Investing a $3mm (before taxes) windfall?

[DCisExpensive]

Hey MM Forum,
I'm an employee (executive) at a mid-sized company and our owner has offered to buy out some of my phantom equity for $3mm (before I pay ordinary income, so it'll be something like $1.6mm post-taxes) at the end of 2017.  It's a good deal for me, as I get to take some money off the table while keeping a portion of the phantom equity I own in the company.

My current investment approach is primarily:

• Non-retirement money invested in Betterment (Ballpark of $750K)
• Roth IRA and IRA (including mine and my wife's) accounts in Vanguard (Ballpark of $400K)

My questions are:

• Do you recommend I invest this new money in Betterment?  Move back to all Vanguard?  Or maybe use a money manager?
• Would you recommend I dollar-cost average this lump sum into my investing (currently Betterment) account over some period of time, such as over 6 or 12 months to avoid buying such a large amount of assets at one point of time?  How would you recommend I split up?
• Do you recommend I move my retirement accounts over to Betterment to get the advantage of their tax-coordinated portfolio concept? (https://www.betterment.com/tax-coordinated-portfolio/)

Thanks!

[ysette9]

If it were me I would put it all lump sum into vanguard directly per the asset allocation stated in my investment policy statement. I would avoid Betterment due to the increased fees over Vanguard. Statistically lump-sum is more likely to come out ahead than dollar cost averaging. You can google the white paper that Vanguard has published on the subject if you care. If lump sum makes you nervous, you could always break it up into a few chunks to sleep better at night.

[terran]

Might your company's owner be amenable to splitting the purchase up in this tax year and next? if so you could see if that would save you some on taxes. it might not matter if your other income is high enough though. 

[Mighty-Dollar]

I'd go with E Trade, AmeriTrade or Vanguard.
Dollar cost averaging is simply putting off risk. You HAVE to put it all in to be an investor. If you're afraid of stock market risk then diversify a little more into your total bond market index fund. Invest the bulk of it in a total stock market index fund. Subtract your age from 120. That equals the percentage that most people would invest in the stock asset class. 

[soccerluvof4]

If it were me I would put it all lump sum into vanguard directly per the asset allocation stated in my investment policy statement. I would avoid Betterment due to the increased fees over Vanguard. Statistically lump-sum is more likely to come out ahead than dollar cost averaging. You can google the white paper that Vanguard has published on the subject if you care. If lump sum makes you nervous, you could always break it up into a few chunks to sleep better at night.

This! ^ I was in a similar situation when I basically got out of my business took my cash flow, sold assets etc..and was just a tad bit more but were talking a small difference after tax. I strongly recommend Vanguard and also dont be hesitant to hire one over there investment guys for 6 months or so. I just said I wanted someone thats been there 20 years and I got a good one. There cost to help you is like .30 so its well worth to figure out what is the best way to AA your money and change things over etc..  I do not like Betterment at all and would roll that over as well. Good Luck to you sounds like your doing well.

[TomTX]

Excellent advice in this thread. I have no specifics to add!

[chasesfish]

Yes, outstanding advice all the way around.  Here are some other things I'd add or reinforce.

- I'd move the Bettermint back to Vanguard.  Fees at this level of investment dollars just cost a lot.

- If you're charitably inclined, consider opening a Donor Advised Fund the same year as the sale and put aside some of your future donations today when you get the windfall.

- You'll have around $2.75mil in investments, continued employment, and another bite at a sale.  Unless your spending habits are in excess of $100,000/year, you already have enough money to live on for the rest of your life.   This isn't traditional advice on here, but  I would consider taking a small portion of your portfolio for some alternate investments. 

I'm not talking about a hedge fund.  I'd establish a family limited partnership and start investing through it.  Examples of stuff I'd do:
Buy a low-maintenance townhouse free and clear and use a property management company.
Do some angel investing in a similar field to your experience
Participate in putting up some equity for a commercial real estate transaction   
Buy some land in the country that just had the timber cut off of it for the cheap.  In 20 years you'll get a big check and still own the land. 

Consider these your "moonshots" that not everyone can do and you may earn higher than market returns because of the league you can invest in.  Just don't get greedy and start playing with your core $2mil portfolio.

[talltexan]

So, no one is suggesting putting all $3,000,000 into crypto- and going for the homerun?

j/k

OP, congrats on this payout! I'm a big proponent in ratcheting down your risk tolerance a little when you have a large step forward in NW, so if your other investments are 80% in stocks, this is probably a time it makes sense to drop that to 70. I find this makes it easier to lump sum into the new allocation.