Too much bond+cash. What is the best option?

[amitjadhav]

We are a couple in mid 30s. I received significant cash through IPO over last 3 years that was around 1.8 mil after tax plus we had 150k previous saving. We bought home worth 900k in Bay Area outskirts. That left us with around 1.1 million.

Out of 1.1 million so far I invested around 500k in index funds but I am still afraid to move more of it into stocks. Now my wife got job in Atlanta and we are moving to Atlanta soon and the half of the home equity will free soon and we will have another 400k. That will make portfolio something like 30% stocks. Overall we don't spend much so we are gathering another 100k additional yearly.

What is the best option here. Should I make my portfolio more like 60/40 stock heavy. Or wait till covid subsides. Market looks extremely overvalued at this point. I was thinking of doing DCA with 150k yearly. That will take 5 years to complete.

[vineviz]

We are a couple in mid 30s. I received significant cash through IPO over last 3 years that was around 1.8 mil after tax plus we had 150k previous saving. We bought home worth 900k in Bay Area outskirts. That left us with around 1.1 million.

Out of 1.1 million so far I invested around 500k in index funds but I am still afraid to move more of it into stocks. Now my wife got job in Atlanta and we are moving to Atlanta soon and the half of the home equity will free soon and we will have another 400k. That will make portfolio something like 30% stocks. Overall we don't spend much so we are gathering another 100k additional yearly.

What is the best option here. Should I make my portfolio more like 60/40 stock heavy. Or wait till covid subsides. Market looks extremely overvalued at this point. I was thinking of doing DCA with 150k yearly. That will take 5 years to complete.

The market probably isn’t extremely overvalued, but even if it was the long run return is almost certainly better than cash. Right?

That said, any asset allocation that takes you five years to ease into is probably not the right asset allocation. The rational asset allocation for a couple in their mid 30s is 100% stocks, but maybe you’re more loss averse than average. That’s fine.

If you’re at 50% stocks now, my advice is to put half of the new money in stocks right away. Put the other half in a long-term bond fund, then spend a year living with that. If your wife has a 401k, max that out in a Target Date 2050 fund.

In 12-18 months, revisit the question.

[amitjadhav]

We are a couple in mid 30s. I received significant cash through IPO over last 3 years that was around 1.8 mil after tax plus we had 150k previous saving. We bought home worth 900k in Bay Area outskirts. That left us with around 1.1 million.

Out of 1.1 million so far I invested around 500k in index funds but I am still afraid to move more of it into stocks. Now my wife got job in Atlanta and we are moving to Atlanta soon and the half of the home equity will free soon and we will have another 400k. That will make portfolio something like 30% stocks. Overall we don't spend much so we are gathering another 100k additional yearly.

What is the best option here. Should I make my portfolio more like 60/40 stock heavy. Or wait till covid subsides. Market looks extremely overvalued at this point. I was thinking of doing DCA with 150k yearly. That will take 5 years to complete.

The market probably isn’t extremely overvalued, but even if it was the long run return is almost certainly better than cash. Right?

That said, any asset allocation that takes you five years to ease into is probably not the right asset allocation. The rational asset allocation for a couple in their mid 30s is 100% stocks, but maybe you’re more loss averse than average. That’s fine.

If you’re at 50% stocks now, my advice is to put half of the new money in stocks right away. Put the other half in a long-term bond fund, then spend a year living with that. If your wife has a 401k, max that out in a Target Date 2050 fund.

In 12-18 months, revisit the question.

Probably I should just gather courage and move more like 200k a year and in next 3 years and target 85% stocks portfolio after 3 years from now. I will still have equity in home some this should make me feel more comfortable.

[TexasBorn]

Why don’t you create buckets and decide what you think you could need in the next 3 years, keep that in cash, then create a portfolio with the rest that you feel comfortable with?

[Chris K Jones]

You need to have a long term strategy. I would strongly suggest you work through and create an investment policy statement. This is your roadmap. Then follow it no matter what the market does. Around here most people favor lump sum investing. IF you must dollar cost average, then you might consider doing it in no more than a year. Best wishes.

[flyingcows]

Welcome to Atlanta

You could consider bringing the cash into the market by selling puts, that is what I do whenever I have large amounts in cash to invest.

The downside is that the premium collected will always be short term capital gains

[amitjadhav]

Why don’t you create buckets and decide what you think you could need in the next 3 years, keep that in cash, then create a portfolio with the rest that you feel comfortable with?

We max out 401ks and after that we still save 50k a year. I think my problem has stem from fact that usually people develop their portfolio organically so they see the ups and downs. I didn't get that experience.

I don't think we need any cash for next few years except having one kid will change the equation slightly.

One way I am looking at reducing fear is to invest slightly (10k a year) on skill development so I keep myself ahead of skill requirement curve.

[amitjadhav]

You need to have a long term strategy. I would strongly suggest you work through and create an investment policy statement. This is your roadmap. Then follow it no matter what the market does. Around here most people favor lump sum investing. IF you must dollar cost average, then you might consider doing it in no more than a year. Best wishes.

investment policy statement: This is new for me. Should consider this seriously.

[TexasBorn]

I get you have a surplus each year, but what’s your EF at?

One year, two years?

That’s a bucket. Save 3 years EF and invest the rest. That’s a pretty conservative approach.

And trust me I’m not risky at all : )

[amitjadhav]

I get you have a surplus each year, but what’s your EF at?

One year, two years?

That’s a bucket. Save 3 years EF and invest the rest. That’s a pretty conservative approach.

And trust me I’m not risky at all : )

What is EF? That is new term for me.

If it is some sort of expense calculation then we will need something like 60 to 80k a year.

[Third Son]

I get you have a surplus each year, but what’s your EF at?

One year, two years?

That’s a bucket. Save 3 years EF and invest the rest. That’s a pretty conservative approach.

And trust me I’m not risky at all : )

What is EF? That is new term for me.

If it is some sort of expense calculation then we will need something like 60 to 80k a year.

Emergency Fund

[Chris K Jones]

Us the search function in the upper right of your screen for investment policy statement or anything else. There are many posts and examples. Good luck to you and welcome to Atlanta.

[Compound]

You need to have a long term strategy. I would strongly suggest you work through and create an investment policy statement. This is your roadmap. Then follow it no matter what the market does. Around here most people favor lump sum investing. IF you must dollar cost average, then you might consider doing it in no more than a year. Best wishes.

investment policy statement: This is new for me. Should consider this seriously.

There’s some help in the wiki on putting together an IPS.

https://www.bogleheads.org/wiki/Investm ... _statement

[Compound]

Also, nothing wrong with going slow on converting your cash/bonds into stocks. You’ve got over a million dollars already(!); you’ve got to think about how much risk you are willing to take. Thought experiments on how much your overall net worth may go down with a market downturn vs how much in gains you lose out on by being in bonds/cash during a market upswing can help you determine the overall asset allocation you can live with through thick and thin. Once you’ve got that figured out, it’s simply a matter of executing your plan.

[willthrill81]

We are a couple in mid 30s. I received significant cash through IPO over last 3 years that was around 1.8 mil after tax plus we had 150k previous saving. We bought home worth 900k in Bay Area outskirts. That left us with around 1.1 million.

Out of 1.1 million so far I invested around 500k in index funds but I am still afraid to move more of it into stocks. Now my wife got job in Atlanta and we are moving to Atlanta soon and the half of the home equity will free soon and we will have another 400k. That will make portfolio something like 30% stocks. Overall we don't spend much so we are gathering another 100k additional yearly.

What is the best option here. Should I make my portfolio more like 60/40 stock heavy. Or wait till covid subsides. Market looks extremely overvalued at this point. I was thinking of doing DCA with 150k yearly. That will take 5 years to complete.

The market probably isn’t extremely overvalued, but even if it was the long run return is almost certainly better than cash. Right?

That said, any asset allocation that takes you five years to ease into is probably not the right asset allocation. The rational asset allocation for a couple in their mid 30s is 100% stocks, but maybe you’re more loss averse than average. That’s fine.

If you’re at 50% stocks now, my advice is to put half of the new money in stocks right away. Put the other half in a long-term bond fund, then spend a year living with that. If your wife has a 401k, max that out in a Target Date 2050 fund.

In 12-18 months, revisit the question.

Probably I should just gather courage and move more like 200k a year and in next 3 years and target 85% stocks portfolio after 3 years from now. I will still have equity in home some this should make me feel more comfortable.

Would you be able to stay the course if stocks suddenly fell by 50%, as they did in 2008-2009? If not, then reduce your stock allocation to the point that you are confident that you would. You obviously wouldn't have to feel good about it, but if you believe now that there would be any real risk of you panic selling in such a big downturn, then your stock allocation is too high.

[TexasBorn]

I get you have a surplus each year, but what’s your EF at?

One year, two years?

That’s a bucket. Save 3 years EF and invest the rest. That’s a pretty conservative approach.

And trust me I’m not risky at all : )

What is EF? That is new term for me.

If it is some sort of expense calculation then we will need something like 60 to 80k a year.

Emergency Funds

If you have 3 years expenses saved sitting in cash, it’s highly likely that you could stomach any significant downturn and see its rise back up to “comfortable” levels.

[amitjadhav]

Would you be able to stay the course if stocks suddenly fell by 50%, as they did in 2008-2009? If not, then reduce your stock allocation to the point that you are confident that you would. You obviously wouldn't have to feel good about it, but if you believe now that there would be any real risk of you panic selling in such a big downturn, then your stock allocation is too high.
[/quote]


I did that calculation some time back. The thought was that I can tolerate 25% loss in net worth including home value. From that perspective having 60% of total net worth in stocks is going to be optimal for me. As of now I am half way to that point I guess.