Author Topic: 500k-800k scared $ to Invest-Help  (Read 17280 times)

soccerluvof4

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500k-800k scared $ to Invest-Help
« on: January 26, 2014, 08:03:17 AM »
Just a Quick Review I am relatively new to this forum and just finished reading this Blog from beginning to date.

I am 49 years old and have  No Mortgage on 2 homes with a combined low value of 850k, (1 of which is a vacation home) I am going to sell worst case scenario and walk away with 300k) primary residence is 500-550k. I have already shaved tons of costs with what I have learned here and with selling the Vacation property my savings will increase. Its 4 hours away and with 4 kids in sports it will be ten years before i would get to use it again so now it just weighs on me.  I will take a hit on it but i want to simplify and get a grip on things. I already sold 3 snowmobiles and 3 boats and have 2 snowmobiles and a 4 wheeler left to sell in which alot of the monies is going into bathroom renovations in my primary residence. I only will spend what I can get from selling stuff lying around.  And i feel good about all that.  What i don't feel good about is because over the years I have made a lot of Money I also have lost a lot of money. My net worth is pretty much the same as it was 10 years ago in losses in real estate built with my own money only to lose. And during all this time I didn't learn about the market as much as I should have. I have however since 2008 had a TD Ameritrade account and following the value investment principles done well but I am always afraid to put more money in because I am simply scared and because of my previous reasons not to mention I have a wife and 4 kids 14, 13, 9 and 8.

To sum it up. Without all the details for purely investment I would like to be done in 2.5 years 52 at most 55. I have an income of 200k-350k depending on how my business does but my wife and I maybe combined working 30 hours a week. I am at home and she goes to office to do accounting.  Its a business model that is dyeing and if I stay in it will kill me so 2 years ago we came to this format that so far had been working but I need to get smarter with our liquid money.  So basically I have about 900k in cash making nothing. Another 350k in 401ks, mutual funds etc.. and  I will have at least another 300k from when I sell our cabin and when we walk away from my business I will have at least another 300k and as I said at most 55 hopefully sooner. The day i owe anyone a penny I will take my money and run.

So I want to start getting my money to work for me so I can slowly replace as much of my income with income coming in from investments.  I have a hard time understanding all the fancy lingo so in laymen s terms i am looking for some safe , income producing , diversified funds, reits,,,etc... to invest in and how to allocate it with the market being so high.  So if anyone has or is in my situation please let me know your opinions. At the end i will hold know one accountable  I am just looking for something more tailored to investigate based on my own current status. I have read a lot on the forum but its more confusing than not to me and all the index funds seem so high hence my comment on how to allocate. Since the Cabin is not sold yet lets think on terms of the 900k liquid and my 300k+ in my 401ks etc..

I do currently own EFT and EFR and bought into NLY as well around 10$ and in total have about 50k invested in my TD Ameritrade account of 500k in all in the account.

Thanks in advance for any thoughts, ideas etc.. in helping me with this matter.


DB

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Re: 500k-800k scared $ to Invest-Help
« Reply #1 on: January 26, 2014, 11:01:55 AM »
The key to your situation is deciding how much money you need each year in retirement, and for how many years (personally I would model to 90-95).  You also need to think about your kids, do you have/want college funds for them?

It is up to you to determine your annual number, then once you have it you can work out what (if any) interest is needed on your savings in order for those funds to provide for you.  With the interest rate decided, you then build an investment strategy with the lowest possible risk that provides that income. 

You mentioned wanting to replace your income from job/business with income from investments, but that wouldn't be accurate since you should now be allotting money to savings, but once in retirement you stop saving and start spending, so your annual income in retirement should be lower than now.

As an extreme example, if you wanted to take just 30K a year as income then you could stay in cash, but if you want 100K per year you need to get into higher risk/reward investments.
« Last Edit: January 26, 2014, 11:08:54 AM by Saverocity »

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Re: 500k-800k scared $ to Invest-Help
« Reply #2 on: January 26, 2014, 11:51:42 AM »
Read this:
http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

Study this:
http://jlcollinsnh.com/stock-series/

and this:
http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

If that doesn't make the stock market and investing seem easier to understand and help you figure out a decent and low-maintenance asset allocation and portfolio, then I don't know what will.

With as much liquid as you have and what you have to sell, you could have a very conservative portfolio and probably be just fine if we're talking living on 40K or under a year, but you need to figure out what you're doing regarding investing and what you need to live on and goals going forward. The fact that you had so many toys and a vacation home that cost as much as most peoples' actual homes sort of leads me to the idea that you might need to really take a hard look at the spending, as trying to retire early and spend that sort of money would need a whole lot more capital to support.

If you are spending tens of thousands on a bathroom remodel in a $500K+ house, I'd also question if you're really getting the mustashian lifestyle idea as well. You are making a really high salary, but you sound like you're spending quite a bit of it as well. If you can't get that down to a reasonable amount, then you'll have to work much longer to save the amount you can live off off in retirement. And if you're afraid of investing, then the money you do save is just sitting there doing nothing for you except losing money due to inflation...

soccerluvof4

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Re: 500k-800k scared $ to Invest-Help
« Reply #3 on: January 26, 2014, 03:22:25 PM »
Thank you both for your responses.

I do have 529's set up for college for my kids and contribute to them annually. When they go to college they will have what I feel is necessary for them so I have no worries there.  Having said that I agree I need to live more the Mustachian way which is why I am here. Which is why i have read from the very beginning and have reached out as well as already started saving more.

I have been on the site for about 3 weeks and already have cut my home and car insurance, I have cut my cable and also have cancelled my term life insurance policies. And as I said I have sold many items and am selling my second vacation home but because it is in the Snowbelt i need to wait till at the very least middle of March so from that aspect I feel I am making a lot of steps to get to the point of less waste and realize i have along ways to go. So i respect where you guys are coming from. I started before i knew about this blog a year ago cutting costs by taking over the grocery shopping and cut that in half as well.

So anyhow as I am cutting the spending I am looking for the best ways to invest safely while I am continuing to sell off other things.

I am working on as well what i feel is an ideal number to live on but I need to do some charting yet of my expenses and make calls on cutting like I said other things as well. The things i am doing to my house are not luxury but the two bathrooms need to be done so in 4 years when my to oldest are of to college I can downsize these must be done. I have already had further damage by putting them off and am doing at least 50% of the work myself.

So anyhow like i said I am looking for at least some safe areas to put some money to at least offset inflation + as opposed to having the money shrink.

Again, I will look at the websites and revisit as i see replies and keep working on the "right" number.

Thanks!
DB

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Re: 500k-800k scared $ to Invest-Help
« Reply #4 on: January 26, 2014, 04:11:55 PM »
A major concern to me is your desire to invest "safely."  What do you mean by that?  If you are looking not to lose principal and earn a steady return on the money invested, you don't have many choices.  CD's. I-bonds and the like are the only "safe" investments by that definition.

However, although you say you want to invest safely, your three investments at TD Ameritrade are all very high risk.  The dividends are high because of the risk.  You have to be willing to take a sudden large haircut to stay in these funds long term.

To get higher returns, you do need to accept higher risk and volatility.  How much risk you take depends on how much loss you are willing to accept if things go bad.  A balanced portfolio mitigates much of the risk long term.  Stocks and bonds do not always go up.  Every once in a while, you will have a year like 2008.  The idea is that over a long enough period of time, you will earn a good rate of return on your money and you will not likely lose it all. 

If you can't stomach that, you need to re-think how much you need.  The "safe" withdrawal rates discussed here are predicated on a portfolio of stocks and bonds allocated among the various asset classes.  If your money is in CD's, I-bonds and the like, your safe withdrawal rate will be lower and you will need more.

In your shoes, I would read the articles suggested and think about what I was comfortable with as investments.  Play with some of the various retirement models such as FIREcalc or the ones at the broker websites.  Once you figure out your comfort level, figuring out the amount of money you need in retirement will be much easier.

soccerluvof4

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Re: 500k-800k scared $ to Invest-Help
« Reply #5 on: January 26, 2014, 04:43:51 PM »
Thank you  Another Reader.

Yes i guess i was a bit to vague. I understand where your coming from as well as the risk and the fluctuations of the market.  Perhaps a simpler question just for a starting place to investigate is I keep hearing about picking 3 or 4 Funds..I.E. Vanguard funds people are putting there money in. With the market being a its highest levels are people staying (general speaking) with the same funds and if so what are the funds most are using that they are comfortable with to reduce risk. Have they changed and Index/fund names. Thinking along the lines of the 7%/4% rule.

Abe

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Re: 500k-800k scared $ to Invest-Help
« Reply #6 on: January 26, 2014, 06:31:54 PM »
Good job on cutting your expenses, that is the first step in ensuring your family has enough money when you retire.  On the broadest level, the two types of risk you face are inflation risk (in the future, your money won't buy as much as it does now) and risk of losing principal (if a business fails or a bond issuer defaults).  The best way to mitigate both is investing in broad index funds (such as Vanguard's VTSAX, which invests in several dozen companies and VBMFX, which invests in several bond types from various issuers). There are also index funds that invest in a variety of non-US companies.

How much you invest in stocks (which fluctuate in value a lot) and bonds (which historically, and currently, have lower returns) depends on how much money you are willing to lose. Look at http://www.firecalc.com/ to see what you could withdraw annually from your savings (based on historical returns).

For an idea of how to invest at your stage, a couple I know have savings in your range, and are also close to retirement. 60% of their savings are in fixed-income (bonds, treasuries) invested by their 401k. This provides some safety against losses in the stock market (low principal risk), but with low returns (high inflation risk). Since their timeline to retirement is short, and they have enough saved to fully fund retirement even without any return, that's an acceptable strategy to avoid a sudden drop in the markets right before they retire. A loss like that would have significant long-term consequences, while a major gain wouldn't matter much to them since their budget is about the same as their annual returns at this point.

Your budget will probably be higher than theirs since your family is larger, so I would invest more in a stock index fund to guard against inflation risk. Just keep in mind that a significant drop in market value may force you to either continue working part time or delay retirement.

Another Reader

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Re: 500k-800k scared $ to Invest-Help
« Reply #7 on: January 26, 2014, 07:03:47 PM »
I have to disagree about bonds in the current market.  In a normal market, bonds and stocks generally move in opposite directions thereby mitigating volatility in your portfolio.  That's not been happening recently.  Bonds have been driven to artificially low yields by all the market meddling by the Fed and some other factors.  As interest rates rise, bonds will go down in value significantly.  I sold all the bond funds last spring and I'm very glad I did.  My fixed income holdings consist of treasury paper and some old I-bonds.  I consider bonds far too risky to invest in now.

As a caveat, I am retired and receive pension income plus rental income.  I also own some dividend paying stocks.  Bonds are much less important to me because the pension income is similar to the interest on bonds held to maturity.  Tenants seem to pay their rent even when the stock market tanks. they lose their jobs and go on unemployment.  Quality companies generally continue to pay dividends in a down market.  Volatility in stock accounts is annoying to the point of unsettling, but it is not going to take me down.  If I were totally dependent on a paper portfolio, I would be looking at CD's, treasuries, I-bonds, and solid dividend paying stocks as a significant allocated portion of my assets right now, including three years of expenses in the more liquid paper.   As the market normalized, I would increase my allocation to bonds.

soccerluvof4

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Re: 500k-800k scared $ to Invest-Help
« Reply #8 on: January 27, 2014, 04:55:11 AM »
Thanks Abe and Another Reader,

Seems like reading heavily through these links most people like VTSAX VGTSX and VBMFX. With 850k roughly to invest obviously i wouldnt put it all in, in one day. So here are my questions.

at 49 to get things rolling if i were going to do a 3-4 fund portfolio would you recommend these 3 + ? and what would your split be.

With TD amertitrade i can make my purchases for 7$ so should I buy through there or straight from Vanguard. I have 500k basically sitting in there (50k in some dividend stocks).

Finally, Right now i have 1000 shares of EFT, 1000 shares of EFR some NLY and POT, BP,SO and a few others. What other high paying dividend stocks do you like. I was thinking of FGP.

My biggest thing with these index's as the more i read the more i get confused. So just some simpification if thats possible.

Thanks in advance,

DB

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Re: 500k-800k scared $ to Invest-Help
« Reply #9 on: January 27, 2014, 10:42:22 AM »
Seems like reading heavily through these links most people like VTSAX VGTSX and VBMFX. With 850k roughly to invest obviously i wouldnt put it all in, in one day. So here are my questions.

Read this: http://www.obliviousinvestor.com/lump-sum-vs-dollar-cost-averaging/

Quote
at 49 to get things rolling if i were going to do a 3-4 fund portfolio would you recommend these 3 + ? and what would your split be.

I'm going to do this using the admiral shares versions of those three funds: VTSAX, VTIAX, and VBTLX. These are lower-expense versions of the same funds that require a $10,000 minimum investment, a requirement you'll easily meet.

At your age I'd suggest ~30% in bonds, maybe 40% since you're more averse to risk. With 40%, you'd be left with a 60% stock portion. International stocks work well as between 1/5 and 1/3 of your total stock holdings, so about 10% to 20% of your total would be in VTIAX. Then the remainder, 40-50%, is VTSAX. So how about a nice, round 40/40/20 portfolio?

With your income it will probably benefit you to think about tax-optimal asset locations. Buy any international stocks with money in a taxable account, that way you can claim the foreign tax credit. Buy bonds inside a retirement account. Stocks can go wherever they fit, since VTSAX is a reasonably tax-efficient investment.

The above are just suggestions, of course, and you'll notice how there's a lot of "play" in the numbers. The most important thing you can do is pick an allocation and stick with it over time by rebalancing regularly. Exactly what the allocation is down to a percentage point is less important.

I'll just throw out there that people make their portfolios as large and complex as they want by adding REITs, precious metals, overbalancing small cap, etc. but there's nothing wrong with just the three funds you selected. It's important to make it only as complex as you want to manage, or any tiny gains from adding new asset classes will get cancelled out by losses due to mismanagement on your part (too much tinkering, putting off rebalancing, panic selling, etc). You're responsible for knowing what you own and why you own it.

Finally, don't forget to account for your existing investments in this portfolio. The easiest way is to just lump them in wherever they best fit, like your dividend stocks are just "US Stock." Maybe you own balanced mutual funds that are X% bond, Y% stock. They aren't exactly equivalent to the Vanguard funds, but for the purpose of asset allocation it's close enough. Over time your goal should be to simplify the number of different holdings you have when you get the chance.

Quote
With TD amertitrade i can make my purchases for 7$ so should I buy through there or straight from Vanguard. I have 500k basically sitting in there (50k in some dividend stocks).
It's better to buy straight from Vanguard. Open an account with them. You might find yourself transferring more and more money to them over time. There are no purchase or redemption fees through them. There's an annual fee which is waived if you get paperless statements (the default for new accounts).

You can also buy ETF versions of these funds through a brokerage like TD, and I think the above funds are commission-free. If you're comfortable with that, go for it. I personally don't like dealing with the mess of making market/limit/etc orders, because I don't trade often enough to remember what all that stuff means.

Quote
Finally, Right now i have 1000 shares of EFT, 1000 shares of EFR some NLY and POT, BP,SO and a few others. What other high paying dividend stocks do you like. I was thinking of FGP.

My biggest thing with these index's as the more i read the more i get confused. So just some simpification if thats possible.

Do you see how these two requests conflict with each other? If you want to simplify your life, stop picking stocks and just buy the whole market via a total stock market index fund. It maximizes diversification with no effort on your part, which gives you the most return for a given level of risk. It also minimizes costs. That's all you really need to know.

I really like the videos that Rick Van Ness put together at http://financinglife.org Watching all this in video format may help it make more sense.

soccerluvof4

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Re: 500k-800k scared $ to Invest-Help
« Reply #10 on: January 27, 2014, 01:38:01 PM »
The Fixer!

Thanks Much!!

I spent the better part of 2 hours on the phone today with Vanguard and am sending money there basically in a small money market account so I can add to as I feel comfortable as opposed to sitting in a checking account. In addition , because of the potential dollar amount they have a representative to call me Thursday morning. Ironically in doing some of there tools online the ones you picked were ones that came up as well.

Your right about the index's vs the ETF's but in keeping things simple i meant lesser funds like 3-5 as you suggested and i will keep my little trading account more because i just enjoy it. And i would probably add some Reits as well.

So the long and short of it I am getting more educated thanks to you and others on this thread. Not sure yet if i will do the indexes or the ETF's but in either case i am working forward and I would not dump all in at once. Alot of work to do but i am on it!

I thank you and seems the biggest thing is more percentages but as you said you can always adjust. And everything through them is free as opposed to 7$ for buying or selling the ETFs  on Td Amertride.

So its a good day of learning!

I thank you my friend!!

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Re: 500k-800k scared $ to Invest-Help
« Reply #11 on: January 27, 2014, 01:58:56 PM »
It sounds like you're on the right path.   Congratulations.

I echo the Vanguard advice, and 40/40/20 (US Stocks / Bonds / Intl Stocks) is reasonable advice, and if it's simplicity that you want, it doesn't get much simpler.   At the risk of getting more complicated, I want to echo/offer a few more pieces of important advice:

1.  Forget the stock picking.  Go with low cost, broad market ETFs or mutual funds.   Stock picking might work for some folks who have a huge interest in this and time to devote to it, but that doesn't sound like you.  (And, in any event, stock picking DOESN'T work for many, many folks who have interest and time).

2.  Carefully consider taxes, and the location of your investments for tax purposes.  No need to give the government more than they're entitled to.  Generally, you want tax-efficient investments in your taxable accounts and tax inefficient (i.e.., high-yield) investments in your tax deferred accounts.   So, in your taxable accounts, you might have all your stock funds and some AMT-free Municipal bonds (MUB is probably the one to go with here).  In your 401k/IRA, you can have higher-yielding bonds or higher dividend yielding funds (if you get a fund that has those).

3.  Don't be scared to add some REITs (again, low cost, vanguard-type funds, though).   Consider this a hybrid between stocks and bonds that helps with diversification.

4.  Have you thought about rental real estate (small multifamily apartments)?  I don't know what line of work you're in, but I would guess that, if you're doing 1/2 the work replacing two bathrooms, you can handle minor landlording issues.  This too is a good diversification strategy and can insulate you from some of the broader market risks.  It requires a separate course of study to get up to speed so that you don't invest stupidly here, but it sounds like you're game to learn, so I'd suggest looking into it.

5.  To avoid the psychological risk of putting all your money in at once, consider dividing it up over X number of periods and dollar-cost average into it.  A reasonable time period for this could be 10-20 months.  There are folks who will show you charts saying that lump sum investing wins X percent of the time.  Good for them.  What you're dealing with here is a very powerful psychological fact called loss aversion.  Basically, it hurts to lose money more than it feels good to make money.  You don't want to see your assets decline right afterwards, get spooked, and pull all the money out.  If you have a plan to ease into the investments (a clear, written plan), then it's easier to stick with if you see initial declines -- it helps you realize that the rest of your purchases will be at a discount -- buying on sale!

Good luck. 
« Last Edit: January 27, 2014, 02:02:55 PM by okiedoke »

soccerluvof4

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Re: 500k-800k scared $ to Invest-Help
« Reply #12 on: January 27, 2014, 02:56:24 PM »
Okiedoke!

They did give me the speech on "putting it all in" but having experience with trading i knew at least enough to tell them "NO WAY". The were really good i was inpressed with Vanguard very much.

All of your 5 points are very well stated and I will take in consideration all you had to say! Very well stated and appreciated! And one thing too that really stood out was what to keep in my 401k vs the new portfolio. I have just put the money in the 401k and let the guy who comes in give us some basic advice and not paid much attention. All the things i am learning on here are exciting if for no other reason being more educated and hopefully better off financially!

Thanks for your time and I am sure I will have more questions as I continue this journey!

MissPeach

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Re: 500k-800k scared $ to Invest-Help
« Reply #13 on: February 03, 2014, 01:21:38 PM »
I agree with many of the points Okie made.

I'm someone who does time individual stocks but it's a hobby my BF and I do together to research them so it works for me at this time. I wouldn't recommend it to someone who wants to keep things simple. Also I recommend against using other people's picks like Jim Cramer. Everyone I know who tried this lost money because they didn't know why they were investing in that stock and when to pull out of it.

soccerluvof4

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Re: 500k-800k scared $ to Invest-Help
« Reply #14 on: February 03, 2014, 02:21:10 PM »
A little update, I transferred about 50% of my funds last week to a MM Fund to DCA into index funds of which i am currently with todays (my second allocation ) now about 35% vested of the monies I transfered.

I went 40% into VTSAX
            30% into VBTLX
           15% into VGSLX
           15% into VTIAX

In addition I am keeping about 15% of my investment monies in TD AMERITRADE as I have traded for over 10 years and enjoy it.  This at least feeds my appetite but yet lets me sleep at night. While I enjoy it and the research and all I just dont want it to be anymore than a hobby.

Thanks!

Mr Mark

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Re: 500k-800k scared $ to Invest-Help
« Reply #15 on: February 03, 2014, 04:20:34 PM »
Stocks are on sale right now too. Good time for those nervous about returns. But just read the links above and invest in the market.

Super scared old people might look at vanguard wellesly income fund. Look at its performance long and short term, but note consistency of returns after dividend.

PeteD01

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Re: 500k-800k scared $ to Invest-Help
« Reply #16 on: February 03, 2014, 06:24:19 PM »
You need to figure out your expenses and cut as you see fit - as you are already doing.
Google "laddering SPIA" and learn everything about the concept of guaranteed lifetime income - everything.
Start trickling in your index fund investments while you are figuring out your income needs and how to meet them with bare bones SPIA's - no inflation riders anything. Do not get any advice from any insurance salesperson.
Figure out your expected social security income and subtract 30% - to be on the safe side.
You should aim for covering your basic expenses with guaranteed income leaving enough to be exposed to market risk with little worry.
Do not invest everything in the markets - big mistake in terms of emotions.
Your post shows a complete absence of a financial plan and hat is what you need to be working on.
However, trickling about half of your current cash into the market and saving like a mad person is the right thing to do while you are figuring things out, no matter what.
At the very least, you will be less likely to fall prey to a dishonest financial adviser if you do your research carefully.

Peter

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Re: 500k-800k scared $ to Invest-Help
« Reply #17 on: February 04, 2014, 08:51:40 AM »
Thanks Mr Mark and Pete.

I am working daily on all this. And since i work out of the house plan to work on it probably on going.  I am continuing the pursuit of cost cutting while putting money to work DCA in.  Some assets I want to sell will take some time but the biggest thing now is making sure i dont have to much repetition between my 401k, IRA and indexes. My brain is mush! from all i have been reading but a breather here and there and back to it.

Thanks,
DB