Windfall Imminent - Help with Investment Strategy Request

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mmse
Posts: 49
Joined: Sun Mar 01, 2015 12:18 pm

Re: Windfall Imminent - Help with Investment Strategy Request

Post by mmse »

Congratulations. Seems like the core of the question is that now that you are switching from accumulation phase to early retirement, is it different? According to "Big ERN", it is. These may be two very relevant reads for your situation:

Ten things the “Makers” of the FIRE movement don’t want you to know – SWR Series Part 50:
https://earlyretirementnow.com/2022/01/ ... s-part-50/
Why is Retirement Harder than Saving for Retirement? (SWR Series Part 27):
https://earlyretirementnow.com/2018/07/ ... s-part-27/
chicagoan23
Posts: 498
Joined: Thu Jan 29, 2015 4:34 pm

Re: Windfall Imminent - Help with Investment Strategy Request

Post by chicagoan23 »

oaks wrote: Tue Jul 05, 2022 3:00 pm With a $8.5 million portfolio it allows for some more creative financing. Again, I’m not risk adverse but this also doesn’t mean that I’m a risky person. With $8.5 million portfolio I could use portfolio lending, brokerage margin or short box trades to finance at a low interest rate the Purchase or Build of a home. I suspect traditional 30 year fixed mortgage financing options are not an option due to income being 0 and I’m fairly certain more portfolio based lending options will have a lower interest rate right now as well. If $8.5 million is invested and I need $3 million cash to build that is 35% of the portfolio. Is this super risky? Assuming a 50% reduction in portfolio value that may cause a margin call or some other type of callable action? I’m not super familiar with these more creative financing options but I do like the idea of letting the portfolio ride and using it as a piggy bank without actually selling anything.

Thoughts?
What is your biggest risk right now? Inflation. One of the best hedges against inflation, in my view, is long-term, low-fixed-rate debt. Borrow money to pay for the house, and then pay it back in increasingly worthless dollars, plus a little bit of interest. You unfortunately didn't get the mortgage at 2.0% like you could have 18 months ago, but you might be able to get it for about 4.5%. I'd lock that in.
I do like the idea of letting the portfolio ride and using it as a piggy bank without actually selling anything.
Agreed. Get into the eight-figures neighborhood and leverage/debt becomes your friend. Your assets remain productive (instead of sitting in home equity), you have a built-in inflation hedge, even your credit score improves. This wouldn't be consumer debt; this is a smart way to finance the home of your dreams.

Also, I'd pay a little extra and lock in fixed rate debt instead of relying on margin, with adjustable rates that can squeeze you.
"The Basic Choices for Investors and the One We Strongly Prefer" | | https://www.berkshirehathaway.com/letters/2011ltr.pdf
CletusCaddy
Posts: 827
Joined: Sun Sep 12, 2021 4:23 am

Re: Windfall Imminent - Help with Investment Strategy Request

Post by CletusCaddy »

OP I would call up Schwab and ask them how much margin rate they can offer you on a >$5M taxable portfolio.

I negotiated 1.5% last year and it hasn’t moved up at all with interest rates.
deikel
Posts: 1423
Joined: Sat Jan 25, 2014 7:13 pm

Re: Windfall Imminent - Help with Investment Strategy Request

Post by deikel »

AlphaLess wrote: Tue Jul 19, 2022 4:07 pm
deikel wrote: Tue Jul 05, 2022 3:56 pm
Mike Scott wrote: Tue Jul 05, 2022 3:31 pm If you put it all in VTI, for example, the dividends alone would pay your current expenses more or less for a very long time; you can be FIRE if you want to be FIRE. I would not spend 3 million on a house.
+1, exactly my first response.

The market is down right now, you plow it all into VTI, the 2% dividend roughly gives you 160k/year forever and after the next rebound of the market (which will come, just not clear when) - you are sitting on 9.6 million min.
Sadly, VTSAX yield (same as VTI yield) is 1.55%, which is a whopping 22.5% lower than your 2% estimate.

What happens when recession comes? Dividends get cut.

So, I would plan to not take more than 1% in dividends, on average, for the next 5 years.
In the long term, maybe 1.5%. But 2% is definitely not possible.
http://www.lazyportfolioetf.com/etf/van ... end-yield/

Used to be 2% for the longest time (give or take some), even during the 09 recession - since it is calculated as yield, payout per price, will see what this year brings once the profits roll in
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