Where to invest 500k?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Where to invest 500k?

Post by pseudometrix »

Situation -
Age - 45
Net worth - 600k
Annual combined Income - 180K
Debt - 300k at 3.9% for 30 years primary home
Cash - 500k

We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.

I took a sabbatical for 2 years and went back to school.
Expected to make (combined) > 800k in a year.

Do I invest all my monies in VTSAX currently?
User avatar
arcticpineapplecorp.
Posts: 8229
Joined: Tue Mar 06, 2012 9:22 pm

Re: Where to invest 500k?

Post by arcticpineapplecorp. »

depends.

how much risk do you have the need, ability and willingness to take?

have you figured your maximum tolerable loss?

these are how various allocations fared in 1973-1974:

Image

have you read this:

https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/

https://www.bogleheads.org/wiki/Asset_allocation
Last edited by arcticpineapplecorp. on Thu Jun 17, 2021 2:06 pm, edited 1 time in total.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events.
rockAction
Posts: 155
Joined: Wed Apr 08, 2020 4:56 pm

Re: Where to invest 500k?

Post by rockAction »

Some considerations:
1) Pay down mortgage
2) Establish an emergency fund of at least 3-6 months expenses, perhaps in a HYSA
3) Max out I-Bonds and EE Bonds. At age 45, EE Bonds could be attractive to help bridge the gap from 65-70 and allow you to delay SS until age 70. EE bonds double if held for 20 yrs. I-bonds are paying 3.54% at the moment.
4) Decide on AA and put into a 3-fund portfolio
5) At your high tax bracket, if these funds are in a taxable account, consider using Munis instead of Total Bond
33% VTI | 22% VXUS | 23% VGIT | 20% TIPS | 2% CASH || Age 45 | Semi-Retired
wetgear
Posts: 366
Joined: Thu Apr 06, 2017 10:14 am

Re: Where to invest 500k?

Post by wetgear »

pseudometrix wrote: Wed Jun 16, 2021 1:40 pm Debt - 300k at 3.9% for 30 years primary home
:shock: Yikes, pay that off and invest the rest in VTSAX or atleast refi to a rate ~ 1/2 of that and pay some of it down.

For better and more complete advice try posting with more details in this format: viewtopic.php?f=1&t=6212
User avatar
Metsfan91
Posts: 270
Joined: Sat Jan 11, 2020 12:33 pm

Re: Where to invest 500k?

Post by Metsfan91 »

pseudometrix wrote: Wed Jun 16, 2021 1:40 pm
We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.

Do I invest all my monies in VTSAX currently?
Yes, VTSAX. All of it... You can pay off (if you wish) your mortgage from your annual income.
“Time is your friend; impulse is your enemy.” — John C. Bogle
Marseille07
Posts: 4607
Joined: Fri Nov 06, 2020 1:41 pm

Re: Where to invest 500k?

Post by Marseille07 »

I would pay down the mortgage if I were you.
User avatar
Noobvestor
Posts: 5860
Joined: Mon Aug 23, 2010 1:09 am

Re: Where to invest 500k?

Post by Noobvestor »

Metsfan91 wrote: Wed Jun 16, 2021 8:56 pm
pseudometrix wrote: Wed Jun 16, 2021 1:40 pm
We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.

Do I invest all my monies in VTSAX currently?
Yes, VTSAX. All of it... You can pay off (if you wish) your mortgage from your annual income.
VTWAX - no reason to skip over geographical, political and economic diversification. It's right there.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Hyperchicken
Posts: 822
Joined: Mon Mar 02, 2020 5:33 pm

Re: Where to invest 500k?

Post by Hyperchicken »

pseudometrix wrote: Wed Jun 16, 2021 1:40 pm We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.
...
Do I invest all my monies in VTSAX currently?
Does this mean you sold at the bottom? That would tie into whether you want to be 100% in the stock market.
Outer Marker
Posts: 1975
Joined: Sun Mar 08, 2009 8:01 am

Re: Where to invest 500k?

Post by Outer Marker »

1. Pay off the mortgage
2. $50 K in cash
3. $150K according to your overall AA.
mikejuss
Posts: 1032
Joined: Tue Jun 23, 2020 1:36 pm

Re: Where to invest 500k?

Post by mikejuss »

Do you have any large purchases planned, OP? If so, I'd keep the funds for them in cash, and invest the balance in VTSAX and VBTLX, according to your preferred asset allocation. You might also try to refinance your mortgage, to slice off a point on the interest.

Did I read you post correctly: you plan on going from a household income of $180,000 to $800,000? How certain is that?
BadgerInBerkeley
Posts: 9
Joined: Thu Jun 10, 2021 8:34 am

Re: Where to invest 500k?

Post by BadgerInBerkeley »

Agree with this others that suggest refi and invest the money. VTSAX is fine or a three fund. Do this as long as you have a > 10-15 year time horizon for the money (ideally 20+).

Indeed, the 800k statement is confusing because of your pre-break income. If you are on track for that pay raise, then cheers to you! Tell us your secret! And that makes this decision even easier, because your earnings will easily enable a comfortable lifestyle while aggressively investing.
JustGotScammed
Posts: 72
Joined: Fri Jun 09, 2017 10:16 pm

Re: Where to invest 500k?

Post by JustGotScammed »

Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
mikejuss
Posts: 1032
Joined: Tue Jun 23, 2020 1:36 pm

Re: Where to invest 500k?

Post by mikejuss »

JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
How's that work?
User avatar
David Jay
Posts: 11327
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Where to invest 500k?

Post by David Jay »

JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
OP is working and likely in the 35% tax bracket. Why would they want unqualified interest income? Income from qualified sources is taxed at LT capital gains tax rates.

(I understand that your strategy produces a nice income stream, but it is not appropriate for the OP’s life stage)
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
JustGotScammed
Posts: 72
Joined: Fri Jun 09, 2017 10:16 pm

Re: Where to invest 500k?

Post by JustGotScammed »

David Jay wrote: Thu Jun 17, 2021 1:18 pm
JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
OP is working and likely in the 35% tax bracket. Why would they want unqualified interest income? Income from qualified sources is taxed at LT capital gains tax rates.

(I understand that your strategy produces a nice income stream, but it is not appropriate for the OP’s life stage)
Because the growth rate of the dividends and capital gains will be significant that, even after paying taxes, there is still far more net wealth than a tax optimal strategy.
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Re: Where to invest 500k?

Post by pseudometrix »

Metsfan91 wrote: Wed Jun 16, 2021 8:56 pm
pseudometrix wrote: Wed Jun 16, 2021 1:40 pm
We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.

Do I invest all my monies in VTSAX currently?
Yes, VTSAX. All of it... You can pay off (if you wish) your mortgage from your annual income.
That exactly what I plan to do starting next year, regarding the mortgage.
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Re: Where to invest 500k?

Post by pseudometrix »

Noobvestor wrote: Wed Jun 16, 2021 10:24 pm
Metsfan91 wrote: Wed Jun 16, 2021 8:56 pm
pseudometrix wrote: Wed Jun 16, 2021 1:40 pm
We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.

Do I invest all my monies in VTSAX currently?
Yes, VTSAX. All of it... You can pay off (if you wish) your mortgage from your annual income.
VTWAX - no reason to skip over geographical, political and economic diversification. It's right there.
Good point!
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Re: Where to invest 500k?

Post by pseudometrix »

mikejuss wrote: Thu Jun 17, 2021 7:40 am Do you have any large purchases planned, OP? If so, I'd keep the funds for them in cash, and invest the balance in VTSAX and VBTLX, according to your preferred asset allocation. You might also try to refinance your mortgage, to slice off a point on the interest.

Did I read you post correctly: you plan on going from a household income of $180,000 to $800,000? How certain is that?
I do not have any large purchases planned for the next 2 years.
I think of stocks and ETF/mutual funds as cash equivalents, settlement comes in 3-5 days.

Wife currently makes 80k.
I currently make 100+k.
We both are in school.
New position for my wife pays 140k, new position for me pays 600-700k.
Was making 350-400k before taking this sabbatical to learn new skills.
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Re: Where to invest 500k?

Post by pseudometrix »

BadgerInBerkeley wrote: Thu Jun 17, 2021 8:05 am Agree with this others that suggest refi and invest the money. VTSAX is fine or a three fund. Do this as long as you have a > 10-15 year time horizon for the money (ideally 20+).

Indeed, the 800k statement is confusing because of your pre-break income. If you are on track for that pay raise, then cheers to you! Tell us your secret! And that makes this decision even easier, because your earnings will easily enable a comfortable lifestyle while aggressively investing.
Just got lucky, after years of struggling to make ends meet.
Bought a cheap house, saved a lot.
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Re: Where to invest 500k?

Post by pseudometrix »

Hyperchicken wrote: Wed Jun 16, 2021 11:25 pm
pseudometrix wrote: Wed Jun 16, 2021 1:40 pm We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.
...
Do I invest all my monies in VTSAX currently?
Does this mean you sold at the bottom? That would tie into whether you want to be 100% in the stock market.
I did. Couldn't sleep at night, so decided to take my money out.
I made like 20% in a year from my stocks.
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Re: Where to invest 500k?

Post by pseudometrix »

JustGotScammed wrote: Thu Jun 17, 2021 1:23 pm
David Jay wrote: Thu Jun 17, 2021 1:18 pm
JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
OP is working and likely in the 35% tax bracket. Why would they want unqualified interest income? Income from qualified sources is taxed at LT capital gains tax rates.

(I understand that your strategy produces a nice income stream, but it is not appropriate for the OP’s life stage)
Because the growth rate of the dividends and capital gains will be significant that, even after paying taxes, there is still far more net wealth than a tax optimal strategy.
Math checks out, but I do not need any additional cash, due to low expenditure.
And I like compound interest a lot.
User avatar
arcticpineapplecorp.
Posts: 8229
Joined: Tue Mar 06, 2012 9:22 pm

Re: Where to invest 500k?

Post by arcticpineapplecorp. »

JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
you're assuming the high dividend will continue into perpetuity. but upon further inspection, the high div yield between 6-8% only started in March 2019. Before that it was in the 4% and lower range:
https://www.marketbeat.com/stocks/NYSE/BTI/dividend/

Also, it's total return that matters (dividends can go away. And have you thought about why BAT has to offer such a high dividend yield? To entice investors to take the additional risk). Using data from PV, which goes back to 1993 because vtsax (formerly vtsmx) only goes back to around that time, BAT was way more volatile than the market but the risk didn't pay off "enough". Sure the return (CAGR) was higher, but 24.12% standard deviation vs. 15.05% for the market and BAT had lower risk adjusted returns by Sharpe and Sortino ratios (i.e., you took risk for which you weren't rewarded). In investing, you should only take a risk that is expected to yield a return:

Image

source: https://www.portfoliovisualizer.com/bac ... ion2_2=100
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events.
JustGotScammed
Posts: 72
Joined: Fri Jun 09, 2017 10:16 pm

Re: Where to invest 500k?

Post by JustGotScammed »

arcticpineapplecorp. wrote: Thu Jun 17, 2021 2:18 pm
JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
you're assuming the high dividend will continue into perpetuity. but upon further inspection, the high div yield between 6-8% only started in March 2019. Before that it was in the 4% and lower range:
https://www.marketbeat.com/stocks/NYSE/BTI/dividend/

Also, it's total return that matters (dividends can go away. And have you thought about why BAT has to offer such a high dividend yield? To entice investors to take the additional risk). Using data from PV, which goes back to 1993 because vtsax (formerly vtsmx) only goes back to around that time, BAT was way more volatile than the market but the risk didn't pay off "enough". Sure the return (CAGR) was higher, but 24.12% standard deviation vs. 15.05% for the market and BAT had lower risk adjusted returns by Sharpe and Sortino ratios (i.e., you took risk for which you weren't rewarded). In investing, you should only take a risk that is expected to yield a return:

Image

source: https://www.portfoliovisualizer.com/bac ... ion2_2=100
Unfortunately, you are making the classic elementary mistake of equating volatility with risk. British American not only outperforms historically, but pays shareholders boatloads of cash, and to boot, it is the cheapest stock in the market right now. Once it returns to $100+, the outperformance will be even more exaggerated.

Word to the wise. Don't complain in 15 years someone didn't tell you how to get rich and drown in cash.
User avatar
David Jay
Posts: 11327
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Where to invest 500k?

Post by David Jay »

JustGotScammed wrote: Thu Jun 17, 2021 1:23 pm
David Jay wrote: Thu Jun 17, 2021 1:18 pm
JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
OP is working and likely in the 35% tax bracket. Why would they want unqualified interest income? Income from qualified sources is taxed at LT capital gains tax rates.

(I understand that your strategy produces a nice income stream, but it is not appropriate for the OP’s life stage)
Because the growth rate of the dividends and capital gains will be significant that, even after paying taxes, there is still far more net wealth than a tax optimal strategy.
I don’t think so. At least not in the 35% tax bracket.

Per the chart that Arcticpineapple posted, long term BAT CAGR was 1.1% higher. But it yields over 7%, so tax drag is about 2.5% per year. VTSAX yields about 1.8%, but that is qualified so the tax rate is 20% for a tax drag is 0.9%. 2.5% - 0.9% = 1.6%, considerably more than the 1.1% pre-tax outperformance.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
wetgear
Posts: 366
Joined: Thu Apr 06, 2017 10:14 am

Re: Where to invest 500k?

Post by wetgear »

pseudometrix wrote: Thu Jun 17, 2021 1:25 pm
Metsfan91 wrote: Wed Jun 16, 2021 8:56 pm
pseudometrix wrote: Wed Jun 16, 2021 1:40 pm
We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.

Do I invest all my monies in VTSAX currently?
Yes, VTSAX. All of it... You can pay off (if you wish) your mortgage from your annual income.
That exactly what I plan to do starting next year, regarding the mortgage.
If this is your plan you should refinance your mortgage today.
Topic Author
pseudometrix
Posts: 15
Joined: Sat Nov 30, 2013 11:25 am

Re: Where to invest 500k?

Post by pseudometrix »

wetgear wrote: Thu Jun 17, 2021 3:20 pm
pseudometrix wrote: Thu Jun 17, 2021 1:25 pm
Metsfan91 wrote: Wed Jun 16, 2021 8:56 pm
pseudometrix wrote: Wed Jun 16, 2021 1:40 pm
We have 500k cash, that was in AMZN and TSLA, that I disinvested at the start of the pandemic.

Do I invest all my monies in VTSAX currently?
Yes, VTSAX. All of it... You can pay off (if you wish) your mortgage from your annual income.
That exactly what I plan to do starting next year, regarding the mortgage.
If this is your plan you should refinance your mortgage today.
Will contact a refinance person. Thanks
User avatar
arcticpineapplecorp.
Posts: 8229
Joined: Tue Mar 06, 2012 9:22 pm

Re: Where to invest 500k?

Post by arcticpineapplecorp. »

JustGotScammed wrote: Thu Jun 17, 2021 2:26 pm
arcticpineapplecorp. wrote: Thu Jun 17, 2021 2:18 pm
JustGotScammed wrote: Thu Jun 17, 2021 12:56 pm Take the $500,000 and purchase 12,500 shares of British American Tobacco stock. Then, enjoy life as you collect $9,250 checks every 90 days!
you're assuming the high dividend will continue into perpetuity. but upon further inspection, the high div yield between 6-8% only started in March 2019. Before that it was in the 4% and lower range:
https://www.marketbeat.com/stocks/NYSE/BTI/dividend/

Also, it's total return that matters (dividends can go away. And have you thought about why BAT has to offer such a high dividend yield? To entice investors to take the additional risk). Using data from PV, which goes back to 1993 because vtsax (formerly vtsmx) only goes back to around that time, BAT was way more volatile than the market but the risk didn't pay off "enough". Sure the return (CAGR) was higher, but 24.12% standard deviation vs. 15.05% for the market and BAT had lower risk adjusted returns by Sharpe and Sortino ratios (i.e., you took risk for which you weren't rewarded). In investing, you should only take a risk that is expected to yield a return:

Image

source: https://www.portfoliovisualizer.com/bac ... ion2_2=100
Unfortunately, you are making the classic elementary mistake of equating volatility with risk. British American not only outperforms historically, but pays shareholders boatloads of cash, and to boot, it is the cheapest stock in the market right now. Once it returns to $100+, the outperformance will be even more exaggerated.

Word to the wise. Don't complain in 15 years someone didn't tell you how to get rich and drown in cash.
i guess overconfidence bias is a real thing after all.

"predictions are difficult, especially about the future" -- Niels Bohr
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events.
Post Reply