Laid off, severance and investing idle cash

[pdxvandal]

Hi fellow MMMs.

I was laid off a month ago and received a solid severance and bonus totaling about 17k after tax. I had been saving cash for a house down payment, but now I feel like I need the cash working for me, despite the fact I have no full-time job.

Here are my basic financial stats:

200k in tax-advantaged IRA (Vanguard)
88k in Roth IRA (Vanguard)
11k in taxable mutual/index funds (Vanguard)
25k cash in 2.25% credit union account
75k cash in 0.85% online bank
6.5k in Lending Club
~130k in current home equity (27 years left on 3.875%, $1.2k monthly payment including taxes, insurance)

I am considering putting 50-75k into VWNIX, which is allocated at about 38% stocks and the rest bonds. I am willing to stomach a drop, but feel it's worth the risk to help create a dividend stream that would be far higher than the online bank's monthly interest.

I have at least five months of UI payments remaining (unless I find a FT job) in addition to about 2k worth of side work in the next three months. Barring any major surprises, my 'stache should remain relatively intact for the next 6 months without having to tap into any accounts. If I have no FT job in six months, I can easily make the 25k in my credit union account last for at least a year. After a year, I would potentially sell some of the conservatively invested assets for a house down payment.

Open to any of your suggestions. I also plan to call Vanguard next week for theirs.

I'm 39 with a 4-year-old entering pre-K this fall. I plan to FI by 2019.

P.S., My wife works full-time and has a stable job.

[oldtoyota]

I find this hard to answer without knowing your expenses.

[pdxvandal]

Here goes ...

Average monthly expenses (from highest to lowest)

600 mortgage, incl. taxes/insurance (wife pays other half)
400 IRA
300 utilities
150 groceries/beer
60 gas
50 restaurants
50 entertainment
35 car insurance
30 health insurance for child
30 internet
20 cell phone
18 life insurance

Total: ~$1,800 (rounded up)

[zurich78]

I'm still new to the FI game, but, how can you achieve FI in 5 years on those numbers (at 44 years of age)? 

[pdxvandal]

That's my stretch goal, Zurich. It may or may not happen. Depends on some factors as far as FT work, PT work and an expected $350k inheritance in about 10 years. (I know we're not supposed to "count on this" but it will happen).

I expect to work at least part-time making 10k-20k per year for the next 10+years anyway, even if I never again obtain FT employment (very likely I will again). I will always have some kind of "job" until at least age 50 and probably beyond. My dividend income alone at this point is about 13k per year. And I would like to increase that this year.

[BlueHouse]

I am considering putting 50-75k into VWNIX, which is allocated at about 38% stocks and the rest bonds. I am willing to stomach a drop, but feel it's worth the risk to help create a dividend stream that would be far higher than the online bank's monthly interest.

I'm not an expert, but I hear an awful lot of talking heads saying don't buy bonds while the interest rates are still so low.  The value of the bonds will decrease immediately with higher interest rates.  So I'm still hearing (I think...someone correct me if needed) to either stick with corp bonds or a short-term bond index. 
I would be very worried about putting so much cash in a fund that could lose a lot of money in the short term while you are out of work.   

[Chuck]

I see someone else uses Ally Bank too! :D

[foobar]

Corp bonds will also drop when interest rates go up.

Your sort of screwed these days for fixed income.  You can stick it in short term and lose money every year to inflation or you can stick in inter bonds and earn a bit more than inflation but your going to lose ~5% for ever 1% rate increase. If it takes 3 years for the rates to up 1%, you win with intermediate. If it takes 1 year, you lose. In between it gets close:)

I am considering putting 50-75k into VWNIX, which is allocated at about 38% stocks and the rest bonds. I am willing to stomach a drop, but feel it's worth the risk to help create a dividend stream that would be far higher than the online bank's monthly interest.

I'm not an expert, but I hear an awful lot of talking heads saying don't buy bonds while the interest rates are still so low.  The value of the bonds will decrease immediately with higher interest rates.  So I'm still hearing (I think...someone correct me if needed) to either stick with corp bonds or a short-term bond index. 
I would be very worried about putting so much cash in a fund that could lose a lot of money in the short term while you are out of work.

[BlueHouse]

Corp bonds will also drop when interest rates go up.

Your sort of screwed these days for fixed income.  You can stick it in short term and lose money every year to inflation or you can stick in inter bonds and earn a bit more than inflation but your going to lose ~5% for ever 1% rate increase. If it takes 3 years for the rates to up 1%, you win with intermediate. If it takes 1 year, you lose. In between it gets close:)

Foobar, thanks. I hadn't understood the timing before. This will make it a bit easier to decide how to allocate. I'm currently way too heavy in stocks and my much of my bond portion is still sitting in cash because I just keep hearing to stay away from bonds until rates increase.

[oldtoyota]

So, why would you invest $50-75K in something if you just lost your job? Wouldn't you want that to pay for expenses?

[pdxvandal]

Thanks for your responses. It just seems like there is too much risk to place it in the market at this point.

Missing the days of 5% CD rates! :)

Peace.

[snareman1]

If I were you, I would "retire" now, or at least have your current lifestyle covered forever by your investments, so you would be free to recreate yourself and the next step in your life.

1. Sell your house and rent something equal to or less expensive then your current mortgage.

Based on loose conversations I've had with arebelspy about my own game, we spoke about 45k being able to get me a rental property that rents for 1000-1100 maybe per month.  You'll pay property taxes, insurance, management, repairs, have vacancies, etc.  You'll net maybe 600/mo.

2. Take that $131k of equity from the sale of your home and combine it with another $10k or so from one of your other accounts, thus parlaying that into the following:
If your expenses are 1,800/mo, I'd by three of these type of properties ($45,000 x 3 = $135,000).  Then at least you'd have approx $1,800 of rental monthly rental income.

This is a rough outline and idea, but you get the point ;) . Everything else is a detail =)
And arebelspy, feel free to face punch me if the numbers I've quoted are incorrect. =p

[pdxvandal]

Pretty tough to find positive cash-flow investment properties in Portland, Oregon, where the median house price is 275k. I looked two years ago when prices were better, but there was low inventory and crazy competition.

I would be willing to look in other RE markets, but not excited to be an out-of-state landlord.

[snareman1]

Pretty tough to find positive cash-flow investment properties in Portland, Oregon, where the median house price is 275k. I looked two years ago when prices were better, but there was low inventory and crazy competition.

I would be willing to look in other RE markets, but not excited to be an out-of-state landlord.

Perhaps branching out to other RE Markets could be a new step for you in becoming wealthy and expanding your comfort zone. Of course, everyone has different risk tolerances, but if you became comfortable with it, you would be unstoppable. Personally, I will have to do this since I live in Los Angeles. arebelspy could possibly be a resource to point you in the right market direction/geographic region with cashflow properties that make sense. (Not trying to flaunt the guy, but he knows his shit).

Best wishes to you!