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Late stage meltup ? Opinions sought on allocating cash

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  • #16
    You have won the game.  Maybe you enjoy playing.  I know from your previous posts that you have done great with real estate and not so well with stock market leverage.  One million in cash in tax deferred is ok if you sleep well.  One advantage is it does de risk your life. Another advantage is since it is not going to grow very much you will not face monster RMDs at 70.5.  If it was me I would invest at least some of it.  You could start with 100k/month until you got to the allocation you are comfortable with.  I think having the cash in a taxable account would be more useful for emergencies.  I have about $250k in cash equivalents myself.

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    • #17




      shouldn’t you be giving us advice?

       
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      Unfortunately, I seem to be wrong half the time and I keep changing my mind, so my advice is probably not that useful. I have strong convictions that turn out to be embarrassingly wrong at times !

      My parents did help me by giving me around 20k to start investing in stocks when I was 21 and about 300k in real estate. The rest I've managed to make and lose.

      What I found very helpful was mentorship from my father in real estate investing. He taught me the enormous potential for upside in real estate over decades. I never had the same in stocks, which might explain the disparity in results.

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      • #18




        On one hand it pains me to think of holding a million dollars in cash since 2014 – the S&P has gained 50% since 1/1/2014.

        On the other hand you have ~10 million in investment properties and make 900k/year.

        You could probably invest that million in bubble gum futures and still be financially independent.

        You can afford to take more risk, but you should do whatever let’s you sleep at night.
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        What is keeping me up at night recently is FOMO with having cash, but that could be a mistake.

        I used to think I could afford it, but I can't! I have a deep fear of not having enough money that borders on illogical.

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        • #19




          You’ve proven you’re lousy at market timing, so maybe you should quit doing that.
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          I've lost more on market timing than any other error. I seem to have needed to do this in both stocks and real estate and I still haven't learnt my lesson !

          If I was honest with myself, I'd acknowledge that it's been very unprofitable and stop it. The need to be right can be hard to let go of.

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          • #20



            just allocate it into the 500k-1m in a 30-70 type allocation.

            If by “30-70” you mean 30% stock and 70% bonds, then I like that strategy.  Using a low risk AA is a prudent baby step back into equities.
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            I think this was my initial mistake, I went from fully allocated to cash for some weird reason at the time and this has been very hard to reverse. Much better to do incremental adjustments that are easier to reverse.

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            • #21




              Either lump sum it in or dollar cost average it in over the next 12 months.

               

              I don’t know when you plan on retiring but hopefully your expenses are reasonable. A $900k income over the next few years can certainly help smooth out any market dips.
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              Expenses are about 200k/year. We need to start tracking expenses properly to be more confident about reducing work further in the future.

              Thinking about it, I think I will bite the bullet and lump sum the reallocation.

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              • #22




                With your NW, what is the goal?

                Chill? If so doesn’t matter. Keep in cash, bonds, donate it, eat it

                Continue investing then you should invest the cash and not sit on 1 million (allocate it the way you said it).
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                The goal is probably to convert the real estate to something that has a better yield and work less. Currently I work 4 days a week.

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                • #23




                  How much of the 900k/yr household income is investment property income vs working?
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                  The 900k/year is all income from work. The investment property has been high growth and low yield. 5M is is in vacant land so I think my portfoilio would fail the WCI reasonable portfolio test. The rent on half the portfolio pays for the costs of holding the vacant land and the whole portfolio net yields almost nothing.

                  With the governmental valuation catching up with recent sale prices on the vacant land, it might well be negative cashflow in the future, to the tune of 50-100k per year. Which would mean I would need to keep working until I offload the vacant land. And if I do sell the vacant land will end up with a fair lump sum, so possibly it is better to start to allocate it now.

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                  • #24







                     

                    My retirement account is in cash since 2014 when I had this crazy, hare brained idea that the world was coming to an end with the Chinese economy hiccup. Anyway, I did find workarounds to this by buying property in my non retirement holdings with debt to offset the cash balance in my retirement account. But once that mistake was made, I found it very hard to reverse the cash allocation in the retirement account.

                     

                     

                     
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                    That was expensive. The good news is you could afford it.

                    I bought stocks and bonds this month. I was a little heavy on real estate. I have no idea what the future holds so I use a static asset allocation. By accepting the fact I’m “dumb,” I often become the “smartest in the room.”

                     
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                    Very true, and well said. I have to keep asking myself whether I'm on the verge of my usual mistake in the future.

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                    • #25




                      The melt up has been going on for about a decade now.

                      If you look at the big picture it’s been going on for over 70 years.

                      If you look at the bigger picture it’s been going on for over 100 years.

                      Feel free to jump in whenever you want.  I do promise you this: As soon as you invest that million, the market will correct.  Just accept that fact and proceed.
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                      I like that perspective. It's a bit irrational that fear. Even if the market corrected 60% it would be fine. But probably the main fear is getting it wrong after getting it wrong in 2014.

                      Really I just want to make up for that mistake and jumping back in crystallises that it was a mistake.

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                      • #26




                        I think it’s a really good time to sit down and look at a few things:

                        1) What are your expenses now

                        2) What are your anticipated expenses in retirement

                        3) What are your retirement goals (i.e. age, lifestyle, leaving xyz to kids, etc)

                         

                        $10 million in assets is 300k/year at an SWR of 3% (i’m not sure what asset allocation the SWR assumes). If that’s enough for you then you’ve already won the game, just pick a low risk asset allocation while you continue to work. You may not be maximizing your potential gains but you’re minimizing your losses which seems to be more important to you at this point in life and I would agree that is fine if you continue to work. You are no longer in the accumulation phase of your life, you are presently in the bonus round.

                         
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                        I'm 44 so I still think mentally that I am in accumulation phase, but maybe I should cash up and retire. I am still processing that one. I don't think my wife wants me to retire.

                        Comment


                        • #27




                          When you have been successful at building wealth, one important part of the plan going forward is to not lose too much.  Some say if you have won the game, stop playing.  Having a big chunk of cash can be part of that safety plan, so if I were in your shoes I wouldn’t sweat it too much.

                          I have built up a substantial net worth over the course of my career, but I am still playing the game to an extent.  We live in a VHCOL area.  If our net worth continues to go up over the next few years, we will be able to afford to continue to live in this VHCOL area forever, paying crazy amounts of federal and state income taxes (46% marginal and around 40% effective).  If the net worth takes a dive, then we can always move to a LCOL area and still be fine.  I keep 7 figures in cash equivalents, so that is safe money that is off the table.  And our investment real estate income feels similar to a fixed income tax free bond, relatively safe compared to stocks.  But then we also have large sums of money in the market, and I continue to invest in the stock market every month on autopilot, despite the extreme valuation.  However, these days when extra cash comes in, I am allocating that to paying off the last of the debt on our real estate investments, even though our remaining loans are only about 14% of the market value of the real estate.
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                          I think part of my problem is that the real estate is very low yielding. It is not a conventional portfolio unfortunately, which I need to convert it to over time. I had rationalised that I needed more cash to buffer that higher risk but as I've delevered (paid off loans) I probably don't need as much cash. I am not sure if this will turn out to be the right thing, but I sold income producing real estate to retire debt so I could more comfortably hold a large vacant land holding. My goal is to hold this until it gets rezoned which I think there is a very high probability of in the next 3 years.

                          I could keep the vacant land and build warehouses. This would mitigate the holding cost and allow me to hold for another 10 years, and have a higher return eventually,but with the risk of borrowing.

                          Comment


                          • #28




                            You have won the game.  Maybe you enjoy playing.  I know from your previous posts that you have done great with real estate and not so well with stock market leverage.  One million in cash in tax deferred is ok if you sleep well.  One advantage is it does de risk your life. Another advantage is since it is not going to grow very much you will not face monster RMDs at 70.5.  If it was me I would invest at least some of it.  You could start with 100k/month until you got to the allocation you are comfortable with.  I think having the cash in a taxable account would be more useful for emergencies.  I have about $250k in cash equivalents myself.
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                            Thanks very much for your thoughts. That is sound advice as usual Hatton. I think I will allocate 500k in the retirement account to 70(stocks):30(bonds) and leave the rest in cash. I will gradually pay off the rest of the debt in the taxable account and one day might get a cash equivalent in the taxable.

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                            • #29
                              I too have significant cash on hand, though not in retirement accounts. On many occasions I wonder at the beautiful market returns passing me by and wonder if I should have invested in stocks. But then I realize that it is in cash mainly because of my style of investing and I cannot afford to have a market downturn just as I needed the cash.

                              I don't understand why you cashed a retirement account rather than a taxable account. If you don't need it for another 10+ years, why not just invest it in equities. You can always fine tune your real estate to make that an income producing stream to supplement your medical income when you slow down and make it your main source of income when you quit.

                              At $13M+ wealth you are unlikely to be in the poorhouse at any time.

                               

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                              • #30




                                If you’re worried about missing on any upside, options might be a better route at this juncture.

                                I wouldn’t count on limit orders being filled if the markets are disrupted. When it comes, it will be sudden. The markets will be limit down before you know it. Like a black hole just opened up below the markets and sucked everything into its maw.
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                                I have this fear I'll wake up and everything will be worth zero. But I also have this dream I wake up back in medical school and come to an exam completely unprepared and get kicked out of medical school.

                                Or another dream where I go to work without any pants on and realise I'm not wearing underpants.

                                I think options are not the answer though.

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