How do you handle scheduled windfall/bonus time?

[Olav23]

For people around here who get a small (or large) scheduled windfall, like a 6 month bonus, how do you deal with it?

Just wondering if you guys cram it into the taxable account and make one big fund purchase, or if you time it over a period of time. Or pound it into the mortgage, or what. Personally, I am a renter, so this isn't an option.

 

[SecondCor521]

I don't get scheduled windfalls, but I get unscheduled ones from time to time.

My personal approach is to have a list of prioritized goals, and I focus my efforts and energy at the next one on the list that I haven't accomplished yet. So the next windfall I get will go directly to one of my kids' college accounts. Also, I would buy in one lump sum; I would not spread the investment out over time.

2Cor521

 

[JohnDoe]

I don't have any bonuses setup in my Quicken budget. Like SecondCor521, the next one will go to the college fund. After that, vacations.

 

[LOL!]

Just deposited a bonus check yesterday. It went into a money market fund until the next dip in the stock market indices. At that time, I will decide what to do with it. Even though the check was 10 times the size of my spouse's pay check (she's an engineer), it only amounted to 0.1% of invested assets, so it ain't gonna make a dent in anything.

 

[brewer12345]

Gets dumped in a taxable account and invested over time.

 

[Comenius]

I do the same, and drop it into a taxable money market account. It then helps to fund my monthly purchases into my asset allocation.

 

[CuppaJoe]

Like LOL!, I'm waiting for the next dip. I get an annual lump sum for my KEOGH which is sitting in the MM part of my account; I'm thinking of moving it over to Ginnie Mae to wait out this high market. I also have some unscheduled amounts that are in a taxable Orange savings account, some of it in a CD at 5.2 % and most at their current rate, about 4.7 %, I think. I consider the Orange account my emergency 6-month account and may put more money there for the first year of retirement.

 

[retire@40]

No matter where it comes from, any extra money that doesn't get used in my normal budget gets saved in a money market account until a decision is made whether to keep it in cash or to invest in a mutual fund.

I don't view extra money as additional spending money. I view every dollar saved as 4 cents more of income to me per year, so each dollar saved in itself is meaningless, but over the course of a year, the accumulation of those saved dollars make a big difference.

 

[saluki9]

I just dump it into my taxable MM account and invest it as I see fit. That being said, a few months before bonus time I start feeling around for potential RE deals, or other unlisted investments which I usually have lined up before the check comes.

 

[HFWR]

Get lots of wind, but not much fall...

 

[RunningBum]

I usually use this as a chance to fix any out of balance between stocks/bonds, international/domestic, etc. Adding to the holdings that are low avoids or reduces the tax hit and other expenses of selling overweighted holdings to buy underweighted ones you'd normally have when rebalancing.

Simple example: Say I want a 50/50 stock/bond split. If my current holdings is 55K stocks, 45K bonds, and I get 20K, I would put 5K in stocks and 15K in bonds.

 

[FIREd]

I get 2 bonuses a year, plus 2 extra pay checks (I am paid every 2 weeks). Usually I invest them in my taxable account (although once in a while I will use part of the money on something fun). Sometimes I use that lump sum to buy a new mutual fund (as I did with my first bonus of the year), sometimes I use it to rebalance my portfolio (as I did with my first extra pay check). I also use my (relatively small) tax returns the same way.

 

[megacorp-firee]

I automatically toss a percentage into my 401K and then do a recalculate to make sure I don't max out before year end and mess up my max match.
The rest goes into the kitty until I figure out what investments to toss it into. Usually around this time something big goes out ... transmission, roof, refrigerator, ...etc. so sometimes it goes there.
oh yeah ... Tax man takes his [-]userous [/-]share

 

[Alex]

Every few months I get large commission checks (in the 20-30K range). I invest at least 75% of these checks into my cash account. Sometimes I use 25% or so to pay down debt (we don't have any debt now except the mortgage -which I'll never pay down!), go on vacations, pay property taxes, etc... I keep all my cash holdings at Vanguard (except my checking account!) Once the check is in my checking account - I log on to Vanguard, click on the Portfolio watch tab and look at how a hypothetical trade impacts my AA. Then I transfer the money electronically to Vanguard. Essentially, I use the new $$$ to keep my portfolio in balance throughout the year. This is a tax efficient way of re-balancing because I don't have to sell anything.


Re- DCA vs Lump - I don't wait. I lump it in. I'm a lumper - I've DCA'd into the market in the past and always regretted it. I figure that 2/3 of the time the market goes higher, so why fight those odds? In fact, later this month (on Monday the 25th) I am getting a very nice commission check, it will be fully invested by 26th or 27th at the latest. I suppose if I received a one shot inheritance I might re-consider my lumping strategy, but it'd have to be a really large amount of money (minimum of over 500K). In that case I'd lump half right away, put the rest in a MM fund and DCA over 6-12 months.

 

[bosco]

hookers and heroin!!

 

[skyline]

I get profit sharing checks every quarter. Usually dump it into a MM account until I get a chance to take a look at my AA and invest accordingly. But that's usually within a week - gave up on DCA as well as marketing timing a while ago...