Analysis Paralysis: How to Invest Windfall + Extra Cash?

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Meg77
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Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by Meg77 » Thu Jul 11, 2019 2:31 pm

Hi Bogleheads, Seeking some objective input.

We've never had a real plan for after tax savings (we didn't have much of any until the past few years), and we generally chunk extra funds into Vanguard money market until an investment opportunity arises. Initially taxable brokerage was where we put our international allocation, but once we had enough of that we've bought randomly: individual stocks when they seem undervalued, sector ETFs when they dip (Europe ETF after Brexit vote), or just in VTSAX or similar to balance out AA or to TLH or on what appear to be RBDs. As a result, our brokerage is a bit of a mess.

In addition, a lot of cash has accumulated this year due to nice bonuses and a few RE partnership sales, and we will get another $100K next week from my sister who is buying me out of a family property. There are a few new partnerships we'll probably put $150K into ($50k each) in coming months, but we'll still be left with more than we need in cash plus around $10K excess cash flow a month on average going forward. We are at the point that we need a monthly automatic investment plan.

I thought I'd settled on the Vanguard tax managed balanced fund since we bumped into the 35% bracket this year and are likely to stay there. But it appears most prefer separate funds for stocks and bonds for TLH and flexibility. But then it seems silly to invest in bonds at all while we still have debt - even super cheap fixed mortgage debt. But I really hesitate to pay that off. We have relatively high risk tolerances and don't need the extra cash flow (savings rate is about 45% of gross), plus the effective rates after tax deduction and inflation are pretty much zero. Anyway, like I said, analysis paralysis...

Emergency funds: Need about $75K ($25K rentals + $50K personal), and have more than that.

Debt: (all fully amortizing notes)
Home mortgage $297K fixed for 12 more years at 2.75%
Rental mortgage $136K fixed for 21 more years at 3%
Rental mortgage $148K fixed for 23 more years at 3%
Rental mortgage $160K fixed for 24 more years at 4.125%
Rental mortgage $128K fixed for 21 more years at 5.125%

Tax Filing Status: MFJ
Tax Rate: 35% Federal, 0% State
State of Residence: TX
Age: 35/41

Desired Asset allocation: 30-50% stocks / 0-10% bonds / 30-50% real estate / 5-10% alternatives
Desired International allocation: 20% of stocks

CURRENT Asset allocation*: 36% stocks / 3% bonds / 49% real estate / 2% alternatives / 10% cash
International allocation: 23% of stocks
*Includes 4 rental properties (at total value, not equity)

Current retirement assets- $2.0M (does not include 4 rental properties worth appx $1.2M)

Illiquid Investments - $407K
15% Real Estate Partnerships (5) - $306K
3% Tech Start Up Accelerator fund - $60K
2% Company Stock (his and hers)- $41K

Taxable Brokerage at Vanguard $552K (includes new $100K expected next week)
15% Federal MMA/Settlement Fund $303K
7.6% VG Internataional Index (VXUS) $152K
1% VG Total Stock Mkt Idx Adm (VTSAX) $17K
1% VG Emerging Mkt Idx Adm (VEMAX) $14K
1% VG Total Stock Mkt ETF (VTI) $12K
VG FTSE Europe ETF (VGK) $9K
British Petroleum BP $8K
Shell RDS.A $6K
EQNR $5k
AT&T T $5K
Total TOT $5K
Intel INTC $5k
Exxon XOM $5K
General Electric GE $3K
Chevron CVX $2K

His 401k $114K
3% VG short term bond fund (VBITX) $57K
3% VG Institutional Index (S&P 500) $57K (new $ all goes here)

His Former 401k $279K
14% S&P 500 Index (no expense ratio) $279K

Her 401k $275K
2.5% Matthews Asia Dividend Fund Inst (MIPIX) (0.90) $49K
4% VG Wellington Admiral (VWENX) $81K
7.3% Schwab S&P 500 Index (SWPPX) $146K

Her Roth IRA at Vanguard $229K
11.5% VG Small Cap Index Admiral (VSMAX)

His Roth IRA at Vanguard $60K
2% VG small cap growth fund (VSGAX) $35K
1% VG small cap index admiral (VSMAX) $12K
EQNR $2k
Royal Dutch Shell RDS.A $2k
Total TOT $2k
Exxon XOM $2k
Chevron CVX $5k

HSA at Optum Bank $49K
cash account $2K
2% VG Wellington Admiral (VWENX) $47K

His Deferred Comp plan $30K (not adding to this currently but could...)
VG Institutional Index (VINIX) $6K
1% VG Small Cap Idx Inst (VSCIX) $12K
1% VG Mid Cap Ids Inst (VMCIX) $12K


Contributions

New annual Contributions
$19k + $12K matching - his 401k
$19K + 5K matching - her 401k
$6K his Roth IRA
$6K her Roth IRA
$7K HSA
$120k taxable / partnerships (plus or minus depending on bonus and other income)
$0 deferred comp plan (?)

Available funds
All usual index options available across all accounts. No need to detail here. All expense ratios very low.

Questions:
1. What should we do with the $300K sitting in cash at Vanguard (as of next week)? Pay off the 5.125% mortgage since it's small and has a higher rate than bonds will likely return going forward? Buy a new rental property? DCA through year end into a stock or balanced fund/ETF? Put more or less into the partnership opportunities we have coming up? One is fairly conservative - a portfolio of 3 class A fairly new properties (student housing & multi-family) in 3 different states with low fixed rate financing and only 60% debt; one is a nursing home development deal so pretty risky but attractive metrics (and the principal has 25 years of very good experience), and the final option is very high risk but again has a good track record: a start up accelerator focusing on healthcare companies (this would be their 7th or so fund and this is totally separate than the one we are already in).

2. Where should we put excess cash flow on a monthly basis going forward? VTSAX and keep it simple? MMA and reevaluate quarterly (or on RBDs) to rebalance/invest?

3. Other ideas on how to clean up our balance sheet?

I know there are no firm right or wrong answers, but I've been in the weeds too long and would appreciate some perspective.

Thanks!
Last edited by Meg77 on Thu Jul 11, 2019 2:42 pm, edited 1 time in total.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Thegame14
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Re: Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by Thegame14 » Thu Jul 11, 2019 2:34 pm

Id pay off the highest rate mortgage, and likely also the second highest rate mortgage. Having that much real estate debt would bother me.

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Sandtrap
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Re: Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by Sandtrap » Thu Jul 11, 2019 2:38 pm

Meg77 wrote:
Thu Jul 11, 2019 2:31 pm
. . . . .
Questions:
1. What should we do with the $300K sitting in cash at Vanguard (as of next week)? Pay off the 5.125% mortgage since it's small and has a higher rate than bonds will likely return going forward? Buy a new rental property? DCA through year end into a stock or balanced fund/ETF? Put more or less into the partnership opportunities we have coming up? One is fairly conservative - a portfolio of 3 class A fairly new properties (student housing & multi-family) in 3 different states with low fixed rate financing and only 60% debt; one is a nursing home development deal so pretty risky but attractive metrics (and the principal has 25 years of very good experience), and the final option is very high risk but again has a good track record: a start up accelerator focusing on healthcare companies (this would be their 7th or so fund and this is totally separate than the one we are already in).

2. Where should we put excess cash flow on a monthly basis going forward? VTSAX and keep it simple? MMA and reevaluate quarterly (or on RBDs) to rebalance/invest?

3. Other ideas on how to clean up our balance sheet?

I know there are no firm right or wrong answers, but I've been in the weeds too long and would appreciate some perspective.

Thanks!
1. Do Both.
Rental mortgage $160K fixed for 24 more years at 4.125%
Rental mortgage $128K fixed for 21 more years at 5.125%
2.
MMA and reevaluate quarterly (or on RBDs) to rebalance/invest?
3.
Simplify funds:
A. eliminate redundancy
B. Minimize overlap
C. Consolidate single funds to index.

4. It is better not to spread oneself too thin. . . or over leveraged.

j
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Cash
Posts: 1400
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Re: Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by Cash » Thu Jul 11, 2019 8:31 pm

Pay off the highest rate mortgage. Keep the rest of the cash in taxable and call it your “bond” allocation (that can also double as an emergency/slush fund). That’s what we do. Though I’m not sure why you’re not using a muni fund.

livesoft
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Re: Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by livesoft » Thu Jul 11, 2019 8:34 pm

May I suggest you donate all those little positions to your Donor-Advised Fund and basically start over in your taxable account?
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Jack FFR1846
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Re: Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by Jack FFR1846 » Thu Jul 11, 2019 9:00 pm

What *I* would do......and have done in the past: Pay off the mortgages until there are no more. Then struggle at that point on what to do next.
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Meg77
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Re: Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by Meg77 » Fri Jul 12, 2019 12:09 pm

Cash wrote:
Thu Jul 11, 2019 8:31 pm
Pay off the highest rate mortgage. Keep the rest of the cash in taxable and call it your “bond” allocation (that can also double as an emergency/slush fund). That’s what we do. Though I’m not sure why you’re not using a muni fund.
Thanks. The VG muni MMF doesn't currently provide better after tax yields than the Prime or Federal MMF for the 35% bracket. That hasn't always been the case though and fluctuates quite a lot lately. I do actually have $75K in the muni MMF just to diversify because I can't keep up with which is better and don't want to trade too much. For simplicity though here, I lumped the whole balance into the federal/settlement so as not to cause confusion (readers may have skimmed the rest of the list and not noticed the $75K in add'l cash).

I am Ok with a bit "too much" cash as I consider it like a bond allocation, and we have few other bonds. That's been the justification thus far, but now that we are 10% cash it's a bit much. I do agree that the easiest thing would be to pay off the highest rate mortgage, at least.
livesoft wrote:
Thu Jul 11, 2019 8:34 pm
May I suggest you donate all those little positions to your Donor-Advised Fund and basically start over in your taxable account?
Very good idea. We have yet to set up a donor-advised fund, but it's on my radar. And honestly our gains aren't tremendous in most of the small stocks, so it wouldn't be a big deal to just consolidate them either.
Thegame14 wrote:
Thu Jul 11, 2019 2:34 pm
Id pay off the highest rate mortgage, and likely also the second highest rate mortgage. Having that much real estate debt would bother me.
Our total mortgage debts are less than twice our annual earned income, so we hardly feel like it's too much debt. And of course we could pay off any two with taxable investments/savings at this point. But still, when there's nothing left to do paying off debt is never a bad idea!
Sandtrap wrote:
Thu Jul 11, 2019 2:38 pm
1. Do Both.
Rental mortgage $160K fixed for 24 more years at 4.125%
Rental mortgage $128K fixed for 21 more years at 5.125%

3.
Simplify funds:
A. eliminate redundancy
B. Minimize overlap
C. Consolidate single funds to index.

4. It is better not to spread oneself too thin. . . or over leveraged.

j
I definitely want to eliminate redundancy and overlap. Part of the issue is we did TLH last year and then the market bounced back so quickly in Q1 2019 we are somewhat "stuck" in the redundant funds. Not a huge deal, but it's something to think about with TLH. Maybe I'll get another opportunity to get out of the new funds this year. Not that I wish for a market fall in general...
"An investment in knowledge pays the best interest." - Benjamin Franklin

tj
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Re: Analysis Paralysis: How to Invest Windfall + Extra Cash?

Post by tj » Mon Jul 22, 2019 2:19 pm

Why aren't you using the Treasury Money Market Fund? Higher rate than Federal Money Market....

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