Need help investing $1M in today's market

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Monkeyman
Posts: 16
Joined: Tue Aug 26, 2014 4:46 pm

Need help investing $1M in today's market

Post by Monkeyman » Thu Oct 12, 2017 11:53 am

UPDATE

Thanks to all for the feedback. I’ve updated the format of my original post to bring some clarity to our situation.

Emergency funds: $35,000 (3 months)
Debt: $27,000 (car loan)
Tax Filing Status: Married Filing Jointly (2 kids – 7,4)
Tax Rate: 10-15%
State of Residence: Colorado
Age: 39, 35
Desired Asset Allocation: 70/30 or 80/20 (stocks/bonds)
Desired Int’l Allocation: 20-30% of stocks
Size of current portfolio (post-home sale): $1,122,400

CURRENT ASSETS

Cash (from home sale): $1,000,000

Taxable: VTSAX $22,500

His Roth IRA: VGTSX $7,500, VTSMX $4,900,

Her Roth IRA: VBMFX $1,000

Her 401k: VTSMX $60,000, VBMFX $26,500

----------

Hi friends,

We are selling our house in the next few months, and I am estimating that we will net about $1M when the sale is completed and we buy a new house (we will be carrying a mortgage). We will be buying a much less expensive home when we move, and I want to invest our gain from the sale.

Currently, our asset allocation is as follows:

$35,000 Checking

$35,000 Vanguard Index funds (75/25 - total stock market/total bond market)

$85,000 401k (Vanguard total stock market)

I don't want to try to time the market, but I would like to do some dollar cost averaging when we invest this money. I do have some concern about buying into the market "at an all time high" and really feeling the pain of a correction. We may need to access a portion of our savings at some point in the next few years (maybe $200,000), depending on how things go.

I would love any insight or opinions on investing a large sum (and the overwhelming majority of our assets) in a bull market. I want to get most of it into Vanguard index funds, but I want to lower our chances of an acute loss.

Thanks!
Last edited by Monkeyman on Thu Oct 12, 2017 5:58 pm, edited 1 time in total.

thangngo
Posts: 438
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Re: Need help investing $1M in today's market

Post by thangngo » Thu Oct 12, 2017 12:04 pm

Did you set aside $ to pay tax on the $1M gain from the sale of your house? It's curious to see that you have a big paid off house and minimal savings. Did you use all your savings and paid off the house?

If you don't want acute loss, use conservative asset allocation 20/80, 40/60 stock & bond. Look into Life Strategy funds from Vanguard and pick one that fits your loss aversion.

Monkeyman
Posts: 16
Joined: Tue Aug 26, 2014 4:46 pm

Re: Need help investing $1M in today's market

Post by Monkeyman » Thu Oct 12, 2017 12:11 pm

Thanks for the response

Yes, the $1M gain on the sale accounts for paying off the mortgage, capital gains taxes, realtor commission, etc.

We bought a house at the bottom of the market in a ridiculously hot real estate market, which accounts for our large gain.

I'm open to a 75/25 or 80/20 allocation, but wondering if dollar cost averaging is advised, and if so, over what period of time.

Other strategies or theories would also interest me.

Thanks!

RadAudit
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Location: Second star on the right and straight on 'til morning

Re: Need help investing $1M in today's market

Post by RadAudit » Thu Oct 12, 2017 12:19 pm

Look here viewtopic.php?t=88005 First post on the thread. Read the linked articles, too. A three fund portfolio will work for a $1 mil. portfolio. It'll work for larger and smaller portfolios, too.

And, no. DCA is not necessarily recommended for the highest returns - but, if it will let you sleep well at night, that's the way to go. Glad I could clear that up for you :D
FI is the best revenge. LBYM. Invest the rest. Stay the course.

betablocker
Posts: 305
Joined: Mon Jan 11, 2016 1:26 pm

Re: Need help investing $1M in today's market

Post by betablocker » Thu Oct 12, 2017 12:28 pm

Trying to DCA or stay out of the market doesn't make much sense to me. I don't want to lose anything on my investments either. It's no less important to me because some of it came from appreciation in the market vs appreciation in property but still I'm invested. The questions you need to answer are when do you need to retire, how much do you make and for how long will you make it, how much of that money can you save, what do you think expected returns will be, at what dollar loss will you panic and sell? In other words all the same issues that everyone on the board has. You need an asset allocation tailored to your risk profile and needs. Do some reading. The wiki has lots of books that will take you through the issues from Swedroe, Kerri, Berstein, etc. It's worth it for $1m. Also consider tax issues. You might want to be 50/50 stocks/bonds but you have limited tax deferred (401k, IRA) space. If your tax rate is high you might hold muni bonds. I haven't read up on 1031 Exchanges but that's another possible area to educate yourself on.

SimplicityNow
Posts: 285
Joined: Fri Aug 05, 2016 10:31 am

Re: Need help investing $1M in today's market

Post by SimplicityNow » Thu Oct 12, 2017 12:52 pm

Please gather your information and edit your post with the suggested format recommended in this post:

viewtopic.php?f=1&t=6212

Taking the time to do that will yield more targeted advice that can assist you.

I recommend you read the wiki and a couple books on investing and asset allocation.

The market reaches all time highs frequently. If it didn't, no one would invest.

Tamalak
Posts: 412
Joined: Fri May 06, 2016 2:29 pm

Re: Need help investing $1M in today's market

Post by Tamalak » Thu Oct 12, 2017 12:57 pm

Timing the market is a felony. DCAing is a misdemeanor. Neither are wise or rational, but go ahead and DCA over a year or two if the alternative would be 'waiting for a dip' or the like.

What would be better is lump summing into the market at an asset allocation conservative enough to let you sleep.

WhiteMaxima
Posts: 627
Joined: Thu May 19, 2016 5:04 pm

Re: Need help investing $1M in today's market

Post by WhiteMaxima » Thu Oct 12, 2017 12:58 pm

put the cash in a laddered CD, take a breath, don't make impulsive purchase of anything (even stocks). The stock is expensive if not too bubbly. I know it is hard to hold cash watching the inflation gradually eat away the purchase power. But market correction could wipe off 10 to 20 % of your 1.0 mil in just few days. So 2.5% inflation per year is nothing compare to that.

aristotelian
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Re: Need help investing $1M in today's market

Post by aristotelian » Thu Oct 12, 2017 12:59 pm

If you are worried about market risk, consider a more conservative allocation. You could DCA over a year or two and end up in exactly the same position that you are worried about now. Having more funds available may change your mentality from accumulation to capital preservation now that you have more to lose. That is OK. If the thought of losing half or more of your portfolio bothers you, it might be time to revisit your allocation rather than (or in addition to) DCA.

David Scubadiver
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Re: Need help investing $1M in today's market

Post by David Scubadiver » Thu Oct 12, 2017 1:10 pm

So, the conventional wisdom is that lump sum investing sooner rather than later, will beat out dollar cost averaging most of the time. On the other hand, few people are interested in "maximizing" their returns because otherwise they would be 100% invested in equities (or maybe 80/20 if that leads to a historically higher result after rebalancing). But, you (like others) have a right to be more conservative with your money and part of being conservative can be based on having a lot of cash or cash equivalents on hand to ensure you don't invest it all at the top of the market.

If you are investing a million today and the market doubles over the next 5 years, you have two million dollars in 5 years.
If you are investing $200,000 a year over the next five years, and the market steadily moves up to doubling over the next 5 years, you will have less than two million dollars.
If the markets move up and down, and you are investing $200,000 a year over the next five years, you may have more or less than two million at the end of five years.

One thing is certain -- you CANT invest a million dollars over five years, at the top of the market. (Well, you could if the market were flat for five years. So, in that case, in a flat market, don't invest more year over year if you want to be absolutely certain you did not invest all of your money at the top). So, DCA is the way to go if you want to guarantee that you didn't buy at the top. It may cost you money on the back end. It may net you more money on the back end. We just don't know.

Most folk don't have a million dollars and those that do, came by it over a long period of time, essentially dollar cost averaging themselves into the market in which they now find themselves. Sure, your million and their million are the same thing looking at it as of the present. But, the difference is that they have had a long time to get to know their risk tolerance and you're just getting started.

MotoTrojan
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Re: Need help investing $1M in today's market

Post by MotoTrojan » Thu Oct 12, 2017 1:14 pm

Lump-sum $800K and put the $200K in a Cd if you'll need it in a couple of years.

If by Total Stock Market you mean Total US, I would consider adding some international exposure (20-40% of total equities). Total International is best, most tax-efficient way to do so.

Also research tax-loss harvesting. It may make you feel better about taking a big loss if the market decides to dump right after you invest this.

remomnyc
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Re: Need help investing $1M in today's market

Post by remomnyc » Thu Oct 12, 2017 1:31 pm

I would set aside the down payment you need for your smaller home in an Ally 11-mo no penalty CD. Then, I would exchange the $85k total stock in your 401k for total bond and purchase $85k total stock in your taxable. I would dollar cost average the remaining funds over 12 months to meet your AA. Consider adding international. You have to determine if this influx of capital changes your AA.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Need help investing $1M in today's market

Post by mega317 » Thu Oct 12, 2017 2:21 pm

Your financial situation has changed, so you might want to start over from the beginning. What are your goals? What is your desired allocation? If you sort those two things out the rest is easier. Thinking about current prices or ways to enter are just distractions.

If your checking account is "emergency fund" and mentally separate from your "investments" then your allocation is 93/7. So I would certainly dial that back given your clear risk aversion. I don't suggest dollar cost averaging but whatever no big deal. But you need to get the phrase "all time high" out of your head. The market spends a ton of time at or near near all-time highs. That's what happens when the general trend is up. Look at historical charts.

sjt
Posts: 27
Joined: Fri May 26, 2017 3:03 pm

Re: Need help investing $1M in today's market

Post by sjt » Thu Oct 12, 2017 3:27 pm

You made a killing on your RE investment - now simply invest it according to your target AA. Flip it around- if this amount was invested at your target AA currently, would you sell it and re enter the market through DCA?

WhiteMaxima
Posts: 627
Joined: Thu May 19, 2016 5:04 pm

Re: Need help investing $1M in today's market

Post by WhiteMaxima » Thu Oct 12, 2017 3:57 pm

One way to do is to pay cash for your next house, open a line of credit and DCA from your home equity into Total stock market. This way: 1) you earn 4% tax free from your cash. 2) you can use low interest loan to DCA into stock market.

Monkeyman
Posts: 16
Joined: Tue Aug 26, 2014 4:46 pm

Re: Need help investing $1M in today's market

Post by Monkeyman » Thu Oct 12, 2017 6:26 pm

I appreciate all the feedback. I updated my original post, and would love to hear any additional information.

Thanks!

mega317
Posts: 1263
Joined: Tue Apr 19, 2016 10:55 am

Re: Need help investing $1M in today's market

Post by mega317 » Thu Oct 12, 2017 10:58 pm

Monkeyman wrote:
Thu Oct 12, 2017 11:53 am
Emergency funds: $35,000 (3 months)
...
Tax Rate: 10-15%
This doesn't add up to me--it appears to spend more than you earn. What is your marginal tax bracket? If 15% then you are earning 100k or less, but 3 months of expenses is 35k?

ThrustVectoring
Posts: 252
Joined: Wed Jul 12, 2017 2:51 pm

Re: Need help investing $1M in today's market

Post by ThrustVectoring » Fri Oct 13, 2017 12:33 am

David Scubadiver wrote:
Thu Oct 12, 2017 1:10 pm
On the other hand, few people are interested in "maximizing" their returns because otherwise they would be 100% invested in equities (or maybe 80/20 if that leads to a historically higher result after rebalancing).
The margin for equities over bonds is too high compared to volatility for 80/20 to be the highest long-term result. You're better off
with more equity exposure. This doesn't stop at 100% equities, either - it tops out at something like 150%. It does mean buying after rallies and selling when the stock drops to keep your leverage constant. Also means not sleeping well at night, so I definitely don't recommend leverage. Maybe lever up 20% after weathering a correction or bear market.

Read up the Kelley Criteria for how to math it.

basspond
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Re: Need help investing $1M in today's market

Post by basspond » Fri Oct 13, 2017 6:49 am

i would use up to 50% for your new house. Think about balancing your portfolio. You want to keep equity in your house. Also the lower your mortgage is the more extra money you have monthly to invest. Good luck.

Monkeyman
Posts: 16
Joined: Tue Aug 26, 2014 4:46 pm

Re: Need help investing $1M in today's market

Post by Monkeyman » Fri Oct 13, 2017 2:27 pm

mega317 wrote:
Thu Oct 12, 2017 10:58 pm
Monkeyman wrote:
Thu Oct 12, 2017 11:53 am
Emergency funds: $35,000 (3 months)
...
Tax Rate: 10-15%
This doesn't add up to me--it appears to spend more than you earn. What is your marginal tax bracket? If 15% then you are earning 100k or less, but 3 months of expenses is 35k?
Good question. We receive $56,000/year in "gift" income, which is not taxed.

Just left high paying jobs to move to a different area where I calculate our living expenses (and income) will be considerably less.

So it's possible the emergency fund would
Be more like 4-6 months of expenses.

Where we are now, its 3 months if we stretch it.

RetireBy55
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Joined: Wed Nov 30, 2016 6:20 pm

Re: Need help investing $1M in today's market

Post by RetireBy55 » Fri Oct 13, 2017 5:11 pm

Given that you're both in your mid-late 30s, you have time to recover from the inevitable drop that is sure to come in the next 1-12 months.

Me? I'd lose a lot of sleep watching my $1M investment drop $500K+ even if I expected it would "come back" within a couple of years / possibly 10+.

The Fed no longer has the ability they did in 2008 to rectify the markets. If we drop 50+% (likely, IMHO), it could easily be a decade or more until we are back to "even".

Can you stomach watching a $500K+ on-paper loss for the next ten years?

I know I can't.

Monkeyman
Posts: 16
Joined: Tue Aug 26, 2014 4:46 pm

Re: Need help investing $1M in today's market

Post by Monkeyman » Fri Oct 13, 2017 5:54 pm

Can I handle losing half of my savings? I don't know.

I'd rather not find out, hence the reason for my original post.

If feel safer DCAing the mine over 3-5 years, even if it costs me a bit.

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳

Re: Need help investing $1M in today's market

Post by Sandtrap » Fri Oct 13, 2017 9:24 pm

Some helpful links:
Bogle Philosophy
https://www.bogleheads.org/wiki/Boglehe ... philosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Boglehe ... art-up_kit
Define General Investment Goals and Objectives
https://www.bogleheads.org/wiki/Invest ... _statement
Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Post format
viewtopic.php?f=1&t=6212

nura
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Re: Need help investing $1M in today's market

Post by nura » Sat Oct 14, 2017 8:27 am

Monkeyman wrote:
Thu Oct 12, 2017 12:11 pm
I'm open to a 75/25 or 80/20 allocation, but wondering if dollar cost averaging is advised, and if so, over what period of time.
I you are reluctant to invest lump-sum, your target AA is too risky. Reduce AA that you are comfortable with.

SimplicityNow
Posts: 285
Joined: Fri Aug 05, 2016 10:31 am

Re: Need help investing $1M in today's market

Post by SimplicityNow » Sat Oct 14, 2017 8:45 am

Comments below
Monkeyman wrote:
Thu Oct 12, 2017 11:53 am
UPDATE

Thanks to all for the feedback. I’ve updated the format of my original post to bring some clarity to our situation.

Emergency funds: $35,000 (3 months) Try to stretch this to 6 months.
Debt: $27,000 (car loan) Term and rate?
Tax Filing Status: Married Filing Jointly (2 kids – 7,4)
Tax Rate: 10-15%
State of Residence: Colorado
Age: 39, 35
Desired Asset Allocation: 70/30 or 80/20 (stocks/bonds) Either is what most would consider reasonable.
Desired Int’l Allocation: 20-30% of stocks Again, most would consider either reasonable.
Size of current portfolio (post-home sale): $1,122,400

CURRENT ASSETS In the future it is recommended to type out the name of the fund, most don't memorize ticker symbols.

Cash (from home sale): $1,000,000

Taxable: VTSAX $22,500 Vanguard Total Stock Market Index Fund

His Roth IRA: VGTSX $7,500, VTSMX $4,900, Vanguard Total International Stock Market index Fund

Her Roth IRA: VBMFX $1,000 Vanguard Total Bond Market index

Her 401k: VTSMX $60,000, VBMFX $26,500 Vanguard Total Stock and Total Bond Market Investor Shares Index

I'm guessing the Vanguard funds listed are not held at Vanguard otherwise the investor share would be admiral shares at slightly lower expense ratios.

----------

Hi friends,

We are selling our house in the next few months, and I am estimating that we will net about $1M when the sale is completed and we buy a new house (we will be carrying a mortgage). We will be buying a much less expensive home when we move, and I want to invest our gain from the sale.

Currently, our asset allocation is as follows:

$35,000 Checking

$35,000 Vanguard Index funds (75/25 - total stock market/total bond market)

$85,000 401k (Vanguard total stock market)

I don't want to try to time the market, but I would like to do some dollar cost averaging when we invest this money. I do have some concern about buying into the market "at an all time high" and really feeling the pain of a correction. We may need to access a portion of our savings at some point in the next few years (maybe $200,000), depending on how things go. Based on this statement alone it sounds like an 80/20 or even a 70/30 stock/bond mix might be too high in equities to allow you to "sleep well at night". Google "willingness, need and ability to take risk" or read Rick Ferri's, All About Asset Allocation.

I would love any insight or opinions on investing a large sum (and the overwhelming majority of our assets) in a bull market. I want to get most of it into Vanguard index funds, but I want to lower our chances of an acute loss. Again these comments suggest your proposed asset allocation is too high. Despite your ages you might want to consider a lower percentage of stocks, such as 60% or even lower.

Thanks!

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