Influx of cash. What would you do in this environment?

[InvestmentNewbee]

Hi All,
Between my wife and I vesting and getting bonuses we have around 1m in post tax cash coming in over the next week.

Normally I would simply invest in SPY but given current instability we are debating other options (holding more cash, paying down 3.8% mortgage, more international exposure etc.)

What would you do in our situation at the moment.

Relevant info:

1) Both 39 with 3 kids targeting retirement in 3-5 years. 10m invested assets is target.
2) 5m invested in basically all SPY. 50k cash. 1m in home equity on a 3.4m property.
3) Income 1.5m-2m expected in 2025.
4) 500k of that income very stable. 1-1.5m of it is somewhat risky. Income has increased a lot in last 2 years.

[retired@50]

What would you do in our situation at the moment.

I'd follow my IPS of course.
By that I mean I'd suggest you allocate to your pre-determined asset allocation mix that you've been using since you became a Boglehead.

If you don't yet have an IPS, it's way past time to make one.
https://www.bogleheads.org/wiki/Investm ... _statement

Regards,

[simplesimon]

Hi All,
Between my wife and I vesting and getting bonuses we have around 1m in post tax cash coming in over the next week.

Normally I would simply invest in SPY but given current instability we are debating other options (holding more cash, paying down 3.8% mortgage, more international exposure etc.)

What would you do in our situation at the moment.

Relevant info:

1) Both 39 with 3 kids targeting retirement in 3-5 years. 10m invested assets is target.
2) 5m invested in basically all SPY. 50k cash. 1m in home equity on a 3.4m property.
3) Income 1.5m-2m expected in 2025.
4) 500k of that income very stable. 1-1.5m of it is somewhat risky. Income has increased a lot in last 2 years.

Keep investing. But I think your asset allocation is too aggressive with retirement in five years at age 44, even if your withdrawal rate ends up being very low. The fact that you're hesitant to invest this cash is an indicator that it's too aggressive.

[toddthebod]

Hi All,
Between my wife and I vesting and getting bonuses we have around 1m in post tax cash coming in over the next week.

Normally I would simply invest in SPY but given current instability we are debating other options (holding more cash, paying down 3.8% mortgage, more international exposure etc.)

What would you do in our situation at the moment.

Relevant info:

1) Both 39 with 3 kids targeting retirement in 3-5 years. 10m invested assets is target.
2) 5m invested in basically all SPY. 50k cash. 1m in home equity on a 3.4m property.
3) Income 1.5m-2m expected in 2025.
4) 500k of that income very stable. 1-1.5m of it is somewhat risky. Income has increased a lot in last 2 years.

If you had $50,000 and suddenly received a $1M windfall,.that would be one conversation. Given your existing assets and income level, I wouldn't do anything special.

Let me ask you this: are you at all considering liquidating a million dollars of your current investment in SPY?

[9Iron]

At 39, and at your income level, the “current instability” is meaningless.

That being said, you want to retire soon. Therefore , you may want to consider building up some fixed income holdings, so that you aren’t ‘forced’ to draw down your stock holdings to meet living expenses.

Have you determined what your annual expenses are?
Have you provided for educational expenses for your kids?
Have you looked into the cost of Health Insurance?
Are you looking to sell and relocate?

[hoofaman]

Would you prefer to have bought a few months ago when prices were higher? If you wait long enough, I'm sure they will reach that level again, is that when you will buy?

[bonesly]

Normally I would simply invest in SPY but given current instability we are debating other options (holding more cash, paying down 3.8% mortgage, more international exposure etc.)

I'll echo retired@50's response and say stick to your IPS. That IPS should include a target asset allocation (AA) that is the blueprint for your portfolio, but you didn't mention a target AA. Without a target to just execute methodical rebalancing annually, or when the market "does its thing" and creates target errors in excess of your rebalancing threshold (e.g., ±5% of total portfolio), you're managing the assets without a roadmap, which is prone to second-guessing what you just did, and hand-wringing over what's coming next.

If you have an AA then just stick to that... invest per your target AA. If it's a large amount (you got a bonus of $1M), then consider immediately investing 50% and then Dollar-Cost Average the remaining 50% over 6-12 months. The split lump-sum/DCA is not the best choice mathematically (lump-sum of the entire amount wins 67% of the time), but it is sometimes the best choice for an emotional investor that is overly worried about "current [market] instability."

If you do not have an AA, then that should be your top priority... you need a blueprint to manage by. One or both of the exercises below can help with that.

Control Your Risk
1) Read the Wiki article for Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the asset allocation (AA) that was recommended by the quiz based on your knowledge of your personal risk tolerance having read the Wiki article.

2) Alternatively (or in addition to), ask "How much of a drop in portfolio value as a % of total value can I handle?" cut that % in half to get standard deviation, then lookup that std. dev. on the X-Axis of the chart below, and finally scan up to see what AA that corresponds to. As an example, if you can only stomach a -24% drop in portfolio value, that's a ±12% std. dev, which corresponds to an AA of 60/40. The return you get is an average and you'll get what you get with your unique sequence of returns (there's a lot of variance in outcomes due to the associated volatility of stocks so it probably will NOT be the average, but something more or less).

a. For a long time-frame (>10 years) AAs below 20% stock are dominated (red dots) by another AA with similar risk but higher reward (blue dots).
b. The dotted line represents a hypothetical linear risk-reward from 100% stocks down to 100% bonds; the historical risk-reward curve has an improvement for risk-adjusted return due to the lack of correlation between stocks & bonds.

2) 5m invested in basically all SPY. 50k cash. 1m in home equity on a 3.4m property.

As an aside, we typically do not count home equity as part of your retirement portfolio since real property is illiquid compared to stocks & bonds. It counts towards your net worth, but not as part of your investment portfolio (unless you rent it out and it generates income above its maintenance costs).

[solarcub]

If you put it all in Total Bond or something similar, you will still be well over 80/20. That seems plenty aggressive for someone that close to retirement. Then go back to putting all your new money in stocks if you want.

[goodenyou]

I'd pay off the mortgage. Not sexy, but a guaranteed return. It will give you time to think about what you want to do with the next $1m.

[Minderbinder]

I would de leverage. Pay the mortgage or buy some kind of safe bonds.

You've got 8.4mm in assets against a 6mm net worth. A house that expensive has broad macro risk and will be somewhat well correlated with the equity market. So you've got more than a 100% allocation in my eyes. Fwiw I'm in a similar boat and decided to pay down the debt and deleverage.

The income is nice but you've already largely won at life. Esp if you want to be able to walk away in a few years. I think you have more risk than you need in that environment.

My $0.02

[Hacksawdave]

Hi All,
Between my wife and I vesting and getting bonuses we have around 1m in post tax cash coming in over the next week.

Normally I would simply invest in SPY but given current instability we are debating other options (holding more cash, paying down 3.8% mortgage, more international exposure etc.)

What would you do in our situation at the moment.

Relevant info:

1) Both 39 with 3 kids targeting retirement in 3-5 years. 10m invested assets is target.
2) 5m invested in basically all SPY. 50k cash. 1m in home equity on a 3.4m property.
3) Income 1.5m-2m expected in 2025.
4) 500k of that income very stable. 1-1.5m of it is somewhat risky. Income has increased a lot in last 2 years.

Buy-high-but-don’t-buy-lower is really not a way to go, unless your IPS says to be 100% in stocks. Would you have gone all-in three weeks ago when the S&P 500 hit a new high with this million?

With that much coming in that has not been earmarked, I would simply park it in a municipal money market fund for now. $2M in income will place you in the highest bracket(s) plus NIIT. I have done this with large but lesser amounts before and it works.

[enad]

A huge influx of cash is better than an outflow. Many will tell you to stick to your plan, but you need to do what will let you sleep at night. You could always dollar cost average your way into your new position(s). You can invest a fixed amount on some schedule (3, 6, 9, 12 months) so you won't get the highest price or the lowest price but somewhere in between. Best Wishes

[KanCityKid]

I'd pay off the mortgage. Not sexy, but a guaranteed return. It will give you time to think about what you want to do with the next $1m.

Agreed. Also, take care of those “someday we need to…” items. We received a small windfall last year and replaced an older car, replaced windows, did a tub conversion, bought a new fridge, etc., figuring those are the things that only get more expensive over time, so while we have the extra cash, now’s the time.

[MBB_Boy]

Politics isn't a good reason to change your plan. There was a lot of instability in the market in 2022 (ended the year down big). What did you do then?

[Metsfan91]

What would you do in our situation at the moment.

Buy buy buy! Perfect time to buy. Everything on sale right now. I'll be buying following my IPS.