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  • Investing 400k after sale of home

    Hey everyone, hope all are keeping well in the midst of the recent unfortunate circumstances.

    We recently sold our home and originally was anticipating putting down downpayment for another home but have decided against buying in the housing market in our area because of the COVID situation and unclear where we will end up in long term. We have 400k total that we would like to invest but unsure of how to best allocate. In regards to our situation, I'm currently in training (delayed medical training with 4 years training remaining), two young kids, but no debt, high earning wife in another career that started investments very early and thus have ~1 M in assets (sale of home included in this value) with mix of index funds/bonds/cash, 401K and Roth maxed out contributions, 100k in emergency funds already planned. (>12 months of living expenses). Our income will be lower in the next year since wife plans on quitting job temporarily in midst of COVID and we will just be on my resident salary, but she will plan on restarting work after. We feel OK with this plan given our emergency funds planned out.

    Question is best strategy for 400k. Will not need to touch funds for >10 years at least. Put all in index fund or attempt to diversify with mix of index funds/bonds? Also, lump sum vs DCA? Any other thoughts would be appreciated, thanks!

  • #2
    What does your written Investment Policy Statement say you should do with additional funds?

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    • #3
      ^We don't have a portfolio manager. We've been managing our investments ourselves.

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      • #4
        ^^^ Hank most likely means this:

        https://www.bogleheads.org/wiki/Inve...licy_statement

        Just a laid out plan of how/where your money is. Hank may also be implying that if you don't have an IPS, you should craft one.

        Sorry Hank if I am wrong in your intent.
        ___________________________________

        I personally like lump sum. It's a personal preference.

        If you're definite in you wont need it for >10 years, then I'd say some portion of it should be in equities. As per your IPS & asset allocation.
        "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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        • #5
          I see a lot of moving pieces. Wife quitting for 1 year is one time frame.
          Delayed training 4 years.
          Family of 4 with efund and retirement savings.
          What I don’t understand is the plan for the $400k.
          You we’re going to buy a house.
          •Are you planning on eventual using this as a down payment EVER?
          •”Will not need to touch funds for >10 years at least”.
          Retirement savings and efund are “untouchable”
          and a future home down payment is not invested in the “market”.
          Until you clear up a budget and the timelines for both income streams, safeguard that $400k with hys account. Too many unknown parts to risk it in the market. The default is to keep it earmarked for a house. When is the unknown.
          I do know you plan on a family of 4 on a resident income. Cutting lifestyle to living like a resident is going to be a big challenge.

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          • #6
            Thanks all for the feedback. Hank and Cubicle, you bring up a good point, we'll look into crafting a formal IPS.

            Tim, you got me thinking a bit about all of the uncertainties. We set aside 100 k to budget for all expenses for >12 months including childrens schooling, housing, etc, and thought this was conservative. My spouse plans on going on leave for awhile and transitioning back to work within a year at most (likely a few months). We planned on entering the house market after finishing training in 3.5 - 4 years and that point with my wife's income and some other liquid assets, planned on putting 20% for downpayment. However, I think you bring up a good point that it might be wise to put aside another 100 K in an HYSA in case. However, I think it's unlikely we would touch the remaining 300k in the next 10 years given anticipated income streams, other assets, and setting aside another 100 K. I'm going to do a bit more research but leaning towards diversifying across 75/25 index funds/bonds. However, I wonder if the current market volatility should play into our decision making and if this should affect our current asset allocation or lump sum vs DCA or trying to "time" the market in unprecedented times.

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            • #7
              Originally posted by Hank View Post
              What does your written Investment Policy Statement say you should do with additional funds?
              this has got to be one of the most consistent and least helpful replies on WCIF.

              when people post questions like this it's b/c they probably don't have a written IPS.

              an IPS is not a magical talisman that always leads you in the right direction. it is also a static document composed at a point in time from which things might change. if i unexpectedly inherited $3M my IPS might not provide great guidance if it was written when I was making $160k as a primary care pediatrician. your IPS is also of very limited utility until you've sat on it comfortably while you weathered a real bear -- many of us still have not.

              this is like if someone asked you for advice on choosing a car and you just responded "what does your personally composed car guide say?"

              people ask for advice and we refer to them to a non-existent document that their original question clearly indicates they probably haven't composed? i'm sure they find that very helpful.

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              • #8
                Any idea of where you guys want to end up, or is it really that open? 400k could be a whole house in some areas, and a down payment in others.

                If you're in a high earning field and your wife is looking for a career change, maybe she'd be willing to learn about real estate. She could earn professional status . Then you could deploy 2-300k of that capital to rental properties.

                But, as others have said- whatever your IPS says. You could just DCA it into whatever asset allocation you prefer.

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                • #9
                  Originally posted by MPMD View Post

                  this has got to be one of the most consistent and least helpful replies on WCIF.

                  when people post questions like this it's b/c they probably don't have a written IPS.

                  an IPS is not a magical talisman that always leads you in the right direction. it is also a static document composed at a point in time from which things might change. if i unexpectedly inherited $3M my IPS might not provide great guidance if it was written when I was making $160k as a primary care pediatrician. your IPS is also of very limited utility until you've sat on it comfortably while you weathered a real bear -- many of us still have not.

                  this is like if someone asked you for advice on choosing a car and you just responded "what does your personally composed car guide say?"

                  people ask for advice and we refer to them to a non-existent document that their original question clearly indicates they probably haven't composed? i'm sure they find that very helpful.
                  I think I take the opposite approach and feel like this forum is the perfect place to ask that question and bring it up. Most people here are knowledge seekers and self-starters and knowing about an IPS, how to create one, how it benefits them, etc. will be something a majority of people look into further and will understand the importance of one. Now, if you bring it up at r/PersonalFinance then I agree, it's probably not a helpful reply.

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                  • #10
                    Would your wife be happy renting forever ?
                    If not, are you not short a house in your desired location, wherever that is ?
                    And if that market went through a boom what will you do ?

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                    • #11
                      Originally posted by MPMD View Post

                      this has got to be one of the most consistent and least helpful replies on WCIF.

                      when people post questions like this it's b/c they probably don't have a written IPS.

                      an IPS is not a magical talisman that always leads you in the right direction. it is also a static document composed at a point in time from which things might change. if i unexpectedly inherited $3M my IPS might not provide great guidance if it was written when I was making $160k as a primary care pediatrician. your IPS is also of very limited utility until you've sat on it comfortably while you weathered a real bear -- many of us still have not.

                      this is like if someone asked you for advice on choosing a car and you just responded "what does your personally composed car guide say?"

                      people ask for advice and we refer to them to a non-existent document that their original question clearly indicates they probably haven't composed? i'm sure they fin hi d that very helpful.
                      My ips says:
                      buy extreme value, but never be short an appreciating asset where possible, as I’ve lost a lot on that in the past. My wife definitely would hold my feet to the fire with FOMO about housing in her desired area In a boom. I Imagine I would be buying at the top, which is my worst nightmare, because I don’t buy expensive houses at the top. I’m a tightarse with money and buying into FOMO at the top just kills me. My wife would get cross with me. So I would capitulate early because I know I would capitulate.

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                      • #12
                        Originally posted by CordMcNally View Post

                        I think I take the opposite approach and feel like this forum is the perfect place to ask that question and bring it up. Most people here are knowledge seekers and self-starters and knowing about an IPS, how to create one, how it benefits them, etc. will be something a majority of people look into further and will understand the importance of one. Now, if you bring it up at r/PersonalFinance then I agree, it's probably not a helpful reply.
                        it's a great forum to ask financial questions.

                        what i'm saying is that when someone asks a financial question, responding with a snarky suggestion that they reference a document they almost certainly don't have is totally unhelpful. this becomes apparent when you create analogies like i did above. "should i buy this house?" "well what does your home buying personal statement say?"

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                        • #13
                          1. Renting rather than buying during residency sounds wise
                          2. Spouse quitting a high paying job so the two of you can live off a resident’s salary does not seem wise
                          3. You don’t need this $400K for ten or more years, so investing rather than saving is appropriate
                          4. Keep things very, very simple. A low cost, high quality target date fund for ten years later than your actual planned retirement could be appropriate. 110 minus your age in equities, the rest in bonds also would work. A two fund portfolio of VTSAX and VBTLX could work. Maybe add international equities if you want to, at 20% to no more than 50% of your equity position.https://www.bogleheads.org/wiki/Three-fund_portfolio
                          5. The math typically favors lump sum investing. If you or your spouse are uncomfortable based on the recent wild ride in the market, consider dollar cost averaging over the next three to six months. Maybe the next four months to keep the math easy.
                          WCI advises being more conservative with your asset allocation if you haven’t weathered a bear market or two. I think that’s decent advice. That said, between work, residency, and young kids, the two of you should be busy enough that you don’t check the portfolio too frequently. Put things on autopilot and focus on the rest of your life. Unlike a lot of other things in life, personal investing doesn’t have to be complicated.

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                          • #14
                            Thanks for all the helpful advice. We made the decision for my wife to take leave from her job due to personal considerations from COVID and feel it's most beneficial for our kids. I won't go into details but feel it will be worth it in the long run to give up a few months of income.

                            Just wanted to get opinions about our plan and asset allocation. From the 400k, we plan on storing 100k away in savings. For the remaining 300k planning on lump summing in 80/20 stocks and bonds. Probably favoring 60% VTSAX or fidelity equivalent. 20% VTIAX or fidelity equivalent iniin The remaining 20% in total US bonds. Any feedback?
                            ​​​​

                            Comment


                            • #15
                              Originally posted by sesamebean123 View Post
                              Thanks for all the helpful advice. We made the decision for my wife to take leave from her job due to personal considerations from COVID and feel it's most beneficial for our kids. I won't go into details but feel it will be worth it in the long run to give up a few months of income.

                              Just wanted to get opinions about our plan and asset allocation. From the 400k, we plan on storing 100k away in savings. For the remaining 300k planning on lump summing in 80/20 stocks and bonds. Probably favoring 60% VTSAX or fidelity equivalent. 20% VTIAX or fidelity equivalent iniin The remaining 20% in total US bonds. Any feedback?
                              ​​​​
                              would use munis (VWIUX) as higher yield than total bond currently. you can even go shorter duration (limited term VMLUX) and still get higher yield.
                              also ibonds (jacoavlu).

                              Comment

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