What to do after a windfall :

General Discussion on the Permanent Portfolio Strategy

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glennds
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Re: What to do after a windfall :

Post by glennds » Mon Nov 06, 2017 2:32 pm

sophie wrote:Hi Frugal,

Yes, bring back your distinguished-person avatar! Here's my list of what to do with a windfall...delightful question to tackle on a weekend morning.

First things first. I'd remodel my kitchen. That's because I want to do that and have been saving for it, but don't quite have enough in the kitty yet.

Then I'd pay off the mortgage, even though many would say this is not a financially wise thing to do. I don't care. Being debt free is priceless. (Same goes for any other debts you might have.)

The rest gets invested. If it's not that much money I'd pitch it all into the PP, buying the assets in equal proportions. If it's still a large amount, perhaps you could put part of it into your PP (assuming you still have that) and do something else with the rest. Options are:

- buy a vacation home or condo and rent it out on Airbnb, to develop an alternative income source. You get to enjoy it when it's not rented!
- Consider it a "VP" and buy something speculative: a stock or fund, bitcoin, whatever strikes you as something that could go up a lot. Put in auto sell orders if it drops a set amount, like 10%, to keep from losing too much if you guess wrong.
- Consider it part of your core investment portfolio but use a different portfolio strategy. Lots of options on the Bogleheads wiki. Pick one, put it in place, and DON'T CHANGE IT. Constant tweaking will only result in buying high/selling low syndrome.

If it's enough money to allow you to retire and maybe move somewhere you'd rather live permanently, then I'd either go 100% PP or the last option above, and have at it.

Congratulations by the way!
Sophie,
How might your answer change if the windfall put you in a position of having investment assets equal or greater than 50x your annual needs? In fact, in a scenario like that, would you use the PP at all? After all, you'd have the staying power to ride out market swings over extended periods and benefit from a low% withdrawal rate. One of your interesting earlier posts inspires this question. Thanks,
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Re: What to do after a windfall :

Post by frugal » Mon Nov 06, 2017 2:45 pm

jhogue wrote:1. I have never met anyone who later regretted paying off their mortgage. Before you do that, though, you should check the implications for future taxes. Also, be prepared for having a change in perspective on all sorts of things once you are finally debt free.

2. I think that buying rental real estate is a highly person thing. Some people enjoy it; some people don't. I would rather tinker with my I bond ladder than wrestle with broken plumbing under the sink.

3. Filling up your Cash to your 35% rebalance band strikes me as a great idea. Like paying off your mortgage, I think it is something you will never regret. It won't make you rich, but it will probably make you feel more secure-- especially when the next big stock downturn happens.

4. If the windfall has come your way because of the death of someone important in your life, reserve some money to do something special or unusual to commemorate their life and passing. It could be a splurge at a fancy restaurant or a cruise to Hawaii. It can make for better memories.
Thank you for your 4 points.
dualstow wrote:
frugal wrote:
hi

history says that it should enter in PP as soon as possible.

So, we don't have to wait for rebalancement

Correct?

Regards

NOTE: my PP friends asked, and I shaved and put a new b&w photo!
Nice avatar!
I have to chuckle at the “as soon as possible”, since you’ve been asking since, when - 2012? 2010? But with stocks seemingly high and gold seemingly low, it seems like a great time to enter the pp.
Just my opinion.
hi
I believe in PP, no question on it.
But, I don't understand why now it is a good time to do it. All times are good no?

ochotona wrote:
dualstow wrote: Nice avatar!
I have to chuckle at the “as soon as possible”, since you’ve been asking since, when - 2012? 2010? But with stocks seemingly high and gold seemingly low, it seems like a great time to enter the pp.
Just my opinion.
So if this large windfall immediately triggers a rebalance, then I guess the PP is good for now. 25% is a small stock allocation in the grand scheme of things.

Gold is probably somewhere near multi-year lows. I'm not worried about that. I did worry in early 2015, but almost three years later, not so much. It has just gone sideways, with big swings, at least for Americans. Different in different currencies.

But in Europe, don't they still have negative interest rates for bonds? What happens to bonds worries me if they go from (-) to (+) over a short period of time. I'd expect bondholders to get killed.

As far as cash is concerned... 500 Euro notes? Is is still possible to get them? That's how you have to do it if interest rates are still (-). They don't make it easy do they.
hi
EUPP is not different from USPP.
The % profit is maybe just a bit lower.
With PP you don't have to guess.
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Re: What to do after a windfall :

Post by dualstow » Mon Nov 06, 2017 5:51 pm

Yes, I believe all times are good.
I just meant now feels like an odd time to put too much into stocks. The pp feels right, to me at least, during these times of portfolio paralysis.
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Re: What to do after a windfall :

Post by eufo » Mon Nov 06, 2017 6:38 pm

Xan wrote:I expect the next question to be what's the best way to get a windfall[...]
I'd like to hear an answer on that one if anyone has any ideas!
Don't agree with me too strongly or I'm going to change my mind
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Re: What to do after a windfall :

Post by eufo » Mon Nov 06, 2017 6:55 pm

Tortoise wrote:
ochotona wrote:I'm not buying in urban areas - even parts of Texas where I live are bubbly, like Dallas and Austin. And darn it, we've been in a slump here in Houston and I can't believe how much housing has gone up. How is it that so many people I know are out of work, but housing keeps climbing? Oh, right... bubble.
[...]
Stocks and real estate may go on sale in the next few years. [...]
I'm curious: why do you think the high real estate prices are indicative of a bubble rather than the market's normal price mechanism simply signaling that there are more buyers than sellers right now?

In the years leading up to the 2008 real estate crash, I recall that one of the tell-tale signs that a bubble had formed was the fact that lending standards had gone way down: stated income loans, sub-prime loans galore, etc. Is that currently happening again?
I don't believe lending standards are the issue this time around. I think we're seeing more cash investment for rental or flipping. Either way, excessive pricing beyond what the populace can afford will eventually run out of steam and revert. These bubbles are happening globally and it's honestly a bit scary. Looking at home prices relative to median household income in cities like San Francisco and Sydney is just mind boggling.
Don't agree with me too strongly or I'm going to change my mind
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Re: What to do after a windfall :

Post by ochotona » Mon Nov 06, 2017 7:08 pm

eufo wrote:I don't believe lending standards are the issue this time around. I think we're seeing more cash investment for rental or flipping. Either way, excessive pricing beyond what the populace can afford will eventually run out of steam and revert. These bubbles are happening globally and it's honestly a bit scary. Looking at home prices relative to median household income in cities like San Francisco and Sydney is just mind boggling.
People are buying houses as investments. Retirees can't get any yield on bonds, so they look at a house as monthly dividend generator, and they become landlords. We have a daily real estate investment radio show which uses a lot of emotional manipulation to get people to sign up for their "mentoring" program. We have a nice neighborhood which had it's first stages just built out, called Bridgeland, and I was astonished to find that many of the houses had real estate investment firms as their first owners, and the houses are beginning life as rent houses. This is an archetypical American surburban neighborhood where the norm has been family-owned dwellings.

It will all be good fun until those houses are upside-down. Then it'll be 2008 again.
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Re: What to do after a windfall :

Post by eufo » Mon Nov 06, 2017 8:13 pm

ochotona wrote:
eufo wrote:I don't believe lending standards are the issue this time around. I think we're seeing more cash investment for rental or flipping. Either way, excessive pricing beyond what the populace can afford will eventually run out of steam and revert. These bubbles are happening globally and it's honestly a bit scary. Looking at home prices relative to median household income in cities like San Francisco and Sydney is just mind boggling.
People are buying houses as investments. Retirees can't get any yield on bonds, so they look at a house as monthly dividend generator, and they become landlords. We have a daily real estate investment radio show which uses a lot of emotional manipulation to get people to sign up for their "mentoring" program. We have a nice neighborhood which had it's first stages just built out, called Bridgeland, and I was astonished to find that many of the houses had real estate investment firms as their first owners, and the houses are beginning life as rent houses. This is an archetypical American surburban neighborhood where the norm has been family-owned dwellings.

It will all be good fun until those houses are upside-down. Then it'll be 2008 again.
I think the snowflake on that avalanche will be when even Detroit become unaffordable.
Don't agree with me too strongly or I'm going to change my mind
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Re: What to do after a windfall :

Post by dualstow » Tue Nov 07, 2017 2:37 pm

As of the end of November, I'm

45% stocks
45% cash & bonds
10% gold

This is vp + pp.
I haven't untangled the cash from the bonds yet, as I'd have to go through a lot of stuff like 5-year notes.

Hmm, that's less stock than I thought. 5% less.
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Re: What to do after a windfall :

Post by frugal » Tue Nov 07, 2017 3:20 pm

dualstow wrote:As of the end of November, I'm

45% stocks
45% cash & bonds
10% gold

This is vp + pp.
I haven't untangled the cash from the bonds yet, as I'd have to go through a lot of stuff like 5-year notes.

Hmm, that's less stock than I thought. 5% less.
hi

only 10% gold?

Why?

Regards
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Re: What to do after a windfall :

Post by dualstow » Tue Nov 07, 2017 3:42 pm

Why? Well, first, to be clear I never went full pp. The pp itself has a full 25% in gold despite the (unrealized) losses for most of the life of this pp. The 10% figure, again, is vp+pp.

Since 2010, the pp has been a trial for me. I wasn't ready to jump into 25% of everything in gold, and I'm still not.
I started out very stock heavy. Now, I have a lot of non-stock investments in the vp as well, like corporate bonds.
As stocks went up in 2013 and this year, I trimmed stocks a bit. (The pp also has its rules, and I stick to those).

I'm comfortable holding the gold that I have. There will be no panic selling, and if I never get to rebalance *out* of gold, that's life. The ETFs would have to go out of business -- I know, perish the thought -- for me to get rid of gold at a loss.

I'm also comfortable buying a few 1oz gold coins here and there each year. Ochotona's influence, I guess.

However, outside of the pp, I like buying instruments that pay interest or dividends. With stocks seemingly high, that means mostly short-term notes right now, and a little bit of new gold for me. So, I'm s l o w l y lowering my cost basis for gold. If it shoots up to $5000/oz next month, I promise I won't complain that I missed out.
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Re: What to do after a windfall :

Post by Tortoise » Tue Nov 07, 2017 3:50 pm

eufo wrote:
ochotona wrote:
eufo wrote:I don't believe lending standards are the issue this time around. I think we're seeing more cash investment for rental or flipping. Either way, excessive pricing beyond what the populace can afford will eventually run out of steam and revert. These bubbles are happening globally and it's honestly a bit scary. Looking at home prices relative to median household income in cities like San Francisco and Sydney is just mind boggling.
People are buying houses as investments. Retirees can't get any yield on bonds, so they look at a house as monthly dividend generator, and they become landlords. We have a daily real estate investment radio show which uses a lot of emotional manipulation to get people to sign up for their "mentoring" program. We have a nice neighborhood which had it's first stages just built out, called Bridgeland, and I was astonished to find that many of the houses had real estate investment firms as their first owners, and the houses are beginning life as rent houses. This is an archetypical American surburban neighborhood where the norm has been family-owned dwellings.

It will all be good fun until those houses are upside-down. Then it'll be 2008 again.
I think the snowflake on that avalanche will be when even Detroit become unaffordable.
As expensive as home prices have gotten in my city, the surprising thing is that rents have risen even faster, so it's still cheaper on balance to own than to rent.

Both first-time homebuyers and renters are getting squeezed in the current market.
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Re: What to do after a windfall :

Post by eufo » Tue Nov 07, 2017 5:39 pm

Tortoise wrote:
eufo wrote:
ochotona wrote:
People are buying houses as investments. Retirees can't get any yield on bonds, so they look at a house as monthly dividend generator, and they become landlords. We have a daily real estate investment radio show which uses a lot of emotional manipulation to get people to sign up for their "mentoring" program. We have a nice neighborhood which had it's first stages just built out, called Bridgeland, and I was astonished to find that many of the houses had real estate investment firms as their first owners, and the houses are beginning life as rent houses. This is an archetypical American surburban neighborhood where the norm has been family-owned dwellings.

It will all be good fun until those houses are upside-down. Then it'll be 2008 again.
I think the snowflake on that avalanche will be when even Detroit become unaffordable.
As expensive as home prices have gotten in my city, the surprising thing is that rents have risen even faster, so it's still cheaper on balance to own than to rent.

Both first-time homebuyers and renters are getting squeezed in the current market.
We are experiencing that here as well. I believe that is likely also global.
Don't agree with me too strongly or I'm going to change my mind
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