When to Invest Bonus Forum

[Anonymous User]

Given that most firms have paid out their EOY bonuses, I'm wondering when people start investing those extra funds? Do you drop a huge sum in the market right away each year or do you invest in smaller chunks throughout the year?

I know that time in the market is almost always better than timing the market, but I'm uneasy about dropping a load of cash in the market all at once, especially with recent volatility. Is anybody treating this year any differently?

In case it's relevant, here's some background info on my current financial situation (though I think advice on timing is mostly independent of this):

• I'm a c/o 2017 grad who received an above market bonus (high hours/merit components put me north of $120k).

• I have not made a decision on where I want to land. A long-term non-equity partner / counsel type role is very likely an option for me at my current firm, but at this point I'm trying to set up as much of a nest egg as possible in case I jump to a lower paying in-house gig.

• No remaining loans.

• I bought a house this summer - until this year most of my bonuses sat in cash to be used for this purchase.

• I already max out my 401k, backdoor Roth, and mega backdoor Roth.

• I'm keeping a ~$30k rainy day fund in cash (I also have some extra cash earmarked for some home improvement projects coming up, plus some savings from my partner)

• For non-tax favorable investments, I put my money exclusively in broad market ETFs (think VTI, NASDAQ/Dow/S&P tracking funds, a few sector/high growth funds, etc.), though I do have a high degree of risk tolerance at this point in my life re: portfolio balance (virtually nothing in bonds at this point). I won't need any of this cash until I retire.

Edit: added poll

[Anonymous User]

I usually spread it out in smaller chunks through Feb. 20--to not miss the qualified-dividend deadline for Q1 (and Q2/Q3 if I were to wait it out).

[Anonymous User]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

[thisismytlsuername]

I know that time in the market is almost always better than timing the market

Damn look at that you answered your own question.

If anyone here had a better answer than this they would be on a yacht, not posting on a message board about being a lawyer.

[Wanderingdrock]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

[unlicensedpotato]

Assuming you don't expect to need the money for 5+ years, just buy in all at once. It seems a little crazy when you're more junior but after awhile even a sizeable bonus like the one you got will be a very small percentage of the total amount you have invested. That may help you feel more comfortable taking the "correct" approach.

[The Lsat Airbender]

I know that time in the market is almost always better than timing the market

Damn look at that you answered your own question.

If anyone here had a better answer than this they would be on a yacht, not posting on a message board about being a lawyer.

This; also: if recent equity "volatility" is too much for you to stomach, consider adjusting your asset allocation. The S&P is down, what, 7% this year? I don't think it ever even hit correction territory.

[Anonymous User]

I know that time in the market is almost always better than timing the market

Damn look at that you answered your own question.

If anyone here had a better answer than this they would be on a yacht, not posting on a message board about being a lawyer.

This; also: if recent equity "volatility" is too much for you to stomach, consider adjusting your asset allocation. The S&P is down, what, 7% this year? I don't think it ever even hit correction territory.

It did (last week) on an intraday basis but I think it always managed to technically stay above the 10% down mark on a closing price basis.

[Anonymous User]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

Does the IRS count such a low bonus withhold rate against you for underwithholding penalties?

[Anonymous User]

Given that most firms have paid out their EOY bonuses, I'm wondering when people start investing those extra funds? Do you drop a huge sum in the market right away each year or do you invest in smaller chunks throughout the year?

I know that time in the market is almost always better than timing the market, but I'm uneasy about dropping a load of cash in the market all at once, especially with recent volatility. Is anybody treating this year any differently?

In case it's relevant, here's some background info on my current financial situation (though I think advice on timing is mostly independent of this):

• I'm a c/o 2017 grad who received an above market bonus (high hours/merit components put me north of $120k).

• I have not made a decision on where I want to land. A long-term non-equity partner / counsel type role is very likely an option for me at my current firm, but at this point I'm trying to set up as much of a nest egg as possible in case I jump to a lower paying in-house gig.

• No remaining loans.

• I bought a house this summer - until this year most of my bonuses sat in cash to be used for this purchase.

• I already max out my 401k, backdoor Roth, and mega backdoor Roth.

• I'm keeping a ~$30k rainy day fund in cash (I also have some extra cash earmarked for some home improvement projects coming up, plus some savings from my partner)

• For non-tax favorable investments, I put my money exclusively in broad market ETFs (think VTI, NASDAQ/Dow/S&P tracking funds, a few sector/high growth funds, etc.), though I do have a high degree of risk tolerance at this point in my life re: portfolio balance (virtually nothing in bonds at this point). I won't need any of this cash until I retire.

Edit: added poll

I would only look at the I-bonds; current max of 10k/year and this year's rate is 7%, though it will adjust with inflation. Better than letting that 10k sit in the bank.

[Wanderingdrock]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

Does the IRS count such a low bonus withhold rate against you for underwithholding penalties?

Absolutely no idea. Being an associate whose comp has increased each year since starting this profession (and who never made much in previous jobs) I've never run a serious risk of withholding penalties.

[Anonymous User]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

Does the IRS count such a low bonus withhold rate against you for underwithholding penalties?

Absolutely no idea. Being an associate whose comp has increased each year since starting this profession (and who never made much in previous jobs) I've never run a serious risk of withholding penalties.

[nealric]

I wouldn't worry too much about it. Over long time horizons, the difference between investing it all now or over a couple of months is pretty trivial.

Imagine three investors: one only invests at market troughs, another only invests at market peaks, and another invests biweekly. Even the worst market timer (investing at market peaks) has healthy market returns (on a historical basis). But the best market timer actually does worse than the one who just invests bi-weekly.

[The Lsat Airbender]

Have you done your taxes yet? Highly recommend setting 13% or so aside… many firms only withhold bonuses at 22% for some reason which means a large tax bill for the remaining 13% of your bonus payments.

All* firms, hopefully. 22% is federal law for bonus withholding. (To be clear: that's the withholding rate. You still owe the full income tax on it come tax filing time, as this poster points out.)

Does the IRS count such a low bonus withhold rate against you for underwithholding penalties?

Average tax rate on $200k income is 21.78% anyway, so this is a non-issue for junior associates. The IRS are good at math and set the bonus rate at 22% for a reason. Indeed, as noted above, you'll usually end up overwithheld if you're a generic biglawyer with no extra income/allowances.

If you're clearing $400-500k annually, and a large chunk of that is bonus, then you need to start thinking about quarterly payments etc. I hear this is extra annoying for Californians for some reason. New York withholds bonuses at some comically high rate (they use the float during the fiscal year) so this stuff ends up being close to a wash for NYC midlevels.

[pm2294]

If you have the risk tolerance, you should look into stablecoins. Depending on the platform and digital asset, you can earn double-digit APY.

[Anonymous User]

I would only look at the I-bonds; current max of 10k/year and this year's rate is 7%, though it will adjust with inflation. Better than letting that 10k sit in the bank.

OP here - thanks all for the advice!

I'm curious about this point - do you mean to say that I should start putting my $30k rainy day fund into I-bonds over the next few years? Would the I-bonds be sufficiently liquid (after the first year, of course) for that? I'm worried that if I need the $ quickly I won't have time for my local bank or the Treasury Department to process the redemption.

[The Lsat Airbender]

If you have the risk tolerance, you should look into stablecoins. Depending on the platform and digital asset, you can earn double-digit APY.

Argentine government bonds are currently yielding over 40% if you "have the risk tolerance" for something so unreliable

I would only look at the I-bonds; current max of 10k/year and this year's rate is 7%, though it will adjust with inflation. Better than letting that 10k sit in the bank.

OP here - thanks all for the advice!

I'm curious about this point - do you mean to say that I should start putting my $30k rainy day fund into I-bonds over the next few years? Would the I-bonds be sufficiently liquid (after the first year, of course) for that? I'm worried that if I need the $ quickly I won't have time for my local bank or the Treasury Department to process the redemption.

You could keep a smaller pot of cash in a HYSA (Ally or Marcus or something) for when you can't wait 3 business days. But it's rare to need cash that quickly, especially if you maintain a low balance on your credit cards.

On the other hand, part of the point of an emergency fund is peace of mind. If you'd rather have a checking account, or even an envelope of $100 bills in your sock drawer, more power to you. Even if inflation stays in the high single digits you're not leaving too much meat on the bone.

[Wanderingdrock]

I would only look at the I-bonds; current max of 10k/year and this year's rate is 7%, though it will adjust with inflation. Better than letting that 10k sit in the bank.

OP here - thanks all for the advice!

I'm curious about this point - do you mean to say that I should start putting my $30k rainy day fund into I-bonds over the next few years? Would the I-bonds be sufficiently liquid (after the first year, of course) for that? I'm worried that if I need the $ quickly I won't have time for my local bank or the Treasury Department to process the redemption.

Not the poster above, but when I went to my bank to cash a Treasury note recently, it took 4 minutes. Granted, that was a Series E (I think?) and was only ~$200, but I'd imagine up to $10k they're all about evenly liquid. Maybe if you're doing it all online through Treasury it would take a little longer for the money to reach your bank account, but I have trouble seeing it take much longer than, say, transferring out of an online HYSA like Marcus earning 0.5%.

[Anonymous User]

Just a warning, iBonds can't be redeemed for a year after purchase. So you can set it up over time but don't think that you can put it there today and redeem 3 months later. You also lose a few months of interest if you redeem before a longer period--can't remember how many years it is.

I always do all of my investing lump sum as I get the money in. Sucked this year. Is what it is.

[Sackboy]

Not the poster above, but when I went to my bank to cash a Treasury note recently, it took 4 minutes. Granted, that was a Series E (I think?) and was only ~$200, but I'd imagine up to $10k they're all about evenly liquid. Maybe if you're doing it all online through Treasury it would take a little longer for the money to reach your bank account, but I have trouble seeing it take much longer than, say, transferring out of an online HYSA like Marcus earning 0.5%.

I have cashed out I Bonds before. Had my money within the day. Even if it took, 3-4 days, would it remotely matter? I find it hard to believe you're going to have an emergency expense that is payable immediately and not within 21 or 30 days. I'd only start to get sweaty hands about buying I Bonds if you think your lifestyle is prone to hostage situations that require immediate wire transfers or you lose a family member. Though, if you're someone like Gary V, maybe that motives you.

[Anonymous User]

Not the poster above, but when I went to my bank to cash a Treasury note recently, it took 4 minutes. Granted, that was a Series E (I think?) and was only ~$200, but I'd imagine up to $10k they're all about evenly liquid. Maybe if you're doing it all online through Treasury it would take a little longer for the money to reach your bank account, but I have trouble seeing it take much longer than, say, transferring out of an online HYSA like Marcus earning 0.5%.

I have cashed out I Bonds before. Had my money within the day. Even if it took, 3-4 days, would it remotely matter? I find it hard to believe you're going to have an emergency expense that is payable immediately and not within 21 or 30 days. I'd only start to get sweaty hands about buying I Bonds if you think your lifestyle is prone to hostage situations that require immediate wire transfers or you lose a family member. Though, if you're someone like Gary V, maybe that motives you.

OP again - did you cash out using the treasury website or at a bank? Despite the recent raises, bonuses, etc. I'm still not quite take-your-kids-for-cash-rich. Plus, no kids yet.

[Sackboy]

OP again - did you cash out using the treasury website or at a bank? Despite the recent raises, bonuses, etc. I'm still not quite take-your-kids-for-cash-rich. Plus, no kids yet.

I cashed out using the website. I don't know how I'd even do it at a bank (or if it's even possible).

[s1m4]

If you have the risk tolerance, you should look into stablecoins. Depending on the platform and digital asset, you can earn double-digit APY.

Which platform are you getting these returns on? Thanks!

[pm2294]

If you have the risk tolerance, you should look into stablecoins. Depending on the platform and digital asset, you can earn double-digit APY.

Which platform are you getting these returns on? Thanks!

I've been using Gemini Earn for over a year now and GUSD yields ~8% daily. The other major exchanges offer similar stablecoins with similar yields. FTX and Kraken offer a larger variety of digital assets for staking and currently offer higher yields, however, IMO Gemini is the easiest to get started with. You can get started doing this with a few clicks. If you go full degen down the yield farming rabbit holes, you can find much higher yields but that involves a lot more steps and time.

[s1m4]

If you have the risk tolerance, you should look into stablecoins. Depending on the platform and digital asset, you can earn double-digit APY.

Which platform are you getting these returns on? Thanks!

I've been using Gemini Earn for over a year now and GUSD yields ~8% daily. The other major exchanges offer similar stablecoins with similar yields. FTX and Kraken offer a larger variety of digital assets for staking and currently offer higher yields, however, IMO Gemini is the easiest to get started with. You can get started doing this with a few clicks. If you go full degen down the yield farming rabbit holes, you can find much higher yields but that involves a lot more steps and time.

Got it - yeah those I know (which are single-digit), but you gotta go degen to get the double digit, and that becomes more risky and difficult to manage.