Portfolio advice following windfall

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Joined: Tue Jul 30, 2019 11:37 am

Portfolio advice following windfall

Post by drobsidian »

Hi all,

I recently was lucky enough to receive a large financial windfall 4 months ago and would like some advice from this forum.

I am 35 years old, in a high income tax bracket, aiming to work for quite a while longer still. We live in a high COL area and have a $300K mortgage outstanding on a $2M house.

This is the current state of my portfolio. As you can see, a large amount of it is in Cash, CDs, and VCAIX. I wanted to get a handle on the situation, pay off most of my mortgage, and understand the tax impact before starting to invest heavily. Hence the money being parked in cash + muni bonds while I get a handle on things.

Total portfolio size: 7M
Cash + CDs : 65.21%
VCAIX: 13.88%
VTI: 6.94%
SPY ETF: 4.44%
VDC: 4.30%
VEU: 2.32%
Gold: 1.53%
BND: 1.39%

These are spread between some 401K accounts (total 7% of the above) between me and my spouse, but the majority is in taxable accounts due to the recent windfall.

A few questions I had:

1. How quickly would you aim to invest the cash into the current market? My initial plan was to average into over the year. Is that reasonable or would you change something, especially given the current market.
2. This is already a lot of money for me. Although according to my age I should be aiming at a 60/40 or 70/30 stock/bond split, I feel like I should take a more conservative approach aimed at preserving my capital. I would rather keep and grow this slowly than aim for risk and growth. For example this is why I have started putting money into VDC as a more conservative US ETF. What is the opinion of this forum?
3. What is the opinion here on alternate investments in addition to stock or bonds? For example, real estate or land investments, etc.
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Re: Portfolio advice following windfall

Post by 123 »

If you consider yourself financially independent now, meaning you don't have to work if you don't want to, there is a lot to be said for a 60/40 or even a 50/50 portfolio if you've "won the game". However some stock exposure is essential to provide a buffer against incessant inflation over the years (some years will be more severe than others).

A reasonable approach might be to ease funds into investments over the course of a year or so. Maybe some split with an initial investment of 25 - 50% and then dollar-cost-average the rest.

The trouble with alternative investments is that they usually involve significant commissions (whether you are aware of it or not). If you have not done any real estate investment (besides your home) and don't have any real estate investment (and management) experience the cost of deals can be prohibitive. Often real estate offerings are packaged with high markups and extraordinary performance promises. You can lose a lot of money in a hurry.
Last edited by 123 on Tue Mar 10, 2020 12:43 am, edited 1 time in total.
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steve roy
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Re: Portfolio advice following windfall

Post by steve roy »

Many advocate dumping money into your asset allocation all at once and not dividing it up over a year.

But times like these, where everything appears to be speeding to the Warm Place in a hand-cart, you might be well-advised to dollar cost average. If not over a year, then certainly over several months.

As to how aggressive you should be? You have $7 million now, and the old saw: "when you've won the game, stop playing" might apply. How much do you need to "win the game"? Would you be happier moving to a 50/50 stock/bond allocation? These are questions you should answer when you're constructing you investment portfolio.
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Re: Portfolio advice following windfall

Post by fyre4ce »

The wiki has a page dedicated to this topic: https://www.bogleheads.org/wiki/Managing_a_windfall That would be the first thing I read.

My thoughts, some of which echo what's on the wiki page:

Given your age I still think the growth potential of stocks should have some value for you. 50/50, plus or minus 10 or 20% depending on your personal risk tolerance, and a healthy cash reserve of cash (~$0.5M), sounds about right.

I wouldn't worry too much about the market volatility. The principles of investing are the same as they were before these drops - all the optimism and concern about the market is already priced in, so it's still anyone's guess whether it will go up or down from here. You could dollar cost average your way in, but if it were me I think I'd take the plunge and invest it all at once. Then, if the market keeps dropping, keep rebalancing so you're buying more at progressively lower prices. Then rebalance again on the way up. BUT...

Given the large amount of money you have, I'd strongly suggest taking a bit of time to get some finance education before you invest 7 figures in risky investments. Search around the forums for recommended books. My favorite is Personal Finance for Dummies by Eric Tyson, but there are other recommendations for more investment-specific books that you should also explore. You're doing the right thing by asking here, but there's no substitute for having knowledge in your own head. The consequences of a mistake increase with the number of zeroes of your portfolio size.

That said, even a $7M portfolio doesn't require anything fancy. Simpler is better, so don't make things any more complex than they need to be. You could even do a three-fund portfolio for starters. Bogleheads isn't known as a hub for real estate investing enthusiasts, but I think adding some real estate to your portfolio could be a good thing. You could start by buying one rental property and managing it yourself to dip your toe in the water. I'd treat it as an educational experience as much as an investment. You can also check out WhiteCoatInvestor.com; he's invested in some real estate syndications and funds that have worked out well. With your level of assets you can probably avoid some fees and get some extra returns with a $100,000+ investment, when you're ready.

Be extremely wary of insurance salesman and financial advisors. They prey upon people like you with high-fee products like permanent life insurance and variable annuities. If you think you need some financial advice, get a good fee-only fiduciary financial advisor and pay them by the hour.

Don't tell anyone about your windfall. It will just invite jealousy and solicitations.

Think about what you want to do with your life and have a written plan and list of goals. You could easily retire now and live off a $2-300k/year, but this probably doesn't make the most sense. You have tremendous opportunities that most others don't have, so make the most of it!
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