How to invest $600k in 2017?

[cornbread]

I'm getting lump sum from sale of the house.  Need advise on where and how to put lump sum to work for me so I don't have to.  I want to protect to principal but also need income from it to pay for expenses.  I already have a vanguard account.  My current holdings are too conservative (50% gov bond funds).  Should I put most of it in VTSAX?  I'm leery about putting it all in at once.  Seems everytime I do something like that the market goes down :(

[NoStacheOhio]

Consider keeping a portion in cash if you need it to pay current expenses.

Do this, then follow through https://www.bogleheads.org/wiki/Investment_policy_statement

[SeattleCPA]

I think you want to work from a good asset allocation plan. Something that combines lots of different flavors of assets (stocks, bonds, etc) so if something zigs down, something else either zags up or at least holds it value.

FWIW, I have advertised clients to hold proceeds sort of like you have in something like the Vanguard Target Retirement Income fund. Pretty safe. Very boring. Modest risk.

[financiallypossible]

I agree with the previous responses.

Create a plan for what you're comfortable with for an asset allocation. Money you'll need in the short term for expenses should be kept in cash. Medium term (3-10 years for example), you could keep in investment-grade bonds (tax free or taxable depending upon what your tax bracket is). For longer term funds, go with stocks and/or real estate investments. Stocks tend to be more volatile, but with less tax drag and you have more control over when you pay taxes (dividends are an exception unless you locate the investments in Roths or IRAs). Real estate is usually less volatile, but has a higher tax drag and increase the complexity of your tax filings.

In any case, research your investment options like crazy. That's a lot of money, so be cautious and get it right (for you).

[Crazycarl]

I would keep one year of expenses in cash, 1-2 years of expenses in a 12 month CD from your local bank or credit union, and then invest the rest in either VFIAX, VTSAX or a combo of the two. Maybe some international  as well. The CD gives you a buffer so that you do not have to sell if the markets go down right when you need some cash, but also should be earning a small percentage.

[illy5603]

I would keep one year of expenses in cash, 1-2 years of expenses in a 12 month CD from your local bank or credit union, and then invest the rest in either VFIAX, VTSAX or a combo of the two. Maybe some international  as well. The CD gives you a buffer so that you do not have to sell if the markets go down right when you need some cash, but also should be earning a small percentage.

Not sure I would hold a years expenses in "cash" when a CD like account (I use Capital One 360) can be available in 3 days to transfer out. Not sure either of them keep up with inflation.

[Crazycarl]

I would keep one year of expenses in cash, 1-2 years of expenses in a 12 month CD from your local bank or credit union, and then invest the rest in either VFIAX, VTSAX or a combo of the two. Maybe some international  as well. The CD gives you a buffer so that you do not have to sell if the markets go down right when you need some cash, but also should be earning a small percentage.

Not sure I would hold a years expenses in "cash" when a CD like account (I use Capital One 360) can be available in 3 days to transfer out. Not sure either of them keep up with inflation.

Sorry, when I say Cash, I am referring to savings or Money market, preferably one that earns decent interest.

[Radagast]

I would keep one year of expenses in cash, 1-2 years of expenses in a 12 month CD from your local bank or credit union, and then invest the rest in either VFIAX, VTSAX or a combo of the two. Maybe some international  as well. The CD gives you a buffer so that you do not have to sell if the markets go down right when you need some cash, but also should be earning a small percentage.

Not sure I would hold a years expenses in "cash" when a CD like account (I use Capital One 360) can be available in 3 days to transfer out. Not sure either of them keep up with inflation.

Sorry, when I say Cash, I am referring to savings or Money market, preferably one that earns decent interest.

Inflation was 1.69% for 2016, so that may be what to shoot for, or a little higher. Intermediate term bond index?

[MustacheAndaHalf]

While you didn't say, in general $600k houses are in places like California and New York.  Bond income is subject to state tax, unless you invest in municipal bonds of the state you're in.  So if you're in someplace where the state tax rate is significant, consider a tax-exempt fund (like CA tax-exempt or NY tax-exempt).

You need to decide how much money is enough to start investing.  Could you invest $75k at once?  Then split $600k into 8 equal chunks and invest them (days, weeks or months apart - your choice).  Buying on separate days actually cuts out most of the day to day volatility, but of course there's no guarantee the market doesn't make you regret your investment in the short term.  The key is whatever amount lets you start - lets you get over the intimidation of investing $600k, and make it seem like a more manageable amount.  Maybe $50k/month for 12 months?

[patrickza]

While I won't comment on where the money goes, I will say that statistically you're likely to end up better two thirds of the time if you invest it all at once rather than dollar cost average.

This comes from Vanguard research, as well as a private research firm AllianceBernstein. You can see all the numbers here: http://investorchallenge.co.za/should-you-be-dollar-cost-averaging/

[financiallypossible]

While I won't comment on where the money goes, I will say that statistically you're likely to end up better two thirds of the time if you invest it all at once rather than dollar cost average.

This comes from Vanguard research, as well as a private research firm AllianceBernstein. You can see all the numbers here: http://investorchallenge.co.za/should-you-be-dollar-cost-averaging/

Yes, but for many with a large sum in cash the challenge is taking the dive and investing all at once after an asset allocation plan has been determined. As the previous post points out, an averaging plan of the investor's choosing can allow something to start happening as opposed to continuously worrying, "Is today the wrong day to invest?".

Inflation was 1.69% for 2016, so that may be what to shoot for, or a little higher. Intermediate term bond index?

While I agree that inflation is low, I don't believe that it's currently that low. The US government has multiple motivations to understate actual inflation year after year.

Also, the inflation number is fairly meaningless to us minimalists as it's tuned for the typical US "consumer". We don't live to consume, we consume only what little to live. It'd be really cool if the US would publish a separate inflation statistic using a sampling of a basket of goods/services for the typical minimalist / mustachian.

[Radagast]

To answer the OP (if OP is still around) one option is to use "value averaging". This basically means investing in stocks by ensuring your monetary stock value increases by a constant amount each quarter. Lets assume (which makes an ass of u and me) you want to do it over five years. This means your invested amount will increase by $30,000 each quarter. If the market rises quickly you invest less, or even sell. If the market drops, you invest even more. This method is in effect about halfway between dollar cost averaging and lump summing. You will be done when all the money is invested, rather than after five years exactly. It ensures you buy at a very low cost basis relative to the average market price during the period, which is often sufficient to make up for the disadvantage vs. lumping it in.