Investing hoarded cash

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slalom
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Investing hoarded cash

Post by slalom »

I know this is roughly similar to a ‘small windfall’ thread but usually the background of those situations is someone who doesn’t really invest and has other stuff to shore up first.

Basically family health and pandemic uncertainty had made me save all my ‘bonus’ cash the last bunch of years. With one family health item probably gone for the moment (almost lost my dad and thought i’d have to buy my mom a house and move her out to CA) and my pandemic paranoia waning, i probably want to start to adjust.

I have $350k in cash sitting in MM.

In my early 40s, already max 401k, do quite a bit of auto investing into taxable per month, have no non mortgage debt.

I have $230k left on the mortgage but i already pay $1000 extra per month of principal along with EOY lump sums and its scheduled to be paid off in 2025 as it is. No kids.

Id like to leave maybe $100k in cash as emergency fund, so working with $250k

So with all that said, I was thinking that i don’t personally feel that dropping it ALL into taxable investing (like VTSAX) right now is a great idea. My current plan is to change my monthly investing to autoinvest an additional $10000/mo in taxable until that pot runs out (realizing that this will include additional bonuses over those few years).

What other options should I explore?
delamer
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Re: Investing hoarded cash

Post by delamer »

None?

What you are planning to do sounds perfectly fine.

In the long run, research shows that you’d probably do slightly better by lump summing the whole $250,000. But as long as you have a strategy for investing it over time, you’re good-to-go.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Lmf1171
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Re: Investing hoarded cash

Post by Lmf1171 »

I would just pay off the mortgage now and then invest the mortgage payment, plus the extra $1000 you've been paying, into taxable.
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retiredjg
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Re: Investing hoarded cash

Post by retiredjg »

Seems like a fine plan as long as you make adjustments to maintain your overall stock to bond ratio.

I think a better plan would be to get this done faster though. This current plan will take several years to get all the money invested. If that is as fast as you can tolerate, I guess that's OK.
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tetractys
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Re: Investing hoarded cash

Post by tetractys »

Paying off the mortgage would be a quick zero risk high return move.
exodusNH
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Re: Investing hoarded cash

Post by exodusNH »

slalom wrote: Sat Dec 04, 2021 10:39 am I know this is roughly similar to a ‘small windfall’ thread but usually the background of those situations is someone who doesn’t really invest and has other stuff to shore up first.

Basically family health and pandemic uncertainty had made me save all my ‘bonus’ cash the last bunch of years. With one family health item probably gone for the moment (almost lost my dad and thought i’d have to buy my mom a house and move her out to CA) and my pandemic paranoia waning, i probably want to start to adjust.

I have $350k in cash sitting in MM.

In my early 40s, already max 401k, do quite a bit of auto investing into taxable per month, have no non mortgage debt.

I have $230k left on the mortgage but i already pay $1000 extra per month of principal along with EOY lump sums and its scheduled to be paid off in 2025 as it is. No kids.

Id like to leave maybe $100k in cash as emergency fund, so working with $250k

So with all that said, I was thinking that i don’t personally feel that dropping it ALL into taxable investing (like VTSAX) right now is a great idea. My current plan is to change my monthly investing to autoinvest an additional $10000/mo in taxable until that pot runs out (realizing that this will include additional bonuses over those few years).

What other options should I explore?
Pay the mortgage off. You now have an enormous amount of free cash flow per month to invest.

Invest $10,000 in I Bonds right now and $10,000 in January. That's $20k of your emergency fund.

Keep $80K as your cash emergency fund. $10k locally and the rest in a "high yield" savings account.

Invest the remaining $20k.
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BolderBoy
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Re: Investing hoarded cash

Post by BolderBoy »

slalom wrote: Sat Dec 04, 2021 10:39 amMy current plan is to change my monthly investing to autoinvest an additional $10000/mo in taxable until that pot runs out (realizing that this will include additional bonuses over those few years).
If I were going to DCA (which is what you are planning) I'd bump up the monthly autoinvest to $20k or more. You want to try to get DCAing done inside 12 months if you can tolerate that pace.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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riverant
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Re: Investing hoarded cash

Post by riverant »

Another vote to pay off the mortgage. Personally, I’d immediately invest in the market at my desired AA. If you aren’t comfortable doing that*, I think getting your guaranteed mortgage interest rate if FAR better than sitting on so much cash in a high inflation environment while you DCA.

*Evaluate your jitters as to why this might be. Is your AA too aggressive? If not, why are you comfortable with your current investment assets at that AA? How far off your target AA does 350k in cash place you?
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Alto Astral
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Re: Investing hoarded cash

Post by Alto Astral »

Your plan is fine. Another option: as you do not want to drop it all in Total Stock Market Index (VTSAX), you could drop it all into a 60/40 balanced index fund (VBIAX). The reason I mention is your expected returns will be higher the sooner your cash is invested towards your asset allocation

Source: Dollar cost averaging versus lump sum
Lump sum investing will always carry a higher expected return, because it immediately moves your funds from asset classes with lower expected returns to ones with higher expected returns. Note that higher expected returns do not guarantee that your actual returns will be higher. According to an investopedia article,[5] studies indicate that lump sum investing has produced higher returns 66% of the time.
See also The Cost of Waiting where the author says:
... it is almost always optimal to invest a large sum of money right away rather than “averaging-in” over time. Sitting in cash (or even in T-Bills) simply doesn’t pay compared to the markets because most markets have a long term positive trend.

Despite the mathematical soundness of my arguments, many people told me privately that they still felt wary about investing lots of money at once because they feared a market crash. My recommended solution to address this fear was simple—go all-in, but do it in a more conservative portfolio."
LittleMaggieMae
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Re: Investing hoarded cash

Post by LittleMaggieMae »

I think what you want to do is fine.

The only change I might make would be to start out with the 10K per month for some fixed amount of time 3 or 6 months (putting your foot in the pool to test how cold the water is :) ) and then have it automatically bump up to a higher monthly amount say 20K (sit down on the side of the pool and dangle your legs in the water). Set a time frame for review of this plan (so you aren't redoing it every month) - say a month 6 or 12. And then do the review and see if the "plan" is working and if your circumstances still make getting the money invested worth while. When you do your review you might decide it's OK to just finish the DCA in one lump. (slip off the side of the pool into the pool. )

Since you've already got a plan for your mortgage - I'd say just go with it especially if you are happy with the pay off date you've chosen.

Mind you, For some reason I can't "go all in" or "make that big decision and do it RIGHT NOW!" without a lot of emotional distress. The distress causes me to do nothing rather than to do something. weeks, months or a year or more might go by before I work up the courage to "go all in". I find that I experience much less emotional distress by doing whatever I want to do - in littler steps. That gets me started. Usually, once I'm at the stage of "sitting on the edge of the pool with legs in the water" I can just "go all in" with whatever I have left. :) It takes longer but for me it's much better than doing nothing due to emotional distress.

I know lots of people like to "cannon ball" into the pool. Way too terrifying for me. :)
invest2bfree
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Re: Investing hoarded cash

Post by invest2bfree »

slalom wrote: Sat Dec 04, 2021 10:39 am I know this is roughly similar to a ‘small windfall’ thread but usually the background of those situations is someone who doesn’t really invest and has other stuff to shore up first.

Basically family health and pandemic uncertainty had made me save all my ‘bonus’ cash the last bunch of years. With one family health item probably gone for the moment (almost lost my dad and thought i’d have to buy my mom a house and move her out to CA) and my pandemic paranoia waning, i probably want to start to adjust.

I have $350k in cash sitting in MM.

In my early 40s, already max 401k, do quite a bit of auto investing into taxable per month, have no non mortgage debt.

I have $230k left on the mortgage but i already pay $1000 extra per month of principal along with EOY lump sums and its scheduled to be paid off in 2025 as it is. No kids.

Id like to leave maybe $100k in cash as emergency fund, so working with $250k

So with all that said, I was thinking that i don’t personally feel that dropping it ALL into taxable investing (like VTSAX) right now is a great idea. My current plan is to change my monthly investing to autoinvest an additional $10000/mo in taxable until that pot runs out (realizing that this will include additional bonuses over those few years).

What other options should I explore?
Like all advised, pay off the mortgage. Roof over your head is secure.
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JoeRetire
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Re: Investing hoarded cash

Post by JoeRetire »

slalom wrote: Sat Dec 04, 2021 10:39 am I have $230k left on the mortgage but i already pay $1000 extra per month of principal along with EOY lump sums and its scheduled to be paid off in 2025 as it is. No kids.

Id like to leave maybe $100k in cash as emergency fund, so working with $250k

What other options should I explore?
What is the rate on your mortgage? Since you appear to want to pay off your mortgage more quickly, why don't you just pay it all off now and be done with it? I don't normally advise paying off a mortgage early, particularly in inflationary times, but you seem to have already made that decision.

Then you can do whatever you want with the money that would have paid your mortgage, plus the $1000 extra. If you invest that every month, it would be DCAing.
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nix4me
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Re: Investing hoarded cash

Post by nix4me »

Paying off the mortgage is a mistake as you can make way more in the market. You should invest "lump sum" into the market immediately. Paying off very low interest debt makes no financial sense.
mortfree
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Re: Investing hoarded cash

Post by mortfree »

If you payoff the mortgage and don’t have the payment anymore and no need to spend an additional $1000 it would probably still take you 10-12 years to save 230k again with just the money that was going to PI.

I’d rather keep the money and invest.
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macheta
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Re: Investing hoarded cash

Post by macheta »

You seem like a risk adverse person and probably would go with dollar cost averaging into the market over the next twelve months. How much do you have saved in your retirement accounts?
tibbitts
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Re: Investing hoarded cash

Post by tibbitts »

nix4me wrote: Sat Dec 04, 2021 7:05 pm Paying off the mortgage is a mistake as you can make way more in the market. You should invest "lump sum" into the market immediately. Paying off very low interest debt makes no financial sense.
You can only compare paying off the mortgage to fixed income investments, since there is no guaranteed return from equities, even after a decade or more. Of course you can take into account the tax effects of the mortgage if any, and taxes on the dividends/interest from bond funds or bonds.
mikejuss
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Re: Investing hoarded cash

Post by mikejuss »

If you don't have the cojones to buy $250,000 of VTSAX--which is what I would recommend you do--just pay off your mortgage and move on.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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Sandtrap
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Re: Investing hoarded cash

Post by Sandtrap »

slalom wrote: Sat Dec 04, 2021 10:39 am I know this is roughly similar to a ‘small windfall’ thread but usually the background of those situations is someone who doesn’t really invest and has other stuff to shore up first.

Basically family health and pandemic uncertainty had made me save all my ‘bonus’ cash the last bunch of years. With one family health item probably gone for the moment (almost lost my dad and thought i’d have to buy my mom a house and move her out to CA) and my pandemic paranoia waning, i probably want to start to adjust.

I have $350k in cash sitting in MM.

In my early 40s, already max 401k, do quite a bit of auto investing into taxable per month, have no non mortgage debt.

I have $230k left on the mortgage but i already pay $1000 extra per month of principal along with EOY lump sums and its scheduled to be paid off in 2025 as it is. No kids.

Id like to leave maybe $100k in cash as emergency fund, so working with $250k

So with all that said, I was thinking that i don’t personally feel that dropping it ALL into taxable investing (like VTSAX) right now is a great idea. My current plan is to change my monthly investing to autoinvest an additional $10000/mo in taxable until that pot runs out (realizing that this will include additional bonuses over those few years).

What other options should I explore?
why?

j :D
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Topic Author
slalom
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Re: Investing hoarded cash

Post by slalom »

Thanks to all who responded! I’m very set on not paying the mortgage off any sooner than I already am, but after feedback here and thinking about it more i’m going to do more like $20,000/mo into taxable and not drag it out so much.

Regarding how much I have invested already, I have about $1.2 million between 401k, backdoored roth, and taxable.
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Sandtrap
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Re: Investing hoarded cash

Post by Sandtrap »

slalom wrote: Sun Dec 05, 2021 11:37 pm Thanks to all who responded! I’m very set on not paying the mortgage off any sooner than I already am, but after feedback here and thinking about it more i’m going to do more like $20,000/mo into taxable and not drag it out so much.

Regarding how much I have invested already, I have about $1.2 million between 401k, backdoored roth, and taxable.
Thanks for the update.

Sounds like you have a great plan.

Aloha
j :D
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hudson
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Re: Investing hoarded cash

Post by hudson »

slalom wrote: Sat Dec 04, 2021 10:39 am I have $350k in cash sitting in MM.

I have $230k left on the mortgage but i already pay $1000 extra per month of principal along with EOY lump sums and its scheduled to be paid off in 2025 as it is. No kids.

Id like to leave maybe $100k in cash as emergency fund, so working with $250k

So with all that said, I was thinking that i don’t personally feel that dropping it ALL into taxable investing (like VTSAX) right now is a great idea. My current plan is to change my monthly investing to autoinvest an additional $10000/mo in taxable until that pot runs out (realizing that this will include additional bonuses over those few years).

What other options should I explore?
If I was in your shoes...
Keep paying the mortgage as you are doing.
Today, I would put $125K in total stock and $125 in a high quality Vanguard risk potential 1 or 2 bond fund (or the equivalent)...leaving the $100K in high yield savings.
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Remster
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Re: Investing hoarded cash

Post by Remster »

What I normally do when investing large sums is to lump sum 1/2 or maybe 1/3 of of my capital in my AA and then dollar cost average (DCA) in the rest over time. This way you get some of the benefits of lump sum and some of the benefits of DCA. I would probably also shave some off the mortgage, maybe $30k to 50k only because I don't really want to pay interest if I don't have to (even if the market is flying along right now, until it doesn't.) I have been laid off before so I tend to be a little more cautious even though today I have enough "cushion" to weather most storms.
Tiered retirement plan: 1. Saving and investing; 2. Lottery tickets; 3. "Do you want fries with that?"
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