sold business - what now?

[Zunow]

Hi,

This my first post here, but I've been lurking up for a while. I've saved up a lot of questions, so I thought I'd give everyone a snapshot of where I'm at and then get to my questions.

Me:
- I'm 34 and recently sold a small business I started several years ago. I'm already working on two other ventures.
- Recently married, no kids (currently).
- I probably spend more money than I should (waste money on some stupid/fun things), and "only" save $1k a month.

Assets:
- $25k in IRA (startup has always had poor employee benefits/savings programs)
- $55k in mutual funds (from my regular savings)
- $625k in money market (from recent sale, not sure where to put it)

Income:
- I've started another company, raised a small amount of outside capital, and currently pay myself $10k/month; the business is interesting, but extremely unknown right now. I think we'll do well, but I could also lose my job in 3 months and I wouldn't be that surprised.

Debts:
- $525k on mortgage. I bought my San Jose condo in 2004 for $700k (doh!); it's probably worth $550k now.
- I will owe about $150k of taxes in 2009 (due to business sale this year).
- I've never had a car payment or cc debt or anything like that.

Wants:
- I'd like to put $50k into one of the new companies I've started. Again, this hope/prospects are high, but it too could also totally blow up. So after taxes and this investment, I'll have about $400k "extra" to invest somewhere...
- My wife and I would like to move into a house ASAP (from our condo).

My Questions/Ideas:
- How should I "time" the market to invest the $600k I currently have into something better than a money market at ~3%? If I would have initially moved this into the same mutual fund(s) my "regular savings" is in, I would have lost about $40k over the last couple months (glad I didn't!). Now I'm paranoid to do anything with it.

- Some of the extremely wealthy people that were investors in my original company have recommended me to a "wealth manager" (or something). I feel like I don't need this and don't have enough money for this today... Thoughts? Anyone here use someone like that? This firm charges 1.25%/year of your investable assets.

- My wife and I are thinking about (a) renting out our condo at a loss (probably lose $1k/mo), (b) buying a house we'd rather live in (have big dogs now) (it's a good time to buy), and (c) waiting for the housing market to recover (2-3 years?) and selling the condo then. The new house would likely be between $500k and $750k. 20% down on $750k = $150k + $3k/mo. Bad idea? Too ambitious? (i.e. buy 2nd now and sell 1st later).

I'd appreciate any tips or insight you may have!

[maat55]

I would take 60% of it and divide it into 4 different types of mutual funds. Growth, Growth & Income, Aggressive Growth & International. 20% in Gold funds and the rest in high yield savings.

[scfr]

No need to pay for professional advice. Since you have $500K in investible assets, give Vanguard a call.
They will give you complimentary advice from a CFP:

https://personal.vanguard.com/us/accounttypes/advice

Are you self-employed? If so, seriously consider a SEP-IRA. In 2008, you can put up to $46K away tax-deferred. [The actual amount you can put in depends on income.]

[Scanner]

I wanted to respond to this the other day but didn't have time until now.

I think what worries me the most is how leveraged you can become under your scenario.

For better, for worse, I think the magic number for putting money down on a house should be 20%.

So, if you want a house for 750K, you should put down 150K. If your mortgage is 3K/month. . .and you make 10K/month. . .25% of your income isn't bad, just about right.

I would liquidate your current house rather than taking a rental loss on it. You'll have very little capital gains tax and I do think a discussion with an accountant is order on that - rolling over your equity in another house seems to make sense.

Finally, where to invest your 400K.

Given your high tax bracket, I'd look to municipal bonds to stash your money, especially since you are going to inavoidably owe tax on your capital gains in 2008. So, you paid tax on that money once. Stuff it in a tax-free shelter. You can buy insured muni bonds, so you don't lose prinicipal and make 3-4% interest tax-free if you buy them in the State of California where you live. This effectively becomes a 5.5% interest rate for what I imagine is a high tax bracket for you and more importantly, it's risk-free. (well, it's principal-loss risk-free to be more specific, lest JimOhio jump on me about inflation-risk )

You "ladder" them so when you need the money, you can get at it.

So 400K/year @ 3% = $12,000/year tax-free income to either a) reinvest or b) use for low spots in your income/safety net (that represents 4 months of your mortgage payments).

The next step is to set up a retirement account for self-employed (SEP-IRA, Keough) and start stuffing money in that earmarked for retirement.

You then have the 400K earning money tax-free and available at all times should you lose your business and you have retirement money growing in more aggressive investments (stocks+/- commodities).

My scenario is a bit conservative but I am a business owner like you. There aren't many here at savingadvice and it's different for us.

You take your risk to go out and secure money vs. just getting a paycheck. So. . .when you finally "win your money in the market", it pays to lean a bit conservative. This places a lot of your portfolio in debt sector bonds but as you add to your retirement accounts that will soon change/flip.

Good luck.

[LuxLiving]

Zunow, I just want to go a little further on Scanner's point on munis in case you are totally new to them. Just buying munis while you are IN California isn't the trick, it's buying only munis offered BY your state's infastructure building units, say a CA school system or a CA water initiative, something of that sort. As I understand it, it has to be a CA muni bought by a CA resident for it to be free of the tax. Small but important point I think.