28 year old with $1.4 million in cash investing for the first time. My thoughts.

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geerhardusvos
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by geerhardusvos » Fri Jul 31, 2020 8:50 pm

calcada wrote:
Fri Jul 31, 2020 8:38 pm
geerhardusvos wrote:
Fri Jul 31, 2020 12:12 am
Put all your money in VTSAX tomorrow, and never draw down more than 3% per year and you will be fine. If you need to go back to work for a year or two, that might help significantly make up for not having invested your money five years ago. Then once you have worked another 2 to 5 years, you don’t have to feel bad anymore about missing out and can move in with your life
Even during a global pandemic that has increased unemployment by almost 20 million in the US and millions more globally, that caused countless businesses to shut down, that caused people to spend less and businesses to make less revenue? And yet the stock market hasn't reflected any of this at all and is still going strong only because the Federal Reserve injecting trillions of USD into the system. This is what worries me.

The stock market may reflect one day that we are indeed in a recession or even a depression after I have bought in at ATHs. I fear this may only be the beginning of the effects of this pandemic. I just don't see how I can buy into the stock market at such a time and at such valuations.

Dalio says its crazy to hold bonds, yet alone buy them, as central banks continue to print money. Can't buy bonds either then.

I was considering buying real estate but if the economy collapses real estate will follow. So I am not hurrying to buy real estate.

Here I am with a 100% cash position while the Fed is printing trillions more of the same paper I have. Devaluing it even faster. I can't maintain my current position any longer either. I need to make a move.

It feels like nothing is a good buy and I have no good moves to make. Except maybe Gold and TIPS.
You are living in fear and so no one can help you. It’s not different this time... and you need to decide whether you will keep wallowing or actually build a plan
VTSAX and chill

yules
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by yules » Fri Jul 31, 2020 9:03 pm

LilyFleur wrote:
Fri Jul 31, 2020 2:14 pm
Presumably OP's money is in a taxable account and not well protected from creditors. I would recommend umbrella insurance and taking any job with benefits. Health insurance and a 401k with its protections would round out OP's investments. Saving the max in a 401k puts money in a well-protected pot.
What if OP doesn't have a home or car (and hence no home or auto insurance)? She wouldn't be able to get umbrella insurance, would she, since they are usually bundled. How could OP protect assets?

Yules

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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by 000 » Fri Jul 31, 2020 9:11 pm

yules wrote:
Fri Jul 31, 2020 9:03 pm
LilyFleur wrote:
Fri Jul 31, 2020 2:14 pm
Presumably OP's money is in a taxable account and not well protected from creditors. I would recommend umbrella insurance and taking any job with benefits. Health insurance and a 401k with its protections would round out OP's investments. Saving the max in a 401k puts money in a well-protected pot.
What if OP doesn't have a home or car (and hence no home or auto insurance)? She wouldn't be able to get umbrella insurance, would she, since they are usually bundled. How could OP protect assets?

Yules
Why would she need it then? But if one really wanted it, I am sure many insurers will write an umbrella over renter and non-owner auto insurance.

lostdog
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by lostdog » Fri Jul 31, 2020 9:23 pm

Call Vanguard PAS.

You seem too timid to do this yourself and you need guidance.

I feel you're going to take action on your portfolio whenever a new narrative comes out.
Last edited by lostdog on Sat Aug 01, 2020 6:41 am, edited 1 time in total.
Global Market Cap Equity || 25x Expenses

FireProof
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by FireProof » Fri Jul 31, 2020 10:03 pm

Even at 3%, $42,000/year (almost tax-free) for a single person with no tethers to an expensive place gives you well-above average disposable income.

Your main problem seems to be health insurance. It's expensive and getting more expensive, and you won't even have Social Security after retirement, when it'll be most onerous.

One obvious solution would be moving overseas. Not only could you solve the health care problem, but you could also move somewhere with better bang for your buck for that $42,000. Of course, leaving all ties and moving to a new culture and perhaps new language is not for everyone.

I'm no expert on the topic, but it's also possible that somewhere in the US, there is a decent option for health care, whether through an Obamacare exchange or some kind of deal with a hospital network.

For such a nervous investor who suspects the market is overvalued, I would definitely do dollar-cost averaging. If the market goes up, you'll feel good because your investment rose. If it goes down, you'll feel OK because you'll be able to buy in cheaper. My guess is that it won't affect your failure rate at 3% at all.

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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by pkcrafter » Fri Jul 31, 2020 10:14 pm

calcada wrote:
Thu Jul 30, 2020 10:36 pm
Hi,

I am 28 years old. I have 1,4 million USD in my bank accounts in cash. This is all my net worth. I have no debt. I own nothing. I am single. I wanted to share my thought process with you and to hear any advice you might have for me. I am a long time reader, first time poster.

This puts the antenna up--you are not a first time poster. You have 13 earlier posts, all on the theory board I believe.

However, it is a possibility and a consideration I have when designing my portfolio and deciding on asset allocations. My goal is to invest long term for growth and preservation.
It is painful to have missed out on the great returns of both stocks and bonds during their current bull market for the last 5 years. I have procrastinated for long enough and I am determined to invest my capital and create an intelligent buy and hold portfolio for life.

It currently looks like the worst possible time to start investing my whole networth into the markets as we near the end of decades long bull markets. Stocks and bonds are at all time highs and interest rates are at historic lows. At these high valuations and during these very uncertain times there is a high risk of a market downturn. In the event of a stocks/bonds market crash I would lose substantial amounts of money without having enjoyed any of the great returns of the past decade. This is very scary to me but I do not intend to try and time the markets, nor do I intend to keep standing on the sidelines with a 100% decaying cash position which I think is worse. I will most likely DCA over the next 6 months.

Question 1) What is your opinion on this? Considering that in todays world and market conditions a crash could be imminent, with stocks and bonds at ATH, do you still think I should start investing or should I maintain my 100% cash position until the imminent crash? Any advice on how to DCA?
You are waffling badly on this decision.

I am confident in my ability to stick to a solid investment plan and ride out the volatility to achieve growth for decades to come. I would never panic sell and would try to buy more in a crash.
[Because I have an appetite for additional risk


I don't sense that in you long post.
These risk parity strategies will somewhat balance risk exposures across asset classes and future possible economic climates, reducing the necessity of market timing. They will help minimize the overall portfolio's maximum drawdown while helping the portfolio perform well in all economic climates and not just prosperity. This idea of risk parity appeals to me, especially at this time, as I start investing at all time highs after a 30 plus year bull market in bonds and and a 10 plus year bull market in stocks. I can't say this doesn't make me nervous.

Finally of course, I consider the 4-fund portfolio (70/30) which is popular for its simplicity. Vanguard recommends 40% of the stock allocation in international stocks and 30% of the bond allocation in international bonds to maximize diversification benefits.

Portfolio #5:

39.9% Total Stock Market (VTI)
26.6% Total International Stock (VXUS)
19.95% Total Bond Market (BND)
8.55% Total International Bond (BNDX)
5% Cash

Although similar to the Global Market Portfolio (Portfolio #1), this has a higher expected return than the GMP due to its higher equity allocation. What I like about this portfolio is its simplicity, its popularity amongst retail investors, low expense ratios and low tracking error risk.

What I dont like is that it is tilted heavily towards prosperity. I am hesitant to make a bid on prosperity after decades long prosperity in both stocks and bonds. This portfolio has high downside risk and not enough downside protection. I dont like that it has no factor tilts to capture size and value premiums.

Question 3) These are the portfolios I am considering. Which one of these portfolios (#1-5) do you like the best? How would you improve it? How would you go about deploying the capital into the portfolio? Do you think there is a better portfolio that is more suitable for me?

Assume all accounts are non-taxable. I just want to focus on financial theory.

Better to include reality.


Bonus:

I think holding the Global Market Portfolio and leveraging up the whole world by 1.5x for higher risk and return would be my portfolio of choice if it was simple and cost effective for a retail investor to do.

Nothing in your writing points to leveraging!

As an alternative investment and perhaps a business endeavour I am considering using 15% of my money towards a downpayment on an investment property. This would allow me to diversify into real estate, apply leverage (5x) to build wealth and earn income.

I have an important decision to make. Thank you in advance for your help and advice.

Calcada, you obviously have put a lot of time into understanding some complex investing options/choices, so you seem like a natural to continue and get into the business as a researcher, analyst, or advisor.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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bluquark
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by bluquark » Fri Jul 31, 2020 11:03 pm

calcada wrote:
Fri Jul 31, 2020 8:38 pm
Even during a global pandemic that has increased unemployment by almost 20 million in the US and millions more globally, that caused countless businesses to shut down, that caused people to spend less and businesses to make less revenue? And yet the stock market hasn't reflected any of this at all and is still going strong only because the Federal Reserve injecting trillions of USD into the system. This is what worries me.

The stock market may reflect one day that we are indeed in a recession or even a depression after I have bought in at ATHs. I fear this may only be the beginning of the effects of this pandemic. I just don't see how I can buy into the stock market at such a time and at such valuations.

Dalio says its crazy to hold bonds, yet alone buy them, as central banks continue to print money. Can't buy bonds either then.

I was considering buying real estate but if the economy collapses real estate will follow. So I am not hurrying to buy real estate.

Here I am with a 100% cash position while the Fed is printing trillions more of the same paper I have. Devaluing it even faster. I can't maintain my current position any longer either. I need to make a move.

It feels like nothing is a good buy and I have no good moves to make. Except maybe Gold and TIPS.
Your arguments have some merit. But have some humility about whether the risks are really biased towards the downside, as it's a safer default assumption that they are equally up and down, even though it's usually harder to come up with a precise story for the "up" direction before the fact. Today you are saying that the Fed is obviously too powerful and successful, so much that it will manage to devalue the world's reserve currency despite every saver on the planet hungering to hold it. Just a few months ago everyone said it was obviously out of ammunition and unable to influence anything. Tomorrow the conventional wisdom about the Fed -- and everything else in the markets -- will change again. Just as in the 70s, everybody predicted abandoning the gold standard would cause inflation, not (as it eventually did after some chaos) cause an epoch of sustained low inflation.


--

But here's probably the most important point. Your human capital is worth way more than your financial capital. At least $5M, possibly more like $10M-$20M from the fact that you are college-educated, technical, and entrepreneurial. You're probably not keeping your eye on the right ball. Your $1.6M should be considered seed capital or fallback unemployment money allowing you to take more risk with your job plans. Viewed as retirement money, it's not enough yet. Viewed as seed capital, it's a remarkably large amount of fuel that will likely propel you to an extremely successful career even if you don't know what it is yet.


--

All your portfolios seem OK because it doesn't look you could sleep with all-stock yet, so 50% stock where I started is probably fine, and I don't think it's possible to know whether value will recover or commodities will finally shine or whatever, so you just need to let go of indecision and pick one. Someday the $1.6M might not appear like it was that much money if you earn as much as I suspect, in which case trying a bunch of asset classes like you are inclined to do will help you gain more market experience, even if it doesn't earn as much as 100% stock.

Personally I would not go with the more complicated portfolios because managing them sounds like a distraction from job/enterpreneurship. It can take more time to juggle lots of ETFs than it seems it should, especially to the precise percentages you defined. I recommend a maximum of 5 funds and with wide rebalancing bands (or set rebalancing time once a year that you don't deviate from) to avoid the temptation to fiddle.

After you pick a portfolio and pull the trigger, you're probably going to end up fiddling it anyway a bit later just to get peace of mind, because you weren't totally convinced by the portfolio you picked and get second thoughts on one detail or another. And that's fine to some extent ("stay the course" only really means don't go into cash/bonds out of fear), but aim to get to a point where you feel no need to ever touch it anymore. What I've found over time is that I felt more comfortable when I shed the complexity of asset classes or tilts that I was lukewarm about all along, avoided "unclean"-feeling percent targets that didn't have a real argument supporting them or make clean fractions, and ended up with a simpler portfolio that purely reflects the opinions I feel very strongly about (for me, that's international diversification and tax efficiency).

I would also suggest local currency EM bonds -- a pet investing area of mine -- as an asset class you might like since you are interested in world bonds. Those are the only actually different kind of international bonds. The central banks in those countries aren't going brrrrr as much and valuation dynamics are different, so they might make you feel better even though they're objectively very risky for a bond.
Last edited by bluquark on Sat Aug 01, 2020 5:05 am, edited 2 times in total.
70/30 portfolio | Equity: global market weight | Bonds: 20% long-term munis - 10% LEMB

Luckywon
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by Luckywon » Sat Aug 01, 2020 12:58 am

There's an old saying along the lines of the worst thing that can happen on a first visit to Las Vegas is to win a jackpot. I hope the moral of the story does not apply to OP but from the facts presented it certainly seems a possibility. Since coming into $1.6 million on a single project five years ago, my understanding is OP kept the money in cash and has not been gainfully employed. That's about as dismal a trajectory as I could imagine. And now, from posts previous to this thread and in this thread, it seems OP believes salvation lies in finding an exotic investment strategy for the remaining funds.

I think most wealthy parents consider a terrrible thing would be for their child to depend on their inheritance and not work and show no interest in developing their own career. Perhaps there is more to the story, but this is the effect the $1.6 million seems to have had on OP.

My advice to OP is to invest the remaining money in a 2 or 3 fund portfolio and stop thinking about investment strategy and concentrate on career. Maybe OP can repeat his/her success. Or maybe the software world has moved on while OP has not and OP will have to find another niche.

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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by Cousin Eddie » Sat Aug 01, 2020 8:00 am

OP, from what you wrote you are too risk averse to go for some of the more exotic allocations you mentioned. You also are fearful of losing your assets due to a market crash, but you realize that cash is going to lose to inflation over the long term.

Sticking to an AA will psychologically be much tougher for you than for a normal investor who builds up their investments over a long period of time. if you immediately re-allocate to your desired AA and something adverse happens will you be able to weather the downturn? Only you can answer that, and even then it's guess work until you actually go through the reality of losing a large portion of your portfolio.

I think for your risk tolerance I would consider DCA'ing into your desired AA. You could start by going 30% equities and then DCA to your final desired AA. This is a middle of the road path where you won't beat yourself up if the stock market crashes, but you also won't kick yourself if the stock market soars to new highs while all of your assets are parked on the sidelines in cash.

Your ability to maintain an AA through thick and thin over the long term is very important, and drastically changing your AA in one move can lead to all kinds of second guessing if things don't work out well. I think it's best to go slow, even if that means losing out on some gains in the stock market.

TPS_Reports77
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by TPS_Reports77 » Sat Aug 01, 2020 8:16 am

Stop watching all the fear porn that surrounds us, soak up some sunshine, and realize that you're young, have no obligations, and have $1.4 million dollars in cash.

Slowtraveler
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by Slowtraveler » Sat Aug 01, 2020 8:20 am

You seem too timid to invest all in stocks. At your age, you should be a minimum of 60-70% stocks. You would've been best off investing in March but you didnt for some reason.

I highly recommend Wellesley. It has had a low enough standard deviation that I think you'll feel comfortable holding it. You can live off the dividend and selling less than 1%of the principle per year. You just need to get in the game. Put half in Wellesley immediately, it's a big step in the right direction. After that, you can slowly up stocks by putting more into Wellesley or adding some broad stock indexes but you need comfort with stocks first. Small moves are easier than big moves. Buy 100k of Wellesley if that's all you can muster. Just start investing.

Also, look into living abroad. Chiang Mai and Da Nang are good choices. There's a whole world with cheap and fun options. Living on the beach scuba diving or in the mountains biking could cost you half your current expenses in much of the world and thus, a lower withdrawal rate.

In short, invest something immediately and use a 2-3.3% withdrawal rate.

I found this series helpful:
https://earlyretirementnow.com/2016/12/ ... t-1-intro/

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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by nigel_ht » Sat Aug 01, 2020 8:34 am

borbekk wrote:
Fri Jul 31, 2020 4:56 am
Hello OP,

I am in the same situation. I ve decided to DCA 1,5% of my investment money on monthly basis until we pass the covid crisis.
Do this. Every other opinion is from a chicken. Listen to pigs.

https://en.m.wikipedia.org/wiki/The_Chicken_and_the_Pig

Here’s the opinion from another chicken regarding the portfolios. I’d keep more cash if you were going to implement them.

If you follow borbeckk I’d bump the DCA amount if we have another serious dip like March...but still keep at least $200K cash and your expenses at (preferably far below) $40K.

If you were my kid I’d say DCA in, stop worrying and work on your next app or idea somewhere cheaper to live with good internet and drop your expenses down to $20-30K.

Barbados, Thailand, Taiwan, etc. Teach English if necessary to get a longer visa. Harder to do in the covid environment though.

And I’d tell him that his portfolio should look more like a retired persons but no lower than 50/50. His scenario is close to yours actually. He just doesn’t know it yet.

You CAN live the rest of your life on 1.4m but it’s a very very frugal one even if you geoarbitrage. I wouldn’t want that for my kid. So find a viable side hustle that you enjoy and code at night. And ENJOY life...because I’ll tell you that as time goes on it gets harder and harder to get that same coding high.

You should read ERN since that’s far more relevant to you than bogleheads.

https://earlyretirementnow.com/

It’s on the more conservative and data driven side of FIRE. Most of FIRE does basic bogleheads in some form or other but the issues are different for folks who are FIRE’d which you are even if not necessarily by choice.

Your AA matters a lot less than your spending rate. $40K isn’t bad but it’s not sustainable.

50/50, 60/40, blah blah all works for you if you get your spend rate down below 3.5% (maybe below 3.2%) and we’re not stuck with a lost decade. This place is the wrong place for you. Low expense ratio, keep it simple like a 3 fund, simple IPS and done. You’ve learned the most valuable part of BH...because every little extra bit you tack on beyond that is completely extraneous to making your next 1.6m.

Yes, you were lucky...but luck favors the prepared. You don’t need to be chained to a 9 to 5 and the world is your oyster. DCA in past the covid weirdness and...read less, code more (talk less...smile more...man watched Hamilton once too many times).

The nice thing for you and apps is you no longer need to hit another home run. Base hits every so often is all you need to sustain a fun and fulfilling lifestyle.

dropdx
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by dropdx » Sat Aug 01, 2020 11:30 am

What was the app for?

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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by aj76er » Sat Aug 01, 2020 2:09 pm

nigel_ht wrote:
Sat Aug 01, 2020 8:34 am
borbekk wrote:
Fri Jul 31, 2020 4:56 am
Hello OP,

I am in the same situation. I ve decided to DCA 1,5% of my investment money on monthly basis until we pass the covid crisis.
Do this. Every other opinion is from a chicken. Listen to pigs.

https://en.m.wikipedia.org/wiki/The_Chicken_and_the_Pig

Here’s the opinion from another chicken regarding the portfolios. I’d keep more cash if you were going to implement them.

If you follow borbeckk I’d bump the DCA amount if we have another serious dip like March...but still keep at least $200K cash and your expenses at (preferably far below) $40K.

If you were my kid I’d say DCA in, stop worrying and work on your next app or idea somewhere cheaper to live with good internet and drop your expenses down to $20-30K.

Barbados, Thailand, Taiwan, etc. Teach English if necessary to get a longer visa. Harder to do in the covid environment though.

And I’d tell him that his portfolio should look more like a retired persons but no lower than 50/50. His scenario is close to yours actually. He just doesn’t know it yet.

You CAN live the rest of your life on 1.4m but it’s a very very frugal one even if you geoarbitrage. I wouldn’t want that for my kid. So find a viable side hustle that you enjoy and code at night. And ENJOY life...because I’ll tell you that as time goes on it gets harder and harder to get that same coding high.

You should read ERN since that’s far more relevant to you than bogleheads.

https://earlyretirementnow.com/

It’s on the more conservative and data driven side of FIRE. Most of FIRE does basic bogleheads in some form or other but the issues are different for folks who are FIRE’d which you are even if not necessarily by choice.

Your AA matters a lot less than your spending rate. $40K isn’t bad but it’s not sustainable.

50/50, 60/40, blah blah all works for you if you get your spend rate down below 3.5% (maybe below 3.2%) and we’re not stuck with a lost decade. This place is the wrong place for you. Low expense ratio, keep it simple like a 3 fund, simple IPS and done. You’ve learned the most valuable part of BH...because every little extra bit you tack on beyond that is completely extraneous to making your next 1.6m.

Yes, you were lucky...but luck favors the prepared. You don’t need to be chained to a 9 to 5 and the world is your oyster. DCA in past the covid weirdness and...read less, code more (talk less...smile more...man watched Hamilton once too many times).

The nice thing for you and apps is you no longer need to hit another home run. Base hits every so often is all you need to sustain a fun and fulfilling lifestyle.
+1. nigel_ht gives some great insight.

It's become popular (in U.S. culture) to label success and/or wealth as luck; but the reality is that it is usually a combination of intelligent/strategic risk-taking, lots of hard work, persistence, competence in an in-demand area, and some timing/luck.

Coding and app development is a nice skill set. Being able to finish and deliver a product is huge. Most can't do it. Most that can code can't even do it. So congrats!

I'd say that getting a 9-to-5 would be an anti-climatic and dull follow-up to your success. Try your hand at some other projects, do some contracting if you feel the need to earn some extra $$.

As for portfolio AA, as others have said, it doesn't matter much. A conservative portfolio for your age would be 70/25/5 stocks/bond/cash. VT/BNDW/Cash would be fine. One approach to get started is 50% lump sum, then DCA the rest over a few years. I personally followed this approach about 4 years ago when I had a 6 figure sum to invest (from the sale of a property). The 50% that I initially lump-summed into the market, in hindsight, was a very wise investment move. I wish I had just gone all in :).
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

000
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by 000 » Sat Aug 01, 2020 4:25 pm

Luckywon wrote:
Sat Aug 01, 2020 12:58 am
Since coming into $1.6 million on a single project five years ago, my understanding is OP kept the money in cash and has not been gainfully employed. That's about as dismal a trajectory as I could imagine.
On the contrary, OP is to be lauded for preserving the lion's share of their portfolio through low spending. There may be other "stuff" that happened to OP in the years since that made it hard to work at that time. We don't know his whole life story.

Clearly you haven't seen many of the dismal trajectories real lives take if you think this is a dismal trajectory.
Last edited by 000 on Sat Aug 01, 2020 4:34 pm, edited 1 time in total.

000
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Re: 28 year old with $1.4 million in cash investing for the first time. My thoughts.

Post by 000 » Sat Aug 01, 2020 4:33 pm

Slowtraveler wrote:
Sat Aug 01, 2020 8:20 am
I highly recommend Wellesley. It has had a low enough standard deviation that I think you'll feel comfortable holding it. You can live off the dividend and selling less than 1%of the principle per year. You just need to get in the game. Put half in Wellesley immediately, it's a big step in the right direction. After that, you can slowly up stocks by putting more into Wellesley or adding some broad stock indexes but you need comfort with stocks first. Small moves are easier than big moves. Buy 100k of Wellesley if that's all you can muster. Just start investing.
Bad choice, in my opinion. The taxes will probably eat up any Alpha the managers can find. Also Wellesley holds only 68 stocks!

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