Windfall Imminent - Help with Investment Strategy Request

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Topic Author
oaks
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Joined: Wed Jan 31, 2018 11:47 am

Windfall Imminent - Help with Investment Strategy Request

Post by oaks »

I’m under contract to sell my businesses and I’ll walk with ~$6 million after taxes. I will have no source of income after closings with the exception of the dividends I receive from my stock/bond portfolio. I’m looking for some advice, opinions and critique of my family’s future.

TL;DR is at the bottom of this post.

Life Situation: Wife and I are both 37 with three kids: 9, 6 and 3. All healthy. Husband and wife both have Master’s degrees. Wife has been a stay-at-home mother since our first was born and will return to work if she desires after the kids are out of the house. I have been self employed my entire adult life, enjoy being productive and spending time with the family. We reside in Arizona in a much higher cost of living area than most of the AZ.

Gross Salary/Wages: After the sale of the business our wages will be 0. Zero.

Qualified Dividends & Long Term Capital Gains: This will be based upon our asset allocation. Will primarily use VTI (Vanguard Total Stock Market ETF or equivalent for TLH). Fixed income portion will likely be short duration bonds or CDs during this current interest rate environment.

Current expenses:
Our “BASE” expenses, which excludes housing and associated housing costs are: $110,000 per year.
Currently renting including utilities: $40,000 per year.
Total current renting annual expenses total: $150,000 per year.

We do not intend to rent for long, maybe 6 to 18 more months. We are either going to buy a $1,500,000 property or build a $3,000,000 property with the later more likely. Assuming paying cash this will increase our BASE annual expenses (property tax, home owners insurance, repairs, misc) by $20,000 to $35,000 a year.
Total future annual expenses total: $130,000 / $145,000 per year.

So we actually will have less total expenses buying or building compared to renting but would also have much less investible portfolio.


Assets:
I’m excluding anything that can't be invested such as furniture, vehicles, etc.

Cash: $150,000
Taxable brokerage: $2,000,000 (100% VTI total stock market index ETF)

401k: N/A. I’ve only been self employed and company didn’t offer 401k
HSAs: $100,000 (100% VTI)
rIRAs: $150,000 (100% VTI)
I Bonds: $100,000

Total Current Investable Assets: $2,500,000
Current asset allocation: 90/10 (2.25mm VTI / 0.25mm cash/Ibonds)

The total investable assets will balloon shortly to $8,500,000 of which $6,000,000 will be cash.
Desired asset allocation after closing: 80/20 but is part of the discussion.

Liabilities: None. Revolving credit cards used for daily expenses and paid off in full each month.

Insurance: Covered appropriately in all matters (auto, home/renters, term life, health, umbrella)

Specific Question(s):

I want to first acknowledge that my family and I are extremely fortunate. We do enjoy the fruits of our labors while keeping the basic rule of living below our means as a high priority. We donate generously to charity which is already accounted for in our above annual expenses. We want to provide a positive and impactful childhood experience for our children so that they too can be self motivated to become well educated, work smart and get along with and help others.

I’ve always been self employed via multiple businesses in my career so I understand the zero (or even negative) income for a bit of time. However, this time is a bit different because I’m older now and my priorities have shifted from primarily focused on work every waking hour to wanting to spend more time with friends, hobbies, kids and wife. I only get one shot at being a spouse, father, friend and citizen. I want to focus my energy and attention on bettering myself and others but at the same time I’ve got to where I am because of a strong work ethic and genuinely enjoying creating value so I’m at a bit of a crossroad of what to do with the rest of my life. I enjoy options and so that is the primary focus of discussion of this thread.

1. My wife and I could have a 50+ year time period before we pass away. That is a long time to draw from a portfolio! I don’t intend to “not work” but I will likely not be a work-a-holic anymore where every little decision I make is to maximize the bottom line. Let’s assume a $0 income just for safety reasons with the comfort of knowing that this is not going to be the case and both my wife and I have marketable skills.

Below is a list of scenario, portfolio, 3%, expenses, and likelihood of the scenario:
Renting: $8.5 million = $255k ($150k expenses) 10% chance
Buying: $7.0 million = $210k ($130k expenses) 30% chance
Building: $5.5 million = $165k ($145k expenses) 60% chance

3% is well below perpetual withdrawal rate so I should be good but my fear is a sequence of returns risk.

Thoughts?

2. I am not risk adverse. I am a believer in the Boglehead way of life, almost to a fault with the exception of not owning a Toyota :). Now that I’ve “won the game” should I actually be less aggressive? My initial thought with the incoming windfall is 80/20 from my 90/10 but maybe 70/30 or even 60/40 is more appropriate? I have a very long amount of time to recover from any blips in portfolio performance should we experience a long term equities drout. My fear is not running out of money but rather being required to work to meet my family’s customary standard of living. I like my freedom. 80/20, 70/30, 60/40? Some other more complicated portfolio like Golden Butterfly? I have no problem seeing big $ swings in my portfolio value (as March 2022 wasn’t difficult for me) and I have the aptitude to monitor/rebalance, etc but I also don’t want my life evolving around maximizing the portfolio.

Thoughts?

3. With a $8.5 million portfolio it allows for some more creative financing. Again, I’m not risk adverse but this also doesn’t mean that I’m a risky person. With $8.5 million portfolio I could use portfolio lending, brokerage margin or short box trades to finance at a low interest rate the Purchase or Build of a home. I suspect traditional 30 year fixed mortgage financing options are not an option due to income being 0 and I’m fairly certain more portfolio based lending options will have a lower interest rate right now as well. If $8.5 million is invested and I need $3 million cash to build that is 35% of the portfolio. Is this super risky? Assuming a 50% reduction in portfolio value that may cause a margin call or some other type of callable action? I’m not super familiar with these more creative financing options but I do like the idea of letting the portfolio ride and using it as a piggy bank without actually selling anything.

Thoughts?

TL;DR
* Mid 30’s couple with 3 young kids.
* $6 million windfall after tax that will bring total net worth to $8.5 million with $0 near term future wages.
* Looking for thoughts on not being required to work again, asset allocation and creative financing using the portfolio to buy or build a home.
Mike Scott
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Mike Scott »

If you put it all in VTI, for example, the dividends alone would pay your current expenses more or less for a very long time; you can be FIRE if you want to be FIRE. I would not spend 3 million on a house.
deikel
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by deikel »

Mike Scott wrote: Tue Jul 05, 2022 3:31 pm If you put it all in VTI, for example, the dividends alone would pay your current expenses more or less for a very long time; you can be FIRE if you want to be FIRE. I would not spend 3 million on a house.
+1, exactly my first response.

The market is down right now, you plow it all into VTI, the 2% dividend roughly gives you 160k/year forever and after the next rebound of the market (which will come, just not clear when) - you are sitting on 9.6 million min.

I find that amount of house rather excessive. Where in AZ is it that expensive ? I would most certainly not doing a build in that price range (the overrun alone will be 600k) - no thanks, much more flexibility to continue to rent or buy existing and work on it - assuming you are in a good school district for the kids already.

Your kids are old enough to pick stuff up, I would be more worried about how to spent all that time and how you role model for them to show hard work is worth it - I think that is tricky.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.
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8foot7
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by 8foot7 »

I'd put ten years' worth of annual expenses in TIPS, pay for your house in cash, and then throw the rest in VTI. Structure your life moving forward to live only off the dividends if you can. Keep your SWR to 3% if you can't. That's 120k a year. In this way, your home is paid for, your income is paid for, you've got seven figures in cash beating in inflation, mid-seven digits in the market, and if all hell breaks loose, you have a decade-long runway to figure out another plan, longer if you sell your house. Congratulations and good luck.

tl;dr
8.5 million after sale
- 3 million to build the house
- (145k annual expense * 10) = 1.45mm in TIPS
===
4 million in VTI

Also remember: "But to make money they didn’t have and didn’t need, they risked what they did have and did need." Buffett re LTCM
nyclon
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by nyclon »

Congrats!

You and your wife have a 50+ year horizon and I think close to 80/20 is needed to keep up.

You’ve thought through everything and the scenario analysis makes sense. Keeping the withdrawal rate at 3% is smart and you can always adjust it.

Yes you can borrow against your portfolio to build. Leverage can be dangerous but borrowing for example $1.5mm against a portfolio of $8.5mm is a low advance rate.

Your goal is to spend as much time with friends, family, and on yourself. A large portfolio gives you that ability. Cutting the portfolio down by buying/building will lessen that ability, particularly over the decades.

Biggest question I have is does the emotional aspect of building/buying outweigh the scenario where you rent, retain the option to freely move, and grow a larger portfolio.

Good problems to have. If you haven’t already, you should work with an estate planning attorney, because your portfolio size will grow considerably on a nominal basis.
Carl53
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Carl53 »

I second not dropping $3M on a house. Use your tax software to investigate the possibility of living off the dividends, counting your Ibond interest on an ongoing basis (assuming you do not go back to work). Take a part time job in a charity or something you might enjoy to fund Roths and perhaps provide health care. Enjoy your family, take vacations, make memories. Fifteen or more years ago, my cousin came into a windfall buyout that would probably exceed yours in today's dollars. He sank it into a new business he bought. Lots of internal shenanigans going on in that business and while he did not go bankrupt, he is back traveling the world today at age 70 as a sales rep working for someone else to make up for having blown his stash.
random_walker_77
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by random_walker_77 »

For your budget, do remember to include health insurance and taxes on your withdrawn investment income. Health insurance is probably on the order of $20K for the premiums and maybe budget $5K for OOP, hoping that you don't use all of that in any given year.

You're in a position where you ought to be able to live on dividends. Note that 90% equities isn't that much better than 80% or even 70%. If you stay at 90%, you're taking a lot more risk for relatively little gain. Why risk what you need (to avoid working), for so little additional gain? 70/30 or 60/40 sounds like it'd be appropriate for you (and 50/50 wouldn't be out of the question either)

Assuming nothing goes horribly wrong, your 7M ought to grow quite a bit over the next decade. I'm not sure I'd put $3M into a new build because
a) with freedom, your thinking about locale might change. Maybe you decide to relocate to another city, or live next to a national park, or decide to become semi-itinerant and spend half your year <in a place of interest to you>.
b) $3M increases your base fixed costs, and cuts into your safety margin right now. In 5 years, when your oldest is entering high school, you should have a lot more margin.
c) Are you certain about schools and where you want to live? Sometimes, what you think is right for your kids changes as your kids approach high school.

PS: with young kids and a sizeable net worth, don't forget to have a trust/will drawn up if you haven't already done so
LFS1234
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by LFS1234 »

oaks wrote: Tue Jul 05, 2022 3:00 pm
3. With a $8.5 million portfolio it allows for some more creative financing. Again, I’m not risk adverse but this also doesn’t mean that I’m a risky person. With $8.5 million portfolio I could use portfolio lending, brokerage margin or short box trades to finance at a low interest rate the Purchase or Build of a home. I suspect traditional 30 year fixed mortgage financing options are not an option due to income being 0 and I’m fairly certain more portfolio based lending options will have a lower interest rate right now as well. If $8.5 million is invested and I need $3 million cash to build that is 35% of the portfolio. Is this super risky? Assuming a 50% reduction in portfolio value that may cause a margin call or some other type of callable action? I’m not super familiar with these more creative financing options but I do like the idea of letting the portfolio ride and using it as a piggy bank without actually selling anything.

Thoughts?

TL;DR
* Mid 30’s couple with 3 young kids.
* $6 million windfall after tax that will bring total net worth to $8.5 million with $0 near term future wages.
* Looking for thoughts on not being required to work again, asset allocation and creative financing using the portfolio to buy or build a home.
I would suggest forgetting about the creative financing. Just pay cash for the house and stay out of debt. In my view a 90/10 portfolio is fine for a debt-free person with adequate reserves, especially when they're young. Nobody can predict the future. If you end up getting the 6% expected return on your equities going forward then you can "retire permanently" now, if you end up with much worse results then you've still got plenty of time to review your options and preferences and to act accordingly.

The last sentence in 8foot7's above post is worth re-reading. As is the classic post below:

https://www.bogleheads.org/blog/2017/01 ... r-markets/

Good luck!
newyorker
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by newyorker »

Hell no on 3M house


Buy 1.5M house and 7M in VTI or VOO.

1.6 percent dividend should get you 110k / year alone.

But when you dont work, your expenses go up. So maybe a part time job somewhere?
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Watty
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Watty »

Pay cash for the house. If you can't bring yourself to write such a large check then that could be a good sign that you are spending too much on the house. Talking about creative financing could just be a way of talking yourself into spending too much on the house.

There is a wiki on managing a windfall if you have not seen it yet.

https://www.bogleheads.org/wiki/Managing_a_windfall

One of the main points is that it is good to park the money someplace that is very safe for six months or a year while you come up with a long term plan and get used to having the money. In your case you have likely also been very busy with the sale of the business and wrapping things up so you also need time to decompress.

This is likely a once in a lifetime windfall and even if you try starting other other businesses they may not be as successful. This makes making the right decisions about how to invest this money a lot more important than making a fast decision.

A problem is that you also have inflation risk so even things like government bonds would not be 100% safe. You might do something instead like put your house money into a seperate account and then with the rest you could maybe put 30% into stocks and park the other 70% in something safe that you can invest in 6+ months when you have had time to come up with a long term plan.

It is just my pet peeve but when people post about having a lot of money I also encourage then to consider if their cars are good and safe. There have been a lot of advances in car safety features in the last five years with the new advanced safety features it might be worth getting cars that are safer than what you are driving now. Even though you could afford it you don't need to get some real expenves high end luxury car since there lots of more modestly priced cars that a very safe compared to even a five year old car. (No I am not saying that a good five year old car is a deathtrap, it is just that with as much money as you have you can afford to get an even safer car. if your cars do not have most the advanced safety features.)
InNameOnly
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by InNameOnly »

Congrats on your hard earned success!

My 2 cents. Tying up 1/3 of your net worth in your home seems a little out of balance for a potential retiree and may reduce your options. Best of luck no matter what you decide.
The realist says the glass is completely full with 50% water and 50% air.
Outer Marker
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Outer Marker »

I'm with the majority here that $3M is way too much for for a house. Pay cash for what you need to be happy and comfortable, but don't shoot the moon because you're feeling flush at the moment. You have enough money to be set for life, and have a near zero risk of failure with any reasonable AA. If you stretch too much and run into trouble, you're also in a difficult spot because a $3M home has a limited audience of qualified buyers. If you haven't read it already, I'd recommend The Millionaire Next Door. Spending less on the house will enable you to feel more secure and have more to spend on experiences.
gips
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by gips »

we have some similarities except for age: sold company i co-founded, net worth in same zip code, 3 kids, just shopped for a $3mm home. some thoughts:

- sure, go ahead and spend the $3mm on a new home. however, not sure I understand the binary nature of your decision. why not spend $2mm or $2.5mm on an existing or new home? we were ready to spend $3.2mm but were outbid, settled on $2.6mm and given the downturn, feels pretty good.
- the reason i disagree with other posters on the house is that I think you’ll find it tough to turn off the spigot on your work ethic and entrepreneurial spirit. You hint there may be work in the future and that flexibility leads me to suggest the house purchase will be just fine.
- i recently changed my umbrella to $5mm.
- you’re at the point where you’ll want a good estate attorney.
- we spent $750k on college. might want to fund 529s.
- aca healthcare premiums in ny for my family were $20k, all in probably $30k per year.
- asset allocation is tough. i moved to 40-60 which served the “if you won the game” strategy. suggest you run some i-orp scenarios.
- why not pay $2-5k to a fee only advisor once you have your plan?

i was itching for work after 2-3 years, did some pt consulting, may go back to it. but it was a joy to make every one of my kid’s plays, sporting events, etc

luck!
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celia
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by celia »

I would start by talking about life goals with my spouse. Will there be extensive travel where you won’t be home a lot and thus not need a house? Will you move to a different climate and experience urban, rural, mountain, beachfront, arctic (LOL) weather and resources? Do you want to live somewhat near your parents so your kids can enjoy time with their grandparents? Are either of you interested in long term volunteer work? All of this will have an impact on your housing needs.

Then you need to find out what your spouse’s risk level is. Part of this depends on her knowledge of finances and past life experiences. Some of it may depend on if you were both raised similarly in regards to finances and how each other’s parents modeled living within their means, or not. Lastly, it may depend on how much your wife knew about your businesses and their financial aspects.

In other words, if you both know the same in regards to goals and finances, you could follow any of your proposed plans. If you are not on the same page, you may need to compromise on your level of risk in investments.
59Gibson
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by 59Gibson »

Scratch the $3M anchor. In your shoes I'd pay cash for a 1-1.5M house or just keep renting. It may be wise to let the current RE mkt conditions play out for at least 12 months before making a purchase.
AA 75/25
Topic Author
oaks
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by oaks »

Thank you everything who have replied thus far. I look forward to the continued discussion.

The $3 million build would be in Scottsdale where there are plenty of buyers in this price range so I'm not overly concerned about not having an exit should we find it to be a burden. The issue with a $1.5 million purchase is that for that price I'll end up with a cookie cutter boring build grade box product with no luxuries and a tiny yard. Sure, it is half as much money, but we are talking about quality of life issues here and I scratch my head as to why I have worked so hard and taken the risks I have to settle for less than what, on paper, seems do-able. Going out in the country and buying a $500k house with a few acres is not an option as our focus are our kids and so schools are our number one criteria on living situation.

The other item as to why I did 10%,30%,60% chances out of the gate of rent,buy,build is as another poster mentioned, the likelihood of me "retiring" and forever not working for income is unlikely. I enjoy getting stuff done and there is no doubt in my mind that I'll end up doing some high $ per hour consulting part time at a bare minimum to supplement dividend income and plow more into investments (if not a straight up full time job). So even though a part of this thread that I mentioned in the original post is assuming $0 wages that is only because I want to build a plan of attack that is conservative so I can have some comfort knowing that I don't have to work which is different than not working. I would put it at a 99.999% chance that I'll end up working for some type of income over the next 50+ years. :)

Another item to note is that I'm not worried about reducing lifestyle expenses. I could absolutely careless what anyone thinks of me. Everything that I spend money on is for the enjoyment of myself and my family. Going on less vacations or staying in less expensive hotels is something I can do easily. We drive modest vehicles and that isn't going to change. The best news is that my wife is on the same page so I'm not worried about further lifestyle creep and don't have any issues with reducing expenses if we have to do so.

Back to the investment portion of the thread:
80/20
70/30
60/40
???

Should we focus on buying actual CD's, single direct bonds and TIPS and hold to maturity for our fixed income portion or what do I lose by using a bond fund ETF and keeping it simplier? I'm very hands on and have no issues doing a little work here and there as long as there are definable advantages in doing so. What I don't want is complication for minimal advantages.

What duration should we aim towards for fixed income if buying direct (or brokered)? Ladder style? Various maturity lengths that automatically roll over?

Umbrella Insurance
I always had the idea that an umbrella insurance policy should equal net worth but then I read some arguments that it should only be a few million maximum regardless of net worth because of opposing party would find the limits via discovery and be motivated to go after more if you have a $10 million policy for example rather than $2 million policy and the insurance issuer would have more motivation to find ways out of the policy. All of my other liability insurances are at their limits and I have an umbrella but the umbrella is much less than total NW. Is there a general rule of thumb?
tj
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by tj »

If you don't have 10 years of work history for SS or Medicare, I'd consider taking a fun job or starting a fun business just to lick in your old age coverage, regardless of your millions
lazynovice
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by lazynovice »

I found this thread and others like it helpful:

viewtopic.php?t=286603

Searching for “won the game” or “liability matching portfolio” or “LMP” will yield other threads on the topic.
Outer Marker
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Outer Marker »

Ehh. Do what makes you happy. You can afford to do anything you want; probably not everything you want. I dated a woman from Phoenix a few years ago, and there were plenty of properties in the area I could have lived in at less than $3M. And I have pretty high standards. But if a Scottsdale zip code and big estate are what's important to you, go for it. You're right. It will probably work out okay.

Thing is, I can't imagine myself sitting around walking around my big house and pool every day watching Netflix. With unlimited time on my hands and substantial resources, I'd be skiing Aspen every weekend in the winter; doing live-aboard scuba trips in Indonesia, and skiing Chile in the summer. Coupled with a few other expensive hobby addictions, I see my expenses being a lot higher retired than working. If you're just temporarily taking some time off before taking up another high-earning pursuit, that's a whole different thing.

As far as your questions go, I have enough that I expect to never run out, and leave what's behind to my heirs. 70/30 seems to be about optimal on the risk/reward curve, with the caveat that I keep my fixed income very short and very high quality. When and if I do retire, I plan to keep a 3 year cash reserve in short term treasuries to weather most short term declines.

I think $2M umbrella is optimal. When I last priced it, there was a significant price breakpoint between $2 and $3M. $2M is enough to settle most suits and provide your insurance company with motivation to provide a robust legal defense. Plaintiff's attorney's know if you go above those limits to reach into your personal wealth, they're going to face extreme resistance, so they're better off settling at the (substantial) policy limits for an easy buck. Just don't do anything really stupid or illegal and you'll likely be fine.
WhyNotUs
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by WhyNotUs »

The advice to put 7-10 years into some fixed income-type instruments seems sound. You could include I-Bonds, 5 year cds with a decent rate, ladder cds, or munis might even make some sense at some point for you.

As for the remainder, whatever ever amount of equities that you feel you can hold on to through a rough stretch without selling or ruining your enjoyment of FIRE.
I own the next hot stock- VTSAX
Luke Duke
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Luke Duke »

Outer Marker wrote: Sun Jul 10, 2022 8:26 pmWith unlimited time on my hands and substantial resources, I'd be skiing Aspen every weekend in the winter; doing live-aboard scuba trips in Indonesia, and skiing Chile in the summer.
Tell me you don't have young kids without telling me that you don't have young kids.
CMLAW1
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CMLAW1 »

Don’t buy a 3 million dollar house at your age with no income! Cmon man!!!

Buy a reasonable house your happy with - if it were me, I’m spending maximum 20% of my money. I would invest the rest at an AA I am comfortable with and live off it.
vrr106
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by vrr106 »

congrats on winning the game. Contrary to the majority here, if the $3M house is important to you and the family (sounds like it is), I would go for it. Your estimated expenses of $145K/yr are lower than what I would expect at your net worth and 3 kids.
Assuming $750K for kids college and $3M for the home leaves you with $4.75M. I quick look at firecalc and cfiresim says you have a 95+% chance of success.
From the tone of your posts, it sounds like you value creating that forever home for memories with your family and otherwise have a lifestyle that is not lavish. Given that, I would spend on what you value IF the numbers work out.
70/30 seems appropriate to me, why risk it if you don't need to?
buyholdforever
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by buyholdforever »

It was hard work to start your business and sell it. Why not consider a more conservative portfolio of 60% bonds and 40% equities, or even 30% equities?
random_walker_77
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by random_walker_77 »

vrr106 wrote: Tue Jul 19, 2022 8:05 am Assuming $750K for kids college and $3M for the home leaves you with $4.75M. I quick look at firecalc and cfiresim says you have a 95+% chance of success.
Note that running the balance down to $1 in 30 years is defined as "success" by firecalc. Perfectly reasonably if you're 67. A bit riskier if you're 35.
I'm one of those advising not to spend 3M on a house just yet. But I'll grant that your advice is still in the range of reasonable, given acceptance of more risk and given that OP is willing to go back to work. That said, wait another 8 years, and there's a reasonable chance that OP will be able to easily and safely afford $4M on a house.
Juice3
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Juice3 »

oaks wrote: Tue Jul 05, 2022 3:00 pm will increase our BASE annual expenses (property tax, home owners insurance, repairs, misc) by $20,000 to $35,000 a year.
I find it very hard to believe that going from renting to buying a 1-3MM house will ONLY increase your expenses by 20-35K. Many locations property taxes alone would account for that kind of increase. Are we talking a small home in HCOL area or McMansion of M/LCOL area? Either way the math seems odd.

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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Juice3 »

Juice3 wrote: Tue Jul 19, 2022 11:49 am
oaks wrote: Tue Jul 05, 2022 3:00 pm will increase our BASE annual expenses (property tax, home owners insurance, repairs, misc) by $20,000 to $35,000 a year.
I find it very hard to believe that going from renting to buying a 1-3MM house will ONLY increase your expenses by 20-35K. Many locations property taxes alone would account for that kind of increase. Are we talking a small home in HCOL area or McMansion of M/LCOL area? Either way the math seems odd.

I stand corrected. Looked up the tax rate for Maricopa and it is 0.6%. So 18K for a 3M home is close enough. However, I suspect that would also come with a pretty significant additional expenses.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by goodenyou »

Spend $1.5-2M on a house and put $1M in a 529 for your 3 kids. Get ready for some big expenses with the kids. They are young now and get very expensive. Especially when they live in neighborhoods with $2M+ houses. I have 3 and can speak from experience.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Wiggums »

Congratulations on the business sale. We have always built where you can customize a lot of the features. It’s all about location, location, location. Obviously, there are less buyers as the house price increases. Operating costs, maintenance and property taxes will be higher, but you know all this. My advice is to complete the business sale and enjoy a little time with your family. This will give you time to think and discuss the plan with your spouse. If you are going to do some consulting work, that is bonus money in my opinion. Enjoy your money. Life is short. It’s possible that you are under estimating the costs as the children get older, college, etc. I get the impression that you have already thought of futures expenses.
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by tvubpwcisla »

Invest it according to your Investment Plan. If you don't have an Investment Plan, wait to invest the money until you do. Have your plan reviewed here by the board as there are a lot of smart investors that can help!
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by TomatoTomahto »

goodenyou wrote: Tue Jul 19, 2022 12:38 pm Spend $1.5-2M on a house and put $1M in a 529 for your 3 kids. Get ready for some big expenses with the kids. They are young now and get very expensive. Especially when they live in neighborhoods with $2M+ houses. I have 3 and can speak from experience.
Statistically, your kids are likely to be high achievers and smart; college might well be pricey.

Just one hockey goalie in your offspring can add to annual expenses.

IMO, You’re too young to adopt a “won the game” approach. Congrats on your success thus far, but $3M house I’d personally pass on. You’re not done when you buy the house; you have to furnish it too.
I get the FI part but not the RE part of FIRE.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

TomatoTomahto wrote: Tue Jul 19, 2022 1:11 pm
goodenyou wrote: Tue Jul 19, 2022 12:38 pm Spend $1.5-2M on a house and put $1M in a 529 for your 3 kids. Get ready for some big expenses with the kids. They are young now and get very expensive. Especially when they live in neighborhoods with $2M+ houses. I have 3 and can speak from experience.
Statistically, your kids are likely to be high achievers and smart; college might well be pricey.

Just one hockey goalie in your offspring can add to annual expenses.

IMO, You’re too young to adopt a “won the game” approach. Congrats on your success thus far, but $3M house I’d personally pass on. You’re not done when you buy the house; you have to furnish it too.
$8.5M and still haven’t won the game? Gotta love Bogleheads
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by random_walker_77 »

CletusCaddy wrote: Tue Jul 19, 2022 1:54 pm $8.5M and still haven’t won the game? Gotta love Bogleheads
At $8.5M, they've won by normal everyday standards. Period.

By the standards of those who buy 3M homes, and spend xxx per year, maybe not. Wouldn't you agree that it's not black and white? Clearly, if they bought a $8M mansion, they can't stop working. Clearly, if they bought a $1M, they're fine given the stated expenses. In between, there are shades of gray, depending on risk tolerance, spending flexibility, expenses, etc.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

random_walker_77 wrote: Tue Jul 19, 2022 2:58 pm
CletusCaddy wrote: Tue Jul 19, 2022 1:54 pm $8.5M and still haven’t won the game? Gotta love Bogleheads
At $8.5M, they've won by normal everyday standards. Period.

By the standards of those who buy 3M homes, and spend xxx per year, maybe not. Wouldn't you agree that it's not black and white? Clearly, if they bought a $8M mansion, they can't stop working. Clearly, if they bought a $1M, they're fine given the stated expenses. In between, there are shades of gray, depending on risk tolerance, spending flexibility, expenses, etc.
With a $3M home and the stated expenses it is black and white.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by TomatoTomahto »

random_walker_77 wrote: Tue Jul 19, 2022 2:58 pm
CletusCaddy wrote: Tue Jul 19, 2022 1:54 pm $8.5M and still haven’t won the game? Gotta love Bogleheads
At $8.5M, they've won by normal everyday standards. Period.

By the standards of those who buy 3M homes, and spend xxx per year, maybe not. Wouldn't you agree that it's not black and white? Clearly, if they bought a $8M mansion, they can't stop working. Clearly, if they bought a $1M, they're fine given the stated expenses. In between, there are shades of gray, depending on risk tolerance, spending flexibility, expenses, etc.
Thank you; that was the point I didn’t sufficiently make. You know what kind of cars are in a neighborhood of $3M houses? What clothes kids wear?

I’m reminded of when we first moved to Short Hills, NJ an affluent town (and in a house worth a bunch less than $3M, adjusted for inflation). My wife took our daughter to a Girl Scout meeting where they were going to decide where the annual field trip would go. She expected DC or maybe Williamsburg. One of the kids said “Lindsay’s Dad has a jet; let’s go to the Bahamas.” Gulp.
I get the FI part but not the RE part of FIRE.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

TomatoTomahto wrote: Tue Jul 19, 2022 3:47 pm
random_walker_77 wrote: Tue Jul 19, 2022 2:58 pm
CletusCaddy wrote: Tue Jul 19, 2022 1:54 pm $8.5M and still haven’t won the game? Gotta love Bogleheads
At $8.5M, they've won by normal everyday standards. Period.

By the standards of those who buy 3M homes, and spend xxx per year, maybe not. Wouldn't you agree that it's not black and white? Clearly, if they bought a $8M mansion, they can't stop working. Clearly, if they bought a $1M, they're fine given the stated expenses. In between, there are shades of gray, depending on risk tolerance, spending flexibility, expenses, etc.
Thank you; that was the point I didn’t sufficiently make. You know what kind of cars are in a neighborhood of $3M houses? What clothes kids wear?

I’m reminded of when we first moved to Short Hills, NJ an affluent town (and in a house worth a bunch less than $3M, adjusted for inflation). My wife took our daughter to a Girl Scout meeting where they were going to decide where the annual field trip would go. She expected DC or maybe Williamsburg. One of the kids said “Lindsay’s Dad has a jet; let’s go to the Bahamas.” Gulp.
OP stated total expenses after purchasing the home would be $145k on the high end. $5.5M portfolio generates $220k annually. Case closed.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by TomatoTomahto »

CletusCaddy wrote: Tue Jul 19, 2022 3:51 pm
TomatoTomahto wrote: Tue Jul 19, 2022 3:47 pm
random_walker_77 wrote: Tue Jul 19, 2022 2:58 pm
CletusCaddy wrote: Tue Jul 19, 2022 1:54 pm $8.5M and still haven’t won the game? Gotta love Bogleheads
At $8.5M, they've won by normal everyday standards. Period.

By the standards of those who buy 3M homes, and spend xxx per year, maybe not. Wouldn't you agree that it's not black and white? Clearly, if they bought a $8M mansion, they can't stop working. Clearly, if they bought a $1M, they're fine given the stated expenses. In between, there are shades of gray, depending on risk tolerance, spending flexibility, expenses, etc.
Thank you; that was the point I didn’t sufficiently make. You know what kind of cars are in a neighborhood of $3M houses? What clothes kids wear?

I’m reminded of when we first moved to Short Hills, NJ an affluent town (and in a house worth a bunch less than $3M, adjusted for inflation). My wife took our daughter to a Girl Scout meeting where they were going to decide where the annual field trip would go. She expected DC or maybe Williamsburg. One of the kids said “Lindsay’s Dad has a jet; let’s go to the Bahamas.” Gulp.
OP stated total expenses after purchasing the home would be $145k on the high end. $5.5M portfolio generates $220k annually. Case closed.
Well, if you say the case is closed, I guess it’s closed. I will go back and reflect that my experiences in moving up a few notches in neighborhood has no effect on spending behavior. Thanks for closing the case. Silly me.
I get the FI part but not the RE part of FIRE.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by aristotelian »

Up to you of course, but there is no way I would want 40% of my net worth tied up in my home. I also see no need for "creative financing" when you have $8M. The fact you don't want to pay $3M up front actually tells me you don't really want to pay $3M for a house.

See the Bogleheads Wiki on windfalls:
https://www.bogleheads.org/wiki/Managing_a_windfall

Two pieces from the Wiki I would highlight:
Common pitfalls
Among windfall recipients, common errors of commission include:[4]

-quitting one's job prematurely
-buying extravagantly priced automobiles or properties, or engaging in other expensive consumption spending


Take your time
Finance authorities are in agreement that avoiding immediate impulse decisions is key to prudent management of the windfall situation. Among the recommendations for this period are the following:

...Set aside six months to one year's worth of expenses in a transaction account such as your checking account. Place the remaining windfall assets in separate accounts holding secure low-risk savings vehicles, such as FDIC guaranteed bank accounts and CDs, money market funds, and treasury bills.


If after 6 months you still want a $3M house, then go ahead and buy the $3M house.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by goodenyou »

TomatoTomahto wrote: Tue Jul 19, 2022 1:11 pm
goodenyou wrote: Tue Jul 19, 2022 12:38 pm Spend $1.5-2M on a house and put $1M in a 529 for your 3 kids. Get ready for some big expenses with the kids. They are young now and get very expensive. Especially when they live in neighborhoods with $2M+ houses. I have 3 and can speak from experience.
Statistically, your kids are likely to be high achievers and smart; college might well be pricey.

Just one hockey goalie in your offspring can add to annual expenses.

IMO, You’re too young to adopt a “won the game” approach. Congrats on your success thus far, but $3M house I’d personally pass on. You’re not done when you buy the house; you have to furnish it too.
LOL. You know me well. A hockey goalie and a forward traveling all over the country. A small fortune to say the least.
Last edited by goodenyou on Tue Jul 19, 2022 4:06 pm, edited 1 time in total.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

TomatoTomahto wrote: Tue Jul 19, 2022 3:54 pm
CletusCaddy wrote: Tue Jul 19, 2022 3:51 pm
TomatoTomahto wrote: Tue Jul 19, 2022 3:47 pm
random_walker_77 wrote: Tue Jul 19, 2022 2:58 pm
CletusCaddy wrote: Tue Jul 19, 2022 1:54 pm $8.5M and still haven’t won the game? Gotta love Bogleheads
At $8.5M, they've won by normal everyday standards. Period.

By the standards of those who buy 3M homes, and spend xxx per year, maybe not. Wouldn't you agree that it's not black and white? Clearly, if they bought a $8M mansion, they can't stop working. Clearly, if they bought a $1M, they're fine given the stated expenses. In between, there are shades of gray, depending on risk tolerance, spending flexibility, expenses, etc.
Thank you; that was the point I didn’t sufficiently make. You know what kind of cars are in a neighborhood of $3M houses? What clothes kids wear?

I’m reminded of when we first moved to Short Hills, NJ an affluent town (and in a house worth a bunch less than $3M, adjusted for inflation). My wife took our daughter to a Girl Scout meeting where they were going to decide where the annual field trip would go. She expected DC or maybe Williamsburg. One of the kids said “Lindsay’s Dad has a jet; let’s go to the Bahamas.” Gulp.
OP stated total expenses after purchasing the home would be $145k on the high end. $5.5M portfolio generates $220k annually. Case closed.
Well, if you say the case is closed, I guess it’s closed. I will go back and reflect that my experiences in moving up a few notches in neighborhood has no effect on spending behavior. Thanks for closing the case. Silly me.
If they decide to raise their spending to keep up with the Jones, that’s their choice. It’s optional. It may require going back to work, although I’ll point out that with a cushion of $200k per year they don’t need to pick up stressful jobs to meet whatever incremental optional standard of living they see around them.

And since when did it cost anything to fly in your rich friend’s jet to the Bahamas (and presumably stay in their beachfront house)?

They have won the game. Period.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by AlphaLess »

deikel wrote: Tue Jul 05, 2022 3:56 pm
Mike Scott wrote: Tue Jul 05, 2022 3:31 pm If you put it all in VTI, for example, the dividends alone would pay your current expenses more or less for a very long time; you can be FIRE if you want to be FIRE. I would not spend 3 million on a house.
+1, exactly my first response.

The market is down right now, you plow it all into VTI, the 2% dividend roughly gives you 160k/year forever and after the next rebound of the market (which will come, just not clear when) - you are sitting on 9.6 million min.
Sadly, VTSAX yield (same as VTI yield) is 1.55%, which is a whopping 22.5% lower than your 2% estimate.

What happens when recession comes? Dividends get cut.

So, I would plan to not take more than 1% in dividends, on average, for the next 5 years.
In the long term, maybe 1.5%. But 2% is definitely not possible.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Chadnudj »

Can I ask a dumb question:

Why, if you bought/built a house, would your annual expenses be identical/nearly identical to what your currently pay renting a home?

I mean, owning a house outright you still have expenses, but they have to be significantly lower than a rent payment that is (supposedly) paying the landlord's mortgage plus taxes plus a healthy profit margin. Right?
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Outer Marker »

CletusCaddy wrote: Tue Jul 19, 2022 3:51 pm OP stated total expenses after purchasing the home would be $145k on the high end. $5.5M portfolio generates $220k annually. Case closed.
Not so fast, counselor. $5.5M at 3% SRW = $165,000 - and that's pre tax. I haven't looked at the OP's background in a while, but not sure OP has taken into account what property taxes and upkeep would be on an estate that size vs. current housing expenses. It's cutting it unnecessarily close to the wire for me. Especially considering my own likely behavior which would be to spend a lot more on expensive leisure activities with unlimited leisure time.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

Outer Marker wrote: Tue Jul 19, 2022 4:14 pm
CletusCaddy wrote: Tue Jul 19, 2022 3:51 pm OP stated total expenses after purchasing the home would be $145k on the high end. $5.5M portfolio generates $220k annually. Case closed.
Not so fast, counselor. $5.5M at 3% SRW = $165,000 - and that's pre tax. I haven't looked at the OP's background in a while, but not sure OP has taken into account what property taxes and upkeep would be on an estate that size vs. current housing expenses. It's cutting it unnecessarily close to the wire for me. Especially considering my own likely behavior which would be to spend a lot more on expensive leisure activities with unlimited leisure time.
4% SWR and most of the $5.5M is basis.

My $2.2M home is on a 5000 sqft lot. Landscaping costs $150 per month.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Outer Marker »

CletusCaddy wrote: Tue Jul 19, 2022 4:16 pm 4% SWR and most of the $5.5M is basis.

My $2.2M home is on a 5000 sqft lot. Landscaping costs $150 per month.
OP is in his mid 30's with 3 kids. I would not use 4% SRW if I wanted my family to be set for life with no worries. Landscaping is my lowest household maintenance expense. Just the tip of the iceberg.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

Outer Marker wrote: Tue Jul 19, 2022 4:22 pm
CletusCaddy wrote: Tue Jul 19, 2022 4:16 pm 4% SWR and most of the $5.5M is basis.

My $2.2M home is on a 5000 sqft lot. Landscaping costs $150 per month.
OP is in his mid 30's with 3 kids. I would not use 4% SRW if I wanted my family to be set for life with no worries. Landscaping is my lowest household maintenance expense. Just the tip of the iceberg.
SWR is not something where you must calculate once at the beginning and then you are locked in for life. If that was the case, sure, go with 2% or whatever.

Luckily human beings are not machines. Start off with something reasonable like 4% with 90%+ success rate, then re-evaluate every few years. OP is an entrepreneur and they are both well educated and “enjoy being productive”. If they need to go back to work or downsize their $3M house it’s hardly the end of the world.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Outer Marker »

CletusCaddy wrote: Tue Jul 19, 2022 4:26 pm SWR is not something where you must calculate once at the beginning and then you are locked in for life. If that was the case, sure, go with 2% or whatever.

Luckily human beings are not machines. Start off with something reasonable like 4% with 90%+ success rate, then re-evaluate every few years. OP is an entrepreneur and they are both well educated and “enjoy being productive”. If they need to go back to work or downsize their $3M house it’s hardly the end of the world.
I completely agree with you on SRW and variable withdrawal strategy. I actually plan to start out at 5% in early retirement and adjust my spending as needed from there. But I'm 56 and don't plan to retire for a few years yet. Not in my 30's. I wouldn't saddle myself with a $3M house I might have to give up unless it was really important to me. Much rather the flexibility to spend more without worry and never have to downsize my house out of necessity.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

Outer Marker wrote: Tue Jul 19, 2022 4:34 pm
CletusCaddy wrote: Tue Jul 19, 2022 4:26 pm SWR is not something where you must calculate once at the beginning and then you are locked in for life. If that was the case, sure, go with 2% or whatever.

Luckily human beings are not machines. Start off with something reasonable like 4% with 90%+ success rate, then re-evaluate every few years. OP is an entrepreneur and they are both well educated and “enjoy being productive”. If they need to go back to work or downsize their $3M house it’s hardly the end of the world.
I completely agree with you on SRW and variable withdrawal strategy. I actually plan to start out at 5% in early retirement and adjust my spending as needed from there. But I'm 56 and don't plan to retire for a few years yet. Not in my 30's. I wouldn't saddle myself with a $3M house I might have to give up unless it was really important to me. Much rather the flexibility to spend more without worry and never have to downsize my house out of necessity.
$3M house, depending on what kind of house it is, really doesn’t need to be a burden.

My out of pocket costs for my $2M house are in the range of $50k per year. And that’s with a $1M loan that the OP won’t need.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by Moe Sanders »

Y'all have already won.
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Re: Windfall Imminent - Help with Investment Strategy Request

Post by goodenyou »

You could live in a $2M high rise or a $2M 5000+sq ft home in Texas on 2 acres with a $150,000 pool. The upkeep and maintenance will be completely different.
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