Author Topic: Managing a windfall  (Read 4538 times)

captainawesome

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Managing a windfall
« on: April 28, 2016, 10:01:58 AM »
So I'm looking at a windfall of ~$100k in the next few months due to the sale of my home.  I've lived in the home for the last four years, so I'm not looking at any tax implications from the sale.  I'm in the military, so I'm not necessarily looking to purchase again (per Nords recommendation) but I'm not opposed to using real estate as an investment vehicle. I have read the Bogleheads "Managing a Windfall" page but wanted to see if anyone had any other suggestions/recommendations from their own experiences.

Current investments -
Roth IRA ~$52500
RothTSP ~$19700
Savings - $7500

Current 3 year outlook-
Will be stationed at this job for 3 years.  Within that timeframe I may promote, which would certainly be great financially. If I don't promote I'll be out by 2019.  I don't plan an major purchases (like another home) in that time frame unless I could use that as an investment/rental property later on down the road.

No other debt. Once I sell the house, I'll be 100% in the black.  I'm assuming my savings will take an initial hit due to first, last, and security deposit for South Florida (assuming about 7K).  So initially I'll need to replenish, and likely increase it due to higher costs of living to match my 3 month emergency fund (assume 15k?) that leaves me roughly 85k to invest.  I don't really want to keep that money sitting around in my checking/savings account more than a few months at most (the urge to spend it would be a little too tempting IMO).  My initial thought is fully fund my IRA, continue to maximize my TSP and then throw the remaining money at Vanguard, maybe in a 3 fund method (https://www.bogleheads.org/wiki/Three-fund_portfolio). 

While not a bad option, open to suggestions. I'd like to put myself in a good situation and have my money work for me. I know some people like Betterment, just not sure if there are major advantages over investing myself (I just don't know enough about it) Currently my TSP and IRA are both in Targeted Retirement Year Funds, so I'd want to ensure I had enough diversity across my investments. Thanks!


soccerluvof4

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Re: Managing a windfall
« Reply #1 on: April 28, 2016, 02:36:21 PM »
what and when is your end goal? How soon if at all do you need the money?

nereo

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Re: Managing a windfall
« Reply #2 on: April 28, 2016, 04:01:31 PM »
So I'm looking at a windfall of ~$100k in the next few months due to the sale of my home. ...
[snip]
My initial thought is fully fund my IRA, continue to maximize my TSP and then throw the remaining money at Vanguard, maybe in a 3 fund method (https://www.bogleheads.org/wiki/Three-fund_portfolio). 

My initial response is: Do you have an IPS?  If so, follow that.  If not - create that first.
It sounds like you want to invest this money, so I'd recommend investing the ~$85k the same way you might invest $8.5k.

Quote
Currently my TSP and IRA are both in Targeted Retirement Year Funds, so I'd want to ensure I had enough diversity across my investments. Thanks!
IMO diversity gets overthought these days.  If you have a Target Retirement Year fund you already have a very high level of diversity, with an auto-balancing mixture of stocks and bonds.  Diversity was a problem when people bought individual stocks and they might have 10-20 total, many of which might be highly correlated.
Are there any specific investments you hold which might cause you to worry about your diversification?  For example, maybe 10% of your net worth is tied up in a single stock?

captainawesome

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Re: Managing a windfall
« Reply #3 on: April 30, 2016, 08:10:34 AM »
So I'm looking at a windfall of ~$100k in the next few months due to the sale of my home. ...
[snip]
My initial thought is fully fund my IRA, continue to maximize my TSP and then throw the remaining money at Vanguard, maybe in a 3 fund method (https://www.bogleheads.org/wiki/Three-fund_portfolio). 

My initial response is: Do you have an IPS?  If so, follow that.  If not - create that first.
It sounds like you want to invest this money, so I'd recommend investing the ~$85k the same way you might invest $8.5k.

Quote
Currently my TSP and IRA are both in Targeted Retirement Year Funds, so I'd want to ensure I had enough diversity across my investments. Thanks!
IMO diversity gets overthought these days.  If you have a Target Retirement Year fund you already have a very high level of diversity, with an auto-balancing mixture of stocks and bonds.  Diversity was a problem when people bought individual stocks and they might have 10-20 total, many of which might be highly correlated.
Are there any specific investments you hold which might cause you to worry about your diversification?  For example, maybe 10% of your net worth is tied up in a single stock?

Best case end goal - I continue to promote doing jobs I love in my current profession. I am still eligible for the military pension retirement (which if I stay until 20 years would be a no brainier) the money I am putting away now would allow me to fully and completely retire at the end of my military career, leaving my monthly pension as my source of income until I can draw from my other accounts.

Worst case- I don't promote in the next 3 years which would have me changing careers, location, potential loss of income when transitioning to civilian life etc. I could potentially use some of the money invested now to purchase a home.

Either way, I don't foresee "needing" the money in the next 3 years, and so long as I have a dent layered emergency fund, unless the government shuts down, I should have a steady paycheck for the next 3 years as well.

I don't have an IPS, didn't even think of that. I don't have any specific stocks either. KISS and put money away has been my strategy. I sold a lot of stocks and funds to buy this house in 2012 (foreclosure, so I treated it like an investment) so essentially now I'm cashing out this investment to put towards a new set of investments.

Nords

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Re: Managing a windfall
« Reply #4 on: April 30, 2016, 02:17:24 PM »
So I'm looking at a windfall of ~$100k in the next few months due to the sale of my home.  I've lived in the home for the last four years, so I'm not looking at any tax implications from the sale.
One caveat:  in the unlikely event that you took a home-office deduction on your residence, you might have to pay depreciation recapture on that part of the home.  But that's a mighty small niche.

I'm in the military, so I'm not necessarily looking to purchase again (per Nords recommendation) but I'm not opposed to using real estate as an investment vehicle.
I can see repeating the experience if you find another foreclosure bargain, but you'll be busy enough at your military career.  Unless you're a hard-core real estate investor, why complicate your life with the extra risk?

My initial thought is fully fund my IRA, continue to maximize my TSP and then throw the remaining money at Vanguard, maybe in a 3 fund method (https://www.bogleheads.org/wiki/Three-fund_portfolio). 
Good enough. 

As long as you're in the military, and especially if you stick around long enough for a pension, you could invest aggressively in a high-equity portfolio.  But that's just tinkering on the margins.  Your plan balances maximum returns with minimal labor... and more liberty.

As others have mentioned, your personal Investment Policy Statement will make you think through the asset-allocation process and find your comfort zone.  It's a handy reference for the next bear market, or to review every few years to see if your perspective has changed.