Post Home Sale, Sitting on Cash but seems like bad time to invest?

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25feelingold
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Joined: Sat May 05, 2012 9:49 pm

Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by 25feelingold »

Hi All,

I was finally able to sell my home despite COVID drama, and now am sitting on 420k in cash. 220k in retirement accounts.

I'm single, 34, no debt. Renting month to month so I have flexibility if I'd lose my job or find a new one. Thanks to my income/budget, I'm currently saving roughly 2k a month to a retirement account (my contribution plus employer) and roughly 4k a month in savings. Generally conservative with my money, but also maybe too risk averse.

I'm not planning to buy another home in the short term or any large purchases... I'm generally healthy. Before putting most of my money into the house, I was following boglehead advice, and had a few index funds along with a bunch of apple stock.

When things were hitting the fan in March, I moved most of the money in my retirement accounts into cash or guaranteed income mutual funds and it's still sitting there.

Obviously, I made a huge mistake not recognizing that the economy and market were two different animals. But now, it seems the market is where it was before the crash, if not better (I'm concerned that it's also overvalued), and the economy still hasn't faced the real economic tolls of covid. Plus we have a hugely volatile election in a few weeks. Frankly, the idea that the market is so high, despite the country being in deep distress compared to the great position it was in in February, scares me.

[Political comment removed by admin LadyGeek]

QUESTIONS:

Is this a scenario where I should be patient, let the election drama play out and buy on the first real dip?

Since my money is really sitting in cash, should I be investing small percentages at a time?

Is buying $100k of APPL stock right now a horrible idea?

Is there some kind of "safe" investment that I should throw a huge chunk into in the meantime or should I stay flexible with cash?

If not now, when should I get back into the market? I know inflation is rising so I also don't like the idea the money is losing value...
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bertilak
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by bertilak »

25feelingold wrote: Wed Oct 14, 2020 11:18 am When things were hitting the fan in March, I moved most of the money in my retirement accounts into cash or guaranteed income mutual funds and it's still sitting there.

Obviously, I made a huge mistake ...

QUESTIONS:

Is this a scenario where I should ...
This is a scenario where you should learn from your last mistake: Don't try to outsmart Mr. Market. You will end up like the last time, holding the wrong bag.

By the way, there is nothing truly "safe" although many would say a 60/40 AA is not too dangerous.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
mega317
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by mega317 »

Yikes. So you have gotten murdered since March and apparently still haven't learned the lesson.

The typical answer there is no chance you or anyone else can successfully time the market. And I believe that. And you are exhibit A. However, even a broken clock is right twice a day i.e. any decision you make now has a chance of working out well for you. So no matter what happens, do not extrapolate the past to the future and don't mistake a good outcome for a good strategy.

1. No. You don't know who is going to win the election, and then you don't know what affect if any it will have on the market. I seem to remember a panic after hours on election night in 2016 but ultimately the market didn't do much. I'm looking now at daily SP500 prices and I can't even tell you which date it was. Also, the first real dip might not happen for a long time and then the bottom of the dip might not reach as low as current prices. Also how would you even know when the bottom was? What do you own in your 220k retirement accounts? If now is a bad time to own stocks then you better not have any stocks there either.

2. Well mathematically you should invest it all today. But that might not end up being the best decision and you are clearly set up for regret if things don't work out so in your case yes I would invest slowly. Not more than a year.

3. Yes.

4. Anything safe right now is not much better than cash so you'll just be spinning your wheels worrying about that.

5. Inflation is fine and that's not your biggest problem while you decide what to do for the long term.
Last edited by mega317 on Wed Oct 14, 2020 11:43 am, edited 1 time in total.
mega317
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by mega317 »

I forgot the ends of the **** sandwich.
You are young.
You seem to have a sense of your risk tolerance.
You have a lot of money.
Most importantly, you save a lot of money.

You are doing great. You need to internalize some investing lessons that you already seem to know on their face, and you'll be a very successful investor who reaches his/her goals just fine.
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dogagility
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by dogagility »

Well... it's good that you realized you made some very poor decisions in the recent past. However, the questions you are asking imply that you have not yet internalized the Boglehead method of investing.

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

I suggest you stay in cash until you develop a plan. Here's a place to start: https://www.bogleheads.org/wiki/Getting_started

Psychology is keeping you from investing wisely. Uncouple the news (panic-porn) from your investing decisions. Read the Boglehead wiki. Understand the market's history... especially how long it has taken to recover from a bear market. Make and execute the plan. Stay the course (especially this one).
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
KlangFool
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by KlangFool »

OP,

1) What is your annual expense?


2) How many years of expense in the emergency fund (CASH) and fixed income do you need to "Sleep Well At Night" (SWAN) if you are unemployed?


3) Pick an AA that you can SWAN.


4) Put all your retirement account money into one Target Retirement Fund.


5) Split the money in your taxable account into CASH, and Vanguard Lifestrategy Moderate Growth Fund (VSMGX).

Do not invest until you can convince yourself that you would not sell out on the next big stock market drop.


KlangFool
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Orbuculum Nongata
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by Orbuculum Nongata »

Being 34 with no debt and a 640k ish net worth is boglehead-like.

Not having an asset allocation/ip that you can stick with, regardless of current market conditions, is not. Without said allocation/ip you are likely to rinse and repeat. Re-evaluate your risk tolerance. <-This, btw, makes you owning 100K of any individual stock right now a horrible idea.

Best.
Potential - distraction = performance.
3funder
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by 3funder »

dogagility wrote: Wed Oct 14, 2020 11:46 am Well... it's good that you realized you made some very poor decisions in the recent past. However, the questions you are asking imply that you have not yet internalized the Boglehead method of investing.

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

I suggest you stay in cash until you develop a plan. Here's a place to start: https://www.bogleheads.org/wiki/Getting_started

Psychology is keeping you from investing wisely. Uncouple the news (panic-porn) from your investing decisions. Read the Boglehead wiki. Understand the market's history... especially how long it has taken to recover from a bear market. Make and execute the plan. Stay the course (especially this one).
+1
Global stocks, US bonds, and time.
Jack FFR1846
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by Jack FFR1846 »

I have a pretty easy answer.

Step #1, put ALL your money in and buy to your stated AA.

Step #2, write a long, un-rememberable password on a small piece of paper. Go change your account password.

Step #3, eat the paper. No, I am not kidding. You need to protect yourself from yourself.
Bogle: Smart Beta is stupid
bloom2708
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by bloom2708 »

Set aside cash to live on.
Set aside a 6-12 month Emergency Fund.
Invest the rest at 80-20.
Revisit 80-20 at age 50.
Max 401k type plan. Max Roth IRA. Max HSA. Use ESPP. Save extra in taxable.
Stop buying individual stocks. Total market index funds.
Don't buy a house unless you get married and/or have kids.
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ruralavalon
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by ruralavalon »

25feelingold wrote: Wed Oct 14, 2020 11:18 amObviously, I made a huge mistake not recognizing that the economy and market were two different animals. But now, it seems the market is where it was before the crash, if not better (I'm concerned that it's also overvalued), and the economy still hasn't faced the real economic tolls of covid. Plus we have a hugely volatile election in a few weeks. Frankly, the idea that the market is so high, despite the country being in deep distress compared to the great position it was in in February, scares me.

[Political comment removed by admin LadyGeek]

QUESTIONS:

Is this a scenario where I should be patient, let the election drama play out and buy on the first real dip?
In this scenario you should remember that you made a huge mistake trying to time the market.

Don't make the same mistake, invest your money now and stay invested.

What was your asset allocation (equity/fixed income mix) just before COVID struck? Pick a more conservative asset allocation, the classic 60/40 asset allocation might be good.

The Stable Value Fund in your employer's 401k plan might be good for a part of the fixed income allocation. What interest rate is paid by the Stable Value Fund? Is the rate guaranteed?

Did you have an emergency fund just before COVID struck? If so how much?

Keep a reasonable emergency fund in cash or equivalent. Then go right ahead and invest all the rest in your new asset allocation. Do not invest in individual stocks. 100% APPL is a horrible idea.
Last edited by ruralavalon on Wed Oct 14, 2020 12:49 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Money_Badger
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Location: Raleigh NC

Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by Money_Badger »

25feelingold wrote: Wed Oct 14, 2020 11:18 am Hi All,

I was finally able to sell my home despite COVID drama, and now am sitting on 420k in cash. 220k in retirement accounts.

I'm single, 34, no debt. Renting month to month so I have flexibility if I'd lose my job or find a new one. Thanks to my income/budget, I'm currently saving roughly 2k a month to a retirement account (my contribution plus employer) and roughly 4k a month in savings. Generally conservative with my money, but also maybe too risk averse.

I'm not planning to buy another home in the short term or any large purchases... I'm generally healthy. Before putting most of my money into the house, I was following boglehead advice, and had a few index funds along with a bunch of apple stock.

When things were hitting the fan in March, I moved most of the money in my retirement accounts into cash or guaranteed income mutual funds and it's still sitting there.

Obviously, I made a huge mistake not recognizing that the economy and market were two different animals. But now, it seems the market is where it was before the crash, if not better (I'm concerned that it's also overvalued), and the economy still hasn't faced the real economic tolls of covid. Plus we have a hugely volatile election in a few weeks. Frankly, the idea that the market is so high, despite the country being in deep distress compared to the great position it was in in February, scares me.

[Political comment removed by admin LadyGeek]

QUESTIONS:

Is this a scenario where I should be patient, let the election drama play out and buy on the first real dip?

Since my money is really sitting in cash, should I be investing small percentages at a time?

Is buying $100k of APPL stock right now a horrible idea?

Is there some kind of "safe" investment that I should throw a huge chunk into in the meantime or should I stay flexible with cash?

If not now, when should I get back into the market? I know inflation is rising so I also don't like the idea the money is losing value...
I'm no tax expert at all, but you could be looking at a hefty tax bill on the profits. Any profit over 250K is subject to capital gains (for a single individual) is my understanding.

I'd at least look into that. I'm sure someone with more tax expertise can weigh in.

Edit: Maybe I'm misunderstanding the OP says he has 420K in cash and 220K in retirement, or perhaps he means 420K total, of which 220 is in retirment??
Affable at 50
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by Affable at 50 »

OP,

At 34 years old, sitting on a boat load of cash, and having a solid savings mentality, you are in position to reset your goals and plan a path forward. There are are many good suggestions above. If none of them convince you what your next steps should be, I would highly recommend the book The Little Book of Commonsense Investing, by John C. Bogle. It is full of lessons that would be valuable for any investor looking for direction.

Take some time to develop an Investor Policy Statement that addresses you financial goal, risk appetite, and desired asset allocation.

Continue to max out your retirement accounts while you work on the suggestions above. Regardless of what investments you chose to employ for your 401k and IRA’s the one thing that is certain you’ll never be able to make up for lost time for contributing to retirement accounts that limit your annual contributions.
Topic Author
25feelingold
Posts: 19
Joined: Sat May 05, 2012 9:49 pm

Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by 25feelingold »

Thank you all for your tough love. This is the kind of reality check I need. I just ordered the Little Book of Commonsense Investing and I'll take a deep look into the "Getting Started" forum. I do think psychology is holding me back. I'll try to come up with an AA that makes sense for my age and go from there.

(Thankfully all taxes on the house sale have been paid (it's not over the 250k capital gains mark)...

So would it make sense for me to keep a running 50k in savings as an emergency fund... (as additional savings comes in every month, continue investing it). Then throw the remaining 590k into the correct asset allocation?

And am I trying to replicate the exact same asset allocation in non-retirement money as in retirement money? (reminder, the majority of my money is in a retirement account that only allows for a select few mutual funds -- but that includes the main index fund types)
KlangFool
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by KlangFool »

25feelingold wrote: Wed Oct 14, 2020 1:57 pm Thank you all for your tough love. This is the kind of reality check I need. I just ordered the Little Book of Commonsense Investing and I'll take a deep look into the "Getting Started" forum. I do think psychology is holding me back. I'll try to come up with an AA that makes sense for my age and go from there.

(Thankfully all taxes on the house sale have been paid (it's not over the 250k capital gains mark)...

So would it make sense for me to keep a running 50k in savings as an emergency fund... (as additional savings comes in every month, continue investing it). Then throw the remaining 590k into the correct asset allocation?

And am I trying to replicate the exact same asset allocation in non-retirement money as in retirement money? (reminder, the majority of my money is in a retirement account that only allows for a select few mutual funds -- but that includes the main index fund types)
25feelingold,

<<I was finally able to sell my home despite COVID drama, and now am sitting on 420k in cash. 220k in retirement accounts.>>

This statement is false. The majority of your money is NOT in the retirement account.


<<And am I trying to replicate the exact same asset allocation in non-retirement money as in retirement money?>>


You need to answer the FIRST question first. Can you handle the 3-funds portfolio? Aka, can you REBALANCE when the market crashes? You had failed that test in March. Hence, you may need to use ONE fund in the retirement account and ONE fund in your taxable account until you are sure that you can rebalance when the stock drops 50%.

In my opinion, you should start with ONE fund for a few years before you move on to something else.

KlangFool
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k1982
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by k1982 »

I had the same issue with my mom lump sum cash she was sitting on....
very volatile market now

I talked to her about it and told her all the scenarios that are involved. She is very new to investing.

We came out with a plan and no matter what...we are going to follow it. It's not perfect. There is no such thing as a perfect plan...
just keep it simple and what you can sleep with at nights

we put the lump sum in a money market fund at Vanguard

and starting next week (every Tuesday) for 20 weeks she will make 5% AUTOMATIC investment (from her money market fund)
into the VBIAX 60/40.
So around March 2021 her lump sum with be fully in the market ...spread out evenly
Topic Author
25feelingold
Posts: 19
Joined: Sat May 05, 2012 9:49 pm

Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by 25feelingold »

I love this concept... Thanks for this idea.
Topic Author
25feelingold
Posts: 19
Joined: Sat May 05, 2012 9:49 pm

Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by 25feelingold »

KlangFool

I understand your broader points. And will need to think over your questions.

As per the retirement account reasoning--I wasn't being specific enough. I have 4 different retirement accounts from various jobs. I intended to make the point that 150k plus and growing of the 220k total is in my current jobs plan which allows for the least amount of choice in mutual funds. The other three plans/rollovers allows me to purchase most anything.
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dogagility
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by dogagility »

25feelingold wrote: Wed Oct 14, 2020 3:11 pm As per the retirement account reasoning--I wasn't being specific enough. I have 4 different retirement accounts from various jobs. I intended to make the point that 150k plus and growing of the 220k total is in my current jobs plan which allows for the least amount of choice in mutual funds. The other three plans/rollovers allows me to purchase most anything.
If you would like specifics on a path forward from the forum, I suggest making a separate thread (or editing your first post in this thread) using this format : viewtopic.php?t=6212
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
KlangFool
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by KlangFool »

25feelingold wrote: Wed Oct 14, 2020 3:11 pm KlangFool

I understand your broader points. And will need to think over your questions.

As per the retirement account reasoning--I wasn't being specific enough. I have 4 different retirement accounts from various jobs. I intended to make the point that 150k plus and growing of the 220k total is in my current jobs plan which allows for the least amount of choice in mutual funds. The other three plans/rollovers allows me to purchase most anything.

Just because you can buy anything, it does not mean you should.


I was 50% of VSMGX (Vanguard Lifestrategy Moderate Growth 60/40) and 50% Wellington Fund (65/35) across all my accounts for many years. Some folks stay in target retirement funds for their whole lives.

3-funds is not for everyone. Especially for anyone that sold in March.


KlangFool
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DesertDiva
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Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by DesertDiva »

3funder wrote: Wed Oct 14, 2020 12:04 pm
dogagility wrote: Wed Oct 14, 2020 11:46 am Well... it's good that you realized you made some very poor decisions in the recent past. However, the questions you are asking imply that you have not yet internalized the Boglehead method of investing.

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

I suggest you stay in cash until you develop a plan. Here's a place to start: https://www.bogleheads.org/wiki/Getting_started

Psychology is keeping you from investing wisely. Uncouple the news (panic-porn) from your investing decisions. Read the Boglehead wiki. Understand the market's history... especially how long it has taken to recover from a bear market. Make and execute the plan. Stay the course (especially this one).
+1
Another +1. Investment decisions should be filtered through these steps!
Topic Author
25feelingold
Posts: 19
Joined: Sat May 05, 2012 9:49 pm

Re: Post Home Sale, Sitting on Cash but seems like bad time to invest?

Post by 25feelingold »

Okay, I read the Bogle book and have been investing a lot of time in this forum.

I posted asking for new advice on a potential investing plan. I’m hoping I used the correct format for it to ask for advice:

viewtopic.php?p=5556190#p5556190
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