What to do with windfall

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black_knight_32
Posts: 66
Joined: Wed Apr 29, 2015 9:08 pm

What to do with windfall

Post by black_knight_32 » Sun Apr 15, 2018 3:39 pm

Good Evening!
The company i work for has a private share program that is going to go through some restructuring that will result in me receiving around $400K that I will not be able to put back into the program. I'm torn on what to do with the $400K. I'm leaning towards using $94K to pay off mortgage and investing the rest in brokerage account. Any thoughts or suggestions?

AA: 90% Stocks, 10% bonds. Stock breakdown: 70% US, 30% International. 3 fund portfolio - VTSAX, VTIAX, VBTLX.

Current assets:
Company Share Program $800K(of which $400K will be cashed out and not able to be re-invested in program)
My Roth IRA: $83K
Her Roth IRA: $53K
401(k): $125K
Brokerage: $394K
Cash: $45K

Liabilities:
$94K 30 year mortgage at 3.875% fixed.

Age: Both 32

Grt2bOutdoors
Posts: 19076
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: What to do with windfall

Post by Grt2bOutdoors » Sun Apr 15, 2018 3:41 pm

Pay off the mortgage.

Then consider funding your Roth IRA for 2018 now, anything else invest in your taxable account according to your asset allocation.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

black_knight_32
Posts: 66
Joined: Wed Apr 29, 2015 9:08 pm

Re: What to do with windfall

Post by black_knight_32 » Sun Apr 15, 2018 3:44 pm

Grt2bOutdoors wrote:
Sun Apr 15, 2018 3:41 pm
Pay off the mortgage.

Then consider funding your Roth IRA for 2018 now, anything else invest in your taxable account according to your asset allocation.
Thank you for your input. I’m really leaning towards paying off the mortgage. We fully funded our Roth in January or else we’d definitely do that!

DavidW
Posts: 77
Joined: Wed Jan 24, 2018 4:14 pm

Re: What to do with windfall

Post by DavidW » Sun Apr 15, 2018 3:48 pm

black_knight_32 wrote:
Sun Apr 15, 2018 3:44 pm
Grt2bOutdoors wrote:
Sun Apr 15, 2018 3:41 pm
Pay off the mortgage.

Then consider funding your Roth IRA for 2018 now, anything else invest in your taxable account according to your asset allocation.
Thank you for your input. I’m really leaning towards paying off the mortgage. We fully funded our Roth in January or else we’d definitely do that!
+1
I did and didn't regret it... However, I did get into awkward situations where someone would ask me what is my interest rate or how much is left on my mortgage...

runner3081
Posts: 1581
Joined: Mon Aug 22, 2016 3:22 pm

Re: What to do with windfall

Post by runner3081 » Sun Apr 15, 2018 4:47 pm

DavidW wrote:
Sun Apr 15, 2018 3:48 pm
black_knight_32 wrote:
Sun Apr 15, 2018 3:44 pm
Grt2bOutdoors wrote:
Sun Apr 15, 2018 3:41 pm
Pay off the mortgage.

Then consider funding your Roth IRA for 2018 now, anything else invest in your taxable account according to your asset allocation.
Thank you for your input. I’m really leaning towards paying off the mortgage. We fully funded our Roth in January or else we’d definitely do that!
However, I did get into awkward situations where someone would ask me what is my interest rate or how much is left on my mortgage...
Wow, people would ask that?

I can see the interest rate. Remaining balance is no one's business.

Grt2bOutdoors
Posts: 19076
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: What to do with windfall

Post by Grt2bOutdoors » Sun Apr 15, 2018 5:27 pm

runner3081 wrote:
Sun Apr 15, 2018 4:47 pm
DavidW wrote:
Sun Apr 15, 2018 3:48 pm
black_knight_32 wrote:
Sun Apr 15, 2018 3:44 pm
Grt2bOutdoors wrote:
Sun Apr 15, 2018 3:41 pm
Pay off the mortgage.

Then consider funding your Roth IRA for 2018 now, anything else invest in your taxable account according to your asset allocation.
Thank you for your input. I’m really leaning towards paying off the mortgage. We fully funded our Roth in January or else we’d definitely do that!
However, I did get into awkward situations where someone would ask me what is my interest rate or how much is left on my mortgage...
Wow, people would ask that?

I can see the interest rate. Remaining balance is no one's business.
Lots of nosy body's out there......

Very easy to diffuse such a question while keeping a straight face. Simply say its the rate you last paid and don't provide an answer as to balance, instead say only another 240 more payments to go and the place will be all mine.......... :wink: You don't have to tell them that the 240 payments are going into VTI and the 4.25% rate is in your pocket instead of the banks.......
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Chris K Jones
Posts: 112
Joined: Sat Jan 20, 2018 6:54 pm

Re: What to do with windfall

Post by Chris K Jones » Sun Apr 15, 2018 5:32 pm

I would do as you suggest. Pay off mortgage and invest balance according to your investment policy statement. Best wishes.

TheAncientOne
Posts: 140
Joined: Wed Jul 19, 2017 8:53 pm

Re: What to do with windfall

Post by TheAncientOne » Sun Apr 15, 2018 5:39 pm

With mortgage interest of only $3600 or so, you're probably going to be taking the standard deduction under the new tax law. Unless the two of you are really generous with charitable contributions, the 3.875% interest rate will be your after tax cost as well. You might as well pay that mortgage off under that situation.

I'm assuming you'll be paying taxes on that 400K you'll be receiving? Might as well just put the rest of it into your taxable account once you are maxing out your tax sheltered accounts. First, though, take a little and splurge on your spouse. Happy wife, happy life and all that. Good luck!

bradpevans
Posts: 306
Joined: Sun Apr 08, 2018 1:09 pm

Re: What to do with windfall

Post by bradpevans » Sun Apr 15, 2018 5:54 pm

black_knight_32 wrote:
Sun Apr 15, 2018 3:44 pm
Grt2bOutdoors wrote:
Sun Apr 15, 2018 3:41 pm
Pay off the mortgage.

Then consider funding your Roth IRA for 2018 now, anything else invest in your taxable account according to your asset allocation.
Thank you for your input. I’m really leaning towards paying off the mortgage. We fully funded our Roth in January or else we’d definitely do that!

I suspect very few people ever regret paying of their mortgage early. That said,your mortgage is like a low 3.x % return invest.

Over the long haul you almost certainly could do better by investing..

Is back door Roth an option?

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Watty
Posts: 13824
Joined: Wed Oct 10, 2007 3:55 pm

Re: What to do with windfall

Post by Watty » Sun Apr 15, 2018 5:58 pm

Grt2bOutdoors wrote:
Sun Apr 15, 2018 3:41 pm
Pay off the mortgage.
+1

It is a bit trite but the question is often asked, "If you had a paid off house would you take a new loan to invest the money?". For most people "no" is an easy answer to that question.

There are a couple of wikis that are relevant.

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

https://www.bogleheads.org/wiki/Paying_ ... _investing

Investing the money and earning a higher return is harder than it sounds because you have a sequence of returns risk. Here is a simplistic example I have posted before.
 If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.
black_knight_32 wrote:
Sun Apr 15, 2018 3:39 pm
AA: 90% Stocks, 10% bonds. Stock breakdown: 70% US, 30% International. ...
.....
Age: Both 32
90% stocks is likely too aggressive because;

1) $400K of that is in one companies stock which adds risk.
2) Some of the money may not actually be retirement money that will not be needed for decades.
3) The company stock is likely a once in a lifetime amount that will be hard to replace if you lose it.
4) It sounds likely that you may want to retire earlier than 65 so you may be closer to retirement than than the normal assumptions for someone who is 32

black_knight_32
Posts: 66
Joined: Wed Apr 29, 2015 9:08 pm

Re: What to do with windfall

Post by black_knight_32 » Sun Apr 15, 2018 6:17 pm

I know it’s been asked before but do I put all available funds in at the same time?

Grt2bOutdoors
Posts: 19076
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: What to do with windfall

Post by Grt2bOutdoors » Sun Apr 15, 2018 7:42 pm

black_knight_32 wrote:
Sun Apr 15, 2018 6:17 pm
I know it’s been asked before but do I put all available funds in at the same time?
Do what makes you feel comfortable and let’s you sleep at night.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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