windfall management

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canjoos
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windfall management

Post by canjoos » Tue May 07, 2019 10:26 pm

i'm asking for guidance. I've read most of the posts and links about windfall and I've basically sat on most of this in a money market. I know I'm in a good position but i'm asking what you would do in this circumstance as there is a lot of collective wisdom and I keep on reading about dumb doctors making mistakes in this position. i actually get nervous when i think about the challenge of managing this as my father got a lump sum in 2000 and spent years regretting his stock purchases.

physician-we sold to private equity-I netted a little more than 2 mill after taxes

basics-
annual income (w2): 600k (wife is also physician)
tax rate: approx 32%
expenses: 250k
state: tx-no income tax married with 3 kids
age: 37

house paid off (~900k)-this was all we did for the last few years b/c i was binging dave ramsey

401/ira's-about 1 mill (40 % fidelity s&p 500/40% total market/20% international)

taxable:

1.8-cash money market
300k- (40% fidelity s&p index/40% total market/20% international)

529s
130k in oldest child's 529
50k in middle
10k in youngest (less than 2 years old)

thanks.

kcxie
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Re: windfall management

Post by kcxie » Tue May 07, 2019 10:49 pm

Can you elaborate on your expenses with 250K?

Thegame14
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Re: windfall management

Post by Thegame14 » Tue May 07, 2019 11:10 pm

those expenses are INSANE, then you say mortgage is paid off, making those expenses even MORE INSANE......

KyleAAA
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Re: windfall management

Post by KyleAAA » Tue May 07, 2019 11:11 pm

What is your question, exactly? How to invest the windfall? I would just add it to my regular portfolio, making sure I held the most tax efficient funds in taxable. You have a good nest egg already and income is much higher than expenses. Just keep doing what you’re doing. It’s working.

KyleAAA
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Re: windfall management

Post by KyleAAA » Tue May 07, 2019 11:12 pm

Thegame14 wrote:
Tue May 07, 2019 11:10 pm
those expenses are INSANE, then you say mortgage is paid off, making those expenses even MORE INSANE......
OP makes $600k per year, so expenses are low relative to income.

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Wiggums
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Re: windfall management

Post by Wiggums » Wed May 08, 2019 3:13 am

KyleAAA wrote:
Tue May 07, 2019 11:11 pm
What is your question, exactly? How to invest the windfall? I would just add it to my regular portfolio, making sure I held the most tax efficient funds in taxable. You have a good nest egg already and income is much higher than expenses. Just keep doing what you’re doing. It’s working.
+1

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WWJBDo
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Re: windfall management

Post by WWJBDo » Wed May 08, 2019 3:38 am

First off, congrats for the sale. Many times the young physicians don’t participate in buyouts like that, so good on you and/or your group.
Having had a similar but smaller event a short while back, I found it too hard to take the windfall and put it into a 30/30/40 split of cash, bonds and stocks and instead started with cash and treasuries, doing regular VTSAX purchases in an effort to dollar cost average. As a result, I’ve missed out on a fair amount of increased value during the past 2 years compared to if I had just put 40% into VTSAX at once.

So, there is a potential ‘loss’ to playing it too safe. As others will state here, we do not know where things will go. But based on your time horizon, you can handle any ‘hit’ that comes along, so I would open a vanguard account, decide what your asset allocation should be and ‘just do it’ either as a one-time purchase to get there or with timed purchases which are quite easy to set up with Vanguard with weekly or monthly transfers over some period of time.

Expenses seem reasonable for your income and you will be able to save going forward. Stay boring and you’ll be fine.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair

mega317
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Re: windfall management

Post by mega317 » Wed May 08, 2019 3:54 am

It's pretty interesting that you seem very nervous about buying stocks, mentioning your father's regret, yet you own 1.3 million dollars of stock.

I think it's actually not unreasonable to NOT invest this. It would leave you with a stock/fixed income ratio around 40/60 which, while too conservative for my taste, is fine. The problem is with your expenses you are a long way from retirement and do still have a need to take risk.

At the least I would buy stocks in taxable and exchange stocks for bonds in tax advantaged so that nothing changes except you stop paying taxes on the money market dividends which is 5 figures for you.

Prahasaurus
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Re: windfall management

Post by Prahasaurus » Wed May 08, 2019 4:00 am

WWJBDo wrote:
Wed May 08, 2019 3:38 am
So, there is a potential ‘loss’ to playing it too safe. As others will state here, we do not know where things will go. But based on your time horizon, you can handle any ‘hit’ that comes along, so I would open a vanguard account, decide what your asset allocation should be and ‘just do it’ either as a one-time purchase to get there or with timed purchases which are quite easy to set up with Vanguard with weekly or monthly transfers over some period of time.

Expenses seem reasonable for your income and you will be able to save going forward. Stay boring and you’ll be fine.
You are young and have a great combined salary with your wife. You have plenty of money saved, and now this windfall. You are in great shape. If you had just inherited this at age 60, you would probably have a different approach. But with so much time in front of you to earn and invest, I agree with the poster above: open a Vanguard account, determine a reasonable stock/bond allocation, and invest it all. Then forget about it, don't stress it....

If you are nervous about the economy, then invest 25% now, 25% in six months, etc., until you have it all invested over 2 years, or 1 year, or whatever time horizon you're most comfortable with.

Congrats on doing so well!

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Watty
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Re: windfall management

Post by Watty » Wed May 08, 2019 4:22 am

It is very likely that your net worth will hit the limits where estate taxes are an issue when you die so it would be good to meet with an estate planning lawyer and start coming up with a long term plan. How to invest the money could in part depend on your estate planning.

msk
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Re: windfall management

Post by msk » Wed May 08, 2019 5:03 am

Your father had regrets because he bought individual stocks. Pity he had not chosen Berkshire Hathaway... If I were you at age < 40 I would just put my entire net worth into stocks, either US Total Market VTI or World Total free float market, VT. My preference is VT since it's very difficult to envisage a total collapse of ALL the world's stocks. Much easier to imagine hyper inflation in the US because the US$ loses its reserve currency status or some other totally unforeseeable events. I see no need to park anything in bonds, emergency fund, etc. This is just a loss of investment time. You have ample earning potential for many years, so the stocks will accumulate, a lot, with yoyos up and down along the decades. Sort out your tax efficient avenues but at the end of it all 100% stocks. Activate margin at Interactive Brokers and that provides very ample emergency funds at a low interest rate. I spent my working life invested in rental real estate and the rest 100% stocks. Sold all RE at retirement and stayed 100% stocks the last 19 years, with a continuously rising NW. No regrets.

mega317
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Re: windfall management

Post by mega317 » Wed May 08, 2019 5:19 am

msk wrote:
Wed May 08, 2019 5:03 am
Your father had regrets because he bought individual stocks.
That was initially how I read it too, but OP didn't really say that. Could have been funds.

Jack FFR1846
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Re: windfall management

Post by Jack FFR1846 » Wed May 08, 2019 5:56 am

6 shares of BRK/A
Bogle: Smart Beta is stupid

Topic Author
canjoos
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Re: windfall management

Post by canjoos » Wed May 08, 2019 9:39 am

Wow these are really useful responses. I appreciate everything responsewise.

I have been sitting on it for about 6 months out of pure fear. Every week I buy 20k of the s&p or total market but I wanted to ask a few questions to everyone:

1. I love the vanguard philosophy but I'm heavy in fidelity for a variety of convenience reasons. The expense ratios are supposed to be slightly lower as well. Do you switch even if deeply entrenched in Fidelity funds?
2. Are you guys a jump all in or wait over years. I thought, if I dipped in at 20k a week, I could dollar average over the next year and a half.
3. expenses-yes, they are astonishing. I grew up in a home where our total expenses for a family of 4 were probably around 40k. I go line by line-our oldest is in public school, younger two aren't of age yet. kids expenses including live in nanny (so that we can both work-nights, weekends, etc..) are right at $50k. House is paid off, but the maintenance isn't cheap-around 20k a year, plus another 20k in taxes. disability/life is another 14k a year, we have 3 modest cars all paid with cash and have at least 80k+ miles. we vacation and use priceline to get hotel deals and are not ostentatious at all in our general approach to life. our entertainment/vacation budget is about 10k. The rest is simply food/clothes/stuff. I have tried to figure out how to scale back without materially affecting our lifestyle and haven't found the solution. That being said, we do work long hours and I am not sure if this is extravagant or not. I make a point to send 16000k/month to my fidelity investment account out of every paycheck in addition to the 52k in my IRA and 3k per month on 529s. If you can't tell, I have extreme guilt about the yearly expenses.
4. Thank you all for not judging me-I feel very comfortable discussing my money challenges and feel encouraged by the posts. Please keep offering advice/suggestion. I am relatively young and was not expecting to have such fortune. I am too paralyzed by fear of losing it to make a decision
5. father-he invested in a hodge podge of 15 different stocks, largely tech as they were booming at the time. He obviously would have loved to get berkshire hathaway or even more mutual funds. I am definitely avoiding that and am big on index funds, but I don't know whether to just throw the entire bucket now or wait or anything.
6. estate planning-i have spoken to a few attorneys about setting up a family llp and they start asking questions. they don't reveal their fees until they find out how much money i have-then they say, "oh..this is really complicated. it will probably run around 15k" I have done 4 different iterations of this meeting with the limited time that I have so I'm convinced that many of them are scum and it is unfair that they get to price after they find out what I have money wise.

Please keep responding with any advice. I have basically been going by the bogleheads book and millionaire next door to this point. i find this forum very encouraging.

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Peculiar_Investor
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Re: windfall management

Post by Peculiar_Investor » Wed May 08, 2019 9:44 am

canjoos wrote:
Tue May 07, 2019 10:26 pm
i'm asking for guidance. I've read most of the posts and links about windfall and I've basically sat on most of this in a money market.
Have you also read the wiki article Managing a windfall?
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

Topic Author
canjoos
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Re: windfall management

Post by canjoos » Wed May 08, 2019 9:51 am

yes-and i took it to heart. that is why i sat on the money for the most part. my partners are doing all the other stuff (buying things, crazy real estate investment funds, etc.). I am about 8 months out and am now trying to figure out how to put that money in the market. if the total market was down 20%, I think I would be less uptight.

hafjell
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Re: windfall management

Post by hafjell » Wed May 08, 2019 9:52 am

canjoos wrote:
Wed May 08, 2019 9:39 am
Wow these are really useful responses. I appreciate everything responsewise.

I have been sitting on it for about 6 months out of pure fear. Every week I buy 20k of the s&p or total market but I wanted to ask a few questions to everyone:

1. I love the vanguard philosophy but I'm heavy in fidelity for a variety of convenience reasons. The expense ratios are supposed to be slightly lower as well. Do you switch even if deeply entrenched in Fidelity funds? No need to switch. Almost anything you want to do at VG can be done at Fido.
2. Are you guys a jump all in or wait over years. I thought, if I dipped in at 20k a week, I could dollar average over the next year and a half. Most will argue with you to lump sum, but if it helps you sleep at night, just DCA. As DR says, personal finance is personal. My suspicion is this will not be the last cash event in your life. Next time you can lump sum with experience.
3. expenses-yes, they are astonishing. I grew up in a home where our total expenses for a family of 4 were probably around 40k. I go line by line-our oldest is in public school, younger two aren't of age yet. kids expenses including live in nanny (so that we can both work-nights, weekends, etc..) are right at $50k. House is paid off, but the maintenance isn't cheap-around 20k a year, plus another 20k in taxes. disability/life is another 14k a year, we have 3 modest cars all paid with cash and have at least 80k+ miles. we vacation and use priceline to get hotel deals and are not ostentatious at all in our general approach to life. our entertainment/vacation budget is about 10k. The rest is simply food/clothes/stuff. I have tried to figure out how to scale back without materially affecting our lifestyle and haven't found the solution. That being said, we do work long hours and I am not sure if this is extravagant or not. I make a point to send 16000k/month to my fidelity investment account out of every paycheck in addition to the 52k in my IRA and 3k per month on 529s. If you can't tell, I have extreme guilt about the yearly expenses. It doesn't matter because you're living below your considerable means, but, if you really want to trim expenses, you need a better budget. Are you including your investments from your paycheck in your expense accounting?
4. Thank you all for not judging me-I feel very comfortable discussing my money challenges and feel encouraged by the posts. Please keep offering advice/suggestion. I am relatively young and was not expecting to have such fortune. I am too paralyzed by fear of losing it to make a decision Go slow. Keep reading.
5. father-he invested in a hodge podge of 15 different stocks, largely tech as they were booming at the time. He obviously would have loved to get berkshire hathaway or even more mutual funds. I am definitely avoiding that and am big on index funds, but I don't know whether to just throw the entire bucket now or wait or anything. See above.
6. estate planning-i have spoken to a few attorneys about setting up a family llp and they start asking questions. they don't reveal their fees until they find out how much money i have-then they say, "oh..this is really complicated. it will probably run around 15k" I have done 4 different iterations of this meeting with the limited time that I have so I'm convinced that many of them are scum and it is unfair that they get to price after they find out what I have money wise. Keep shopping. That doesn't sound outrageous to me, but you should really understand the market and what you're paying for.

Please keep responding with any advice. I have basically been going by the bogleheads book and millionaire next door to this point. i find this forum very encouraging.

mega317
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Re: windfall management

Post by mega317 » Wed May 08, 2019 10:31 am

I think you need to think more about what you want your allocation to be. As I wrote upthread you're currently around 40% stock. At the end of a prolonged DCA you will be at some other number, presumably significantly higher. Which of those numbers is correct for you? With a slow DCA you are going to be spending a lot of time at an incorrect number. If you're happy with that, then maybe the target is wrong.

Adding your budget up line by line as you wrote gets to $114,000. From reading budgets on this forum I gather food for a family of 5 costing 2k would be pretty steep, let's call it 3k for you. So you're at $150. You are spending 100 thousand dollars a year on clothes and stuff?

I don't know anything about law or estate planning but if you've had the same meeting 4 times then I'd lean to thinking that is the standard way of doing things rather than all 4 were scum.

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canjoos
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Re: windfall management

Post by canjoos » Wed May 08, 2019 10:44 am

"It doesn't matter because you're living below your considerable means, but, if you really want to trim expenses, you need a better budget. Are you including your investments from your paycheck in your expense accounting?"
-you are absolutely correct. I am doing math after the fact, not prospectively budgeting. how do the other busy people with young kids find time to budget. I am motivated, but we are wiped by 8pm and weekends are consumed by kids. I know i'm whining but I am curious how other families with busy (60+ hr workweek and young kids) handle budgeting.

i have gone with a simplified approach to this point. we paid off the house quickly and now i literally send 8k per paycheck to fidelity the minute i see my paycheck hit my account. then we automate 1k per kid to 529. after a few months, i try to find a few hours to tabulate where our money goes using mint.com and excel. and, so far, we have done ok. but, i agree, we aren't as intentional with expenses as we could be.

any behavioral tricks or advice on how to manage expenses when you have very limited time?

full expense 2018

Mortgage $20,051.52
Home $38,649.67
Utilities $12,733.35
Car $9,609.45
Groceries $12,107.37
Restaurants $11,603.52
Shopping $19,515.07
Travel $15,192.72
fun $4,357.33
gym $1,759.69
Kids $54,553.39
party $5,769.65
Medical $11,011.62
Fees $52.76
Miscellaneous $1,569.09
Insurance $26,408.66
Income $642,853.87

just some caveats-we finished paying the house off last year so the mortgage won't apply. as for the categories above, this is the detailed breakdown of the subcategories that comprise them-we have a live in nanny and we are paying for her to finish her associates degree, which is why that is bundled into kids:

Mortgage Mortgage & Rent
Home Home Services
HOA Fees
Home Cleaning Servic
Pool Service
Furnishings
Home Improvement
Home Warranty
Lawn & Garden
Bathroom Renovation
Utilities Television
Utilities
Mobile Phone
Home Phone
Home Security Alarm
Car
Gas & Fuel
Auto Insurance
Auto & Transport
Service & Parts
Groceries Groceries
Restaurants
Fast Food
Restaurants
Coffee Shops
Food & Dining
Shopping
Amazon Purchases
Hobbies
Gift
Hair
Clothing
Gifts & Donations
Department Store
Personal Care
Electronics & Software
Sporting goods
Shipping
Shopping
Photographer
Travel Laundry

Vacation
Hotel
Parking
Travel
Air Travel
Rental Car & Taxi

fun Alcohol & Bars
Spa & Massage
Amusement
Entertainment
Movies & DVDs
Service Fee
gym Gym
Health & Fitness

Kids Kids Education
Books
Nanny School Expense
Baby Supplies
Books & Supplies
Nanny Tuition
Kids Activities
Babysitter & Daycare
Toys
Cash & ATM
Education
Kids
party
Kids Birthday Party
Party Planning
Donation Charity
Medical
Doctor visit
Pharmacy
wife medical
Dentist
Kids medical
Insurance
Health Insurance
Life Insurance
Umbrella Insurance
Home Insurance

Thegame14
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Re: windfall management

Post by Thegame14 » Wed May 08, 2019 11:12 am

Utilities $11K, what is this for? why so high?

Other big expenses are shopping and restaurants.... We probably order take out once a week for like $40, if we go out to eat it is the diner or a restaurant chain like chili's with a gift card from CC reward points.

Shopping, what is this for? The only shopping we do is for work clothes once a year, prob $100-$200, kids clothes all hand me down from siblings. and some we buy but couldn't be more than $200 a year per child.

You might want to look into solar panels for the utilities, and you know to save the world. I get the nanny, with that high of an income your time is the most scarce resource, so I assume a lot of your spending is convenience, which makes sense.

You are better off than 99% of the world, I would think about what retirement looks like for your family, what estate planning looks like, and what risk can you tolerate if any to get to these goals... You could probably retire by 40 if you cut your expenses down, obviously if you retire you don't need a nanny. But maybe you love working. I would focus on what you want from life, you already had the money and income to do basically whatever you choose.

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WWJBDo
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Re: windfall management

Post by WWJBDo » Wed May 08, 2019 12:02 pm

canjoos wrote:
Wed May 08, 2019 10:44 am
"It doesn't matter because you're living below your considerable means, but, if you really want to trim expenses, you need a better budget. Are you including your investments from your paycheck in your expense accounting?"
-you are absolutely correct. I am doing math after the fact, not prospectively budgeting. how do the other busy people with young kids find time to budget. I am motivated, but we are wiped by 8pm and weekends are consumed by kids. I know i'm whining but I am curious how other families with busy (60+ hr workweek and young kids) handle budgeting.

i have gone with a simplified approach to this point.
Given your income, pay rate and savings rate I would *not* go crazy with a detailed expense report but stick to an easy, time-efficient one. Time is your most valuable asset right now (60+ hour work weeks and kids) so don’t waste it on a detailed expense report that will not materially change your spending. As far as time is concerned, the only other consideration might be to move if it could reduce your commute by more than 30 mins a day.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair

MotoTrojan
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Re: windfall management

Post by MotoTrojan » Wed May 08, 2019 12:11 pm

I’d consider lump summing a good portion into taxable equities but also allocating some of your tax-advantaged equities to a bond fund; net purchase of bonds but in a tax-efficient manner.

I do find your 40/40 S&P500/Total US peculiar. These are all but equivalent to each other. Not hurting anything though.

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canjoos
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Re: windfall management

Post by canjoos » Wed May 08, 2019 12:25 pm

interesting to hear your perspective. i am also baffled by our utilities-we do have a pool-maintentance is about 40 a week on that, our ac's are all old and it can run up to 300 a month in the texas summers. i can break it down more, but, barring solar panels, i take those as givens.

i guess you are correct-we do pay for convenience. restaurants = anything outside including coffee. most of these are simple trips (taco bell, jimmy johns, mcdonalds) with occasional more expensive meals if we happen to dine with friends. we aren't foodies but like our friends who sometimes have more expensive tastes. the other costs seem fixed with our choice of house. we have a nice house in a nice suburb with an excellent public school system.

our plan as the kids get older and go to college is to downsize so i hope that our expenses come down.

i love working and being busy. i do want it to come down a little and hope to go to part time in a few years.

are there any other expense categories that seem egregious? it is nice to get an outsiders perspective as i number crunch and then fight with my wife so i never know if my senses are correct.

i'm getting the sense i need to keep doing what i'm doing. i'll probably lean towards dca, but i need to actually do it instead of hesitating. i can probably tolerate risk. i keep flirting with the idea of owning rental real estate but the cap rates are really low and i'm not into debt leveraging. I don't see the reason to buy properties now if they are going to come down in price as interest rates rise.

sjt
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Re: windfall management

Post by sjt » Wed May 08, 2019 12:36 pm

canjoos wrote:
Wed May 08, 2019 9:39 am
I grew up in a home where our total expenses for a family of 4 were probably around 40k.

I think it's important to look at your life and I bet it's likely that your childhood and background have driven you to work hard and be successful. Would you be who you are if you were spoiled as a child and from a family that spent $200k+ annually? Then look at the environment you are raising your children in.


canjoos wrote:
Wed May 08, 2019 9:39 am
kids expenses including live in nanny (so that we can both work-nights, weekends, etc..) are right at $50k.
Kids don't want to be raised by a nanny. They want time with their parents. Make sure you are spending quality time with your children. Sounds like you've just about won the game, might be time to reflect on what's important in your life and make changes accordingly.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

kcxie
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Re: windfall management

Post by kcxie » Wed May 08, 2019 12:51 pm

Can you tell us more about your 20K shopping? I am curious what you buy

KyleAAA
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Re: windfall management

Post by KyleAAA » Wed May 08, 2019 2:01 pm

I don't see a point in budgeting for somebody like this. It looks like you're saving what, 40% of your income? That's good enough. Your spending is under control without budgeting. Enjoy life. You really just aren't going to get much mileage out of cutting expenses. Let's say you figure out how to spend $40k less per year. Do the math and figure out what that would turn into in 20 years invested at 8% vs what you would have anyway. It isn't going to be a big enough number to impact your quality of life, so why bother? The extent of your budgeting can and should be auto-transferring a dollar amount into your investment accounts every month and just spending the rest indiscriminately.

hafjell
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Re: windfall management

Post by hafjell » Wed May 08, 2019 3:28 pm

canjoos wrote:
Wed May 08, 2019 12:25 pm
interesting to hear your perspective. i am also baffled by our utilities-we do have a pool-maintentance is about 40 a week on that, our ac's are all old and it can run up to 300 a month in the texas summers. i can break it down more, but, barring solar panels, i take those as givens.

i guess you are correct-we do pay for convenience. restaurants = anything outside including coffee. most of these are simple trips (taco bell, jimmy johns, mcdonalds) with occasional more expensive meals if we happen to dine with friends. we aren't foodies but like our friends who sometimes have more expensive tastes. the other costs seem fixed with our choice of house. we have a nice house in a nice suburb with an excellent public school system.

our plan as the kids get older and go to college is to downsize so i hope that our expenses come down.

i love working and being busy. i do want it to come down a little and hope to go to part time in a few years. Probably best to start DR-style budgeting. You don't need to do it now, but you should anyways to practice and get good at. Then, when you cut back your hours and income, you'll understand where you need to cut back the lifestyle.

are there any other expense categories that seem egregious? it is nice to get an outsiders perspective as i number crunch and then fight with my wife so i never know if my senses are correct.

i'm getting the sense i need to keep doing what i'm doing. i'll probably lean towards dca, but i need to actually do it instead of hesitating. i can probably tolerate risk. i keep flirting with the idea of owning rental real estate but the cap rates are really low and i'm not into debt leveraging. I don't see the reason to buy properties now if they are going to come down in price as interest rates rise.You two are earning so much, unless there's burnout, I wouldn't complicate it with real estate unless you get a killer deal and want to play landlord or investor. Stay focused; you two are ATMs.

furnace
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Re: windfall management

Post by furnace » Wed May 08, 2019 4:36 pm

canjoos wrote:
Wed May 08, 2019 9:39 am
I am relatively young and was not expecting to have such fortune. I am too paralyzed by fear of losing it to make a decision


Are you fearful when you see a patient? I hope not, because medicine is your field. When it comes to investment, you may want to trust the BH community. Just close your eyes and toss the whole amount into the Total Stock Market Index, or if you prefer, dollar cost average it over a year. If the market crashes, keep adding. Don't sell - ever. Well, not until you retire. Everybody wants to buy at the absolute bottom, but that's the WRONG way to think about investing. Markets rise over time, so those who wait for the best time, usually end up missing out on spectacular gains.

mega317
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Re: windfall management

Post by mega317 » Wed May 08, 2019 5:05 pm

sjt wrote:
Wed May 08, 2019 12:36 pm
Sounds like you've just about won the game
I realize you were making a point about spending time with kids, but OP has decidedly NOT just about won the game. Total assets are less than 15x expenses and s/he seems to have very low appetite for risk.

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canjoos
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Re: windfall management

Post by canjoos » Wed May 08, 2019 7:48 pm

thanks for the input.

i very much haven't 'won the game' yet. i agree i need to move from cash to the market. to all of those recommending throwing a lump sum in, you would feel comfortable putting in 7 figures in the market this month??

i appreciate the insight into spending/expenses as I am personally very unsure of myself on this one. you are a poor, happy medical student one day and you wake up to become a busy family man stressed out about trying to get ahead. my main safeguard against overspending is the forced 'pay yourself first' and 529s/401k automatic withdrawals.

i must admit, this is an excellent forum.

msk
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Re: windfall management

Post by msk » Thu May 09, 2019 2:50 am

We go through life only once and we can die or worse, be crippled, at any time. So no need to be extra stingy on expenses. My life style was determined as follows and may be helpful in shaping your own trajectory.

I had a decent job, worked for a megacorp all over the world, but my job income never exceeded $100k after-tax (20 years ago, so ought to be adjusted for inflation). Saved and invested AT LEAST 30% of after tax income from Day 1 and never felt much guilt about spending the rest on nannies, luxury cars, luxury homes, private schooling, etc. But! I kept saving and investing at least 30% of my after-tax income including investment income. A big chunk of my income was from real estate rentals, so easy to assess. In your case that $2million windfall in stocks ought to generate circa 5% p.a. plus inflation adjustment, forever. That's an extra $100k annually on top of your net, after-tax job income. No need to be extra stingy. Go ahead and splurge responsibly. Yachts? Private jet? No. My rules of thumb for financial sobriety:
Total worth for family's cars never to be more than 6 months' income
Family home fully paid off and never purchase a new one worth more than 2.5x combined income.
Worked out well for my family and we did own high-end Porsche, BMW, Mercedes, Lexus along the way, cash-flowed 4 kids through college, retired at 55 and now at age 75 NW in 8 figures, gifting the kids 6 figures annually. No point in them awaiting my demise... Save and invest 30% of after tax income and the rest will take care of itself, at any income level.

Yukon
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Re: windfall management

Post by Yukon » Thu May 09, 2019 6:47 am

canjoos wrote:
Wed May 08, 2019 12:25 pm
are there any other expense categories that seem egregious? it is nice to get an outsiders perspective as i number crunch and then fight with my wife so i never know if my senses are correct.
14k in life/disability insurance seems egregious. Were you sold a whole life policy? (Term life insurance is the only way to go)
Don't Work Forever.

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goodenyou
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Re: windfall management

Post by goodenyou » Thu May 09, 2019 8:41 am

Your windfall is from private equity in the health care(physician) space. I am curious to know how your deal was structured and if a salary reduction was part of the deal. Are you factoring that in? Also, how long is the deal and what are the terms related to non-compete? You have to factor this in your strategy for investing.

As far as your reluctance to deploy all of your windfall, it's understandable. There is no doubt that over time your best option is to have your capital invested and working for you. The best remedy for fear is to dollar cost average. The fact that lump-summing vs. DCA is best over the long term is not material. Put your eye on an asset allocation over several years and construct a plan and don't deviate from it. Cheer the sales on stocks (or bonds) when they go down over the period of DCA.

With regards to your budget, you will be flamed incessantly for your prodigious spending. It will irritate the frugal and befuddle the less fortunate or jealous. Spilling your guts on spending on luxury just has that effect. When you make a lot of money and are saving a lot of money, you tend to budget on "feel". You are busy grinding away as a doctor, husband (or wife), and a parent so you tolerate a loose budget that makes your life easy. The fact that you were able to list your dollar amounts to the penny should be a reminder to revisit how you can save on low-hanging fruit. It adds up big time.

You are a young physician. I was there 15 years ago. I will give you the advice that burn out is real and you need to pace yourself. Many physicians in their 50s are constantly daydreaming of their escape route. I listen to it every week in the surgical lounge. I shake my head listening to the stupid doctor stories of investing like an idiot and losing millions of dollars. It is very sad. Your greatest asset to job satisfaction will be financial security and financial independence. It is crudely referred to here as "FU"-money. That's a bit cynical for me.

My single specialty surgical subspecialty group has been approached by PE in the recent years, and it didn't appeal to me as an older physician that has reached FI. Many colleagues and friends are in the process of investigating this option. I won't wax philosophical on the impact I believe it will have on physicians, patients and healthcare in general. Let's just say I don't believe it will be positive.

All the ingredients for financial success are there. I would start to bump up some of the younger kids' 529 savings. I have 3 also. 2 in college. Forget about the idea that you will be eligible for any financial aid unless your kid ends up in a 2nd tier private school that offers merit-based aid to approximate flagship state u costs. I would be sure to have at least $450k to fund all 3 for a minimum of 12 student-semesters of school by the time your kids get there. If you want to be even more generous, you could fund their graduate school. We were happy to do it for ours.

Best of luck from a fellow (non-native) Texan for 23 years and a registered Boglehead for over 9 years.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

mega317
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Re: windfall management

Post by mega317 » Thu May 09, 2019 11:32 am

I don't know about flamed incessantly. This thread has been pretty gentle. But it's an important point that OPs savings rate is comparable to many people with smaller incomes, and so the OP should expect to work a comparable duration -- he's not close to retirement in his 30s.

cdu7
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Re: windfall management

Post by cdu7 » Thu May 09, 2019 12:18 pm

canjoos wrote:
Wed May 08, 2019 7:48 pm
thanks for the input.

i very much haven't 'won the game' yet. i agree i need to move from cash to the market. to all of those recommending throwing a lump sum in, you would feel comfortable putting in 7 figures in the market this month??

i appreciate the insight into spending/expenses as I am personally very unsure of myself on this one. you are a poor, happy medical student one day and you wake up to become a busy family man stressed out about trying to get ahead. my main safeguard against overspending is the forced 'pay yourself first' and 529s/401k automatic withdrawals.

i must admit, this is an excellent forum.
I honestly think you are doing just fine, I wouldn't stress at all about investing your windfall over time vs. lump sum. Your personal emotional comfort level matters much more than what the people on this forum say they would do. You are investing it regularly, not planning on keeping it cash forever; do not force yourself to put it all in the market now if you feel uncomfortable. Also the people criticizing you for the nanny etc. are WAY out of line, you are doing a great job with your family and lifestyle. Your expenses, while somewhat high do not seem the least bit unreasonable to me given your income. That said, you have the potential to have 10 million + by the time you are retirement age, keep the saving steady and enjoy! Congrats, you really are doing things right.

Also, while people are talking about estate tax planning, I would just make sure you have a living trust established now and worry about restructuring for estate taxes when your net worth actually crosses the 10 million mark. I honestly don't know much as I should in this department, but I do not believe this legal structuring has anything to do with your selection of fund choices. Keep going the bogleheads way in terms of index fund investing. Again, you are doing great, don't be so hard on yourself.

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goodenyou
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Re: windfall management

Post by goodenyou » Thu May 09, 2019 2:36 pm

I don't think the OP mentioned retiring in his 30s or if that is even on the table. He just needs to plan on saving between $5-6M to keep his spending the same. The $2M windfall with his current savings rate should shorten the duration of his work, if he chooses. The deployment of the cash windfall into assets that have better growth potential over time is key.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

Tal-
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Re: windfall management

Post by Tal- » Thu May 09, 2019 2:53 pm

You're in great shape. A few thoughts:

1: Fidelity is just fine, and some actually prefer it over Vanguard. No need to change to Vanguard.
2: Your dollar cost averaging of 20K/week is great! The standard advice of "just get it all in today" doesn't really apply here for a few reasons. I think your 20K/week is perfect.
3: I'm not worried about your investment allocation. Actually, I would be comfortable with you going from 20% to 30% (or even 35%) in bonds if you felt the need. But, if you're going to make that move, do it now, and NOT if/when the stock market tumbles. Find an allocation that works and stick with it for the next 5 years.
4: Don't worry about spending for now. You came here looking for investment advice and your spending doesn't represent any sort of immediate risk or need. If you do want to dig into your expenses - that's fine - I would just do it at a separate time once you're more secure in the other financial stuff.

You're doing awesome. Nothing but sunshine and cruises in your future.
Debt is to personal finance as a knife is to cooking.

Topic Author
canjoos
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Re: windfall management

Post by canjoos » Mon May 20, 2019 8:15 am

these are excellent responses and I feel comforted that i'm not doing anything far out of line.

the physician poster that shared his/her insight-very useful. Burnout is a legitimate concern and I am leaning towards cutting back in the upcoming years. The buyout was structured as you were saying-salary reduction with intermittent bonuses. It was generally a good decision for our practice as we are more profitable now than we were previously. Paradoxical, I know, but we managed to get bigger quickly and are all now working much harder. Burnout is a whole different topic that I will save for the purposes of narrow conversation but I am constantly aware of this challenge.

spending-I think a lot of it comes from choice of house/neighborhood and then the limited fringe expenses are the ones we enjoy (vacation, dining, etc..) we actually are regarded as the cheaper families in our social circle but that is all relative. we have very few, if any, status items. i do appreciate the insight and will see how we can modify this in the future.

20k plan-I will continue it and do a better job tracking percentages. My concern is if the market nosedives the day after i put every dime in, but, I already know the answer-stay in it and stop checking.

i greatly appreciate the collective insight and concern for my financial wellbeing. this is a unique group of helpful visionaries!

SDLinguist
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Re: windfall management

Post by SDLinguist » Mon May 20, 2019 8:43 am

KyleAAA wrote:
Tue May 07, 2019 11:12 pm
Thegame14 wrote:
Tue May 07, 2019 11:10 pm
those expenses are INSANE, then you say mortgage is paid off, making those expenses even MORE INSANE......
OP makes $600k per year, so expenses are low relative to income.
+1

250k expenses, 250k savings, 100k taxes means OP is saving a years worth of expenses every year. That's Klangfool's target right there!

OP, don't get so caught up on the raw spending number. Better look at your savings number. If my super quick estimate was right then you are saving 40% of income which is well within LBYM I would think for anybody.

My wife and I save right around that same % every year too ~37-40%. Nobody is going to bat an eye and instead give thumbs up for the great savings if I mention just the %. But if I say we have expenses of 75k a year people will also come out and say that those are insane expenses and try to pick appart where we could save $100 a year on groceries or $50 a year on shoe cream.

As others have said, spend more time doing things you want to do and less time on the budget. You have a level of income where survival is not longer the #1 priority. Go with the approach where you save first and then spend whatever is left. Put the onus of saving not on yourself but on the payroll department, you have better things to worry about.

Part of your paycheck goes to tax advantaged spaces, part goes to your taxable account, whatever is remaining goes to checking and you can do with that what you want. At the end of the year, the sum not sent to checking should be equal to your target for savings.

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