Investing a Windfall (Is My Plan Reasonable?)

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Topic Author
RickyGold
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Joined: Sun Jul 12, 2020 8:06 am

Investing a Windfall (Is My Plan Reasonable?)

Post by RickyGold »

At the suggestion of Sandtrap and others, I've edited this post to provide more information! Thank you!

Emergency funds: 1-year in expenses set aside.

Debt: No debt at all! House and cars are paid for!

Tax Filing Status: Married Filing Jointly

Tax Rate: 32% Federal

State of Residence: North Carolina

Age: Husband and wife are both 60-years old

Desired Asset allocation: 35% stocks / 65% bonds
Desired International allocation: 50% of stocks

Approximate size of your total portfolio: $3.2 million dollars (Tax-deferred: $2.3 million / Taxable: $920K)

Current assets:

Taxable
100% cash = $920K

Tax Deferred
Husband and wife both have their 401k’s and IRAs at Fidelity in a 35%/65% allocation. Total amount across all tax-deferred accounts is $2.3 million in the following funds:
• 18% Fidelity Total Stock Market Index Fund (FSKAX) (0.02%)
• 17% Fidelity Total International Index Fund (FTIHX) (0.06%)
• 65% Fidelity U.S Bond Index Fund (FXNAX) (0.03%)

Questions:
1. My wife and I have a approximately $920,000 windfall that we would like to invest in a taxable account with Fidelity. My wife works, but I am retired. Our asset allocation for our tax-deferred accounts is 35%/65% and we would like to do the same allocation with our taxable account. We are also comfortable with a 50% international allocation for the stock portion

Our brokerage account is with Fidelity, so we are thinking of investing as follows:

• $161K would be invested in FXAIX (Fidelity 500 fund)

• $161K would be invested in FSGGX (Fidelity International Ex-US Fund)

• For the remaining 65% fixed income, we would probably invest the remaining $598K in Bank CDs. We don’t like muni bonds, but would consider a Treasury bond fund, such as FUAMX.

To avoid the “Wash Sale Rule” we are intentionally using funds in taxable that would not be “substantially identical” to what is in our tax-deferred accounts. Also, we don’t like ETFs…they tend to make us look at our accounts a lot and we are tempted to trade. So for behavioral reasons, we prefer mutual funds.

Our question is….Does this investment plan for the $920K sound reasonable?

2. We are not sure if we would do a lump sum for the stock investments…with market at all-time high, we’re a little nervous about jumping all in. So we may invest half now, and the other half next year. We understand that lump sum beats dollar cost averaging (DCA) hands down…but, damn this market is awfully high. So if we invested half this year and half next year, is that reasonable?
Last edited by RickyGold on Sun Oct 17, 2021 9:56 am, edited 1 time in total.
whereskyle
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by whereskyle »

RickyGold wrote: Sat Oct 16, 2021 1:19 pm My wife and I have a $900,000 windfall and we are thinking of investing this as follows:

1. Wife and I are both 60 years old. My wife works, but I am retired. Our asset allocation for our tax-deferred accounts is 35/65 and we would like
to do the same allocation with our taxable account.

2. We use Fidelity, so we are thinking of the following stock funds for the 35% stock allocation, split between U.S. and International:

• $157, 500 would be invested in FXAIX (Fidelity 500 fund)

• $157, 500 would be invested in FSGGX (Fidelity International Fund)

3. For the remaining 65% fixed income, we would probably invest the remaining $585,000 in Bank CDs. We don’t like muni bonds, but would
consider a Treasury bond fund, such as FUAMX.

We are not sure if we would do a lump sum for the stock investments…with market at all-time high, we’re a little nervous about jumping all in. So we may invest half now, and the other half next year.

Does this plan sound reasonable?
While I don't have context for the rest of your financial situation, in a vacuum, yes, this sounds reasonable.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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anon_investor
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by anon_investor »

RickyGold wrote: Sat Oct 16, 2021 1:19 pm My wife and I have a $900,000 windfall and we are thinking of investing this as follows:

1. Wife and I are both 60 years old. My wife works, but I am retired. Our asset allocation for our tax-deferred accounts is 35/65 and we would like
to do the same allocation with our taxable account.

2. We use Fidelity, so we are thinking of the following stock funds for the 35% stock allocation, split between U.S. and International:

• $157, 500 would be invested in FXAIX (Fidelity 500 fund)

• $157, 500 would be invested in FSGGX (Fidelity International Fund)

3. For the remaining 65% fixed income, we would probably invest the remaining $585,000 in Bank CDs. We don’t like muni bonds, but would
consider a Treasury bond fund, such as FUAMX.

We are not sure if we would do a lump sum for the stock investments…with market at all-time high, we’re a little nervous about jumping all in. So we may invest half now, and the other half next year.

Does this plan sound reasonable?
Considering the already conservative 35/65 asset allocation, I would suggest to just lump sum. Otherwise your plan is pretty sound.
4nursebee
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by 4nursebee »

You can also likely get an appointment with a financial advisor at Fidelity and go over your situation.
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Jovby
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by Jovby »

RickyGold wrote: Sat Oct 16, 2021 1:19 pm
Does this plan sound reasonable?
Why so conservative at age 60? What is your purpose for this money?

65% is guaranteed to loose value thank to inflation. The remaining 35% has to grow at three times the rate of inflation just to preserve your capital.
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Sandtrap
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by Sandtrap »

RickyGold wrote: Sat Oct 16, 2021 1:19 pm My wife and I have a $900,000 windfall and we are thinking of investing this as follows:

1. Wife and I are both 60 years old. My wife works, but I am retired. Our asset allocation for our tax-deferred accounts is 35/65 and we would like
to do the same allocation with our taxable account.

2. We use Fidelity, so we are thinking of the following stock funds for the 35% stock allocation, split between U.S. and International:

• $157, 500 would be invested in FXAIX (Fidelity 500 fund)

• $157, 500 would be invested in FSGGX (Fidelity International Fund)

3. For the remaining 65% fixed income, we would probably invest the remaining $585,000 in Bank CDs. We don’t like muni bonds, but would
consider a Treasury bond fund, such as FUAMX.

We are not sure if we would do a lump sum for the stock investments…with market at all-time high, we’re a little nervous about jumping all in. So we may invest half now, and the other half next year.

Does this plan sound reasonable?
Some information is missing to get anything more than a generalized suggestion that might work well for others but perhaps not you.
For better and more contextual suggestions. . .
You can edit your post using the "pencil icon" to this format and data:
Portfolio Review Request
https://www.bogleheads.org/forum/viewt ... =1&t=6212
What are your existing funds, in taxable?, etc?
Why are you considering bank CD's?

There's nothing wrong with splitting your windfall investment into 2, 3, 4, monthly, yearly, etc. It's not an all or nothing and market conditions have nothing to do with it because that's not predictable. Whatever you feel comfortable with is fine. Statistically, in the past, lump sum has outperformed DCA, but, that was the past. Unless someone can predict the future.

Your plan is well thought out.

However, not knowing other information, it's difficult to know whether you "fixed" allocation might include:

Annuitization via SPIA (lump sum or laddered over time)
High Yield Fixed accounts
High Yield corporate bond index
Money Market
etc.

Point here is that the "fixed" distribution does not have to be "all" in bank cd's. It can be diversified into accessible cash in high yield bank accounts, money market, etc, etc. Depending on your needs which are not shown in your data given.

As far as your allocation. If it works for you and you are comfortable with it. Great!
Suggesting anything other than what you have and not knowing all of the data that is on a "portfolio review format" is . . . guessing.

Otherwise, what you have and are planning is good for you. No weaknesses. Great!
j :D
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Watty
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by Watty »

There is a wiki on investing a windfall if you have not seen it.

https://www.bogleheads.org/wiki/Managing_a_windfall

One of the big points is that it is good to park the money someplace real safe for six months while you get used to having the money and come up with a long term plan.

RickyGold wrote: Sat Oct 16, 2021 1:19 pm • $157, 500 would be invested in FXAIX (Fidelity 500 fund)
A low cost total stock market (US) index fund would be better than an S&P 500 index fund because it is slightly more diversified since it has mid size and small companies too. I did not look it up but as I recall a total stock market fund is about 80% the same as an S&P 500 index fund because they both own the same large companies stocks.

If this is in a taxable account it would also be tax efficient since the mutual fund would not be buying and selling stocks as they are added or removed from the S&P 500 Index fund.

As others have said your plan does not look bad but there is not enough information to know if it is a good plan since we do not know the rest of your situation so you should post that is the suggested format that someone linked to.

One thing I would suspect is that you might also have other retirement accounts like IRAs or a 401k. If so then you also need to look at your plans in conjunction with those so that you are holding your investments in the most tax efficient accounts. Typically this means trying to own all your fixed income investments in the retirement accounts and stocks in your taxable account. TIPS are generally best in retirement accounts because of the way the inflation adjustment is taxed each year. There is a wiki on this.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Other common questions are when you should start Social Security, if you should pay off a mortgage, or if you should do Roth conversions. Those all interact with your decision about how to invest the money.
RickyGold wrote: Sat Oct 16, 2021 1:19 pm My wife and I have a $900,000 windfall....
A few sort of random things;

Now that you have more money you should review your car insurance limits and make sure that you have an umbrella policy. Now that have more money you are more likely to be sued.

It would also be good to review your wills and related paperwork to make sure they are up to date and fit your current financial situation.

It is just me but my pet peeve is when people post about having a lot of money but they do not drive real safe cars. Car safety has improved a LOT especially since 2012 when ESC became required and a new side offset crash test was added. A lot of cars did not do well in that crash test so a lot of manufactures improved their designs. In the last few year a lot of cars also started having things like automatic braking, rear backup cameras, blind spot monitoring, and lots of other high tech safety features.

Now that you have that extra money you should really consider if your cars are reasonably safe. I'm not saying that you should buy an expensive car with all the safety bells and whistles but even something like a new Corolla or Camry will have a really good combination of safety features. The car markets are a bit crazy now but if you are a bit flexible and can wait a few months for delivery there are good cars available.

Here is a list of cars that got a top safety pick rating.

https://www.iihs.org/ratings/top-safety-picks
Topic Author
RickyGold
Posts: 74
Joined: Sun Jul 12, 2020 8:06 am

Re: Investing a Windfall (Is My Plan Reasonable?)

Post by RickyGold »

Watty wrote: Sun Oct 17, 2021 9:01 am There is a wiki on investing a windfall if you have not seen it.

https://www.bogleheads.org/wiki/Managing_a_windfall

One of the big points is that it is good to park the money someplace real safe for six months while you get used to having the money and come up with a long term plan.

RickyGold wrote: Sat Oct 16, 2021 1:19 pm • $157, 500 would be invested in FXAIX (Fidelity 500 fund)
A low cost total stock market (US) index fund would be better than an S&P 500 index fund because it is slightly more diversified since it has mid size and small companies too. I did not look it up but as I recall a total stock market fund is about 80% the same as an S&P 500 index fund because they both own the same large companies stocks.

If this is in a taxable account it would also be tax efficient since the mutual fund would not be buying and selling stocks as they are added or removed from the S&P 500 Index fund.

As others have said your plan does not look bad but there is not enough information to know if it is a good plan since we do not know the rest of your situation so you should post that is the suggested format that someone linked to.

One thing I would suspect is that you might also have other retirement accounts like IRAs or a 401k. If so then you also need to look at your plans in conjunction with those so that you are holding your investments in the most tax efficient accounts. Typically this means trying to own all your fixed income investments in the retirement accounts and stocks in your taxable account. TIPS are generally best in retirement accounts because of the way the inflation adjustment is taxed each year. There is a wiki on this.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Other common questions are when you should start Social Security, if you should pay off a mortgage, or if you should do Roth conversions. Those all interact with your decision about how to invest the money.
RickyGold wrote: Sat Oct 16, 2021 1:19 pm My wife and I have a $900,000 windfall....
A few sort of random things;

Now that you have more money you should review your car insurance limits and make sure that you have an umbrella policy. Now that have more money you are more likely to be sued.

It would also be good to review your wills and related paperwork to make sure they are up to date and fit your current financial situation.

It is just me but my pet peeve is when people post about having a lot of money but they do not drive real safe cars. Car safety has improved a LOT especially since 2012 when ESC became required and a new side offset crash test was added. A lot of cars did not do well in that crash test so a lot of manufactures improved their designs. In the last few year a lot of cars also started having things like automatic braking, rear backup cameras, blind spot monitoring, and lots of other high tech safety features.

Now that you have that extra money you should really consider if your cars are reasonably safe. I'm not saying that you should buy an expensive car with all the safety bells and whistles but even something like a new Corolla or Camry will have a really good combination of safety features. The car markets are a bit crazy now but if you are a bit flexible and can wait a few months for delivery there are good cars available.

Here is a list of cars that got a top safety pick rating.

https://www.iihs.org/ratings/top-safety-picks
Thanks Watty and I updated my post with more information upon advice from Sandtrap. After reading your post and others, I think I am on the right track. Many thanks!!
Topic Author
RickyGold
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Joined: Sun Jul 12, 2020 8:06 am

Re: Investing a Windfall (Is My Plan Reasonable?)

Post by RickyGold »

[Deleted duplicate post]
Last edited by RickyGold on Sat Oct 30, 2021 11:31 am, edited 1 time in total.
Topic Author
RickyGold
Posts: 74
Joined: Sun Jul 12, 2020 8:06 am

Re: Investing a Windfall (Is My Plan Reasonable?)

Post by RickyGold »

joverby wrote: Sat Oct 16, 2021 2:08 pm
RickyGold wrote: Sat Oct 16, 2021 1:19 pm
Does this plan sound reasonable?
Why so conservative at age 60? What is your purpose for this money?

65% is guaranteed to loose value thank to inflation. The remaining 35% has to grow at three times the rate of inflation just to preserve your capital.
We are very risk averse...the 2008 GFC and the COVID-19 Pandemic has made us jittery with our investments, so we are more bond-heavy (and now cash-heavy) than perhaps we need to be. But, 35/65 seems okay for us for now...though we have not ruled out increasing our stock allocation in the future.

Thanks!
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Watty
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by Watty »

RickyGold wrote: Mon Oct 18, 2021 4:44 am We are very risk averse...the 2008 GFC and the COVID-19 Pandemic has made us jittery with our investments, so we are more bond-heavy (and now cash-heavy) than perhaps we need to be.
You need to be careful about thinking that bonds and cash are risk free. They have a lot of inflation risk and interest rate risk. Bond funds will not not do well if (when?) interest rates rise. Even TIPS mutual funds will be impacted if interest rates go up.

You might consider buying some individual TIPS that you will hold to maturity for part of your bond asset allocation. They work best in retirement accounts because of the way they are taxed on the inflation adjustment each year.

Somewhere I read a quote that goes something like, "In investing you cannot avoid risk, you can only choose what type of risk to take.".
Topic Author
RickyGold
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Re: Investing a Windfall (Is My Plan Reasonable?)

Post by RickyGold »

Watty wrote: Mon Oct 18, 2021 9:24 am
RickyGold wrote: Mon Oct 18, 2021 4:44 am We are very risk averse...the 2008 GFC and the COVID-19 Pandemic has made us jittery with our investments, so we are more bond-heavy (and now cash-heavy) than perhaps we need to be.
You need to be careful about thinking that bonds and cash are risk free. They have a lot of inflation risk and interest rate risk. Bond funds will not not do well if (when?) interest rates rise. Even TIPS mutual funds will be impacted if interest rates go up.

You might consider buying some individual TIPS that you will hold to maturity for part of your bond asset allocation. They work best in retirement accounts because of the way they are taxed on the inflation adjustment each year.

Somewhere I read a quote that goes something like, "In investing you cannot avoid risk, you can only choose what type of risk to take.".
Excellent point, yes, I need to keep in mind that bonds/cash are not risk free and are affected by inflation risk and interest rate risk. Thanks for the suggestion about buying individual TIPS...I may also look into a TIPS fund....thanks again!
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