What to do with proceeds from real estate sale

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Topic Author
dkeeney
Posts: 17
Joined: Thu May 24, 2018 1:50 pm

What to do with proceeds from real estate sale

Post by dkeeney »

Hello good Bogleheads and Happy Thanksgiving!

After valuations increased significantly in the California desert, my wife and I decided to sell our vacation home. The check for $550K arrived earlier in the week and I'm interested in the community's input about how to deploy the funds. We don't plan to purchase another second home.

We have emergency funds of more than 6 months in checking/savings.

No debt.

Tax Filing Status: Married Filing Jointly

Tax Rate: 28% Federal, 10% State

State of Residence: Oregon

Age: 58 and 57

Desired Asset allocation: 50% stocks / 50% bonds

Desired International allocation: 25% of stocks but open to it being higher

Total net worth is > $6 million. Total portfolio is > $5 million

Current portfolio allocation:

Stock:
Ticker (Target) (Current)
AVDE (2.50%) (2.43%)
AVUV (3.25%) (3.46%)
VTIAX (11.00%) (10.55%)
VTSAX (23.00%) (23.74%)
VWO (0.25%) (0.25%)

Bond:
Ticker (Target) (Current)
VBTLX (10.00%) (9.92%)
VFIDX (11.00%) (10.61%)
VGSH/VFIRX (13.00%) (12.75%)
VFSUX (7.00%) (6.67%)
VCSH/VSCSX (5.00%) (4.74%)
VGIT (5.00%) (4.76%)
VTABX (9.00%) (8.74%)

Cash & iBonds (0.00%) (1.37%)

Of the above, 36% is in taxable accounts and 64% is in retirement accounts. Generally, the taxable accounts hold the majority of stock funds and the retirement funds tend to hold a greater share of bond funds.

I have a solo 401K with Vanguard that enables investment in any Vanguard mutual fund. My wife's 401K is with Merrill Lynch and is mostly target date funds. Most of her 401K is in the equivalent of Total Bond Index. Her company matches up to 5% of income.

We each have traditional IRAs with Vanguard represented in the above portfolio. Once we begin to pull back from work and our income comes down we will probably begin to convert some of those holdings to Roth IRAs. We haven't been able to stomach the tax hit in our current bracket.

Contributions

I max contributions -- typically approximately $55,000 annually. My wife's max contribution is approximately $28,000.

So we're in good shape. We live well below our means and the portfolio reflects our philosophy that slow and steady wins the race. The major life event we know of in the next 1 to 5 years will be retirement, which is likely to be a transition to less work and more play time for both of us rather than no work.

Certainly I know that it may make sense to deploy the funds into the portfolio as is. If I do that, I will dollar cost average at a rate of $10K/week. That said, I am comfortable knowing that I don't know it all by a long stretch and I'd gladly receive your thoughts.

Much respect and good wishes to you and yours as we enter the holidays!
Last edited by dkeeney on Wed Nov 24, 2021 2:12 pm, edited 2 times in total.
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JoeRetire
Posts: 10162
Joined: Tue Jan 16, 2018 2:44 pm

Re: What to do with proceeds from real estate sale

Post by JoeRetire »

dkeeney wrote: Wed Nov 24, 2021 1:14 pmAfter valuations increased significantly in the California desert, my wife and I decided to sell our vacation home. The check for $550K arrived earlier in the week and I'm interested in the community's input about how to deploy the funds.
Invest the funds per your asset allocation plan, just as you would with any investable income.
If I do that, I will dollar cost average at a rate of $10K/week.
Why?

Do you think the market is going down or going to crash? If so, why invest any?
Do you think the market is going up? If so, why leave so much on the sidelines earning about 0.0% ?
I love a good nap. Sometimes it’s the only thing getting me out of bed in the morning.
Topic Author
dkeeney
Posts: 17
Joined: Thu May 24, 2018 1:50 pm

Re: What to do with proceeds from real estate sale

Post by dkeeney »

JoeRetire wrote: Wed Nov 24, 2021 1:22 pm
Why?

Do you think the market is going down or going to crash? If so, why invest any?
Do you think the market is going up? If so, why leave so much on the sidelines earning about 0.0% ?
Why dollar cost average? Risk management. We are at or near all-time highs in the market and all-time lows in interest rates. The government has injected several trillions of dollars into the economy to offset COVID impacts and several trillions more in government spending has been authorized. So it is a period of enough uncertainty that I believe deploying a lump sum at this moment is gambling compared to tactically deploying the funds opportunistically throughout the coming year. I found this Vanguard POV interesting but not really very helpful: https://investor.vanguard.com/investing ... t-lump-sum. But this is all outside the scope of my question and I prefer not to get off on that tangent if possible.

Thanks for your input!
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JoeRetire
Posts: 10162
Joined: Tue Jan 16, 2018 2:44 pm

Re: What to do with proceeds from real estate sale

Post by JoeRetire »

dkeeney wrote: Wed Nov 24, 2021 1:34 pm
JoeRetire wrote: Wed Nov 24, 2021 1:22 pm
Why?

Do you think the market is going down or going to crash? If so, why invest any?
Do you think the market is going up? If so, why leave so much on the sidelines earning about 0.0% ?
Why dollar cost average? Risk management. We are at or near all-time highs in the market and all-time lows in interest rates. The government has injected several trillions of dollars into the economy to offset COVID impacts and several trillions more in government spending has been authorized. So it is a period of enough uncertainty that I believe deploying a lump sum at this moment is gambling compared to tactically deploying the funds opportunistically throughout the coming year. I found this Vanguard POV interesting but not really very helpful: https://investor.vanguard.com/investing ... t-lump-sum. But this is all outside the scope of my question and I prefer not to get off on that tangent if possible.

Thanks for your input!
Understood. Some are willing to trade returns for peace of mind. As the article you linked states "Your emotions can play a role in the strategy you select."
I would disagree that dollar cost averaging $10k/week is "tactically deploying, opportunistically" though.

Anyway, invest according to your asset allocation plan. Creep up on it if that feels less like gambling to you.
Last edited by JoeRetire on Wed Nov 24, 2021 1:52 pm, edited 2 times in total.
I love a good nap. Sometimes it’s the only thing getting me out of bed in the morning.
NoProbLlama
Posts: 66
Joined: Sat Jan 26, 2019 10:40 am

Re: What to do with proceeds from real estate sale

Post by NoProbLlama »

Sounds like you were already executing a solid game plan. You're comfortable with slow & steady, and a strategic decision to DCA in current conditions is perfectly fine if you understand the pros/cons. You seem to be well aware of the playing field, your approach makes sense, and there's no need to get fancy at this point if you don't want to.

If you're just looking for other ideas to consider, I'd throw out:
- The answer doesn't have to be 100% lump sum or 100% DCA. If it were me, I'd probably split it as 25% lump sum & DCA the remainder at $10k/week. I'd accelerate a portion of the DCA if markets had a really bad day. Feel free to choose any % as a lump sum.
- This may not be your cup of tea, but I'd also move around some of the DCA portion to get some promotional bonuses from banks. I personally find the credit card & savings bonuses to be their own little 'game' for free money, but I respect that others want to avoid the complexity.
- Consider some laddered CDs around your DCA schedule to slightly bump the interest earned along the way a bit over baseline savings.
Topic Author
dkeeney
Posts: 17
Joined: Thu May 24, 2018 1:50 pm

Re: What to do with proceeds from real estate sale

Post by dkeeney »

NoProbLlama wrote: Wed Nov 24, 2021 1:52 pm
I'd accelerate a portion of the DCA if markets had a really bad day. Feel free to choose any % as a lump sum.
Yes, I did this with a separate lump sum into VTSAX from sale of a land parcel in July 2020 and it's worked out, which surely has colored my thinking that it's great to have cash on hand when the market has a hiccup. Thanks!
NoProbLlama
Posts: 66
Joined: Sat Jan 26, 2019 10:40 am

Re: What to do with proceeds from real estate sale

Post by NoProbLlama »

dkeeney wrote: Wed Nov 24, 2021 2:04 pm Yes, I did this with a separate lump sum into VTSAX from sale of a land parcel in July 2020 and it's worked out, which surely has colored my thinking that it's great to have cash on hand when the market has a hiccup. Thanks!
Just being aware of the cognitive bias is an important component. You seem to be well aware that there are counter-examples as well.

I know a few people who cited uncertainty around the 2020 election as a reason to prefer DCA over Lump Sum around late 2020 & early 2021. There's always a case that "this time's different." In those particular cases "time in the market beats timing the market" happened to win. The state-of-mind still had value to those individuals over the last year, and they're way ahead of others who took chunks of money out of the market in 2020 & are still waiting for the 'right' time to get back in.
Last edited by NoProbLlama on Wed Nov 24, 2021 2:43 pm, edited 1 time in total.
Topic Author
dkeeney
Posts: 17
Joined: Thu May 24, 2018 1:50 pm

Re: What to do with proceeds from real estate sale

Post by dkeeney »

NoProbLlama wrote: Wed Nov 24, 2021 2:41 pm
Just being aware of the cognitive bias is an important component. You seem to be well aware that there are counter-examples as well.
Yes, I am a fan of Daniel Kahneman and to a lesser extent Amos Tversky, which is why I try to be humble about the vast universe of things I do not know and also challenge myself to be honest about all the garbage perceptions that I've accumulated over 58 years that color my worldview. I rarely regret missing opportunities for gains that are in the rear view mirror. I think it was in A Random Walk Down Wall Street that Burton Malkiel profiled Edward Thorp's approach and observed that keeping a sizable cash position onhand is akin to card counting strategies of pushing chips onto the table when the deck is vulnerable to players winning.

But here we are talking mostly about how to deploy the funds rather than where to put them. If anyone thinks I should bump up the iBond / TIPS portion I would be interested in reading the rationale.
stungerz
Posts: 133
Joined: Sat Apr 28, 2012 12:43 pm

Re: What to do with proceeds from real estate sale

Post by stungerz »

You are doing awesome… I’d take $100k and bet on black or do something super fun. :D

With the rest, you already know what to do.
DIYtrixie
Posts: 101
Joined: Sun Sep 13, 2020 12:11 pm

Re: What to do with proceeds from real estate sale

Post by DIYtrixie »

dkeeney wrote: Wed Nov 24, 2021 1:14 pm The check for $550K arrived earlier in the week and I'm interested in the community's input about how to deploy the funds.

~~SNIP~~

Certainly I know that it may make sense to deploy the funds into the portfolio as is. If I do that, I will dollar cost average at a rate of $10K/week.
DCA at $10k/week means it’ll take more than a year before the entire sum is invested per your AA. I like NoProbLlama’s suggestion to lump sum a portion (except I’d use 50%) and DCA the rest as you proposed.
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bampf
Posts: 865
Joined: Thu Aug 04, 2016 6:19 pm

Re: What to do with proceeds from real estate sale

Post by bampf »

dkeeney wrote: Wed Nov 24, 2021 1:34 pm
JoeRetire wrote: Wed Nov 24, 2021 1:22 pm
Why?

Do you think the market is going down or going to crash? If so, why invest any?
Do you think the market is going up? If so, why leave so much on the sidelines earning about 0.0% ?
Why dollar cost average? Risk management. We are at or near all-time highs in the market and all-time lows in interest rates. The government has injected several trillions of dollars into the economy to offset COVID impacts and several trillions more in government spending has been authorized. So it is a period of enough uncertainty that I believe deploying a lump sum at this moment is gambling compared to tactically deploying the funds opportunistically throughout the coming year. I found this Vanguard POV interesting but not really very helpful: https://investor.vanguard.com/investing ... t-lump-sum. But this is all outside the scope of my question and I prefer not to get off on that tangent if possible.

Thanks for your input!
I am with JoeRetire on this one. First, given your current assets, you are asking what to do with about 10% of your assets. Realistically, DCA won't matter much and is statistically inferior to going all in. In 20 years, the price you pay today won't matter much at all. You have plenty of assets and a pretty decent ER fund plus you apparently still earn. I would buy 500K of VOO, VTI or VGT (I have a mild attachment to tech) and forget about it. I would take the other 50K and help out an organization in need. I don't think you need to overthink this given your current assets.

-- Bampf
Nescio
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