Author Topic: Windfall Advice  (Read 3081 times)

bandit

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Windfall Advice
« on: April 25, 2015, 09:49:51 AM »
I've been lurking on these forums for a while now and finally decided to make an account.  Here's my situation:

I'm married, in my mid 30's, 3 kids, and my spouse has the luxury that she chooses to not work and be the primary care giver for the children.  I love my work.  It pays very well and is almost altruistic in nature.  I have no desire to retire early, so this isn't a how can I retire early question.

I recently sold my business and the windfall from that is a bit north of $700,000 before taxes.  Naturally the first thing I did was to destroy every ounce of debt I have except for my mortgage (will explain this in a bit).  So no more car payments, credit cards, or any of that nonsense.

  • After taxes and debt elimination I'm going to be sitting on about $400,000 from the windfall sale.
  • My monthly "necessary" expenses run about $3000 per month and I budget in about $1500 per month for the finer things in life and stuff for the kids (instrument lessons, sports, etc).
  • Now that I have paid off all the other debt I have about $7,000 / month "surplus" cash coming from my job.
  • I also earn anywhere between $1000 - $2000 / month in royalties from some IP I own
  • I am already set up at the job to max out my 401k contribution for the year.
  • I generally get between $10,000 and $20,000 in annual bonuses from my employment

Up until the windfall, I had almost $0 in investments (I invested a bit north of $50k in the business a few years back instead of putting it in retirement, so that bet paid off!).  I owe about $200,000 on my home, but I may have to relocate for my job soon... so I'm hesitant to pay off the mortgage until that is settled (or at least I don't see much benefit in doing so, am I wrong?).

My questions boil down to:

  • What should I do with the windfall cash as far as starting investments?  Note that I don't know anything about managing investments and since I am not retiring and have gainful employment skills I have absolutely no desire to spend time and effort to manage the money, so "set it and forget it" is going to be my preference.
  • What should I do with my surplus income?
  • How should I consider retirement/investment planning in my situation where I don't think (barring illness) that I'll ever fully retire?  I'd be far more likely to do some contract work 3-6 months out of the year.  I'm very confident I could pull in $30,000 - $60,000 a year doing that.

What am I missing?  What else should I be considering? 
« Last Edit: April 25, 2015, 09:52:21 AM by bandit »

dividendman

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Re: Windfall Advice
« Reply #1 on: April 25, 2015, 10:30:43 AM »
What are your goals? This is key.

What's your mortgage rate? This should be the primary factor in paying it off early.

7k surplus cash per month is a lot - again what are your goals?

Do you have money for your kids' education set aside? Maybe you can use the windfall for that.

It seems like your life is good how you have it so you don' t want this money to do anything life changing. If you just want a straight set it and forget it I would say open a Vanguard account, pick a target date fund for when you think you'd "retire" or when you think you'd need the funds, and junk everything into there including the 7k/mo surplus and the windfall.

trailrated

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Re: Windfall Advice
« Reply #2 on: April 25, 2015, 10:40:28 AM »
Sounds like you are doing very well! If you need help setting up some structure this was a good guide that set me in the right direction. I went with a three fund portfolio to keep things simple.

https://www.bogleheads.org/wiki/Financial_planning

http://www.bogleheads.org/wiki/Three-fund_portfolio

bandit

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Re: Windfall Advice
« Reply #3 on: April 25, 2015, 10:46:34 AM »
What are your goals? This is key.

What's your mortgage rate? This should be the primary factor in paying it off early.

7k surplus cash per month is a lot - again what are your goals?

Do you have money for your kids' education set aside? Maybe you can use the windfall for that.

It seems like your life is good how you have it so you don' t want this money to do anything life changing. If you just want a straight set it and forget it I would say open a Vanguard account, pick a target date fund for when you think you'd "retire" or when you think you'd need the funds, and junk everything into there including the 7k/mo surplus and the windfall.

Mortgage is at 4.75%, but there is a greater than zero chance moving in the next 12 months.  I don't really have an interest in owning it as a rental property.  Bit concerned that if I pay it off and then move that I've got an awful lot of cash tied up (the area in which I live is not high demand, could take a while to sell it).

I do not have much in the way of college savings for the kids.  I paid for my own college so I hadn't really thought about it.  I should probably start a 529?

My goals I guess boil down to not doing anything stupendously stupid with the money and letting it accumulate for financial flexibility purposes.

bandit

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Re: Windfall Advice
« Reply #4 on: April 25, 2015, 10:52:41 AM »
Sounds like you are doing very well! If you need help setting up some structure this was a good guide that set me in the right direction. I went with a three fund portfolio to keep things simple.

https://www.bogleheads.org/wiki/Financial_planning

http://www.bogleheads.org/wiki/Three-fund_portfolio

The three fund portfolio looks interesting given my distaste for actually having to manage things.  Would something like Betterment be a good option then since this money is going to be taxed?

bandit

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Re: Windfall Advice
« Reply #5 on: April 25, 2015, 11:00:46 AM »
Another question I have re: investing is should I just lump sum it into whatever portfolio I choose or should I deposit percentages of it over time?

trailrated

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Re: Windfall Advice
« Reply #6 on: April 25, 2015, 11:11:22 AM »
Another question I have re: investing is should I just lump sum it into whatever portfolio I choose or should I deposit percentages of it over time?

Go with whatever you feel most comfortable with, but statistically speaking you are more likely to get a better return from lump some. https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

"In this paper, we compare the historical performance of dollar-cost averaging (DCA) with lump-sum investing (LSI) across three markets: the United States, the United Kingdom, and Australia. On average, we find that an LSI approach has outperformed a DCA approach approximately two-thirds of the time, even when results are adjusted for the higher volatility of a stock/bond portfolio versus cash investments. This finding is consistent with the fact that the returns of stocks and bonds exceeded that of cash over our study period in each of these markets."

trailrated

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Re: Windfall Advice
« Reply #7 on: April 25, 2015, 11:14:36 AM »
Sounds like you are doing very well! If you need help setting up some structure this was a good guide that set me in the right direction. I went with a three fund portfolio to keep things simple.

https://www.bogleheads.org/wiki/Financial_planning

http://www.bogleheads.org/wiki/Three-fund_portfolio

The three fund portfolio looks interesting given my distaste for actually having to manage things.  Would something like Betterment be a good option then since this money is going to be taxed?

I use Vanguard personally, but there are some good arguments to go for betterment. Here is a link to a thread where that was discussed on the forum.

http://forum.mrmoneymustache.com/investor-alley/betterment-or-vangaurd/