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Old 04-20-2017, 01:47 PM   #21
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Wow! Thanks for this response. I really do have a lot to learn. I'll start with printing out the forum FAQ list of abbreviations.
Those are ticker symbols. Except for ETF, which means Exchange Traded fund. These are usually cheaper than mutual funds, and are very easy to trade, and don't kick off capital gains distributions at the end of the year. For me, they make tax planning easier than the variety of mutual funds I still have in my taxable acct. SCHB and SCHD are etfs, the others are individual stocks. Depending on what percentage these would represent after investing the windfall, you may wish to diversify even further. I try to limit any individual stock to less than 3% of the total portfolio. That said, MAIN and PSEC, while individual stocks, they are business development companies, which are invested in many companies themselves. I like to have a bit invested in them because of the high monthly dividend accompanied by growth in the stock price...providing both some income and growth. Bonds these days provide precious little income. So that's why I've put about 4-4.5% of my taxable portfolio into them.
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Investing a nut
Old 04-20-2017, 10:03 PM   #22
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Investing a nut

The responses using Vanguard and other studies indicating to immediately get to your AA are correct.

However, there is the regret factor you indicate--if the market drops 5-15% after you allocate to stocks. We feel the pain of a loss more than the pleasure of a potential rise.

So, investing 1/3-1/2 (or more) of your AA immediately, then dollar cost averaging over the next 12-18 months might work. If the market goes up, you congratulate yourself on benefitting. If it goes down, not all of your new nut was at risk. And if there is a significant market drop while you are waiting to dollar cost average, take advantage of a market drop of 3-5% increments; otherwise just keep dollar cost averaging as planned.
This is a pyschological "trick" but an effective one--I've used it, knowing it is a trick.

I keep about 7-12% in cash to take advantage of drops, even if this is irrational in terms of long term trends towards market increases. Low cash is 3%, which I hit in 2010. Bad timing! The key is to primarily stay in the market with your AA while you can play mind tricks on a (much smaller) side bet.
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Old 04-21-2017, 05:01 AM   #23
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Thank you for the sound conservative advice. We do feel fortunate to be in this position and it certainly will help us enjoy our ER. But first, time to do my schoolwork!



So far I have moved about 20% of the recent inheritance into a non-managed Fidelity (Vanguard clone) super-low expense index fund account. I balanced this by rolling my similarly sized 401k pure stock investment into my moderate-risk managed IRA account. This leaves us with sufficient cash for around 5 years, but is this too much? We've always maintained a fairly substantial cash reserve for emergencies, much more than our dual incomes would dictate. Now, without regular income, the situation is different and that cash reserve amount is no longer enough to weather any prolonged "storms". We need to determine how large a liquid reserve to hold outside of our more long term investments. I'm certain our Fidelity adviser wants us to pour the majority of this substantial lump sum directly into our managed account using the same balance of stocks vs bonds. I, however, see clouds on the horizon and don't want to leave us overexposed to a sudden storm.



Somewhere in between must be a sweet spot...


Whether 5 years of cash is too much depends on you and your spouse's risk tolerance. For me, 3 years in short-term bonds and very little in actual cash works. Market corrections on average last 18 months, so 3 years is a lot to hold. When one retires young, inflation risk and longevity risk are real, so for me, holding five years of cash needs which would be 15-20% of our portfolio in short-term vehicles is too much. The opportunity cost is too great. But you may feel differently and there is no one right answer.
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