Allocating $1.7 Million With A Frugal Lifestyle

[Bones212]

My wife is the only person I have ever known who actually makes money when she shops. As for me, I own a car dealership and all the purchases and repairs I pay for all these vehicles kills my desire to buy anything else. We're 49 years old. Good health. No complaints.

College for both kids is paid for and they have scholarships for tuition. No debt. We were always watchful with our savings.

Right now we are looking at reconfiguring our savings to account for the fact that I'm slowing down my work life. Our savings are the following...

$1 million in brokerage account:

54% cash (currently earning 1.4%)
30% stocks (individual Amazon, Walmart, ZIM, Occidental Petroleum, Ship Finance Limited)
15% SEP-IRA (Considering real estate investments within the next year)
1% Wife's Old 401k and IRA

$40,000 in i-bonds for a family of four, and will likely add $15k more. $10k for LLC and $5k for our tax return.
$25,000 in HSA
$50,000 in local credit union

$500,000 in excess cash in LLC. Our need for more capital is minimal so I'm thinking of moving that money into a higher paying yield. It can sit for at least a year.

Self-Directed IRA: $50,000 cash and one property valued at around $150k to $170k. Receive approximately $15k in rent with $3k in expenses.


I find myself in a state of paralysis by analysis, because I think next month's interest rate hike will push yields up even more. I thought about investing in 30 day T-bills but the yields seem sub-par to the 1.4% I'm earning now.

Thanks for reading this far and helping me with my bout of 'Hamlet'. If you ever need help with anything automotive feel free to PM me. I live that business, even when it sometimes kills me.

[rocket354]

Is there an actual question?

[GP813]

Is there an actual question?

It seems OP is looking for ideas of how he should allocate his portfolio and particularly the cash.


Given that you are married, have a business, and can also start a trust I would put as much as you can in I Bonds. In a year you can re-evaluate. In the meantime your interest will be greater than T-bills and any HYSA.

[delamer]

You have not given us any idea what your expenses are or what slowing down your work means in terms of your income. Those are critical to giving good advice. It also isn’t clear if your wife is employed.

If you have only $300,000 in stocks out of $1.7 million in savings, then your stock allocation (18%) is too low for a portfolio that has to last you 40 years.

[Chadnudj]

My two cents:

You're losing a massive amount to inflation each year keeping that much in cash.

I'd place a lot of that (maybe all but 2-3 years of your expenses) into index funds at an asset allocation that makes sense to you/is comfortable to your risk tolerance. I'd recommend one of the Vanguard LifeStrategy Funds -- moderate growth is 60/40 stocks/bonds, conservative growth is 40/60 stocks bonds, income is 20/80 stocks bonds.

I'd also move as much as you can of the cash into iBonds, so that's keeping up in inflation.

Assuming you have little need for this money for 5+ years, you really should invest it for some growth.

[Bones212]

Yes, I'm trying to figure out a better way to allocate this money. I obivously have too much in cash and the goal is to focus more on dividends and interest in the future. I don't want more than 30% in the stock market.

I forgot the most important information of all. Thanks!

[retired@50]

Right now we are looking at reconfiguring our savings to account for the fact that I'm slowing down my work life. Our savings are the following...

You've got assets,which is an excellent start, but it doesn't seem like you have a plan.

The 54% in cash is sort of a "tell" in this case.

Do you have a target asset allocation mix in mind?
What percentage in Stocks / Bonds / Cash would be suitable for your risk tolerance?

Maybe take the Vanguard investor questionnaire: https://retirementplans.vanguard.com/VG ... Step=start

Further, maybe do some reading in the Boglehead wiki on asset allocation and planning topics.

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

https://www.bogleheads.org/wiki/Boglehe ... art-up_kit

Regards,

[Bones212]

Right now we are looking at reconfiguring our savings to account for the fact that I'm slowing down my work life. Our savings are the following...

You've got assets,which is an excellent start, but it doesn't seem like you have a plan.

The 54% in cash is sort of a "tell" in this case.

Do you have a target asset allocation mix in mind?
What percentage in Stocks / Bonds / Cash would be suitable for your risk tolerance?

Maybe take the Vanguard investor questionnaire: https://retirementplans.vanguard.com/VG ... Step=start

Further, maybe do some reading in the Boglehead wiki on asset allocation and planning topics.

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

https://www.bogleheads.org/wiki/Boglehe ... art-up_kit

Regards,

Definitely will. When interest rates go up over a long period of time, the S&P tends to remain in a stagnant position in the long run. Warren Buffett wrote about this in 1999 and I have always taken that information to heart.

https://www.berkshirehathaway.com/1999a ... gazine.pdf

I believe we're at the beginning of a very long slog with equities. There will definitely be winners. But at this point I'm happy to split about 30% of my allocation to U.S. equities and Warren, and let that be that.

[Chadnudj]

Right now we are looking at reconfiguring our savings to account for the fact that I'm slowing down my work life. Our savings are the following...

You've got assets,which is an excellent start, but it doesn't seem like you have a plan.

The 54% in cash is sort of a "tell" in this case.

Do you have a target asset allocation mix in mind?
What percentage in Stocks / Bonds / Cash would be suitable for your risk tolerance?

Maybe take the Vanguard investor questionnaire: https://retirementplans.vanguard.com/VG ... Step=start

Further, maybe do some reading in the Boglehead wiki on asset allocation and planning topics.

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

https://www.bogleheads.org/wiki/Boglehe ... art-up_kit

Regards,

Definitely will. When interest rates go up over a long period of time, the S&P tends to remain in a stagnant position in the long run. Warren Buffett wrote about this in 1999 and I have always taken that information to heart.

https://www.berkshirehathaway.com/1999a ... gazine.pdf

I believe we're at the beginning of a very long slog with equities. There will definitely be winners. But at this point I'm happy to split about 30% of my allocation to U.S. equities and Warren, and let that be that.

If that's the case, go for it -- you have around $540k in cash, so put $162k in VTSAX and let it ride. Figure out what to do with the other $378k later, but if you're comfortable with and want to do 30% stock and plan to hold on to the position for long term, do it now.

(FWIW, I'm not sure I agree entirely with Buffett's theory, or to be more clear that interest rates are going to go up over a long period of time -- I think it may be shorter lived than anticipated, just because markets are moving faster and faster)

[dogagility]

When interest rates go up over a long period of time, the S&P tends to remain in a stagnant position in the long run.

Hmm... Do have have a graph showing both historical federal interest rates and SP500 total return that you can share?

With the information you've posted in this thread, my impression is you are too conservative in your equity allocation and attempting to time the stock market.

As others have indicated, we need more information about expenses to suggest a path forward.

[aristotelian]

Until the money leaves the LLC, I wouldn't really count it. As far as asset allocation, the standard recommendation is some variation of the Three Fund Portfolio.
https://www.bogleheads.org/wiki/Three-fund_portfolio

I would also recommend reading William Bernstein's "If You Can" free PDF.

Consider opening his/her Roth IRA's. If you are above the income limit, you would need to roll the SEP IRA into a Solo 401k, and then you could use the Backdoor Roth method. https://www.investopedia.com/terms/b/ba ... th-ira.asp

[Parkinglotracer]

I am guessing you are making a lot of money selling cars in today’s market

- can you suggest the best way to buy a new car these days ?

Thanks

[Huskies26]

One other thing that I haven’t seen mentioned yet it the asset allocation of the equities.

To have 30% of a portfolio in stocks, but only spread across 5 companies (two of which are sub $5 billion market cap) is very risky. I personally feel more at risk with that allocation than 50% across VTI or something like that.

You seem to desire a conservative portfolio so that is something I would look into.

[Katietsu]

Two things stand out to me:

1) You want a conservative portfolio with a large cash allocation. I am not as conservative with my investments as you but more so than most on BH. Also, with your business you have a higher risk aspect of your life than many.

Why then is your equity portfolio so concentrated in individual stocks instead of at least a foundation of a broad based mutual fund?

2) Why do you want to use de the SEP IRA for a real estate purchase when you have cash just sitting. I am having trouble seeing why this is not a negative as far as both taxes and hassle factor.

[NYGiantsFan]

54% cash (currently earning 1.4%)

How are you earning 1.4% on cash? Best, I am able to do is 1% at T-Mobile Money.

[HMSVictory]

Why don't you stay in your world and buy another car dealership or expand the one you already own?

Not sure I see a question here - you seem to be very comfortable holding over $1M in cash. There are worse problems to have.

[retired@50]

54% cash (currently earning 1.4%)

How are you earning 1.4% on cash? Best, I am able to do is 1% at T-Mobile Money.

The Vanguard Federal Money Market fund currently has an SEC Yield of 1.27%

Check your broker's offerings and see if they're staying current. Rates have been moving pretty quickly in the last 6 weeks, and there is likely more to come.

Regards,

[HEAVYCRAIG]

54% cash (currently earning 1.4%)

How are you earning 1.4% on cash? Best, I am able to do is 1% at T-Mobile Money.

The Vanguard Federal Money Market fund currently has an SEC Yield of 1.27%

Check your broker's offerings and see if they're staying current. Rates have been moving pretty quickly in the last 6 weeks, and there is likely more to come.

Regards,

E*Trade's Premium Savings Account is now earning 1.4% which allows for an easy instant transfer to an E*Trade brokerage.

[GibsonL6s]

Yes, I'm trying to figure out a better way to allocate this money. I obivously have too much in cash and the goal is to focus more on dividends and interest in the future. I don't want more than 30% in the stock market.

I forgot the most important information of all. Thanks!

The biggest driver of returns is going to be your asset allocation, if you are certain you only want 30% in the market, I would try to move from individual stocks to a broad index fund, which will earn you some dividends. For the balance why not just create a portfolio of rolling treasuries to suit your risk for interest rate changes. You can get over 3% in a 3 year treasury today.

IF you are running a car dealership do you really want to add the complexity of real estate assets to the mix as RE is a business as well.

Good luck!

[like2read]

Yes, I'm trying to figure out a better way to allocate this money. I obivously have too much in cash and the goal is to focus more on dividends and interest in the future. I don't want more than 30% in the stock market.

I forgot the most important information of all. Thanks!

You might consider Vanguard Wellesley Income Fund (VWIAX). Dividend paying large company stocks and bonds, diversified, low cost, conservative and top rated. Typically holds about 35 - 40% U.S. equities and 60 - 65% bonds. Currently yielding about 3.9%. This combined with cash holdings could get your overall equity allocation down to the 30% range. I would put the majority of your cash holdings in a short or medium term muni or treasury bond fund.

https://investor.vanguard.com/investmen ... file/vwiax

Note: a more tax efficient solution would be to use a combination of index funds and municipals, in proportion to hit your 30% target.

l2r

[AnnetteLouisan]

Welcome to the forum! Sounds like you have already done amazingly well on so many fronts. I hear the ten year treasury is paying 3 percent now. By the fall it could be high enough to be worth buying since you say you are looking for safe interest income. Also maybe consider index funds instead of individual stocks.

1. How does your wife make money while shopping?

2. What kills you about the car dealer business?

Regards,
Annette

[bog007]

vtinx

[mikejuss]

1. How does your wife make money while shopping?

2. What kills you about the car dealer business?

OP, your post is confusing.

[HEAVYCRAIG]

OP - What assets are you holding in your SEP-IRA, and your spouse's 401k and IRA?
Is your HSA balance investable?

So far your asset allocation appears to look like this (All % Shown are % of Total Portfolio):
Tax Advantaged

His SEP IRA ?
Her 401k + IRA ?
His Self Directed IRA 3% Cash
His Self Directed IRA 8% Real Estate
Health Savings Acct 1% Cash

Taxable

Brokerage 17%Stocks
Brokerage 30%Cash
LLC 28 %Cash
Treasury Direct(iBonds) 2% Bonds
Credit Union 3% Cash


You have 64% of your total assets in cash, 2% in bonds, 8% in real estate, and 17% in Stocks with the remaining 9% of assets unknown based on the information provided. You have 79% of your assets in taxable accounts, so there is not much room in your tax-advantaged space to put into bonds.

With that much cash in taxable accounts, you could invest in tax-advantaged bond funds like
Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX), and you could sell those shares to contribute to iBonds and your tax-advantaged account space over the course of several years.

If you desired 30% in stocks, you could purchase shares in your brokerage account using cash available and start moving the other available cash to a tax-advantaged bond fund within your brokerage account.

[AnnetteLouisan]

1. How does your wife make money while shopping?

2. What kills you about the car dealer business?

OP, your post is confusing.

No, I understand. His spouse is very thrifty, so no worries there, or maybe uses coupons or is a personal shopper, and his work is a labor of love but sometimes takes a lot out of him. Sounds like he is doing amazing, especially at his very young age. Was just asking because this board is into frugality, and cars too.