrote:
Mon Apr 29, 2019 6:23 pm
swaption wrote:
Mon Apr 29, 2019 2:04 pm
I'd propose an allocation below 80%. This really speaks to the inquiry of others, what are your goals? With your income, I'd be less concerned with what you do now as I would be formulating a plan for the future. You will have a tremendous amount of after tax savings, and you will need a robust plan for this. It might be worth thinking about what the difference is in terms of expected return for 60/40 as compared to 80/20. I'd scrap the emergency fund and move forward with a more conservative and robust plan. Your high net worth neighbors might buy themselves some mistaken notion of protection by paying up for the expertise of a hedge fund or a money manager. You're far better off buying yourself peace of mind, instead of paying excessive fees to buy them their own $2 mm house.

At this point, think of the notion of "winning by not losing". In some ways you have already won, so now just don't lose. That means thinking through things like a recession/depression scenario. In that type of world, those with long treasuries may be the ones in the best shape. It's sort of like the equivalent of life insurance for your portfolio. Not such a bad thing if it turns out to be a bad investment, but don't cut corners.
Appreciate the input. I don't understand the bold part.

I appreciate the kind words, but it doesn't "feel" like I have won. I guess a depression would be good for me as it will allow me to buy at cheap prices?

So, if not 80% equity, what would you recommend?
While perhaps not feeling like you have already won, whether you win or not will have little to do with your investing approach, hence my reference to be more focused on not losing. Based on the information you have provided, what will make you win is your job, and sustaining that should be your focus. My sense at this point is that you might be well served by a very good, fee only advisor. Based on the information you have rpovided, you could easily be saving on the order of $500k per year, so in a very short period of time that can become real money. It also increases the cost of even small mistakes and the value of such mundane things as tax strategies. It will also enable you to primarily focus on your aforementioned primary mission, your career, which can be particularly valuable in times of volatility. For you to somewhat cavalierly say that a depression would merely offer you the opportunity to buy at cheap prices I'd say is indicative of some level of naivety that might not be well suited to going it alone.

I can speak to the bold text. You'll be 80% equities (presumably mostly passive given that you are here) and 80% leveraged in a $2 million home. You are all in om the long side of the world. While optimism is great, there are many in the hardened high net worth country club crowd that will consider you a fool. They will wax poetic about market neutral strategies, and all sorts of things, particularly when the the **** hits the fan. That's when all us passive index folks get labeled as hopeless lemmings. To some extent they are right, but they are also wrong. The answer is portfolio composition. You are far better off constructing an all weather portfolio that maybe gives up a little bit in terms of expected return than burning fees on complex hedge fund strategies under some misguided notion that professional management will offer you protection. I'm not sure what the right allocation is for you, that's why you hire an advisor. But let's say the equity risk premium is something like 3% (that is the expected return of equities in excess of risk free treasuries), then back of the envelop before any consideration of a rebalancing benefit, the difference in expected return between 80/20 and 60/40 is 0.6% per annum. Maybe you can consider that the small price of not losing, which in your case probably means you win.
Thanks. This is very helpful. I never considered looking at the whole picture as you outlined. Do you think I should get the house first and then get paid advice or do it now ASAP? In the meantime, any suggestion on how to invest the cash in the solo 401ks?

[OT comment removed by moderator oldcomputerguy]

furnace
Posts: 319
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Re: Sitting on $1.5m cash - need help

Post by furnace » Wed May 01, 2019 4:36 pm

OP, take a moment to think about your long term goals and investment philosophy.

a. Can you leave the investments untouched for 10+ years?
b. Can you stomach a 25% to 50% drop without having a heart attack?

If the answers are "yes" to both, I recommend 100% in the Vanguard Total Stock Market index (VTSAX). Reinvest all dividends automatically. There are no annual capital gains, so the tax advantage is the same as an ETF. (see this article: https://www.bloomberg.com/graphics/2019 ... nd=premium)

How much should you put into VTSAX? As much as you can afford to. Remember, you can't touch this money for a decade or longer. Keep any amount that is needed in cash/money market/short term Treasuries.

How would you size your purchases of VTSAX? Dump the entire amount into VTSAX on one day. Yes, all of it in one day. If you're fearful of buying at the absolute high, then dollar cost average in, but don't take too long. Research has shown "time in market" is more important than timing the market.

I give this recommendation whether someone earns $25k/yr or multiples of that.

If the answer is "no" to either question above, you can't go with 100% equities. Adjust lower until you can sleep at night, but in my opinion, it should not go below 60% equities.

Congratulations on your good income. I'm sure you worked very hard for it. Buy a nice, reasonable house for your family, and keep adding to your portfolio. I would love for you to come back 10 years later and tell us that your portfolio now exceeds $10m by a wide margin!

LeftCoastIV
Posts: 30
Joined: Wed May 01, 2019 7:19 pm

Re: Sitting on $1.5m cash - need help

Post by LeftCoastIV » Wed May 01, 2019 11:57 pm

To increase your FDIC coverage at the same institution, use different account owners (separate, joint, etc) or change up the POD beneficiaries.

You may find this helpful:
https://www5.fdic.gov/edie/

Disclaimer: Verify with the FDIC directly

Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Thu May 02, 2019 2:23 pm

furnace wrote:
Wed May 01, 2019 4:36 pm
OP, take a moment to think about your long term goals and investment philosophy.

a. Can you leave the investments untouched for 10+ years?
b. Can you stomach a 25% to 50% drop without having a heart attack?

If the answers are "yes" to both, I recommend 100% in the Vanguard Total Stock Market index (VTSAX). Reinvest all dividends automatically. There are no annual capital gains, so the tax advantage is the same as an ETF. (see this article: https://www.bloomberg.com/graphics/2019 ... nd=premium)

How much should you put into VTSAX? As much as you can afford to. Remember, you can't touch this money for a decade or longer. Keep any amount that is needed in cash/money market/short term Treasuries.

How would you size your purchases of VTSAX? Dump the entire amount into VTSAX on one day. Yes, all of it in one day. If you're fearful of buying at the absolute high, then dollar cost average in, but don't take too long. Research has shown "time in market" is more important than timing the market.

I give this recommendation whether someone earns $25k/yr or multiples of that.

If the answer is "no" to either question above, you can't go with 100% equities. Adjust lower until you can sleep at night, but in my opinion, it should not go below 60% equities.

Congratulations on your good income. I'm sure you worked very hard for it. Buy a nice, reasonable house for your family, and keep adding to your portfolio. I would love for you to come back 10 years later and tell us that your portfolio now exceeds $10m by a wide margin!
This is kind of what I personally thought as well, however, others have chimed in with views that are contrarian and make total sense in my situation. I am not sure which way to proceed. Perhaps, input from a FA would not be such a bad idea, but, again, I am not sure.

LeftCoastIV wrote:
Wed May 01, 2019 11:57 pm
To increase your FDIC coverage at the same institution, use different account owners (separate, joint, etc) or change up the POD beneficiaries.

You may find this helpful:
https://www5.fdic.gov/edie/

Disclaimer: Verify with the FDIC directly
Thanks. I called Ally after this thread. They suggested adding my 2 children to the joint account, which brough up FDIC to $1m. So, I am now covered for the most part.

swaption
Posts: 1200
Joined: Tue Jul 29, 2008 11:48 am

Re: Sitting on $1.5m cash - need help

Post by swaption » Fri May 03, 2019 11:58 am

visa890 wrote:
Wed May 01, 2019 2:53 pm
swaption wrote:
Tue Apr 30, 2019 9:15 am
visa890 wrote:
Mon Apr 29, 2019 6:23 pm
swaption wrote:
Mon Apr 29, 2019 2:04 pm
I'd propose an allocation below 80%. This really speaks to the inquiry of others, what are your goals? With your income, I'd be less concerned with what you do now as I would be formulating a plan for the future. You will have a tremendous amount of after tax savings, and you will need a robust plan for this. It might be worth thinking about what the difference is in terms of expected return for 60/40 as compared to 80/20. I'd scrap the emergency fund and move forward with a more conservative and robust plan. Your high net worth neighbors might buy themselves some mistaken notion of protection by paying up for the expertise of a hedge fund or a money manager. You're far better off buying yourself peace of mind, instead of paying excessive fees to buy them their own $2 mm house.

At this point, think of the notion of "winning by not losing". In some ways you have already won, so now just don't lose. That means thinking through things like a recession/depression scenario. In that type of world, those with long treasuries may be the ones in the best shape. It's sort of like the equivalent of life insurance for your portfolio. Not such a bad thing if it turns out to be a bad investment, but don't cut corners.
Appreciate the input. I don't understand the bold part.

I appreciate the kind words, but it doesn't "feel" like I have won. I guess a depression would be good for me as it will allow me to buy at cheap prices?

So, if not 80% equity, what would you recommend?
While perhaps not feeling like you have already won, whether you win or not will have little to do with your investing approach, hence my reference to be more focused on not losing. Based on the information you have provided, what will make you win is your job, and sustaining that should be your focus. My sense at this point is that you might be well served by a very good, fee only advisor. Based on the information you have rpovided, you could easily be saving on the order of $500k per year, so in a very short period of time that can become real money. It also increases the cost of even small mistakes and the value of such mundane things as tax strategies. It will also enable you to primarily focus on your aforementioned primary mission, your career, which can be particularly valuable in times of volatility. For you to somewhat cavalierly say that a depression would merely offer you the opportunity to buy at cheap prices I'd say is indicative of some level of naivety that might not be well suited to going it alone.

I can speak to the bold text. You'll be 80% equities (presumably mostly passive given that you are here) and 80% leveraged in a $2 million home. You are all in om the long side of the world. While optimism is great, there are many in the hardened high net worth country club crowd that will consider you a fool. They will wax poetic about market neutral strategies, and all sorts of things, particularly when the the **** hits the fan. That's when all us passive index folks get labeled as hopeless lemmings. To some extent they are right, but they are also wrong. The answer is portfolio composition. You are far better off constructing an all weather portfolio that maybe gives up a little bit in terms of expected return than burning fees on complex hedge fund strategies under some misguided notion that professional management will offer you protection. I'm not sure what the right allocation is for you, that's why you hire an advisor. But let's say the equity risk premium is something like 3% (that is the expected return of equities in excess of risk free treasuries), then back of the envelop before any consideration of a rebalancing benefit, the difference in expected return between 80/20 and 60/40 is 0.6% per annum. Maybe you can consider that the small price of not losing, which in your case probably means you win.
Thanks. This is very helpful. I never considered looking at the whole picture as you outlined. Do you think I should get the house first and then get paid advice or do it now ASAP? In the meantime, any suggestion on how to invest the cash in the solo 401ks?

[OT comment removed by moderator oldcomputerguy]
I don't think the word ASAP necessarily needs to be part of you vocabulary here. If you would like to have an advisor to have a seat at the table while you go through the process of buying a house, then maybe not a bad idea, but no problem if that's not the case. Do your diligence, whatever that entails, and buy a house. But I would be patient in terms of investing your cash, so I wouldn't really do much of anything until you have a plan. To the extent you go the advisor route, that no doubt should come first. The notion of investing as wealth preservation should be incorporated in your approach.

investor4life
Posts: 163
Joined: Fri Oct 08, 2010 9:45 am

Re: Sitting on $1.5m cash - need help

Post by investor4life » Fri May 03, 2019 12:06 pm

k3vb0t wrote:
Sat Apr 27, 2019 6:43 am
If Ally goes bust you’re set to lose $850k. I’d get under FDIC limits ASAP.
Agreed that that's a lot of eggs in one basket, but OP may be under the FDIC limits depending on how the accounts are held at Ally (joint, with beneficiaries, etc.)

OP: You can check your FDIC coverage at EDIE.

yoyo6713
Posts: 42
Joined: Thu May 10, 2018 8:48 pm

Re: Sitting on $1.5m cash - need help

Post by yoyo6713 » Fri May 03, 2019 3:55 pm

investor4life wrote:
Fri May 03, 2019 12:06 pm
k3vb0t wrote:
Sat Apr 27, 2019 6:43 am
If Ally goes bust you’re set to lose $850k. I’d get under FDIC limits ASAP.
Agreed that that's a lot of eggs in one basket, but OP may be under the FDIC limits depending on how the accounts are held at Ally (joint, with beneficiaries, etc.)

OP: You can check your FDIC coverage at EDIE.
exactly. OP has two kids, adding two POD immediately ups the FDIC to 1m at Ally

Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Fri May 03, 2019 6:25 pm

swaption wrote:
Fri May 03, 2019 11:58 am
visa890 wrote:
Wed May 01, 2019 2:53 pm
swaption wrote:
Tue Apr 30, 2019 9:15 am
visa890 wrote:
Mon Apr 29, 2019 6:23 pm
swaption wrote:
Mon Apr 29, 2019 2:04 pm
I'd propose an allocation below 80%. This really speaks to the inquiry of others, what are your goals? With your income, I'd be less concerned with what you do now as I would be formulating a plan for the future. You will have a tremendous amount of after tax savings, and you will need a robust plan for this. It might be worth thinking about what the difference is in terms of expected return for 60/40 as compared to 80/20. I'd scrap the emergency fund and move forward with a more conservative and robust plan. Your high net worth neighbors might buy themselves some mistaken notion of protection by paying up for the expertise of a hedge fund or a money manager. You're far better off buying yourself peace of mind, instead of paying excessive fees to buy them their own $2 mm house.

At this point, think of the notion of "winning by not losing". In some ways you have already won, so now just don't lose. That means thinking through things like a recession/depression scenario. In that type of world, those with long treasuries may be the ones in the best shape. It's sort of like the equivalent of life insurance for your portfolio. Not such a bad thing if it turns out to be a bad investment, but don't cut corners.
Appreciate the input. I don't understand the bold part.

I appreciate the kind words, but it doesn't "feel" like I have won. I guess a depression would be good for me as it will allow me to buy at cheap prices?

So, if not 80% equity, what would you recommend?
While perhaps not feeling like you have already won, whether you win or not will have little to do with your investing approach, hence my reference to be more focused on not losing. Based on the information you have provided, what will make you win is your job, and sustaining that should be your focus. My sense at this point is that you might be well served by a very good, fee only advisor. Based on the information you have rpovided, you could easily be saving on the order of $500k per year, so in a very short period of time that can become real money. It also increases the cost of even small mistakes and the value of such mundane things as tax strategies. It will also enable you to primarily focus on your aforementioned primary mission, your career, which can be particularly valuable in times of volatility. For you to somewhat cavalierly say that a depression would merely offer you the opportunity to buy at cheap prices I'd say is indicative of some level of naivety that might not be well suited to going it alone.

I can speak to the bold text. You'll be 80% equities (presumably mostly passive given that you are here) and 80% leveraged in a $2 million home. You are all in om the long side of the world. While optimism is great, there are many in the hardened high net worth country club crowd that will consider you a fool. They will wax poetic about market neutral strategies, and all sorts of things, particularly when the the **** hits the fan. That's when all us passive index folks get labeled as hopeless lemmings. To some extent they are right, but they are also wrong. The answer is portfolio composition. You are far better off constructing an all weather portfolio that maybe gives up a little bit in terms of expected return than burning fees on complex hedge fund strategies under some misguided notion that professional management will offer you protection. I'm not sure what the right allocation is for you, that's why you hire an advisor. But let's say the equity risk premium is something like 3% (that is the expected return of equities in excess of risk free treasuries), then back of the envelop before any consideration of a rebalancing benefit, the difference in expected return between 80/20 and 60/40 is 0.6% per annum. Maybe you can consider that the small price of not losing, which in your case probably means you win.
Thanks. This is very helpful. I never considered looking at the whole picture as you outlined. Do you think I should get the house first and then get paid advice or do it now ASAP? In the meantime, any suggestion on how to invest the cash in the solo 401ks?

[OT comment removed by moderator oldcomputerguy]
I don't think the word ASAP necessarily needs to be part of you vocabulary here. If you would like to have an advisor to have a seat at the table while you go through the process of buying a house, then maybe not a bad idea, but no problem if that's not the case. Do your diligence, whatever that entails, and buy a house. But I would be patient in terms of investing your cash, so I wouldn't really do much of anything until you have a plan. To the extent you go the advisor route, that no doubt should come first. The notion of investing as wealth preservation should be incorporated in your approach.
We will keep looking for a house and see if something comes up that we like. Any financial advisors you recommend?

I see Harry Sit has a service to find an advisor - seems like a decent choice and may have me avoid unscrupulous characters

To all commenting on the FDIC issue - I added the kids. So we are at $1m, which covers almost all of it.


This is what I plan at the moment:

switch the wife to 457 ROTH and max it out
look/buy a house as cheap as possible with 20% down
with the rest cash, do nothing else with the cash until professional help

Is above reasonable?

Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Tue May 07, 2019 7:00 pm

bump for additional input thanks

Topic Author
visa890
Posts: 19
Joined: Fri Apr 26, 2019 9:08 pm

Re: Sitting on $1.5m cash - need help

Post by visa890 » Fri May 10, 2019 11:15 am

Anyone?!

User avatar
DragonJoey3
Posts: 43
Joined: Wed Apr 18, 2018 8:52 am

Re: Sitting on $1.5m cash - need help

Post by DragonJoey3 » Fri May 10, 2019 12:23 pm

I've always been a do it yourself kind of person, but at an income of 7 figures you can afford to pay some to have someone else do it as just showing up to work makes you more money than you are losing.

I can't recommend a good financial adviser because I don't use one (manage my own money), but I would say that getting that income sheltered from taxes as much as possible would be a top goal. FDIC limits are not that much of an issue as you are intending on moving the money out anyway.

I guess the question I would have is what advice are you looking for from a financial adviser? The main advice I think i would be seeking would be from a CPA (tax avoidance). The strategies espoused by Jack Bogle work no matter how large your investment portfolio is. I am personally a fan of more conservative portfolios than being "all in on VTSAX" and given your prodigious income I think capital preservation is greater than capital growth.

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ruralavalon
Posts: 15953
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Sitting on $1.5m cash - need help

Post by ruralavalon » Mon Jun 03, 2019 4:11 pm

Welcome to the forum :) .

Please simply add any new information to your original post using the edit button, it helps a lot if all of your information is in one place.


Emergency fund.
visa890 wrote:
Fri Apr 26, 2019 9:24 pm
Emergency funds: $300K in Ally 2.3% CD
. . . . .
2. Do I need a $300K emergency fund? Our main expense right now is rent and we have no debt. Do I need this $300K PLUS the $500K house fund? Can I invest more?
About how much per month are your basic living expenses?

How stable are your jobs, your companies, and the industries and occupations you each work in?

A common suggestion for an emergency fund is about 3 - 6 months worth of basic living expanses.


Need an advisor?
visa890 wrote:
Fri Apr 26, 2019 9:24 pm
4. Do I need a financial advisor?
Here is a guide to help in deciding if you want or need an advisor: "The great paradox of using an advisor is that you must know some basics in order to evaluate the advice, and once you do, you also know enough to consider doing your own management." "Chapter 10 – On Your Own or Hire an Advisor".


Asset allocation.
visa890 wrote:
Fri Apr 26, 2019 9:24 pm
First time poster, but I have been lurking. Our initial plan was to buy a house with cash, so we started saving since 2017, but then we changed our minds and will be doing the standard 20% down. Now, this leaves us with $1m+ in cash. Have about 92K sitting in retirement accounts in cash, and rest is at Ally.
. . . . .
Age: Both 37
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 50-60% INTL with 1/3 EM. Also want a little SCV tilt
At age 37 your desired 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund) is within the range of what is reasonable in my opinion.

This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk"; and
2) Wiki article, "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

In my opinion 1/3 of international stocks in emerging markets is not wise. I don't suggest adding any extra emerging markets.

If you want a small-cap value tilt, then Rick Ferri has suggested using a small-cap value index fund at around 25% of domestic stocks. “My preference is 75 percent to a total market index fund and 25 percent allocation to a small-value index fund“, Rick Ferri, etf.com (7/21/2014), "To Tilt Or Not To Tilt?".

That works out to about: 20% bonds, 20% international stocks, 15% domestic small-cap value tocks, and 45% other domestic stock. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


Accounts.
visa890 wrote:
Fri Apr 26, 2019 9:24 pm
Tax Filing Status: MFJ
Tax Rate: 31% Federal, State is about 10%? :x
. . . . .
5. Her 457b has a ROTH 457b option. Should we be doing Roth 457b?
. . . . .
6. We need to open up new solo 401K plans as biz structure changed for 2019. Should we open with a Roth option to avoid the "deduction reduction" issue?
Is her employer a government or government agency? Or is her employer a charity or non-profit?

That makes a difference when it comes to 457 plans. Wiki article, "457b".

About how much do you feel that you may be adding to each account annually?

What funds are offered in her 457 plan? Please give fund names, tickers and expense ratios.

(I know that I have skipped the question about making Roth contributions to her 457 plan. I didn't have time today, and wanted a little more information.)

I think that including a Roth option in your solo 401k is a good idea.

visa890 wrote:
Fri Apr 26, 2019 9:24 pm
7. Fido has a bonus if you move over $1m. Should I move $1m over from Ally to Fido?
Yes.

. . . . .

I have just assumed that your Roth IRA is at Vanguard, like hers.

I have just assumed that the same funds are offered in her 457 as are in her 403b, specifically CREF Equity Index R3 (Russell 3000 Index, a total stock market index) ER 0.23% .

I just guessed that there is a total stock market index fund or S&P 500 index fund offered in your work 401k.

What funds are offered in your work 401k? Please give fund names, tickers and expense ratios.

Please let me know if the asumptions are correct or incorrect.

About how much do you feel that you may be adding to each account annually?



General fund selection and placement.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain).

Low expense ratios are critical to long-term investing performance. Low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.

In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement". That wiki article has an Appendix with a Table about the tax-efficiency of different types of funds and ETFs.

At Fidelity in a taxable account I suggest investing in: (1) Fidelity Total Market Index Fund (FSKAX) ER 0.015%; and (2) Fidelity Total International Index Fund (FTIHX) ER 0.06%. For a little better tax-efficiency you could consider these ETFs: (1) iShares Core S&P Total US Stock Mkt ETF (ITOT) ER 0.03%; and (2) iShares Core MSCI Total Intl Stk ETF (IXUS) ER 0.10%.

Stock index funds are also well suited to any type of account.

For small-cap value I use 25% in Vanguard Small-cap Value Index Fund Admiral Shares (VSIAX) ER 0.07%. The ETF share class is Vanguard Small-Cap Value ETF (VBR) ER 0.07%. Another ETF is Vanguard S&P Small-Cap 600 Value ETF (VIOV) ER 0.20%.

In a Fidelity account a possibility is iShares S&P Small-Cap 600 Value ETF (IJS) ER 0.25%. Fidelity does not offer a small-cap value index fund.

In a Fidelity account for emerging markets, consider Fidelity Emerging Markets Index Fund (FPADX) ER 0.09%.

Bond funds are not very tax-efficient. Ordinarily a bond fund should be placed in a tax-advantaged account, preferably a tax-deferred account like a traditional 401k. Wiki article, "Asset allocation in multiple accounts".

I have never had an account with TIAA-CREF. I know that many people who do like their Traditional Account, rather than a bond fund. I can't advise you on that.

To make portfolio management and rebalancing easy it is often better to have at least one large tax-advantaged account which contains all three basic asset types (bonds, international stocks, and domestic stocks). In your case that could be his solo 401k and her 403b. Don’t try to put all components of the asset allocation in every account.

It is often better to coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, SIMPLE IRA, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in a taxable account or any IRAs.

This approach also allows for better tax-efficiency if you use taxable account too. Wiki article, "Tax-efficient Fund Placement".




Example portfolio.
QUESTIONS

1. We NEED a house. Have outgrown where we are now. Assuming house is $2m, a 20% down payment would $400k plus another $100K for anything extraneous, which bring the total to about $500K for “house”. I currently have this at Ally. This leaves another 500K in cash at Ally. I need to invest the other $500K at Fidelity in a taxable. How best to allocated assuming I want 80/20 with 50-60% INTL with 1/3 of that EM?
. . . . .
3. How do I best reach 80/20 across multiple accounts?

Here is an example portfolio that you could consider. Current portfolio size = $1,422k. New annual contributions = about $?????k. The asset allocation is: 20% bonds, 20% international stocks, 15% domestic small-cap value stocks, and 45% other domestic stocks.

This example is intended to cover only your retirement/long-term investing, not your savings for a home or for college expenses.

The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Fidelity (35% of total; $500k)
19%, Fidelity Total Market Index Fund (FSKAX) ER 0.015%
11%, Fidelity Total International Index Fund (FTIHX) ER 0.06%
00%, Fidelity Emerging Markets Index Fund (FPADX) ER 0.09%
05%, iShares S&P Small-Cap 600 Value ETF (IJS) ER 0.25%.

His solo 401k @ Fidelity (15% of total; $217k)
08%, Fidelity Total Market Index Fund (FSKAX) ER 0.015%
02%, Fidelity Total International Index Fund (FTIHX) ER 0.06%
05%, Fidelity U.S. Bond Index Fund (FXNAX) ER 0.03'%

His Roth IRA @ Vanguard?? (03% of total; $40K)
03%, Vanguard Small-cap Value Index Fund Admiral Shares (VSIAX)ER 0.07%.

His 401k work (07% of total; $100k)
07%, a total stock market index fund or S&P 500 Index fund

Her 403b (21% of total; $292k)
04%, CREF Equity Index R3 (Russell 3000 Index, a total stock market index) ER 0.23%
02%, TIAA Access International Equity Index Fund T1 (MSCI EAFE Index, larger companies in developed markets only) ER 0.16%
15%, TIAA Access Bond Index T1 (Bloomberg Barclays U.S. Aggregate Bond Index, a total bond market index fund) ER 0.22%

Her 457b (05% of total; $70k)
05%, CREF Equity Index R3 (Russell 3000 Index, a total stock market index) ER 0.23%

Her solo 401K @ Fidelity (05% of total; $73k)
05%, iShares S&P Small-Cap 600 Value ETF (IJS) ER 0.25%.

Her Roth IRA @ Vanguard (02% of total; $30k)
02%, Vanguard Small-cap Value Index Fund Admiral Shares (VSIAX) ER 0.07%.




Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can adjust the asset allocation by exchanging between funds inside his solo 401k account, and inside her 403b account.

Avoid exchanging between funds in the taxable account, which can create income tax liability.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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