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Learning, Sharing, and Teaching => Investor Alley => Topic started by: BFGirl on April 18, 2014, 08:24:19 AM

Title: How would you invest 700K in cash?
Post by: BFGirl on April 18, 2014, 08:24:19 AM
I have 7-10 years before I plan to retire with a pension which I estimate will pay around $3000/mo.  I will be getting approximately $700,000 in cash as a division of assets in a divorce (I have had no say so before now as to how this was invested).  $200,000 of the cash is in an IRA.  I will have an additional $140,000 that is already in the market and is mainly in individual blue chip stocks (of which one stock holding is about $100,000).  I also have other cash set aside for emergencies and other expenditures.

I really don't like risk, but am logical enough to understand I need some exposure to the stock market.  My initial reaction is to put $500,000 into 5 year CD's or do a CD ladder, so that I can take advantage of interest rates if they rise.  I would then take the other $200,000 and invest half in an S&P index fund and half in a dividend aristocrats type of fund.

Is it better to invest in the market with the non-IRA money?  I have gotten the impression that you lose the advantage of capital gains in an IRA since you pay your taxes at your regular rate when you start making withdrawals.

Any advice or insight would be appreciated.  My spending is not down to Mustaschian levels at this point so I am not ready to pull the trigger yet.
Title: Re: How would you invest 700K in cash?
Post by: skunkfunk on April 18, 2014, 08:31:25 AM
The thought of investing in a CD at current rates is enough to make me nauseous. Have you checked out the Vanguard Wellesley income fund?
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 18, 2014, 08:37:27 AM
Yeah, the current interest rates make me sick too, but so does the thought of a crash right before I retire.  I will look at that fund.
Title: Re: How would you invest 700K in cash?
Post by: the fixer on April 18, 2014, 08:58:29 AM
60/40 stocks and bonds. CDs can be a short-term substitute for bonds if you shop around for deals that have APYs better than bonds' yields. But unless you're going to use a below-normal withdrawal rate in retirement, you need stocks to help you keep up with inflation.

Play around on FireCALC and cFIREsim with your chosen allocation to see what the consequences are of your choice.
Title: Re: How would you invest 700K in cash?
Post by: hodedofome on April 18, 2014, 09:48:41 AM
Since I am your paid financial advisor and I'm licensed to give out financial advise...

But seriously though, take anything you read on a message board with a grain of salt. There is no one size fits all approach, no matter how some on this board believe it to be so. The future is unknowable and anything can happen. That means the market could be 3x higher than it is now in 5 years, or it could be 60 percent lower and depressed for 30 years. Interests rates could be back to 6 percent in 5 years, or they could be permanently lower like Japan the past 25 years.

I'd suggest reading several books on investing to educate yourself, or seek professional advice which is gonna cost money. Or both.

But to answer your question directly, I'd put it in 50/50 or 60/40 stocks/real estate/commodities and bonds. Something like 20 percent US stocks, 20 percent developed int'l stocks, 10 percent emerging market stocks, 5 percent real estate investment trusts (US & int'l), 5 percent in gold/commodities. The rest in a bond fund or split it between US bonds and int'l bonds. Rebalanced annually and find the cheapest index funds to get you the exposure.

This is what I would tell a family member to do if they were desperate for advice. A 60/40 or 50/50 portfolio is the missionary position, boring and it gets the job done. You'll never get fired for recommending it.
Title: Re: How would you invest 700K in cash?
Post by: Cwadda on April 18, 2014, 09:55:03 AM
You can only take so much advice from random strangers like us, so like said, take everything with a grain of salt. The best way to know what to do is to educate yourself. Financial education goes very far.
Title: Re: How would you invest 700K in cash?
Post by: waltworks on April 18, 2014, 10:26:49 AM
Without some information on how you live/what your expenses are, this is impossible to answer. If your $3k/month pension is a rock solid guaranteed kinda thing - then a lot of folks here would tell you to stick all the $700k in an index fund and fuhgetaboutit, because you're pretty much set for life no matter what. My family of 4 barely spends that much a month and we live in a really expensive resort town and aren't anywhere near as frugal as many people here.

If you spend more money than some of the folks here, you might need more scratch per month, so fire up some simulators and see what happens. SWR of 4% leaves you with many, many options to take on lots of risk and not give a crap if the market tanks with the assets you have in hand, assuming you don't spend a lot. If you spend a lot, different story.

-W
Title: Re: How would you invest 700K in cash?
Post by: dragoncar on April 18, 2014, 02:29:08 PM
Without some information on how you live/what your expenses are, this is impossible to answer. If your $3k/month pension is a rock solid guaranteed kinda thing - then a lot of folks here would tell you to stick all the $700k in an index fund and fuhgetaboutit, because you're pretty much set for life no matter what. My family of 4 barely spends that much a month and we live in a really expensive resort town and aren't anywhere near as frugal as many people here.

If you spend more money than some of the folks here, you might need more scratch per month, so fire up some simulators and see what happens. SWR of 4% leaves you with many, many options to take on lots of risk and not give a crap if the market tanks with the assets you have in hand, assuming you don't spend a lot. If you spend a lot, different story.

-W

This -- you want minimimal risk investment that will pay your expenses.  So what are your expenses?
Title: Re: How would you invest 700K in cash?
Post by: aj_yooper on April 18, 2014, 02:53:05 PM
Welcome to the forum! 

You might be closer to financial independence than you think.  Get your expenses under control and you might be in for a thrilling experience: freedom to decide if you want to work. 

However, since you are very new to investing, I would suggest that you start getting educated.   The Securities and Exchange Commission has a helpful summary here:  http://www.sec.gov/investor/pubs/assetallocation.htm  Some books (from the library) that may be of benefit:  Larry Swedroe, The Only Guide to a Winning Investment Strategy You'll Ever Need: The Way Smart Money Preserves Wealth Todayy , Malkiel, Burton Gordon; Charles D. Ellis (2010). The Elements of Investing, and Rick Ferri, All About Asset Allocation. There are more, but this is a good primer.  Do the reading, but don't do anything with the accounts until you have more tools to decide how to proceed.   
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 18, 2014, 03:20:41 PM
Thanks for all the suggestions.  I am an attorney so I take everything with a grain of salt.  My expenses are out of control by Mustachian standards.  However, theoretically in 10 years when I pray that my children are self-sufficient, I would estimate my expenses to be $50,000 or less per year.  At least that is my current goal. Currently, house paid for, cars paid for, no other debt.  My pension should be pretty secure since I work for a large metropolitan county in Texas.  I have moved into a townhouse that will be near retail in the future, so I should be able to bike or walk to get groceries and such.  I also have a side business which clears about $10,000 per year with part time effort on my part.  I know that even if I just decided to spend down principal in retirement I should be okay, but I would like to be a little smarter with my money.  Even without the business, assuming a pension of $36,000 per year, that means I would need $14,000 per year to supplement my pension. I will have a total of around 900K to invest and even at just a 2% return that is $18,000 per year.

I do also realize that with some more economy on my part, I could theoretically be at FI right now.  I am working on economizing so that I can say FU to the man should I so desire.  I am currently 46.
Title: Re: How would you invest 700K in cash?
Post by: AccidentalMiser on April 18, 2014, 03:32:09 PM
http://jlcollinsnh.com/stock-series/ (http://jlcollinsnh.com/stock-series/)

This is a good place to start...

www.futureadvisor.com (http://www.futureadvisor.com) will automatically balance and rebalance your portfolio for you for a reasonable fee (or you can get their advice and do it yourself.

I prefer dividend stocks for income, but those take a little more study.

Good luck!
Title: Re: How would you invest 700K in cash?
Post by: bwall on April 18, 2014, 05:04:08 PM
Holy Crap is $700k a lot of money! I think that would be the FIRE number for a lot of people on these boards.

My advice: read, read and read. When you are done reading, read some more. Go on amazon and read the reviews of books on investing. Pick out the best books, then buy them (or check out from the library). Read at least four books cover to cover before investing a single cent. Read the pros and cons of every asset class from at least two or three different view points. Don't stop reading until you understand everything they talk about in the books.

As an attorney you spent a lot of money getting an education so now is NOT the time to get lazy and let someone else make investment decisions for you.

A lot of very smart people make very poor decisions because they are not willing to educate themselves before parting with their money.

P.S. I agree with 'Accidental Miser' about the jlcollinsnh.com blog. Lots of golden nuggets there waiting to be mined.
Title: Re: How would you invest 700K in cash?
Post by: NewStachian on April 19, 2014, 01:14:08 PM
100% in Greek Bonds...

I'm with everyone else regarding talk to your financial advisor. Don't have one? Set something up with either Vanguard or Fidelity. I use Fidelity and like them a lot.
Title: Re: How would you invest 700K in cash?
Post by: warfreak2 on April 19, 2014, 01:37:55 PM
Is a 14.3% allocation to a dividend aristocrat fund really compatible with risk aversion? I was under the impression that dividend growth investors chase high yields rather than low risk.

I'd recommend splitting between a total stock market index fund and a total international stock market index fund.
Title: Re: How would you invest 700K in cash?
Post by: Integrate on April 19, 2014, 05:55:29 PM
Even without the business, assuming a pension of $36,000 per year, that means I would need $14,000 per year to supplement my pension. I will have a total of around 900K to invest and even at just a 2% return that is $18,000 per year.

That would have to be 2% real return. 2% nominal is less than or equal to inflation. You need more like 4-5% nominal to cover the difference.
Title: Re: How would you invest 700K in cash?
Post by: daverobev on April 19, 2014, 06:57:44 PM
@OP: Make sure you understand what *risk* is. There is *risk* in the stock market, but there is just as much, if not more, risk in fixed income stuff - it's just risk of death by inflation rather than by market crash.

I'm sure there is a US version of the 'Canadian Couch Potato' website; but basically, if you hold your age in bonds (treasuries), and split the rest between US and foreign low cost index trackers you'll likely be fine.

Add in a couple of rental properties for seasoning and you'll have a tasty setup in no time.
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 20, 2014, 04:47:41 AM
Even without the business, assuming a pension of $36,000 per year, that means I would need $14,000 per year to supplement my pension. I will have a total of around 900K to invest and even at just a 2% return that is $18,000 per year.

That would have to be 2% real return. 2% nominal is less than or equal to inflation. You need more like 4-5% nominal to cover the difference.

True
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 20, 2014, 05:05:02 AM
100% in Greek Bonds...

I'm with everyone else regarding talk to your financial advisor. Don't have one? Set something up with either Vanguard or Fidelity. I use Fidelity and like them a lot.

I don't have a financial advisor per se.  I do have a brokerage account I opened 13 years ago, bought some stock and have left alone.  I know some people in the industry, so I will probably ask around.

I am trying to become a lot more self-sufficient and am trying to understand what I am investing in and not be taken advantage of by salesmen.  My soon to be ex basically maneuvered the majority of our savings into his name, so I have had no say so as to how it was invested (which it wasn't).  What I saved I did not invest so that I could get out of the marriage if necessary.  This enabled me to buy a house with cash and move out.  So up until now I have needed liquidity and haven't educated myself sufficiently on investing.

BTW, don't think I'll be going the Greek bond route ;)
Title: Re: How would you invest 700K in cash?
Post by: aj_yooper on April 20, 2014, 05:25:01 AM
Puerto Rican bonds?  ;)
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 20, 2014, 09:14:05 AM
Only if I get to live there for free.  ;)  It is a beautiful place.
Title: Re: How would you invest 700K in cash?
Post by: dragoncar on April 20, 2014, 01:58:50 PM
100% in Greek Bonds...

I'm with everyone else regarding talk to your financial advisor. Don't have one? Set something up with either Vanguard or Fidelity. I use Fidelity and like them a lot.

I don't have a financial advisor per se.  I do have a brokerage account I opened 13 years ago, bought some stock and have left alone.  I know some people in the industry, so I will probably ask around.

I am trying to become a lot more self-sufficient and am trying to understand what I am investing in and not be taken advantage of by salesmen.  My soon to be ex basically maneuvered the majority of our savings into his name, so I have had no say so as to how it was invested (which it wasn't).  What I saved I did not invest so that I could get out of the marriage if necessary.  This enabled me to buy a house with cash and move out.  So up until now I have needed liquidity and haven't educated myself sufficiently on investing.

BTW, don't think I'll be going the Greek bond route ;)

Definitely become self sufficient and do a lot of research.  As you can see from the joke responses here, you shouldn't really be listening to and one recommendation from strangers on the internet.  Also be very careful about "asking around" as there are countless stories of people investing with or blindly trusting family friends and losing their shirts.
Title: Re: How would you invest 700K in cash?
Post by: hodedofome on April 20, 2014, 03:51:27 PM
I can say for sure never write a check to anyone. The only person you should be writing a check to is a bank or a brokerage firm like Fidelity, Vanguard etc. Never leave cash in a brokerage account. It should always be invested in at least short term treasury bonds (etfs like SHY or BIL come to mind). If your broker goes belly up and you are holding cash, don't expect to get it back. If it's invested in securities then you will be made whole.

Stay away from partnerships and advisers that want you to put your funds in a comingled fund with everyone else. Always make sure the account is in your name.
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 20, 2014, 08:45:27 PM
I can say for sure never write a check to anyone. The only person you should be writing a check to is a bank or a brokerage firm like Fidelity, Vanguard etc. Never leave cash in a brokerage account. It should always be invested in at least short term treasury bonds (etfs like SHY or BIL come to mind). If your broker goes belly up and you are holding cash, don't expect to get it back. If it's invested in securities then you will be made whole.

Stay away from partnerships and advisers that want you to put your funds in a comingled fund with everyone else. Always make sure the account is in your name.

Thanks for the advice on cash in brokerage accounts.  I suspected that was the case.

I used to be a very trusting individual who wants to help others and as a result I have been taken advantage of more times than I care to admit. After some very hard lessons, I would like to think I am a bit more savvy.   I won't be blindly trusting advice from people on the internet, or anyone for that matter, but it is good to get other perspectives.  After my marital experience you can be for damn sure my accounts will only be in my name.
Title: Re: How would you invest 700K in cash?
Post by: foobar on April 20, 2014, 09:41:56 PM
100k in 1 stock is a very  bad idea at your net worth level.  I don't care what company it is . Well I might make an exception for Berkshire but I would probably need to be drunk.... 

I think you need to run the numbers and see if you can meet your goals with a portfolio with 70% of it is getting 0% real return. The risk of losing a money in a crash is obvious. The bigger risk of not having enough money by being super conservative is a lot harder to visualize.

Your big question is do you want to learn all this financial stuff or do you want to delegate. Either way can work. If you do delegate, please pick a person with low fees (<.5%). Vanguard offers services as do Betterment and Wealthfront (among others). Which one is a win depends on how much hand holding you need/want.

I have 7-10 years before I plan to retire with a pension which I estimate will pay around $3000/mo.  I will be getting approximately $700,000 in cash as a division of assets in a divorce (I have had no say so before now as to how this was invested).  $200,000 of the cash is in an IRA.  I will have an additional $140,000 that is already in the market and is mainly in individual blue chip stocks (of which one stock holding is about $100,000).  I also have other cash set aside for emergencies and other expenditures.

I really don't like risk, but am logical enough to understand I need some exposure to the stock market.  My initial reaction is to put $500,000 into 5 year CD's or do a CD ladder, so that I can take advantage of interest rates if they rise.  I would then take the other $200,000 and invest half in an S&P index fund and half in a dividend aristocrats type of fund.

Is it better to invest in the market with the non-IRA money?  I have gotten the impression that you lose the advantage of capital gains in an IRA since you pay your taxes at your regular rate when you start making withdrawals.

Any advice or insight would be appreciated.  My spending is not down to Mustaschian levels at this point so I am not ready to pull the trigger yet.
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 20, 2014, 10:29:28 PM
I agree that having $100,000 in a single stock is not wise (again, I have had no say so in how this was invested). I am trying to decide whether to sell part of it.  However, the cost basis in it is around $8,000 so that is $92,000 in gains over 21 years.  Since it is in an IRA, I am not sure what the tax consequences are of selling at this point. I don't think there are immediate tax consequences as I believe I don't have to pay taxes until I begin withdrawals and then at my regular tax rate.  This goes back to part of my question in my original post about if you get to take advantage of capital gains rates in an IRA.  I don't think so, but would like someone to clarify if possible.  The reason that I ask is that with my pension, I am not sure I will drop below the 25% tax bracket, so it may be more advantageous for me to invest non-IRA funds into vehicles that can take advantage of capital gains tax rates. 

Again, I appreciate all the suggestions here.
Title: Re: How would you invest 700K in cash?
Post by: soccerluvof4 on April 21, 2014, 07:23:35 AM
60/40 split Stocks and bonds. of the 60 %   70% index of the S&P and 30% index international. 40% bonds maybe filter in some International . I would recommend Vanguard. If  you have more than 500k you get all the free advice you need.  That would be my recommendation for whats its worth.
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 21, 2014, 07:40:18 AM
http://forum.mrmoneymustache.com/investor-alley/william-bernstein-the-worst-retirement-investing-mistake/msg272079/#new


What about the above?

Title: Re: How would you invest 700K in cash?
Post by: waltworks on April 21, 2014, 08:36:40 AM
You could make that argument in your situation as well if you are sure about your pension and really don't like volatility/get freaked out easily when you need to hold investments through downturns.

I think you have exhausted the ability of the internet to help, though, honestly. There are several easy paths to be retired on $700k with moderate frugality. Once you throw in the $3k/month pension it becomes ridiculously easy even if you want to keep your current spending levels. The only way to fail here, realistically, is to keep spending as much as you can and leave your entire portfolio in cash (even that will take a LONG time to fail), or in a few stocks/companies that could go belly up.

So take a deep breath, relax, and smile. You're set.

-W


http://forum.mrmoneymustache.com/investor-alley/william-bernstein-the-worst-retirement-investing-mistake/msg272079/#new


What about the above?
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 21, 2014, 09:32:55 AM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.
Title: Re: How would you invest 700K in cash?
Post by: Saverocity on April 21, 2014, 06:01:12 PM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.

Just glancing through. But in your income needs did you factor in social security?
Title: Re: How would you invest 700K in cash?
Post by: arebelspy on April 21, 2014, 07:41:40 PM
Cash flowing real estate, leveraged or not, depending on your preferences around debt (good or bad).

The type of investment would depend on how much involvement you want.  Nearly totally passive: invest it with someone else, as the bank.  Hold a note, secured by real estate, where they pay their mortgage to you.  All the way to varying degrees of active (rentals with a property manager, rentals with you managing, flips, etc.).
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 21, 2014, 09:00:27 PM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.

Just glancing through. But in your income needs did you factor in social security?

Nope.  Not counting on govt for anything.  Will be a nice bonus if I get SS.
Title: Re: How would you invest 700K in cash?
Post by: Saverocity on April 22, 2014, 05:14:32 AM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.

Just glancing through. But in your income needs did you factor in social security?

Nope.  Not counting on govt for anything.  Will be a nice bonus if I get SS.

When does your pension kick in? You say you plan to retire in 7-10 years which would make you 53-56yrs old. Would you receive a pension from then or would there be a gap?  Does your pension have a vesting schedule or penalty for retiring before normal retirement age?

If you aren't planning for SS and are in good health you should consider delaying SS until 70 in order to increase the value of of payments.

I think we can create a income needs gap between retirement and inflows and then decide what rate of return is required from your settlement. To discuss asset allocations before you really understand how much income you require is putting the cart before the horse.

Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 22, 2014, 06:00:22 AM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.

Just glancing through. But in your income needs did you factor in social security?

Nope.  Not counting on govt for anything.  Will be a nice bonus if I get SS.

When does your pension kick in? You say you plan to retire in 7-10 years which would make you 53-56yrs old. Would you receive a pension from then or would there be a gap?  Does your pension have a vesting schedule or penalty for retiring before normal retirement age?

If you aren't planning for SS and are in good health you should consider delaying SS until 70 in order to increase the value of of payments.

I think we can create a income needs gap between retirement and inflows and then decide what rate of return is required from your settlement. To discuss asset allocations before you really understand how much income you require is putting the cart before the horse.

I have done lots of hypothetical calculations and figure I would like to have around $50-55K per year for expenses.  If I get pension of $36K per year in 7 years, which is what I estimate, then I need an additional $14-20K per year.  I have been planning for $20K.  No matter what happens, as long as pension doesn't go broke, I figure I will find a way to live on just that if necessary.

Vested in pension. 7% comes out of my check each month and they pay 7% on my contributions.  Since I am vested, I will get 200% match.  I cannot take out a lump sum, but get a benefit for life.   If I stay 7 more years I am eligible to receive monthly payments for life if I retire at that point.  I'll be 53.  If I quit before then, I will get a monthly benefit at 60 for the rest of my life of approximately $24K per year, if I were to quit today.  If I decide to work longer, my benefit goes up.

I probably will delay SS until 70, unless I can get paid on my ex husband's benefit when he starts withdrawing without effecting my own SS.  I am a bit confused about those rules.  If possible, I also don't want to take out of IRA until RMD kicks in. (Edit:  unless it is more tax advantageous for me to use IRA before then)
Title: Re: How would you invest 700K in cash?
Post by: theSlowTurtle on April 22, 2014, 08:23:09 AM
Cash flowing real estate, leveraged or not, depending on your preferences around debt (good or bad).

The type of investment would depend on how much involvement you want.  Nearly totally passive: invest it with someone else, as the bank.  Hold a note, secured by real estate, where they pay their mortgage to you.  All the way to varying degrees of active (rentals with a property manager, rentals with you managing, flips, etc.).
This.  Also look into triple net leases.  Should be able to find some around 500k which could provide 35-40k per year.  They average 4%-8% but are decent ways to park cash/create your own annuity.
Title: Re: How would you invest 700K in cash?
Post by: arebelspy on April 22, 2014, 08:31:59 AM
Cash flowing real estate, leveraged or not, depending on your preferences around debt (good or bad).

The type of investment would depend on how much involvement you want.  Nearly totally passive: invest it with someone else, as the bank.  Hold a note, secured by real estate, where they pay their mortgage to you.  All the way to varying degrees of active (rentals with a property manager, rentals with you managing, flips, etc.).
This.  Also look into triple net leases.  Should be able to find some around 500k which could provide 35-40k per year.  They average 4%-8% but are decent ways to park cash/create your own annuity.

That is another good option.  NNN always seemed riskier to me than often portrayed due to the risk of the store closing down and being left with a LONG vacancy.  That's why I prefer notes.  But it can definitely be a good strategy for some, given the proper due diligence.  :)
Title: Re: How would you invest 700K in cash?
Post by: Another Reader on April 22, 2014, 08:53:04 AM
Yep.  You could always tell which major retailer was about to go under when a large number of their stores appeared on LoopNet as sale-leaseback deals with long term leases and low cap rates.  Bankruptcy wipes out the lease and the buyer is left with a vacant building that is often impossible to re-lease.  Buyer beware!
Title: Re: How would you invest 700K in cash?
Post by: Saverocity on April 22, 2014, 09:43:11 AM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.

Just glancing through. But in your income needs did you factor in social security?

Nope.  Not counting on govt for anything.  Will be a nice bonus if I get SS.

When does your pension kick in? You say you plan to retire in 7-10 years which would make you 53-56yrs old. Would you receive a pension from then or would there be a gap?  Does your pension have a vesting schedule or penalty for retiring before normal retirement age?

If you aren't planning for SS and are in good health you should consider delaying SS until 70 in order to increase the value of of payments.

I think we can create a income needs gap between retirement and inflows and then decide what rate of return is required from your settlement. To discuss asset allocations before you really understand how much income you require is putting the cart before the horse.

I have done lots of hypothetical calculations and figure I would like to have around $50-55K per year for expenses.  If I get pension of $36K per year in 7 years, which is what I estimate, then I need an additional $14-20K per year.  I have been planning for $20K.  No matter what happens, as long as pension doesn't go broke, I figure I will find a way to live on just that if necessary.

Vested in pension. 7% comes out of my check each month and they pay 7% on my contributions.  Since I am vested, I will get 200% match.  I cannot take out a lump sum, but get a benefit for life.   If I stay 7 more years I am eligible to receive monthly payments for life if I retire at that point.  I'll be 53.  If I quit before then, I will get a monthly benefit at 60 for the rest of my life of approximately $24K per year, if I were to quit today.  If I decide to work longer, my benefit goes up.

I probably will delay SS until 70, unless I can get paid on my ex husband's benefit when he starts withdrawing without effecting my own SS.  I am a bit confused about those rules.  If possible, I also don't want to take out of IRA until RMD kicks in. (Edit:  unless it is more tax advantageous for me to use IRA before then)


My suggestion is to take a defensive position to your wealth.  Based upon (limited) information of your situation it looks like you are in pretty decent financial shape and as such your primary goal should be to ensure you have sufficient inflow to make up that pension gap.

You also stated a desire to drive more optimized income from your assets.  I would suggest that you consider that a switch you flip at 70, and until then take the absolute least amount of risk with current windfall payment. 

Based upon your desire to not rely upon SS you need to model an investment plan that will provide you with income stream of $20K (to be conservative) from the age of 53 all the way through to say, 95?

There are two ways to approach that income stream, you could acquire an asset that kicked off $20K without touching your principle, this would require a higher risk profile than the second route, which is to eat into your principle.

My suggested defensive route would be to seek to build an asset allocation that was very low risk, even to the point where you were eating some principle, but will still get you to 95 years of age.  The reason I like this route is that while you don't want to rely on it, it is likely that SS will kick in and take most of that burden away from you.  As such the worse thing you could do is invest in something overly aggressive and in the interim lose principle from market downside.

Here is a useful mathematical calculation to run:


Calculate Net Present Value of Assets that will produce $20,000 of income over 42 years:

At 1% Interest (starting at age 53) you would need a nest egg of $683,162.16 at age 53
At 2% Interest (starting at age 53) you would need a nest egg of $564,695.87 at age 53

As you can see, you don't need a lot of risk at all with the amount of your current lumpsum.  However, you need to be mindful of the impact of inflation, so the real numbers you should be looking at would be 1%+Inflation 2%+Inflation.  You would be wise to peg inflation higher, perhaps at 4.5% in order to see how solid your plan is.  In which case, the number you need is somewhat higher than above.  If you consider how achieving such a return is very conservative and consider that you have 7 years of interest and capital additions to make, you could easily get there.

Is your pension COLA/Inflation adjusted?

** Your 100K in a single stock in an IRA with 92K gain.  Sell it.  There would be no capital gain transaction, once sold, use the 100K for a more appropriate risk balanced investment.  You could just buy the market, or a low cost ETF that included that stock plus a bunch of others to spread out your risk.

Based upon the numbers that I see, you do not need to get involved in real estate leasing in order to achieve your goals- you can build a very stable bond/stock mix that will keep you going all the way to 95 without even touching SS.

So to quickly recap:

I would suggest between now and 53 adding to your savings until you get it to a level where it can simply survive inflation. 
Delay SS til 70
If SS is around at 70 rebalance your asset allocations for the bit 'you don't need now' and put that into something a little more aggressive.
If SS isn't around at 70, you are good all the way through to 95 based on your model.

Problems:

Health and Long Term Care costs: these may throw your plan out of kilter, you may wish to explore LTC insurance.

My approach to investing is that you should take the absolute minimum amount of risk to achieve your goals, and since you are already very well positioned I would make every effort to not expose your wealth to downside.  I would also posit that there is a good chance that we will go through another economic cycle within the next 7 years, so holding a good part of wealth outside of the market may be smarter for you, especially as you don't actually need the upside.
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 22, 2014, 10:36:06 AM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.

Just glancing through. But in your income needs did you factor in social security?

Nope.  Not counting on govt for anything.  Will be a nice bonus if I get SS.

When does your pension kick in? You say you plan to retire in 7-10 years which would make you 53-56yrs old. Would you receive a pension from then or would there be a gap?  Does your pension have a vesting schedule or penalty for retiring before normal retirement age?

If you aren't planning for SS and are in good health you should consider delaying SS until 70 in order to increase the value of of payments.

I think we can create a income needs gap between retirement and inflows and then decide what rate of return is required from your settlement. To discuss asset allocations before you really understand how much income you require is putting the cart before the horse.

I have done lots of hypothetical calculations and figure I would like to have around $50-55K per year for expenses.  If I get pension of $36K per year in 7 years, which is what I estimate, then I need an additional $14-20K per year.  I have been planning for $20K.  No matter what happens, as long as pension doesn't go broke, I figure I will find a way to live on just that if necessary.

Vested in pension. 7% comes out of my check each month and they pay 7% on my contributions.  Since I am vested, I will get 200% match.  I cannot take out a lump sum, but get a benefit for life.   If I stay 7 more years I am eligible to receive monthly payments for life if I retire at that point.  I'll be 53.  If I quit before then, I will get a monthly benefit at 60 for the rest of my life of approximately $24K per year, if I were to quit today.  If I decide to work longer, my benefit goes up.

I probably will delay SS until 70, unless I can get paid on my ex husband's benefit when he starts withdrawing without effecting my own SS.  I am a bit confused about those rules.  If possible, I also don't want to take out of IRA until RMD kicks in. (Edit:  unless it is more tax advantageous for me to use IRA before then)


My suggestion is to take a defensive position to your wealth.  Based upon (limited) information of your situation it looks like you are in pretty decent financial shape and as such your primary goal should be to ensure you have sufficient inflow to make up that pension gap.

You also stated a desire to drive more optimized income from your assets.  I would suggest that you consider that a switch you flip at 70, and until then take the absolute least amount of risk with current windfall payment. 

Based upon your desire to not rely upon SS you need to model an investment plan that will provide you with income stream of $20K (to be conservative) from the age of 53 all the way through to say, 95?

There are two ways to approach that income stream, you could acquire an asset that kicked off $20K without touching your principle, this would require a higher risk profile than the second route, which is to eat into your principle.

My suggested defensive route would be to seek to build an asset allocation that was very low risk, even to the point where you were eating some principle, but will still get you to 95 years of age.  The reason I like this route is that while you don't want to rely on it, it is likely that SS will kick in and take most of that burden away from you.  As such the worse thing you could do is invest in something overly aggressive and in the interim lose principle from market downside.

Here is a useful mathematical calculation to run:


Calculate Net Present Value of Assets that will produce $20,000 of income over 42 years:

At 1% Interest (starting at age 53) you would need a nest egg of $683,162.16 at age 53
At 2% Interest (starting at age 53) you would need a nest egg of $564,695.87 at age 53

As you can see, you don't need a lot of risk at all with the amount of your current lumpsum.  However, you need to be mindful of the impact of inflation, so the real numbers you should be looking at would be 1%+Inflation 2%+Inflation.  You would be wise to peg inflation higher, perhaps at 4.5% in order to see how solid your plan is.  In which case, the number you need is somewhat higher than above.  If you consider how achieving such a return is very conservative and consider that you have 7 years of interest and capital additions to make, you could easily get there.

Is your pension COLA/Inflation adjusted?

** Your 100K in a single stock in an IRA with 92K gain.  Sell it.  There would be no capital gain transaction, once sold, use the 100K for a more appropriate risk balanced investment.  You could just buy the market, or a low cost ETF that included that stock plus a bunch of others to spread out your risk.

Based upon the numbers that I see, you do not need to get involved in real estate leasing in order to achieve your goals- you can build a very stable bond/stock mix that will keep you going all the way to 95 without even touching SS.

So to quickly recap:

I would suggest between now and 53 adding to your savings until you get it to a level where it can simply survive inflation. 
Delay SS til 70
If SS is around at 70 rebalance your asset allocations for the bit 'you don't need now' and put that into something a little more aggressive.
If SS isn't around at 70, you are good all the way through to 95 based on your model.

Problems:

Health and Long Term Care costs: these may throw your plan out of kilter, you may wish to explore LTC insurance.

My approach to investing is that you should take the absolute minimum amount of risk to achieve your goals, and since you are already very well positioned I would make every effort to not expose your wealth to downside.  I would also posit that there is a good chance that we will go through another economic cycle within the next 7 years, so holding a good part of wealth outside of the market may be smarter for you, especially as you don't actually need the upside.

THANK YOU!!!  This is what I have been thinking, but didn't know if I was just being naive.    I don't want to get caught holding the bag with inflation, but I think with even minimal returns, I shouldn't have to invade principal too much, but it is there if I need it.  By the time inflation is really lowering my purchasing power, although I am not relying on it, I should get some SS to kick in which would help.  My pension is not adjusted for cost of living.   

I am planning on selling the stock, but have to wait for the divorce to be finalized first.  I do guardianships so I am well aware of the risk of needing long term care.  My parents have long term care insurance, and I will investigate if I think it is a good investment when I get closer to retirement.  Fewer companies are offering these policies and rates are rising for them.  My work discontinued offering them last year.  There is also some Medicaid planning that can be done to allow you to get Medicaid to pay for long term care, but still have funds available to pay for supplemental needs.  Obviously, I won't have enough wealth if life socks me in the nose with a huge catastrophe, but I will have to deal with that if it happens.  At some point, I have to trust my planning and take a leap of faith.  I can't plan for every eventuality.  (This is mainly my pep talk to myself)
Title: Re: How would you invest 700K in cash?
Post by: Saverocity on April 22, 2014, 04:12:12 PM
Thanks for everyone's help.  I hope I haven't sounded whiny as that wasn't my intent.  I know that I am in a wonderful financial position, so I am not really freaking out about it either.  Just trying to gather data to make some decisions.  Again, thanks to everyone who contributed.

Just glancing through. But in your income needs did you factor in social security?

Nope.  Not counting on govt for anything.  Will be a nice bonus if I get SS.

When does your pension kick in? You say you plan to retire in 7-10 years which would make you 53-56yrs old. Would you receive a pension from then or would there be a gap?  Does your pension have a vesting schedule or penalty for retiring before normal retirement age?

If you aren't planning for SS and are in good health you should consider delaying SS until 70 in order to increase the value of of payments.

I think we can create a income needs gap between retirement and inflows and then decide what rate of return is required from your settlement. To discuss asset allocations before you really understand how much income you require is putting the cart before the horse.

I have done lots of hypothetical calculations and figure I would like to have around $50-55K per year for expenses.  If I get pension of $36K per year in 7 years, which is what I estimate, then I need an additional $14-20K per year.  I have been planning for $20K.  No matter what happens, as long as pension doesn't go broke, I figure I will find a way to live on just that if necessary.

Vested in pension. 7% comes out of my check each month and they pay 7% on my contributions.  Since I am vested, I will get 200% match.  I cannot take out a lump sum, but get a benefit for life.   If I stay 7 more years I am eligible to receive monthly payments for life if I retire at that point.  I'll be 53.  If I quit before then, I will get a monthly benefit at 60 for the rest of my life of approximately $24K per year, if I were to quit today.  If I decide to work longer, my benefit goes up.

I probably will delay SS until 70, unless I can get paid on my ex husband's benefit when he starts withdrawing without effecting my own SS.  I am a bit confused about those rules.  If possible, I also don't want to take out of IRA until RMD kicks in. (Edit:  unless it is more tax advantageous for me to use IRA before then)


My suggestion is to take a defensive position to your wealth.  Based upon (limited) information of your situation it looks like you are in pretty decent financial shape and as such your primary goal should be to ensure you have sufficient inflow to make up that pension gap.

You also stated a desire to drive more optimized income from your assets.  I would suggest that you consider that a switch you flip at 70, and until then take the absolute least amount of risk with current windfall payment. 

Based upon your desire to not rely upon SS you need to model an investment plan that will provide you with income stream of $20K (to be conservative) from the age of 53 all the way through to say, 95?

There are two ways to approach that income stream, you could acquire an asset that kicked off $20K without touching your principle, this would require a higher risk profile than the second route, which is to eat into your principle.

My suggested defensive route would be to seek to build an asset allocation that was very low risk, even to the point where you were eating some principle, but will still get you to 95 years of age.  The reason I like this route is that while you don't want to rely on it, it is likely that SS will kick in and take most of that burden away from you.  As such the worse thing you could do is invest in something overly aggressive and in the interim lose principle from market downside.

Here is a useful mathematical calculation to run:


Calculate Net Present Value of Assets that will produce $20,000 of income over 42 years:

At 1% Interest (starting at age 53) you would need a nest egg of $683,162.16 at age 53
At 2% Interest (starting at age 53) you would need a nest egg of $564,695.87 at age 53

As you can see, you don't need a lot of risk at all with the amount of your current lumpsum.  However, you need to be mindful of the impact of inflation, so the real numbers you should be looking at would be 1%+Inflation 2%+Inflation.  You would be wise to peg inflation higher, perhaps at 4.5% in order to see how solid your plan is.  In which case, the number you need is somewhat higher than above.  If you consider how achieving such a return is very conservative and consider that you have 7 years of interest and capital additions to make, you could easily get there.

Is your pension COLA/Inflation adjusted?

** Your 100K in a single stock in an IRA with 92K gain.  Sell it.  There would be no capital gain transaction, once sold, use the 100K for a more appropriate risk balanced investment.  You could just buy the market, or a low cost ETF that included that stock plus a bunch of others to spread out your risk.

Based upon the numbers that I see, you do not need to get involved in real estate leasing in order to achieve your goals- you can build a very stable bond/stock mix that will keep you going all the way to 95 without even touching SS.

So to quickly recap:

I would suggest between now and 53 adding to your savings until you get it to a level where it can simply survive inflation. 
Delay SS til 70
If SS is around at 70 rebalance your asset allocations for the bit 'you don't need now' and put that into something a little more aggressive.
If SS isn't around at 70, you are good all the way through to 95 based on your model.

Problems:

Health and Long Term Care costs: these may throw your plan out of kilter, you may wish to explore LTC insurance.

My approach to investing is that you should take the absolute minimum amount of risk to achieve your goals, and since you are already very well positioned I would make every effort to not expose your wealth to downside.  I would also posit that there is a good chance that we will go through another economic cycle within the next 7 years, so holding a good part of wealth outside of the market may be smarter for you, especially as you don't actually need the upside.

THANK YOU!!!  This is what I have been thinking, but didn't know if I was just being naive.    I don't want to get caught holding the bag with inflation, but I think with even minimal returns, I shouldn't have to invade principal too much, but it is there if I need it.  By the time inflation is really lowering my purchasing power, although I am not relying on it, I should get some SS to kick in which would help.  My pension is not adjusted for cost of living.   

I am planning on selling the stock, but have to wait for the divorce to be finalized first.  I do guardianships so I am well aware of the risk of needing long term care.  My parents have long term care insurance, and I will investigate if I think it is a good investment when I get closer to retirement.  Fewer companies are offering these policies and rates are rising for them.  My work discontinued offering them last year.  There is also some Medicaid planning that can be done to allow you to get Medicaid to pay for long term care, but still have funds available to pay for supplemental needs.  Obviously, I won't have enough wealth if life socks me in the nose with a huge catastrophe, but I will have to deal with that if it happens.  At some point, I have to trust my planning and take a leap of faith.  I can't plan for every eventuality.  (This is mainly my pep talk to myself)

Good luck!

Regarding the division of assets in the divorce, keep an eye on the basis of anything taxable as you divide, that can make things that appear equitable far from it.
Title: Re: How would you invest 700K in cash?
Post by: thesinecure on April 23, 2014, 09:45:57 AM
really enjoying this post, there's a lot to think about so everyone please keep it up!

similar to you, i'm also in texas, in my 40s, have a net worth in the same ballpark and spent the past 5-10 years just accumulating savings and not so focused on investing

i'm looking to change/rebalance my investing over the next few months, while simultaneously looking for a new job and/or figuring how to work for myself instead of someone else (point being there's no new income coming in at the moment)

i don't think you're being naive at all by trying to be somewhat "defensive" - that in some way has been my mindset as well until more recently, and you shouldn't invest if you aren't comfortable - it will just lead to other issues

ultimately your real protection against inflation, and many if not most of the other uncertainties, is controlling what you SPEND, period end of story

the revenue side of this equation just makes it easier since there's "more" coming in - wages, SS, etc.  Trying to make that happen with investments is just another way to earn that "more", but there's definitely risk as well which we all have to try and get comfortable with individually.

sounds like you're on a good path so far, good luck

PRO TEXANA!
Title: Re: How would you invest 700K in cash?
Post by: NewStachian on April 23, 2014, 10:02:47 AM
100% in Greek Bonds...

I'm with everyone else regarding talk to your financial advisor. Don't have one? Set something up with either Vanguard or Fidelity. I use Fidelity and like them a lot.

I don't have a financial advisor per se.  I do have a brokerage account I opened 13 years ago, bought some stock and have left alone.  I know some people in the industry, so I will probably ask around.

I am trying to become a lot more self-sufficient and am trying to understand what I am investing in and not be taken advantage of by salesmen.  My soon to be ex basically maneuvered the majority of our savings into his name, so I have had no say so as to how it was invested (which it wasn't).  What I saved I did not invest so that I could get out of the marriage if necessary.  This enabled me to buy a house with cash and move out.  So up until now I have needed liquidity and haven't educated myself sufficiently on investing.

BTW, don't think I'll be going the Greek bond route ;)

Rofl, sorry. I forgot that I didn't explicitly say I was joking. Sorry! Financial advisors are free, or they should be free. At Fidelity (and probably Vanguard and some other reputable places), the advisors aren't on commission. They are salaried employees. So, they don't really have an incentive to sell you things. That being said, they certainly won't tell you it's a bad idea if you want to use their "Portfolio Managers" option where you pay 1% each year to them for actively trading your money. The question becomes: do you think a professional team can do 1% better than you can? If you stick to advice on this forum, probably not in the long run. One thing the managed teams do is trade for tax optimization as well. They will do better than someone who doesn't know what they're doing for sure.

I just shifted my strategy away from the large number of mutual funds with high fees (despite a 9.5% average return over the last 11 years including fees *shrug*) to one that tracks a few ETFs, an international and a bond fund. So, 2 ETFs and 2 funds. I'm going to see how that goes for a little while. (IVV, VXF, OAKGX, THOPX)
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on April 23, 2014, 10:25:29 AM
I have been running some simulations in cFIREsim.  I set the inflation rate at 4% and the results were not quite what I expected.  I am now leaning towards a little more risk.  Probably 50/50...the missionary position as someone called it ;)  Still don't know exactly, but I won't have the money for probably another month and I don't have to make up my mind immediately, so I am going to continue exploring my options.

Also considering possibility of rental real estate, but not sure I am ready to jump into that yet.

Soooo many options :P
Title: Re: How would you invest 700K in cash?
Post by: svosavvy on April 23, 2014, 10:35:42 AM
First off congratulations on your liberation.  From the sound of your post it would seem that you were not made to feel like an equal partner in your relationship. If that is the case sorry.  That being said pithy advice springs eternal here.  I have to agree with everyone who says educate yourself.  Start and never stop.  Realize when it comes to advisors you are depending on the kindness of strangers.  I would say avoid any advisor that comes at you with insurance "product" "solutions".  Generally their ploy is that by investing in some esoteric tax sheltered insurance product they will save you a pound of flesh in taxes (but they will take two in fees and underperformance).  They are usually insurance salesmen in "wealth managers" clothing.  Trust your instincts always.  Do not get entangled with a daddy knows best advisor.  You are the boss, never forget it.  I fully believe you can successfully invest with an 8th grade education (I'm proof).  OK get ready for this one...  Success or failure is the destination, the pile of money you have and your decisions are the timeline for arrival.  Learn how to deal with losses.  You wouldn't put up with a low quality person in your life don't accept low quality investments.  Winners and losers both go up and down at times. Through education figure out the losers and be merciless what you have left will be winners.  All things being equal Vanguard products stack up well vs the competition time and again where it counts.  They mostly perform similar to their peers but they excel because they get it done a lot cheaper.  Assuming you are healthy, take a deep breath close your eyes and pretend you have 10 million dollars, but, you are 85 years old and on oxygen in a nursing home.  Now think that the devil has paid you a visit and has offered to take you back in time to when you were 45 and could freely go for a jog.  However, this time travel will cost you 10 million dollars.  Would you pay it?  We are all luckier than we can imagine.  Have a great day.
Title: Re: How would you invest 700K in cash?
Post by: beltim on April 23, 2014, 10:47:34 AM
I have been running some simulations in cFIREsim.  I set the inflation rate at 4% and the results were not quite what I expected.  I am now leaning towards a little more risk.  Probably 50/50...the missionary position as someone called it ;)  Still don't know exactly, but I won't have the money for probably another month and I don't have to make up my mind immediately, so I am going to continue exploring my options.

Also considering possibility of rental real estate, but not sure I am ready to jump into that yet.

Soooo many options :P

If the biggest risk to you is inflation (which I think is accurate), then you should examine TIPS or other inflation-protected bonds.  They have a lower interest rate, but adjust the value of the principal based on inflation.  Right now the difference between a 10 year treasury bond and a 10 year TIPS is about 2.2%, so if inflation exceeds that you would be better off invest in TIPS.
Title: Re: How would you invest 700K in cash?
Post by: thesinecure on April 23, 2014, 01:58:48 PM
If the biggest risk to you is inflation (which I think is accurate), then you should examine TIPS or other inflation-protected bonds.  They have a lower interest rate, but adjust the value of the principal based on inflation.  Right now the difference between a 10 year treasury bond and a 10 year TIPS is about 2.2%, so if inflation exceeds that you would be better off invest in TIPS.
this is how these behave, but the "inflation" definition matters

current inflation stats are ex energy and food (which are normally two of the bigger expenses that literally everyone has), and if anyone believes that those things have not gone up in price well faster than "official inflation" then they're not paying attention

paying the same amount for fewer ounces (but in the same size package quite frequently) is a form of "inflation"

my point being TIPS will adjust based on the official inflation, but that inflation doesn't include adjustments for many of the things that everyone spends money on, so it's not exactly a true return
Title: Re: How would you invest 700K in cash?
Post by: beltim on April 23, 2014, 02:07:52 PM
current inflation stats are ex energy and food (which are normally two of the bigger expenses that literally everyone has), and if anyone believes that those things have not gone up in price well faster than "official inflation" then they're not paying attention

This is a common misconception.  TIPS use the CPI-U, which includes food and energy prices.  See http://www.bls.gov/cpi/cpiqa.htm for more detail.

paying the same amount for fewer ounces (but in the same size package quite frequently) is a form of "inflation"

Similarly, CPI-U takes into account product sizes. 

my point being TIPS will adjust based on the official inflation, but that inflation doesn't include adjustments for many of the things that everyone spends money on, so it's not exactly a true return

This is possible, but neither of your examples proves the point and I'm not aware of any that do.
Title: Re: How would you invest 700K in cash?
Post by: Mr Mark on May 01, 2014, 02:56:13 PM
BFgirl,

You are in fantastic financial shape once you decide an asset allocation. Most would consider you essentially FI if you control those pesky costs!

read. Plus I'd highly highly recommend:
Vanguard. A super conservative 'balanced' Vanguard fund is Wellesley - about 60% bonds, 40 stock. More mid range is Wellington, 35 bonds, 65 stock. Using these funds as a % of your total portfolio and you can create any ratio you'd like. Now, in bull years, these funds do far worse than 100% SP500, naturally, but in the big dips you drop far less.

If your asset allocation is seeking more diversity, you could add a % of international stock fund, a pure SP500, or a smaller cap or whole market fund, but I use Wellington as a core holding to get my bond % to my preferred 15%.

Do not buy annuities, variable annuities, whole life, or anything that demands a commission or up front fees. Minimise cash and gold.

Personally I prefer real estate and a fixed 30 year US mortgage to self insure against inflation, rather than TIPS.
Title: Re: How would you invest 700K in cash?
Post by: PAO on May 04, 2014, 09:46:09 AM
One thought on Wellesley is that its performance may suffer when interest rates rise.  I think these days most bond investments should be for shorter maturity bonds to avoid a significant drop in bond prices as interest rates come back up.  You could mitigate that risk a bit by dollar cost averaging out of existing holdings and into the fund over a period of time (35 months for the 700k?) or another option would be to leverage other vanguard funds to provide a similar 40/60 mix but with bonds that are shorter in duration to maturity. 

Here's a blurb from US News on Vanguard Wellesley:

Risk

The fund is vulnerable to rising interest rates because of its long-term bond holdings. On the equity side, the managers pursue a fairly strict value strategy, which can cause the fund to lag behind peers during big rallies.
Title: Re: How would you invest 700K in cash?
Post by: Zamboni on May 04, 2014, 10:44:37 AM
Keep the retirement account money in retirement accounts, but investigate your investment options (I'm another Vanguard fan, stay away from places like Edward Jones because they will be very nice to you while they siphon off all of your earnings.)

I'll second for putting a chunk of it into cash flow real estate.  But that's because I personally really like real estate to the point where I enjoy it, and so I'm willing to take the time to be educated about it, look at properties, etc.  There is a learning curve about which properties are good investments, but you are an attorney so I bet you'd be good at it.  But don't do it if you think you would not enjoy it. 

$500K in CD's sounds like a terrible idea to me.
Title: Re: How would you invest 700K in cash?
Post by: TomTX on May 04, 2014, 06:26:27 PM
I'm surprised nobody mentioned I-bonds (inflation adjusted savings bonds.) Sure, you can only buy $10k/year and have some other restrictions - but they are paying almost 2% right now (TIPS are paying effectively nothing), AND you are protected from inflation risk since they index with inflation, AND you can avoid taxes if you use the proceeds for qualified education.
Title: Re: How would you invest 700K in cash?
Post by: beltim on May 05, 2014, 02:42:37 PM
I'm surprised nobody mentioned I-bonds (inflation adjusted savings bonds.) Sure, you can only buy $10k/year and have some other restrictions - but they are paying almost 2% right now (TIPS are paying effectively nothing), AND you are protected from inflation risk since they index with inflation, AND you can avoid taxes if you use the proceeds for qualified education.

I-bonds are terrible for this purpose.  The biggest reason why is that an individual is only allowed to purchase $10,000 worth of I-bonds in a calendar year.  Second, there is no redemption of I-bonds in the first 12 months that you hold them, and if you redeem them before 5 years have gone by, you forfeit 3 months of interest.  And lastly, the almost 2% that you're claiming includes the term for inflation.  The actual "fixed rate" - the portion of the rate not corresponding to inflation - is only 0.10% right now.

http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
Title: Re: How would you invest 700K in cash?
Post by: TomTX on May 05, 2014, 07:59:02 PM
I'm surprised nobody mentioned I-bonds (inflation adjusted savings bonds.) Sure, you can only buy $10k/year and have some other restrictions - but they are paying almost 2% right now (TIPS are paying effectively nothing), AND you are protected from inflation risk since they index with inflation, AND you can avoid taxes if you use the proceeds for qualified education.

I-bonds are terrible for this purpose.  The biggest reason why is that an individual is only allowed to purchase $10,000 worth of I-bonds in a calendar year.  Second, there is no redemption of I-bonds in the first 12 months that you hold them, and if you redeem them before 5 years have gone by, you forfeit 3 months of interest.  And lastly, the almost 2% that you're claiming includes the term for inflation.  The actual "fixed rate" - the portion of the rate not corresponding to inflation - is only 0.10% right now.

http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

Apparently you didn't actually read my post before spewing. I mentioned the $10k limit. I said they're paying almost 2% right now - I didn't claim that was the base.

You have to go to a 5 year CD to get rates matching what you get from I-bonds - and after 12 months, the penalty is the same. Do you really think that someone with half a million dollars sitting around will need to cash in $10k in the first year? Really? Unlike CDs, you have a decent chance of upside adjustment in the interest rate.

AND, since the OP mentioned kids - the gain is tax free when used for education. Like college for the kids. Heck, you could get $10k for each kid every year, as the $10k limit is per SSN.
Title: Re: How would you invest 700K in cash?
Post by: BFGirl on May 05, 2014, 09:07:28 PM
I have been running some simulations in cFIREsim.  I set the inflation rate at 4% and the results were not quite what I expected.  I am now leaning towards a little more risk.  Probably 50/50...the missionary position as someone called it ;)  Still don't know exactly, but I won't have the money for probably another month and I don't have to make up my mind immediately, so I am going to continue exploring my options.

Also considering possibility of rental real estate, but not sure I am ready to jump into that yet.

Soooo many options :P

If the biggest risk to you is inflation (which I think is accurate), then you should examine TIPS or other inflation-protected bonds.  They have a lower interest rate, but adjust the value of the principal based on inflation.  Right now the difference between a 10 year treasury bond and a 10 year TIPS is about 2.2%, so if inflation exceeds that you would be better off invest in TIPS.

In looking at TIPS, you are taxed on the principal adjustment for inflation each year, even though you don't get paid that adjustment until maturity.  Therefore, I assume it would be better to hold these in tax deferred accounts like an IRA?
Title: Re: How would you invest 700K in cash?
Post by: beltim on May 06, 2014, 12:46:16 AM
I'm surprised nobody mentioned I-bonds (inflation adjusted savings bonds.) Sure, you can only buy $10k/year and have some other restrictions - but they are paying almost 2% right now (TIPS are paying effectively nothing), AND you are protected from inflation risk since they index with inflation, AND you can avoid taxes if you use the proceeds for qualified education.

I-bonds are terrible for this purpose.  The biggest reason why is that an individual is only allowed to purchase $10,000 worth of I-bonds in a calendar year.  Second, there is no redemption of I-bonds in the first 12 months that you hold them, and if you redeem them before 5 years have gone by, you forfeit 3 months of interest.  And lastly, the almost 2% that you're claiming includes the term for inflation.  The actual "fixed rate" - the portion of the rate not corresponding to inflation - is only 0.10% right now.

http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

Apparently you didn't actually read my post before spewing. I mentioned the $10k limit. I said they're paying almost 2% right now - I didn't claim that was the base.

You have to go to a 5 year CD to get rates matching what you get from I-bonds - and after 12 months, the penalty is the same. Do you really think that someone with half a million dollars sitting around will need to cash in $10k in the first year? Really? Unlike CDs, you have a decent chance of upside adjustment in the interest rate.

AND, since the OP mentioned kids - the gain is tax free when used for education. Like college for the kids. Heck, you could get $10k for each kid every year, as the $10k limit is per SSN.

You mentioned the 10k limit but perhaps you didn't realize that it would take 70 years for an individual to invest 700k, 35 if married, and 14 years if there are 3 kids too - but when the kids turned 18 the parents would lose control of those funds.

And your claim was that TIPS were paying effectively nothing, while I-bonds were yielding 2%. This is only true if you count inflation adjustments on I-bonds but not TIPS.
Title: Re: How would you invest 700K in cash?
Post by: milesdividendmd on May 06, 2014, 01:17:38 AM
If you're looking for nearly risk-free income, at levels higher than current fixed income rates, one option worth  considering would be to invest a portion of your stash in a single premium immediate annuity.

The downside is that once you give your money to the insurance company it is no longer yours. You Essentially exchange a chunk of money for a guaranteed pension good for the rest of your life. So If you die young your heirs lose.

The upside is that if this SPIA and your pension can cover your basic needs, you can invest the rest of your money very aggressively (ie in low cost total market index funds,) with little risk of financial ruin.

For more see this excellent article from the white coat investor ...

http://whitecoatinvestor.com/spia-the-good-annuity/

Good luck.

Alexi

Title: Re: How would you invest 700K in cash?
Post by: TomTX on May 08, 2014, 07:24:06 PM

You mentioned the 10k limit but perhaps you didn't realize that it would take 70 years for an individual to invest 700k, 35 if married, and 14 years if there are 3 kids too - but when the kids turned 18 the parents would lose control of those funds.

And your claim was that TIPS were paying effectively nothing, while I-bonds were yielding 2%. This is only true if you count inflation adjustments on I-bonds but not TIPS.

I must have misread on TIPS and only seen the base - I don't have any, so I am less familiar. I should have checked more closely. What are TIPS currently paying out?

I can do simple math. I wouldn't put a ton in I-bonds anyway.
Title: Re: How would you invest 700K in cash?
Post by: beltim on May 09, 2014, 11:33:46 AM

You mentioned the 10k limit but perhaps you didn't realize that it would take 70 years for an individual to invest 700k, 35 if married, and 14 years if there are 3 kids too - but when the kids turned 18 the parents would lose control of those funds.

And your claim was that TIPS were paying effectively nothing, while I-bonds were yielding 2%. This is only true if you count inflation adjustments on I-bonds but not TIPS.

I must have misread on TIPS and only seen the base - I don't have any, so I am less familiar. I should have checked more closely. What are TIPS currently paying out?

I can do simple math. I wouldn't put a ton in I-bonds anyway.

10 year TIPS are paying 0.4% plus inflation, 30 years about 1.1% plus inflation.  The inflation adjustment has been about 2.2% annually over the last 10 years, and about  1.5% over the last year.
Title: Re: How would you invest 700K in cash?
Post by: DoctorOctagon on May 09, 2014, 12:56:26 PM
As you expand your time horizon out further and further, cash and CDs will lose you more and more and more money relative to stocks.

You guarantee a rate of loss equal to (inflation x time) with cash.  Over the next 5 years, your cash and CD investments will lose somewhere between 3-10% value.  Over, say, 30 years, you can plan on losing 80-90% of the principal's value.  Sounds like a SHITTY investment to me.  Cash should be used as a medium of exchange, not as an investment!!!

Conversely, your risk of loss gets lower and lower holding safe blue chips and index funds over a long period of time.  Over the next 5 years we might see a recession that decreases value 50%.  However, over 30 years the growth rate of the stocks(businesses) you own will negate any temporary volatility and you could see growth of 1,000-2,000%.  Sounds like a GREAT investment to me.

If your time horizon is less than 10 years, hold a mix of cash and stocks that's 50/50.  If there's a really bad recession you can buy more stocks with the cash you have to multiply your future earnings.  Longer than that, mostly stocks.  Blue chips & passive index funds would be ideal.