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Ask HN: I have $450K cash, what should I do to maximize my return?

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Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#261

Post by BbzzbB »

nemild wrote: post #146
jordanmarshall wrote: post #51

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:…

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/wiki/index

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.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#262

Post by x87678r »

Wow no one asked if you have a partner or children or plan to. It isn't clear how old you are, what you want to do with your life, if you have a secure job, if you want to travel, if education is worth it, if you parents/family needs help or if you want to own your own business. Without these things any advice is probably wrong.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#263

Post by anonymousiam »

marvin wrote: post #193
Apes wrote: post #167

Earlier quoted context omitted.

The current risk free rate is absurdly low, which would suggest a much lower sustainable draw down than 4% for the next 10-30 years, probably only around .5 to 1.5% at most.

Well, inflation is also absurdly low. The direct return on equity, globally, is around 5% for a pure stock portfolio. What is your basis for believing that the safe withdrawal rate will be less than half this, at less than 1.5%? That sounds excessively pessimistic to me.

Some of my money is in high-dividend ETFs. They have been returning between 5-10% over the past several years.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#264

Post by nordsieck »

_skel wrote: post #221
MuffinFlavored wrote: post #216

Earlier quoted context omitted.

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…

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…

> 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.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#265

Post by latchkey »

triceratops wrote: post #226
latchkey wrote: post #121

Earlier quoted context omitted.

I thought about doing rental properties and then came to the conclusion that the amount of work to make that happen, just isn't worth it for the average person. You're either stuck hiring some management firm or doing it yourself. It isn't easy to get the capital back and will take years to see any sort of returns. Never mind the fact that we're in a pandemic where ~1.4M people a week are losing their job. Who are yo…

It may also mean there are desperate landlords looking to sell. If you can deal with reduced/no rent for a year, there might be some great bargains maybe?

That seems like an increase in risk disproportional to the return on investment.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#266

Post by CydeWeys »

nknealk wrote: post #123

Surprised not to see this mentioned anywhere. In finance, we don’t look at maximizing total return but rather risk adjusted return. Buying a lotto ticket has amazing total return if you hit the jackpot but really bad risk adjusted return. The thing you should spend some time doing is deciding what your risk tolerance is and how much variance in your portfolio you can stomach. Then you can start talking investment str…

The lotto ticket is a bad example because it has negative expected return. A better example would be a positive expected return but with a very high amount of risk. Something like $FAS should fit the bill there.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#267

Post by arcticbull »

jordanmarshall wrote: post #51

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:…

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

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#268

Post by fotta »

MuffinFlavored wrote: post #216
jordanmarshall wrote: post #51

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:…

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…

I would add that if your employer allows for mega-backdoor, do that too.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#269

Post by RomanPushkin »

throwaheyy wrote: post #148
Trias11 wrote: post #72

Earlier quoted context omitted.

+1

A US passport won’t let you in right now?

Well, getting EU passport sounds like a long-term plan and investment. Current travel ban doesn't look like long-term. also, what's the reason of getting into EU? Is there more opportunity for investment? The vast majority EU countries the purchase power is lower than it is in US.

Re: Ask HN: I have $450K cash, what should I do to maximize my return?

#270

Post by arcticbull »

nordsieck wrote: post #264
_skel wrote: post #221

Earlier quoted context omitted.

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…

> 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 fi…

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.
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