So you decide to go on a merger with a strategic...

[sevoflurane]

This mainly goes to those who have gone through the process (@BLADEMDA et al), but would be interested in all comer ideas on this topic as it's a bit of an odd ball. It will likely never happen in an anesthesiologists career again. So better wise up and not screw it up.

Let's speculate a lump sum of 2.5 mil.

What do you think is the wisest way to allocate receivables from the sale of your shares?

Pay off the house and all remaining debt?
Invest all of it into the market over a year or two?
What ratio Stocks/Bonds would seem reasonable? Does age matter in this ratio?
Park most of it in CDs, dollar cost average 1/2 of it over a couple of years and pepper in larger amounts of cash into the market with moderate to large corrections?

Just curious as to what others would do if this scenario materialized for them.

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[Mman]

Totally depends on your personal financial situation. Depends how much debt (and what kinds) you have. Depends how much savings you have. Depends on your age and kids.


For me personally, I don't have a lot of debt and I'd still be working for 10 more years even if you handed me $2.5M. I'd put 60% in stocks, 20% bonds, and 20% cash to sit on for a year or two and invest over time depending on how the market went or pay off debt/spend.

 

[Shimmy8]

Bogleheads website has a wiki on receiving a windfall. I imagine this would qualify.

 

[sevoflurane]

Bogleheads website has a wiki on receiving a windfall. I imagine this would qualify.

How would you invest a windfall? - Bogleheads.org

Just serached it and... Whoa... not expected. I'm guessing you have maybe another https://www.boogleheads.... you can post?

Thank you.

 

[sevoflurane]

Totally depends on your personal financial situation. Depends how much debt (and what kinds) you have. Depends how much savings you have. Depends on your age and kids.


For me personally, I don't have a lot of debt and I'd still be working for 10 more years even if you handed me $2.5M. I'd put 60% in stocks, 20% bonds, and 20% cash to sit on for a year or two and invest over time depending on how the market went or pay off debt/spend.

So in your situation... you'd invest 80% in the market/bonds and DCA 20% over a year or two?
That falls inline with the bogglehad post I looked at. Interesting. Thx.

 

[sevoflurane]

Managing a windfall - Bogleheads

 

[BLADEMDA]

This mainly goes to those who have gone through the process (@BLADEMDA et al), but would be interested in all comer ideas on this topic as it's a bit of an odd ball. It will likely never happen in an anesthesiologists career again. So better wise up and not screw it up.

Let's speculate a lump sum of 2.5 mil.

What do you think is the wisest way to allocate receivables from the sale of your shares?

Pay off the house and all remaining debt?
Invest all of it into the market over a year or two?
What ratio Stocks/Bonds would seem reasonable? Does age matter in this ratio?
Park most of it in CDs, dollar cost average 1/2 of it over a couple of years and pepper in larger amounts of cash into the market with moderate to large corrections?

Just curious as to what others would do if this scenario materialized for them.

Pay off all debt.

At these stock market valuations I would only do 50% into equities (diversified) and the rest into CDs, short term bonds, and cash. Once the market corrects you can invest another 10-20% into equities depending on your desired allocation.

A wise man said you only need to get rich once so don't be greedy at these market valuations.

 

[BLADEMDA]

How would you invest a windfall? - Bogleheads.org

Just serached it and... Whoa... not expected. I'm guessing you have maybe another https://www.boogleheads.... you can post?

Thank you.

It seems like the Bogleheads would invest some right away into equities then dollar cost average the rest over 24 months. So, if you are 60/40 kind of guy that means 30% into equities upfront with another 30% over the next 24 months.

Again, you only need to get rich once so why take on all the risk of this market at high valuations?

 

[sevoflurane]

Pay off all debt.

At these stock market valuations I would only do 50% into equities (diversified) and the rest into CDs, short term bonds, and cash. Once the market corrects you can invest another 10-20% into equities depending on your desired allocation.

A wise man said you only need to get rich once so don't be greedy at these market valuations.

Thanks. I agree with your post.

Luckily, I have no debt.

What you are saying Blade is what the boggleheads wiki page basically says. Cds, money market, and short term treasury securities. Slowly drop in.

Seems very reasonable. It would seem that once you get your windfall you may get a bit emotional about your status.

 

[sevoflurane]

Biggest thing is "take your time".

 

[Mman]

So in your situation... you'd invest 80% in the market/bonds and DCA 20% over a year or two?
That falls inline with the bogglehad post I looked at. Interesting. Thx.

probably. I mean I wouldn't want to sit on the sidelines with a large cash position. There is plenty of good research showing that's a dumb idea. But I'd also take a more conservative asset allocation than I currently have and put a good amount into bonds. The 20% cash I might put into things like short term CDs or what not. It'd at least give me a little bit of something to play with and think about what I want to do even if it's just DCA in over a longer time frame.

 

[sevoflurane]

probably. I mean I wouldn't want to sit on the sidelines with a large cash position. There is plenty of good research showing that's a dumb idea. But I'd also take a more conservative asset allocation than I currently have and put a good amount into bonds. The 20% cash I might put into things like short term CDs or what not. It'd at least give me a little bit of something to play with and think about what I want to do even if it's just DCA in over a longer time frame.

I think that would be the hard part. @2.5 mil - 20-25% for taxes, you are sitting on 2,000,000 post tax. So getting in early might be tough and I feel it takes balls. But I hear ya.

 

[sevoflurane]

it's the whole nest egg thing...

 

[Mman]

I think that would be the hard part. @2.5 mil - 20-25% for taxes, you are sitting on 2,000,000 post tax. So getting in early might be tough and I feel it takes balls. But I hear ya.

having a little bit on the sidelines let's you feel a little better in case there is a short term drop in the market right after you invest the lump sum. I'd view it as mental health insurance to let me do the right thing with the rest.

The other approach IMHO would be to figure out what asset allocation you want at retirement and just dump the whole lump sum into that allocation at once even if you aren't retiring yet. I mean if you've already determined what is conservative enough for your nest egg when you retire, it's also conservative enough for a lump sum prior to retirement. Say you want 50% stocks, 40% bonds, 10% TIPS when you retire. Just put the whole $2M in right now at that allocation.

 

[sleepallday]

This mainly goes to those who have gone through the process (@BLADEMDA et al), but would be interested in all comer ideas on this topic as it's a bit of an odd ball. It will likely never happen in an anesthesiologists career again. So better wise up and not screw it up.

Let's speculate a lump sum of 2.5 mil.

What do you think is the wisest way to allocate receivables from the sale of your shares?

Pay off the house and all remaining debt?
Invest all of it into the market over a year or two?
What ratio Stocks/Bonds would seem reasonable? Does age matter in this ratio?
Park most of it in CDs, dollar cost average 1/2 of it over a couple of years and pepper in larger amounts of cash into the market with moderate to large corrections?

Just curious as to what others would do if this scenario materialized for them.

None of the above.

Buy a business or two such a starbucks, dunkin donuts, gas station etc.

 

[aneftp]

Honestly and I'm in my early 40s. With a 2.5 mil payout/2mil after taxes.

1 mil in safer high dividends (5-6% yields) like preferred shares of stocks. Figure that generates 50k-60k a year in dividends yields

Pay off mortgage (whatever is left) 200-500k for most of us younger folks.

Another 250k in equities.

The rest in bonds/short term FDIC insured CDs (250k)

I already have enough cash stocked away for emergency reserves.

It's hard to retire even if I have enough to do it with that windfall (plus my existing profolio). I'd be bored. Maybe if I were in my late 50s I would retire.

 

[Mman]

None of the above.

Buy a business or two such a starbucks, dunkin donuts, gas station etc.

While owning a business can greatly diversify your income streams, it is not advised unless you know a lot about that type of business. And many of those, you have to actually actively manage them to get a good return. Just passively buying one and paying a crappy manager to waste your money is a bad idea. The nice thing about pure investments is they don't require your precious time.

 

[sevoflurane]

While owning a business can greatly diversify your income streams, it is not advised unless you know a lot about that type of business. And many of those, you have to actually actively manage them to get a good return. Just passively buying one and paying a crappy manager to waste your money is a bad idea. The nice thing about pure investments is they don't require your precious time.

My thoughts exactly.

 

[Hoya11]

Thats a big buy out. Usually not that big per partner (usually less than 2mill before taxes)

 

[dchz]

I am no expert hedge fund manager or nobel prize winning economist.
And if anyone has ever read anything ever about investing in the long term and etc, you will have read that no one can time the market correctly.

But if i had a large lump sum right now, i'd hold it in cash.

Here's why, case-shiller index is at an all time high. (except for right before the great depression and the bubble in 2000)

It might be the case that it might be 2 years before the market comes down, but it's almost a fact that it's too expensive right now to buy right now, hence all cash until the market comes down.

 

[pgg]

My asset allocation hasn't changed appreciably in several years. But if I received a large windfall, I think I would change my AA toward the more conservative side, because my need to take risk would have greatly decreased.

Maybe.


Every time I get a year older and I think it might be time to dial back my equity exposure, I think of my impending military retirement and the big "bond equivalent" infusion that represents to my portfolio. And it seems that if I got real cautious and went 50/50 on my asset allocation in my SEP & Roth & TSP, what I'd really be doing is going more like 30/70 after factoring in the pension.

The pension is essentially an inflation indexed annuity. I tend to think of it as an equivalent of an AMC buyout ... in return for all my years of "partnership" in the USN I'll abruptly receive a payment (in annuity form) in return for GTFO'ing. It's sort of like getting bought out of a PP, right?

It's easy to predict my pension payments because the pay tables are public record. I estimate the cash equivalent / lump value to be in the neighborhood of $1.5-2M (based on what it would cost to buy a CPI adjusted SPIA that paid the same), but it's kind of difficult to put a hard figure on it, since there are survivor benefits to my wife if I die early, and it includes lifetime health insurance for both of us, but it's not actually cash I can reallocate or withdraw all at once.

Most people advise treating federal pensions like bonds. Short of the collapse of the United States and western civilization, I have high confidence that whatever happens, the government will make good on military pension obligations - although I'm less confident about the health care benefits. If it doesn't, well, I'll endure in whatever Mad Max world evolves.

So an argument could be made for setting my AA at something like 90% equity ... I've got many decades to live, and have a very safe side of the portfolio in the pension. And I'm young, with years of high income ahead of me. Soon, low expenses - kids are almost grown and out on their own. Houses 1/2 paid off. So my ability to take risk is high.

But, with the pension, my need to take risk is low. I'm on the edge of winning the game, so why keep playing? The only thing I can think of is so I can leave more money to my kids when I die.

My ability and need are at odds. I don't know what to do. So I stay the course. Presently about 65-70% equity, which I fear is more conservative than it should be for a 42-yo doctor who plans to live to be 150.

 

[vector2]

I am no expert hedge fund manager or nobel prize winning economist.
And if anyone has ever read anything ever about investing in the long term and etc, you will have read that no one can time the market correctly.

But if i had a large lump sum right now, i'd hold it in cash.

Here's why, case-shiller index is at an all time high. (except for right before the great depression and the bubble in 2000)

It might be the case that it might be 2 years before the market comes down, but it's almost a fact that it's too expensive right now to buy right now, hence all cash until the market comes down.

I would tend to agree to be holding a large than normal cash position at the moment but not because of case shiller. CAPE was still the 4th highest it had ever been in 2010-2011 and if you had used that as your sole barometer you would've missed this entire bull market run. That being said, I have some concern that any possible deregulation or corporate tax cuts have largely been baked into current prices, and not to be too gamblers fallacy-like here, but recessions on average tend to come around every 8-10 years and we are certainly 'due'

My horizon is still 30 years so with a windfall I'd be heavily invested in stocks, but I would start dripping in 10-20% now into index and beaten-down divvy payers (LB, TEVA etc), and put another 50% in when we get a bigger correction.

 

[Southpaw]

@pgg thank you for your service. I'm glad you're in a sweet spot with regards to your pension. That's an amazing, and well deserved benefit.

 

[Mman]

I am no expert hedge fund manager or nobel prize winning economist.
And if anyone has ever read anything ever about investing in the long term and etc, you will have read that no one can time the market correctly.

But if i had a large lump sum right now, i'd hold it in cash.

Here's why, case-shiller index is at an all time high. (except for right before the great depression and the bubble in 2000)

It might be the case that it might be 2 years before the market comes down, but it's almost a fact that it's too expensive right now to buy right now, hence all cash until the market comes down.

I wouldn't say "it's almost a fact that it's too expensive right now". It's about as far from a fact as you can get. That's a guess. I mean it's even a slightly educated guess. But it certainly isn't a fact.

What would you do if the market stayed +/- 5% for the next 2 years and the Shiller CAPE was down to 21-22 because corporate earnings kept rising at their current rate?

I mean while we sort of expect the market to drop at some point, what if it doesn't drop at least 10% below present value at any point in the next 10 years? Would you sit on the sidelines the entire time?

 

[dchz]

I wouldn't say "it's almost a fact that it's too expensive right now". It's about as far from a fact as you can get. That's a guess. I mean it's even a slightly educated guess. But it certainly isn't a fact.

What would you do if the market stayed +/- 5% for the next 2 years and the Shiller CAPE was down to 21-22 because corporate earnings kept rising at their current rate?

I mean while we sort of expect the market to drop at some point, what if it doesn't drop at least 10% below present value at any point in the next 10 years? Would you sit on the sidelines the entire time?

"I" wouldn't sideline at all if the 10 years wasn't a huge % of my investment horizon, and i'm contributing same amount of money to my retirement every year, it'll even out in the long run.

However, OP is in a situation where they just got bought out after being a partner for a while. The initial infusion is a huge percentage of their portfolio, and people in OP's situation are less prepared for volatility and drastic corrections.

The downside is that they lose out on the low earnings in the time until the market corrects. The upside is not losing huge when the market does correct.

 

[Mman]

"I" wouldn't sideline at all if the 10 years wasn't a huge % of my investment horizon, and i'm contributing same amount of money to my retirement every year, it'll even out in the long run.

However, OP is in a situation where they just got bought out after being a partner for a while. The initial infusion is a huge percentage of their portfolio, and people in OP's situation are less prepared for volatility and drastic corrections.

The downside is that they lose out on the low earnings in the time until the market corrects. The upside is not losing huge when the market does correct.

As I posted earlier in this thread, if I got that lump sum, I would not sit all in cash with it waiting for a correction. You seem to believe it is a fact that market will drop by a certain percentage when that is nothing more than opinion. The market might never drop 10 or 20% from here in the next few years. We just don't know.

 

[aneftp]

As I posted earlier in this thread, if I got that lump sum, I would not sit all in cash with it waiting for a correction. You seem to believe it is a fact that market will drop by a certain percentage when that is nothing more than opinion. The market might never drop 10 or 20% from here in the next few years. We just don't know.

It depends how old you are

If u are age under age 50 u can be more aggressive. Over age 55. It gets dicey to take 10 plus years to recover from another crash.

Remember we had crashes in 1987-1990 (especially housing collapse in federal defense jobs in DC and San Diego)

Crashes in 2000-2001. And obviously the more recent 2007-2010 time.

 

[Mman]

It depends how old you are

If u are age under age 50 u can be more aggressive. Over age 55. It gets dicey to take 10 plus years to recover from another crash.

Remember we had crashes in 1987-1990 (especially housing collapse in federal defense jobs in DC and San Diego)

Crashes in 2000-2001. And obviously the more recent 2007-2010 time.

Obviously depends on your age, but I'd argue that what you need to determine with your age is asset allocation. You should not be trying to time the market if you are older just because it seems expensive now. If you are 60 years old, a large windfall should obviously have a very conservative allocation since you don't need to worry about getting much return and you have a shorter time frame than someone who is 40.

Everyone knows crashes happen, the point is nobody can tell you when. You shouldn't hold on to cash that you'd otherwise invest to try to wait to buy in until after the next crash.

 

[pjl]

Obviously depends on your age, but I'd argue that what you need to determine with your age is asset allocation. You should not be trying to time the market if you are older just because it seems expensive now. If you are 60 years old, a large windfall should obviously have a very conservative allocation since you don't need to worry about getting much return and you have a shorter time frame than someone who is 40.

Everyone knows crashes happen, the point is nobody can tell you when. You shouldn't hold on to cash that you'd otherwise invest to try to wait to buy in until after the next crash.

Reasons to change asset allocation:
1. Age-as you get closer to needing the money, it should be in less risky ventures.

2. Account total value-as you get closer to "winning" you can afford to take money/risk off the table.

Personally, I plan to decrease AA to 50:50 by retirement. I will drop 5% stock allocation every 5 years older I am, or every 500k I have invested.

Gaining 2 million in payout would drop my AA by 20% stocks, and I would dump 50% of the stock portion in immediately, even if it happened tomorrow. The rest I would DCA 10% every 3 months. The fixed income portion would need some research by me, but would be invested within first year


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[Mman]

Reasons to change asset allocation:
1. Age-as you get closer to needing the money, it should be in less risky ventures.

2. Account total value-as you get closer to "winning" you can afford to take money/risk off the table.

Personally, I plan to decrease AA to 50:50 by retirement. I will drop 5% stock allocation every 5 years older I am, or every 500k I have invested.

Gaining 2 million in payout would drop my AA by 20% stocks, and I would dump 50% of the stock portion in immediately, even if it happened tomorrow. The rest I would DCA 10% every 3 months. The fixed income portion would need some research by me, but would be invested within first year


Sent from my iPad using SDN mobile app

basically agree. That is not market timing, that is adjusting your asset allocation. It doesn't care whether the market goes up or down or when it happens.

 

[dchz]

Well i agree no one can time the market....

But i believe you should time the market right now