What would you do with 250K in cash?

[NorCalFIRED]

I’ve been sitting on an excessive cash position for a while now. If you had 250K sitting in cash today, what move would you make in order to maximize your passive income from that investment?

First time poster though I’ve been frequenting this board since 2007. Hats off to all of you for providing me with great inspiration over the years. I recently left my Megacorp job at age 40 while the DW continues to work. Net worth is approximately 3M with 1.1M in after tax accounts, 900K in retirement accounts, 120K in a 529 for the DD, and 900K equity in a paid off home (not planning on moving.) We’re completely debt free and we’re generating about 42K in expenses per year. The 250K in cash is currently earning 1.05% APY and I’d like some thoughts on how you would better put this money to work. Assume you don’t need to touch it for the foreseeable future and that the income should be truly passive. I wouldn’t want to start creating work for myself by actively managing anything.

 

[DrRoy]

I have actually been working on this myself over the last month or two. I had some new cash from sales of real estate and an income ETF. I have been buying bonds of varying maturities from 2 years up to 8. The yield curve is steepest there, and you do not get a lot more return from locking up between 10 and 30 years. In taxable accounts I am using munis, and in tax sheltered accounts I am using corporates. My preference is for mid BBB to low A credit ratings to blend safety and yield. As the shorter bonds mature, I will have fresh funds to invest as rates (hopefully) move up at least a little. I must say though that rates have stayed low for more years than I would have guessed. I bought some of these bonds just this morning, and may hold up here with my cash at 2.2% of the portfolio, just in case of an unexpected need.

 

[Sunset]

I would buy VTI for 200K and VXUS for 50K that would pay dividends of $5,255 /yr with some growth over time.

How I would do it, would be 20K VTI and 5K VXUS each month for 10 months, but if the market fell 10%, I'd double my purchasing and if it fell 20% I'd be all in that month.

 

[HadEnuff]

If I were satisfied with my cash position without using any of the 250K, I'd DCA the 250K over 6 months or so (maybe a year?) into my set allocations. I am in that position actually, now, due to the sale of my business. I am waiting for the IRS dust to settle. Most of what is left over will wind up in Vanguard's STAR Fund. I've been buying it at 25K a clip in dips, about 30 days apart. IN my case some of that money is going to the IRS and some will satisfy my cash emergency fund position.

 

[David1961]

Vanguard Wellington has an SEC yield of about 2.4%.

 

[eta2020]

I agree with Sunset. How I would split between VTI and VXUS would depend on what I have in rest of my portfolio.

I would probably put 20% of that 250k into either SCHD or VIG to give my US exposure high quality, wide moat value tilt.

 

[haha]

I'd keep it as cash, at one of the online banks that offer ~1% on savings accounts.

For the first time in my life since childhood I have more cash and short term quality bonds than equity investments.

This is not for any reason other than my personal guesses as to the overall risk/ reward matrix now.

Ha

 

[bingybear]

I'd keep it as cash, at one of the online banks that offer ~1% on savings accounts.

For the first time in my life since childhood I have more cash and short term quality bonds than equity investments.

This is not for any reason other than my personal guesses as to the overall risk/ reward matrix now.

Ha

+1

I'm not there ... . yet, but looking closely at this.
The question is how many banks do you need if you want it all fdic covered?

 

[2017ish]

+1

I'm not there ... . yet, but looking closely at this.
The question is how many banks do you need if you want it all fdic covered?

FDIC is presently covering up to 250K per individual: 1) the horse's mouth: https://www.fdic.gov/deposit/deposits/brochures/your_insured_deposits-english.html 2) User friendly: https://wallethub.com/edu/ncua-fdic-insurance-limits/10877/

 

[24601NoMore]

I have been buying bonds of varying maturities from 2 years up to 8. The yield curve is steepest there, and you do not get a lot more return from locking up between 10 and 30 years. In taxable accounts I am using munis, and in tax sheltered accounts I am using corporates. My preference is for mid BBB to low A credit ratings to blend safety and yield..

DrRoy - I'm interested in doing the same. Could you share where you're purchasing your bonds and what types of yields you're seeing at different credit ratings?

Thanks!

 

[photoguy]

I'd dump a bunch in emerging and international equity (to rebalance or increase my international allocation). The rest in cash.

 

[calmloki]

+1

I'm not there ... . yet, but looking closely at this.
The question is how many banks do you need if you want it all fdic covered?

Barclays - 1.0%
Discover - 0.95%
TIAA - 0.75%

and such. There's $750k covered. Can also hit a few savings bonus accounts, like CapOne360 for a $500 bonus and 0.75% for (?) $50k?

We do hard money real estate loans and have an embarrassment of bank account cash right now. There are worse problems.

 

[Another Reader]

Depositaccounts.com

Savings Accounts

Synchrony Bank 1.05%
Ally Bank 1.00%
GE Capital 1.05 %

1 Year CD's

Synchrony 1.25 percent
Sallie Mae 1.25 percent

Spreading $1MM around would not be a problem. Deciding how much of a drop in the market warrants moving money, well, that's the problem.

 

[rayinpenn]

I'd buy 250k of VPU and enjoy the 3.6% yield that will be taxed at a lower rate if it is in a taxable account...


Sent from my iPad using Early Retirement Forum.

 

[Senator]

Strippers and beer?

Or you can just waste it in the stock market. Make weekly purchases of a ETF like IVV (SPY, VOO, etc.) that would give at least a 2% dividend. Maybe ~$10K a week. Get a commission free ETF at Fidelity, Vanguard or where ever you can. 50 trades at $8 a trade is not much, but it's $400 wasted. Take 6 months to fully invest.

You will get some growth and some dividends.

You could also diversify your portfolio with an annuity. They are high expense vehicles, but have their place.

 

[HadEnuff]

I'd buy 250k of VPU and enjoy the 3.6% yield that will be taxed at a lower rate if it is in a taxable account...


Sent from my iPad using Early Retirement Forum.

what is VPU, and why is it taxed at a lower rate?

 

[target2019]

what is VPU, and why is it taxed at a lower rate?

Public utilities ETF. Dividends are qualified. Slower growing, but better than long term cash, for now.

 

[HadEnuff]

Public utilities ETF. Dividends are qualified. Slower growing, but better than long term cash, for now.

I figured out that it was Vanguard's Public Ute fund, and it is described as "high risk"...

Why is that?

 

[target2019]

I figured out that it was Vanguard's Public Ute fund, and it is described as "high risk"...



Why is that?

Where did you read that it is high risk?

 

[bingybear]

I figured out that it was Vanguard's Public Ute fund, and it is described as "high risk"...

Why is that?

It invests in stocks. These stocks are less diversified then VOO and the like since it covers one sector. 82 stocks. The majority are electric multi-utilities.

Less diversification increases risk.

 

[bingybear]

Where did you read that it is high risk?

look up vpu

 

[target2019]

look up vpu

More risk more reward.

 

[DrRoy]

It invests in stocks. These stocks are less diversified then VOO and the like since it covers one sector. 82 stocks. The majority are electric multi-utilities.

Less diversification increases risk.

In addition, VPU is down 8% YTD. That does not always happen, of course, but this year you would have been better off in cash. If interest rates rise further, it would likely drop more.

 

[rayinpenn]

With regards to risk...
Yes a full world stock fund is highly diversified and lest risky then a dividend paying utility fund but that full world fund only pays 1% dividend.

I use a simplified Warren Buffet like approach when I do dividend investing
1. Do I understand what they do? A: Yup they make electricity
2. Do they have a monopoly? A: pretty much
3. Is there easy entrance to the market? A: no it cost a fortune to build a power plant
4. Did they pay dividends during the worst of times?
Answer: go to yahoo finance, type in Vpu, then choose historical prices on the left then click the dividends only.

http://finance.yahoo.com/q/hp?s=VPU&a=00&b=30&c=1999&d=11&e=24&f=2015&g=v

The price of Vpu took a hit in 2009 like nearly every other stock. But! what do you know they paid hefty dividends in 2009. That's what I care about. I guess my evaluation of risk is based on: How likely I'd it that they will pay me. And my investing horizon is Long Term so I not worry about how the market chooses to price my income stream fund today... I do diversify but with an eye towards dividends..

Simple yes, flawed arguably.. But it has worked for me.

 

[HadEnuff]

Where did you read that it is high risk?

On Vanguard's website, when you research any fund they display a "risk potential" graph, illustrating the relative risk of the particular fund.

For example, the money market fund (VMMXX) gets a #1, all the way to the left, which means "less risk, less reward"...

The VPU gets the opposite ranking, all of the way to the right "More risk, more reward" which is the highest risk potential grade they give.

The STAR fund which is a collection of indexed funds, allocated 60-40 stock-bond, gets a rating right in the middle,half-way.

So this may not mean it's "high risk" compared to betting on horses, or penny-stocks, but relative to other conservative investments.

The question I mean to ask is this: to what market circumstances is this fund exposed to risk? What makes public utility stocks go up, or down?