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  • Options for $100k windfall

    I received a winfall of around $100k last year and while waiting to decide what to do with it just stuck it in a "high yield" savings account. Throughout 2019 I watched the interest rate on that account fall from 2.5% to 1.7% I'm still not exactly sure what I want to do with the money but plan to use nearly all of it for retirement savings/long term investing. I'm 37 with 4 kids who I anticipate will go to college, but their grandparents have already started a 529 plan for them and I don't anctipate helping them with costs much beyond with they already have there. I'm already maxing all tax favored retirement accounts prior to receiving windfall. I have about $121k left on my mortgage (only debt) with an interest rate around 3.25%

    Options that I can think of are:
    1. Pay down/pay off mortgage
    2. Lump sum deposit into a taxable investment account with Vanguard
    3. Dollar cost average into a taxable, maybe contribute $5k/month?
    4. Keep it in high yield savings and try to time the market before doing 2 or 3. Recession coming any day now, right?

    For some reason I'm drawn to the idea of investing it conservatively in the Vanguard "Target Retirement Income" fund designed for people already in retirment which has average a little over 5% returns since its inception in 2003. Not sure why I'm drawn to this other than my thought of an impending recesion and the idea that if other investment opportunities (ie real estate) I would like to be able to pull out a portion of the amount if needed.

    Any other thoughts or perspectives?

  • #2
    Your overall AA is should include taxable and retirement accounts. Your preference for a target fund or real estate simply indicates an emotional response of “flight to safety”. Rethink your total AA and IPS. TDF is not bad in itself, but it isn’t the appropriate tool to adjust your AA.

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    • #3
      What is your current asset allocation?
      Lump sum taxable likely the answer

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      • #4
        Assuming that you already have an emergency fund, you should look at the kids college funds to make certain that they are adequately funded. You have 4 children and I assume that you will not be getting much in the way of financial aid based upon your salary and assets. If you are satisfied there, I agree that just placing the funds in a taxable account is probably the way to go. If you don't want to invest it into the market due to worries of an impending correction, paying off your mortgage would not be a bad answer either.

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        • #5
          You sound quite risk averse.

          Maybe split the funds into parts, apply some portion of the money to mortgage pay down, and then invest the rest. Maybe your asset allocation for investments should include some cash/bonds as well as stocks, again since you are very risk averse.

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          • #6
            In a similar situation we took a vacation and put the rest in the Vanguard intermediate muni fund. This had two purposes. First, it balanced my overall AA, which was heavy stocks; second, it is most of my “next house” fund for retirement. I admit, I would not be adverse to taking advantage of a significant drop in the stock market but that would just be icing on the cake. I’m good with the money in bonds.

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            • #7
              What is the AA for your retirement funds now?

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              • #8
                Taxable or mortgage, depending on what kind of risks you want to take.

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                • #9
                  childay Lordosis AA currently is 60% pre-tax 40% roth with the plan to contribute mainly to the roth 403b in the coming years, and backdoor roths for myself and my wife. I also began maxing HSA as a retirement account about 18 months ago and have about $15k there. No other assets other than the equity in my primary residence, about $80k.

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                  • #10
                    Don't collar cost average. (Time in the market.)

                    Don't time the market. (Nobody knows nothing.)

                    Your mortgage interest rate doesn't sound high. I personally wouldn't pay down that mortgage.

                    I'd load the 529 plans. Even without their ages, 4 children going to school sounds like lots of money. Worst case scenario you pay income tax & penalties to pull it out. Like a taxable account with a penalty. So all hope isn't lost, & you did skip taxes along the way.

                    Otherwise, dump/lump sum into a taxable account. Depending on your risk tolerance for funds.
                    "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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                    • #11
                      Originally posted by jjustinw View Post
                      childay Lordosis AA currently is 60% pre-tax 40% roth with the plan to contribute mainly to the roth 403b in the coming years, and backdoor roths for myself and my wife. I also began maxing HSA as a retirement account about 18 months ago and have about $15k there. No other assets other than the equity in my primary residence, about $80k.
                      Asset allocation isn’t what percentage is in each account, it’s what percentage (of all combined accounts) you want in stocks, bonds, etc. Do you have this formulated? If so, do option 2 (preferable) or option 3 (except I would do at least $10k/month if that’s the option I chose). If you don’t have your goal AA formulated, it would be a good time to develop a personal investment policy statement to help guide you.

                      As an aside, what’s your marginal tax rate? If you’re a physician or other high earning professional (you mention having to do backdoor Roths) then the Roth 403b probably isn’t the best choice in your situation.

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                      • #12
                        I am a believer in splitting things up. Take 50k and buy down the mortgage. Then open a taxable account. At your age 80/20 would be a reasonable allocation (stocks/bonds). I use the Vanguard intermediate muni fund for the taxable account.

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                        • #13
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                          • #14
                            Originally posted by jjustinw View Post
                            I received a winfall of around $100k last year [...] I'm still not exactly sure what I want to do with the money but plan to use nearly all of it for retirement savings/long term investing.
                            Any other thoughts or perspectives?
                            if you want better answers fill this out: https://www.bogleheads.org/forum/viewtopic.php?t=6212

                            Comment


                            • #15
                              Peds offer is valuable, fill it out. A lot of suggestions need to actually fit with your overall financials results. A plan to save for retirement that is tax efficient, reasonable savings rate and fits your risk tolerance cannot be handled in pieces. You have a $100k windfall, how to put it to best use depends on the total puzzle, not just how to invest it. With your mortgage, it’s not a problem and it could be advantageous to keep it.
                              Or it might be better to reduce your cash flow to hit a retirement savings rate or catch-up on a shortfall. Fill it out would be the best option.

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