Ask HN: $500k cash – what to do with it? | Hacker News Reader

Ask HN: $500k cash – what to do with it?

23 pointsnomdesign17 comments

I'm 30, married and planning to start a family next year. I want to work hard now in exchange for better financial stability later. However, I rather spend my time on learning how to use money to make money, than taking on a job. Although if I have to, I can make a decent salary. I have ~$300k in mortgage, no other debt, monthly expense is ~$5000 (includes mortgage, tax, utilities, food, entertainment, etc). Assume I am the sole bread winner. No other assets. Able and willing to take a reasonable amount of risk. Parents can take care of themselves financially, only dependent is spouse and future kids. Thanks!

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I'm assuming that you have limited investment experience, which is why you're asking this on HN, thus having fallen upon a windfall through inheritance, company stock options, etc.

My personal opinion: do nothing. Do nothing. DO. NOTHING.

This amount of money is psychological destabilizing, but even that will be nothing compared to when you are risking it. You have no idea how you will react if you start losing money (you might increase risk - that's how people blow their fortunes).

If you're really looking for financial freedom, use the cash to take time off a job and start working on your own business.

If you are interested in investing because you are interested in investing (unlikely if you haven't dabbled in that already), then start small. Take 25k and start buying stocks or whatever. Do not go big - it takes years of brutal experience to get even decent at investing.

This is life changing money - in other words, your life has already changed. You don't need to multiply it to change your life. It's not worth risking it all. Go small, and just take time.

Simplest: 100% VTSMX

Conservative: 60% VTSMX, 40% VBMFX

I would do: 50% VTSMX, 30% VBMFX, 15% Lending Club, 5% YCombinator funds on fundersclub or wefunder.com (split over next 4 summer and 4 winter classes)

This is a great site: http://www.mrmoneymustache.com/

Why do you choose VTSMX over VTI? VTSMX expense ratio is 0.17 bps while VTI is 0.05.

look at the charts, its simple. VTSMX > VTI even after that expense ratio.

Read about ETFs. They are the same as mutual funds without the fees.

Kids cost more than you think they will.

See if your bank will let you make a yearly lump sum payment on your mortgage directly on the principal. They do up here in Canada. If they don't, ask another bank if they will and then tell your bank you're willing to switch.

Managing money is not difficult. The more time you put into it the more money you will lose.

Be careful taking financial advice. People fall into two camps: fearful or optimistic. There are many more fearful people than optimistic people, even though the equity market has an upward tendency.

When purchasing investments, be wary of good sales people, they are the ones who will screw you the hardest. The geeky guy you don't trust is likely giving you good advice. The good looking guy who makes a lot of sense and who you just like for some reason... Run!

"Read about ETFs. They are the same as mutual funds without the fees."

ETFs do have expenses - nobody is going to manage them for free. They're just incorporated into the share price, so their long-term returns will be slightly less than those of the underlying basket of securities they hold. ETF's expense ratios are generally lower than those of traditional mutual funds.[1]

However, with many mutual funds, you can reinvest the dividends and distributions for free, but to do that with an ETF would require paying a brokerage commission each time.

[1] https://en.wikipedia.org/wiki/Exchange-traded_fund#Costs

$500,000 isn't too much. You would be fortunate if you can turn the $500,000 into $5000/mo in income, thereby covering all of your current monthly expenses. Once you have all that free time, you'll probably want to start spending more money though.

You can earn the 12% a year by investing wisely in rental properties. That would be 12% in net income, which doesn't include any future appreciation (or decline in price). To achieve those numbers, you will most likely want to buy your rentals with a mortgage, so I hope you have a W-2 or other steady taxed income for the last 2 years, because thats what you'll need to qualify for most loans, but not all.

By leveraging your $500,000, you can buy $2,000,000 worth of assets in real estate. YMMV.

Where are you? What's the interest rate on your mortgage - any investment needs to beat that to be financially a better choice.

US. 4.5%, 30 years.

Expenditure reduction could be more important than you have yet considered, and give you more future flexibility in your financial and emotional life: assuming you save the money not expended, which is its own learning experience, life practice and meditation.

You could have a twenty-year mortgage for about a percentage point less interest, and for a mere 250 dollars a month more payment, a mere 5% increase of your present monthly expenditure. By paying down the loan 10 years sooner, you may expend an additional $60,000 over 20 years paying the loan off, and also avoid later expending $180,000 for years 21 through 30, for a net reduction of about $120,000 at the end of 30 years (in the variable value "current-year" dollars).

You also could decide to own the house outright now, debt free, and save a mortgage expenditure of $1,500 a month for a reduction in expenditure of $540,000 over 30 years, and still have $200,000 cash reserves today.

Investing a stream of avoided mortgage payments of $1,500 a month -- $18,000 a year is equivalent to creating a 30-year investment/saving program. Assuming a not-so-great three percent interest on that program, you would have around $850,000 in hand at the end of year 30, in future (inflated) dollars. You could probably do better than that in investment return, and learn more along the way slowly, with less risk.

All of this points to $500,000 to being not much money, and the rest of your life activities and financial choices might have a far greater influence on your possibilities and life flexibility.

The money you could save in expenditure reduction, and equally importantly set aside for investing, might be a more powerful financial and emotionally freeing future for you than investing the $500,000 lump sum you have now.

Consider that at least some of that should probably be reserved as the beginning of a retirement fund... perhaps 150k if you and your spouse are currently 30? Id look for some sort of reasonably safe financial vehicle to place that as retirement.

The rest of it depends...

If you like where you live I'd probably get rid of the mortgage and keep the remaining as an emergency fund. Minimizing living costs gives you a lot of financial freedom to do many other things and knowing you'll always have a roof over your head can increase your ability and appetite for trying the riskier sorts of things (starting a business, investing, etc).

Convert it all to Dogecoin.

This as well might be the best advice given at this point of time.

You have $500k in cash available after all that?

Google Harry Browne - permanent portfolio

+ Depends on how many kids you ideally want. + Depends on where you WANT to live when you have kids + Depends on what your profession is (e.g. full-stack developer or business guy with niche skillset) + What's a reasonable amount of risk to you?

If you are a developer who can just go get another 100k job wherever then you can take a decent amount of risk (even running your own startup and failing).

If you live in a city like SF or NY and want 2-3 kids, that money can go VERY fast if you haven't planned well (should be looking into tax-free contribution trusts for the kids though.)

There's couple of things you can do: 1) Invest in assets (real estate, stocks, startups, muni bonds) 2) Invest in yourself (additional schooling or education) 3) Take a gamble and be an entrepreneur 4) Do NOTHING and keep your powder dry 5) Do a combination of the above

Interestingly enough, I think under the right scenario, you can learn to invest across assets & start a startup.

I do not recommend investing in startups until you've gone through a startup and fully realize how hard it is to succeed what kind of "real risks" you are taking investing in these companies. Plus, seed investing (what you will be doing) needs enough sample size - most likely min 20k @ 20+ investments and each having a chance to all go to 0 (very high chance; that's why a lot of crappy incubators flop).

Investing in stocks, bonds, real estate, etc. --> this can take thousands of hours to do well but you have to start somewhere in your life. B-school won't help you, getting a CFA won't help you, investing in these assets also means understanding the style of investing you're comfortable with. It's also a lot harder than people think it is at this point of the economic cycle (its was easy to make money when we were at the bottom of the market and fed juiced the markets up)... it's much harder to get good returns around this year to next year. However this also means you may want to play with tranches of 50k and give yourself 3ins to fk up completely. spending 150k total max loss out of 500k to put yourself into a position to force yourself to learn to invest is, in my opinion, a pretty cool position to be in, given that you still have a lot of dry powder left. That allows you to experiment with etfs, individual stocks options, futures, even day trading --> all of which even if you lose 150k over the next 2 years, it will help you see how that side of the world works for the rest of your life. And if it's the case that you're going to be fairly well off one way or another (upper-middle class lifestyle in your 40s), you're going to have to learn how to invest anyway. Real estate investing in these times is something I would stay away from (if you're going to do it, I would spend money on getting some education on real estate and wait for things to pop in a few years or only buy extremely selective assets - just remember that being a landlord is a lot more painful than people realize in the beginning).

Becoming an entrepreneur - You're in a lucky position to self-fund the seed amount and especially if you're a developer then that seed amount can go a long ways. If not, you still have the financial wherewithdal to pay for a top developer for about a year. Even then though I would put a cap on it for $250k of your own money ($100k in developer expense for a year, $100k marketing expense, and $50k in living expense. Based on my experience, if you can't get enough "smart" money funding after you've spent $250k, that's probably not going to be a good idea b/c what you realize is that there's actually a lot of dumb "smart" money that just has to put capital to work.

All in all, I would focus on your passion (what interests you the most) and stick to one thing as the primary way to improve your financial stability and as a little hobby on the side, dabble in one more thing that you'd like to do better. (e.g. Do a startup and on the side invest a $50k allocation by following stocks in your startups' space).

One thing I highly recommend you to think about as a possibility is to spend 50k (10%) and travel around the world for 3 months with your wife. That can help in almost everything that you possibly want to do (even raising a family) : )

You'll have enough time to read about a number of things you want to potentially experiment with while seeing how the world is actually working and what each place needs; meet some cool people along the way and see how those people are thinking about the world. Plus, a decent amount of time to relax with your wife and have many a nights'conversations as to what you guys think is the right next step to take (under a stress free environment). Also, if you're going down the startup path - you're probably not going to take any time off your first 24 months and it'll most likely be the most stressful thing you've ever done...

My background: I positioned my life to be single, no mortgage, work my ass off to save couple hundred thousand bucks saved by 27. Would like to think of myself as having domain expertise in finanical markets. For the past few years, continued to invest in public markets, decided that B-school was not worth it for me (have tons of friends who went to top b-school), worked & failed in my startup with my best friend, and wasted $150k of my savings. The best thing for my career was failing at my startup - I learned more than any of my friends who spent the same amount of money going to a top bschool. Better yet, I realized that even after I failed, that is the space I want to be in and that I'm actually pretty good at it (just didn't have the right business concept). Now I'm working with another startup. Prior to startups, I've traveled to over 30 countries over 6 month period and read every periodical / book / website on business, investing, startups, etc. Absolutely one of the best/coolest things I've ever done that provides dividends time and time again.

Can have a more personal chat if you think that I can help.

Go get a degree: md, jd, MBA. 200k should be enough to take you through school Buy bitcoin with the rest.

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