What to do with $100k

[slowsaver]

Hello! I've been lurking for some months, and finally have a question so I thought I'd introduce myself first.

I'm 39 and love working. I got my first part time job at 17, and have been employed ever since. If I could keep my current job (or something equivalent) till I'm 65, I'd be happy. So why am I reading the early retirement forum?

I work in the tech industry and I've seen a lot of people get laid off over the years. Young engineers get new jobs, but the older ones -- not so much. Too often I hear people blame them for not keeping their skills up to date, but I also see a lot of bias against older workers. You don't see too many people over 50 get hired, regardless of skills. Being over 40 isn't helpful either.

So I spend too much time worrying if my company is healthy, and whether they will implode when I'm the "wrong" age to be re-hired. I'd just rather be smart about the money I'm making now, and see if I can get into position where I could afford to retire whenever high tech is "done" with me. I'm assuming any years I get to work after age 50 is borrowed time.

Now my question: I have some stocks vesting in a few months, and I'm not sure what to do with the money. After taxes etc., it will be about 100k. I feel nervous about putting all of it into the stock market, because I feel like the market is really high right now. Any suggestions? Here are my current investments:

401k: $300k - mostly FFKFX (L Fund 2040); adding (max) $17k/yr.
Roth: $77k - VFIAX (85%), VTMFX (15%); adding (max) $5k/yr.
Treasury Direct iBonds: $35k; adding $10k/yr.
Other (taxable) VG funds: $72k - VTSAX, VTMFX.
Cash: $250k, CDs: $35k.
Single family home: paid off. Probably worth $700k.
Debt: none. Kids: none. Husband: 1.

Thanks for any advice!

 

[lhamo]

2013 contribution limits have gone up to 17,500 for 401(k) plans and $5500 for Roth IRAs, so that takes care of 1% of your windfall.

If it were me, I'd probably just start dollar cost averaging into a Vanguard target retirement fund or something else with a comparably balanced asset allocation with $200k of the $250k you have in cash reserves, unless there is some reason you are holding onto that. If you are really nervous about the market, set a timeline for getting that invested -- say $4-5000/month for the next 40-50 months. If the market takes a big dip at some point in the next 1-3 years you can increase the amount you are putting in so that you are buying when things are down. If that plan seems to be working for you, you could increase the amount you are contributing monthly once your stocks vest.

Another option would be to start buying some of the dividend-oriented Vanguard funds that people here like, like Wellesley or Wellington. That would give your retirement fund another solid leg to stand on.

Congrats on having your finances in such nice order! And such a good plan for your later working years. I think you will likely be in fine shape come retirement day.

 

[RunningBum]

Hi, and welcome to the forum.

In my opinion you would want an overall asset allocation (AA) plan for how much you want in stocks/bonds/cash across all of your accounts, and when that 100K comes in you allocate it according to that plan, using it to correct any out of balance accounts.

I'm not a market timer so I don't have any advice if you want to go that way.

One comment on your holdings. VTMFX=tax managed balanced fund. Vanguard is down for maintenance right now so I can't see the details on it, but that doesn't seem appropriate for a Roth where you will never pay taxes. You should get a better return on funds that hold taxable bonds.

 

[jayc]

You have a great stash and a good plan. FI makes work choices be on your terms. There are lots of jobs in IT regardless of age if you are flexible and willing to pick up a new skill set or use a legacy skill set. Switch from development to support or use your experience and do help desk support.


I switched to reporting, ETL, and data warehouse support, part time at a nonprofit. I use dice dot com to pick up contract jobs based on locations/areas I want to work. There are lots of jobs for 3-6 months that need experienced people. I even got an offer to do COBOL on a 1 year contract last week. My buddy (age 65) just went to work for IBM last month as an IMS dba. They cannot find people to support the legacy systems they take over via out sourcing.

So take worrying about finding work off the table and build that stash to FI.

 

[obgyn65]

Hello, slowsaver. I know some here may disagree, but have you looked at annuities ? You may wish to put 50% of your 100k in some laddered annuities. And keep another 25% in laddered CDs. The rest could be invested according to your risk appetite.

 

[pb4uski]

Hello, slowsaver. I know some here may disagree, but have you looked at annuities ? You may wish to put 50% of your 100k in some laddered annuities. And keep another 25% in laddered CDs. The rest could be invested according to your risk appetite.

Please register me in the vehemently disagree camp. Obgyn65 is one of our most conservative members and only recently purchased a balanced mutual fund.

From her initial post, the OP is not uber-conservative so I don't see any annuity making sense for a 39 year old who is comfortable with investment risk.

Given the career risk that slowsaver is concerned about, I think it would be prudent to increase taxable investments to carry her from some involuntary ER event to age 59 1/2 when she'll have penalty free access to her tax-deferred funds. If it were me, I would value average the $250k of cash and the $100k to soon be received less whatever she needs to hold aside for emergencies into taxable investments over 24 months.

The specific investment should be consistent with her overall AA. Since she has some Vanguard she could explore having them do a financial planning exercise for her and they would likely recommend something to her as well as look at her overall AA given her appetite for risk.

 

[obgyn65]

I have no problem with those disagreeing with me (including you, pb4uski) as long as views are debated respectfully of everyone's opinions.

When I wrote the post, I was thinking more of a small deferred annuity, not an SPIA - which does not make much sense at this stage given the OP's age. Apologies for not making this clearer.

You are correct, I am in the "uber conservative" camp when it comes to personal finance (as stated in my signature - no surprise), although very liberal about nearly everything else in life. By the way, my bond funds have been losing money since I bought them a few weeks ago ...

Please register me in the vehemently disagree camp. Obgyn65 is one of our most conservative members and only recently purchased a balanced mutual fund.

 

[pb4uski]

....By the way, my bond funds have been losing money since I bought them ...

True, (Wellesley, right?) but a few months is not a sufficient time horizon to make a judgement. I do note that Wellesley is up for the most recent 1 and 6 month periods.

 

[obgyn65]

Correct. You seem to have a good memory. I was thinking of starting a new thread today about the losses in my bond funds over the last few weeks (since I bought them, in fact) and invite all those who have been critical of me for not taking more risks in the past to give their "expert advice" Only time will tell whose approach was right. Too early to tell.

True, (Wellesley, right?) but a few months is not a sufficient time horizon to make a judgement. I do note that Wellesley is up for the most recent 1 and 6 month periods.

 

[MichaelB]

Correct. You seem to have a good memory. I was thinking of starting a new thread today about the losses in my bond funds over the last few weeks (since I bought them, in fact) and invite all those who have been critical of me for not taking more risks in the past to give their "expert advice" Only time will tell whose approach was right. Too early to tell.

My read of most of the threads you refer to, people are not critical of you for not taking more risk, they disagree with your way of assessing risk.

 

[slowsaver]

Wow, thanks for so many optimistic comments. A nice thing to wake-up to!

RunningBum found a mistake in my list of investments. I do have some VTMFX in my taxable accounts, but not in my Roth. I should have shown VDIGX in that spot. It's a dividend fund. Is that a reasonable substitute for Wellesley or Wellington that many of you have?

As far as how conservative I am ... I was really depressed about the 2008 crash, but I did manage to NOT sell. I stopped buying taxable investments though (the 401k and Roth stayed on autopilot). Most of the recovery I spent paying off my house and piling up cash. I thought I'd use the cash to purchase a rental property, but I've read a few horror stories about that. Plus, somewhere on this forum, I read that since the government taxes income and not wealth -- rental properties aren't always a great choice for the future. Does anybody have comments about owning a rental? My DH and I are not very handy anyplace other than a computer.

 

[pb4uski]

Correct. You seem to have a good memory. I was thinking of starting a new thread today about the losses in my bond funds over the last few weeks (since I bought them, in fact) and invite all those who have been critical of me for not taking more risks in the past to give their "expert advice" Only time will tell whose approach was right. Too early to tell.

Are you sure you are at a loss since you bought? Your post that you bought Wellesley was Mar 5 when Wellesley was trading at $60.24 and the most recent close was $60.77 and there were a quarterly distributions in between at the end of March and June. Hopefully, you are better off than you think.

VWIAX Quote - Vanguard Wellesley Income Fund - Bloomberg

 

[Major Tom]

My read of most of the threads you refer to, people are not critical of you for not taking more risk, they disagree with your way of assessing risk.

+1 - I couldn't have expressed it better myself.

It's not a question of whose approach is right, as you put it obgyn. There is no "right" investment approach. It has much more to do with choosing an approach that fits your comfort level and is best suited to give you the outcome you want.

I can well understand if you are not comfortable with the volatility that a portfolio heavy in equities will give you but over time, the effects of that volatility are "smoothed out", so to speak and what, in the short term, you may perceive as risk, is not that at all.

My apologies to slowsaver for helping to derail her thread. You're a fellow Norcal resident, so I should be treating you with more respect

 

[obgyn65]

Sorry for any typo as i am traveling . The last time I checked a week or two ago, the funds values were down since I bought them. I don't want to side track this thread any further, so I will create a new thread later today or later this week when time permits.

Are you sure you are at a loss since you bought? Your post that you bought Wellesley was Mar 5 when Wellesley was trading at $60.24 and the most recent close was $60.77 and there were a quarterly distributions in between at the end of March and June. Hopefully, you are better off than you think.

VWIAX Quote - Vanguard Wellesley Income Fund - Bloomberg

 

[steelyman]

I am in the midst of dollar cost averaging $100K+ into the market and mimicking a Vanguard target fund but using the individual components which are simple and well-publicized on Vanguard's website. I'm doing the components rather than the target fund because I wanted to add stuff like a REIT index and emerging markets.

 

[MichaelB]

Good idea to take other thoughts into a separate thread. Getting this one back on track

Wow, thanks for so many optimistic comments. A nice thing to wake-up to!

RunningBum found a mistake in my list of investments. I do have some VTMFX in my taxable accounts, but not in my Roth. I should have shown VDIGX in that spot. It's a dividend fund. Is that a reasonable substitute for Wellesley or Wellington that many of you have?

As far as how conservative I am ... I was really depressed about the 2008 crash, but I did manage to NOT sell. I stopped buying taxable investments though (the 401k and Roth stayed on autopilot). Most of the recovery I spent paying off my house and piling up cash. I thought I'd use the cash to purchase a rental property, but I've read a few horror stories about that. Plus, somewhere on this forum, I read that since the government taxes income and not wealth -- rental properties aren't always a great choice for the future. Does anybody have comments about owning a rental? My DH and I are not very handy anyplace other than a computer.

Slowsaver, welcome to the forum. You've done well, so congratulations on your achievements so far. In your OP you said you were worried - about your employer's health and stock market valuations. Is there any way you can use your upcoming windfall to be less worried? Perhaps an emergency fund to cover major unplanned expenses plus a half year income. That might let you take a little more risk elsewhere and still sleep comfortable. At your young age you still need investment growth and might look to this money as a way to help you achieve.

 

[pb4uski]

Good idea to take other thoughts into a separate thread. Getting this one back on track...

Good point. We never get sidetracked on this forum.

 

[slowsaver]

Slowsaver, welcome to the forum. You've done well, so congratulations on your achievements so far. In your OP you said you were worried - about your employer's health and stock market valuations. Is there any way you can use your upcoming windfall to be less worried? Perhaps an emergency fund to cover major unplanned expenses plus a half year income. That might let you take a little more risk elsewhere and still sleep comfortable. At your young age you still need investment growth and might look to this money as a way to help you achieve.

Well, I do have the $250k in my credit union account. Sometimes I think of it as an emergency fund. I suppose I should feel more brave with that there.

 

[MichaelB]

Well, I do have the $250k in my credit union account. Sometimes I think of it as an emergency fund. I suppose I should feel more brave with that there.

How much do you think you would need to deal with unplanned expenses and income loss? Once you cover that an asset allocation target helps. Not clear from your intro what that is.

 

[travelover]

Well, I do have the $250k in my credit union account. Sometimes I think of it as an emergency fund. I suppose I should feel more brave with that there.

$250K? Are you planning on a new roof or a kidnapping?

 

[slowsaver]

I thought I might use the $250k to purchase a rental property, but some things I've read recently have scared me off from the idea (see earlier post Today, 08:12 AM). Now I don't have much of a plan.

I read a post elsewhere that I could read a book called '4 pillars' to learn about AA.

 

[MichaelB]

I thought I might use the $250k to purchase a rental property, but some things I've read recently have scared me off from the idea (see earlier post Today, 08:12 AM). Now I don't have much of a plan.

I read a post elsewhere that I could read a book called '4 pillars' to learn about AA.

That is a good idea. 4 Pillars is an excellent start.

 

[haha]

Now my question: I have some stocks vesting in a few months, and I'm not sure what to do with the money. After taxes etc., it will be about 100k. I feel nervous about putting all of it into the stock market, because I feel like the market is really high right now. Any suggestions? Here are my current investments:

Various people here have pointed out that the single greatest bull market most of us have ever seen and will ever see, mostly happened when valuations (prices relative to some stable measure of earning and cash flow power) were already high.

Nevertheless, in my book this I speculation, not investment. If you instincts and will power are pretty good, keep your powder dry if you want to. Otherwise, the stable AA method works like religion- no matter how things break out there, if you keep faith you can feel sure that you are living righteously.

When I think about it, equity investing in general must at times have elements of religious faith. You see that on boards like this one during periods of stress. Plenty people trying to help one another to "keep the faith".

Ha

 

[RunningBum]

Various people here have pointed out that the single greatest bull market most of us have ever seen and will ever see, mostly happened when valuations (prices relative to some stable measure of earning and cash flow power) were already high.

Nevertheless, in my book this I speculation, not investment. If you instincts and will power are pretty good, keep your powder dry if you want to. Otherwise, the stable AA method works like religion- no matter how things break out there, if you keep faith you can feel sure that you are living righteously.

When I think about it, equity investing in general must at times have elements of religious faith. You see that on boards like this one during periods of stress. Plenty people trying to help one another to "keep the faith".

Ha

I think I'd have trouble reading your book, if it's all written like the bolded part!

People can and should do what they want with their money. I just can't read the signs of a recovery or drop myself, so I go with a stable AA. When asked for advice, that's the advice I give. Apparently I have plenty of company.

Mostly in my post I wanted to point out the issue with the tax managed fund being in a Roth, which turned out to be just a reporting mix-up. I decided to add my advice to the main question, and acknowledged that timing the market was another option, but I have no advice to give in that case.

As far as keeping the faith, the worst thing you can do in either strategy is to change it in times of stress. That leads to buying high and selling low. I don't see a problem with giving support to someone to keep them from making that mistake.

 

[SVHoper]

Hi,

Congratulations: $100-$350k allocation seems like a great problem to have.

I think a general bogleheads.org/Vanguard/Bernstein etc strategy is to pick an asset allocation you can stick with; don't attempt to market time and use low "core" cost index funds.

My asset allocation is slightly different from the majority as I have decided to include single family rental homes into the allocation. So in your situation, I have decided to allocate the next chunk to purchase a rental (which does require having a larger than ideal chunk in cash).

So I think my 2c advice is consistent with quite a few others: determine an asset allocation with which you can commit. ie Start from the top level strategy:
(1) main question, does your asset allocation include rental properties? If so you may want to use a high % of your available cash to reduce leverage or you may be comfortable so long as cashflow neutral. If you do then there is quite a lot you will want to understand to select the property.
(2) If not lump sum or sounds like you may be happier to dollar cost average your $100k into that asset allocation.

From my personal experience, I have had difficulty when I did not view investment decision such as yours in terms of what I am really considering is a possible change in asset allocation. If I am correct about the $100k it is already stock, so if you weren't considering a change in asset allocation you would have no trouble lumping it into different mutual fund basket of stock?

All the best.