Investing $150,000, in this day and age

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Topic Author
WiscoBC
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Joined: Wed Sep 30, 2020 10:46 am

Investing $150,000, in this day and age

Post by WiscoBC »

Hello!

I am excited to find this forum. I've actually been with Vanguard for a long time, but never thought to look for a Boglehead forum ;)

1. My wife and I just sold our house, and have $150,000 in proceeds.
2. We are looking to keep it intact for the next year or two.

In looking at some older (pre-Trump, pre-Covid, etc) posts, many people suggest a 1-year CD. The rates on those are brutal...as we all realize I'm sure.

The account would be taxable, since we don't want to lock it up. We might need some $$$ for adoption suddenly, or indeed a house down payment.

My considerations are:
VGSLX (VG Real Estate Index Fund)
VTAPX (VG Short Term Inflation Protected Securities Fund (TIPS))
VVIAX (VG Value Index Fund)
VPU (VG Utilities Index Fund) (the mutual fund version is $100,000 min so I can't use that)
VIPSX (VG Inflation-Protected Securities Fund Investor Shares)
VSBSX (VG Short-Term Treasury Index Fund Admiral Shares)

Some of these funds are also trading at mid-range of their respective 52-week range which seems like a good sign. But some such as VTAPX is such a slow moving fund that I don't think it matters if it is at a 52-week high regardless.

Method:
I would start with $10,000 in at least 3 of the funds listed. Then I would have $500/week auto-invest to each of those three funds until the pool dries up. The rest would stick around in our generic savings account. So hypothetically only near the very end of the investment plan would we be all in on the market, so to speak.

I am interested in:
1. Compensating for inflation ramping up this coming year(?).
2. Keeping these assets liquid (we are pretty disciplined when it comes to spending).

I am nervous about:
1. Market cratering (aren't we all?).
2. Not beating what I could have earned with a simple CD or something else.
3. Taxes (because it's within a taxable account). I've read somewhere that a REIT in a taxable account is a no-no. But I've also seen the contrary mentioned (all on this forum!).

I hope to learn from ya'll. I like to think that Bogleheads tend to be much cooler headed than other crazy investing forums :)
Last edited by WiscoBC on Wed Sep 30, 2020 12:47 pm, edited 3 times in total.
ccf
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Re: Investing $100,000, in this day and age

Post by ccf »

If you can't risk any of it, put it in 2 or 3 (a few because you can't early withdraw a portion of the whole) Ally Bank No Penalty CDs and enjoy a whopping .6% interest rate.

If you feel like risking it,I dunno, how about Vanguard Lifestrategy Income? It's 20% equities. Or LifeStrategy Conservative (40% equities) if you want something even riskier.
Topic Author
WiscoBC
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Re: Investing $100,000, in this day and age

Post by WiscoBC »

ccf wrote: Wed Sep 30, 2020 11:26 am If you can't risk any of it, put it in 2 or 3 (a few because you can't early withdraw a portion of the whole) Ally Bank No Penalty CDs and enjoy a whopping .6% interest rate.

If you feel like risking it,I dunno, how about Vanguard Lifestrategy Income? It's 20% equities. Or LifeStrategy Conservative if you want something even riskier.
And when you say "risking it"...this isn't the same level of risk as just dumping into VTSAX or some sector-specific equity fund right? LifeStrategy Conservative is possibly accomplishing the same level of risk as my proposed fund plan might be aiming for? I realize it's not apples to apples. I just want to quantify what you mean by "risking it".

Also, I just looked at VASIX (Vanguard Lifestrategy Income). It's trending off its 52-week high which is kind of scary to me. Not an indicator to overly focus on?
Last edited by WiscoBC on Wed Sep 30, 2020 11:56 am, edited 1 time in total.
NYCPete
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Re: Investing $150,000, in this day and age

Post by NYCPete »

WiscoBC wrote: Wed Sep 30, 2020 11:12 am Hello!

I am excited to find this forum. I've actually been with Vanguard for a long time, but never thought to look for a Boglehead forum ;)

1. My wife and I just sold our house, and have $150,000 in proceeds.
2. We are looking to keep it intact for the next year or two.

In looking at some older (pre-Trump, pre-Covid, etc) posts, many people suggest a 1-year CD. The rates on those are brutal...as we all realize I'm sure.

The account would be taxable, since we don't want to lock it up. We might need some $$$ for adoption suddenly, or indeed a house down payment.

My considerations are:
VGSLX
VTAPX (or should it be VIPSX?)
VVIAX
VPU (the mutual fund version is $100,000 min so I can't use that)

With the exception of VTAPX, these funds are also trading at mid-range of their respective 52-week range which seems like a good sign. VTAPX is such a slow moving fund that I don't think it matters if it is at a 52-week high regardless.

Method:
I would start with $10,000 in at least 3 of the funds listed. Then I would have $500/week auto-invest to each of those three funds until the pool dries up. The rest would stick around in our generic savings account. So hypothetically only near the very end of the investment plan would we be all in on the market, so to speak.

I am interested in:
1. Compensating for inflation ramping up this coming year(?).
2. Keeping these assets liquid (we are pretty disciplined when it comes to spending).

I am nervous about:
1. Market cratering (aren't we all?).
2. Not beating what I could have earned with a simple CD or something else.
3. Taxes (because it's within a taxable account). I've read somewhere that a REIT in a taxable account is a no-no. But I've also seen the contrary mentioned (all on this forum!).

I hope to learn from ya'll. I like to think that Bogleheads tend to be much cooler headed than other crazy investing forums :)
Welcome to the forum!

All of your investment options you're considering do not meet your goal of keeping the money intact. Not even close. 3 out of 4 are stock funds, and could drop by double digit percentages in the span of a few weeks or months, let alone a year. None of this is a commentary on the current state of the market. It's just the basic risk inherent in stocks. The short term inflation protected bond fund is much more conservative than a stock fund, but it has historically had multiple years of negative total return. Each year individually was only about -1% to -2%, but that's still not keeping things "intact." Bonds are safer than stocks, but they're riskier than CDs, cash, or money market funds.

Your goals and needs for this money should dictate the risk you take, not the other way around. Your goals and needs say you need safe investments like CDs, money market funds, or a savings account. You can't get higher returns without taking higher risk. You either have to be okay with #1 & #2 of the things you're nervous about if you want to go with the options you've proposed. Depending on your tax rate, a municipal money market fund for all or a portion of the money might make sense to mitigate some of the taxes.

I'll say it again for emphasis: You can't get higher returns without higher risk. It stinks how low interest rates are right now, but that doesn't mean the law of risk and return no longer applies.

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha
mega317
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Re: Investing $150,000, in this day and age

Post by mega317 »

IMO you are overthinking this. If you have money you might need in "the next year or two" or "suddenly", it should be saved, not invested. Savings accounts, money market funds, CDs. I don't know all those tickers you posted but I can promise either they have greater risk of loss of capital or no significant increase in returns compared with the above.

I don't see how prior 52 week ranges have anything to do with future prices/returns but perhaps I am out of my element on that one.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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David Jay
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Re: Investing $150,000, in this day and age

Post by David Jay »

Welcome to the forum!

We ask folks to put full fund names in their posts so we don’t have to go look up tickers in order to provide input, as follows:

VGSLX - VG Real Estate Index Fund
VTAPX - VG Short Term Inflation Protected Securities (TIPS)
VVIAX - VG Value Index Fund
VPU - VG Utilities Index Fund
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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WiscoBC
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Re: Investing $150,000, in this day and age

Post by WiscoBC »

NYCPete wrote: Wed Sep 30, 2020 11:41 am Welcome to the forum!

All of your investment options you're considering do not meet your goal of keeping the money intact. Not even close. 3 out of 4 are stock funds, and could drop by double digit percentages in the span of a few weeks or months, let alone a year. None of this is a commentary on the current state of the market. It's just the basic risk inherent in stocks. The short term inflation protected bond fund is much more conservative than a stock fund, but it has historically had multiple years of negative total return. Each year individually was only about -1% to -2%, but that's still not keeping things "intact." Bonds are safer than stocks, but they're riskier than CDs, cash, or money market funds.

Your goals and needs for this money should dictate the risk you take, not the other way around. Your goals and needs say you need safe investments like CDs, money market funds, or a savings account. You can't get higher returns without taking higher risk. You either have to be okay with #1 & #2 of the things you're nervous about if you want to go with the options you've proposed. Depending on your tax rate, a municipal money market fund for all or a portion of the money might make sense to mitigate some of the taxes.

I'll say it again for emphasis: You can't get higher returns without higher risk. It stinks how low interest rates are right now, but that doesn't mean the law of risk and return no longer applies.

Best,
Peter
Thank you! I am trying to listen and not get swept away in "get-rich-quick" mentality. It's hard...

For my own understanding, is the negative total return you speak of for bonds irrespective of inflation? Or factoring that in?

Is a minimal-risk CD/cash/MM option also going to provide an overall negative return due to inflation? I see that you can get a CD with inflation protection (a CDIP).

Stream of consciousness thought: I'm okay with some minimal risk, and would my dollar-cost average (DCA) over the year not help mitigate some of that? I guess I could still wind up at the bottom of a hill despite DCA, if things just kept going down, down, down over the year. Then we'd be at the end of said year and perhaps want to use our money, but have some amount less due to negative market trends! Blah!

It's like...I just want to beat inflation at the very least :)
David Jay wrote: Wed Sep 30, 2020 11:48 am We ask folks to put full fund names in their posts so we don’t have to go look up tickers in order to provide input, as follows:
My mistake! Now fixed!
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Re: Investing $150,000, in this day and age

Post by NYCPete »

WiscoBC wrote: Wed Sep 30, 2020 11:53 am
NYCPete wrote: Wed Sep 30, 2020 11:41 am Welcome to the forum!

All of your investment options you're considering do not meet your goal of keeping the money intact. Not even close. 3 out of 4 are stock funds, and could drop by double digit percentages in the span of a few weeks or months, let alone a year. None of this is a commentary on the current state of the market. It's just the basic risk inherent in stocks. The short term inflation protected bond fund is much more conservative than a stock fund, but it has historically had multiple years of negative total return. Each year individually was only about -1% to -2%, but that's still not keeping things "intact." Bonds are safer than stocks, but they're riskier than CDs, cash, or money market funds.

Your goals and needs for this money should dictate the risk you take, not the other way around. Your goals and needs say you need safe investments like CDs, money market funds, or a savings account. You can't get higher returns without taking higher risk. You either have to be okay with #1 & #2 of the things you're nervous about if you want to go with the options you've proposed. Depending on your tax rate, a municipal money market fund for all or a portion of the money might make sense to mitigate some of the taxes.

I'll say it again for emphasis: You can't get higher returns without higher risk. It stinks how low interest rates are right now, but that doesn't mean the law of risk and return no longer applies.

Best,
Peter
Thank you! I am trying to listen and not get swept away in "get-rich-quick" mentality. It's hard...

For my own understanding, is the negative total return you speak of for bonds irrespective of inflation? Or factoring that in?

Is a minimal-risk CD/cash/MM option also going to provide an overall negative return due to inflation? I see that you can get a CD with inflation protection (a CDIP).

Stream of consciousness thought: I'm okay with some minimal risk, and would my dollar-cost average (DCA) over the year not help mitigate some of that? I guess I could still wind up at the bottom of a hill despite DCA, if things just kept going down, down, down over the year. Then we'd be at the end of said year and perhaps want to use our money, but have some amount less due to negative market trends! Blah!

It's like...I just want to beat inflation at the very least :)
David Jay wrote: Wed Sep 30, 2020 11:48 am We ask folks to put full fund names in their posts so we don’t have to go look up tickers in order to provide input, as follows:
My mistake! Now fixed!
For the short term inflation protected bond fund (VTAPX), I found returns here: https://www.morningstar.com/funds/xnas/vtapx/performance . These are nominal returns, not adjusted for inflation.

Portfolio Visualizer shows VTAPX has had a negative return (on an inflation adjusted basis) over the past ~7 years. If you want to see it visually, go down to the Portfolio Growth chart on the link, and click the "inflation adjusted" box underneath it.

As you correctly observe, DCA doesn't necessarily make things less risky. That's not the panacea you're looking for. If you can get an inflation protected CD for a one year term that you're satisfied with, that could be a good option for your situation. Otherwise, adjusting your expectations may be more helpful than anything.

Is the purchase you're saving this money for particularly prone to inflation above the overall rate?

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha
Johm221122
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Re: Investing $150,000, in this day and age

Post by Johm221122 »

WiscoBC wrote: Wed Sep 30, 2020 11:12 am Hello!

I am excited to find this forum. I've actually been with Vanguard for a long time, but never thought to look for a Boglehead forum ;)
Welcome

1. My wife and I just sold our house, and have $150,000 in proceeds.
2. We are looking to keep it intact for the next year or two.
Then a CD or High yield savings account is best
In looking at some older (pre-Trump, pre-Covid, etc) posts, many people suggest a 1-year CD. The rates on those are brutal...as we all realize I'm sure.
But they fit your goal
The account would be taxable, since we don't want to lock it up. We might need some $$$ for adoption suddenly, or indeed a house down payment.

My considerations are:
VGSLX (VG Real Estate Index Fund)
VTAPX (VG Short Term Inflation Protected Securities (TIPS))
VVIAX (VG Value Index Fund)
VPU (VG Utilities Index Fund) (the mutual fund version is $100,000 min so I can't use that)
None of these fit your stated goal, the TIPs fund is close

With the exception of VTAPX, these funds are also trading at mid-range of their respective 52-week range which seems like a good sign. VTAPX is such a slow moving fund that I don't think it matters if it is at a 52-week high regardless.
This information does not matter for your goal of keeping money intact

Method:
I would start with $10,000 in at least 3 of the funds listed. Then I would have $500/week auto-invest to each of those three funds until the pool dries up. The rest would stick around in our generic savings account. So hypothetically only near the very end of the investment plan would we be all in on the market, so to speak.
This is market timing and is really impossible to do
I am interested in:
1. Compensating for inflation ramping up this coming year(?).
None of your funds guarantee this and worse they could loose money
2. Keeping these assets liquid (we are pretty disciplined when it comes to spending).
Again probably a high yield savings account

I am nervous about:
1. Market cratering (aren't we all?).
I did investing for the first ten years. Now I realize my asset allocation matches my goal.
2. Not beating what I could have earned with a simple CD or something else.
You can't earn more without risk. You specifically said you want money safe for 2 years
3. Taxes (because it's within a taxable account). I've read somewhere that a REIT in a taxable account is a no-no. But I've also seen the contrary mentioned (all on this forum!).
Figure out your asset allocation first(stocks/bonds)

I hope to learn from ya'll. I like to think that Bogleheads tend to be much cooler headed than other crazy investing forums :)
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JoeRetire
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Re: Investing $150,000, in this day and age

Post by JoeRetire »

WiscoBC wrote: Wed Sep 30, 2020 11:12 am 1. My wife and I just sold our house, and have $150,000 in proceeds.
2. We are looking to keep it intact for the next year or two.

In looking at some older (pre-Trump, pre-Covid, etc) posts, many people suggest a 1-year CD. The rates on those are brutal...as we all realize I'm sure.
Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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WiscoBC
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Re: Investing $150,000, in this day and age

Post by WiscoBC »

JoeRetire wrote: Wed Sep 30, 2020 12:44 pm Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
Am I still coming out with a negative return because of inflation, however? What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something? That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.

I detect that the consensus here is that you cannot beat inflation without some risk to the principal, correct?
Last edited by WiscoBC on Wed Sep 30, 2020 12:54 pm, edited 1 time in total.
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KingRiggs
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Re: Investing $150,000, in this day and age

Post by KingRiggs »

WiscoBC wrote: Wed Sep 30, 2020 12:51 pm
JoeRetire wrote: Wed Sep 30, 2020 12:44 pm Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
Am I still coming out with a negative return because of inflation, however? What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something? That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.

I detect that the consensus here is that you cannot beat inflation without some risk, correct?
Think of it as the price of secure principal. If you want more return, you have to be willing to take more risk.

We're all in the same boat and they're not serving free lunch... :mrgreen:
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Johm221122
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Re: Investing $150,000, in this day and age

Post by Johm221122 »

WiscoBC wrote: Wed Sep 30, 2020 12:51 pm
JoeRetire wrote: Wed Sep 30, 2020 12:44 pm Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
Am I still coming out with a negative return because of inflation, however? What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something? That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.

I detect that the consensus here is that you cannot beat inflation without some risk, correct?
Yes, basically. Stocks are extremely risky for a 2 year period
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WiscoBC
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Re: Investing $150,000, in this day and age

Post by WiscoBC »

KingRiggs wrote: Wed Sep 30, 2020 12:54 pm
WiscoBC wrote: Wed Sep 30, 2020 12:51 pm
JoeRetire wrote: Wed Sep 30, 2020 12:44 pm Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
Am I still coming out with a negative return because of inflation, however? What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something? That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.

I detect that the consensus here is that you cannot beat inflation without some risk, correct?
Think of it as the price of secure principal. If you want more return, you have to be willing to take more risk.

We're all in the same boat and they're not serving free lunch... :mrgreen:
Haha...that's a helpful perspective!
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Re: Investing $150,000, in this day and age

Post by Robot Monster »

WiscoBC wrote: Wed Sep 30, 2020 11:53 am It's like...I just want to beat inflation at the very least :)
Speaking as someone who recently dumped a large sum into a 30yr negative yielding TIPS, just want you to recognize that, even though what you're asking seems like it should be easily accomplished (with risk-free investments), it's a bit of a tall order.
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stimulacra
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Re: Investing $150,000, in this day and age

Post by stimulacra »

Check out Harry Browne's Permanent Portfolio.

25% US Equities
25% Long Term Treasuries
25% Cash (Short term treasury bills)
25% Gold (ETFs for ease of use, bullion for physical ownership).

It was originally designed to do well in all economic market conditions (rising rates, falling rates, inflation, deflation).

Golden Butterfly is another variant. Unsure as to how it would do in a taxable account.

20% Total Stock Market
20% Small Cap Value
20% Long Term Bonds
20% Short Term Bonds
20% Gold
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WiscoBC
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Re: Investing $150,000, in this day and age

Post by WiscoBC »

stimulacra wrote: Wed Sep 30, 2020 12:58 pm Check out Harry Browne's Permanent Portfolio.

25% US Equities
25% Long Term Treasuries
25% Cash (Short term treasury bills)
25% Gold (ETFs for ease of use, bullion for physical ownership).
For the sake of consideration, can Harry's portfolio be accomplished with VG funds and/or ETFs?
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Re: Investing $150,000, in this day and age

Post by ivgrivchuck »

As others have pointed out, if you need this money in 2-3 years: No-penalty CDs, savings accounts are your best bet.

If you want to chase higher return, I'd advise you to think how much you can afford to lose. Always be prepared for the possibility that stocks can in short term drop by 50% (it's unlikely but be prepared for it!).

For example: If you would be fine with the idea that instead of having $150k, you might after one year only have $130k. That means you can afford to put $40k in stocks and keep $110k in savings account or no-penalty CD.
44% VTI | 36% VXUS | 10% I-bonds | 10% EE-bonds
Grt2bOutdoors
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Re: Investing $150,000, in this day and age

Post by Grt2bOutdoors »

OP - This is what you are essentially saying “I just sold my house and have $150,000. I’m going to take that $150,000 and head to the casino to protect against inflation risk”. Now, re-read that because by investing your money for any period of time less than 5 years will most likely result in a permanent decline in your capital at any one point in time.

Can you imagine the conversation you will have with your wife if your $150,000 becomes $125,000 just as you are nearing a bid on a new house? Stick to safe FDIC insured accounts, a 5 percent increase in the value requires you to save about $325 a month for 24 months. Can you do that?
Last edited by Grt2bOutdoors on Wed Sep 30, 2020 3:22 pm, edited 1 time in total.
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Coltrane75
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Re: Investing $150,000, in this day and age

Post by Coltrane75 »

Interest rates on very safe investment/savings choices unfortunately are all less than inflation.

So I think the best things to consider the best 1-2 year or no penalty CDs you could find on a site like depositaccounts.com.

I Bonds at Treasury Direct actually would be the best option in terms of not losing out to inflation; matches it, but unfortunately you are capped to purchasing up to $10k/per person per year so that won't cover much of your money.

All other options put your money at risk of capital losses.
Katietsu
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Re: Investing $150,000, in this day and age

Post by Katietsu »

I agree with others that your original post does not recognize the likely returns and risks going forward.

I responded to this post to throw out another idea. IF you wanted to do a little work, you could use this money to pick up a few bank and/or brokerage bonuses in the next year or two. Some people consider this to be worth the payback and others do not think it is worth the effort.
ExitStageLeft
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Re: Investing $150,000, in this day and age

Post by ExitStageLeft »

WiscoBC wrote: Wed Sep 30, 2020 1:04 pm
stimulacra wrote: Wed Sep 30, 2020 12:58 pm Check out Harry Browne's Permanent Portfolio.

25% US Equities
25% Long Term Treasuries
25% Cash (Short term treasury bills)
25% Gold (ETFs for ease of use, bullion for physical ownership).
For the sake of consideration, can Harry's portfolio be accomplished with VG funds and/or ETFs?
I agree with others that conclude saving rather than investing is your best bet. Still, if you want to explore the Permanent Portfolio there are plenty of discussions and analyses on this board and throughout the internet.

Because gold is one of the assets the portfolio draws an insane amount of adoration and criticism. Some see forest and some see trees.

It's possible to build a portfolio with Vanguard funds, except for the gold. For that one would need to go with GLD or GLDM.
https://www.bogleheads.org/blog/2020/01 ... 19-update/
NYCPete
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Re: Investing $150,000, in this day and age

Post by NYCPete »

WiscoBC wrote: Wed Sep 30, 2020 12:51 pm
JoeRetire wrote: Wed Sep 30, 2020 12:44 pm Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
Am I still coming out with a negative return because of inflation, however? What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something? That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.

I detect that the consensus here is that you cannot beat inflation without some risk to the principal, correct?
You won't have x% less money because of inflation. You'll have x% less purchasing power.

Is the amount of inflation (and loss of purchasing power) that could happen in the span of 1-2 years' time truly going to derail your plans? I have to say I'm struggling with your focused concern about inflation for such a short time period. Have you looked at the inflation rate recently? This isn't the late 1970s/early 1980s.

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha
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KingRiggs
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Re: Investing $150,000, in this day and age

Post by KingRiggs »

NYCPete wrote: Wed Sep 30, 2020 1:35 pm
WiscoBC wrote: Wed Sep 30, 2020 12:51 pm
JoeRetire wrote: Wed Sep 30, 2020 12:44 pm Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
Am I still coming out with a negative return because of inflation, however? What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something? That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.

I detect that the consensus here is that you cannot beat inflation without some risk to the principal, correct?
You won't have x% less money because of inflation. You'll have x% less purchasing power.

Is the amount of inflation (and loss of purchasing power) that could happen in the span of 1-2 years' time truly going to derail your plans? I have to say I'm struggling with your focused concern about inflation for such a short time period. Have you looked at the inflation rate recently? This isn't the late 1970s/early 1980s.

Best,
Peter
^this. Inflation is not currently a major concern for most, at least in the short term...
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WiscoBC
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Re: Investing $150,000, in this day and age

Post by WiscoBC »

NYCPete wrote: Wed Sep 30, 2020 1:35 pm
WiscoBC wrote: Wed Sep 30, 2020 12:51 pm
JoeRetire wrote: Wed Sep 30, 2020 12:44 pm Put it in a 1-year CD. The low return is the price you pay for guaranteed availability of the full principal in the timeframe you have chosen.
Am I still coming out with a negative return because of inflation, however? What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something? That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.

I detect that the consensus here is that you cannot beat inflation without some risk to the principal, correct?
You won't have x% less money because of inflation. You'll have x% less purchasing power.

Is the amount of inflation (and loss of purchasing power) that could happen in the span of 1-2 years' time truly going to derail your plans? I have to say I'm struggling with your focused concern about inflation for such a short time period. Have you looked at the inflation rate recently? This isn't the late 1970s/early 1980s.

Best,
Peter
I'm very open to the notion that I am overthinking inflation. I will try and step back to get a better perspective in that regard!
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JoeRetire
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Re: Investing $150,000, in this day and age

Post by JoeRetire »

WiscoBC wrote: Wed Sep 30, 2020 12:51 pm Am I still coming out with a negative return because of inflation, however?
(shrug) What does your crystal ball tell you the inflation rate will be for the next year?
What would be a way to visualize that? Just subtract an assumed inflation rate of 2% or something?
If that's your assumption, then yes. (Although I have no idea why you would assume that)
That's what I was hoping to dodge ultimately. Sure, return of the principal is important but technically I have x% less money after a year of holding it in a CD, minus the tiny % gain from the CD interest rate.
Perhaps you'll have less purchasing power. You won't have less money. Again it depends on your assumption regarding inflation versus the CD rate over the same period of time. Shorter CD durations might make you feel better? I'm not sure this should be such a big worry.
I detect that the consensus here is that you cannot beat inflation without some risk to the principal, correct?
You could get lucky. Inflation might well be lower than you assume. No guarantees.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
whereskyle
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Re: Investing $150,000, in this day and age

Post by whereskyle »

WiscoBC wrote: Wed Sep 30, 2020 11:12 am Hello!

I am excited to find this forum. I've actually been with Vanguard for a long time, but never thought to look for a Boglehead forum ;)

1. My wife and I just sold our house, and have $150,000 in proceeds.
2. We are looking to keep it intact for the next year or two.

In looking at some older (pre-Trump, pre-Covid, etc) posts, many people suggest a 1-year CD. The rates on those are brutal...as we all realize I'm sure.

The account would be taxable, since we don't want to lock it up. We might need some $$$ for adoption suddenly, or indeed a house down payment.

My considerations are:
VGSLX (VG Real Estate Index Fund)
VTAPX (VG Short Term Inflation Protected Securities Fund (TIPS))
VVIAX (VG Value Index Fund)
VPU (VG Utilities Index Fund) (the mutual fund version is $100,000 min so I can't use that)
VIPSX (VG Inflation-Protected Securities Fund Investor Shares)
VSBSX (VG Short-Term Treasury Index Fund Admiral Shares)

Some of these funds are also trading at mid-range of their respective 52-week range which seems like a good sign. But some such as VTAPX is such a slow moving fund that I don't think it matters if it is at a 52-week high regardless.

Method:
I would start with $10,000 in at least 3 of the funds listed. Then I would have $500/week auto-invest to each of those three funds until the pool dries up. The rest would stick around in our generic savings account. So hypothetically only near the very end of the investment plan would we be all in on the market, so to speak.

I am interested in:
1. Compensating for inflation ramping up this coming year(?).
2. Keeping these assets liquid (we are pretty disciplined when it comes to spending).

I am nervous about:
1. Market cratering (aren't we all?).
2. Not beating what I could have earned with a simple CD or something else.
3. Taxes (because it's within a taxable account). I've read somewhere that a REIT in a taxable account is a no-no. But I've also seen the contrary mentioned (all on this forum!).

I hope to learn from ya'll. I like to think that Bogleheads tend to be much cooler headed than other crazy investing forums :)
Rather than pick sectors, I would consider using a variation of the 3-fund portfolio to reflect your risk tolerance. 50/50 stocks and bonds (short-term treasuries specifically if you wish) as a starting point, with 30/70 being potentially reasonable for your situation if you are willing to risk it. I'm a believer in all-market strategies over picking segments of the market.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
dru808
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Re: Investing $150,000, in this day and age

Post by dru808 »

WiscoBC wrote: Wed Sep 30, 2020 1:04 pm
stimulacra wrote: Wed Sep 30, 2020 12:58 pm Check out Harry Browne's Permanent Portfolio.

25% US Equities
25% Long Term Treasuries
25% Cash (Short term treasury bills)
25% Gold (ETFs for ease of use, bullion for physical ownership).
For the sake of consideration, can Harry's portfolio be accomplished with VG funds and/or ETFs?

Not the gold portion, the rest, vti, vglt, vgsh or money market.
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bampf
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Re: Investing $150,000, in this day and age

Post by bampf »

I think you are overthinking it. A lot.

REITs in a taxable account aren't a no no. They have tax consequences. If you make money, you pay taxes. But only on the gains. Don't let the tax tail wag the dog. If you think you understand enough about real estate to make that bet, then do it. If you lose, you don't pay taxes. If you win, you pay taxes on your gains. Not a bad thing.

You say you need the money in 2 years. You don't say why. Buying another house? <Edit: OP did say why, I just missed it> Put another way, if you need the money, you are over thinking. Stick it somewhere and find a way to live with a relatively low or no return.

If you just want to be liquid but are worried about risk, you can't really do better than an index fund that is quite broad. An S&P 500 index fund like VOO is probably just fine. If the whole market craters, you take the pain. If it doesn't you get the return.

Why do you think you know that Utilities are safe? Don't you think everyone that actually knows has already bet big? Are you better than 10,000 quants on wallstreet?

My advice? If you really really need it in two year, park it and forget about it. If you may need it but can weather any storm, lump sum it into a broad market fund and forget it.
Last edited by bampf on Thu Oct 01, 2020 10:25 am, edited 1 time in total.
mega317
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Re: Investing $150,000, in this day and age

Post by mega317 »

bampf wrote: Thu Oct 01, 2020 12:35 am REITs in a taxable account aren't a no no. They have tax consequences. If you make money, you pay taxes. But only on the gains.
What about the dividends?
https://www.bogleheads.org/forum/viewtopic.php?t=6212
bradinsky
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Re: Investing $150,000, in this day and age

Post by bradinsky »

Grt2bOutdoors wrote: Wed Sep 30, 2020 1:16 pm OP - This is what you are essentially saying “I just sold my house and have $150,000. I’m going to take that $150,000 and head to the casino to protect against inflation risk”. Now, re-read that because by investing your money for any period of time less than 5 years will most likely result in a permanent decline in your capital at any one point in time.

Can you imagine the conversation you will have with your wife if your $150,000 becomes $125,000 just as you are nearing a bid on a new house? Stick to safe FDIC insured accounts, a 5 percent increase in the value requires you to save about $325 a month for 24 months. Can you do that?

OP,
Welcome to the forum!
I agree 100% with the above. You worry about the negative effects of inflation, but are willing to risk losing 25%, or more, in a stock market gamble. Doesn’t make any sense at all. Good luck with your decision!
Brad
Last edited by bradinsky on Thu Oct 01, 2020 8:45 am, edited 1 time in total.
bampf
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Re: Investing $150,000, in this day and age

Post by bampf »

mega317 wrote: Thu Oct 01, 2020 5:24 am
bampf wrote: Thu Oct 01, 2020 12:35 am REITs in a taxable account aren't a no no. They have tax consequences. If you make money, you pay taxes. But only on the gains.
What about the dividends?
That would be considered a gain and they would be taxable. Some people want the dividend, some people don't.
mega317
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Re: Investing $150,000, in this day and age

Post by mega317 »

bampf wrote: Thu Oct 01, 2020 8:33 am
mega317 wrote: Thu Oct 01, 2020 5:24 am
bampf wrote: Thu Oct 01, 2020 12:35 am REITs in a taxable account aren't a no no. They have tax consequences. If you make money, you pay taxes. But only on the gains.
What about the dividends?
That would be considered a gain and they would be taxable. Some people want the dividend, some people don't.
You said
bampf wrote: Thu Oct 01, 2020 12:35 am If you lose, you don't pay taxes.
You receive and pay taxes on the dividends regardless of how the investment turns out.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
bampf
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Re: Investing $150,000, in this day and age

Post by bampf »

mega317 wrote: Thu Oct 01, 2020 9:22 am
bampf wrote: Thu Oct 01, 2020 8:33 am
mega317 wrote: Thu Oct 01, 2020 5:24 am
bampf wrote: Thu Oct 01, 2020 12:35 am REITs in a taxable account aren't a no no. They have tax consequences. If you make money, you pay taxes. But only on the gains.
What about the dividends?
That would be considered a gain and they would be taxable. Some people want the dividend, some people don't.
You said
bampf wrote: Thu Oct 01, 2020 12:35 am If you lose, you don't pay taxes.
You receive and pay taxes on the dividends regardless of how the investment turns out.
Dividends are part of the return. They are a gain by definition. Otherwise they wouldn't be taxed. The issue is that people don't like dividends because instead of choosing when to take the taxable gains, they have to take them when the dividends pay out. If you are trying to control your tax bill, the argument is to avoid non-qualified dividends (actually all dividends) so you can choose when to liquidate.
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Re: Investing $150,000, in this day and age

Post by stimulacra »

WiscoBC wrote: Wed Sep 30, 2020 1:04 pm
stimulacra wrote: Wed Sep 30, 2020 12:58 pm Check out Harry Browne's Permanent Portfolio.

25% US Equities
25% Long Term Treasuries
25% Cash (Short term treasury bills)
25% Gold (ETFs for ease of use, bullion for physical ownership).
For the sake of consideration, can Harry's portfolio be accomplished with VG funds and/or ETFs?
Very easily:

25% VTI
25% EDV
25% BSV
25% GLDM
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goingup
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Re: Investing $150,000, in this day and age

Post by goingup »

WiscoBC wrote: Wed Sep 30, 2020 11:12 am 1. My wife and I just sold our house, and have $150,000 in proceeds.
2. We are looking to keep it intact for the next year or two.
If intact is what you want then it's high-yield savings or CDs.

Another way to look at is to decide how much you'll need for a downpayment and/or an adoption. Put that in a high-yield or CD account. Invest the balance according to your asset allocation plan. Maybe that would be Total Stock fund in a taxable account.
Swimmer
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Re: Investing $150,000, in this day and age

Post by Swimmer »

goingup wrote: Thu Oct 01, 2020 2:46 pm
WiscoBC wrote: Wed Sep 30, 2020 11:12 am 1. My wife and I just sold our house, and have $150,000 in proceeds.
2. We are looking to keep it intact for the next year or two.
If intact is what you want then it's high-yield savings or CDs.

Another way to look at is to decide how much you'll need for a downpayment and/or an adoption. Put that in a high-yield or CD account. Invest the balance according to your asset allocation plan. Maybe that would be Total Stock fund in a taxable account.
+1. You seem to want to “do something”, just not sure what. If the down payment and adoption happen at the same time, is the $150k going to be enough? If it’s more than enough, take the excess and put it in stocks. If you MIGHT need all of it, a CD is the way to go. I think you need to be patient for a while and see how things unfold.

All the best wishes for your prospective adoption. That’s wonderful :D
flaccidsteele
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Re: Investing $150,000, in this day and age

Post by flaccidsteele »

I would rather invest $150,000 in a prior age where this amount was worth a lot more! 😂 😉 💸
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
DTalos
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Re: Investing $150,000, in this day and age

Post by DTalos »

How about investing a portion of that money in high dividend paying stocks (i.e. those with an 8% or more yield)?
Grt2bOutdoors
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Re: Investing $150,000, in this day and age

Post by Grt2bOutdoors »

DTalos wrote: Thu Oct 01, 2020 4:20 pm How about investing a portion of that money in high dividend paying stocks (i.e. those with an 8% or more yield)?
Casino anyone?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
DTalos
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Re: Investing $150,000, in this day and age

Post by DTalos »

Grt2bOutdoors wrote: Thu Oct 01, 2020 7:27 pm
DTalos wrote: Thu Oct 01, 2020 4:20 pm How about investing a portion of that money in high dividend paying stocks (i.e. those with an 8% or more yield)?
Casino anyone?
What do you mean?
zie
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Re: Investing $150,000, in this day and age

Post by zie »

like the user ccf mentioned, the 20/80 AA funds are not a bad place to get a little return.

This thread talks a bit more about the idea, basically you are gambling up to a 15% loss if everything dropped 50%. That might be too much risk for you and if that's the case, then you are stuck getting terrible returns for a while.
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Re: Investing $150,000, in this day and age

Post by Toons »

Vanguard Balanced Index Fund Admiral

:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Grt2bOutdoors
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Re: Investing $150,000, in this day and age

Post by Grt2bOutdoors »

DTalos wrote: Thu Oct 01, 2020 7:40 pm
Grt2bOutdoors wrote: Thu Oct 01, 2020 7:27 pm
DTalos wrote: Thu Oct 01, 2020 4:20 pm How about investing a portion of that money in high dividend paying stocks (i.e. those with an 8% or more yield)?
Casino anyone?
What do you mean?
In a world where the risk-free rate is less than 1 percent, where the market yield of a basket of the most profitable companies is less than 2 percent, what makes you believe that there is any magic to high yield stocks paying 8 percent? For point of reference, the high yield suggests depressed prices and they are depressed for what reasons? So up above in an earlier post I offered that putting money you can not afford to lose in the stock market is akin to going to a casino. Placing your money in at risk of dividend cut in stock or worse bankruptcy is a good risk to take why? Go look at this years poster child - Occidental Petroleum which pretty much put themselves in the big hole they find themselves in with an over leveraged balance sheet and then suffering from historic demand destruction due to entire economies being shut down. I actually owned some of this pre bad management decision makers and got out but not before taking a loss on it with my play money. The OP on the other hand is not using play money - he’s talking about taking his life savings and going to the craps table with a 2 year horizon NOT a 25-30 year window. Let me put it another way: you have $150,000, you take $10,000 to put it in those 8 percent high dividend yield stocks, you have an expected 100 percent withdrawal rate in exactly 2 years. You think you can get all of your original principal out without a severe risk of partial or total loss?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Johm221122
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Re: Investing $150,000, in this day and age

Post by Johm221122 »

DTalos wrote: Thu Oct 01, 2020 7:40 pm
Grt2bOutdoors wrote: Thu Oct 01, 2020 7:27 pm
DTalos wrote: Thu Oct 01, 2020 4:20 pm How about investing a portion of that money in high dividend paying stocks (i.e. those with an 8% or more yield)?
Casino anyone?
What do you mean?
Stocks are risky especially over 2 years. OP's goal is for money to be intact.
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