Author Topic: What would you do if you suddenly had an extra 100k?  (Read 8879 times)

frugal4life

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What would you do if you suddenly had an extra 100k?
« on: December 23, 2015, 07:57:16 PM »
Hello all!

I am a longtime lurker on the blog/forum, but now I have a topic to post!

I come from an immigrant family that has always been frugal/mustachian in its habits.  My husband's family... not so much.  For a lot of very weird, complicated reasons, my father in law has decided to liquidate some of his assets, and will be giving both my husband and his sister a good amount of money- about 100k, give or take.

I am not sure what to do with this.

I am 31, my husband is 36.  Our income is about 130k combined, and we periodically get pretty good raises.  We have no loans, our home (420k) is paid off, and we contribute the maximum to our respective 401ks.  We have about 30k in cash savings at this moment.  We have 2 children, ages 2 and 4.  Because my husband has been working for a university for a long time, both of our children have tuition remission to our local state university.  I have no other college savings for them because I have been very aggressive in getting us where we are right now college savings took a backseat.  We have about 110k in our retirement savings combined as of this moment, and I also am going to have a pretty mediocre pension eventually.

We are not really interested in retiring early at this moment, because we both eschewed more lucrative careers to find relaxed, flexible jobs that we enjoy.  I would like to achieve financial independence anyway, because that is just how I'm wired, and my husband is too.  We also don't have any "luxuries" that we are dying to buy.  The most expensive thing we do is DIY projects around the house, which I work into our budget.

Another issue is that we live in a large metropolitan area but in a less desirable suburb.  We may be stuck sending our kids to a private school, but we don't know.  I am willing to give public school a chance.  Sometimes I wonder if I should take this money and move somewhere "better" with better schools.  But no matter how I look at it, the math just does not work out.  We would move farther away from our jobs, into a worse house, and end up spending hundreds of thousands of dollars more.  I feel we might as well pay for private school at that point.

I am somewhat interested in purchasing a rental property because there is a lot of development going on nearby and I feel our area is poised for some appreciation.  We live in one of the last affordable pockets of a very expensive region.  There are still small homes and townhouses to be had for 150k or less, but I feel like eventually this is no longer going to be the case (at least not in a safe area).  The home we currently live in could sell for about 100k more than what we bought it for a few years ago.

What would you do in this scenario?

Heckler

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Re: What would you do if you suddenly had an extra 100k?
« Reply #1 on: December 24, 2015, 05:53:07 AM »
What would you do?


Simply posting this in investor alley tells me what you think you want to do.  Are you looking for life advice, or investment advice?


Start here

https://www.bogleheads.org/wiki/Getting_started


Heckler

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Re: What would you do if you suddenly had an extra 100k?
« Reply #2 on: December 24, 2015, 05:56:52 AM »

This section has some particularly good advice. 


https://www.bogleheads.org/wiki/Managing_a_windfall#Managing_a_windfall
« Last Edit: December 24, 2015, 06:00:51 AM by Heckler »

YoungInvestor

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Re: What would you do if you suddenly had an extra 100k?
« Reply #3 on: December 24, 2015, 07:03:46 AM »
What I would do (and not necessarily what I think you should do):

-15k emergency fund
-10k student debt
-25k maxing my tfsa
-10k maxing my rrsp
-35k taxable accounts
-5k vacation with the girlfriend

lostamonkey

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Re: What would you do if you suddenly had an extra 100k?
« Reply #4 on: December 24, 2015, 07:15:40 AM »
I would just toss it into a taxable account and buy vanguard index funds.

terran

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Re: What would you do if you suddenly had an extra 100k?
« Reply #5 on: December 24, 2015, 07:22:59 AM »
At your income level and no mortgage, can we assume you're already maxing out retirement accounts (18k to two 401k/403b's, 5.5k to two IRA's, maybe an HSA)? Does your husband's state university job also give him access to a government 457? If all those options are covered, then I would do this:

I would just toss it into a taxable account and buy vanguard index funds.

Lizzy B.

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Re: What would you do if you suddenly had an extra 100k?
« Reply #6 on: December 24, 2015, 07:23:30 AM »


This section has some particularly good advice. 


https://www.bogleheads.org/wiki/Managing_a_windfall#Managing_a_windfall

That's a helpful link. Posting to follow.

matchewed

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Re: What would you do if you suddenly had an extra 100k?
« Reply #7 on: December 24, 2015, 07:27:52 AM »
Invest it according to your Asset Allocation within your Investment Policy Statement which tells you what to do about such things.

Financial.Velociraptor

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Re: What would you do if you suddenly had an extra 100k?
« Reply #8 on: December 24, 2015, 07:54:50 AM »
I'd do what I'm doing with basically all excess funds right now: plow it into my four closed end municipal bond funds - IIM, IQI, NEA, NIO.  It would earn an average of 6%, thus providing me about 500 a month in tax free income.  A significant raise vs my current withdrawal rate.

FIREby35

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Re: What would you do if you suddenly had an extra 100k?
« Reply #9 on: December 24, 2015, 08:03:31 AM »
I don't know how familiar you are with the terminologiy since its your first post, but you should get the book "Bogleheads." It has an entire chapter about "What to do with a windfall." It should give you a good framework to decide what is best for your situation. It is available for free and immediately from my local library and the Overdrive app, maybe your local library has it as well. If not:

http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283/ref=sr_1_1?ie=UTF8&qid=1450969395&sr=8-1&keywords=Boglehead

FI40

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Re: What would you do if you suddenly had an extra 100k?
« Reply #10 on: December 24, 2015, 08:43:30 AM »
Dump it into investments according to my IPS.

nobodyspecial

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Re: What would you do if you suddenly had an extra 100k?
« Reply #11 on: December 24, 2015, 09:06:57 AM »
Dump it into investments according to my IPS.
That's one of those mustacian problems - watching an ad for the lottery.
Win these two luxury cars (which you could never afford to run or maintain), holidays for life, or $100K cash (picture of couple with $100 bills raining down)
I just thought - I would stick the cash in VT with the rest of the stash and forget about it.

frugal4life

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Re: What would you do if you suddenly had an extra 100k?
« Reply #12 on: December 24, 2015, 09:58:33 AM »
Thank you everyone!  The above posts gave me a lot of helpful information to think about.

hodedofome

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What would you do if you suddenly had an extra 100k?
« Reply #13 on: December 25, 2015, 02:22:34 PM »
Tell your father in law to give you $50k in 2015 and $50k in 2016 so you don't owe any gift taxes. Giving limit is $14k a year per person, so if you have 4 in your family you can receive $14k each or $56k/yr.

Another way to avoid decision regret is to put a little bit in savings, spend a little bit (perhaps on a vacation or private school or a house) and possibly give a little bit. It doesn't have to all go into 1 category.

Sent from my iPhone using Tapatalk
« Last Edit: December 25, 2015, 02:24:43 PM by hodedofome »

soccerluvof4

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Re: What would you do if you suddenly had an extra 100k?
« Reply #14 on: December 25, 2015, 04:17:06 PM »
Just add it to my index funds

terran

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Re: What would you do if you suddenly had an extra 100k?
« Reply #15 on: December 26, 2015, 07:56:48 AM »
Tell your father in law to give you $50k in 2015 and $50k in 2016 so you don't owe any gift taxes. Giving limit is $14k a year per person...

That's not how the gift tax works: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes

If anyone pays a tax, it would be the father (or father's estate) not the OP. Also, the amount over $14k applies to the lifetime estate tax exclusion of $5.43 million, it's not an immediate tax.

harshalpatel

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Re: What would you do if you suddenly had an extra 100k?
« Reply #16 on: December 27, 2015, 04:25:38 PM »
OT, but with 100k, I would buy a politician.

They're pretty cheap in the US.

Indexer

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Re: What would you do if you suddenly had an extra 100k?
« Reply #17 on: December 27, 2015, 05:59:16 PM »
60k in VTSAX, 40k in VTIAX.

nobodyspecial

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Re: What would you do if you suddenly had an extra 100k?
« Reply #18 on: December 27, 2015, 06:23:23 PM »
OT, but with 100k, I would buy a politician.
But you would have to clean out their cage ......

tj

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Re: What would you do if you suddenly had an extra 100k?
« Reply #19 on: December 27, 2015, 10:27:49 PM »
60k in VTSAX, 40k in VTIAX.

Make it even simpler, 100% VTWSX. Altough truth be told, If I had a spare 100k, I'd really be doing ETFs at Merrill Edge for the Bank Of America Preferred Rewards program to enable their very enticing credit card bonuses.

earthshine

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Re: What would you do if you suddenly had an extra 100k?
« Reply #20 on: December 28, 2015, 06:19:10 AM »
I'd do what I'm doing with basically all excess funds right now: plow it into my four closed end municipal bond funds - IIM, IQI, NEA, NIO.  It would earn an average of 6%, thus providing me about 500 a month in tax free income.  A significant raise vs my current withdrawal rate.

Interesting idea. I would love to know more. Will google... am not that familiar with closed end municipal bond funds... will be grateful for any more info.

Retire-Canada

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Re: What would you do if you suddenly had an extra 100k?
« Reply #21 on: December 28, 2015, 07:14:48 AM »

I am not sure what to do with this.

I am 31, my husband is 36.  Our income is about 130k combined, and we periodically get pretty good raises.  We have no loans, our home (420k) is paid off, and we contribute the maximum to our respective 401ks.  We have about 30k in cash savings at this moment.  We have 2 children, ages 2 and 4.  Because my husband has been working for a university for a long time, both of our children have tuition remission to our local state university.  I have no other college savings for them because I have been very aggressive in getting us where we are right now college savings took a backseat.  We have about 110k in our retirement savings combined as of this moment, and I also am going to have a pretty mediocre pension eventually.

We are not really interested in retiring early at this moment, because we both eschewed more lucrative careers to find relaxed, flexible jobs that we enjoy.  I would like to achieve financial independence anyway, because that is just how I'm wired, and my husband is too.  We also don't have any "luxuries" that we are dying to buy. 
What would you do in this scenario?

So you picked jobs you enjoy vs. making more and being stressed out? Time to work towards FIRE. You'll be very relaxed when you no longer have to go to work. Even if you choose to still do something.

Dump the $100K into your investments according to your investment plan. Also dump the $30K cash into there as well. No point having it sit as cash. Given you have no debts and a paid off house just get a HELOC you can tap into if you need some extra $$ short term. You should be able to knock down any unexpected expenses right quick from your jobs.

That will get you to $240K in invested savings.

With a couple small pensions and Gov't benefits coming your way work out what you'll need to generate from your investments/month to retire comfortably. That way you have a goal to shoot for. If you hit that goal early you can then work out how much more you need to save/invest to carry you over the period until your pensions and Gov't benefits kick in.

FIRE doesn't have to be your #1 goal, but at the same time it's nice to know when you no longer have to work.

zephyr911

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Re: What would you do if you suddenly had an extra 100k?
« Reply #22 on: December 28, 2015, 07:22:28 AM »
$75K down on this would net about $15K annually after all costs, including debt service, with about $11K tax-sheltered via depreciation.

Then I'd spend a few $k on family visits and stick the rest in VTI.

zephyr911

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Re: What would you do if you suddenly had an extra 100k?
« Reply #23 on: December 28, 2015, 07:23:31 AM »
We are not really interested in retiring early at this moment, because we both eschewed more lucrative careers to find relaxed, flexible jobs that we enjoy.  I would like to achieve financial independence anyway, because that is just how I'm wired, and my husband is too.  We also don't have any "luxuries" that we are dying to buy.
You're in a great position. We're close to at least having the option... close. ;)

JLee

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Re: What would you do if you suddenly had an extra 100k?
« Reply #24 on: December 28, 2015, 07:23:43 AM »
Dump it into investments according to my IPS.
That's one of those mustacian problems - watching an ad for the lottery.
Win these two luxury cars (which you could never afford to run or maintain), holidays for life, or $100K cash (picture of couple with $100 bills raining down)
I just thought - I would stick the cash in VT with the rest of the stash and forget about it.
Haha, yep.

Financial.Velociraptor

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Re: What would you do if you suddenly had an extra 100k?
« Reply #25 on: December 28, 2015, 08:10:42 AM »
I'd do what I'm doing with basically all excess funds right now: plow it into my four closed end municipal bond funds - IIM, IQI, NEA, NIO.  It would earn an average of 6%, thus providing me about 500 a month in tax free income.  A significant raise vs my current withdrawal rate.

Interesting idea. I would love to know more. Will google... am not that familiar with closed end municipal bond funds... will be grateful for any more info.

Closed end funds are a slightly different animal.  They have a fixed amount of shares quite unlike an ETF.  So they sometimes trade at steep discounts to Net Asset Values.  Never buy when they trade for a premium to NAV. 

The muni CEF's all use between 30 to 40 percent margin.  So for a 6% return they are actually getting about 4.5 on the underlying securities, right about market for investment grade municipals. 

The important thing with a CEF is the fixed nature of share count means they never have to meet a redemption and cannot be forced to sell into a down market to lock in losses like happens with an ETF or mutual fund bond fund.  They can and will hold to maturity which  hedges some of your interest rate risk.

I like these because I feel I am getting a better risk adjusted return versus equities.  The Beta is very low on these.

Indexer

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Re: What would you do if you suddenly had an extra 100k?
« Reply #26 on: December 28, 2015, 08:02:51 PM »
60k in VTSAX, 40k in VTIAX.

Make it even simpler, 100% VTWSX. Altough truth be told, If I had a spare 100k, I'd really be doing ETFs at Merrill Edge for the Bank Of America Preferred Rewards program to enable their very enticing credit card bonuses.

Simpler but that convenience has a really nasty price tag.

VTWSX has an expense ratio of 0.27%. Even the ETF version of VTWSX cost 0.17%.

On the other hand, VTSAX is 0.05% and VTIAX is 0.14%. Combined they average out to around 0.1%, much lower cost than VTWSX.

tj

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Re: What would you do if you suddenly had an extra 100k?
« Reply #27 on: December 28, 2015, 08:40:58 PM »
60k in VTSAX, 40k in VTIAX.

Make it even simpler, 100% VTWSX. Altough truth be told, If I had a spare 100k, I'd really be doing ETFs at Merrill Edge for the Bank Of America Preferred Rewards program to enable their very enticing credit card bonuses.

Simpler but that convenience has a really nasty price tag.

VTWSX has an expense ratio of 0.27%. Even the ETF version of VTWSX cost 0.17%.

On the other hand, VTSAX is 0.05% and VTIAX is 0.14%. Combined they average out to around 0.1%, much lower cost than VTWSX.

I hardly consider that nasty. Especially if it prevents you from fiddling with your portfolio and you can set it and forget it.

Indexer

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Re: What would you do if you suddenly had an extra 100k?
« Reply #28 on: December 28, 2015, 08:50:53 PM »
60k in VTSAX, 40k in VTIAX.

Make it even simpler, 100% VTWSX. Altough truth be told, If I had a spare 100k, I'd really be doing ETFs at Merrill Edge for the Bank Of America Preferred Rewards program to enable their very enticing credit card bonuses.

Simpler but that convenience has a really nasty price tag.

VTWSX has an expense ratio of 0.27%. Even the ETF version of VTWSX cost 0.17%.

On the other hand, VTSAX is 0.05% and VTIAX is 0.14%. Combined they average out to around 0.1%, much lower cost than VTWSX.

I hardly consider that nasty. Especially if it prevents you from fiddling with your portfolio and you can set it and forget it.

An extra 0.17% on a 625k portfolio is $1062.50 per year in additional costs. Having VTWSX instead of the other two funds might save you the 5 minutes it would take to times your portfolio by 0.6% and put in a trade. Yup, I'll stick with my previous conclusion that convenience has a really nasty price tag. Imagine paying $1000 on a bottle of water at a convenience store. :)

VTWSX also isn't as efficient from a risk/return standpoint as a 60/40 split between the other two funds. But that would be a better conversation for its own topic.

tj

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Re: What would you do if you suddenly had an extra 100k?
« Reply #29 on: December 28, 2015, 09:02:13 PM »
60k in VTSAX, 40k in VTIAX.

Make it even simpler, 100% VTWSX. Altough truth be told, If I had a spare 100k, I'd really be doing ETFs at Merrill Edge for the Bank Of America Preferred Rewards program to enable their very enticing credit card bonuses.

Simpler but that convenience has a really nasty price tag.

VTWSX has an expense ratio of 0.27%. Even the ETF version of VTWSX cost 0.17%.

On the other hand, VTSAX is 0.05% and VTIAX is 0.14%. Combined they average out to around 0.1%, much lower cost than VTWSX.

I hardly consider that nasty. Especially if it prevents you from fiddling with your portfolio and you can set it and forget it.

An extra 0.17% on a 625k portfolio is $1062.50 per year in additional costs. Having VTWSX instead of the other two funds might save you the 5 minutes it would take to times your portfolio by 0.6% and put in a trade. Yup, I'll stick with my previous conclusion that convenience has a really nasty price tag. Imagine paying $1000 on a bottle of water at a convenience store. :)

VTWSX also isn't as efficient from a risk/return standpoint as a 60/40 split between the other two funds. But that would be a better conversation for its own topic.

it's not about "the time of putting in trade", it's all behavioral finances.

The less likely someone is to mess with a portfolio, the better. This is why things like Betterment or LifeStrategy funds make a lot of sense despite the negligible higher costs.  Most people aren't android-like and several reports of fund-holders doing worse than the funds themselves due to emotional decisions made by emotional humans. It only costs an extra $1k per year if you have identical return between the two options, which of course you wouldn't because they are different allocations.

Most of OP's wealth is tied up in home equity, It probably doesn't matter what they do with this 100k as long as they don't squander it. OP is in 25% marginal, maybe closer to 15% depending on their various deductions, so I'd say VBIAX would be perfectly reasonable for a forever hold if they felt so inclined to take on less risk with the windfall.
« Last Edit: December 28, 2015, 09:19:13 PM by tj »

Drifterrider

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Re: What would you do if you suddenly had an extra 100k?
« Reply #30 on: January 06, 2016, 11:55:33 AM »
I'll let you know after I win tonight's $450M Lotto. :)