Unemployed, questions about personal investing situation.

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
toronaga
Posts: 3
Joined: Wed Dec 05, 2018 7:11 pm

Unemployed, questions about personal investing situation.

Post by toronaga » Wed Dec 05, 2018 8:23 pm

Hello,

I have some questions about my personal investing situation. I am 31 and recently sold a business after 12 years, therefore I am unemployed and considering going to college (no previous higher education). I would prefer to remain unemployed while in school, and to pay for school in cash. That said, I am a novice with investing and would like to share my financial situation and hopefully gain some perspective.

Non-Retirement Assets:
Cash: CDs/Savings/MM (Earning roughly 2.0-2.65%): $323,000
Bond Fund (BND, Non-Retirement): $25,000
Regular Brokerage Account, Non-Retirement: $300,000 (VTI (75%), VXUS (20%), VNQ (5%))
"Fun" Brokerage, Non-Retirement: $36,500 (Googl, BRK.B, COST, AMZN, XBI, MSFT)
Car/Other Property: $27,500
House: $0 (I rent)
Debt: $0
Retirement Accounts:
Traditional IRA & SEP-IRA: $154,317
Roth IRA: $5,188
HSA: $16,000
Total Assets as of 12/05/18: About $885,000

My annual expenses (not including future tuition) is about $20,000 - $25,000. I live as cheaply as possible and split rent with my girlfriend. I am not interested in home ownership at this time. I will slowly convert my IRAs to Roth IRAs over the next few years while I have little income.

I know the market isn't predictable. However, considering I am unemployed and possibly several years away from a paycheck, am I overweight/underweight on equity exposure? I feel simultaneously at high risk given the market valuations, and also foolish for having over $300k sitting around. I guess I have to find a mixture that suits my risk tolerance, but I can't help feeling emotionally affected by every market movement (it's been tough the past few weeks). Given my age, I feel I should invest in equities as much as possible after accounting for my near and intermediate-term needs. But how do I relax about the gyrations? I'm trying to tune out the noise, but doesn't everyone else feel like a reckoning is on the horizon? On the equity side, I have about 85% US, 15% international. Is that ok, or over-exposed US? Some books I've read recommend no international, while other say more. Maybe more REITs? Although I've read conflicting accounts. My go-to investment has always been VTI.

There's the issue of how to handle the cash I have. Is a CD ladder a smarter option than a bond fund? Or should I purchase individual bonds instead of a fund? Or treasuries? A mix? Does BND make sense in a rising rate environment? I bought a few 1yr CDs at 2.6% recently. Mostly the cash is sitting in a money market at 2.22%.

I don't know. I'm not even sure what I hope anyone will tell me. I suppose I feel adrift and vulnerable because I've sold my income source, without any real plan besides "go to school". I know it's silly, and I feel that even if the market crashed tomorrow I would be fine. Maybe I'm just venting, but any advice or perspective would be appreciated. Thank you.

Brit
Posts: 49
Joined: Wed Oct 10, 2012 6:33 am

Re: Unemployed, questions about personal investing situation.

Post by Brit » Wed Dec 05, 2018 9:07 pm

I'm sure that other folks will have more detailed input than I can offer right now but at 31 with an $885k portfolio I'd say "well done" you're making GREAT progress. Your decision to sell a business, which I assume you may not have been happy with, and go focus on growing skills to find something that you're really passionate about (my assumption) is admirable especially as you don't large financial commitments.

I've asked many questions in this forum and have gotten invaluable help so first and foremost WELCOME you found (IMHO) the right place for the guidance that you're looking for.

Grt2bOutdoors
Posts: 19521
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Unemployed, questions about personal investing situation.

Post by Grt2bOutdoors » Wed Dec 05, 2018 9:09 pm

Keep 2 years of expenses liquid, the remaining cash I would ladder - for remaining years you will be unemployed and in school. Let’s say that is years 3-5. So you have 5 years of “safe” money. You could buy a 2 year us Treasury note that is yielding close to 2.8%, a 3 year cd, a 4 year cd and/or a 5 year cd. You pick up some extra yield and you buy yourself some time to get your education and a job or new occupation. You are not “investing” in the markets, you are investing in yourself and future earnings capacity and doing so with the least amount of immediate risk. You don’t want your principal to fluctuate - there is something to be said for liquidity and “sleep factor”.

Leave the taxable account as is, same with your fun money account. Essentially you are 60/40 or 50/50 more or less. Perfectly acceptable given this point in your life.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
BL
Posts: 8452
Joined: Sun Mar 01, 2009 2:28 pm

Re: Unemployed, questions about personal investing situation.

Post by BL » Wed Dec 05, 2018 9:31 pm

You have come to a good source here. No one here stands to gain from any recommendations. The Wiki has Getting Started.

Read about Windfalls in the Wiki. There is no rush to do this. Stop. Take a deep breath. Read a recommended book such as the Boglehead's Guide to Investing and this quick pdf with great info:
https://www.etf.com/docs/IfYouCan.pdf

Now you can make a plan.

You will see the 3-fund portfolio recommended here. The Wiki, developed by our best people, can be searched for that as well. Simple, well-diversified, low-ER (cost). When you are ready, you can start buying an amount you are comfortable with.
Meanwhile, CDs, money markets, etc. are fine. Vanguard has mostly low-cost funds (, and even a trust-worthy low-cost Advisory Service if you wish to try that. (Elsewhere you are subject to "advisors" who may see you as their retirement, not yours.) Avoid being sold insurance products or products just for "rich people", which appeal to your ego and their pockets.

123
Posts: 3903
Joined: Fri Oct 12, 2012 3:55 pm

Re: Unemployed, questions about personal investing situation.

Post by 123 » Wed Dec 05, 2018 9:36 pm

Congradulations on your success. To be able to self-fund your education in advance is a high achievement.

However future potential employers and business associates may be somewhat suspicious of a multi-year gap in employment even if it is due to education. If they learn that you were self-funded in advance they could very well dismiss you as someone who wouldn't be satisfied with a position with them. I would suggest that you maintain some pattern of employment, likely part time, through your schooling to support the fact that you worked your way through school. Computers and people that look at resumes tend to toss those with unusual gaps of any kind.
The closest helping hand is at the end of your own arm.

justsomeguy2018
Posts: 146
Joined: Wed Oct 03, 2018 8:11 pm

Re: Unemployed, questions about personal investing situation.

Post by justsomeguy2018 » Wed Dec 05, 2018 10:12 pm

toronaga wrote:
Wed Dec 05, 2018 8:23 pm
Hello,

I have some questions about my personal investing situation. I am 31 and recently sold a business after 12 years, therefore I am unemployed and considering going to college (no previous higher education). I would prefer to remain unemployed while in school, and to pay for school in cash. That said, I am a novice with investing and would like to share my financial situation and hopefully gain some perspective.

Non-Retirement Assets:
Cash: CDs/Savings/MM (Earning roughly 2.0-2.65%): $323,000
Bond Fund (BND, Non-Retirement): $25,000
Regular Brokerage Account, Non-Retirement: $300,000 (VTI (75%), VXUS (20%), VNQ (5%))
"Fun" Brokerage, Non-Retirement: $36,500 (Googl, BRK.B, COST, AMZN, XBI, MSFT)
Car/Other Property: $27,500
House: $0 (I rent)
Debt: $0
Retirement Accounts:
Traditional IRA & SEP-IRA: $154,317
Roth IRA: $5,188
HSA: $16,000
Total Assets as of 12/05/18: About $885,000

My annual expenses (not including future tuition) is about $20,000 - $25,000. I live as cheaply as possible and split rent with my girlfriend. I am not interested in home ownership at this time. I will slowly convert my IRAs to Roth IRAs over the next few years while I have little income.

I know the market isn't predictable. However, considering I am unemployed and possibly several years away from a paycheck, am I overweight/underweight on equity exposure? I feel simultaneously at high risk given the market valuations, and also foolish for having over $300k sitting around. I guess I have to find a mixture that suits my risk tolerance, but I can't help feeling emotionally affected by every market movement (it's been tough the past few weeks). Given my age, I feel I should invest in equities as much as possible after accounting for my near and intermediate-term needs. But how do I relax about the gyrations? I'm trying to tune out the noise, but doesn't everyone else feel like a reckoning is on the horizon? On the equity side, I have about 85% US, 15% international. Is that ok, or over-exposed US? Some books I've read recommend no international, while other say more. Maybe more REITs? Although I've read conflicting accounts. My go-to investment has always been VTI.

There's the issue of how to handle the cash I have. Is a CD ladder a smarter option than a bond fund? Or should I purchase individual bonds instead of a fund? Or treasuries? A mix? Does BND make sense in a rising rate environment? I bought a few 1yr CDs at 2.6% recently. Mostly the cash is sitting in a money market at 2.22%.

I don't know. I'm not even sure what I hope anyone will tell me. I suppose I feel adrift and vulnerable because I've sold my income source, without any real plan besides "go to school". I know it's silly, and I feel that even if the market crashed tomorrow I would be fine. Maybe I'm just venting, but any advice or perspective would be appreciated. Thank you.
If it were me - I would back into ~8 years of total expenses, and have that amount in the MM/Savings. Here's why:

4 years of school
2 years of grad school, if you decide on it (perhaps you'll decide to apply for MBA)
2 years in case you graduate into a recession and have issue getting a job
Optional: can also use the cash to buy back into the market if it tanks

With no source of income, I would not leave money that could be needed within the next ~6 years in the stock market right now.

Also an option: At ~$0 annual income, you will not owe any taxes on qualified dividends (I think). Consider allocating some portion to high yield dividend ETFs/stocks that pay qualified dividends for cash flow.

You may owe some taxes on any interest income in the other investment vehicles. But maybe not with $0 annual income, IDK. I'm not a tax accountant.

gotester2000
Posts: 596
Joined: Sun Nov 12, 2017 1:59 am

Re: Unemployed, questions about personal investing situation.

Post by gotester2000 » Thu Dec 06, 2018 10:55 am

123 wrote:
Wed Dec 05, 2018 9:36 pm
Congradulations on your success. To be able to self-fund your education in advance is a high achievement.

However future potential employers and business associates may be somewhat suspicious of a multi-year gap in employment even if it is due to education. If they learn that you were self-funded in advance they could very well dismiss you as someone who wouldn't be satisfied with a position with them. I would suggest that you maintain some pattern of employment, likely part time, through your schooling to support the fact that you worked your way through school. Computers and people that look at resumes tend to toss those with unusual gaps of any kind.
At least in IT , I would view it as a positive to have a business(something related) , further education and looking for employment - few people care about linear growth these days - what matters is the skills and experience to show.

User avatar
Meg77
Posts: 2420
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX
Contact:

Re: Unemployed, questions about personal investing situation.

Post by Meg77 » Thu Dec 06, 2018 11:31 am

Don't worry about the market volatility! You don't need the invested money for decades, so just ignore the noise of year to year fluctuations. Remember that it's actually GOOD for the market to "crash" so you can buy more cheaper while you are in the accumulation stage (and until you're in the decumulation stage living off investments, it doesn't much matter either way).

If we see a 20%+ decline, I'd move some of your cash into stocks just to buy low, but otherwise keeping a big cash cushion makes sense until you figure out what to do next. Starting another business may be an option. College is fine if you have a specific career goal and really need a specific degree to get there. But otherwise it's just an expensive pastime that kicks the can down the road - the can being you having to decide what to do with your life.

If you are just curious and like to learn, most colleges offer plenty of cheap classes you can take on an ad hoc basis; you don't need to enroll full time as a student and pay tens of thousands to hob nob with classmates who are generally a decade or more younger than you with zero life experience. Most entrepreneurs find it impossible to imagine taking a desk job or any kind of employment in a hierarchical company after getting used to being the boss and running a company. Therefore college may be of little value to you if you plan to work for yourself again - unless of course you need a degree to become a certain type of self-employed professional (financial planner, psychologist, attorney, etc.).
"An investment in knowledge pays the best interest." - Benjamin Franklin

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Unemployed, questions about personal investing situation.

Post by megabad » Thu Dec 06, 2018 12:06 pm

toronaga wrote:
Wed Dec 05, 2018 8:23 pm
Hello,

I have some questions about my personal investing situation. I am 31 and recently sold a business after 12 years, therefore I am unemployed and considering going to college (no previous higher education). I would prefer to remain unemployed while in school, and to pay for school in cash. That said, I am a novice with investing and would like to share my financial situation and hopefully gain some perspective.

Non-Retirement Assets:
Cash: CDs/Savings/MM (Earning roughly 2.0-2.65%): $323,000
Bond Fund (BND, Non-Retirement): $25,000
Regular Brokerage Account, Non-Retirement: $300,000 (VTI (75%), VXUS (20%), VNQ (5%))
"Fun" Brokerage, Non-Retirement: $36,500 (Googl, BRK.B, COST, AMZN, XBI, MSFT)
Car/Other Property: $27,500
House: $0 (I rent)
Debt: $0
Retirement Accounts:
Traditional IRA & SEP-IRA: $154,317
Roth IRA: $5,188
HSA: $16,000
Total Assets as of 12/05/18: About $885,000

My annual expenses (not including future tuition) is about $20,000 - $25,000. I live as cheaply as possible and split rent with my girlfriend. I am not interested in home ownership at this time. I will slowly convert my IRAs to Roth IRAs over the next few years while I have little income.
A little personal, but are you thinking about getting married soon? You don't have to answer but if so, this might change your tax situation dramatically.

I know the market isn't predictable. However, considering I am unemployed and possibly several years away from a paycheck, am I overweight/underweight on equity exposure? I feel simultaneously at high risk given the market valuations, and also foolish for having over $300k sitting around. I guess I have to find a mixture that suits my risk tolerance, but I can't help feeling emotionally affected by every market movement (it's been tough the past few weeks). Given my age, I feel I should invest in equities as much as possible after accounting for my near and intermediate-term needs. But how do I relax about the gyrations? I'm trying to tune out the noise, but doesn't everyone else feel like a reckoning is on the horizon? On the equity side, I have about 85% US, 15% international. Is that ok, or over-exposed US? Some books I've read recommend no international, while other say more. Maybe more REITs? Although I've read conflicting accounts. My go-to investment has always been VTI.
The cash makes sense to me because I assume you will need most of it for college and expenses in the next several years so no problem there. I might edge a little closer to world market cap on your international exposure, but I don't feel strongly one way or the other. You are definitely home biased (world investable equity market is 50% US), but no one knows if this is a bad move or not yet. I do not like VNQ and VXUS in taxable as they are pretty tax inefficient. This doesn't matter much now, but it could later. If you want to hold these or assets like these, I would hold in IRA.

There's the issue of how to handle the cash I have. Is a CD ladder a smarter option than a bond fund? Or should I purchase individual bonds instead of a fund? Or treasuries? A mix? Does BND make sense in a rising rate environment? I bought a few 1yr CDs at 2.6% recently. Mostly the cash is sitting in a money market at 2.22%.
How long is time horizon? How long will you be in school? If this is a 4 year stint, I would hold in money market/high yield savings. If it is a much longer stint (med school), I would start considering CDs and a bond fund.

I don't know. I'm not even sure what I hope anyone will tell me. I suppose I feel adrift and vulnerable because I've sold my income source, without any real plan besides "go to school". I know it's silly, and I feel that even if the market crashed tomorrow I would be fine. Maybe I'm just venting, but any advice or perspective would be appreciated. Thank you.
You are fine, you are clearly a good saver (and frugal spender). Concentrate on doing the absolute best you can in school and doing everything you can to increase the odds that you will have the future career you want. This is where most of your lifetime networth potential lies.
Don't worry too much about investments, but just consider this an opportunity to be in lower tax brackets. If you anticipate high income in the future, I would convert the IRA as much as possible as you indicate. If you anticipate super high income in the future, I would likely realize as much LTCG as I could as well. Depending on your future income predictions and career the LTCG may be more important to claim than the Roth conversion, but you would need to run the numbers. Good luck!

deltaneutral83
Posts: 910
Joined: Tue Mar 07, 2017 4:25 pm

Re: Unemployed, questions about personal investing situation.

Post by deltaneutral83 » Thu Dec 06, 2018 12:26 pm

I do not like VNQ and VXUS in taxable as they are pretty tax inefficient.
This is the first I've heard of VXUS as tax inefficient? Compared to???

toronaga
Posts: 3
Joined: Wed Dec 05, 2018 7:11 pm

Re: Unemployed, questions about personal investing situation.

Post by toronaga » Thu Dec 06, 2018 6:11 pm

deltaneutral83 wrote:
Thu Dec 06, 2018 12:26 pm
I do not like VNQ and VXUS in taxable as they are pretty tax inefficient.
This is the first I've heard of VXUS as tax inefficient? Compared to???
I think he means VXUS/VNQ has a higher dividend yield compared to VTI. Viewing retirement and non-retirement account allocations collectively, it is better to hold VXUS in a tax advantaged account, and VTI in a taxable account. Collectively the allocation across all accounts is the same but more profitable due to tax treatment. Correct me if I'm wrong, I'm not sure.

toronaga
Posts: 3
Joined: Wed Dec 05, 2018 7:11 pm

Re: Unemployed, questions about personal investing situation.

Post by toronaga » Thu Dec 06, 2018 6:28 pm

megabad wrote:
Thu Dec 06, 2018 12:06 pm

A little personal, but are you thinking about getting married soon? You don't have to answer but if so, this might change your tax situation dramatically.

Nope :). No plans for marriage.

The cash makes sense to me because I assume you will need most of it for college and expenses in the next several years so no problem there. I might edge a little closer to world market cap on your international exposure, but I don't feel strongly one way or the other. You are definitely home biased (world investable equity market is 50% US), but no one knows if this is a bad move or not yet. I do not like VNQ and VXUS in taxable as they are pretty tax inefficient. This doesn't matter much now, but it could later. If you want to hold these or assets like these, I would hold in IRA.

Thanks. I was thinking of re-arranging between my tax-advantaged accounts and will do so as it makes sense from a tax perspective. The US/International ratio still seems like a crap-shoot to me. I've read some suggesting that a 100% US position itself provides adequate international exposure. But it seems you're willfully ignoring plenty of great international companies and additional diversification. I'll think more on this. Maybe a small developing markets position too.

How long is time horizon? How long will you be in school? If this is a 4 year stint, I would hold in money market/high yield savings. If it is a much longer stint (med school), I would start considering CDs and a bond fund.

Probably a four-year degree. Maybe five if I do a combined masters. It's too early but definitely not anything like med school. I'm starting at a community college that has a direct transfer program after 90 quarter credits to a state university. Honestly not sure if college will be right for me, but I'd like to try. With the American Opportunity Credit my first $2,000 in tuition is 100% refundable on my taxes. So I'm viewing my first quarter as a free trial.

You are fine, you are clearly a good saver (and frugal spender). Concentrate on doing the absolute best you can in school and doing everything you can to increase the odds that you will have the future career you want. This is where most of your lifetime networth potential lies.
Don't worry too much about investments, but just consider this an opportunity to be in lower tax brackets. If you anticipate high income in the future, I would convert the IRA as much as possible as you indicate. If you anticipate super high income in the future, I would likely realize as much LTCG as I could as well. Depending on your future income predictions and career the LTCG may be more important to claim than the Roth conversion, but you would need to run the numbers. Good luck!


Thanks for your advice!

dknightd
Posts: 1038
Joined: Wed Mar 07, 2018 11:57 am

Re: Unemployed, questions about personal investing situation.

Post by dknightd » Thu Dec 06, 2018 6:41 pm

You do not appear as a novice to me! You have done very well. You should be able to easily live off your cash for several years. I guess depending on what tuition will be. Unfortunately since you have significant assets outside of retirement accounts you will not likely get much financial aid, but, it can't hurt to apply!
While in school, I would look for part time work, or internships, in your area of interest. You have the luxury of not actually needing the money. But it could be good experience if what you are planning to study differs much from what your business did. Expose yourself to as much variety as you can until you find what excites you the most.
I might buy 1,2,3,4 year CD's to cover your future expenses. Or many shorter term, then roll over, in case rates go up. Probably does not really matter much.
What did your business do, and, what are you going to study?

User avatar
grabiner
Advisory Board
Posts: 23117
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Unemployed, questions about personal investing situation.

Post by grabiner » Fri Dec 07, 2018 10:19 pm

toronaga wrote:
Thu Dec 06, 2018 6:11 pm
deltaneutral83 wrote:
Thu Dec 06, 2018 12:26 pm
I do not like VNQ and VXUS in taxable as they are pretty tax inefficient.
This is the first I've heard of VXUS as tax inefficient? Compared to???
I think he means VXUS/VNQ has a higher dividend yield compared to VTI. Viewing retirement and non-retirement account allocations collectively, it is better to hold VXUS in a tax advantaged account, and VTI in a taxable account. Collectively the allocation across all accounts is the same but more profitable due to tax treatment. Correct me if I'm wrong, I'm not sure.
VXUS (Total International) is about as tax-efficient as VTI (Total Stock Market); it has a higher dividend yield, but the dividends are taxed at a lower rate because of the foreign tax credit. (Some of the VXUS dividends are non-qualified, but the overall tax rate is still lower.) If you are in the 12% tax bracket and don't pay state tax, VXUS has a negative tax cost; you get more back in foreign tax credit than you pay in tax on the non-qualified dividends.

VNQ (REIT Index) is tax-inefficient. It has a high dividend yield, and the dividend is non-qualified. Even in a 12% tax bracket, you want to hold this in an IRA. (And if you are in a 12% tax bracket, you can take advantage of the opportunity to sell the fund for a capital gain which won't be taxed.)
Wiki David Grabiner

Post Reply