My rough plan to invest $200k windfall...any suggestions?

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knguyen120
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My rough plan to invest $200k windfall...any suggestions?

Post by knguyen120 » Sun Jul 14, 2019 4:53 pm

I found out we will have a 200k windfall soon and I'm trying to plan how I should be investing it. I've read several articles that it's better to invest all at once (lump sum) rather than dollar cost averaging. But, with the market so volatile right now, and going sideways I'll feel better if at least some of that money is dollar cost averaged.

About us:
Only debt we have is the house at a rate of 3.6%.
We have a 9 month emergency fund.
32 years of age

Here's how I plan to split the 200k

Wife and I's company retirement plan
We will be maxing out all of our retirement plans so it'll be 54,000 DCA over 12 months from the following plans:
403b Roth 18,000
457 Roth 18,000
457 Traditional 18,000
Total = 54k

The following amounts will be lump sum investments:
College fund for kiddo 25,000
Roth IRA 12,000
Taxable account 109,000 (and any leftovers goes into taxable account)
Total = 146k

All of the investments will be in total market index funds: 90% equities and 10% bonds.
Of the 90% equities, it'll 60% USA and 40% international.

My wife wanted to be even more conservative to do 60/40 equities and bonds. She does have a point and I told her I'd think about meeting her halfway at 80/20.

Thoughts???
Last edited by knguyen120 on Sun Jul 14, 2019 5:11 pm, edited 1 time in total.

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arcticpineapplecorp.
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by arcticpineapplecorp. » Sun Jul 14, 2019 5:09 pm

have you read the wiki page on "managing a windfall"?

https://www.bogleheads.org/wiki/Managing_a_windfall

If not, start there.

compromise can work. 80/20 isn't halfway between 90/10 and 60/40. Because she would have come up 20% but you only came down 10% so how is that equal?

Halfway would be 75/25 because she would come up 15% and you drop 15%. That sounds more like "halfway" to me. Happy wife, happy life.

Finally, what do you mean by "with the market so volatile right now, and going sideways"? Volatility means ups and downs. Sideways means not up and down. So I'm not sure how it can be both or what you mean exactly. The U.S. market's up 21.52% ytd so what volatility are you referring to?

By the way, the market's always had volatility. Volatility means change, ups and downs. The market rarely closes exactly where it opened on any given day, let alone doesn't change intra-day. We may have had more volatility this year and last than we had the few years prior but stocks are volatile.
Last edited by arcticpineapplecorp. on Sun Jul 14, 2019 5:11 pm, edited 2 times in total.
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02nz
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by 02nz » Sun Jul 14, 2019 5:09 pm

If you want 90/10 and your wife wants 60/40, isn't meeting her at halfway 75/25? That would be a reasonable allocation at your age (as is 80/20).

Also, it's not entirely clear from your post but it doesn't look like you've accounted for 2020 contributions. Since you're doing this over the next 12 months, you might as well do so.

I'd also think about paying down the mortgage rather than putting money into taxable.

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Duckie
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by Duckie » Sun Jul 14, 2019 5:22 pm

knguyen120 wrote:We will be maxing out all of our retirement plans so it'll be 54,000 DCA over 12 months from the following plans:
403b Roth 18,000
457 Roth 18,000
457 Traditional 18,000
Total = 54k
It is $19,000 for 2019. So an extra $3K.

Topic Author
knguyen120
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by knguyen120 » Sun Jul 14, 2019 5:27 pm

02nz wrote:
Sun Jul 14, 2019 5:09 pm
If you want 90/10 and your wife wants 60/40, isn't meeting her at halfway 75/25? That would be a reasonable allocation at your age (as is 80/20).

Also, it's not entirely clear from your post but it doesn't look like you've accounted for 2020 contributions. Since you're doing this over the next 12 months, you might as well do so.

I'd also think about paying down the mortgage rather than putting money into taxable.
Haha I misspoke. Compromise instead of half way. What's your reasoning for paying down the mortgage rather than putting it into taxable?

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yangtui
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by yangtui » Sun Jul 14, 2019 5:37 pm

knguyen120 wrote:
Sun Jul 14, 2019 4:53 pm
But, with the market so volatile right now, and going sideways...
When has this not been the case? If your time frame for this windfall is 30 years then current market conditions are pretty immaterial. Checkout the wiki post like a previous poster recommended and also use the search function to see what kind of responses other posters have received after asking similar windfall questions.

02nz
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by 02nz » Sun Jul 14, 2019 5:43 pm

knguyen120 wrote:
Sun Jul 14, 2019 5:27 pm
02nz wrote:
Sun Jul 14, 2019 5:09 pm
If you want 90/10 and your wife wants 60/40, isn't meeting her at halfway 75/25? That would be a reasonable allocation at your age (as is 80/20).

Also, it's not entirely clear from your post but it doesn't look like you've accounted for 2020 contributions. Since you're doing this over the next 12 months, you might as well do so.

I'd also think about paying down the mortgage rather than putting money into taxable.
Haha I misspoke. Compromise instead of half way. What's your reasoning for paying down the mortgage rather than putting it into taxable?
Just don't tell your wife you're meeting her half way when actually it's just a third. :happy

Paying down the mortgage is a guaranteed 3.6% return. And you're likely seeing little to no tax benefit from paying interest, after the tax cut that went into effect last year. Would you take a loan at 3.6% to invest in stocks? Because that's what you're doing if you don't pay down the mortgage.

No absolute right/wrong answers - depends on your tax situation, risk tolerance, cash flow situation, job stability, expectations about inflation, and many many more factors. Lots and lots of threads on paying down mortgage vs. investing.

vipertom1970
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by vipertom1970 » Sun Jul 14, 2019 5:51 pm

if it was me then I rather use the $$ to pay off the mortgage then go 100% equities specially how high the market is now. I had zero debt or a mortgage around 32 yo, living in Socal and invested 100% in equities until turning 50 and retired with new AA of 60/40.

02nz
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by 02nz » Sun Jul 14, 2019 5:58 pm

vipertom1970 wrote:
Sun Jul 14, 2019 5:51 pm
if it was me then I rather use the $$ to pay off the mortgage then go 100% equities specially how high the market is now. I had zero debt or a mortgage around 32 yo, living in Socal and invested 100% in equities until turning 50 and retired with new AA of 60/40.
There are some very dogmatic posters here who would say, "that's market timing!" But I don't think it's crazy to say: the market has had an incredible runup, going forward I expect lower returns from the stock market, let me put some of this money toward a sure thing.

mortfree
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by mortfree » Sun Jul 14, 2019 6:05 pm

vipertom1970 wrote:
Sun Jul 14, 2019 5:51 pm
if it was me then I rather use the $$ to pay off the mortgage then go 100% equities specially how high the market is now. I had zero debt or a mortgage around 32 yo, living in Socal and invested 100% in equities until turning 50 and retired with new AA of 60/40.
OP never disclosed the mortgage balance.

Maybe it is more than 200k.

I do agree though that if the balance is below 200k then I would seriously consider treating this like a once in a lifetime windfall and use it to be debt free at a young age.

Of course, I was mortfree at 39, but ended up moving and getting a mortgage for the house we are currently in.

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Watty
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by Watty » Sun Jul 14, 2019 6:08 pm

A few questions;

1) What are the details of your mortage? It may make sense to pay it off or do a recast(Google this).

2) How old are your kid(s)? If you can get the mortage paid off by the time they atart college that could free up a lot of cash flow to pay for college.

3) What are your federal and state tax brackets? That might make a traditional account better than the Roths you are planning.

02nz
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by 02nz » Sun Jul 14, 2019 6:13 pm

One other consideration, related to college: you may qualify for financial aid even if you have a middle-class or even upper-middle-class income, especially at the top handful of schools. Their formula for determining financial need will consider a percentage of assets, including taxable brokerage accounts but not home equity, to figure out how much you can afford to pay. This is another advantage to paying down the mortgage.

retiredflyboy
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by retiredflyboy » Sun Jul 14, 2019 6:15 pm

AA 70-30 close to what your wife wanted but a little more aggressive. Listen to your wife’s risk tolerance concerns.
Facts are stubborn things. Everything works until it doesn’t.

Topic Author
knguyen120
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by knguyen120 » Sun Jul 14, 2019 6:48 pm

retiredflyboy wrote:
Sun Jul 14, 2019 6:15 pm
AA 70-30 close to what your wife wanted but a little more aggressive. Listen to your wife’s risk tolerance concerns.
Happy wife, happy life. I'll come clean and tell her it's not half way, lol.

02nz
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by 02nz » Sun Jul 14, 2019 7:28 pm

knguyen120 wrote:
Sun Jul 14, 2019 6:48 pm
retiredflyboy wrote:
Sun Jul 14, 2019 6:15 pm
AA 70-30 close to what your wife wanted but a little more aggressive. Listen to your wife’s risk tolerance concerns.
Happy wife, happy life. I'll come clean and tell her it's not half way, lol.
Or maybe your wife is better at math than you and already knows! :D

Topic Author
knguyen120
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Joined: Sun Dec 07, 2014 7:28 pm

Re: My rough plan to invest $200k windfall...any suggestions?

Post by knguyen120 » Sun Jul 14, 2019 8:39 pm

mortfree wrote:
Sun Jul 14, 2019 6:05 pm
vipertom1970 wrote:
Sun Jul 14, 2019 5:51 pm
if it was me then I rather use the $$ to pay off the mortgage then go 100% equities specially how high the market is now. I had zero debt or a mortgage around 32 yo, living in Socal and invested 100% in equities until turning 50 and retired with new AA of 60/40.
OP never disclosed the mortgage balance.

Maybe it is more than 200k.

I do agree though that if the balance is below 200k then I would seriously consider treating this like a once in a lifetime windfall and use it to be debt free at a young age.

Of course, I was mortfree at 39, but ended up moving and getting a mortgage for the house we are currently in.
I'd be pretty close to paying off the house with the money! Real close! It is a burden that if paid off, I'd breathe much easier. Difficult choice! Be debt free and happier, or cross my fingers that the market performs better than 3.6% over the long run.
Last edited by knguyen120 on Sun Jul 14, 2019 8:47 pm, edited 1 time in total.

Topic Author
knguyen120
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by knguyen120 » Sun Jul 14, 2019 8:45 pm

Watty wrote:
Sun Jul 14, 2019 6:08 pm
A few questions;

1) What are the details of your mortage? It may make sense to pay it off or do a recast(Google this).

2) How old are your kid(s)? If you can get the mortage paid off by the time they atart college that could free up a lot of cash flow to pay for college.

3) What are your federal and state tax brackets? That might make a traditional account better than the Roths you are planning.
1) With 200k I'd have to add a bit of my savings into it and the mortgage will be paid off. Thanks I'll google "recast."
2) 1st child! And I'll be a father by end of November.
3) We don't qualify for traditional IRA based on tax bracket.

I'm lucky that I have many options at my company: traditional 403b, roth 403b, traditional 457, and roth 457.

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Watty
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by Watty » Sun Jul 14, 2019 9:14 pm

knguyen120 wrote:
Sun Jul 14, 2019 8:45 pm
2) 1st child! And I'll be a father by end of November.
Congratulations! It might be best to just put most of the money into a high interest savings account until after the baby is born since your plans could change if there are even minor complications.
knguyen120 wrote:
Sun Jul 14, 2019 8:45 pm
3) We don't qualify for traditional IRA based on tax bracket.
I was thinking about the Roth 403b and 475. I don't know anything about the rules for those but if you can make a deductible contribution to those that might be better than the Roth version.

vipertom1970
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by vipertom1970 » Sun Jul 14, 2019 10:05 pm

knguyen120 wrote:
Sun Jul 14, 2019 8:45 pm
Watty wrote:
Sun Jul 14, 2019 6:08 pm
A few questions;

1) What are the details of your mortage? It may make sense to pay it off or do a recast(Google this).

2) How old are your kid(s)? If you can get the mortage paid off by the time they atart college that could free up a lot of cash flow to pay for college.

3) What are your federal and state tax brackets? That might make a traditional account better than the Roths you are planning.
1) With 200k I'd have to add a bit of my savings into it and the mortgage will be paid off. Thanks I'll google "recast."
2) 1st child! And I'll be a father by end of November.
3) We don't qualify for traditional IRA based on tax bracket.

I'm lucky that I have many options at my company: traditional 403b, roth 403b, traditional 457, and roth 457.

I was able to take on more risk without having a mortgage and went 100% in equities. What ever will happen with the market down the road you still have a roof over your head.

Topic Author
knguyen120
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Re: My rough plan to invest $200k windfall...any suggestions?

Post by knguyen120 » Mon Jul 15, 2019 8:31 am

Watty wrote:
Sun Jul 14, 2019 9:14 pm
knguyen120 wrote:
Sun Jul 14, 2019 8:45 pm
2) 1st child! And I'll be a father by end of November.
Congratulations! It might be best to just put most of the money into a high interest savings account until after the baby is born since your plans could change if there are even minor complications.
knguyen120 wrote:
Sun Jul 14, 2019 8:45 pm
3) We don't qualify for traditional IRA based on tax bracket.
I was thinking about the Roth 403b and 475. I don't know anything about the rules for those but if you can make a deductible contribution to those that might be better than the Roth version.
Thanks! We will not be moving any of that money for at least until 6 months after the baby is born.

I'll be maxing the traditional accounts first before going to the Roth.

Thank you everyone for your help. I'll probably have analysis paralysis when the money comes...

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