What to do with $100k

[HovEratoTo]

Hi everyone,

We had a windfall of about $100k and are unsure what to do with it. I'm worried about putting all our eggs in the stock market basket. Husband is maxing out on 401k and contributing max to a 529.

Here's the breakdown of our assets currently (excluding the additional $100k; we do not have any debt):

Tax-advantaged accounts (401k, HSA, 529): $310,000
Taxable accounts:                                        $140,000
Home equity:                                              $390,000 (paid off)
Emergency fund:                                         $100,000

All told about $1.04M net worth. Husband is still working and covering monthly expenses + small savings rate ~20% as we work towards our full FIRE number. We know our emergency fund is way high but feel more comfortable with it given I'm not currently working.

We're not quite ready to jump into real estate though have an interest in it, perhaps in the next ~2 years. I'm thinking of starting a business in the next 1-2 years but don't plan to need that much capital.

Should I dump the money in the best CD I can find? Am I being too cautious about the market? Are there other strategies I'm missing? TIA!

[TheHardenedInvestor]

First put it towards any debt you have. Once debt is completely gone, then I would invest in a board-based market index fund. Keep in mind that you will get 1.9% dividend yield on the investment in the market. Maybe you get a 2.5% CD for 12 months but that’s it. Basically a wash with inflation. I would absolutely, no questions asked, pay debt, then invest the rest into the “market”.

[HovEratoTo]

First put it towards any debt you have. Once debt is completely gone, then I would invest in a board-based market index fund. Keep in mind that you will get 1.9% dividend yield on the investment in the market. Maybe you get a 2.5% CD for 12 months but that’s it. Basically a wash with inflation. I would absolutely, no questions asked, pay debt, then invest the rest into the “market”.

Thanks! Debt-free, so not a concern there.

[Lady SA]

Will you need this money in the next 5 years? Your emergency fund says to me no, but it depends on your comfort level.

The investment order will likely be helpful:
https://forum.mrmoneymustache.com/investor-alley/investment-order/
According to this, you are likely onto the last few items on the priority list.

I would keep aside however much capital you need for your business in cash, then the rest goes into your taxable account in an index fund. If the market crashes, ride out the storm with your emergency fund and don't touch it. Read this:  https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

[Fishindude]

CD Rates are getting decent for longer term stuff, if you don't want to stick it in the market.

[frugaliknowit]

The answer to your question depends on the time frame you have in mind for the money. 

[beer-man]

Dump it and the whole emergency fund in a 50/50AA taxable fund and let it ride for a few years


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[ysette9]

When you say that your husband is maxing out his 401(k), do you mean $18.5k or $55k? If he can do post-tax contributions and then do a Roth conversion (in-plan Roth conversion or mega backdoor Roth) then he should take advantage of that. What are you invested in for your investment accounts?

More important: what does your personal investment policy statement tell you to do?

If you don’t have one, work on one. You need an overall plan. Your risk tolerance seems to be especially low; can you talk about why that is? With a paid-off house, a husband working and still saving, your massive emergency fund seems a bit over the top. What are your expenses? How close are you to your FI number?

In your shoes I would first sit down with my spouse over wine and write an investment policy statement. I would then invest the entire windfall plus a portion of that emergency fund according to the asset allocation we decided was appropriate and documented in the investment policy statement.

Note: any talk of being afraid of investing because the market is high is 1) pure market timing speculation which has been shown time and again to be a losing strategy and 2) is very US-centric. If you can’t convince yourself that market timing is bad (check out The Top Is In thread for some laughs on market timing) then at least invest in a broad international index fund. I sincerely doubt the entire world is over-valued. Even if it is, 30 years from now the thing that will matter most is that you invested as soon as you had the money and that you stayed the course. That is a recipe for success.

[ysette9]

And of course, congratulations on your windfall.