Advice on investing a small windfall

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Topic Author
Investor1986
Posts: 78
Joined: Sun Jun 06, 2021 5:23 pm

Advice on investing a small windfall

Post by Investor1986 »

Hi everybody.
I recently received a gift of 25K from my parents and I'm looking for advice on how to invest it.
My financial situations is as follows:
Emergency Found = 1 year
401K maxed for this year $19500
Roth IRA maxed for this year $6000
Stable job, 95K salary
Regulars Savings $10,000
Single, 22% tax rate, no kids, no debts of any kind...

I recently bought my first home and have a mortgage of $170K with 3.25% interest for 30 years.

To help pay the mortgage faster, I opened a taxable account where I have around 13K so far, and where I contribute $400 every month. Hopefully the returns of this account in 10-15 years will generate enough to pay the mortgage in a lump sum. That is the sole purpose of this account, help pay the mortgage.
The taxable account consist of vanguards ETFs: 50% VOO, 10% technology VGT, 10% consumer VCR 10% medical VHT, 10% real estate VNQ, 10% divident VYM.

I was planning to do a lump sum with 15K out of 25k in this account, to help it grow faster. I would keep the 10K left in my savings just in case, and maybe invest it at the end of the year if not needed. What do you think? I can pay part of the mortgage as well, but the interest is low enough to skip it and finger crossed get a better return with the market ups & downs in the next 10 years.
Affable at 50
Posts: 281
Joined: Fri Dec 27, 2019 1:34 am

Re: Advice on investing a small windfall

Post by Affable at 50 »

Erald wrote: Thu Jul 29, 2021 4:03 am Hi everybody.
I recently received a gift of 25K from my parents and I'm looking for advice on how to invest it.
My financial situations is as follows:
Emergency Found = 1 year
401K maxed for this year $19500
Roth IRA maxed for this year $6000
Stable job, 95K salary
Regulars Savings $10,000
Single, 22% tax rate, no kids, no debts of any kind...

I recently bought my first home and have a mortgage of $170K with 3.25% interest for 30 years.

To help pay the mortgage faster, I opened a taxable account where I have around 13K so far, and where I contribute $400 every month. Hopefully the returns of this account in 10-15 years will generate enough to pay the mortgage in a lump sum. That is the sole purpose of this account, help pay the mortgage.
The taxable account consist of vanguards ETFs: 50% VOO, 10% technology VGT, 10% consumer VCR 10% medical VHT, 10% real estate VNQ, 10% divident VYM.

I was planning to do a lump sum with 15K out of 25k in this account, to help it grow faster. I would keep the 10K left in my savings just in case, and maybe invest it at the end of the year if not needed. What do you think? I can pay part of the mortgage as well, but the interest is low enough to skip it and finger crossed get a better return with the market ups & downs in the next 10 years.
I would invest the full $25k since it provides you the greatest flexibility over 30 years, a very long time horizon. Putting $10k toward the mortgage may knock two years off the 30 year mortgage, which is not enough to move the needle on a mortgage.
Topic Author
Investor1986
Posts: 78
Joined: Sun Jun 06, 2021 5:23 pm

Re: Advice on investing a small windfall

Post by Investor1986 »

I would like to invest the entire 25K, but I want to keep 10K in the savings as after the home down payment, I don't have much left in regular savings. Later, by end of year I usually receive other 10K in bonus from work, which would go straight to the investment for a full 25K.
MoonOrb
Posts: 1506
Joined: Thu Jan 24, 2013 5:58 pm

Re: Advice on investing a small windfall

Post by MoonOrb »

Don't you already have a full year's of expenses in savings? How much more do you need sitting there not growing at all?
reader79
Posts: 98
Joined: Fri Jan 15, 2021 11:42 pm

Re: Advice on investing a small windfall

Post by reader79 »

You already have more than enough cash for an emergency. I would invest it all as a lump sum and then forget about it for a few decades. That money will work very hard for you, especially if you ignore it.
VTI: 50%, QQQM: 30%, VO: 10%, VB: 10%
HomeStretch
Posts: 11421
Joined: Thu Dec 27, 2018 2:06 pm

Re: Advice on investing a small windfall

Post by HomeStretch »

Are you using the savings account to save for non-retirement expenses in the next 0-3 years such as a wedding, new car, new home repairs/furniture, etc.?
- If yes, putting $10k of the $25k into the savings account is reasonable.
- If no, what is the purpose of having two accounts (emergency fund and a savings account)?

Are you paying PMI on your mortgage? If yes, that can be a reason to put enough money towards the mortgage now (or refinancing) to get PMI removed. Also keep an eye on mortgage rates and take advantage of any opportunity to do a no-cost refi to lower your 3.25% rate.
ETA: link to Mega Refi thread (check recent posts for lenders/rates)
viewtopic.php?f=2&t=289559
Last edited by HomeStretch on Thu Jul 29, 2021 6:20 am, edited 1 time in total.
regularguy455
Posts: 487
Joined: Tue Jul 18, 2017 2:08 pm

Re: Advice on investing a small windfall

Post by regularguy455 »

My vote is to dump it all against the mortgage or invest it. You have too much cash IMO.
Topic Author
Investor1986
Posts: 78
Joined: Sun Jun 06, 2021 5:23 pm

Re: Advice on investing a small windfall

Post by Investor1986 »

HomeStretch wrote: Thu Jul 29, 2021 6:14 am Are you using the savings account to save for non-retirement expenses in the next 0-3 years such as a wedding, new car, new home repairs/furniture, etc.?
- If yes, putting $10k of the $25k into the savings account is reasonable.
- If no, what is the purpose of having two accounts (emergency fund and a savings account)?

Are you paying PMI on your mortgage? If yes, that can be a reason to put enough money towards the mortgage now (or refinancing) to get PMI removed. Also keep an eye on mortgage rates and take advantage of any opportunity to do a no-cost refi to lower your 3.25% rate.
ETA: link to Mega Refi thread (check recent posts for lenders/rates)
viewtopic.php?f=2&t=289559
Exactly that. In case any major expense comes in the future, like buying a car (which I don't have at all) or any other major bill, I plan to use my savings for that, and not the emergency found.
I do not have PMI on my mortgage, and the monthly rate is reasonable. Thank you for pointing me at the refinance link. I will definitely check it out!
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Advice on investing a small windfall

Post by tashnewbie »

You have a lot of cash if you have 1 year of expenses PLUS $10k. That should be plenty to handle any necessary spending that may come up over the next 5 months, especially since you don't have any planned big purchases in the near future.

I would just invest the entire $25k.

I would also simplify the taxable account. Something like VTI is all you need. None of the slicing and dicing you're doing. Those are small chunks of your overall portfolio and they're not moving the needle. Unnecessary clutter and noise.

Look to do a no- or low-cost refinance of the mortgage. You may be able to get meaningfully lower than 3.25%.
Topic Author
Investor1986
Posts: 78
Joined: Sun Jun 06, 2021 5:23 pm

Re: Advice on investing a small windfall

Post by Investor1986 »

tashnewbie wrote: Thu Jul 29, 2021 7:18 am I would also simplify the taxable account. Something like VTI is all you need. None of the slicing and dicing you're doing. Those are small chunks of your overall portfolio and they're not moving the needle. Unnecessary clutter and noise.
I've thought about that as well. The reason why I created the account that way is to move slightly out of S&P 500. You are right that it's not much, probably irrelevant since VOO already has those categories inside already. But now selling the small chunks will trigger a taxable event for short term gains. I'd like to avoid that until the account is 1 years old to qualify for long term gains. Unless there is a better method I am not aware.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Advice on investing a small windfall

Post by tashnewbie »

Investor1986 wrote: Thu Jul 29, 2021 8:06 am
tashnewbie wrote: Thu Jul 29, 2021 7:18 am I would also simplify the taxable account. Something like VTI is all you need. None of the slicing and dicing you're doing. Those are small chunks of your overall portfolio and they're not moving the needle. Unnecessary clutter and noise.
I've thought about that as well. The reason why I created the account that way is to move slightly out of S&P 500. You are right that it's not much, probably irrelevant since VOO already has those categories inside already. But now selling the small chunks will trigger a taxable event for short term gains. I'd like to avoid that until the account is 1 years old to qualify for long term gains. Unless there is a better method I am not aware.
I would just invest new money only in VTI (or VOO if you're using VTI in IRAs). Then the other holdings become increasingly smaller percentages of your portfolio over time and you can also sell them as tax efficiently as possible over time (when the market dips or there are lots with losses, for example).
morgen
Posts: 39
Joined: Thu Jul 09, 2020 9:52 pm

Re: Advice on investing a small windfall

Post by morgen »

Delete
Last edited by morgen on Thu Aug 26, 2021 12:09 pm, edited 1 time in total.
Topic Author
Investor1986
Posts: 78
Joined: Sun Jun 06, 2021 5:23 pm

Re: Advice on investing a small windfall

Post by Investor1986 »

morgen wrote: Thu Jul 29, 2021 9:56 pm Will you be able to max out your 2022 retirement options? If that's less likely, then I'd hold onto the amount of windfall you would need to do that. I know it's still a ways out but I think most agree it's best to invest in tax advantaged accounts if its possible.
Yes I will. Unless there are any surprises but I max out if it's up to me.
mortfree
Posts: 2968
Joined: Mon Sep 12, 2016 7:06 pm

Re: Advice on investing a small windfall

Post by mortfree »

Do you already have 6k for 2022 Roth?

If not then invest 19k now and use the 6k in January for Roth.

Agree too many funds in taxable.

Are you reinvesting dividends or taking as “cash”?
Mid-40’s
backpacker61
Posts: 1613
Joined: Wed May 20, 2020 6:36 am

Re: Advice on investing a small windfall

Post by backpacker61 »

Are you eligible for (and funding) a Health Savings Account (HSA)? The gift would be enough to fund it for the next several years, if you aren't already.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
Topic Author
Investor1986
Posts: 78
Joined: Sun Jun 06, 2021 5:23 pm

Re: Advice on investing a small windfall

Post by Investor1986 »

mortfree wrote: Fri Jul 30, 2021 4:13 am Do you already have 6k for 2022 Roth?

If not then invest 19k now and use the 6k in January for Roth.

Agree too many funds in taxable.

Are you reinvesting dividends or taking as “cash”?
Yes, dividends are automatically invested.
No, the purpose of this money is exclusively aimed for helping paying off mortgage faster. I am using my salary and my annual bonus to max out my other retirement accounts.
mortfree
Posts: 2968
Joined: Mon Sep 12, 2016 7:06 pm

Re: Advice on investing a small windfall

Post by mortfree »

Investor1986 wrote: Fri Jul 30, 2021 10:06 am
mortfree wrote: Fri Jul 30, 2021 4:13 am Do you already have 6k for 2022 Roth?

If not then invest 19k now and use the 6k in January for Roth.

Agree too many funds in taxable.

Are you reinvesting dividends or taking as “cash”?
Yes, dividends are automatically invested.
No, the purpose of this money is exclusively aimed for helping paying off mortgage faster. I am using my salary and my annual bonus to max out my other retirement accounts.
Reinvesting makes for a lot of small tax lots and probably partial shares. Some find that inconvenient.
Mid-40’s
Financologist
Posts: 390
Joined: Wed Jan 01, 2020 10:16 pm

Re: Advice on investing a small windfall

Post by Financologist »

Investor1986 wrote: Thu Jul 29, 2021 4:03 am Hi everybody.
I recently received a gift of 25K from my parents and I'm looking for advice on how to invest it.
My financial situations is as follows:
Emergency Found = 1 year
401K maxed for this year $19500
Roth IRA maxed for this year $6000
Stable job, 95K salary
Regulars Savings $10,000
Single, 22% tax rate, no kids, no debts of any kind...

I recently bought my first home and have a mortgage of $170K with 3.25% interest for 30 years.

To help pay the mortgage faster, I opened a taxable account where I have around 13K so far, and where I contribute $400 every month. Hopefully the returns of this account in 10-15 years will generate enough to pay the mortgage in a lump sum. That is the sole purpose of this account, help pay the mortgage.
The taxable account consist of vanguards ETFs: 50% VOO, 10% technology VGT, 10% consumer VCR 10% medical VHT, 10% real estate VNQ, 10% divident VYM.

I was planning to do a lump sum with 15K out of 25k in this account, to help it grow faster. I would keep the 10K left in my savings just in case, and maybe invest it at the end of the year if not needed. What do you think? I can pay part of the mortgage as well, but the interest is low enough to skip it and finger crossed get a better return with the market ups & downs in the next 10 years.
24k to the mortgage and 1k to an epic dinner with your benefactors.
Financologist
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