Author Topic: USD 750,000 of cash, not invested, need advice.  (Read 24063 times)

illiterate

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USD 750,000 of cash, not invested, need advice.
« on: September 26, 2016, 04:26:57 AM »
Hello all. I am 32 and have been a very good saver. On an ordinary income, I managed to save about USD 750,000 mostly due to a very high savings rate and living outside the United States in a country with very low income tax – this amount is not invested and is sitting as cash (both in the US accounts and abroad) earning nothing. There were always reasons for me not to invest, but it was mostly due to lack of financial education and my own ignorance.

First, I was saving money to buy a house as mortgage rates in the country where I live are extremely high and it was logical to buy a house with 100% cash. Then, the stock market crashed and as a young professional I was very hesitant to invest as I could be subject to a redundancy without any severance package as I was not vested. Therefore, due to the great recession and very uncertain economic situation, I was saving cash for the house and was scared to invest – nobody could predict such amazing stock growth between 2009 and 2014. In summary, I simply missed the bull market of the last 4-5 years mostly due to my ignorance and lack of financial education.

I am US citizen (although I have not lived in the US more than 10 yrs now), working for a subsidiary of the UK company in Eastern Europe. I do have an intention to return to the US. I have US bank accounts and US address, but am not US resident at the moment.

My main dilemma is how to invest my money now and where to start. Of course, given the all-time high for the markets and all the negative reports about the economy and another “bubble”, I am not sure this is a right time to enter the market with a lump sum. It would be very painful to miss the bull market of last years and all upside, invest lump sum now at (possible) a peak and lose 20-30-40% in the next 1-2 years if the market indeed corrects/crashes. Ideally, I will be happy with AA of 80stocks/20bonds, but not sure whether now is the right time to enter the market with a lump sum.
My figures are:

Current income: about USD 100,000 per year (no US tax as I live outside the US)
Expenses: USD 36,000-40,000 per year
Cash: USD 640,000 (in USD), USD equivalent 110,000 (in UK pounds – already lost some due to Brexit and devaluation of UK pound this year)
Defined benefit pension: ca. USD 200,000 lump sum if I leave my employer today
Defined contribution plan: ca. USD 85,000 (invested by my employer) with asset allocation of 20% UK equities, 30% developed markets equities, 30% UK fixed interest bonds and 20% UK cash.

I am lost where to start and will appreciate any suggest and if you can recommend some very good books/courses/sites for beginners.

nereo

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #1 on: September 26, 2016, 06:54:24 AM »
Quote
I am lost where to start and will appreciate any suggest and if you can recommend some very good books/courses/sites for beginners.


For people just starting out I always recommend JL Collins stock series. 
http://jlcollinsnh.com/stock-series/

Good lord you have a lot in cash.  Understand that every year that goes by your money is worth less due to inflation; with that much cash on hand you are literally loosing about $18k every single year.

Don't worry about whether "now" is a better time to get into the market than yesterday/tomorrow/next-month/last-year.  Time in the market is more important than the time you get into the market.

ON another note, you are very, very close to being completely FI - with a few tweaks to your budget or another couple of years you'll never have to work again, provided you actually INVEST that money.
G'luck.


illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #2 on: September 26, 2016, 07:21:18 AM »
Quote
I am lost where to start and will appreciate any suggest and if you can recommend some very good books/courses/sites for beginners.


For people just starting out I always recommend JL Collins stock series. 
http://jlcollinsnh.com/stock-series/

Good lord you have a lot in cash.  Understand that every year that goes by your money is worth less due to inflation; with that much cash on hand you are literally loosing about $18k every single year.

Don't worry about whether "now" is a better time to get into the market than yesterday/tomorrow/next-month/last-year.  Time in the market is more important than the time you get into the market.

ON another note, you are very, very close to being completely FI - with a few tweaks to your budget or another couple of years you'll never have to work again, provided you actually INVEST that money.
G'luck.

I understand the inflation thing. Of course, I am very concerned about the situation - partly thanks to the central banks who printed tons of money, are keeping interest rates at 0% and fuelled the stock bubble. But this is my fault - this is the game plan now and the one which I am losing. I know I need to INVEST. I am just afraid I will invest today and there will be a crash of 30-40-50-60% and it will take YEARS for me to just recover my investment. I lost the game once. Cannot afford to lose it again.

Many thanks for the links - will start reading

NoStacheOhio

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #3 on: September 26, 2016, 07:22:48 AM »
I think the first thing you need to decide is whether or not you're going to buy a house. If what you said about mortgage rates is still true, then that will sort of nudge you in a direction with the giant pile of cash.

nereo

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #4 on: September 26, 2016, 09:15:33 AM »

I understand the inflation thing. Of course, I am very concerned about the situation - partly thanks to the central banks who printed tons of money, are keeping interest rates at 0% and fuelled the stock bubble. But this is my fault - this is the game plan now and the one which I am losing. I know I need to INVEST. I am just afraid I will invest today and there will be a crash of 30-40-50-60% and it will take YEARS for me to just recover my investment. I lost the game once. Cannot afford to lose it again.

Many thanks for the links - will start reading

It's entirely possibly that you will invest today and the market will drop.  It's also possible that it will go up, or sideways for a while.  All the while at the very least you are being paid dividends on your investment.
As for investing right before a major crash, perhaps what will help is to look at the hypothetical case of "Bob, the world's worst market timer".  Investing only just before crashes he still did ok. This is literally your fear but Bob comes out just fine in the end.

Another thing that should comfort you is that the average time to recovery after a major crash is about 18 months if you just leave the money alone.  Put another way, while you might loose 20 or 30% of your net worth on paper, two years later chances are you'll be better off than you were when you started.

Or understand that 75% of 3 year period resulted in real positive returns, 80% of 5 year periods and 90% of 10 year periods.  By holding cash you are betting that your guaranteed loses to inflation will be better than the progressively shrinking chance that your investments will not reap positive returns.

Or..."the market always goes up!*"

totoro

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #5 on: September 26, 2016, 09:28:34 AM »
I would look at buying real estate as well.  If you know where you are going to land when you return buying a home and renting it out in the interim will give you some return on your money.  If you want to diversify you could also look at investing in rental properties for cash flow in the US - there are several posters on this site who have done this and are doing well - arebelspy comes to mind.

I completely understand your anxiety about investing it all at once now - I am in the same boat.  I have about $500,000 that I need to invest asap.  We are looking for a rental property for part of the funds but the rest needs to go into the market I think.  I haven't done very well with these types of investments historically, or even recently, so I have to work to get over the fear of losing the funds.  I think reading the links posted above and maybe reaching out personally to some of the bloggers who are in the markets for their views would be good given the amount you are sitting on.

nereo

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #6 on: September 26, 2016, 09:48:19 AM »

I completely understand your anxiety about investing it all at once now - I am in the same boat.  I have about $500,000 that I need to invest asap. We are looking for a rental property for part of the funds but the rest needs to go into the market I think.  I haven't done very well with these types of investments historically, or even recently, so I have to work to get over the fear of losing the funds.  I think reading the links posted above and maybe reaching out personally to some of the bloggers who are in the markets for their views would be good given the amount you are sitting on.

There's an emotional component to dropping large sums into the market all at once.  For some, dollar-cost-averaging (DCA) can help with that.  While lump-sum investment typically beats out DCA, a perfectly fine strategy would be to divide your cash into ~12 equal portions and then invest those portions on a specific day each month.  You will still wind up with your money invested but emotionally it can be easier seeing only ~8% of your cash reserves converted every month.

Three posts on the subject:
http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
http://www.mikeandlauren.com/what-is-your-emotional-threshold-when-investing/
https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwiS6uTLsK3PAhVnw4MKHdN1DCEQFggkMAA&url=https%3A%2F%2Fpressroom.vanguard.com%2Fnonindexed%2F7.23.2012_Dollar-cost_Averaging.pdf&usg=AFQjCNEHt7rk1y3ZS7cd6lWJ19ErnkBLcA

Mother Fussbudget

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #7 on: September 26, 2016, 09:59:47 AM »
As nereo says, there are studies proving that lump sum investing beats out DCA.

I like MDM's "Generic investment order rules of thumb" - perhaps this will help...

Quote from: MDM
Generic investment order rules of thumb:

WHAT   
0. Establish an emergency fund to your satisfaction   
1. Contribute to 401k up to any company match   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.   
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)   
6. Fund mega backdoor Roth if applicable   
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.   
8. Invest in a taxable account with any extra.   
   
WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks   
1. Company match rates are likely the highest percent return you can get on your money   
2. When the guaranteed return is this high, take it.   
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.    (see also:  http://www.madfientist.com/hsa/)
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see   
   THIS if you want even more details on that topic).  See also
   https://www.bogleheads.org/forum/viewtopic.php?f=2&t=182081,
   http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started/msg868845/#msg868845
   and other posts in that thread about exceptions to the rule.
5. See #4 for choice of traditional or Roth for 401k   
6. Applicability depends on the rules for the specific 401k   
7. Again, take the risk-free return if high enough   
8. Because earnings, even if taxed, are beneficial   

Seppia

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #8 on: September 26, 2016, 10:30:52 AM »

We are talking about a ton of money here.

Lump sum may statistically beat DCA, but what good does it make to you to know that "on average" it does if you're on the losing side?

It would be more interesting to learn how DCA has performed vs lump sum in periods of history with a similar CAPE valuations than those of today.

I would definitely NOT dump everything in the market now, but regardless of valuations staying 100% cash makes little sense also.

Maybe start by investing a piece of the money (20%?), use another chunk to buy an apartment in the USA (if that's your thing) and keep the rest in cash.

This way you will have diversified a bit stocks - real estate - cash.

At today's inflation (basically zero) the opportunity cost of holding cash is not too high, so I would not mind keeping some.

dougules

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #9 on: September 26, 2016, 10:31:42 AM »
Quote
I am lost where to start and will appreciate any suggest and if you can recommend some very good books/courses/sites for beginners.


For people just starting out I always recommend JL Collins stock series. 
http://jlcollinsnh.com/stock-series/

Good lord you have a lot in cash.  Understand that every year that goes by your money is worth less due to inflation; with that much cash on hand you are literally loosing about $18k every single year.

Don't worry about whether "now" is a better time to get into the market than yesterday/tomorrow/next-month/last-year.  Time in the market is more important than the time you get into the market.

ON another note, you are very, very close to being completely FI - with a few tweaks to your budget or another couple of years you'll never have to work again, provided you actually INVEST that money.
G'luck.

I understand the inflation thing. Of course, I am very concerned about the situation - partly thanks to the central banks who printed tons of money, are keeping interest rates at 0% and fuelled the stock bubble. But this is my fault - this is the game plan now and the one which I am losing. I know I need to INVEST. I am just afraid I will invest today and there will be a crash of 30-40-50-60% and it will take YEARS for me to just recover my investment. I lost the game once. Cannot afford to lose it again.

Many thanks for the links - will start reading

There might be a big crash when interest rates get back to normal, but it doesn't matter if you're planning long-term.  If you still want to buy the house I'd keep that money out.  Anything else should go in.  The market will eventually recover from whatever crash unless the end of the world comes.  And if the end of the world comes your cash won't be worth anything either. 

Plus you're not only losing out to inflation, but you're also losing dividends.  Dividends aren't that great right now, but even at a mediocre 2%-ish it's still around $15k every year on top of your inflation losses. 

And +1 on using DCA or whatever helps to get past the emotional component of it. 

CheapskateWife

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #10 on: September 26, 2016, 10:38:48 AM »
If you settle in on a DCA scenario for injecting the cash into the market, you might consider investing the rest in some laddered CD's in the mean time.  Guaranteed returns on that much cash could potentially be significant.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #11 on: September 26, 2016, 01:27:01 PM »
I think the first thing you need to decide is whether or not you're going to buy a house. If what you said about mortgage rates is still true, then that will sort of nudge you in a direction with the giant pile of cash.

I decided against it. If I buy, I will buy something cheap (maybe to retire in a low cost of living country) - ca. USD 150-200k. I will definitely not buy an expensive one.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #12 on: September 26, 2016, 01:29:23 PM »

I understand the inflation thing. Of course, I am very concerned about the situation - partly thanks to the central banks who printed tons of money, are keeping interest rates at 0% and fuelled the stock bubble. But this is my fault - this is the game plan now and the one which I am losing. I know I need to INVEST. I am just afraid I will invest today and there will be a crash of 30-40-50-60% and it will take YEARS for me to just recover my investment. I lost the game once. Cannot afford to lose it again.

Many thanks for the links - will start reading

It's entirely possibly that you will invest today and the market will drop.  It's also possible that it will go up, or sideways for a while.  All the while at the very least you are being paid dividends on your investment.
As for investing right before a major crash, perhaps what will help is to look at the hypothetical case of "Bob, the world's worst market timer".  Investing only just before crashes he still did ok. This is literally your fear but Bob comes out just fine in the end.

Another thing that should comfort you is that the average time to recovery after a major crash is about 18 months if you just leave the money alone.  Put another way, while you might loose 20 or 30% of your net worth on paper, two years later chances are you'll be better off than you were when you started.

Or understand that 75% of 3 year period resulted in real positive returns, 80% of 5 year periods and 90% of 10 year periods.  By holding cash you are betting that your guaranteed loses to inflation will be better than the progressively shrinking chance that your investments will not reap positive returns.

Or..."the market always goes up!*"

Interesting example with Bob, but still... thinking about buying at peak and having say even 70% of the investment amount is really devastating. However, this was my thinking last few years and the market is simply going up.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #13 on: September 26, 2016, 01:30:52 PM »

I completely understand your anxiety about investing it all at once now - I am in the same boat.  I have about $500,000 that I need to invest asap.  We are looking for a rental property for part of the funds but the rest needs to go into the market I think.  I haven't done very well with these types of investments historically, or even recently, so I have to work to get over the fear of losing the funds.  I think reading the links posted above and maybe reaching out personally to some of the bloggers who are in the markets for their views would be good given the amount you are sitting on.

Yes, I am reading the articles now. Very good start. I really need to get some education before doing anything major.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #14 on: September 26, 2016, 01:38:02 PM »

We are talking about a ton of money here.

Lump sum may statistically beat DCA, but what good does it make to you to know that "on average" it does if you're on the losing side?

It would be more interesting to learn how DCA has performed vs lump sum in periods of history with a similar CAPE valuations than those of today.

I would definitely NOT dump everything in the market now, but regardless of valuations staying 100% cash makes little sense also.

Maybe start by investing a piece of the money (20%?), use another chunk to buy an apartment in the USA (if that's your thing) and keep the rest in cash.

This way you will have diversified a bit stocks - real estate - cash.

At today's inflation (basically zero) the opportunity cost of holding cash is not too high, so I would not mind keeping some.

Thanks for very good input. Honestly, I do not think inflation is zero - this is what the government is telling us, but I do not believe. Perhaps the gas prices are lower, the food prices have not changed much; but look at other middle class type items: housing (significant increase with many all time highs in many markets), healthcare, education, paper assets, entertainment - all these categories are up significantly - isn't this inflation?

I was thinking about investing part of the cash into the market. This is what I am asking advice on. In terms of the rental property - I live outside the US, I do not think I will be able to get a mortgage.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #15 on: September 26, 2016, 01:39:23 PM »
If you settle in on a DCA scenario for injecting the cash into the market, you might consider investing the rest in some laddered CD's in the mean time.  Guaranteed returns on that much cash could potentially be significant.

Any specific suggestions? what are the rates now? something around 1%?

Retire-Canada

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #16 on: September 26, 2016, 01:53:52 PM »
Good lord you have a lot in cash.  Understand that every year that goes by your money is worth less due to inflation; with that much cash on hand you are literally loosing about $18k every single year.

Don't worry about whether "now" is a better time to get into the market than yesterday/tomorrow/next-month/last-year.  Time in the market is more important than the time you get into the market.

This ^^^. Get that money invested. In 3yrs your $750K will be worth something like $695K in today's dollars and if you even get a modest 4% return after inflation you would have $844K. That's $149K lost value.

There is always an unlimited amount of fear available to keep you out of the market and there will always be some reason to wait and somebody who is also afraid telling you waiting is the smart move.

Read this and the JL Collins page: http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #17 on: September 26, 2016, 01:56:49 PM »
Thanks!

ooeei

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #18 on: September 26, 2016, 01:57:58 PM »

We are talking about a ton of money here.

Lump sum may statistically beat DCA, but what good does it make to you to know that "on average" it does if you're on the losing side?

It would be more interesting to learn how DCA has performed vs lump sum in periods of history with a similar CAPE valuations than those of today.

I would definitely NOT dump everything in the market now, but regardless of valuations staying 100% cash makes little sense also.

Maybe start by investing a piece of the money (20%?), use another chunk to buy an apartment in the USA (if that's your thing) and keep the rest in cash.

This way you will have diversified a bit stocks - real estate - cash.

At today's inflation (basically zero) the opportunity cost of holding cash is not too high, so I would not mind keeping some.

This.  With a "regular" lump sum of a $10k bonus or even $50k inheritance, go all in because over your lifetime you'll have a few of those, and even if one of them bombs, the others will make up for it.  For a lifetime of saving, dumping it all in on one day when you're already scared of the market is a recipe for disaster.  You dump it in, it drops 5% the first month, then another 10%, then it's down 20%, then you freak out and sell it all, and miss when it recovers.

DCA is not mathematically optimal, but it might be psychologically optimal for some people.  Another option is holding more bonds than you normally would, and gradually shifting to stocks.

From another thread:

A Bill Bernstein interview I thought was worth a read:

http://www.aaii.com/journal/article/investing-to-avoid-the-consequences-of-being-wrong.mobile

The conclusion:
For most people, over the long term it probably is optimal to be 100% in stocks, but almost nobody can execute that optimal strategy. So, a suboptimal strategy that you can execute is better than an optimal one you can’t. For most people, the best path is one that involves owning a large amount of bonds so they can sleep at night during the bad times.

Edit:

And the problem with the "world's worst market timer" article is that guy invested every year at the worst time over a long time frame.  This is far different than investing everything at once, where you could be down significantly.  Someone who invested at the peak in 2000 didn't see any positive return on their initial investment until around 2013.  That's a long time for a fearful investor to "stick it out."

« Last Edit: September 26, 2016, 02:01:42 PM by ooeei »

seattlecyclone

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #19 on: September 26, 2016, 02:38:13 PM »
My main dilemma is how to invest my money now and where to start. Of course, given the all-time high for the markets and all the negative reports about the economy and another “bubble”, I am not sure this is a right time to enter the market with a lump sum. It would be very painful to miss the bull market of last years and all upside, invest lump sum now at (possible) a peak and lose 20-30-40% in the next 1-2 years if the market indeed corrects/crashes. Ideally, I will be happy with AA of 80stocks/20bonds, but not sure whether now is the right time to enter the market with a lump sum.

The market is at an all-time high more often than not. During such periods there are always people claiming that a downturn is right around the corner. Sometimes they're right, but they're quite often wrong as well.

You mention it would be "painful" to invest a lump sum now and see the value go down if there's a stock market correction. Would it be any less painful to invest slowly over a period of a year or two, see the market continue to increase all the while, only to have a correction right after you invested your last dollar? I think not! I hate to break it to you, but if you would experience extreme regret about having the value of your investments go down in the short term, perhaps an 80% stock portfolio isn't for you.

CheapskateWife

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #20 on: September 26, 2016, 02:48:44 PM »
If you settle in on a DCA scenario for injecting the cash into the market, you might consider investing the rest in some laddered CD's in the mean time.  Guaranteed returns on that much cash could potentially be significant.

Any specific suggestions? what are the rates now? something around 1%?

Please disregard my suggestion, further research indicates that this idea blows...man, I had no idea how low those rates had gotten.  I had some laddered CDs a few years ago while sitting on some fat cash and it worked out to 2-3% annually depending on the time frame I selected. I'm with USAA and their best CD is at 1.07 for a 7 year CD.  You might be better off putting it under your mattress.

Retire-Canada

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #21 on: September 26, 2016, 02:53:55 PM »
The market is at an all-time high more often than not. During such periods there are always people claiming that a downturn is right around the corner. Sometimes they're right, but they're quite often wrong as well.

Yes. The-market-is-about-to-crash-big-time threads are a regular feature on this forum and they continue to be wrong. For sure one day they'll be right once just like a broken watch shows the correct time twice a day.

The suggestion to hold a proportion of bonds and then shift your AA towards whatever you want to hold long term is a reasonable approach if that makes you comfortable getting that cash invested. The only good thing about hording cash is when you look at various investing options it's hard to do worse over any length of time. ;)

BlueHouse

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #22 on: September 26, 2016, 02:59:32 PM »
That IS a lot of cash.  Personally, I wouldn't invest it all at once.  I would plan to put $10,000 per month in.  If the market tanks, then double that amount.  I know we're not about market timing, but you also don't have to buy on the most expensive day of the month.  Check the Dow or VTI at about 3:30 every day to make sure you don't miss out on a big (400-1000 point) drop. Expect a lot of volatility, especially through the election.  But I would get started now. 

Being in another country, can you buy Vanguard Index Funds?  If so, open an account today and buy some VTSAX.  Don't even waste your time with any transactions under $10K.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #23 on: September 26, 2016, 04:06:46 PM »
If you settle in on a DCA scenario for injecting the cash into the market, you might consider investing the rest in some laddered CD's in the mean time.  Guaranteed returns on that much cash could potentially be significant.

Any specific suggestions? what are the rates now? something around 1%?

Please disregard my suggestion, further research indicates that this idea blows...man, I had no idea how low those rates had gotten.  I had some laddered CDs a few years ago while sitting on some fat cash and it worked out to 2-3% annually depending on the time frame I selected. I'm with USAA and their best CD is at 1.07 for a 7 year CD.  You might be better off putting it under your mattress.

well , this is a whole problem. In the current environmental, there are no alternatives :(

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #24 on: September 26, 2016, 04:08:21 PM »
That IS a lot of cash.  Personally, I wouldn't invest it all at once.  I would plan to put $10,000 per month in.  If the market tanks, then double that amount.  I know we're not about market timing, but you also don't have to buy on the most expensive day of the month.  Check the Dow or VTI at about 3:30 every day to make sure you don't miss out on a big (400-1000 point) drop. Expect a lot of volatility, especially through the election.  But I would get started now. 

Being in another country, can you buy Vanguard Index Funds?  If so, open an account today and buy some VTSAX.  Don't even waste your time with any transactions under $10K.

Thanks. I hope I can open Vanguard account as I still have US docs and address, but am not sure.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #25 on: September 26, 2016, 04:09:59 PM »
Open a Vanguard account.  I would DCA over the course of 18-30 months.  Sounds slow, but obviously there is a huge psychological barrier that needs to be dealt with if you've built a cash position this large.  Personally if I had this much to invest and had 0 in the market right now, I would do this:

Buy $15k of VTI this month.  Next month buy VTI 2 times, once between the 1st and 15th and once between the 16th and 30th.  15k per investment seems about right ($30k per month).

Thank you. This is actually a very good suggestion - hopefully I can open an account with Vanguard.

Tyson

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #26 on: September 26, 2016, 05:04:17 PM »
The market is at an all-time high more often than not. During such periods there are always people claiming that a downturn is right around the corner. Sometimes they're right, but they're quite often wrong as well.

Yes. The-market-is-about-to-crash-big-time threads are a regular feature on this forum and they continue to be wrong. For sure one day they'll be right once just like a broken watch shows the correct time twice a day.

I vote we start putting those chicken little threads on the Wall of Anti-Mustachian Shame and Comedy. 

The market is alway at (or near) it's all time high.  If it didn't go up (and up and up), then it wouldn't make much sense to invest in it.....

robartsd

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #27 on: September 26, 2016, 05:13:38 PM »
I managed to save about USD 750,000 mostly due to a very high savings rate and living outside the United States in a country with very low income tax.
According to the IRS, US Citizens owe taxes based on all income regardless of where earned or where they reside. You could face a very large tax bill (with penalties/interest) in the US.

oldtoyota

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #28 on: September 26, 2016, 05:15:51 PM »
How did you legally not pay U.S. income tax while residing abroad?

« Last Edit: September 26, 2016, 05:17:58 PM by oldtoyota »

totoro

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #29 on: September 26, 2016, 05:57:16 PM »
Canadians can become non-residents and exclude foreign income.  For Americans don't you have this?

"The Foreign Earned Income Exclusion allows qualified expats to exclude the first $100,800 of foreign wages from their 2015 US expat tax return"

chesebert

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #30 on: September 26, 2016, 06:29:23 PM »
Canadians can become non-residents and exclude foreign income.  For Americans don't you have this?

"The Foreign Earned Income Exclusion allows qualified expats to exclude the first $100,800 of foreign wages from their 2015 US expat tax return"

This is correct subject to inflation adjustment.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #31 on: September 26, 2016, 08:43:29 PM »
You do not pay tax if your earned income is less than USD 100,000 (changes each year).

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #32 on: September 26, 2016, 08:44:29 PM »
I managed to save about USD 750,000 mostly due to a very high savings rate and living outside the United States in a country with very low income tax.
According to the IRS, US Citizens owe taxes based on all income regardless of where earned or where they reside. You could face a very large tax bill (with penalties/interest) in the US.

Yes, but you can exclude around USD 100,000.

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #33 on: September 27, 2016, 01:35:59 AM »

We are talking about a ton of money here.

Lump sum may statistically beat DCA, but what good does it make to you to know that "on average" it does if you're on the losing side?

It would be more interesting to learn how DCA has performed vs lump sum in periods of history with a similar CAPE valuations than those of today.

I would definitely NOT dump everything in the market now, but regardless of valuations staying 100% cash makes little sense also.


This is one of those persistent logical fallacies that traps people like OP.  Every dollar you already have in the market you are making the same "choice" whether to lump sum in.  You (and OP) see the possible "pain" of investing everything on day 1 and then market crashes on day 2.  But if you have the exact same amount of money in the market on day 1 already invested, you are making the same "choice" to keep the money in or take it out and go to cash.  So long as you're in the market, that dynamic will never change.

Most of us are basing FIRE on large investment holdings.  $750k is sort of minimum for most.  If you or OP cannot get comfortable with the idea of the possibility of that amount significantly dropping on any particular day, it's never going to work.  So the thing that OP needs to realize is that (1) being in the market is long-term the best option, and (2) every day in the market is the same choice (and the same potential downside) of leaving it in the market versus pulling it out and going to cash.

People deal with (2) by knowing about (1).
« Last Edit: September 27, 2016, 04:19:22 AM by Cycling Stache »

mxt0133

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #34 on: September 27, 2016, 02:06:26 AM »
Let me get this straight you missed the 2009 bull market because you were ignorant and lacked financial education and now you are asking us the same thing?

My advice to you would be to inform yourself and do what you think is best.  Statistically the answer is to invest it all now if you have a 10+ year time horizon for those investments.  But I don't think you believe that.  So let's try to apply some logic on the scenario where the market does tank 20-40% in the next few years.  If you are still working then you will be buying low which is good and since you don't need the initial money you invested it's just a paper loss and not a realized loss.  This assumes that you believe the market will have positive returns in the long term, again 10+ years.  So you just push it in all now and keep adding to it until you are FIRE. 

However if you don't believe that the money that you put in now will grow and that you will not be able to recover from a crash in the next few years then invest in elsewhere.  Try real-estate, bonds, peer-to-peer lending, or bit coin.  The question you should be asking is what are my investment alternatives and what is my expected return on them.  From there you pick the one with the highest return that you can sleep at night with.

If you can save up $750K at the age of 32, I honestly don't think you will have a problem recovering from a market meltdown in the next year or two even if it does go down 50-70%.  If you were 65 and about to retire, then NO you should not be investing 80% of you nest egg in the stock market tomorrow.

MrRealEstate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #35 on: September 27, 2016, 02:54:15 AM »
I would also suggest VFIAX(S&P 500 admiral), VDADX(dividend admiral), and possibly another admiral mutual fund if you went with vanguard. Most admiral funds have a 10k minimum, but have .05% expense ratios which help your investment grow by not eating away with fees. Be sure to read up on each one and look at the last few days and months to get an idea of how it moves so you can be comfortable if it drops a few percentage points in a day.

There are a few good blog posts on MMM of where he invested 100k and various sums of money that would be great starting points.

dougules

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #36 on: September 27, 2016, 10:58:10 AM »
Try real-estate, bonds, peer-to-peer lending, or bit coin. 

This is kind of a nitpick, but bit coin is just another form of cash.  Buying it to make money is speculation not investment.   

And real estate is only an investment if you're getting rent. 

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #37 on: September 27, 2016, 11:08:50 AM »
Let me get this straight you missed the 2009 bull market because you were ignorant and lacked financial education and now you are asking us the same thing?

My advice to you would be to inform yourself and do what you think is best.  Statistically the answer is to invest it all now if you have a 10+ year time horizon for those investments.  But I don't think you believe that.  So let's try to apply some logic on the scenario where the market does tank 20-40% in the next few years.  If you are still working then you will be buying low which is good and since you don't need the initial money you invested it's just a paper loss and not a realized loss.  This assumes that you believe the market will have positive returns in the long term, again 10+ years.  So you just push it in all now and keep adding to it until you are FIRE. 

However if you don't believe that the money that you put in now will grow and that you will not be able to recover from a crash in the next few years then invest in elsewhere.  Try real-estate, bonds, peer-to-peer lending, or bit coin.  The question you should be asking is what are my investment alternatives and what is my expected return on them.  From there you pick the one with the highest return that you can sleep at night with.

If you can save up $750K at the age of 32, I honestly don't think you will have a problem recovering from a market meltdown in the next year or two even if it does go down 50-70%.  If you were 65 and about to retire, then NO you should not be investing 80% of you nest egg in the stock market tomorrow.

Thank you for your response. I agree - I missed the bull market simply due to lack of education and ignorance.

However, there are not so many alternatives in the current low interest rate environment:

Cash = 0% (negative return due to inflation)
Bonds = very low yields, also below inflation

Real estate perhaps? Due to the lack of alternatives, low interest rates and QE we are in a situation with overpriced stock market artificially created by Fed. Investors simply have no alternatives. However, this was my thinking all alone and I lost the game.

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #38 on: September 27, 2016, 11:15:28 AM »
You didn't lose the game, you just decided not to play for the past several years. However you still probably have a few decades of life ahead of you. The new game starts today. How you play is up to you. Educate yourself about how a bear market is not the end of the world when you're playing the long game and you might be more confident. However I stand by what I said earlier: you need to pick an asset allocation that you're comfortable sticking with through a bear market. Maybe 80/20 is not that allocation for you. The fact that you are concerned about investing a lump sum says that this might be the case.

des999

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #39 on: September 27, 2016, 11:15:45 AM »
I would get it in the market one way or another, dca or lump sum.  My personally, I'd do a few lump sums till I got it all in.  But, maybe start off with a little more bonds and a little less stocks, and then after a couple years if it feels better to you increase equities and lower bonds.  Do this until you get to a point you feel comfortable (you say 80% equities, but it doesn't sound like you are comfortable). 

As someone else said, you saved a lot of money in a short time, I think you'll be fine, just the money invested and you'll be Fire before long.  Good luck!

Mother Fussbudget

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #40 on: September 27, 2016, 11:29:05 AM »
You didn't lose the game, you just decided not to play for the past several years. However you still probably have a few decades of life ahead of you. The new game starts today. How you play is up to you. Educate yourself about how a bear market is not the end of the world when you're playing the long game and you might be more confident. However I stand by what I said earlier: you need to pick an asset allocation that you're comfortable sticking with through a bear market. Maybe 80/20 is not that allocation for you. The fact that you are concerned about investing a lump sum says that this might be the case.
+1 - pick your allocation, and invest.  You may pick an 80/20, or 70% stocks, 20% REIT's, 10% bonds, or... something else.

The key thing is those investing dollars are losing value to inflation if they're not invested. 
And don't let emotion rule your head.  Dollar Cost Averaging for a large LUMP SUM is not the best investment strategy mathematically.
http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
http://affordanything.com/2012/04/23/why-dollar-cost-averaging-stinks/
https://amp.cnn.com/money/2016/03/23/retirement/dollar-cost-averaging/index.html

Dollar Cost Averaging makes sense for the dollars you contribute monthly to your investment accounts, but for a lump sump the math doesn't pencil out.

dividendman

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #41 on: September 27, 2016, 02:33:04 PM »
While you're figuring out what to do, you might as well junk it all in BSV (Vanguard short term government bonds - the safest thing around pretty much) and get the monthly payouts.

According to my calculations you should get at least: 750000/80.83 * 0.09 = $835 a month, a crappy return, but better than your checking account.

If you buy it before October 3rd you'll get the October payout.

dougules

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #42 on: September 27, 2016, 02:43:30 PM »
While you're figuring out what to do, you might as well junk it all in BSV (Vanguard short term government bonds - the safest thing around pretty much) and get the monthly payouts.

According to my calculations you should get at least: 750000/80.83 * 0.09 = $835 a month, a crappy return, but better than your checking account.

If you buy it before October 3rd you'll get the October payout.

Ironically it's probably safer, too.  The FDIC only insures up to $250K, assuming the money is in the US.  I imagine OP's country of residence is probably similar if the money is parked there. 

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #43 on: September 27, 2016, 03:26:32 PM »
And the problem with the "world's worst market timer" article is that guy invested every year at the worst time over a long time frame.  This is far different than investing everything at once, where you could be down significantly.  Someone who invested at the peak in 2000 didn't see any positive return on their initial investment until around 2013.  That's a long time for a fearful investor to "stick it out."

How did you calculate this? Are you just using the price index? If so you aren't accounting for the dividends paid over the years. If you include those, I believe you would see a gain starting around 2006, then back down during the financial crisis, and you'd see gains again starting at the end of 2010. By 2013 you're up about 25-30%. Either way it's a long time to stick it out, but not quite as bad as you might initially think.

I'm looking at: https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=2000&firstMonth=8&endYear=2013&lastMonth=1&endDate=09%2F26%2F2016&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=0&showYield=false&reinvestDividends=true&symbol1=VFINX&allocation1_1=100

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #44 on: September 28, 2016, 04:36:09 AM »
You didn't lose the game, you just decided not to play for the past several years. However you still probably have a few decades of life ahead of you. The new game starts today. How you play is up to you. Educate yourself about how a bear market is not the end of the world when you're playing the long game and you might be more confident. However I stand by what I said earlier: you need to pick an asset allocation that you're comfortable sticking with through a bear market. Maybe 80/20 is not that allocation for you. The fact that you are concerned about investing a lump sum says that this might be the case.

I am not concerned about investing the lump sum. My main concern is entering the market with basically most of the net worth at the possible peak. I know you cannot time the market, but given all the hype about a major correction the media now - it is not the most comfortable time for me to enter. On the other hand, usually when most people expect a significant collapse, it does not happen.

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #45 on: September 28, 2016, 04:41:53 AM »
While you're figuring out what to do, you might as well junk it all in BSV (Vanguard short term government bonds - the safest thing around pretty much) and get the monthly payouts.

According to my calculations you should get at least: 750000/80.83 * 0.09 = $835 a month, a crappy return, but better than your checking account.

If you buy it before October 3rd you'll get the October payout.

How did you calculate 0.09? Is this the monthly dividend per share?

illiterate

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #46 on: September 28, 2016, 04:42:55 AM »
While you're figuring out what to do, you might as well junk it all in BSV (Vanguard short term government bonds - the safest thing around pretty much) and get the monthly payouts.

According to my calculations you should get at least: 750000/80.83 * 0.09 = $835 a month, a crappy return, but better than your checking account.

If you buy it before October 3rd you'll get the October payout.

Ironically it's probably safer, too.  The FDIC only insures up to $250K, assuming the money is in the US.  I imagine OP's country of residence is probably similar if the money is parked there.

Most of the money is in the US.

BlueHouse

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #47 on: September 28, 2016, 04:50:56 AM »

If you buy it before October 3rd you'll get the October payout.
I don't know much about dividend investing, but I often hear the advice "don't buy the dividend", meaning something Along the lines of the value of the stock goes down to pay that dividend and then there are tax implications on the dividend. (Or something to that effect?).

Could someone please explain the concept better than I have and explain why it would or wouldn't apply in this case?  I've just don't have a grasp on what it really means practically.

dividendman

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #48 on: September 28, 2016, 09:53:28 AM »

If you buy it before October 3rd you'll get the October payout.
I don't know much about dividend investing, but I often hear the advice "don't buy the dividend", meaning something Along the lines of the value of the stock goes down to pay that dividend and then there are tax implications on the dividend. (Or something to that effect?).

Could someone please explain the concept better than I have and explain why it would or wouldn't apply in this case?  I've just don't have a grasp on what it really means practically.

The concept is basically that the stock, on the dividend ex date (the day the stock trades exclusive of the dividend), goes down by the amount the dividend is as a percentage of the company. Essentially, the market is calculating in the fact that the company is losing so much cash of value in the dividend. I agree you shouldn't use dividend timing approaches to buy and sell stocks.

It doesn't really apply in this case that heavily because BSV is a short term government BOND index, not a collection of stocks. The monthly payout is primarily coming from interest payments from the bonds it holds, not dividends.

As for how I came up with $0.09, I just looked at the last 1 year of distributions and saw it was always $0.1 or $0.09. Nothing really scientific about it. I'm sure there is a more precise way to gauge the distributions. So yes, it is the monthly interest payment per unit.

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Re: USD 750,000 of cash, not invested, need advice.
« Reply #49 on: September 28, 2016, 10:12:22 AM »
can i just point out the appropriateness of dividendman explaining the effects of buying a dividend?  awesome.