Where to park 500K ?

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Topic Author
boxerbali
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Where to park 500K ?

Post by boxerbali »

Situation -
Age - Late 30s
Net worth - ~ 2.1 MM
Annual combined Income - 400K
Debt - 700K at 2.7% for 30 years primary home ( Value of home 1MM)

Here is plan, let me know if you do it different & why or have any other suggestions.

1. 9 months of emergency funds - Done
2. Contribute to ROTH to do back door - Done
3. Contribute fully to 401Ks - Work in progress will be done by EOY
4. 529 - Seems many restriction and hence prefer other account to invest for education
5. Contribute 5K a week in VTSAX - on going
6. If market drops (3-5% or more) contribute additional 15K for each market drops in VTSAX - Work in progress
7. Invest on SQ, TSLA, BABA , PINS ,GOOG, BK,FB, TWTR - 10K each only if market drops 10% or more. These individual stocks total should not exceed 100k
8. Look out for investment/rental home ( mostly to hedge against inflation) 100K down payment ( additional 20K set aside, house up to 425K) , rest mortgage - Work in progress

Note - 700K debt does not bother me and I do not pay extra penny on mortgage. I think if it as a cheap money. Let me know if there are some issue with this thinking.
livesoft
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Re: Where to park 500K ?

Post by livesoft »

Well, another $500K right into VTSAX on Monday seems prudent to me.
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l1am
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Re: Where to park 500K ?

Post by l1am »

Does your NW include the 700k debt? I'd strongly consider paying down the mortgage - 2.7% guaranteed return, but depends how risk adverse you are.

On:
6. Just stick to an AA and don't time.
7. What's the reason to overweight on tech? VTSAX is already weighted heavily towards tech, as opposed to global indexes.
8. If you want to hedge against inflation you can just buy TIPS/I-bonds or Vanguard funds. All you're doing there is investing in real estate.
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

l1am wrote: Sat Sep 26, 2020 2:23 pm Does your NW include the 700k debt? I'd strongly consider paying down the mortgage - 2.7% guaranteed return, but depends how risk adverse you are.
Yes , that is asset- liablity = around 300k in equity as NW
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

l1am wrote: Sat Sep 26, 2020 2:23 pm On:
6. Just stick to an AA and don't time.
7. What's the reason to overweight on tech? VTSAX is already weighted heavily towards tech, as opposed to global indexes.
8. If you want to hedge against inflation you can just buy TIPS/I-bonds or Vanguard funds. All you're doing there is investing in real estate.
On 6, yes will maintain AA but double down if market dips.
On 7, Did not think that way but I think of that as some bold bets money.
on 8, Agree I am investing in real estate. I do not like TIPS or bonds.
annu
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Re: Where to park 500K ?

Post by annu »

Depending on your tolerance:
1) You can do a VTSAX/VBTLX combo(Total Stock/Total Bond), and can adjust ratio to your risk tolerance. You can do 30% Stock/70% Bond or tilt more towards Stock
2) Payoff mortgage, or big chunk towards it.

Between 1 and 2, your starting point can be 2.7% rate you have right now. If you "park" your money into mortgage, you get guaranteed 2.7% return. Or you can decide, you will invest, with risk enough to beat 2.7%. For beating 2.7% over next 10 years, a combination of 1 can be a good option.

I personally did 2, am debt free. A bird in the hand is worth two in the bush
nix4me
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Re: Where to park 500K ?

Post by nix4me »

The market just dropped 10%, I’d plow it all into VTI or VOO.
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Re: Where to park 500K ?

Post by abuss368 »

Where to “park” $500k? Until comfortable and certain where you can sleep at night I would place in cash.
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BGeste
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Re: Where to park 500K ?

Post by BGeste »

Vanguard Total World Stock Index.
Ryzan
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Re: Where to park 500K ?

Post by Ryzan »

boxerbali wrote: Sat Sep 26, 2020 2:13 pm 5. Contribute 5K a week in VTSAX - on going
$5k / week = $260k / year. That's not really sustainable on a $400k income, right? So then, wouldn't this gradually draw down the $500k over a few years?
Hiker8
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Re: Where to park 500K ?

Post by Hiker8 »

boxerbali wrote: Sat Sep 26, 2020 2:13 pm Situation -
Age - Late 30s
Net worth - ~ 2.1 MM
Annual combined Income - 400K
Debt - 700K at 2.7% for 30 years primary home ( Value of home 1MM)

Here is plan, let me know if you do it different & why or have any other suggestions.

1. 9 months of emergency funds - Done
2. Contribute to ROTH to do back door - Done
3. Contribute fully to 401Ks - Work in progress will be done by EOY
4. 529 - Seems many restriction and hence prefer other account to invest for education
5. Contribute 5K a week in VTSAX - on going
6. If market drops (3-5% or more) contribute additional 15K for each market drops in VTSAX - Work in progress
7. Invest on SQ, TSLA, BABA , PINS ,GOOG, BK,FB, TWTR - 10K each only if market drops 10% or more. These individual stocks total should not exceed 100k
8. Look out for investment/rental home ( mostly to hedge against inflation) 100K down payment ( additional 20K set aside, house up to 425K) , rest mortgage - Work in progress

Note - 700K debt does not bother me and I do not pay extra penny on mortgage. I think if it as a cheap money. Let me know if there are some issue with this thinking.
You've got 9 months of emergency funds. Just invest it based on your asset allocation on Monday. This is really pretty simple.
novemberrain
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Re: Where to park 500K ?

Post by novemberrain »

boxerbali wrote: Sat Sep 26, 2020 2:13 pm Situation -
Age - Late 30s
Net worth - ~ 2.1 MM
Annual combined Income - 400K
Debt - 700K at 2.7% for 30 years primary home ( Value of home 1MM)

Here is plan, let me know if you do it different & why or have any other suggestions.

1. 9 months of emergency funds - Done
2. Contribute to ROTH to do back door - Done
3. Contribute fully to 401Ks - Work in progress will be done by EOY
4. 529 - Seems many restriction and hence prefer other account to invest for education
5. Contribute 5K a week in VTSAX - on going
6. If market drops (3-5% or more) contribute additional 15K for each market drops in VTSAX - Work in progress
7. Invest on SQ, TSLA, BABA , PINS ,GOOG, BK,FB, TWTR - 10K each only if market drops 10% or more. These individual stocks total should not exceed 100k
8. Look out for investment/rental home ( mostly to hedge against inflation) 100K down payment ( additional 20K set aside, house up to 425K) , rest mortgage - Work in progress

Note - 700K debt does not bother me and I do not pay extra penny on mortgage. I think if it as a cheap money. Let me know if there are some issue with this thinking.
I didn't quite catch your thought. How do you get 5k to invest per week from 400k income ?
inbox788
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Re: Where to park 500K ?

Post by inbox788 »

boxerbali wrote: Sat Sep 26, 2020 2:13 pm 4. 529 - Seems many restriction and hence prefer other account to invest for education
5. Contribute 5K a week in VTSAX - on going
6. If market drops (3-5% or more) contribute additional 15K for each market drops in VTSAX - Work in progress
7. Invest on SQ, TSLA, BABA , PINS ,GOOG, BK,FB, TWTR - 10K each only if market drops 10% or more. These individual stocks total should not exceed 100k
8. Look out for investment/rental home ( mostly to hedge against inflation) 100K down payment ( additional 20K set aside, house up to 425K) , rest mortgage - Work in progress

Note - 700K debt does not bother me and I do not pay extra penny on mortgage. I think if it as a cheap money. Let me know if there are some issue with this thinking.
How old are the kids? It's tax advantage space, and you're likely in a high tax bracket, so I'd max out 529 and lump it into lowest cost 100% equities market index fund. State tax benefit would be extra.

Any other tax advantage space you're not maximizing?

$5k/week is 250k/year? So 2 years of weekly dollar cost averaging into the market?
How many 5% drops a year do you expect? Say 4-5, so 60-75k at a slight discount.
Up to 100k in individual stocks?
$120k real estate venture?

Are these ongoing strategies or one time investments?

You can spread it around or reduce the complexity and simplify. You'll do fine either way.
hudson
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Re: Where to park 500K ?

Post by hudson »

boxerbali wrote: Sat Sep 26, 2020 2:38 pm
l1am wrote: Sat Sep 26, 2020 2:23 pm On:
6. Just stick to an AA and don't time.
7. What's the reason to overweight on tech? VTSAX is already weighted heavily towards tech, as opposed to global indexes.
8. If you want to hedge against inflation you can just buy TIPS/I-bonds or Vanguard funds. All you're doing there is investing in real estate.
On 6, yes will maintain AA but double down if market dips.
On 7, Did not think that way but I think of that as some bold bets money.
on 8, Agree I am investing in real estate. I do not like TIPS or bonds.
With your holdings and income, you are fine to keep doing it your way.
If I were in your shoes, I'd plan for zero debt by age 50. Paying interest is a drag.
I would put the 500K in the best available CD and keep it in FDIC/NCUA safe....or maybe in Vanguard's intermediate muni fund.
Several of my friends would advise you to put the 500K into real estate.
snowox
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Re: Where to park 500K ?

Post by snowox »

I personally would put 250k toward house and 250k in VTSAX/VTI right now yes its market timing but odds are going to be a lot of volatility for awhile so I personally would put 50k(of the 250k) on each 5% drop on increments or no later than 50k per month. During this time instead of putting the 5k, also add that to paying down your mortgage. I would add $ and buy Dips 10-15% not 3-5% and also have a goal to be totally debt free by age of 50 or sooner. I would not invest in personal stocks unless for fun, but if so get a trading account and keep it to 1% of your net worth.
flaccidsteele
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Re: Where to park 500K ?

Post by flaccidsteele »

Personally my concern would be that half OP’s NW is in a non-productive asset 😬
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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BolderBoy
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Re: Where to park 500K ?

Post by BolderBoy »

boxerbali wrote: Sat Sep 26, 2020 2:13 pmNote - 700K debt does not bother me and I do not pay extra penny on mortgage. I think if it as a cheap money. Let me know if there are some issue with this thinking.
NW is important and this $700k debt is a drag on your NW.

If you like your house and plan to live there for years to come, I'd pay down the mortgage.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

novemberrain wrote: Sun Sep 27, 2020 12:48 am
I didn't quite catch your thought. How do you get 5k to invest per week from 400k income ?
This onetime money I got from real estate ..
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

flaccidsteele wrote: Sun Sep 27, 2020 8:05 am Personally my concern would be that half OP’s NW is in a non-productive asset 😬
Why do you think Half is non-productive ? My NW excludes 500K referenced here.
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

inbox788 wrote: Sun Sep 27, 2020 2:41 am How old are the kids? It's tax advantage space, and you're likely in a high tax bracket, so I'd max out 529 and lump it into lowest cost 100% equities market index fund. State tax benefit would be extra.

Any other tax advantage space you're not maximizing?

$5k/week is 250k/year? So 2 years of weekly dollar cost averaging into the market?
How many 5% drops a year do you expect? Say 4-5, so 60-75k at a slight discount.
Up to 100k in individual stocks?
$120k real estate venture?

Are these ongoing strategies or one time investments?

You can spread it around or reduce the complexity and simplify. You'll do fine either way.
Just one kid 7 years old , also our state has no tax so there is no benefit as far as state tax goes. Above is one time strategy.
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

hudson wrote: Sun Sep 27, 2020 4:53 am
boxerbali wrote: Sat Sep 26, 2020 2:38 pm
l1am wrote: Sat Sep 26, 2020 2:23 pm On:
6. Just stick to an AA and don't time.
7. What's the reason to overweight on tech? VTSAX is already weighted heavily towards tech, as opposed to global indexes.
8. If you want to hedge against inflation you can just buy TIPS/I-bonds or Vanguard funds. All you're doing there is investing in real estate.
On 6, yes will maintain AA but double down if market dips.
On 7, Did not think that way but I think of that as some bold bets money.
on 8, Agree I am investing in real estate. I do not like TIPS or bonds.
With your holdings and income, you are fine to keep doing it your way.
If I were in your shoes, I'd plan for zero debt by age 50. Paying interest is a drag.
I would put the 500K in the best available CD and keep it in FDIC/NCUA safe....or maybe in Vanguard's intermediate muni fund.
Several of my friends would advise you to put the 500K into real estate.
Yes plan is to get debt free by 50 as part of FIRE strategy. However I like take bit more risk compare to CD/Bond and hence my inclination towards VTSAX.
Why do you think paying interest is drag ? I am hoping that in next 2-5 years this low interest rate mortgage would be almost like 0% loan considering inflaction and even 2% dividends + appreciation is icing on the cake !
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

BolderBoy wrote: Sun Sep 27, 2020 8:52 am
boxerbali wrote: Sat Sep 26, 2020 2:13 pmNote - 700K debt does not bother me and I do not pay extra penny on mortgage. I think if it as a cheap money. Let me know if there are some issue with this thinking.
NW is important and this $700k debt is a drag on your NW.

If you like your house and plan to live there for years to come, I'd pay down the mortgage.
I like my house but don't like the idea on having more equity in non so liquid asset class then what is needed, just in case !
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abuss368
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Re: Where to park 500K ?

Post by abuss368 »

I would not invest in individual stocks. Jack Bogle has said no investors should own individual stocks as the risk is just to great.
John C. Bogle: “Simplicity is the master key to financial success."
TheDDC
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Re: Where to park 500K ?

Post by TheDDC »

Pay down any consumer debt debt first, mortgage next, then park (or DCA) into VTSAX 100%. Stay away from individual stocks.

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Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex
000
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Re: Where to park 500K ?

Post by 000 »

boxerbali wrote: Sat Sep 26, 2020 2:13 pm 7. Invest on SQ, TSLA, BABA , PINS ,GOOG, BK,FB, TWTR - 10K each only if market drops 10% or more. These individual stocks total should not exceed 100k
IMO individual stocks are fine if appropriately managed, but I wouldn't consider your plan appropriate:

First, you're buying the hot, richly valued stocks.

Second, your plan seems to be hoping for a deal without having a good idea of fundamental valuation. Do you really think each of those companies is exactly 10% overvalued? None of them is fairly valued or undervalued? None of them is 30% overvalued?
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LiveSimple
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Re: Where to park 500K ?

Post by LiveSimple »

I would pay my debt and be debt free at this assets :D
If I think I am smarter and can gain some % as return, then the alternative is Total Stock Market Index fund.
Topic Author
boxerbali
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Re: Where to park 500K ?

Post by boxerbali »

000 wrote: Sun Sep 27, 2020 6:52 pm
boxerbali wrote: Sat Sep 26, 2020 2:13 pm 7. Invest on SQ, TSLA, BABA , PINS ,GOOG, BK,FB, TWTR - 10K each only if market drops 10% or more. These individual stocks total should not exceed 100k
IMO individual stocks are fine if appropriately managed, but I wouldn't consider your plan appropriate:

First, you're buying the hot, richly valued stocks.

Second, your plan seems to be hoping for a deal without having a good idea of fundamental valuation. Do you really think each of those companies is exactly 10% overvalued? None of them is fairly valued or undervalued? None of them is 30% overvalued?
I think overall market is overvalued which includes VTSAX. But with VTSAX I am cost averaging and its umbrella of stocks and hence less risk. But individual stocks , I do not want to employ DCA and hence market timing to deploy the capital. As I believe , putting small amount( < 10% of portfolio) in these stock with HUGE potential will pay off in future. I know many from above list have debt and hardly make any profit now.
inbox788
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Re: Where to park 500K ?

Post by inbox788 »

boxerbali wrote: Sun Sep 27, 2020 5:35 pmJust one kid 7 years old , also our state has no tax so there is no benefit as far as state tax goes. Above is one time strategy.
Even without the state tax benefit, I would max out the 529 for 10+ years at most aggressive, low cost fund you can tolerate. I think Florida now has the single lowest cost fund (0.03) across all states, but you might only be open to residents.

https://www.whitecoatinvestor.com/forum ... -plan-fund

If used for qualified expenses, it could be 25-50% more in after tax returns.

What is your expected market return in the next 10 years? For your choice of individual stocks? And for real estate business? The time commitment for the latter two is far greater than the simple diversified index fund portfolio, and risk adjusted and time adjusted (putting a cost on the time you put into the strategy), the returns may not be expected to pay off.

These alternates don't appear to be more than 10-20% of your portfolio, and if you're not adding to them, will likely reduce in percent allocation to mean even less, unless they significantly outperform the market.

If you're picking individual stocks, you're going to have to be very good and/or very lucky. I don't think GOOGL, FB or BABA will grow 10 times in the near future, simply because they're already so huge, and the valuation of the others aren't low. And even if you do hit a big winner, unless you're concentrated in a handful or less and you expand your investment, it' isn't going to make a huge difference in your overall situation.
anoop
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Re: Where to park 500K ?

Post by anoop »

boxerbali wrote: Sat Sep 26, 2020 2:13 pm 7. Invest on SQ, TSLA, BABA , PINS ,GOOG, BK,FB, TWTR - 10K each only if market drops 10% or more. These individual stocks total should not exceed 100k
What is special about BK? It looks like an outlier in what is otherwise a set of tech growth.
hudson
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Re: Where to park 500K ?

Post by hudson »

boxerbali wrote: Sun Sep 27, 2020 5:41 pm
hudson wrote: Sun Sep 27, 2020 4:53 am
boxerbali wrote: Sat Sep 26, 2020 2:38 pm
l1am wrote: Sat Sep 26, 2020 2:23 pm On:
6. Just stick to an AA and don't time.
7. What's the reason to overweight on tech? VTSAX is already weighted heavily towards tech, as opposed to global indexes.
8. If you want to hedge against inflation you can just buy TIPS/I-bonds or Vanguard funds. All you're doing there is investing in real estate.
On 6, yes will maintain AA but double down if market dips.
On 7, Did not think that way but I think of that as some bold bets money.
on 8, Agree I am investing in real estate. I do not like TIPS or bonds.
With your holdings and income, you are fine to keep doing it your way.
If I were in your shoes, I'd plan for zero debt by age 50. Paying interest is a drag.
I would put the 500K in the best available CD and keep it in FDIC/NCUA safe....or maybe in Vanguard's intermediate muni fund.
Several of my friends would advise you to put the 500K into real estate.
Yes plan is to get debt free by 50 as part of FIRE strategy. However I like take bit more risk compare to CD/Bond and hence my inclination towards VTSAX.
Why do you think paying interest is drag ? I am hoping that in next 2-5 years this low interest rate mortgage would be almost like 0% loan considering inflaction and even 2% dividends + appreciation is icing on the cake !
boxerbali,
Your plan looks fine to me.
At 50 after too much debt, I decided no more. So I haven't been paying any interest in 20 years...therefore no drag.
What's more important to your financial future...the success of the stock market or that you keep socking the money away?
I vote that regular savings is the key. You get an A in that department.
Have you read Boglehead style books by L. Swedroe or W. Bernstein?
jameswg
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Re: Where to park 500K ?

Post by jameswg »

I had a similar situation, not really sure what to do with a similar amount and it was tough because of a lack of a specific goal. I wanted efficient investment (low risk but good return) and the $ is taxable. So what I did was

40-50% VTSAX
5-10% VTIAX
10-15% VWSUX
10-15% VWIUX
10-15% VWLUX

This allocation met my risk tolerance will setup for a good return, fed tax exempt payments on the bonds, and provide good flexibility. If I need $20K to buy a car or something, I dont have to worry if market is down big at that time since I'm roughly 50/50 stocks/bonds.
quasar
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Re: Where to park 500K ?

Post by quasar »

I was in a similar position at that age. My recommendations: take $150k to pare down the mortgage debt to $550k. $300k in to a taxable account: $VTI or perhaps tax managed index fund.

$50k for more speculative investment if your risk tolerance allows — syndicated real estate, fund of funds private equity, etc. I know many Bogleheads will disagree on this point; I emphasize it is speculative and not for everyone. Risk/reward was favorable per my calculation for my situation.
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