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New and need some advice about a huge chunk of change
Old 06-12-2014, 03:23 PM   #1
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New and need some advice about a huge chunk of change

Brief stats:

Me: 43
Husband: 43

Tax-deferred accounts: $450,000 (some funds/individual stocks/20% cash)
Taxable accounts:
$13,000 Vanguard (Retirement 2035, Wellington)
$115,000 commodities

Cash: $90,000

House: $380,000 value, owe $120,000 @ 3.75%
Commercial/Apartment building: $750,000, owe $585,000 @ 4.125% (+ additional $35,000 in this llc bank account)

Total net worth ~$1.3 mil

Kid #1 (12 years old) college fund $25,000
Kid #2 (9 years old) college fund $18,000

We recently sold our size business to a bigger entity for $1,000,000 and the clause that both of us go to work for the new company. Our income will go from $155,000/year to $270,000.

Now I'm trying to figure out what to do with the extra cash after paying Uncle Sam (and if anyone has suggestions how to lower my donation to him, I'd appreciate it). Tax accountant appointment set for end of month.

Little leary of the market. We've been burned plenty, plus my hubby is a gambler where I'm more conservative, so this causes some friction. Think he is coming around more to my way since we are getting older and this was a dang lucky opportunity for us. So, if anything, think we'd lean more towards the Vanguard Wellington/ Retirement 2035 funds.

I also like to have cash on hand to help curb my "imminent doom" feelings. Got some financial anxiety issues that I need to work on and always worry about losing it all/not having enough. Would be really happy if I could invest like my 97-year-old grandma, but recognize that that won't work with inflation.


Will pay down the debt a bit, but I'm comfortable with being able to beat the current interest rate percentage with the Vanguard funds if we go that route. Right now, we're running 10% for the year. Not as great as most, but I don't need to hit a homerun. I just need slow and steady and to be able to sleep at night.

Our current monthly expenses run around $5-$6,000. That's high due to some high short-term expenses. Expect it to be closer to $4,000-$5,000 in another 6 months. Also, not really looking at ER, just FI. Husband likes to tinker and is an engineer, and he always wants to keep his mind working. He would, however, like to be more entrepreneurial in the future. Hence, my request for FI.

Any opinions/suggestions would be great.

Thanks,
Mama Bear
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Old 06-12-2014, 09:34 PM   #2
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It comes down to personality. Whenever I had a windfall at work, we paid down the mortgage and then paid it off. Could I have done better in the market? Yeah maybe but... By 2008 we had no mortgage on either investment property or primary residence. Note the year! I'm convinced that my ability to steadily invest what had been the mortgage money during the dark days of market turndowns became the lever that made ER relatively easy.
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Old 06-12-2014, 09:48 PM   #3
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Invest in toilet paper companies.
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Old 06-12-2014, 10:05 PM   #4
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With kids and big debts my first thought is to get life insurance that would keep you afloat in the event one or both spouses dies.

So the assets you spelled out exclude the $1M, your net worth is actually $2.3M, and you would like to know what to do with the new $1M?

I'm of the don't pay off the mortgage persuasion. I'd be perfectly happy to add it to Wellington or TR 2035. Since you seem to be on the conservative side, you might be more comfortable with dollar cost averaging into those funds over the span of a year or two. This may involve a missed opportunity if stocks rise over that period, but you also have a chance to invest more if stocks dip.

In the mean time, you might hold the $1M in four $250k online savings accounts (different names or different banks or different account types in order to get FDIC insurance on the whole amount) earning about 0.90%. It's better than nothing.
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Old 06-13-2014, 12:20 AM   #5
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I am guessing that commodities account is DHs account.

The 4.125% commercial loan is a very good rate, but also far above what you can earn in a safe investment these days. I'd be inclined to use a good chunk of the $1 million to pay down that mortgage. The rest in Wellington or a combo of Vanguard index funds.

90K is plenty of cash to have around so I wouldn't increase it.
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Old 06-13-2014, 03:03 AM   #6
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In my experience few former business owners get happy working for the buyer.
Most of them decide to leave as soon as the contract allows.
Some have difficulties to find new jobs with same, better or any income.
Some have difficulties to work "under" someone else at all.

While this could be totally different for you, I'd prepare for that scenario by not increasing my lifestyle and reducing cost.
I'd pay off some mortgages as this reduces cost and gives a guaranteed ROI.
You already have more than 1year of expenses in cash, which is good, but I'd earmark some more for future business set up in case you decide to start all over.
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Old 06-14-2014, 04:20 PM   #7
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We have $1.5 million in term life on my husband. Hardly any on myself as I've been a SAHM and worked without pay on the side biz.

Yes, the $1mm is not included in the original net worth, nor are taxes. So really we're dealing with $600k extra.

Husband was talking about putting some in utility mutual funds. I'm not so sure. Really want to minimize our risk and we have a lot in natural gas/oil stuff right now.

Leaning towards taking ~1/2 and paying down some debt, pumping up the kids' 529 with $6k each (max for state tax deduct), holding back $50k for another side biz venture down the road, and slowly investing what's left over into Vanguard stuff.

What would be the "safest" Vanguard spot outside of Wellington and a TR 2035 fund?
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Old 06-14-2014, 10:51 PM   #8
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I don't like retirement 20XX funds because I don't understand them, but I do like simple.

I propose the Couch Potato Margarita portfolio by Scott Burns. (Sorry, you will have to Google it. I don't have the links with me here in the hinterlands of Azerbaijan this weekend.) Put all or most of this windfall in your name with DH as your heir to keep hubby's hands off it and rebalance once a year. That is not gambling money.

I have a growing chunk in O&G, too, but I do not recommend that to anyone else. I freely admit I am gambling here.

You are in much better shape than we are. Don't blow it.


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Old 06-15-2014, 07:02 AM   #9
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Originally Posted by Mama Bear View Post
... What would be the "safest" Vanguard spot outside of Wellington and a TR 2035 fund?
I think Wellesley next down in the pecking order and is ~40% stocks and ~60% bonds where Wellington is the inverse of that.
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Old 06-15-2014, 08:18 AM   #10
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You guys are positioned really well to make some major financial headway in the coming years. Congrats. Here are a few things that jumped out at me reading your story...

1) I would avoid buying individual stocks and sector funds- There's too much market timing involved with owning specific sectors and also time and expertise required with buying and selling stocks. Diversified mutual funds (index or actively managed) would be a really good idea.
2) Personally, I wouldn't pay off debt quite yet. You have reasonably low interest rates and your income / tax bracket is going to continue to be quite high. You'll get a nice tax deduction and your money should do better in the stock market over the long-term. I understand this is a risk tolerance issue so of course this is only my opinion.
3) Depending on what your specific goals are for helping with college, you seem to be behind in saving here. I would do as you suggested with the 529's but also open 529 accounts for yourselves, which allows you to max your deduction for 2 more accounts. The funds can be transferred to your children later with a change of beneficiary form.
4) Are you funding Traditional IRA annually? That's a good place for $11,000. And if you don't have any other IRAs, you can also immediately convert them to Roth IRA with no tax consequence.
5) Was the business sold in 2014? If this is the big tax year you can offset the taxable income with charitable contributions... this assumes you are charitably inclined of course. If you tithe or give away a large portion of income each year, this is the perfect year to establish a donor advised fund. This way you can front-load the account to get a nice fat deduction and then spend the next several years doling out the funds.
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Old 06-15-2014, 08:24 AM   #11
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Invest in toilet paper companies.
Not enough diversification. You could get wiped out.
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Old 06-15-2014, 08:43 AM   #12
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Not enough diversification. You could get wiped out.
+1 Crappy advice
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Old 06-15-2014, 08:55 AM   #13
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Not enough diversification. You could get wiped out.
The assets can get flushed down the drain too!
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Old 06-15-2014, 09:49 AM   #14
Confused about dryer sheets
 
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I looked at Wellesley last year when I set up the Vanguard fund, but thought I might be in overkill with both that and Wellington.

Maybe I should rephrase my question with what other conservative spots outside of Vanguard should I look at. Not including CDs, etc. Tough to figure out with this market and my fear of being wiped out after this windfall. We have wiped out our taxable account before so part of me is just freaking afraid to do anything. Then another part says I need to do something but extremely cautiously.


Yes, we max out the traditional IRAs.


Recognize I'm behind with the 529s. Stepping it up now. I don't need to fully fund their college--we do expect them to have teen/college jobs and also contribute to their expenses. Will get as close as we can to avoid student loans. I don't want them coming out with massive debt.
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Old 06-15-2014, 11:34 AM   #15
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+1 Crappy advice
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Old 06-15-2014, 12:20 PM   #16
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Along the Vanguard path TR 2015 or anything lower than 2035 will be more conservative because of increased bond holdings.

No reason to go non-Vanguard. I have recommended OAKBX before. It's kind of like Wellington/Wellesley, a balanced fund. DODBX is another. Balanced funds in general seem like a good idea if you're afraid you might sell at a bad time. The Morningstar investor returns tend to be much better with the steadier funds. In terms of total return versus variation of return I don't think you could do much better than Wellesley.
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Old 06-16-2014, 02:20 PM   #17
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In my personal feeling, having the debt paid down is a comfortable thing. How much to pay down and what to pay down? The commercial bldg will only cause more tax liability by reducing expenses (mortgage big part of that) vs rent income. Not sure where rent vs expenses falls on your property, but at your new income level, it is likely you will not get the deductions (it will be deferred until income drops below the limits), so work with a tax adviser to see whether paying off house or commercial property is a better tax choice. My suspicion is that it may be better to keep the house deductions and pay off the commercial property so you minimize deferred losses. I personally hate letting Uncle Sam keep my deductions until later in time.

I would definitely do the $6k/kid in the 529 this year and next several years until you have a nice level that will support your expected college expenses.

Any leftover funds I think the 60% equities/40% bond-type ratio, such as Wellington for example, will enable you to reduce some of your risk aversion; while still enabling the investments to have better long term returns. At your age it is important to have some protection against inflation. You are still young and have many years for this money to work for your future benefit.

Finally, congratulations on building up a successful business and being able to sell at a nice profit.
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