Author Topic: What to do with 1.5 million short term?  (Read 10828 times)

piercrab

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: Bay Area, CA
What to do with 1.5 million short term?
« on: July 09, 2016, 05:43:42 AM »
Our family recently downsize.   Net proceeds from the sale is around $1.5 millions (we live in bay area in CA).  We plan to use it to buy more rentals in Orlando, FL but current real estate prices are too high.  We estimate it will be 2 years before home prices go down again.  Need suggestions on where to park the money in the meantime.  Stock market is too volalite for last couple years to invest these money for 2 years.

Some back ground: we own 3 rentals in Orlando and plan to retire there in couple years. We currently live in a paid for rental that we plan to sell when we move to FL to retire.  I am 46, DH is 48 and neither one of us in good health.  We want to use rental income to cover living expenses once retired. 

StreetCat

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: What to do with 1.5 million short term?
« Reply #1 on: July 09, 2016, 07:16:20 AM »
Have you looked at Permanent Portfolio?  It's good for capital preservation, but not so good for growth.

Be warned though, that PP has had some recent gains so it could also have some near future losses.  You can try dollar cost averaging into it over a couple of years.

Other suggestions would be the 60-40 portfolio (but will go down if interest rates go up).  Or dollar cost average only a part of the money (say, 25%) over the next 2 years and buy stock index funds.  This will preserve capital (although might lose value if inflation goes up) but will limit the downside.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5327
Re: What to do with 1.5 million short term?
« Reply #2 on: July 09, 2016, 07:35:07 AM »
No one knows when home prices will go down again.

If you really believe that this money needs to be available with no chance of a loss in two years, you need to keep it relatively liquid.  Savings accounts and short term CD's work.  See www.depositaccounts.com and split the money up so no more than $250k is in any one institution.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22322
  • Age: 66
  • Location: NorCal
Re: What to do with 1.5 million short term?
« Reply #3 on: July 09, 2016, 11:12:15 AM »
Uhm, FIRE? How much more do you really need? I don't understand this question at all. Invest it according to the gospel of jlcollinsnh and then go outside and play for the rest of your life.

mrpercentage

  • Handlebar Stache
  • *****
  • Posts: 1235
  • Location: PHX, AZ
Re: What to do with 1.5 million short term?
« Reply #4 on: July 09, 2016, 12:09:02 PM »
I would park it in a bank account. No offense but it almost makes me sick when someone asks what to do with 1.5 million. Thats a lottery ticket win in 95% of peoples minds. A guy at work in his 50's is not contributing to his 401k because he is living paycheck to paycheck. He is missing out on a 100% return on the first 4% he would invest and he will have access to it in 5 years. Not really related to your situation other than you have it really, really, really good and just need to park it in a bank.

Greenpez

  • 5 O'Clock Shadow
  • *
  • Posts: 44
Re: What to do with 1.5 million short term?
« Reply #5 on: July 09, 2016, 12:48:45 PM »
I would park it in a bank account. No offense but it almost makes me sick when someone asks what to do with 1.5 million. Thats a lottery ticket win in 95% of peoples minds. A guy at work in his 50's is not contributing to his 401k because he is living paycheck to paycheck. He is missing out on a 100% return on the first 4% he would invest and he will have access to it in 5 years. Not really related to your situation other than you have it really, really, really good and just need to park it in a bank.

 The OP did mention some health issues, so maybe just really, really good....

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6634
Re: What to do with 1.5 million short term?
« Reply #6 on: July 09, 2016, 01:20:38 PM »
I'd suggest a 5 year CD with reasonable early withdrawal penalty, like at Ally.  Their 1.75% 5-year CD has a 5 month penalty (0.73%).  But if you hold that 2 years, it beats the 2 year CD rate even with the penalty.  Plus, if you hold it 3-4 years waiting, you're getting paid a higher rate.

Are you certain the entire amount will go 100% into rental properties?  You could also split out part of it, and invest that for a longer time frame.  Part stocks/bonds, part real estate.. better overall diversification.  Just something to consider if you're willing to split the overall amount into different time frames.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5327
Re: What to do with 1.5 million short term?
« Reply #7 on: July 09, 2016, 01:29:42 PM »
Uhm, FIRE? How much more do you really need? I don't understand this question at all. Invest it according to the gospel of jlcollinsnh and then go outside and play for the rest of your life.

I think s/he is hoping for more income from the real estate with more stability and no asset depletion.  If the numbers worked, I would do the same in his/her shoes.   

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 2266
  • Age: 58
  • Location: Ann Arbor, Michigan
Re: What to do with 1.5 million short term?
« Reply #8 on: July 09, 2016, 02:12:23 PM »
Putting all your retirement savings in one investment means you'll be overly concentrated in real estate in one geographic area. It seems like not the best idea if there are particular problems with that specific region. Why not have diversity of investing by putting some in a total stock market index fund, maybe some in a REIT index fund?

Captain Cactus

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: The Land of Steady Habits
Re: What to do with 1.5 million short term?
« Reply #9 on: July 09, 2016, 03:02:00 PM »
With $1.5 million I would FIRE.  That being said, everybody's situation is different.  If expenses are high then maybe 1.5 million isn't enough to FIRE.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22322
  • Age: 66
  • Location: NorCal
Re: What to do with 1.5 million short term?
« Reply #10 on: July 09, 2016, 04:15:07 PM »
Uhm, FIRE? How much more do you really need? I don't understand this question at all. Invest it according to the gospel of jlcollinsnh and then go outside and play for the rest of your life.

I think s/he is hoping for more income from the real estate with more stability and no asset depletion.  If the numbers worked, I would do the same in his/her shoes.
On the face of it, I agree with you. My first instinct was the same. But s/he says their health is not good and they have existing rental properties. It's harder to manage everyday life with poor health, so why add more stress? I also second DavidAnnArbor's insightful thoughts.

waltworks

  • Walrus Stache
  • *******
  • Posts: 5653
Re: What to do with 1.5 million short term?
« Reply #11 on: July 09, 2016, 05:24:02 PM »
Dump 100% into some form of index fund, probably managed by Vanguard, and then go do whatever the F you want.

-W

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5327
Re: What to do with 1.5 million short term?
« Reply #12 on: July 09, 2016, 06:03:26 PM »
Hey Diane:  Who is concentrating their real estate holdings in retirement homes in the Palm Desert area?  The guy from Ann Arbor probably never owned a rental and is spouting about diversification and putting money in an REIT index which is nothing like owning rental real estate.  I own a lot of rentals in the Phoenix market.  The values went to hell in 2008-2013, but the rents went up and tenant quality improved because of all the foreclosures and short sales.  If you take the long (multi-generational) view, concentrated real estate investing is one of the best ways to build assets and a solid income stream.

My guess from the OP's written English is s/he is an immigrant.   Some of those folks have done very well by patiently accumulating large rental portfolios.  S/he is selling a Bay Area home likely at a record high price and socking the money away for buying real estate in a market where the cash flow numbers make more sense when that real estate goes on sale.  Seems like a smart idea to me.

Choices

  • Pencil Stache
  • ****
  • Posts: 516
    • ChooseBetterLife
Re: What to do with 1.5 million short term?
« Reply #13 on: July 09, 2016, 06:43:27 PM »
We estimate it will be 2 years before home prices go down again. 
Do you mind sharing why you think the prices will go down in 2 years?

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22322
  • Age: 66
  • Location: NorCal
Re: What to do with 1.5 million short term?
« Reply #14 on: July 10, 2016, 02:33:29 AM »
Hey Diane:  Who is concentrating their real estate holdings in retirement homes in the Palm Desert area?  The guy from Ann Arbor probably never owned a rental and is spouting about diversification and putting money in an REIT index which is nothing like owning rental real estate.  I own a lot of rentals in the Phoenix market.  The values went to hell in 2008-2013, but the rents went up and tenant quality improved because of all the foreclosures and short sales.  If you take the long (multi-generational) view, concentrated real estate investing is one of the best ways to build assets and a solid income stream.

My guess from the OP's written English is s/he is an immigrant.   Some of those folks have done very well by patiently accumulating large rental portfolios.  S/he is selling a Bay Area home likely at a record high price and socking the money away for buying real estate in a market where the cash flow numbers make more sense when that real estate goes on sale.  Seems like a smart idea to me.
Hmmm, our home in NorCal is worth as much as all three of our rentals in Palm Desert, except we own the former free and clear. We will also happily live in all of our rentals in sequence and sell them off one by one later in our retirement, because they are all nice properties and we like it there. We also have the knowledge, skills and most importantly, physical ability to do the work on our rentals ourselves. Oh yeah, we own equities roughly equal to the combined value of all of our real estate holdings, have a generous pension coming, plus additional investments, so yes, I believe my insights are as relevant as anyone else's, including yours and the guy in Michigan that you are so dismissive of.

It feels like you're thinking I'm attacking their plan and that is incorrect. I am questioning whether it will be worth the hassle for them, given that the OP says that neither of them is in good health. It's generally harder for cash flow numbers to "make sense" when one must hire everything out. IMO, real estate can be an amazing way to build wealth. Once you've already accrued wealth - equities, especially low-cost index funds and/or ETFs, are a LOT easier to deal with than rental property. Yup, equities never call in the middle of the night and say that the toilet is overflowing or the pipes have broken. Or fall behind on the rent and move out in the middle of the night. Or need a new roof.

The OP has another paid-for (presumably Bay Area) home, three existing rentals in Orlando, a BBOM, and is planning to move to a much lower COLA. Putting all of that money into more RE in the same area IS putting a LOT of eggs in one basket. In fact, the question reminded me of MMM's article about the man who was rich but didn't know it, which is why I responded as I did. When they sell the paid-for former rental home* they're living in now, it will conservatively add at least another 750k to the 1.5M. Combine that with three rentals plus whatever other investments they may own and one has to ask, "What mustachian can't FIRE on that, especially in a low COLA?"

Frankly, your observation about the possibility that the OP might be an immigrant is very puzzling to me. What bearing does that have on the question? A LOT of people, possibly even yourself, have "done well by patiently accumulating large rental portfolios". Is the answer different for immigrants vs. non-immigrants? I don't think so.

To reiterate my original point: If I was in poor health at that relatively young age, I'd give a lot of thought to simplifying everything so I could relax and enjoy the maximum quality of life I had left.

*Sounds like the OP has converted their Bay Area rental into their primary residence for the favorable tax treatment. Another reason they'll be hanging around for two years. Smart.

piercrab

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: Bay Area, CA
Re: What to do with 1.5 million short term?
« Reply #15 on: July 10, 2016, 07:52:28 AM »
Thank you for all suggestions.  We do own ETFs and treasuries for investments. We max out in 401k and IRA. We don't qualify for ROTH. The 1.5 mil we want to buy more rentals to cash flow.  3 rentals in FL are paid in full and were purchased in 2009.  They are being managed by property managers and have been cash flow better than stock market in recent years. The home we currently live in is also paid for and was purchased in 1995. Home we just sold was purchased in 2002 right after 911.  Yes, we are timing the housing market and so far we did well.  Bay area housing market has cool off since April for luxury homes.  That's the reason we just sold our home. We know a lot of people who own their homes for a long time sold and move out because of the  crazy high prices that's too good to last. We don't believe in debt and own everything out right. I don't understand people fascination with leveraged money.  If you own money on a home, it's not yours.  The bank can foreclose when you don't make payments. We have a business that we are selling.  It probably take 1 yr or 2 to find a buyer.  I work in high tech and stock option vesting is too good to walk away.

With so many countries with zero or negative interest rates and US govt print money out of thin air, do you really think the economy is doing well?  We know companies in silicon valley has been quietly laid off people.  All the signs point to slow down in in economy.  Also, we are in 7th year of real estate cycle.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5327
Re: What to do with 1.5 million short term?
« Reply #16 on: July 10, 2016, 08:41:51 AM »
Diane:

The favorable tax treatment is largely gone.  You will have to prorate your exclusion between the time as a rental and the time as owner-occupied.  If you own the rental for 10 years and live in it for two years at the end, you will only qualify for 20 percent of the exclusion and you will have to pay taxes on eight years of depreciation.  At least that's what my CPA says. 

In no way am I criticizing what you are doing.  You are doing value-adds on the properties you are buying down south, which is about the only way to get the numbers there to work.  By taking on the jobs of management and repairs, more cash flows through to you.  You are also taking a long term view.  I used to own rentals in the Sun Cities in Arizona, and the tenants were generally long term and paid on time.  You had to be a little careful when their health deteriorated and they really could not live on their own.  Fortunately, in most cases the kids got involved and moved the tenants into more appropriate housing.  We also did some flips there about 15 years ago, so I do get what you are doing.

I am planning on trimming my portfolio over the next few years so most properties are free and clear.  I already have property management for most of the out of state properties, although property managers, even the better ones, require some management.  Bonds are far riskier in my view because of their sensitivity to interest rates.  I never want to rely on paper assets for income, and other than RMD's, I don't plan on decumulating.  The RMD's get plowed back into paying off mortgages, so there really is no decumulation. 

We don't know what the OP does/did for a living, but there is no mention of pensions, retirement accounts, or other savings/investments.  They are not old enough to take distributions from retirement accounts anyway.  Because of the risk and volatility of paper assets in their home countries, many immigrants do not trust paper assets, even in the US.  If the OP is an immigrant, owning income producing real estate may be perceived as safer than owning stocks and bonds.

Real estate is one of the few relatively low risk (when done properly) businesses the average person can get into,as long as they do a sufficient amount of up front studying.  Concentrating investments in one geographic area is not as risky as, say, putting all your retirement savings into company stock, as long as you understand the location.  I only wish I had started sooner!
« Last Edit: July 10, 2016, 08:43:38 AM by Another Reader »

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5327
Re: What to do with 1.5 million short term?
« Reply #17 on: July 10, 2016, 08:50:04 AM »
OP:

Market timing ts the BEST way to buy real estate.  I bought four houses from 2009-2012, all cash purchases.   All four are worth more than twice what I paid and rents are well over 1 percent of "all in" purchase costs.  There is nothing to buy today.  Like you, I am accumulating cash for the next downturn, whenever it happens. 

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22322
  • Age: 66
  • Location: NorCal
Re: What to do with 1.5 million short term?
« Reply #18 on: July 10, 2016, 02:09:21 PM »
Diane:

The favorable tax treatment is largely gone.  You will have to prorate your exclusion between the time as a rental and the time as owner-occupied.  If you own the rental for 10 years and live in it for two years at the end, you will only qualify for 20 percent of the exclusion and you will have to pay taxes on eight years of depreciation.  At least that's what my CPA says. 
Mine says the same thing. He also says some offset is better than no offset. We plan to appraise when we move in, aggressively update each home ourselves and then sell. We expect to get a good bump in value as a result of our efforts during the time we live in it. And if it all goes to hell in a handbasket, meh, it won't break us. We know where our "enough" is and we have a widely diversified safety margin.

As to tenants aging, I had a long-time renter who asked permission to stay in "his" home until he died. I readily agreed. He asked if I was worried that subsequent tenants might be spooked if he actually did die at home. I laughed and told him not to worry. Once folks get past a certain age, dying at home in their own bed is kind of the gold standard. I always disclose that Jack passed away at home and no one bats an eyelash. In fact, the current tenant in the same property has declared her intention to stay "forever". Fine by me. Also, our homes are large enough to have space and parking for a caregiver, if one is needed. And I make sure all of my tenants have the means to afford such care and the rent.

P.S. Did the Fremont Bank lead work out? We're watching this latest rate drop and trying to keep our hands off the re-fi button for a little longer. And we do not wish to pay off these rentals. We're not entirely thrilled that we paid cash for our primary home, but it closed when rates were on an upswing after an eight month escrow, so we just said fuckit and paid cash. Still kinda wish we hadn't.

waltworks

  • Walrus Stache
  • *******
  • Posts: 5653
Re: What to do with 1.5 million short term?
« Reply #19 on: July 10, 2016, 03:08:59 PM »
If you've had the rentals a long time, I don't think the moving expenses and hassle probably justify the minimal reduction in taxes/depreciation recapture you'll get out of living in each place for 2 years and then moving again. Sounds like a lot of work for not a lot of money, though obviously it'll vary depending on the amount of depreciation you took and the capital gain you're sitting on.

-Walt

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22322
  • Age: 66
  • Location: NorCal
Re: What to do with 1.5 million short term?
« Reply #20 on: July 10, 2016, 11:08:10 PM »
Hi Walt,
I'm not sure if you're replying to my post. If you are, it might be helpful to know (as Another Reader does) that all the houses are in the same five thousand home senior resort development. We bought them that way deliberately. I've owned one for a dozen years and the others we purchased within the past year. We know and love the area, and prices are crazy low right now due to a combination of temporary factors. We know which floorplans we like, which ones can be significantly updated with minimal work. If we make good improvements, sell them well, make a killing and have to pay some taxes, meh, at least we made a killing. Plus we enjoy the process. DH will not be happy in retirement unless he has plenty to keep himself busy.

FWIW, I'm FIRE, and DH was heading in that direction. Then his dad died and we realized his mom has Alzheimer's, so we sold up, moved withing walking distance of his work and his mom moved in with us. Since we can't travel the way we want to now and he loves his low-to-no stress job, he's still working. Doing these house projects helps us focus on the future we're hoping for and prevents us from getting bogged down in the sadness of his mom's situation.

And if you weren't talking to me, sorry for the hijack ;-).

TheAnonOne

  • Handlebar Stache
  • *****
  • Posts: 1753
Re: What to do with 1.5 million short term?
« Reply #21 on: July 11, 2016, 10:00:55 AM »
OP:

Market timing ts the BEST way to buy real estate.  I bought four houses from 2009-2012, all cash purchases.   All four are worth more than twice what I paid and rents are well over 1 percent of "all in" purchase costs.  There is nothing to buy today.  Like you, I am accumulating cash for the next downturn, whenever it happens.

And, from 2009 to now, the sp500 is up over 200% AND paying 2+% in dividends every year.

So at most, you broke even... (vs. the stock market)

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6634
Re: What to do with 1.5 million short term?
« Reply #22 on: July 11, 2016, 12:10:15 PM »
And, from 2009 to now, the sp500 is up over 200% AND paying 2+% in dividends every year.
The S&P 500 lost 37% in 2008, which you excluded by discussing 7 years of performance.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22322
  • Age: 66
  • Location: NorCal
Re: What to do with 1.5 million short term?
« Reply #23 on: July 11, 2016, 03:34:06 PM »
And, from 2009 to now, the sp500 is up over 200% AND paying 2+% in dividends every year.
The S&P 500 lost 37% in 2008, which you excluded by discussing 7 years of performance.
I believe the time period cited was in response to this:

OP:Market timing ts the BEST way to buy real estate.  I bought four houses from 2009-2012, all cash purchases.   All four are worth more than twice what I paid and rents are well over 1 percent of "all in" purchase costs.  There is nothing to buy today.  Like you, I am accumulating cash for the next downturn, whenever it happens. 

2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 7916
  • Age: 1
  • Location: Earth
  • K Thnx Bye
Re: What to do with 1.5 million short term?
« Reply #24 on: July 11, 2016, 04:02:37 PM »
And, from 2009 to now, the sp500 is up over 200% AND paying 2+% in dividends every year.
The S&P 500 lost 37% in 2008, which you excluded by discussing 7 years of performance.

So did real estate prices =D

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: What to do with 1.5 million short term?
« Reply #25 on: July 12, 2016, 08:05:03 AM »
So did real estate prices =D

The difference is, AnotherReader has said he is holding cash, unless if you want to posit that cash lost 37% of its value in 2008, making a comparison of stocks vs cash+real estate starting in 2009 and ignoring the rundown in 2008 is dishonest
« Last Edit: July 12, 2016, 09:34:14 AM by Aphalite »

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: What to do with 1.5 million short term?
« Reply #26 on: July 12, 2016, 08:07:27 AM »
Our family recently downsize.   Net proceeds from the sale is around $1.5 millions (we live in bay area in CA).  We plan to use it to buy more rentals in Orlando, FL but current real estate prices are too high.  We estimate it will be 2 years before home prices go down again.  Need suggestions on where to park the money in the meantime.  Stock market is too volalite for last couple years to invest these money for 2 years.

Some back ground: we own 3 rentals in Orlando and plan to retire there in couple years. We currently live in a paid for rental that we plan to sell when we move to FL to retire.  I am 46, DH is 48 and neither one of us in good health.  We want to use rental income to cover living expenses once retired.

US treasuries are the best that you can do with a two year time frame. Alternatively, you can separate the lump sum into lots at different FDIC institutions

MidWestLove

  • Bristles
  • ***
  • Posts: 316
Re: What to do with 1.5 million short term?
« Reply #27 on: July 12, 2016, 09:03:49 AM »
I think confusing part is that you never indicated what you need that cash flow for - buying rentals for cash flow to generate more cash flow until it meets the funding need for whatever goals you set? How far way from those goals are you now? Do you need additional risk and active investment into real estate? Money is means to the end...

piercrab

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: Bay Area, CA
Re: What to do with 1.5 million short term?
« Reply #28 on: July 14, 2016, 07:06:17 AM »
"US treasuries are the best that you can do with a two year time frame. Alternatively, you can separate the lump sum into lots at different FDIC institutions"

FDIC insured up to 250k. I did not see any insured limit on US treasuries.  Is this correct?  What's the best way to ladder into different materity date for flexibility assume i will need 200k anytime? How difficult is it to sell treasury before it mature if I purchase from treasurydirect?

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: What to do with 1.5 million short term?
« Reply #29 on: July 14, 2016, 07:29:01 AM »
FDIC insured up to 250k. I did not see any insured limit on US treasuries.  Is this correct?  What's the best way to ladder into different materity date for flexibility assume i will need 200k anytime? How difficult is it to sell treasury before it mature if I purchase from treasurydirect?

The "insurance" on treasuries is the ability of the US government to tax its population and corporations, so to the extent your treasury investment doesn't exceed the GDP/tax revenues (oversimplifying here - you get the picture), you're probably okay

Treasuries are also extremely liquid - you should be able to liquidate at any time. Do note that changes in rates (sudden spikes are unlikely, but small changes can be noticed) will affect the value of your treasuries held - the shorter the duration of the treasury bond, the less effect rate changes will have, so I wouldn't buy 30 year treasuries, for example

Read this: from 2013 but still very relevant - http://www.joshuakennon.com/treasurydirect-cash-reserves/

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6634
Re: What to do with 1.5 million short term?
« Reply #30 on: July 14, 2016, 12:07:28 PM »
And, from 2009 to now, the sp500 is up over 200% AND paying 2+% in dividends every year.
The S&P 500 lost 37% in 2008, which you excluded by discussing 7 years of performance.
I believe the time period cited was in response to this:

OP:Market timing ts the BEST way to buy real estate.  I bought four houses from 2009-2012, all cash purchases.   All four are worth more than twice what I paid and rents are well over 1 percent of "all in" purchase costs.  There is nothing to buy today.  Like you, I am accumulating cash for the next downturn, whenever it happens. 
Delegating responsibility for misleading information doesn't cut it.  If the stock market takes it's biggest loss in decades, and you think it's valid to measure from the depths of that loss, that's misleading information.  It doesn't matter if someone else quoted the year 2009 - starting to measure S&P 500 performance right after 2008 gives misleading S&P 500 performance.
« Last Edit: July 14, 2016, 12:21:18 PM by MustacheAndaHalf »

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6634
Re: What to do with 1.5 million short term?
« Reply #31 on: July 14, 2016, 12:20:10 PM »
We do own ETFs and treasuries for investments. We max out in 401k and IRA. We don't qualify for ROTH.
...
I work in high tech and stock option vesting is too good to walk away.
Putting these together suggests you have a high income in California, but invest in treasuries.  Treasuries are only exempt from State income tax, not Federal.

Vanguard intermediate treasury fund, yield 1.04%  (note after 33% tax it would be 0.70%)
https://personal.vanguard.com/us/funds/snapshot?FundId=0535&FundIntExt=INT

Vanguard California tax-exempt intermediate bond fund, 1.11%
https://personal.vanguard.com/us/funds/snapshot?FundId=0100&FundIntExt=INT

The California tax exempt is more risky (73% AA) than treasuries (100% US government), but the yield is exempt from California and federal taxes.  Both are very low risk, much more so than corporate bonds or junk bonds.

Note treasuries do not need insurance - they are backed by the taxing power of the U.S. government.  If the U.S. government fails to pay you on a treasury, a world wide calamity will literally be the next thing that happens.  A default on U.S. government debt would immediately inflict severe damage to financial markets around the world.  Put another way, if U.S. treasuries lose money so will your stocks and bonds.  That's why the "risk free rate" is measured off of U.S. treasuries.

For moving in 1-2 years I'd favor a bond fund.  California tax-exempt will earn you higher yield, and both bond funds will be rather liquid.  When you move to Florida (0% state tax), consider weighing a tax-exempt bond fund (non-CA) vs treasuries until your income drops to a lower bracket.
« Last Edit: July 14, 2016, 12:22:22 PM by MustacheAndaHalf »

ender

  • Walrus Stache
  • *******
  • Posts: 7402
Re: What to do with 1.5 million short term?
« Reply #32 on: July 14, 2016, 12:21:33 PM »
Delegating responsibility for misleading information doesn't cut it.  If the stock market takes it's biggest loss in decades, and you measure from the depths of that loss, it's misleading information.  It doesn't matter if someone else quoted the year 2009 - excluding 2008 in a display of S&P 500 performance is misleading.

It depends on what the comparison is.

The comparison here is someone successfully timing the market by buying houses with cash starting in 2009. Assuming they had $500k to do this with and purchased them with cash outright, then comparing the $500k as if invested in the market from 2009 is the only fair comparison.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5327
Re: What to do with 1.5 million short term?
« Reply #33 on: July 14, 2016, 06:49:55 PM »
We have sort of hijacked this thread, but I will point out that the income is more than 1 percent per month vs the 2 percent in dividends per year.  Deduct expenses, and the cash on cash return was over 7 percent all in.  Add in the appreciation, rent increases and the tax treatment, and you might come to a different conclusion about which will be the better investment over time.

piercrab

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: Bay Area, CA
Re: What to do with 1.5 million short term?
« Reply #34 on: July 15, 2016, 04:13:04 PM »

Read this: from 2013 but still very relevant - http://www.joshuakennon.com/treasurydirect-cash-reserves/
[/quote]

Thanks for the article and all wisdom from this forum.  We will park 1.5 mil with treasurydirect to simplify things for now.  We need to do some homework on the bond funds.

Another Question:  I have about $80K between vested restricted stock option and Employee stock purchase plan at my company.  If I sell to diversity into VTI or VYM,  I will have about 40K that needs to pay long term capital gain.  The home we just sold had more than 500K exemption for primary home.  About 100k profit needs to pay capital gain tax.  I am debating whether I should sell my company RSU and ESPP as it will add another 40K to capital gain tax.  I read somewhere the most capital gain tax 25% for high income.  Last year our combine income was $180k (paycheck & real estate income). Company stock has not been stable.  It has gone down from $13 to $9 this year.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5327
Re: What to do with 1.5 million short term?
« Reply #35 on: July 15, 2016, 05:53:13 PM »
In your shoes, I would not be concerned about a central bank failure in the US and not getting your money, especially over the next couple of years.  Treasuries are safe, but earn nothing.  I would be comfortable splitting the money among high yield savings and money market accounts, being careful not to exceed the FDIC limit.

I would NOT use bond funds.  Too much risk.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22322
  • Age: 66
  • Location: NorCal
Re: What to do with 1.5 million short term?
« Reply #36 on: July 16, 2016, 07:24:31 AM »
I read somewhere the most capital gain tax 25% for high income.  Last year our combine income was $180k (paycheck & real estate income).
Sigh. OP, we're happy to help, but most of us are not tax professionals...A five second internet search for  "max long term capital gains rate" yielded this...

"Now wealthier taxpayers will pay a maximum 20% tax on long-term capital gains. That 20% tax also applies to qualified dividends. This higher rate applies when your adjusted gross income falls into the top 39.6% tax bracket. Apr 5, 2016"

If I do any more work than that, I'm going to have to call it a side gig and charge you a percentage of the money I save you.

united6060

  • 5 O'Clock Shadow
  • *
  • Posts: 5
  • Age: 55
  • Location: Los Angeles
Re: What to do with 1.5 million short term?
« Reply #37 on: July 22, 2016, 02:11:18 PM »
To me it depends on how you think the prices of housing will drop.  If A, inflation rises and interest rates rise causing falling housing prices, then short term bonds would be best.  Yields would be very low.  If B, a recession hits and prices drop, then interest rates would drop further and a longer duration bond fund would be best. 

I think B is most likely.    I don't have the stomach for 20 year duration (zroz fund) so I'm in mid term, 5 year duration fund that invest in mortgages ( dbltx ).  Yield is about 4 percent which is reasonable return instead of low yielding cash. 

I'm interested in what yield you get on your real estate?  If you can share, please include your time at usd100/hour or total hours so I can adjust.

Gonzo

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: What to do with 1.5 million short term?
« Reply #38 on: July 23, 2016, 12:15:10 AM »
You have plenty of assets in investment real estate already and shouldn't buy more in my opinion, unless you have a very high net worth.  You risk becoming too concentrated in an asset class. 

I would buy stocks and CDs with it. 


 

Wow, a phone plan for fifteen bucks!