What to do with cash lump sum

[JaBe247]

Hi Mustachians - I have a significant cash  lump sum payout ($500,000). I'm reluctant to invest all at once in stock market (ETFs) now since the market is so high. I am single, 60, recently retired. Any ideas on what I should do with this? Thanks in advance...

[MoonLiteNite]

You can mail it to me
PO box 666
Austin, TX
78747

Thanks


Personally, that would put me over the top to be FI, so i would invest it in low risk stocks or bonds.
But it just depends on what you already have, how much income you need now or later

[boarder42]

Dump it all into your asset allocation. Maybe revise it to a riskier one. If you're retired you determined you had enough before this. Dump it all into small cap value and then leave a bunch to your favorite charity when you die.

[Another Reader]

Without knowing the source of this money or your entire financial picture, it's impossible to say what I would do in your shoes.  At 60, you are much older than the average person on this forum, who has 30 or more years to catch up with you.  What they would do would be much different than I would do, and we are similar in age.

If this is a rollover of a lump sum pension, I would develop an overall asset allocation, and start investing.  Since sequence of returns risk applies to you more than a young person, I would be cautious and move into the market slowly.

If this is not money from a qualified retirement plan, I would consider the ultimate purpose of the money.  The time horizon would govern my investment selection and timing.

[NorCal]

If you're hesitant to invest it, that is the clearest indication you can get that your investments are too risky for your tastes.

Would you feel different if your portfolio were 60/40 stocks/bonds?  Or even 50/50?

If you're still uncomfortable with that, what are your thoughts on buying a rental property?

I know 100% stocks is way too risky for my taste, although many around here are perfectly comfortable with it.  I have a sneaking suspicion that most of those 100% in stocks didn't invest through the last downturn.

[GuitarStv]

You have an asset allocation plan so that you never need to ponder this question.  Invest the money as per your pre-determined plan.  Quantity of money should make no difference . . . You are at the same risk levels if you're allocated the same way.

[boarder42]

You have an asset allocation plan so that you never need to ponder this question.  Invest the money as per your pre-determined plan.  Quantity of money should make no difference . . . You are at the same risk levels if you're allocated the same way.

I'd tend to disagree with this statement. If I fire then inherit a large sum of money, it decreases risk of failure due to running out of money and may allow you to alter your AA to increase overall returns. If you stick to the same AA you've lowered overall risk it's not the same.

[The Money Monk]

You have an asset allocation plan so that you never need to ponder this question.  Invest the money as per your pre-determined plan.  Quantity of money should make no difference . . . You are at the same risk levels if you're allocated the same way.

I'd tend to disagree with this statement. If I fire then inherit a large sum of money, it decreases risk of failure due to running out of money and may allow you to alter your AA to increase overall returns. If you stick to the same AA you've lowered overall risk it's not the same.

I agree with this. If you Inherited 50 million you could go 100% stocks because it wouldn't matter if the markets tanked even 50% in the short term, you would still be bringing in enough income to easily maintain your lifestyle.

If on the other hand you got 500k like this guy, even a 10% correction in the markets could significantly affect you if you are trying to live off the interest.

[boarder42]

You have an asset allocation plan so that you never need to ponder this question.  Invest the money as per your pre-determined plan.  Quantity of money should make no difference . . . You are at the same risk levels if you're allocated the same way.

I'd tend to disagree with this statement. If I fire then inherit a large sum of money, it decreases risk of failure due to running out of money and may allow you to alter your AA to increase overall returns. If you stick to the same AA you've lowered overall risk it's not the same.

I agree with this. If you Inherited 50 million you could go 100% stocks because it wouldn't matter if the markets tanked even 50% in the short term, you would still be bringing in enough income to easily maintain your lifestyle.

If on the other hand you got 500k like this guy, even a 10% correction in the markets could significantly affect you if you are trying to live off the interest.

this greatly depends on what you live on.  from the OP we know 2 things

1. They are retired prior to an unexpected sum of money - meaning they had already determined and accounted for any correction in the market and determined they could retire
2. they inherited 500k.  around here thats 50% of the total overall "stash" of any given person.  - based on age OP might be from the pension era still. 

I'd agree with your premise if they had inherited money then retired but its the other way around.

[GuitarStv]

You have an asset allocation plan so that you never need to ponder this question.  Invest the money as per your pre-determined plan.  Quantity of money should make no difference . . . You are at the same risk levels if you're allocated the same way.

I'd tend to disagree with this statement. If I fire then inherit a large sum of money, it decreases risk of failure due to running out of money and may allow you to alter your AA to increase overall returns. If you stick to the same AA you've lowered overall risk it's not the same.

If I'm already retired and living off my fortune, I'm already comfortably living the life that I want to.  Excess money isn't going to change my life in any significant manner, so it's kinda irrelevant what I do with it.

[boarder42]

You have an asset allocation plan so that you never need to ponder this question.  Invest the money as per your pre-determined plan.  Quantity of money should make no difference . . . You are at the same risk levels if you're allocated the same way.

I'd tend to disagree with this statement. If I fire then inherit a large sum of money, it decreases risk of failure due to running out of money and may allow you to alter your AA to increase overall returns. If you stick to the same AA you've lowered overall risk it's not the same.

If I'm already retired and living off my fortune, I'm already comfortably living the life that I want to.  Excess money isn't going to change my life in any significant manner, so it's kinda irrelevant what I do with it.

if you view your life in a vacuum yes i guess that would be correct.  i would say many have kids or charities they'd like to help out.  so an extra 500k which is a lot in these parts can greatly change what you do with your money and how you invest it ... even if it is just that 500k.

[GuitarStv]

Why would you want the money set aside for your kids or charity to be at a greater risk level than the money you were setting aside for yourself?

[boarder42]

Why would you want the money set aside for your kids or charity to be at a greater risk level than the money you were setting aside for yourself?

It's more volatile. It's not more risky. It's money you didn't count on for fire. Why not maximize it.

[PaulMaxime]

I know 100% stocks is way too risky for my taste, although many around here are perfectly comfortable with it.  I have a sneaking suspicion that most of those 100% in stocks didn't invest through the last downturn.

Deinitely not true of some of us 100% stocks all the way through 2008-2009 and way better off for it. But the OP should not necessarily do the same. They need to be comfortable with their allocation. If already retired, why not just leave it alone for a little while until you work out what you need it for. There really isn't any rush.

[BlueHouse]

You have an asset allocation plan so that you never need to ponder this question.  Invest the money as per your pre-determined plan.  Quantity of money should make no difference . . . You are at the same risk levels if you're allocated the same way.

I'd tend to disagree with this statement. If I fire then inherit a large sum of money, it decreases risk of failure due to running out of money and may allow you to alter your AA to increase overall returns. If you stick to the same AA you've lowered overall risk it's not the same.

I agree with this. If you Inherited 50 million you could go 100% stocks because it wouldn't matter if the markets tanked even 50% in the short term, you would still be bringing in enough income to easily maintain your lifestyle.

If on the other hand you got 500k like this guy, even a 10% correction in the markets could significantly affect you if you are trying to live off the interest.

this greatly depends on what you live on.  from the OP we know 2 things

1. They are retired prior to an unexpected sum of money - meaning they had already determined and accounted for any correction in the market and determined they could retire
2. they inherited 500k.  around here thats 50% of the total overall "stash" of any given person.  - based on age OP might be from the pension era still. 

I'd agree with your premise if they had inherited money then retired but its the other way around.

Where did the assumption that this is an unexpected windfall come from?  As stated upstream, this could be the OP's pension distribution as a lump sum. It could represent 100% of retirement assets. OP May have retired last week, had this distribution, and needing advice. Let's get more info before giving advice on how risk tolerant someone else should be.

[KungfuRabbit]

I love when people argue based off unknown hypotheticals.

Need more info. Ideally post an entire case study.

[boarder42]

correct more info is needed the OPs post could have been interpreted many ways. 

Case study isnt really necessary ... OP determined they could retire ... would just be good to know whats funding that and what the spending is ... then we can give advice on where to put the 500k. 

but the OPs premise of not dumping b/c of high valuations is market timing and should be avoided.  initial dump should be to default AA if analysis and learning will take time for OP