$1M cash: how to invest

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tarheel15
Posts: 42
Joined: Wed Sep 07, 2011 5:12 pm

$1M cash: how to invest

Post by tarheel15 » Wed Aug 21, 2019 8:03 pm

Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?

minesweep
Posts: 1317
Joined: Fri Mar 02, 2007 9:17 pm
Location: PA

Re: $1M cash: how to invest

Post by minesweep » Wed Aug 21, 2019 8:55 pm

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
This is a question that has come up a number of times over the years (because an OP is concerned about the stock market being near an all time high). I believe the general consensus by the Bogleheads is to do it all at once. However to ease your fear of investing the whole amount at once (and seeing the stock market tank right after plunk it all down) your dollar cost average plan might be appropriate for you.

If you check the following link you will notice that question going back for a number of years. I stopped checking after the first 5 pages.

Investing a windfall
Time is your friend; impulse is your enemy - John Bogle

NMBob
Posts: 323
Joined: Thu Apr 23, 2015 8:13 pm

Re: $1M cash: how to invest

Post by NMBob » Wed Aug 21, 2019 8:58 pm

a specific boglehead wiki article on the subject

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

khh
Posts: 321
Joined: Sat Dec 27, 2008 10:31 pm

Re: $1M cash: how to invest

Post by khh » Wed Aug 21, 2019 9:18 pm

Would the Vanguard Tax-Managed Balanced Fund (VTMFX) be a good choice?

HomeStretch
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Re: $1M cash: how to invest

Post by HomeStretch » Wed Aug 21, 2019 9:30 pm

You will get opinions on both sides of the fence about lump sum versus DCA. I favor lump sum investing. If a 6-12 month DCA plan makes you sleep better at night then it is a reasonable plan for you.

Here’s a Vanguard paper on lump sum vs DCA that (paraphrasing a bit) concludes it’s prudent under certain assumptions to lump sum to gain access to markets as soon as possible, but acknowledges that for the investor concerned with managing risk and minimizing regret, DCA may be of use:
https://personal.vanguard.com/pdf/s315.pdf

Here’s a Kitces article that (paraphrasing a bit) says DCA (as compared to lump sum) may help manage risks but on average just reduces returns:
https://www.kitces.com/blog/dollar-cost ... s-returns/

John Laurens
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Re: $1M cash: how to invest

Post by John Laurens » Wed Aug 21, 2019 9:31 pm

Statistically you are better off lump sum investing it. It will be easier to TLH your lots as well. Assuming you want to maintain your FA recommendation of 70/30, do you have room in your tax advantaged accounts to buy bonds there for tax efficiency sake? I’m sorry for your loss, but the decedent obviously wanted to leave a legacy. That is admirable.

Regards,
John

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goodenyou
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Re: $1M cash: how to invest

Post by goodenyou » Wed Aug 21, 2019 9:46 pm

I would probably pay down some of the mortgage and lock in a guaranteed return at your income level. I would dollar cost average the rest into a tax exempt bond fund and TSM. I would fund my 529, if I had kids. There may be some asset protection concerns in your decision making.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

ramsfan
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Re: $1M cash: how to invest

Post by ramsfan » Wed Aug 21, 2019 9:49 pm

You might now want to hear this, but there is a no brainer option jumping out at me. Pay off your mortgage!

Small Savanna
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Re: $1M cash: how to invest

Post by Small Savanna » Wed Aug 21, 2019 9:56 pm

In your tax bracket, you might want to look at muni bonds for the 30%. Paying off the mortgage isn't a bad option either.

Bacchus01
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Re: $1M cash: how to invest

Post by Bacchus01 » Wed Aug 21, 2019 10:00 pm

No way would I pay off the mortgage. Not at that rate.

Lump sum it. I’m expecting a $2.5M windfall in the next year. It’ll lump sum into TSM or S&P within days.

Momus
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Re: $1M cash: how to invest

Post by Momus » Wed Aug 21, 2019 10:10 pm

All in to SHOP. :greedy

MoneyMarathon
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Re: $1M cash: how to invest

Post by MoneyMarathon » Wed Aug 21, 2019 10:14 pm

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.
tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Any thoughts?
The difference in the long term is both uncertain and negligible, apart from behavioral "error".

In the OP, you have the wisdom to be honest about how you feel about investing this amount of money lump sum.

I think you should obviously DCA in over 6-12 months. Longer than that would be questionable. But 6-12 months? No brainer. Doesn't matter. DCA.
Last edited by MoneyMarathon on Wed Aug 21, 2019 10:16 pm, edited 1 time in total.

dardeninvestor
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Re: $1M cash: how to invest

Post by dardeninvestor » Wed Aug 21, 2019 10:15 pm

No right answer on lump sum vs dollar cost averaging over 6-12 months. Do what makes YOU comfortable. Sounds like the latter.

If you do the latter, be sure to do a specific lot ID cost accounting for the lots so you could tax loss harvest.

Depending on how long you plan to keep the house (assuming this house is a long-term investment), I would not hesitate to use that 30% bond exposure of that $1M the advisor is recommending to pay down the mortgage ($300K). I would not pay it all down. In and of itself, using some of that money to pay down your mortgage is a implicit bet on (1) interest rates and (2) the real estate market and thus (3) serves as natural hedge on entering the stock market all at once.

Then, at your age and with your current net wealth and current emergency fund, for the remainder I would be a bit more aggressive and recommend 100% stock exposure (e.g., VOO or VTI). I would only keep active mutual funds and individual stocks in IRAs for tax purposes, so stick to the passive funds or ETFs.

Rather than doing it over 6 months, you could always place 14 limit orders on the remaining $700K of $50K on VOO or VTI that deviate from their current price (50K at 0%, 50K at -0.25%, 50K at -0.5%, etc.). The current volatility (whether the market is going up or down, who knows, but with Trump you at least can bet on volatility to coincide with his tweets") is in essence creating buying opportunities for that kind of thinking.

Safe to say that any bond exposure you'd acquire, at least in the immediate horizon with the current interest rate environment the way it is and the way it is predicted to be, is going to be hard pressed to beat 3.3%. So why not use the bond exposure he's recommending to simply pay off the mortgage.

Whatever you buy, keep it in a low cost brokerage like Vanguard, Schwab, or Fidelity.

Others on this forum may suggest 3-fund portfolio, which would offer more long-term bond and international exposure than I am suggesting, but my approach would keep it pretty simple and efficient.

Piplup1996
Posts: 23
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Re: $1M cash: how to invest

Post by Piplup1996 » Thu Aug 22, 2019 2:26 am

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Pay. Off. Your. Mortgage.

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Wiggums
Posts: 2910
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Re: $1M cash: how to invest

Post by Wiggums » Thu Aug 22, 2019 3:48 am

HomeStretch wrote:
Wed Aug 21, 2019 9:30 pm
You will get opinions on both sides of the fence about lump sum versus DCA. I favor lump sum investing. If a 6-12 month DCA plan makes you sleep better at night then it is a reasonable plan for you.

Here’s a Vanguard paper on lump sum vs DCA that (paraphrasing a bit) concludes it’s prudent under certain assumptions to lump sum to gain access to markets as soon as possible, but acknowledges that for the investor concerned with managing risk and minimizing regret, DCA may be of use:
https://personal.vanguard.com/pdf/s315.pdf

Here’s a Kitces article that (paraphrasing a bit) says DCA (as compared to lump sum) may help manage risks but on average just reduces returns:
https://www.kitces.com/blog/dollar-cost ... s-returns/
+1

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Wiggums
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Re: $1M cash: how to invest

Post by Wiggums » Thu Aug 22, 2019 3:49 am

Piplup1996 wrote:
Thu Aug 22, 2019 2:26 am
tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Pay. Off. Your. Mortgage.
I’m in your camp. I’d dump the mortgage too. Then you don’t have to worry about lumpsum vs DCA :-)

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dogagility
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Re: $1M cash: how to invest

Post by dogagility » Thu Aug 22, 2019 5:26 am

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
That's good advice! If you are averse to debt, you could pay off your mortgage and lump sum the remainder at 70/30.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: $1M cash: how to invest

Post by Bacchus01 » Thu Aug 22, 2019 6:28 am

Piplup1996 wrote:
Thu Aug 22, 2019 2:26 am
tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Pay. Off. Your. Mortgage.
Don’t. Pay. Off. Your. Mortgage.

Stormbringer
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Joined: Sun Jun 14, 2015 7:07 am

Re: $1M cash: how to invest

Post by Stormbringer » Thu Aug 22, 2019 6:34 am

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.
Having bonds in a taxable account isn't great unless they are munis, because the (paltry) interest you receive is going to be taxed at 37% at your income level.

Aside from munis, you might want to consider building a EE savings bonds ladder, which after 20 years will double in value, yielding better than 3.5%, which is far better than you can do with a 20-year bond right now. They will be tax deferred, and ripe to cash them in starting at age 57. I-Bonds are doing comparatively well right now as well and are also tax-deferred.

I'd suggest reading the wiki article regarding tax efficiency.

Others have mentioned paying off your mortgage, which isn't a terrible idea, but if you are married you want to be aware of the consequences of co-mingling an inheritance in the event of a divorce.
"Compound interest is the most powerful force in the universe." - Albert Einstein

goblue100
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Re: $1M cash: how to invest

Post by goblue100 » Thu Aug 22, 2019 6:41 am

Bacchus01 wrote:
Thu Aug 22, 2019 6:28 am
Piplup1996 wrote:
Thu Aug 22, 2019 2:26 am
tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Pay. Off. Your. Mortgage.
Don’t. Pay. Off. Your. Mortgage.
He is talking about a 70/30 allocation, presumably in taxable. Why invest 300,000 in bonds paying 2.5 percent pre tax and keep a 3.3% mortgage? I suppose the mortgage allows tax write offs, but I wonder how much that really helps? I would lean hard toward paying off the mortgage and investing the rest.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: $1M cash: how to invest

Post by Bacchus01 » Thu Aug 22, 2019 6:59 am

goblue100 wrote:
Thu Aug 22, 2019 6:41 am
Bacchus01 wrote:
Thu Aug 22, 2019 6:28 am
Piplup1996 wrote:
Thu Aug 22, 2019 2:26 am
tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Pay. Off. Your. Mortgage.
Don’t. Pay. Off. Your. Mortgage.
He is talking about a 70/30 allocation, presumably in taxable. Why invest 300,000 in bonds paying 2.5 percent pre tax and keep a 3.3% mortgage? I suppose the mortgage allows tax write offs, but I wonder how much that really helps? I would lean hard toward paying off the mortgage and investing the rest.
And I wouldn't. That's your opinion, but the "pay off your mortgage" chant around here is pretty loud. I think it's important that people have a counter point. $300K won't pay off his mortgage, so I'm not sure that it matters. And if he pays if off, then he puts the rest in 70/30, he still has the same low-return issue. The OP is 37. LONG horizon and needs no access to that money now or the foreseeable future. It's illogical to think he couldn't invest that 70/30 and return 6-8% over the period of the mortgage. It's an easy math problem. You choose a different path. That's fine. I would never pay off a loan at that rate. I am actually trying to do a cash-out refinance of my current house at these low rates and we have more than the OP invested already. It's your choice, but I think people deserve a counterpoint.

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Sandtrap
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Re: $1M cash: how to invest

Post by Sandtrap » Thu Aug 22, 2019 7:43 am

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
You are well justified in "feeling anxious".
And, you should be cautious.

Considerations:

There's only generalized or conjectured input that can be made based on the limited information you have given.

Let's work on a comprehensive long term financial strategy. Not just immediate actions.


***For better and more comprehensive suggestions on your overall financal strategy "before and also after" the additional new money is included, it would be best to post a "Portfoliio Revew Request" in the forum format.
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
You can "edit your original post using the pencil icon".


While you are doing that, you can review and read from this point onward:
GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started
MANAGING A WINDFALL
https://www.bogleheads.org/wiki/Managing_a_windfall

1. For now, your idea to place the funds in several money market accounts or brokerage "sweep accounts" is a sound one.
2. Resist the urge to "do something" beyond that. It matters more that you have a sound strategy/plan going forward than rush to DCA money in a month or 2 or 3 or . . . . (thus the portfolio review, there are some formidable portfolio reviewers here that have yet to chime in).
3. Do not pay off your mortgage or commit funds to it until you post a portfolio review.
4. Concurrently with a forum "portfolio review", you can work on this if you have not already:
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement
Do you have an IPS Statement? (before the 1 mil. ? . . . after the 1 mil?)
5. Along with your list of questions in the "portfolio review request", you might want to add any thoughts you might have about retirement. When? Early? Involves relocating HCOL to LCOL?, future home purchases?, etc.
6. Projected annual expenses in retirement?
7. The addition of a substantial sum like this to one's assets changes your retirement "target date" as far as portfolio planning. (you still retire at IE: 65, but for now, at age 37, you don't have to plan like a 37 year old. The curve shifts).

This is the beginning of some informational groundwork needed for better input.
j :D
Wiki Bogleheads Wiki: Everything You Need to Know

MoneyMarathon
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Re: $1M cash: how to invest

Post by MoneyMarathon » Thu Aug 22, 2019 8:30 am

Bacchus01 wrote:
Thu Aug 22, 2019 6:59 am
I would never pay off a loan at that rate. I am actually trying to do a cash-out refinance of my current house at these low rates and we have more than the OP invested already. It's your choice, but I think people deserve a counterpoint.
Good point. The OP has a great opportunity here to keep the loan and invest.

mikemikemike
Posts: 119
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Re: $1M cash: how to invest

Post by mikemikemike » Thu Aug 22, 2019 8:47 am

Load up on put options for Beyond Meat. Turn your $1MM into $5MM.

Or.. buy some index funds, with a conservative mix of stocks and bonds. Whatever you prefer.

MotoTrojan
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Re: $1M cash: how to invest

Post by MotoTrojan » Thu Aug 22, 2019 8:52 am

Would you take a $1M 401k grown over 20 years and move it to cash, then reinvest it over 6-12 months? Of course not. What you’re proposing is identical. Lump sum and be prepared with a plan to tax loss harvest if/when needed.

msk
Posts: 1470
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Re: $1M cash: how to invest

Post by msk » Thu Aug 22, 2019 9:14 am

37 is half my age, and at that age my immediate, 2-minute decision would have been (and I consider it still the right choice), pay off all mortgages (I had several going as I was in RE), and place the balance, lump sum, 50% in SPY (the SP500) and 50% in BRK (Berkshire Hathaway). The only diversion I would have now is to scratch off BRK (Buffett is getting on in age) for more SPY (or VTI or VT as per taste of the day). Nobody ever regrets getting rid of loans pronto (sword of Damocles) unless you have a very compelling reason, like writing off the mortgage interest against rental income.

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bligh
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Re: $1M cash: how to invest

Post by bligh » Thu Aug 22, 2019 9:25 am

Bacchus01 wrote:
Thu Aug 22, 2019 6:59 am
goblue100 wrote:
Thu Aug 22, 2019 6:41 am
Bacchus01 wrote:
Thu Aug 22, 2019 6:28 am
Piplup1996 wrote:
Thu Aug 22, 2019 2:26 am
tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Pay. Off. Your. Mortgage.
Don’t. Pay. Off. Your. Mortgage.
He is talking about a 70/30 allocation, presumably in taxable. Why invest 300,000 in bonds paying 2.5 percent pre tax and keep a 3.3% mortgage? I suppose the mortgage allows tax write offs, but I wonder how much that really helps? I would lean hard toward paying off the mortgage and investing the rest.
And I wouldn't. That's your opinion, but the "pay off your mortgage" chant around here is pretty loud. I think it's important that people have a counter point. $300K won't pay off his mortgage, so I'm not sure that it matters. And if he pays if off, then he puts the rest in 70/30, he still has the same low-return issue. The OP is 37. LONG horizon and needs no access to that money now or the foreseeable future. It's illogical to think he couldn't invest that 70/30 and return 6-8% over the period of the mortgage. It's an easy math problem. You choose a different path. That's fine. I would never pay off a loan at that rate. I am actually trying to do a cash-out refinance of my current house at these low rates and we have more than the OP invested already. It's your choice, but I think people deserve a counterpoint.
If I were him I would pay off that mortgage. That is a guaranteed return of 3.3% .. The remaining $300K would go into the market 100% stocks. The OP is still employed (and I assume intends to remain so), not having to make a mortgage payment means having extra cash each month that can be dollar cost averaged into the market. He has no need to leverage by borrowing money against his house. ie. If he had the house paid off, would you advise him to take out a $700K loan against it at 3.3%? Considering his financial situation, I wouldn't. He has no need for that leverage, he is doing fine as is.

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Psyayeayeduck
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Re: $1M cash: how to invest

Post by Psyayeayeduck » Thu Aug 22, 2019 9:28 am

Well, just the overall picture you provided shows that you are in a great position to invest (lump sum or DCA) or pay off your mortgage if you wanted to. All of the options presented to you in this thread have pros and cons to them.

Since no one knows what you are comfortable with, no one in this thread will give you a tailored answer without knowing what your goals are and what you prioritize.

Just based on how you presented your information, either direction is perfectly fine by me. You got the "A". Do you want to lock in the "A" or go for the "A+"?

dardeninvestor
Posts: 72
Joined: Wed Jul 31, 2019 9:51 am

Re: $1M cash: how to invest

Post by dardeninvestor » Thu Aug 22, 2019 9:31 am

goblue100 wrote:
Thu Aug 22, 2019 6:41 am
Bacchus01 wrote:
Thu Aug 22, 2019 6:28 am
Piplup1996 wrote:
Thu Aug 22, 2019 2:26 am
tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Pay. Off. Your. Mortgage.
Don’t. Pay. Off. Your. Mortgage.
He is talking about a 70/30 allocation, presumably in taxable. Why invest 300,000 in bonds paying 2.5 percent pre tax and keep a 3.3% mortgage? I suppose the mortgage allows tax write offs, but I wonder how much that really helps? I would lean hard toward paying off the mortgage and investing the rest.
My point exactly. Use that 30% to pay off the mortgage. Would not invest any in bonds.

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Mullins
Posts: 135
Joined: Wed May 08, 2019 4:38 pm

Re: $1M cash: how to invest

Post by Mullins » Thu Aug 22, 2019 9:41 am

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
Assuming you have a few decades to go until you need the funds, I'd lump sum it all into a total stock market. Ride out volatility with the long term results in view.

DCA underperforms lump sum 2/3's of the time, not only that but DCA is more about easing concerns, which reflect the individual's apprehension and concerns, not the market, which remains unpredictable, and therefore the degree of concerns are different from person to person.

Let's say you find it more comfortable to DCA over 12 months. Now, imagine you inherited $12M isntead of $1M... concerned about investing you'd then probably allocate $1M a month to DCA... what changed that makes DCA'ing at $1M a month any better or worse than investing $1M at 83K a month? Right, it's all about what's in your head. Which really means, change what's in your head and you change how you feel about it.

Don't pay off the mortgage. It's only 3.3% so your 750K can keep working for you over the next couple of decades to return more than that, we hope, but moreover, right now you're essentially also leveraging your house's down payment as your house increases in value.

HomeStretch
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Re: $1M cash: how to invest

Post by HomeStretch » Thu Aug 22, 2019 9:51 am

OP-

There are/will be a lot of opinions whether to pay off your mortgage or invest (and whether to DCA or lump sum) or both. With a $650k W2 wage and a great portfolio balance, the reality is that if you LBYM for a few years, you can invest the $1 million and cash flow a mortgage payoff in 3-4 years or vice versa. Do what feels right to you.

We paid off our mortgage in our late 30s and never regretted it. It was liberating to eliminate the debt overhang and the lower monthly expenses allowed us to weather job loss, make career choices, etc. in our 40s.

UpperNwGuy
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Re: $1M cash: how to invest

Post by UpperNwGuy » Thu Aug 22, 2019 9:55 am

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

I feel anxious about investing it all at once -- my thought was to place is in a 2% money market account and invest all the funds on a monthly basis over the next 6-12 months.

Overall financial picture:
$3.5M net worth including personal home.
Only debt is 3.3% mortgage (750k left on mortgage).
650k W2 income

Emergency fund of 12 months expenses covered.

Any thoughts?
I agree with your advisor.

CurlyDave
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Re: $1M cash: how to invest

Post by CurlyDave » Thu Aug 22, 2019 9:56 am

Bacchus01 wrote:
Wed Aug 21, 2019 10:00 pm
No way would I pay off the mortgage. Not at that rate.

Lump sum it. I’m expecting a $2.5M windfall in the next year. It’ll lump sum into TSM or S&P within days.
+1

A 3.3% mortgage is a wonderful loan.

Investment returns will almost certainly be higher, especially when one realizes that the mortgage is repaid in nominal, not inflation-adjusted dollars.

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goodenyou
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Re: $1M cash: how to invest

Post by goodenyou » Thu Aug 22, 2019 11:11 am

Paying off the mortgage may have asset protection value. This is especially relevant for the physician OP. It may not be an insignificant consideration.
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smectym
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Re: $1M cash: how to invest

Post by smectym » Thu Aug 22, 2019 12:15 pm

OP indicates he favors a gradualist approach. That’s not a bad idea in this environment. Therefore, OP should place the $1M in the money market fund and gradually bleed it into a balanced fund over the next 12 months. That leaves the burning question if the mortgage, I suggest OP gradually prepay the mortgage using funds from salary to “make the mortgage go away” well before retirement, which is still a long way off. So OP has his inheritance lump sum working for him, his mortgage melting away, and nothing has been done in a lurch or “just at the peak” and there no remorse at a hasty decision.

Booper
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Re: $1M cash: how to invest

Post by Booper » Thu Aug 22, 2019 12:22 pm

Personally I would wait for the next recession / correction. The yield curve is currently inverted and that normally predicts a recession. Also, the current usage of tariffs is likely to hurt the economy.

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sergeant
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Re: $1M cash: how to invest

Post by sergeant » Thu Aug 22, 2019 12:44 pm

I agree with the guy you are paying that went over all your information and who sat down with you and went over your goals. If you DCA or lumpsum it will have make no long term difference but your financial planner gave the most correct answer to your question.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.

BlackDiamond
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Re: $1M cash: how to invest

Post by BlackDiamond » Thu Aug 22, 2019 12:51 pm

tarheel15 wrote:
Wed Aug 21, 2019 8:03 pm
Trying to get some advice on how to invest a $1M cash inheritance?

I don't need the funds in the short-term. My fee-only advisor is suggesting I invest it all lumpsum into index funds 70/30 allocation.
I am a 37 y/o physician.

Any thoughts?
+1 to your advisor.

rashad3000
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Re: $1M cash: how to invest

Post by rashad3000 » Thu Aug 22, 2019 1:17 pm

If I received any money I didn't earn, I would pay off my mortgage and put the rest into index funds.

Congrats on this windfall.

jsapiandante
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Re: $1M cash: how to invest

Post by jsapiandante » Thu Aug 22, 2019 1:33 pm

If you're that scared of the market being at an all time high, I'd pay off the mortgage ASAP. At least you're guaranteed the return compared to the unknown that is the market. To me, it doesn't make a difference once the mortgage is paid off because at your high income, it's almost like DCA'ing the same amount over the course of a few years since you'll have plenty of cash flow.

Bacchus01
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Re: $1M cash: how to invest

Post by Bacchus01 » Thu Aug 22, 2019 4:18 pm

bligh wrote:
Thu Aug 22, 2019 9:25 am
Bacchus01 wrote:
Thu Aug 22, 2019 6:59 am
goblue100 wrote:
Thu Aug 22, 2019 6:41 am
Bacchus01 wrote:
Thu Aug 22, 2019 6:28 am
Piplup1996 wrote:
Thu Aug 22, 2019 2:26 am

Pay. Off. Your. Mortgage.
Don’t. Pay. Off. Your. Mortgage.
He is talking about a 70/30 allocation, presumably in taxable. Why invest 300,000 in bonds paying 2.5 percent pre tax and keep a 3.3% mortgage? I suppose the mortgage allows tax write offs, but I wonder how much that really helps? I would lean hard toward paying off the mortgage and investing the rest.
And I wouldn't. That's your opinion, but the "pay off your mortgage" chant around here is pretty loud. I think it's important that people have a counter point. $300K won't pay off his mortgage, so I'm not sure that it matters. And if he pays if off, then he puts the rest in 70/30, he still has the same low-return issue. The OP is 37. LONG horizon and needs no access to that money now or the foreseeable future. It's illogical to think he couldn't invest that 70/30 and return 6-8% over the period of the mortgage. It's an easy math problem. You choose a different path. That's fine. I would never pay off a loan at that rate. I am actually trying to do a cash-out refinance of my current house at these low rates and we have more than the OP invested already. It's your choice, but I think people deserve a counterpoint.
If I were him I would pay off that mortgage. That is a guaranteed return of 3.3% .. The remaining $300K would go into the market 100% stocks. The OP is still employed (and I assume intends to remain so), not having to make a mortgage payment means having extra cash each month that can be dollar cost averaged into the market. He has no need to leverage by borrowing money against his house. ie. If he had the house paid off, would you advise him to take out a $700K loan against it at 3.3%? Considering his financial situation, I wouldn't. He has no need for that leverage, he is doing fine as is.
Yes. If I could borrow more money at 3.3%, I most deifitely would.

DCA has not been shown to outgain lump summing, so that argument is pointless.

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