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How are people investing EOY production bonus (not getting a tesla)

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  • How are people investing EOY production bonus (not getting a tesla)

    Hey Everyone - long time follower of the blog, first time poster. A little about my situation:

    34, hospital employed specialist, single no dependants ( with no plans for kids), MCOL area, entering 5th year of practice. I am very happy with my level of spending and see no need right now to increase my spending.

    Income: 520k annually pre tax as base salary with wRVU production bonus (this is the first year I will get a bonus, thanks to practice building).
    Savings Rate: ~ 160k / year split between IRA, HSA, 403b / 457 and taxable, invested in low cost total US market/total international / small cap value index funds
    Liabilities: Home ( 300k on mortgage, 30 yr 3 % interest rate but paying off as if it was a 10 year loan with extra payments) Car (18K loan at 0.5% interest), no other debt thanks to scholarships and luck
    Assets: ~ 1.3 million in index fund mix between by retirement and taxable accounts, ~150k in short term (money market or similar - i know - I like having it available in case i decide to walk from my job - gives me piece of mind). I have ~ 300k in home equity at current housing valuations.
    Plan: work full time for another decade or so, then transition to part time or admin role, assuming 50% pay cut and maintaining current lifestyle to retirement at 55-60ish. I have a partner who works and we have separate finances with no plan to marry.

    The bonus - this year my production bonus will be somewhere in the 220-300k range pre-tax. Our fiscal year ends in july and my productivity has skyrocketed over the last few months which is why I am giving such a large range. I do not anticipate this to be a long term thing as we are hiring a new doc next year to help, likely the bonus will be ~ 75-100k /yr in the future.

    I want to push all the bonus into my index funds, especially if the market is in a correction at the time i get my bonus...
    my big questions:
    1. should I dump it all in at once, or should I spread it across some time period (3-6 months?)
    2. Right now I am approx 80% total US Stock, 10% small cap value, 10% total international... would anyone use this to try to tilt my index funds a certain way or do you think that is a good mix?

    Thanks for the collective wisdom everyone!

  • #2
    Only tilt if you want to tilt. Your asset allocation right now is fine.

    I’d dump 75-80% into taxable and I’d use 20-25% to treat myself whether that be some upgrades for the home, multiple trips, etc.

    Also, just get rid of your car loan.

    Comment


    • #3
      The right answer is to dump it in as a lump sum. Logic is that the market trends up over time so small variations this year will not matter in the long run. However, there is always a bit of anxiety over this decision and there is nothing wrong with dollar cost averaging it in over the course of a year. Just bear in mind that timing the market is hard.

      Your mix of funds is fine. If that is what you decided on for some reason, absolutely OK to just stick with that AA.

      On the other hand, since you asked, I would say your small value tilt is unlikely to matter since the US total stock market fund covers small value as well. Regarding the international my view is that you should have a higher allocation if your intent is to diversify outside the US market. So, regarding your new money, if it were me, I'd use it up the international stocks to ~30% of my overall stock allocation. If there is some left over, put it into the US total market fund.

      Comment


      • #4
        Thank you both!

        Comment


        • #5
          Originally posted by Larry Ragman View Post
          On the other hand, since you asked, I would say your small value tilt is unlikely to matter since the US total stock market fund covers small value as well.
          As you say, small value is already included in total market, but that doesn’t mean that tilting more won’t matter.

          This would only be true if small value returns were equal to total market returns—not higher, not lower.

          So in reality, it is almost certain to matter. The direction and magnitudes are the questions.

          At 10% tilt, I agree the effect will be fairly small barring massive and sustained under/overperformance, but there will inherently be an effect.

          Comment


          • #6
            To OP—dump it all in at once and keep your reasonable AA.

            I also overweight small/value and underweight international.

            Comment


            • #7
              Originally posted by vxk View Post
              Hey Everyone - long time follower of the blog, first time poster. A little about my situation:

              34, hospital employed specialist, single no dependants ( with no plans for kids), MCOL area, entering 5th year of practice. I am very happy with my level of spending and see no need right now to increase my spending.

              Income: 520k annually pre tax as base salary with wRVU production bonus (this is the first year I will get a bonus, thanks to practice building).
              Savings Rate: ~ 160k / year split between IRA, HSA, 403b / 457 and taxable, invested in low cost total US market/total international / small cap value index funds
              Liabilities: Home ( 300k on mortgage, 30 yr 3 % interest rate but paying off as if it was a 10 year loan with extra payments) Car (18K loan at 0.5% interest), no other debt thanks to scholarships and luck
              Assets: ~ 1.3 million in index fund mix between by retirement and taxable accounts, ~150k in short term (money market or similar - i know - I like having it available in case i decide to walk from my job - gives me piece of mind). I have ~ 300k in home equity at current housing valuations.
              Plan: work full time for another decade or so, then transition to part time or admin role, assuming 50% pay cut and maintaining current lifestyle to retirement at 55-60ish. I have a partner who works and we have separate finances with no plan to marry.

              The bonus - this year my production bonus will be somewhere in the 220-300k range pre-tax. Our fiscal year ends in july and my productivity has skyrocketed over the last few months which is why I am giving such a large range. I do not anticipate this to be a long term thing as we are hiring a new doc next year to help, likely the bonus will be ~ 75-100k /yr in the future.

              I want to push all the bonus into my index funds, especially if the market is in a correction at the time i get my bonus...
              my big questions:
              1. should I dump it all in at once, or should I spread it across some time period (3-6 months?)
              2. Right now I am approx 80% total US Stock, 10% small cap value, 10% total international... would anyone use this to try to tilt my index funds a certain way or do you think that is a good mix?

              Thanks for the collective wisdom everyone!
              No. I'd just follow my plan, whether the money comes from salary, bonus, inheritance, dividends, capital gains, or anything else. My plan is to invest money as soon as I have it and to follow my chosen asset allocation (60% stocks, 20% bonds, 20% real estate) through thick and thin.

              It's only scary to buy $200K of stocks at once the first few times. After that it's just a chore you do just like you buy $10K of stocks.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

              Comment


              • #8
                Originally posted by bovie View Post

                As you say, small value is already included in total market, but that doesn’t mean that tilting more won’t matter.

                This would only be true if small value returns were equal to total market returns—not higher, not lower.

                So in reality, it is almost certain to matter. The direction and magnitudes are the questions.

                At 10% tilt, I agree the effect will be fairly small barring massive and sustained under/overperformance, but there will inherently be an effect.
                I’m ok with a modification to:”it won’t matter very much, and it is difficult to predict the effect.”

                Comment


                • #9
                  A lot of us get lumpy income. That us the beauty of an asset allocation and use of broad index funds. Any extra money get dumped in your account according to the plan.

                  For years, this bolus investing will keep you from having to do much rebalancing - just balance with new money. Eventually you will have too much to be able to do that.

                  Comment

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