Author Topic: Please help me allocate my Bitcoin winnings.  (Read 1856 times)

nbock

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Please help me allocate my Bitcoin winnings.
« on: August 11, 2018, 09:11:04 PM »
I got rather lucky with BTC this past year and made about $300k.

This is what I've done with it so far:

 - Paid off mortgage:                                                  $50,000
 - Invested in a rental property:                                  $60,000
 - Personal loan to friend at 4% interest:                     $47,000
 - Home improvements (solar plus minor renovations): $14,000
 - Tax on winnings (so far):                                         $14,000
 - Charity                                                                   $5,000

I've been reluctant to invest the remaining $110,000 as I'm convinced that the stock market is overvalued and I'm already overexposed in rental real estate.  Of course, it's arrogant to think that I can continue to time markets correctly, and I've already let all those dollars sit around for 7 months when they could have been working for me. Ideally, I'd like to invest conservatively now, then aggressively once the next economic downturn hits.

What would you do in my situation? 33, single, post-FIRE.

letired

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Re: Please help me allocate my Bitcoin winnings.
« Reply #1 on: August 11, 2018, 09:38:23 PM »
What would you do in my situation? 33, single, post-FIRE.

Invest according to the windfall provision of my personal investment policy.

Baring that, invest in the market at my chosen asset allocation. If I've FIREd, this is icing on the cake. I don't need this money for decades, if ever. Is the stock market overvalued relative to 30 years from now? Probably not.

Baring that, I'd go for the inflation-protected government bonds. I won't be losing money, at any rate.

ETA: I'd actually probably consider more charity and/or political donations in the service of preventing the planet from overheating, but YMMV.

JAYSLOL

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Re: Please help me allocate my Bitcoin winnings.
« Reply #2 on: August 11, 2018, 10:59:28 PM »
What's you current asset allocation for FIRE funds?  Do you have an emergency fund or other un-invested cash savings?  What's your annual FIRE spending?  Being 33, it couldn't hurt to have a couple years of spending in high-interest savings in case of a market downturn or emergency. 

MustacheAndaHalf

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Re: Please help me allocate my Bitcoin winnings.
« Reply #3 on: August 12, 2018, 07:32:50 AM »
Take another look at how you're gauging risk.  You're scared of a market drop, but you loan a friend almost $50,000 at 4% interest.  Which of those is more likely to result in a loss?

Similarly, you paid off your mortgage.  Emotionally that may fill a need, but a mortgage at a fixed low rate of interest is unlikely to be a better investment than buying into an index fund.

If you haven't invested anything, you should start.  Maybe it's not the level of risk that bothers you, but simply that you haven't done it before.  You can open an account with Vanguard, Fidelity or Schwab and have $0/trade mutual funds available with low expense ratios.  For example, you could open a Vanguard account with just $1,000 and buy "VTI", which holds stocks of thousands of US companies.  It would be a less risky investment than anything else you're doing.

There's always a short term risk of the markets dropping - but you can't predict it correctly.  The markets rapidly translate news into stock price changes, which leaves no new information left over for you to have an advantage over the stock market.

talltexan

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Re: Please help me allocate my Bitcoin winnings.
« Reply #4 on: August 13, 2018, 07:55:49 AM »
Am I correct in assuming--based on your profit--that your initial cost of your bitcoin stake was about $30,000?

You should be emotionally ready to put at least that amount into the SP500. You can keep the rest in something less volatile if you want some comfort.

FINate

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Re: Please help me allocate my Bitcoin winnings.
« Reply #5 on: August 13, 2018, 08:13:44 AM »
I've been reluctant to invest the remaining $110,000 as I'm convinced that the stock market is overvalued and I'm already overexposed in rental real estate.  Of course, it's arrogant to think that I can continue to time markets correctly, and I've already let all those dollars sit around for 7 months when they could have been working for me. Ideally, I'd like to invest conservatively now, then aggressively once the next economic downturn hits.

Your humility has yet to catch up with your ego :)

Market could go up, or down, or sideways... no one knows. BTC was pure dumb luck. One of the most dangerous aspects of such an experience is believing intuitively that you can time markets - sorry, you can't.

My recommendation: Drop the 110k in a low cost total market index fund (e.g. VTSAX) and forget you have it. Assuming a fairly conservative 8% average annual return you'll end up with about $1.2M by age 65 (110000*1.08^32). You literally don't need to lift a finger, add more funds, or anything other than 1099 forms at tax time - purely passive.


nbock

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Re: Please help me allocate my Bitcoin winnings.
« Reply #7 on: August 14, 2018, 04:40:14 PM »
Thanks for all the advice, I really appreciate it! To sum up everyone's comments, it sounds like putting all or most of the money in a low-fee index fund is the way to go. I'm hesitant to go all in on stocks for three reasons:

1. Past experience. I invested heavily near the peaks of the last two market cycles and don't want to repeat that mistake. I do understand the rationale behind ignoring current conditions and focusing on the long-term, though.
2. Ethics. I don't agree with how most large corporations are conducting their business these days. I'm not crazy about handing them more money to lobby with.
3. Success in real estate. Of the 6 rental units I've owned, starting in 2009, the lowest average ROI was about 12%, ignoring any increase in property value. Obviously, these good times won't last forever, and its never a good idea to put all your eggs in one basket, but I would like some cash left over to put into the next project, once the current one is complete.

Does anyone know of any socially conscious index funds, specifically ones that avoid fossil fuel investment?

nbock

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Re: Please help me allocate my Bitcoin winnings.
« Reply #8 on: August 14, 2018, 04:52:08 PM »
What's you current asset allocation for FIRE funds?

Honestly, about 60% RE; 25% cash; 15% stocks/index funds.

Do you have an emergency fund or other un-invested cash savings?  What's your annual FIRE spending? 

Yes, enough for about 2.5 years at current spending.

Being 33, it couldn't hurt to have a couple years of spending in high-interest savings in case of a market downturn or emergency.

Agreed, about 1/3 of it is in gold/silver, and I'm in the process of moving the rest into a high interest savings account.

nbock

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Re: Please help me allocate my Bitcoin winnings.
« Reply #9 on: August 14, 2018, 04:53:26 PM »
Am I correct in assuming--based on your profit--that your initial cost of your bitcoin stake was about $30,000?

You should be emotionally ready to put at least that amount into the SP500. You can keep the rest in something less volatile if you want some comfort.

Initial cost was $2,500.

letired

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Re: Please help me allocate my Bitcoin winnings.
« Reply #10 on: August 14, 2018, 05:27:56 PM »
1. Past experience. I invested heavily near the peaks of the last two market cycles and don't want to repeat that mistake. I do understand the rationale behind ignoring current conditions and focusing on the long-term, though.

http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Quote
Does anyone know of any socially conscious index funds, specifically ones that avoid fossil fuel investment?

Unfortunately, this is effectively an oxymoron. Once you're picking stocks, you're not longer an index fund, and what counts as 'socially conscious' and who makes the cut is a very squishy question, and all the funds I've looked at in that arena have the same big corporations and worse performance and higher expense ratios than your standard index fund.

Example from Vanguard: https://investor.vanguard.com/mutual-funds/profile/VFTSX

Quote
Month-end 10 largest holdings
(26.20% of total net assets) as of 06/30/2018

1   Apple Inc.
2   Microsoft Corp.
3   Alphabet Inc.
4   Facebook Inc.
5   JPMorgan Chase & Co.
6   Johnson & Johnson
7   Bank of America Corp.
8   Wells Fargo & Co.
9   Visa Inc.
10   UnitedHealth Group Inc.

Not what I would call a super-ethical bunch of companies. Furthermore, the index they follow (FTSE Social Index) has 3.5% in Oil & Gas companies. 


stashing_it

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Re: Please help me allocate my Bitcoin winnings.
« Reply #11 on: August 14, 2018, 10:50:04 PM »
I got rather lucky with BTC this past year and made about $300k.

This is what I've done with it so far:

 - Paid off mortgage:                                                  $50,000
 - Invested in a rental property:                                  $60,000
 - Personal loan to friend at 4% interest:                     $47,000
 - Home improvements (solar plus minor renovations): $14,000
 - Tax on winnings (so far):                                         $14,000
 - Charity                                                                   $5,000

I've been reluctant to invest the remaining $110,000 as I'm convinced that the stock market is overvalued and I'm already overexposed in rental real estate.  Of course, it's arrogant to think that I can continue to time markets correctly, and I've already let all those dollars sit around for 7 months when they could have been working for me. Ideally, I'd like to invest conservatively now, then aggressively once the next economic downturn hits.

What would you do in my situation? 33, single, post-FIRE.

The other thing I haven't seen mentioned, is I would guess that 14,000 on ~300,000 in gains is significantly less tax than you can expect to pay.   I'm no tax expert, but @ long term capital gains rate of 20%,  that would be more like 60K.    And short term tax rates are closer to 40% I think

So you might want to figure out what your expected taxes are and set that aside (or pay estimated ahead of time)

MustacheAndaHalf

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Re: Please help me allocate my Bitcoin winnings.
« Reply #12 on: August 15, 2018, 01:36:11 AM »
I'm hesitant to go all in on stocks ...
Why do you keep making this an "all or nothing" decision?
You can decide the percentage you feel comfortable risking.

One of the most ancient bits of investing advice was to put your assets equally in gold, land, and business.  Well, you could try that: the modern gold of Bitcoin, real estate rentals, and the S&P 500.

I also experienced the 2008 crisis, but I guess the difference between us is that I didn't sell.  If the market's collapse, and your confidence goes with it, you can sell at the worst time consistently.  To fight that, you should get more information.  "A Random Walk Down Wall Street" might help you stay the course next time.

talltexan

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Re: Please help me allocate my Bitcoin winnings.
« Reply #13 on: August 15, 2018, 06:15:33 AM »
I'm surprised gold is getting so much love on this thread. Do people here really have significant positions in it? (for the record, I am 0%)

MustacheAndaHalf

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Re: Please help me allocate my Bitcoin winnings.
« Reply #14 on: August 15, 2018, 08:38:44 AM »
I'm surprised gold is getting so much love on this thread.
I said "the modern gold of Bitcoin", not gold itself.  There's only one other reference in this thread.

appleshampooid

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Re: Please help me allocate my Bitcoin winnings.
« Reply #15 on: August 15, 2018, 09:06:24 AM »
I'm surprised gold is getting so much love on this thread. Do people here really have significant positions in it? (for the record, I am 0%)
I haven't responded in this thread, but since you asked...I used to be a gold bug. I still have some physical bullion (gold and silver). Total value presently, $12159.99 against a cost basis of $14814.07. I've toyed with unloading it recently as it's not a part of my investment plan going forward. I could claim a capital loss, but I don't have great records for all of the purchases (wouldn't matter unless I got audited, but would make me nervous). Plus it's a huge hassle to find a dealer, the commissions are pretty big, etc. I have pretty much settled on just holding on to it and trading it for chickens during the post-apocalyptic financial collapse  .

ysette9

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Re: Please help me allocate my Bitcoin winnings.
« Reply #16 on: August 15, 2018, 09:10:34 AM »
I get a laugh at how US-centric each of these “the market is overvalued!” sky-is-falling threads I read. How about international stocks? I have zero expertise on this (which is why all of my investments are in broad passive index funds), but I’m pretty sure the entire world isn’t overvalued.

“Overvalued”, what does that even mean? Aren’t you investing for the next 50 years of your life? You need to do some deep self-education (the links provided above are a great start) to really understand how the stock and bond markets work, safe withdrawal rates, downturns and the like. As others have noted, you sound uncertain. The way to get over fear is knowledge. Get working on that.

PJS

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Re: Please help me allocate my Bitcoin winnings.
« Reply #17 on: August 15, 2018, 02:18:25 PM »
Does anyone know of any socially conscious index funds, specifically ones that avoid fossil fuel investment?

Both of these are available on TD Ameritrade as Commission-Free ETFs

SPYX - Essentially the S&P 500, minus any companies that own fossil-fuel reserves

QCLN - Primarily manufacturers, developers, distributors or installers of clean-energy technologies

GuitarStv

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Re: Please help me allocate my Bitcoin winnings.
« Reply #18 on: August 15, 2018, 02:20:18 PM »
You should totally put all the money back into buttcoin.

OurTown

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Re: Please help me allocate my Bitcoin winnings.
« Reply #19 on: August 15, 2018, 02:31:35 PM »
50% pork bellies, 50% tulip bulbs.

TrMama

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Re: Please help me allocate my Bitcoin winnings.
« Reply #20 on: August 15, 2018, 03:11:22 PM »
I got rather lucky with BTC this past year and made about $300k.

This is what I've done with it so far:

 - Paid off mortgage:                                                  $50,000
 - Invested in a rental property:                                  $60,000
 - Personal loan to friend at 4% interest:                     $47,000
 - Home improvements (solar plus minor renovations): $14,000
 - Tax on winnings (so far):                                         $14,000
 - Charity                                                                   $5,000

I've been reluctant to invest the remaining $110,000 as I'm convinced that the stock market is overvalued and I'm already overexposed in rental real estate.  Of course, it's arrogant to think that I can continue to time markets correctly, and I've already let all those dollars sit around for 7 months when they could have been working for me. Ideally, I'd like to invest conservatively now, then aggressively once the next economic downturn hits.

What would you do in my situation? 33, single, post-FIRE.

The other thing I haven't seen mentioned, is I would guess that 14,000 on ~300,000 in gains is significantly less tax than you can expect to pay.   I'm no tax expert, but @ long term capital gains rate of 20%,  that would be more like 60K.    And short term tax rates are closer to 40% I think

So you might want to figure out what your expected taxes are and set that aside (or pay estimated ahead of time)

This is exactly what I was thinking. Please explain to the rest of us how you managed to pay only 4.6% tax on a $300K gain. I've heard tax rates are lower in the US, but that seems a bit absurd.

nbock

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Re: Please help me allocate my Bitcoin winnings.
« Reply #21 on: August 15, 2018, 06:36:18 PM »
I got rather lucky with BTC this past year and made about $300k.

This is what I've done with it so far:

 - Paid off mortgage:                                                  $50,000
 - Invested in a rental property:                                  $60,000
 - Personal loan to friend at 4% interest:                     $47,000
 - Home improvements (solar plus minor renovations): $14,000
 - Tax on winnings (so far):                                         $14,000
 - Charity                                                                   $5,000

I've been reluctant to invest the remaining $110,000 as I'm convinced that the stock market is overvalued and I'm already overexposed in rental real estate.  Of course, it's arrogant to think that I can continue to time markets correctly, and I've already let all those dollars sit around for 7 months when they could have been working for me. Ideally, I'd like to invest conservatively now, then aggressively once the next economic downturn hits.

What would you do in my situation? 33, single, post-FIRE.

The other thing I haven't seen mentioned, is I would guess that 14,000 on ~300,000 in gains is significantly less tax than you can expect to pay.   I'm no tax expert, but @ long term capital gains rate of 20%,  that would be more like 60K.    And short term tax rates are closer to 40% I think

So you might want to figure out what your expected taxes are and set that aside (or pay estimated ahead of time)

It's 15% in my case, although there are various ways to offset capital gains. I expect to owe another ~$25,000 for 2018.

2018 Capital Gains Tax Rates
Long-term capital gains tax rate   Your income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%   $0 to $38,600
15%   $38,601 to $425,800
20%   $425,801 or more


nbock

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Re: Please help me allocate my Bitcoin winnings.
« Reply #22 on: August 15, 2018, 06:54:40 PM »
ďOvervaluedĒ, what does that even mean?

Assuming that question is rhetorical, its certainly possible for markets to be overvalued (domestically or globally) at the present time while still being a great bargain on a long enough time scale.

That said:
Arenít you investing for the next 50 years of your life?

That was the original plan. It must have been overlooked somewhere between my 3rd career change and the realization that "Holy shit, I can retire at 30!"  Thanks for setting me straight.

nbock

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Re: Please help me allocate my Bitcoin winnings.
« Reply #23 on: August 15, 2018, 07:01:38 PM »
Does anyone know of any socially conscious index funds, specifically ones that avoid fossil fuel investment?

Both of these are available on TD Ameritrade as Commission-Free ETFs

SPYX - Essentially the S&P 500, minus any companies that own fossil-fuel reserves

QCLN - Primarily manufacturers, developers, distributors or installers of clean-energy technologies

Perfect. Thank you.

hodedofome

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Re: Please help me allocate my Bitcoin winnings.
« Reply #24 on: August 15, 2018, 09:54:49 PM »
This bull market has at least another couple of years in it. Donít let people fool you into thinking itís gonna crash and burn this year.

It just got started in 2016. End of 2014 to beginning of 2016 was a bear market of time, not price. The market didnít do jack. Itís only a couple of years old.