Author Topic: Debt Free and Windfall question  (Read 379 times)

lifeplus

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Debt Free and Windfall question
« on: July 09, 2021, 12:36:01 PM »
In about 2 weeks I will be receiving a substantial amount of money from the sale of my business. Post tax obligations, let's say it is $1M cash.

My wife and I have no debt, our home is paid off, our daughter's college fund is funded and our 401ks are already maxed out for 2021. We don't qualify for Roth IRAs.

We are largely in equities right now (VTSAX). I have zero in Bonds and, with this money, and with what we've saved over the last 5 years, we will be FI. I'm curious what you would do with that cash to ensure your FI is solid. I know many here like to go all equities (stocks) and little to no fixed income (bonds). I can see that thinking as the market has been so good, but that's not always the case. I'm a big JL collins fan and am tempted to go 25% in Bonds (VBTLX), but curious to hear your thoughts. I've ran firecalc upside down and sideways and have been staring at that too long and thought I'd ask for some human input. Thanks.

Oh, and we don't want to invest in real estate nor are we interested in REITS.

FIRE 20/20

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Re: Debt Free and Windfall question
« Reply #1 on: July 09, 2021, 03:53:06 PM »
Can you provide any more detail?  When you say you will be FI, does that mean leanFI or FatFI?  Will this put you way over what you need, or will you just be at 25x of your planned expenses?  What's your risk tolerance?  If the markets drop 50% the day after you invest it, will you be ok with that both financially and emotionally?  Did you live through either the dot com crash or the 08/09 financial collapse?  How did you handle those?  Do you plan to have any side businesses after you FIRE? 

Asset allocation is always tricky because different people will respond differently to good an bad situations so there isn't a one-size fits all approach.  A little more information might help. 

MrThatsDifferent

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Re: Debt Free and Windfall question
« Reply #2 on: July 09, 2021, 04:18:43 PM »
Personally I wouldn’t stress about the perfect plan because why? You don’t need the extra money. I’d do what’s simplest and quickest so you don’t have to spend any time stressing. If 25% bonds and the rest invested in VTAX gives you peace of mind, go for it. You’re set with everything. Dump it in and live life how you want and enjoy. Congrats on your business moves and setting things up so well.

lifeplus

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Re: Debt Free and Windfall question
« Reply #3 on: July 09, 2021, 09:27:18 PM »
Thanks @MrThatsDifferent Much appreciated and thanks for the kind words. What's ahead is both exciting and scary at the same time.

@FIRE 20/20 I'll be 29X annual expenses and will be FatFire. However, I receive another chunk in 18 months which will be a big saftey cushion. I lived through both the dot com and 08 collapse, but was not investing at that time. If I lost 1/2 on day one, sequence of returns risk, that would be bad as we'd have to find work immediately.

The goal is for my wife and I to start a totally different business for us. We'd like to have some time to do it how we want and not worry about having to get it up fast. There's something nice about having some space to play and find our way to product market fit while only answer to our terms. That is the hope, goal and dream.

Finances_With_Purpose

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Re: Debt Free and Windfall question
« Reply #4 on: July 09, 2021, 10:38:44 PM »
Thanks @MrThatsDifferent Much appreciated and thanks for the kind words. What's ahead is both exciting and scary at the same time.

@FIRE 20/20
...

The goal is for my wife and I to start a totally different business for us. We'd like to have some time to do it how we want and not worry about having to get it up fast. There's something nice about having some space to play and find our way to product market fit while only answer to our terms. That is the hope, goal and dream.

To answer your question: that's about your own personal risk tolerance.  I don't like bonds for a whole variety of reasons, but even I have a small allocation to them to balance out my risk (say 10%). 

You may well want a little more because, as one blogger puts it: when you've won the game, why keep playing? 

You'll just have to adjust your expected returns and FIRE calcs as a result--as that will have a large impact on your expected returns and potential withdrawal rates.

I have another suggestion, based upon what you said in your follow-up post: have you considered how much principle you want on hand to start a new business?  That's going to be harder to get at once you don't have a normal/stable income, so you'll want to self-fund going in. 

I ask that because I might set aside a large starter fund for that, which is like a bond--and maybe partially held even in safer/low-risk bonds.  You can hit two birds with that stone.  Then once the business is up and returning something, you can shift more or less of your allocation around to balance things out. 

Meanwhile, you can make your FIRE plans based upon the smaller amount (sans business capital), which will leave you a safety net for sequence-of-returns risk while also increasing your bond allocation over the short term. 

It's hard to be more detailed without knowing timelines, expected capital necessary, and expected returns, but I thought I would throw that idea out since it seems to satisfy your various aims--and now is the time to figure that part out anyway.