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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?

#311

Post by artosispylon »

arcticbull wrote: post #303
_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…

For what it's worth, at 2.675% interest on a 30-year fixed, buying a house in cash makes very little sense, and a mortgage can counterintuitively earn you money. 1. In general, since the 1970s, house prices have across the United States tracked inflation. The price per square foot on a house, on average, is exactly the same as it was back then (houses are more expensive because the average US house has gotten bigger,…

I think you should mention the higher risk exposure from having so much liability tied up in a single asset if the house loses value.

Also, why is option 2 @2%? If you're investing the $360k at 7%, you should compare it to the same investment at 7%.

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

#313

Post by jannotti »

arcticbull wrote: post #267
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 res…

Please stay away from leverage equity index funds.

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%.

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

#316

Post by arcticbull »

artosispylon wrote: post #311
arcticbull wrote: post #303

Earlier quoted context omitted.

For what it's worth, at 2.675% interest on a 30-year fixed, buying a house in cash makes very little sense, and a mortgage can counterintuitively earn you money. 1. In general, since the 1970s, house prices have across the United States tracked inflation. The price per square foot on a house, on average, is exactly the same as it was back then (houses are more expensive because the average US house has gotten bigger,…

I think you should mention the higher risk exposure from having so much liability tied up in a single asset if the house loses value. Also, why is option 2 @2%? If you're investing the $360k at 7%, you should compare it to the same investment at 7%.

Option 1 is a 20% down payment on a $450K mortgage, so a $90K down-payment (10% yield) and a $360K investment in the market (7%) and a $360K mortgage (0.53%).

Option 2 is a $450K cash purchase of a house, which, on average, appreciates at the fed target inflation rate of 2%.

Indeed although in both cases you own the home and are subject to the same depreciation risk right? Although if you're willing to take a credit hit, I suppose you're shifting that depreciation onto the bank.

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

#317

Post by refurb »

dragonwriter wrote: post #76
chii wrote: post #74

Earlier quoted context omitted.

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” — Peter Lynch

That's the wrong comparison. The right comparison is to what would have been lost in corrections but for the preparations . I mean, if you have x losses in preparation to achieve y losses in actual corrections, when you would otherwise have z losses in corrections for z > x + y , that's a win.

Of course, but for z > x + y to be true you'd have be amazing at timing the market (or just very lucky), which very few people are.

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

#318

Post by arcticbull »

MuffinFlavored wrote: post #308
arcticbull wrote: post #303

Earlier quoted context omitted.

For what it's worth, at 2.675% interest on a 30-year fixed, buying a house in cash makes very little sense, and a mortgage can counterintuitively earn you money. 1. In general, since the 1970s, house prices have across the United States tracked inflation. The price per square foot on a house, on average, is exactly the same as it was back then (houses are more expensive because the average US house has gotten bigger,…

1. homeowner's insurance 2. homeowner's associate fees 3. property taxes 4. maintenance/upkeep don't those cut into your "compare a house to investing in index funds" example?

Indeed although you own the house in both cases right, so you can factor that out when making the comparison. It'll impact your total returns equally in both cases, unless I'm misunderstanding you?

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

#319

Post by imtringued »

darawk wrote: post #231
edoceo wrote: post #160

Earlier quoted context omitted.

You'll need a fund with good dividend payout. SPY is currently at $1.30 and cost $327. If you put $450k into SPY you make $1870 per quarter. So, might need to buy $2MM of SPY. But there are other good dividend funds and/or individual equities.

Do not do this. Dividends are not a good way to pick stocks. Dividends and buybacks are fungible, except that buybacks are more tax efficient. All equities should have the same risk-adjusted expected total return (i.e. including dividends, if markets are efficient), so you should not be picking stocks based on their dividend yield alone. If you want income from your equity portfolio, just periodically sell shares.

From the perspective of an investor this is spot on but on a societal scale it would be better if capital gains were taxed more than dividends. Dividends have to be paid from the income a company generates, meanwhile the stock price can be influenced by almost anything and it doesn't actually require the company to generate more value.

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

#320

Post by mancerayder »

fwsgonzo wrote: post #297
mancerayder wrote: post #180

Earlier quoted context omitted.

That's a matter of opinion, wrong mindset. I bought gold miners that ballooned, and swing traded pharma. This turned into money that I can use to buy things like computers and furniture. Or buy even more of the fabled broad index funds.

Which platform do you use, if you don't mind me asking?

Vanguard and Schwab, with an increase move of capital to Schwab. They allow more advanced trading like options (no, I'm not that crazy - yet), shorting, buying and selling in the same day, etc, that Vanguard doesn't even support. Also, there's a downloadable web client that lets you create complex If Then type conditions, as well as aggregate news and customize dashboards and a bunch of other stuff.

I'm not that active trading, maybe I perform an action once every one to two weeks. I spend almost all my time just trying to absorb information.

Honestly, with all my questioning of index funds and contrarianism in comments above, I am slightly skeptical that the average person should have this much access to these types of tools. I could instantly blow away all my money and be left in debt (given they allow margin).

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