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Just skimming some of the replies here makes me think you will get better advice on the Bogleheads forum [1]. Despite the minimalist appearance it is actually

Just skimming some of the replies here makes me think you will get better advice on the Bogleheads forum [1]. Despite the minimalist appearance it is actually a great place to get sensible financial advice. I would start with the wiki page on managing a windfall [2], then search through older replies to similar questions. This kind of question gets asked there a lot, so there should be some recent threads. [1] https://www.bogleheads.org/ https://www.bogleheads.org/ [2] https://www.bogleheads.org/wiki/Managing_a_windfall https://www.bogleheads.org/wiki/Managing_a_windfall

exlurker 6y ago
Looking over the wiki so far, looks like a great resource. Thank you!
nemild 6y ago
One more to add is Reddit's Personal Finance, where this question gets asked a lot. The wiki (second link, search for Windfall) esp has a number of great articles on topics like this. https://www.reddit.com/r/personalfinance/ https://www.reddit.com/r/personalfinance/ https://www.reddit.com/r/personalfinance/wiki/index https://www.reddit.com/r/personalfinance/wiki/index
- alex_sikora 6y ago
  I'd probably recommend https://old.reddit.com/r/FatFIRE https://old.reddit.com/r/FatFIRE over /r/pf as it's more likely to have people that have experienced getting a large lump sum like this.
  - monktastic1 6y ago
    FatFIRE is for people who want to live large off their savings (usually understood as >$100k/yr passive income, which generally requires $2.5M+ in invested assets). That doesn't seem to describe OP's position. If FIRE is an interest, then https://www.reddit.com/r/financialindependence/ https://www.reddit.com/r/financialindependence/ is a better bet.
    - Justin_K 6y ago
      4% roi is far worse than market and real estate averages.
      - rabidrat 6y ago
        Not anymore.
        Justin_K 6y ago
        Based upon what?
        dmoy 6y ago
        It's not 4% ROI, it's 4% withdrawal rate. And even that is not super safe if you're retiring for many decades (the RE part). You can use a variety of online calculators to back test a 4% withdrawal rate - maybe 80% safe, but 20% of the time you'll go broke before dying.
        IvoCass 6y ago
        Why isn't it safe? Or where can I read more on that?
        dmoy 6y ago
        Sure, so there's a few things to look at. The first is going back to the origins of the 4% number in the first place, the trinity study. The parameters for that were a 30 year retirement period, and success was "not completely run out of money after 30 years, 95% of the time". If you extrapolate from that original study, if you retire for more than 30 years (FIRE includes retiring early), success drops from 95%. There's articles exploring that, e.g. https://www.fiphysician.com/safe-withdrawal-rate-early-retirement/ https://www.fiphysician.com/safe-withdrawal-rate-early-retir... https://www.madfientist.com/safe-withdrawal-rate/#:~:text=The%204%25%20rule%20is%20actually,average%20returns%20or%20nominal%20returns https://www.madfientist.com/safe-withdrawal-rate/#:~:text=Th... And then there are a variety of online calculators where you can play with the numbers yourself. The other elephant in the room is pre-Medicare healthcare costs.
  - koolba 6y ago
    I really appreciate linking directly to old reddit rather than the crap default.
- BbzzbB 6y ago
  PF will say the same thing as always (not that it's wrong), i.e. SPY if you're risk-tolerant, some Vanguard I don't recall (VOO?) if you're less so.
  - arcticbull 6y ago
    VOO and SPY are basically the same thing, SPY is older and structured as a trust, VOO is an ETF. Both track the S&P 500. They'll probably recommend some combination of equity and bonds, probably a split between VOO (slightly lower fees and more efficient payout of dividends -- I do mean slightly) and TLT (20+ year treasuries). VOO and TLT have limited correlation as treasuries are seen as a safe-haven. We've seen huge spikes in treasury funds recently, since they go up in value when interest rates go down. It's a bit unintuitive, but treasury funds have to cycle through their holdings over time to track the index, so when interest rates on new issues go down, older issues command a premium in the amount of pre-paid interest.
  - reducesuffering 6y ago
    VOO is the same index as SPY (SP500), so that can't be it. Maybe you meant BND, a highly popular total bond market ETF that would be for the risk-intolerant?
  - csmiller 6y ago
    Maybe VTSAX?
MuffinFlavored 6y ago
Why isn't the tl;dr: 1. put 6 months of expenses in a high-yield savings account that is easily accessible + liquid in case of emergencies 2. max out tax-advantaged accounts. $19.5k/yr 401k + $6k/yr IRA. allocate into anything similar to a target date retirement fund with healthy exposure to US total market/probably light bonds depending on age 3. put the rest in a brokerage account, allocated in the same things your 401k + IRA are allocated in (target date retirement funds that track things similar to VOO/SPY/VTI/FZROX/etc.)
- twblalock 6y ago
  That's good retirement planning advice for normal situations. Having a $450k cash windfall adds a few wrinkles -- there are more investment options available (e.g. buy a house with cash), and the tax consequences of those various options can be very different. I don't think most people need a financial advisor, but if I had a $450k pile of cash and I wanted to understand the tax consequences of various investments I would definitely pay for a consultation.
  - nordsieck 6y ago
    > I don't think most people need a financial advisor, but if I had a $450k pile of cash and I wanted to understand the tax consequences of various investments I would definitely pay for a consultation. I think you have to be a little careful with this. Shockingly, most financial professionals do not have a fiduciary duty to their clients. If you pay for advice, I'd definitely recommend getting one that does have a fiduciary duty to their clients.
    - arcticbull 6y ago
      Indeed, the Trump administration rolled-back an Obama era rule that financial advisors must be fiduciaries. I'm not sure most people realized that happened.
      - arcticbull 6y ago
        Sorry if that came off as political, I mentioned the leadership at the time as epoch markers as I didn't recall off-hand the specific dates. I suspect people didn't realize that the fiduciary rule wasn't a thing prior to 2015, let alone that it was over by 2018, and it is my understanding the Trump administration was looking at resurrecting the rule. [1] https://www.nytimes.com/2018/06/22/your-money/fiduciary-rule-dies.html https://www.nytimes.com/2018/06/22/your-money/fiduciary-rule...
arcticbull 6y ago
Bear in mind Personal Finance is pretty conservative. Depending on how much time you have in the market you can take some more aggressive bets. I'm not suggesting r/WallStreetBets style investing but something like a risk parity adjusted pairing of 3X leveraged S&P with 3X leveraged treasuries can yield dramatically better returns over time [1]. I'm not recommending it per se, to each their own risk tolerance and research, but suggesting that if you have time in the market, consider being more aggressive. I'd suggest something like this. (1) Have 6 months of expenses set aside. (2) Max out your tax-advantaged retirement accounts. (3) Allocate some amount of capital to traditional or conservative investments, and some amount to more aggressive plays. The more time you have in the market, the more aggressive you can afford to be. Having both types of investments will give you the comfort you need during rough times that your riskier plays come through eventually. (4) If you're looking at property, consider setting aside a down-payment. Keep in mind that if you're employed, buying a house in cash may not be the optimal strategy as you can deduct large quantities of your mortgage payments, giving you, with 20% down, a 5X leveraged investment in real-estate with deductible expenses and historically-low interest rates. Mortgage interest rates are just a hair over inflation, and when you deduct the interest from your taxes, you're actually saving money with a mortgage. (5) Now that you have a large chunk of capital, you can consider financing some purchases yourself at extremely low rates by taking advantage of margin borrowing. InteractiveBrokers offer 1.5% interest margin loans, and you could, if within your risk tolerance, borrow some amount of money collateralized by your (safe) equity positions. This 1.5% interest is also tax-deductible. Obviously be careful, a margin call is something to avoid, but against a $450K portfolio, I personally wouldn't sweat borrowing $45K. One thing I was able to do personally is borrow enough on margin to make a down-payment on a property. This allowed me to deduct the entire balance of my mortgage, beyond the $750K cap, and at 1.5% the margin interest is much lower than if I'd financed the whole thing. [1] https://www.bogleheads.org/forum/viewtopic.php?t=272007 https://www.bogleheads.org/forum/viewtopic.php?t=272007
- jannotti 6y ago
  Please stay away from leverage equity index funds. https://capitalallocatorspodcast.com/wp-content/uploads/2017/03/The%20Surprising%20Cost%20of%20Volatility.pdf https://capitalallocatorspodcast.com/wp-content/uploads/2017... Edit: For more clarity - risk parity can make sense, but I don't think you ever need to use leverage on your equities to get risk parity. The fundamental insight of risk parity investing is that at commonly recommended ratios (50/50, 60/40) the risk (variance) from equities totally dominates the risk from bonds. So the risk parity advice is usually something with a much higher bond mix, but the entire portfolio is leveraged. But DO NOT use levered ETFs that recognize, say, 3x the DAILY movement of the S&P to do this. They don't do what you think. Read that link, or compute the following two scenarios: 1) Market goes up 1.1% on odd days, down 1% on even days. That yields about 9% (200 trading days). But a 3x daily etf product would only get you about 22%, not 27%. 2) Market foes up 1% on odd days, down 1.1% on even. That, sadly, means you lose about 11% on the year. If you use a 3x DAILY etf product, you lose around 75%.
laactech 6y ago
Bogleheads is a great resource, and I've used it to learn a lot about investing. However, they tend to be really conservative about investments. I think after reading their wiki, it's important to asses personal risk tolerance and determine your portfolio from there. Writing an investment policy statement is something bogleheads recommend doing which I would suggest as well. The statement helps guide investment decisions based on goals you wish to achieve. The most important part of investing is staying the course. Staying the course is hard in bad markets like 2008 or during the pandemic which is why accurately assessing your risk tolerance is so important.
andrewzah 6y ago
"Despite the minimalist appearance" As time goes on, a site remaining minimalist like this is a good indicator of value. I'll never understand the desire to move away from high density UX like this to the modern web junk UX that looks more appealing but makes everything more convoluted.
- jordanmarshall 6y ago
  Agreed! After all, look where we are posting :) What I was trying to say, but didn't have the space to fully articulate, was that it can look a little noisy and random at first glance. As I write this some of the top threads include posts about replacing a toilet valve, herbicide use, and motivating a son in law. Once you filter through some of this though there are a lot of really smart people giving pretty good financial advice.

exlurker 6y ago

Looking over the wiki so far, looks like a great resource. Thank you!

nemild 6y ago

One more to add is Reddit's Personal Finance, where this question gets asked a lot. The wiki (second link, search for Windfall) esp has a number of great articles on topics like this. https://www.reddit.com/r/personalfinance/ https://www.reddit.com/r/personalfinance/ https://www.reddit.com/r/personalfinance/wiki/index https://www.reddit.com/r/personalfinance/wiki/index

alex_sikora 6y ago
I'd probably recommend https://old.reddit.com/r/FatFIRE https://old.reddit.com/r/FatFIRE over /r/pf as it's more likely to have people that have experienced getting a large lump sum like this.
- monktastic1 6y ago
  FatFIRE is for people who want to live large off their savings (usually understood as >$100k/yr passive income, which generally requires $2.5M+ in invested assets). That doesn't seem to describe OP's position. If FIRE is an interest, then https://www.reddit.com/r/financialindependence/ https://www.reddit.com/r/financialindependence/ is a better bet.
  - Justin_K 6y ago
    4% roi is far worse than market and real estate averages.
    - rabidrat 6y ago
      Not anymore.
      - Justin_K 6y ago
        Based upon what?
        dmoy 6y ago
        It's not 4% ROI, it's 4% withdrawal rate. And even that is not super safe if you're retiring for many decades (the RE part). You can use a variety of online calculators to back test a 4% withdrawal rate - maybe 80% safe, but 20% of the time you'll go broke before dying.
        IvoCass 6y ago
        Why isn't it safe? Or where can I read more on that?
        dmoy 6y ago
        Sure, so there's a few things to look at. The first is going back to the origins of the 4% number in the first place, the trinity study. The parameters for that were a 30 year retirement period, and success was "not completely run out of money after 30 years, 95% of the time". If you extrapolate from that original study, if you retire for more than 30 years (FIRE includes retiring early), success drops from 95%. There's articles exploring that, e.g. https://www.fiphysician.com/safe-withdrawal-rate-early-retirement/ https://www.fiphysician.com/safe-withdrawal-rate-early-retir... https://www.madfientist.com/safe-withdrawal-rate/#:~:text=The%204%25%20rule%20is%20actually,average%20returns%20or%20nominal%20returns https://www.madfientist.com/safe-withdrawal-rate/#:~:text=Th... And then there are a variety of online calculators where you can play with the numbers yourself. The other elephant in the room is pre-Medicare healthcare costs.
- koolba 6y ago
  I really appreciate linking directly to old reddit rather than the crap default.
BbzzbB 6y ago
PF will say the same thing as always (not that it's wrong), i.e. SPY if you're risk-tolerant, some Vanguard I don't recall (VOO?) if you're less so.
- arcticbull 6y ago
  VOO and SPY are basically the same thing, SPY is older and structured as a trust, VOO is an ETF. Both track the S&P 500. They'll probably recommend some combination of equity and bonds, probably a split between VOO (slightly lower fees and more efficient payout of dividends -- I do mean slightly) and TLT (20+ year treasuries). VOO and TLT have limited correlation as treasuries are seen as a safe-haven. We've seen huge spikes in treasury funds recently, since they go up in value when interest rates go down. It's a bit unintuitive, but treasury funds have to cycle through their holdings over time to track the index, so when interest rates on new issues go down, older issues command a premium in the amount of pre-paid interest.
- reducesuffering 6y ago
  VOO is the same index as SPY (SP500), so that can't be it. Maybe you meant BND, a highly popular total bond market ETF that would be for the risk-intolerant?
- csmiller 6y ago
  Maybe VTSAX?

MuffinFlavored 6y ago

Why isn't the tl;dr: 1. put 6 months of expenses in a high-yield savings account that is easily accessible + liquid in case of emergencies 2. max out tax-advantaged accounts. $19.5k/yr 401k + $6k/yr IRA. allocate into anything similar to a target date retirement fund with healthy exposure to US total market/probably light bonds depending on age 3. put the rest in a brokerage account, allocated in the same things your 401k + IRA are allocated in (target date retirement funds that track things similar to VOO/SPY/VTI/FZROX/etc.)

twblalock 6y ago
That's good retirement planning advice for normal situations. Having a $450k cash windfall adds a few wrinkles -- there are more investment options available (e.g. buy a house with cash), and the tax consequences of those various options can be very different. I don't think most people need a financial advisor, but if I had a $450k pile of cash and I wanted to understand the tax consequences of various investments I would definitely pay for a consultation.
- nordsieck 6y ago
  > I don't think most people need a financial advisor, but if I had a $450k pile of cash and I wanted to understand the tax consequences of various investments I would definitely pay for a consultation. I think you have to be a little careful with this. Shockingly, most financial professionals do not have a fiduciary duty to their clients. If you pay for advice, I'd definitely recommend getting one that does have a fiduciary duty to their clients.
  - arcticbull 6y ago
    Indeed, the Trump administration rolled-back an Obama era rule that financial advisors must be fiduciaries. I'm not sure most people realized that happened.
    - arcticbull 6y ago
      Sorry if that came off as political, I mentioned the leadership at the time as epoch markers as I didn't recall off-hand the specific dates. I suspect people didn't realize that the fiduciary rule wasn't a thing prior to 2015, let alone that it was over by 2018, and it is my understanding the Trump administration was looking at resurrecting the rule. [1] https://www.nytimes.com/2018/06/22/your-money/fiduciary-rule-dies.html https://www.nytimes.com/2018/06/22/your-money/fiduciary-rule...

arcticbull 6y ago

Bear in mind Personal Finance is pretty conservative. Depending on how much time you have in the market you can take some more aggressive bets. I'm not suggesting r/WallStreetBets style investing but something like a risk parity adjusted pairing of 3X leveraged S&P with 3X leveraged treasuries can yield dramatically better returns over time [1]. I'm not recommending it per se, to each their own risk tolerance and research, but suggesting that if you have time in the market, consider being more aggressive. I'd suggest something like this. (1) Have 6 months of expenses set aside. (2) Max out your tax-advantaged retirement accounts. (3) Allocate some amount of capital to traditional or conservative investments, and some amount to more aggressive plays. The more time you have in the market, the more aggressive you can afford to be. Having both types of investments will give you the comfort you need during rough times that your riskier plays come through eventually. (4) If you're looking at property, consider setting aside a down-payment. Keep in mind that if you're employed, buying a house in cash may not be the optimal strategy as you can deduct large quantities of your mortgage payments, giving you, with 20% down, a 5X leveraged investment in real-estate with deductible expenses and historically-low interest rates. Mortgage interest rates are just a hair over inflation, and when you deduct the interest from your taxes, you're actually saving money with a mortgage. (5) Now that you have a large chunk of capital, you can consider financing some purchases yourself at extremely low rates by taking advantage of margin borrowing. InteractiveBrokers offer 1.5% interest margin loans, and you could, if within your risk tolerance, borrow some amount of money collateralized by your (safe) equity positions. This 1.5% interest is also tax-deductible. Obviously be careful, a margin call is something to avoid, but against a $450K portfolio, I personally wouldn't sweat borrowing $45K. One thing I was able to do personally is borrow enough on margin to make a down-payment on a property. This allowed me to deduct the entire balance of my mortgage, beyond the $750K cap, and at 1.5% the margin interest is much lower than if I'd financed the whole thing. [1] https://www.bogleheads.org/forum/viewtopic.php?t=272007 https://www.bogleheads.org/forum/viewtopic.php?t=272007

jannotti 6y ago
Please stay away from leverage equity index funds. https://capitalallocatorspodcast.com/wp-content/uploads/2017/03/The%20Surprising%20Cost%20of%20Volatility.pdf https://capitalallocatorspodcast.com/wp-content/uploads/2017... Edit: For more clarity - risk parity can make sense, but I don't think you ever need to use leverage on your equities to get risk parity. The fundamental insight of risk parity investing is that at commonly recommended ratios (50/50, 60/40) the risk (variance) from equities totally dominates the risk from bonds. So the risk parity advice is usually something with a much higher bond mix, but the entire portfolio is leveraged. But DO NOT use levered ETFs that recognize, say, 3x the DAILY movement of the S&P to do this. They don't do what you think. Read that link, or compute the following two scenarios: 1) Market goes up 1.1% on odd days, down 1% on even days. That yields about 9% (200 trading days). But a 3x daily etf product would only get you about 22%, not 27%. 2) Market foes up 1% on odd days, down 1.1% on even. That, sadly, means you lose about 11% on the year. If you use a 3x DAILY etf product, you lose around 75%.

laactech 6y ago

Bogleheads is a great resource, and I've used it to learn a lot about investing. However, they tend to be really conservative about investments. I think after reading their wiki, it's important to asses personal risk tolerance and determine your portfolio from there. Writing an investment policy statement is something bogleheads recommend doing which I would suggest as well. The statement helps guide investment decisions based on goals you wish to achieve. The most important part of investing is staying the course. Staying the course is hard in bad markets like 2008 or during the pandemic which is why accurately assessing your risk tolerance is so important.

andrewzah 6y ago

"Despite the minimalist appearance" As time goes on, a site remaining minimalist like this is a good indicator of value. I'll never understand the desire to move away from high density UX like this to the modern web junk UX that looks more appealing but makes everything more convoluted.

jordanmarshall 6y ago
Agreed! After all, look where we are posting :) What I was trying to say, but didn't have the space to fully articulate, was that it can look a little noisy and random at first glance. As I write this some of the top threads include posts about replacing a toilet valve, herbicide use, and motivating a son in law. Once you filter through some of this though there are a lot of really smart people giving pretty good financial advice.