Help me manage a $7 million portfolio.

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TexasInvestor
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Help me manage a $7 million portfolio.

Post by TexasInvestor »

Hi everyone,

I'm a longtime lurker of these forums and have been mostly convinced of the Boglehead ways. That said, I'd like some collective wisdom on how to manage my mother's 7 million dollar portfolio. She trusts me completely and has put me in charge since I know more about investing than her. We live in [location removed by admin LadyGeek] and she is 58 years old (I'm 26 and have my own income); most of this 7 million is new found wealth resulting from a late 2012 divorce and her father (my grandfather) passing away and leaving a sizable estate.

She has no IRA or 401k since she never had a career, and only earns about $40,000 a year from a job she just started recently (though arguably with this much money, she doesn't need to work). So all of this money will be in a taxable account. She plans for my sister and I to inherit the money 50/50 someday.

My initial thought was that with a no income tax state like Texas, and 7 million dollars, I can be fairly aggressive in the portfolio allocation (I.E. small cap overweight, equities overweight).

So far this is what I came up with (percentages are of a 7 million total, all in taxable account):

10%= Vanguard Intermediate Term Tax Exempt
35%= Vanguard Total Stock Market (domestic equities)
25%= Vanguard Total International Stock Market
10%= Franklin International Small Cap Growth (FKSCX) (active international developed market small cap)
10%= Wasatch Frontier Emerging Markets Small Cap (WAFMX) (active emerging markets small cap)
10%= PRIMECAP Odyssey Aggressive Growth (POAGX) (active US small/mid cap)

As you can see, the 70% in index funds should be more than enough to pay her bills and living expenses quite easily. The last 30% I allocated in active managers that I like and in asset classes that are not correlated with the major global markets (foreign developed and emerging markets small cap). I also like the overall 50% international allocation; it would be very hard to convince me to pare that down. Am I crazy to allocate 90% to equities even with a portfolio this large? I figured the $700,000 worth of bonds would be enough money for rebalancing purposes, etc.

What say you guys? Thanks!!
Last edited by TexasInvestor on Tue Apr 16, 2013 4:42 pm, edited 1 time in total.
zotty
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Re: Help me manage a $7 million portfolio.

Post by zotty »

10% bonds for a 58 year old with a new career? No.

50/50 at most. She's 58. She probably needs some of the money now.Frontier Markets investment of 600K? Don't do that.

Throw out this plan and start by thinking about how much money she needs to live and keep that amount in CDs/short term bonds/bonds. Then, figure out your equity allocation. It would be horrific to put all this money into these markets and have them collapse. It can (and does) happen.

Put aside your living expenses and then risk everything else. Despite anything you may have heard...short term fixed income will never be riskier than equities, much less emerging markets or frontier markets
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jdilla1107
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Re: Help me manage a $7 million portfolio.

Post by jdilla1107 »

Am I crazy to allocate 90% to equities even with a portfolio this large?
Yes.
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bertie wooster
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Re: Help me manage a $7 million portfolio.

Post by bertie wooster »

As above, you have too much in bonds. I recommend a 60/40 stock bond split. Since she has never worked she doesn't have much social security to fall back on. Why take so much risk by putting alot in stocks?

Regarding taxes, while texas is a no-income state you still have to pay federal taxes on capital gains and putting funds in a taxable account that are likely or might distribute capital gains is a bad idea. Active funds are especially prone to distribute capital gains (in general - I don't know much about those funds you mentioned) and often times these will be short term.

Also, I believe your proposed portfolio is too complex - but I'm a big believer in simplicity when it comes to investing.

I would recommend the following stock funds:
Total Stock Market
Total International

And for bonds:
Total Bond Market
TIPS
or
Tax managed Intermediate Term (depending on which is better after taxes)

This portfolio is simple, well diversified, and minimizes taxes.

Good Luck!
KyleAAA
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Re: Help me manage a $7 million portfolio.

Post by KyleAAA »

Way too aggressive. She has no knowledge of investing, so how do you think she'd react if she lost half her money in less than a year? Probably not positively. A 60/40 or 50/50 split is far more reasonable. How much income does she need?
expat
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Re: Help me manage a $7 million portfolio.

Post by expat »

jdilla1107 wrote:
Am I crazy to allocate 90% to equities even with a portfolio this large?
Yes.
I second.
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BolderBoy
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Re: Help me manage a $7 million portfolio.

Post by BolderBoy »

Ummmm, with $7 million she's got it made. Why take more risk than necessary? 50/50 equities/bonds is plenty (probably 40% equities is plenty). And keep it simple - all index, 3-4 funds max.
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gasman
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Re: Help me manage a $7 million portfolio.

Post by gasman »

The question has to be asked. Are you managing this portfolio to take care of your mother or are you managing to take care of her and her heirs?
expat
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Re: Help me manage a $7 million portfolio.

Post by expat »

10%= Franklin International Small Cap Growth (FKSCX) (active international developed market small cap)
10%= Wasatch Frontier Emerging Markets Small Cap (WAFMX) (active emerging markets small cap)
10%= PRIMECAP Odyssey Aggressive Growth (POAGX) (active US small/mid cap)
I would liquidate these and move them into Intermediate tax exempt. Done.
RNJ
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Re: Help me manage a $7 million portfolio.

Post by RNJ »

I always appreciate when people give me honest feedback. I will return the favor. Your first three funds look great. The last three, as well as your overall allocation (90% stock / 10% bond), look like a trip to the casino. With $7M, what is the need to take this kind of allocation risk? Are you investing for her or for you and your sister? Frankly, either way, I would seriously reconsider. Seriously.

Beyond your allocation, you might also do a bit better with fund choices. If you absolutely have to overweight emerging markets and international small caps (and no one absolutely has to), then how about Vanguard's EM ETF (VWO) and / or Vanguard FTSE All-World ex-US Small Cap ETF [VSS], ER .25%, in very small (2-3%) doses? Finally, POAGX plays an asset class - small growth - that has historically underperformed relative to risk and, I believe, in absolute terms, as well. Drop it.

You referenced rebalancing. When you wake up one day after it hits the fan and your portfolio is down 60% - a real possibility given your choices - will you really want to rebalance into what will feel like a black hole? If your mother has already won the game, why take this kind of risk?

Better yet - have you checked out the Boglehead wiki on the Three Fund Portfolio http://www.bogleheads.org/wiki/Three-fund_portfolio. How about something like 25% Total US, 15% Total International, 40% Munis or T-bills and 20% TIPS (I know that's 4 funds). 40% Stock / 60% Bond. Boring? You bet. And you'll all sleep better, live better, and do better.

Just a thought.

Good luck
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grabiner
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Re: Help me manage a $7 million portfolio.

Post by grabiner »

TexasInvestor wrote:Hi everyone,

I'm a longtime lurker of these forums and have been mostly convinced of the Boglehead ways. That said, I'd like some collective wisdom on how to manage my mother's 7 million dollar portfolio. She trusts me completely and has put me in charge since I know more about investing than her. We live in [location removed by admin LadyGeek] and she is 58 years old (I'm 26 and have my own income); most of this 7 million is new found wealth resulting from a late 2012 divorce and her father (my grandfather) passing away and leaving a sizable estate.

She has no IRA or 401k since she never had a career, and only earns about $40,000 a year from a job she just started recently (though arguably with this much money, she doesn't need to work). So all of this money will be in a taxable account. She plans for my sister and I to inherit the money 50/50 someday.
The $7M portfolio isn't all yours; she probably won't work for the rest of her life, and probably won't be able to live on SS alone once she gets it on her ex-husband's record. The money that is for her own retirement (take her living expenses, minus any expected Social Security, and then multiply by 25 to get a 4% withdrawal rate) should be no more than half stock; the money that is for her children's can be all stock if that is appropriate for the children. (For estate planning reasons, she might even start giving that money to her children now; she can give $14K per year to each child, and each child's spouse without filing gift taxes, and she can fund a 529 plan for each grandchild's college education when the grandchildren are born, with $70K all at once covering five years of gifts.)

Also, it is particularly important that the funds she expects her children to inherit be in tax-efficient investments. Normally, if you invest in a fund which doesn't sell stock for capital gains, you pay tax on the capital gains when you sell, so the benefit is tax deferral. But if your mother leaves you $4M of stock for which you paid $2M, you will inherit the whole $4M free of capital-gains tax, and you can sell that $4M with no tax penalty. Therefore, 1% of tax costs is just as important as 1% of expenses.
10%= Franklin International Small Cap Growth (FKSCX) (active international developed market small cap)
10 year tax cost (from M*): 1.88%. That's a big hurdle for a fund to overcome.
10%= Wasatch Frontier Emerging Markets Small Cap (WAFMX) (active emerging markets small cap)
Too new to have an established tax cost ratio, but 2.25% annual expenses are just as bad as 2% tax costs.

Rather than these two funds, if you want to overweight international small-cap, Vanguard FTSE All-World Ex-US Small-Cap ETF (VSS) has 0.25% expenses and should be reasonably tax-efficient.
10%= PRIMECAP Odyssey Aggressive Growth (POAGX) (active US small/mid cap)
This fund is tax-efficient, but that's primarily because of its extreme growth bias (zero dividend yield because expenses exceed dividends); do you really want that much of a growth bias with your small-cap stock? And there is also the risk with an active fund that it will change managers; if the new manager sells the old manager's picks, you get a big tax bill, and if you don't like the new manager, you will also get a big tax bill if you switch funds.

Active funds work better in IRAs and 401(k)s, where you don't have to worry about such changes, and you can switch freely if the fund no longer suits your needs.

My choice for a taxable small-cap overweight would be Vanguard Tax-Managed Small-Cap (VTMSX).
Wiki David Grabiner
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pennstater2005
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Re: Help me manage a $7 million portfolio.

Post by pennstater2005 »

Agree with everything posted here so far. Keep it simple. Keep it index funds (or low cost active if you must). You've heard a 50/50 split and a 60/40 split, really no significant difference there. You sound like you have a general understanding of investing so take your time with this. Go slow, read a few more investing books.
Last edited by pennstater2005 on Tue Apr 16, 2013 5:31 pm, edited 1 time in total.
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Re: Help me manage a $7 million portfolio.

Post by YDNAL »

TexasInvestor wrote:I'm a longtime lurker of these forums and have been mostly convinced of the Boglehead ways. That said, I'd like some collective wisdom on how to manage my mother's 7 million dollar portfolio. She trusts me completely and has put me in charge since I know more about investing than her. We live in [location removed by admin LadyGeek] and she is 58 years old (I'm 26 and have my own income); most of this 7 million is new found wealth resulting from a late 2012 divorce and her father (my grandfather) passing away and leaving a sizable estate.
Texas,

Your mother has the Ability to take risk but she has ZERO Need to take risk. This is a difficult, yet important, balancing act between two main drivers of Asset Allocation decisions.

In this situation, *my* approach would be to establish a floor with which your mother can cover her needs for the next 40 or so years (she is 58yo). The remainder can be invested according to its purpose and timeframe - presumably legacy for you and your sister. For illustration, say she wants $100,000 (pre tax). I would take $4 million and invest perhaps at a 40/60 Stock/Bond split - even less Equity/more Fixed can be chosen if you select diversified but higher expected return/risk asset classes (like Small Cap Value, Foreign Small, Emerging Value, etc.). The other $3 million can go as IF you were investing for yourself (26yo) and your sister (age unknown) in a diversified portfolio - certainly NOT:
10%= Franklin International Small Cap Growth (FKSCX) (active international developed market small cap)
10%= Wasatch Frontier Emerging Markets Small Cap (WAFMX) (active emerging markets small cap)
10%= PRIMECAP Odyssey Aggressive Growth (POAGX) (active US small/mid cap)
I hope these broad and general points help you out.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
l2ridehd
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Re: Help me manage a $7 million portfolio.

Post by l2ridehd »

She needs some sound advice and it certainly appears you are not providing that. You are taking way to much risk for her. And even for you if some day you will get part of this. Why be set up to fail when it is not required?

15% Vanguard total stock market VTSAX
15% Vanguard small cap value VISVX
15% Vanguard total international VGTSX
15% Vanguard Emerging Markets VEMAX
20% Vanguard Total Bond
20% Vanguard Tips

Keep about 100K in cash MM account. This is a 60/40 stock bond portfolio that is probably more aggressive then you should be, but at least it is getting you to the total market with all index funds to spread the risk.

And ZERO active management. That is playing a losers game. You are not smarter then everyone else on Wall Street. And they will be more then happy to prove it to you while they take your money.
gt4715b
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Re: Help me manage a $7 million portfolio.

Post by gt4715b »

Your proposed asset allocation is way too aggressive for the situation. A 90/10 portfolio would have lost about 50% in 2008-2009. Would your mother really be able to handle seeing the portfolio drop to $3.5 million? I doubt it and you would end up selling out during the market downturn and decimating the portfolio.

With a portfolio that size there's no need to be aggressive. I would favor something like a barbell portfolio where you go 30% stocks, 70% intermediate bonds with the 30% stocks divided up into US SCV, Int'l SCV and EM SCV. This will give you the returns of a portfolio with a higher stock percentage but lower your maximum portfolio drawdown.

Get rid of any active funds. There is no need to even try to beat the returns of the individual asset classes.

I think in your situation you'd probably benefit from finding a low cost advisor (you can find some good ones for around 0.25% per year) because I'm sure there are many tax and estate planning issues that need to be considered as well.
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fishnskiguy
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Re: Help me manage a $7 million portfolio.

Post by fishnskiguy »

I am willing to wager a very large sum that if you were proposing an asset allocation for $7 million in March 2009, it would look nothing like the 90/10 allocation you are proposing at near all time market highs.

I would strongly recommend no more that 40% equities until you and your mother have weathered a 40% equity downdraft and can look back and say you did nothing (except maybe rebalance back to 40%). At that point you may up your equity allocation to 60%.

Chris
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TexasInvestor
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Re: Help me manage a $7 million portfolio.

Post by TexasInvestor »

Thanks for the replies so far guys. I guess I needed a bit of a reality check on the 10% bond allocation. I won't quote you guys individually due to the number of replies thus far but I will touch on the overall points you've all made.

This portfolio has two purposes: First, to provide my mom with at least $100,000 a year of income to live off of. Second, to provide her heirs (me and my sister and our future kids) with a large inheritance, without risking my mom's $100,000+ a year income.

So that said, my thought was to allocate a 20-30% portion of the portfolio to be more aggressive than the rest, hence the foreign small caps.

Question: Could my mom not live off of capital income generated by equity markets? (I.E. Vanguard Total Index stock funds). I'm assuming she could if the equity markets were stable (of which is no guarantee, I get it). So this is the basis for the case for 40-50% bonds; that if the equity markets tank one year, she'd have to cut into the already lowered principal investment of those equity funds, which isn't good. So again, my central theme here is, how do I guarantee her an income of 100,000 minimum a year and good capital growth for the benefit of her heirs and herself.

I'm going to refine the portfolio choices as a I get more replies and do more research, but so far I've moved towards this: (comments welcome)

40% Vanguard Intermediate Term Tax Exempt (ok to put all of the bond allocation here??)
20% Vanguard Total Stock Market Index
20% Vanguard Total International Stock Index
20% International Small Cap (mix of emerging markets and developed)
letsgobobby
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Re: Help me manage a $7 million portfolio.

Post by letsgobobby »

much better.

How about tax managed funds?

The reason I ask is that with tax managed funds, her total income will be much lower. That will allow for the possibility of diversified bond holdings; rather than 100% in tax-exempt, she can hold some total bond without getting killed on taxes. I haven't run the numbers, but it might be worth looking at that option.

By the way, you can't guarantee her $100,000 per year. There are too many uncertainties. The market might drop 90% over the next 3 years, leaving her $700,000, and she'd run out within a decade. More likely, over 40 years, 3% should be extremely safe, using a total return approach - not a 'live off dividends and income' approach. 3% of $7,000,000 = $210,000, adjustable for inflation annually. So invested broadly and at low cost, any reasonable portfolio (40/60-70/30 for instance) should easily provide her desired income.

Since it appears a goal is to pass wealth to you and your sister, I would integrate any investment decisions with ironclad estate planning - not only to reduce future estate taxes (which she will pay) but also for liability/creditor protection. I would think some kind of irrevocable trust would be part of this mix.
Last edited by letsgobobby on Tue Apr 16, 2013 6:16 pm, edited 1 time in total.
Topic Author
TexasInvestor
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Re: Help me manage a $7 million portfolio.

Post by TexasInvestor »

Is there anything wrong or risky about holding 40% of the portfolio in Intermediate Tax Exempt? I assume this isn't a problem unless a bunch of U.S. cities and states start going bankrupt?
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fishnskiguy
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Re: Help me manage a $7 million portfolio.

Post by fishnskiguy »

TexasInvestor wrote:Thanks for the replies so far guys. I guess I needed a bit of a reality check on the 10% bond allocation. I won't quote you guys individually due to the number of replies thus far but I will touch on the overall points you've all made.

This portfolio has two purposes: First, to provide my mom with at least $100,000 a year of income to live off of. Second, to provide her heirs (me and my sister and our future kids) with a large inheritance, without risking my mom's $100,000+ a year income.

So that said, my thought was to allocate a 20-30% portion of the portfolio to be more aggressive than the rest, hence the foreign small caps.

Question: Could my mom not live off of capital income generated by equity markets? (I.E. Vanguard Total Index stock funds). I'm assuming she could if the equity markets were stable (of which is no guarantee, I get it). So this is the basis for the case for 40-50% bonds; that if the equity markets tank one year, she'd have to cut into the already lowered principal investment of those equity funds, which isn't good. So again, my central theme here is, how do I guarantee her an income of 100,000 minimum a year and good capital growth for the benefit of her heirs and herself.

I'm going to refine the portfolio choices as a I get more replies and do more research, but so far I've moved towards this: (comments welcome)

40% Vanguard Intermediate Term Tax Exempt (ok to put all of the bond allocation here??)
20% Vanguard Total Stock Market Index
20% Vanguard Total International Stock Index
20% International Small Cap (mix of emerging markets and developed)
Sorry, still won't work.

40% 0f $7 million is $2.8 million. VG's Intermediate Term Tax Exempt has an SEC yield of 1.56%. That only produces $43,680 per year of income, which combined with her $40,000 per year job leaves her well short of the $100,000 per year you want, although if you/she were willing to spend some of the stock dividends it might be doable.

Chris
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TexasInvestor
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Re: Help me manage a $7 million portfolio.

Post by TexasInvestor »

Sorry, still won't work.

40% 0f $7 million is $2.8 million. VG's Intermediate Term Tax Exempt has an SEC yield of 1.56%. That only produces $43,680 per year of income, which combined with her $40,000 per year job leaves her well short of the $100,000 per year you want, although if you/she were willing to spend some of the stock dividends it might be doable.

Chris
Hang on, what about the average ~5% a year capital growth that the tax exempt fund has produced over the last 10 years? Why is SEC yield the only factor? Am I missing something?
billern
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Re: Help me manage a $7 million portfolio.

Post by billern »

fishnskiguy wrote:
TexasInvestor wrote:Thanks for the replies so far guys. I guess I needed a bit of a reality check on the 10% bond allocation. I won't quote you guys individually due to the number of replies thus far but I will touch on the overall points you've all made.

This portfolio has two purposes: First, to provide my mom with at least $100,000 a year of income to live off of. Second, to provide her heirs (me and my sister and our future kids) with a large inheritance, without risking my mom's $100,000+ a year income.

So that said, my thought was to allocate a 20-30% portion of the portfolio to be more aggressive than the rest, hence the foreign small caps.

Question: Could my mom not live off of capital income generated by equity markets? (I.E. Vanguard Total Index stock funds). I'm assuming she could if the equity markets were stable (of which is no guarantee, I get it). So this is the basis for the case for 40-50% bonds; that if the equity markets tank one year, she'd have to cut into the already lowered principal investment of those equity funds, which isn't good. So again, my central theme here is, how do I guarantee her an income of 100,000 minimum a year and good capital growth for the benefit of her heirs and herself.

I'm going to refine the portfolio choices as a I get more replies and do more research, but so far I've moved towards this: (comments welcome)

40% Vanguard Intermediate Term Tax Exempt (ok to put all of the bond allocation here??)
20% Vanguard Total Stock Market Index
20% Vanguard Total International Stock Index
20% International Small Cap (mix of emerging markets and developed)
Sorry, still won't work.

40% 0f $7 million is $2.8 million. VG's Intermediate Term Tax Exempt has an SEC yield of 1.56%. That only produces $43,680 per year of income, which combined with her $40,000 per year job leaves her well short of the $100,000 per year you want, although if you/she were willing to spend some of the stock dividends it might be doable.

Chris
It seems like OP is looking to include stock dividends since he references 'Vanguard Total Index stock funds'. Limiting her expenses to the dividends and interest seems like a reasonable place to start.

PS: $100K is only 1.5% of the $7MM portfolio. I'm not sure what a safe withdrawal rate should look like for a 58 year old but that doesn't seem super risky to me.
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mlewis
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Re: Help me manage a $7 million portfolio.

Post by mlewis »

TexasInvestor- Most people have said you needed more bonds. I'll be going against the crowd, but I don't think that's necessarily true.

With 7 million bucks and $100,000 in income needs, you don't need much of a strategy really. That's only a 1.4% withdrawal rate. (not including what SS will chip in, so it's even less) Even if you were all in stocks and the market tanked, you'd be fine and pull through on the other side ok once a rebound happend. (we hope)
I would own some bonds, but I don't think risk of depleting the portfolio is what should determine your bond holding. The risk of throwing up and bailing out when you've lost 50% of your paper wealth temporarily is what you should be concerned with. (or the risk of your mother doing the same and wrenching the portfolio from your fingers to give to some active manager)

Your mother could easily live another 30+ years. You have two goals (presumably both with your mom's blessing)- provide for her and grow the pot for you and your sister. Bond's will absolutely do nothing to accomplish goal #2. Again, I think their main purpose is to prevent your or your mother or sister from waking up in the middle of the night and becoming ill with displeasure over the portfolio value.
Many people more experienced than myself have said that it's better not to overestimate your risk tolerance. So some bonds are in order. 60/40 might be a good way to start. (But I don't think there is anything wrong, in your situation, in being 80%+ in equities)

A couple other points: like others have noted, don't use active funds. They won't help you in any way other than to waste more money on fees.
If you are not fully aware of this already, read up. In fact, due to your new responsibilities, you might do well to read up a good bit.

If your mother does take a job (though unnecessary) use that opportunity to put as much of her salary as possible into tax-deferred accounts (401k, IRA, etc)

If she's healthy, have her delay social security until age 70.

Good luck
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BL
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Re: Help me manage a $7 million portfolio.

Post by BL »

Unless she has good long-term care insurance, she/you will also have to plan for covering potentially very expensive nursing home or other long-term care , say, 150,000 per year in today's dollars for 1-5+ years. She is young and may want to travel or get married again and spend some of that money! She can afford it so why not? Just don't want you to get too wrapped up in what you may and probably will eventually inherit.

A nice simple plan with a year or several years worth of CDs, or other bank accounts, would be good. A fee-only adviser perhaps recommended from here might not be a bad idea. If the simple funds suggested here don't appeal to you, then you should pay such an adviser to help you set up a plan that you both agree upon. Vanguard also has advisers (free if you have lots of funds) that you could get reasonable ideas from.

Just help her keep away the vultures who want to help her spend it on other bank products, insurance products, broker sales, etc. There will be lots of people available to help "invest" it.

Read some of the books recommended here on the Wiki such as Bogleheads guide to investing and B G to Retirement Planning. Read the Wiki on windfalls. Lots of people win big and it is gone before you know it.

I would not reinvest automatically but have those distributed for living expenses and the rest reinvested to rebalance the accounts.
Last edited by BL on Tue Apr 16, 2013 7:09 pm, edited 2 times in total.
SGM
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Re: Help me manage a $7 million portfolio.

Post by SGM »

Just thinking out loud here: Two percent of a 7mm portfolio is 140,000. I think SP 500 is paying 2% divs. I think I would put a large amount in intermediate tax deferred, a lesser amount in high yield tax exempt, or high yield corporate and Vanguard reit in tax deferred accounts. EMB recommended by Malkeil and Ellis and pilloried on this web site would also get a smaller allocation, paying 4.2% today. I would keep the expenses low with mostly Vanguard index funds. I don't think you need to use actively managed funds to get good small cap exposure. Use Vanguard for lower expenses.

A three fund account as Taylor advises might do it. I haven't looked at the dividends paid with his allocation, but see total return approach below.

There is the idea that if you saved 7mm you have made it and be "safe." I don't know that I would follow that advice. You could get killed by inflation if you put a lot in bonds. I might consider 20-30% in bonds if I only had to take out 100k per year adjusted for inflation. I would also delay SS as it is inflation adjusted. If one only needs to take out a small amount you are really investing for the next generation.

Even if you use a total return approach and only take out 2% per year or less (1.42% gives you 100k per year). The funds will likely grow by most retirement calculators. If a little bit of the money is put into laddered SPIAs when she is older and you could take less than 1.42% out of the total yearly later on. 1.42% inflation adjusted will not fail.
"Let us endeavor, so to live, that when we die, even the undertaker will be sorry." Mark Twain
WhyNotUs
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Re: Help me manage a $7 million portfolio.

Post by WhyNotUs »

The purpose of the investment is the most important information, I would encourage you to write that down and seek your mother's concurrence so that both of you can use that as your touchstone during times of market stress.

I have never managed an account of that size but did manage a low seven figure account for a relative for a period of time with similar goals. I worked with the heir to develop a mission statement for the investment and then we both signed a letter of agreement about the goals. I looked at the two goals, which in my case where an annual income and a growth component, somewhat separately and then reviewed the combined AA once a plan was in place. I first developed a plan to achieve 3-4% cash return on relatively conservative investments and that took XX% of the investment cash. In your case that would be about $3M. Any shortage to that aspect would be filled by dividends from assets in the other pool as this was the first priority.

The remainder after making sure any debt that she had is retired and all insurance, including LTC is in place, about $4M in your case, could go into a three-fund portfolio. In the end, the program that I set up was pretty conservative in its AA, but the heir is now living in a nice house with her new husband and baby.

This would require you to have the discipline to set something up and only look at it quarterly or so. Once again, your review would be based on whether you are achieving the mission relative to the market as a whole. The temptation to look for higher gain or time the market would have been too great for me at 28, I hope you are more disciplined. Others would be tempted to turn this into their job and sweat over the latest theory, news report, economic blunder until they are miserable. Lots of broken hearts from that path.

Having a mission statement ($100k yr for Mom and growth for heirs after that is accomplished) and working with an advisor from Vanguard or whoever will give you some much needed support and then just return to your normal life. If at some point you inherit some money, then you can create a new mission with a new AA.




[quote="TexasInvestor"]Thanks for the replies so far guys. I guess I needed a bit of a reality check on the 10% bond allocation. I won't quote you guys individually due to the number of replies thus far but I will touch on the overall points you've all made.

This portfolio has two purposes: First, to provide my mom with at least $100,000 a year of income to live off of. Second, to provide her heirs (me and my sister and our future kids) with a large inheritance, without risking my mom's $100,000+ a year income.
I own the next hot stock- VTSAX
Streptococcus
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Re: Help me manage a $7 million portfolio.

Post by Streptococcus »

You have 7 millions. Your starting point is beyond most people arrival.
First, throw your current plan in the trash. It is bad!!!
Second, take 3-6 months to create the best investment plan you can. Put it in writting. During that time do not touch the money. There is no hurry.
Third, you first goal should be capital preservation; growth comes after. If your AA is 90/10 and a depression occurs tomorrow, eating 90% of the stock value, you will end up with 600,000K. You have no reason to take that risk, unless you are crazy. Are you?

Your goal should be
1. Take care of your mother, who is 58
2. allow the growth that is consistent with your young age

Your AA should not be riskier than 20/80 (stock/bonds)
Remember, 20% stock is $ 1,400,000. That is enough money for a 26 year old for long term growth.
Keep the remaining 80% in safer allocations (TIPS, total bond funds, cash, eebonds, ibonds)

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Re: Help me manage a $7 million portfolio.

Post by grabiner »

TexasInvestor wrote:Thanks for the replies so far guys. I guess I needed a bit of a reality check on the 10% bond allocation. I won't quote you guys individually due to the number of replies thus far but I will touch on the overall points you've all made.

This portfolio has two purposes: First, to provide my mom with at least $100,000 a year of income to live off of. Second, to provide her heirs (me and my sister and our future kids) with a large inheritance, without risking my mom's $100,000+ a year income.
$100K a year, adjusted for inflation, implies a $2.5M portfolio for her needs at a 4% withdrawal rate. (And is that before or after taxes? If it's after taxes, then you need to add about 15% because most of the income will be from qualified dividends.)
So that said, my thought was to allocate a 20-30% portion of the portfolio to be more aggressive than the rest, hence the foreign small caps.
This isn't really the right way to think about it. The money she will use should be invested appropriately for her needs, which is probably 50% stock. The money you and your sister will receive can be invested more aggressively. If your own target allocation is 80% stock (normal for your age), then the portfolio as a whole should be 65% stock, or similar in risk.
40% Vanguard Intermediate Term Tax Exempt (ok to put all of the bond allocation here??)
20% Vanguard Total Stock Market Index
20% Vanguard Total International Stock Index
20% International Small Cap (mix of emerging markets and developed)
You should probably split the small-cap between domestic and international; use Tax-Managed Small-Cap on the domestic side. Otherwise, this looks quite reasonable; it is 60% stock but with an aggressive stock allocation giving it a higher risk than most 60% stock portfolios.

Note that if you are puting 10% of the portfolio ($700K) into FTSE All-World Ex-US Small-Cap ETF, you'll need to be careful buying it, as that is 15% of the average daily volume. Learn a bit about how brokerages work before placing any orders. (If you want advice on this, post on a separate thread.)

While your mother is working, she should contribute as much as possible to a 401(k) and Roth IRA, withdrawing from the taxable account for her expenses; this will give her tax-deferred space to hold other bond funds more tax-efficiently (probably Total Bond Market Index). She can also buy $10K a year in I-Bonds.
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Re: Help me manage a $7 million portfolio.

Post by MN Finance »

Becuase she/you have the ability to take some risk, I'm not against an agressive portoflio per se. That said, the biggest risk is that after a market downturn one of you panics and does the wrong thing therby making all your planning totally worthless. Is she used to seeing a portfolio swing by $1M in a quarter (which she may be if her husband had accounts that did such). If she's acostomed to that then that tells you something about the risk she can take.

Just as big of a concern is around estate planning (tax and otherwise). A $10M estate will owe $1.75M in estate tax. That makes portfolio risk a virtual rounding error.

Most people here are DIYers, but in your case, taking a few months to help mom find the right professional, would IMO be valuable. Either it's a pay for service advisor who will produce plans/advice you can use to implement on your own, or someone who will do that plus exectue the advice and manage the money for a percentage of the account. Either way, having a professional relationship would be valuabe for many ongoing issues you will face that haven't even been mentioned here. It's extremely difficult to find the right advisor and there are a lot of sharks out there, so the vetting process is important. At $7M it's right in a sweet spot, where the main street advisors would give you a lot of attention but the larger players won't be interested. At that level most pricing is negotable, so the fees are minimal. It's not a function of potfolio size or complexity, but rather a knowledge gap - I wouldn't mention this if you were 50 with 30 years of personal investment experience managing your own 7 figures through the recession and then came into a few million more.
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Re: Help me manage a $7 million portfolio.

Post by Bacchus01 »

I'm going to go against the norm a bit because I take a different view on "winning the game." To me, she is probably set for life and therefore can be MORE risky, not less.

That said, this is how I'd do it.

Take what she needs to live on and draw upon and put that in a conservative 3-fund portfolio with 50/50 bond/equity allocation. Let's say that number is $3M.

Now, take the rest, and consider it as a more risky portfolio. Look at that as 10/90 bond/equity portfolio. Pick a 3 or 5-fund portfolio and allocate appropriately.

Consult a tax attorney.

There are ways to be more tax efficient. She should divert as much of her current income as possible to tax deferred accounts and live off the taxable investments she has.
Begin gifting money to heirs annually to avoid taxation.
If charity is a consideration, set up a charitable trust and shelter some of that.
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Re: Help me manage a $7 million portfolio.

Post by LH »

60/40 stocks/bonds

with 7 million, I would get a fee only planner consult, and a tax planner consult too.
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Re: Help me manage a $7 million portfolio.

Post by clacy »

I read the OP and skipped to the bottom of the page to reply....

I'm guessing every single post before me agreed that you're being WAY too aggressive with a portfolio for a 58 y/o who already has $7mm.
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Re: Help me manage a $7 million portfolio.

Post by bogleenigma »

TexasInvestor,

First off, ignore the folks who say "Are you managing this portfolio to take care of your mother or are you managing to take care of her and her heirs?" They're not worth your time. Your mother's intention for you is to help her manage her portfolio in such a way that it will provide her the income that she seeks and will provide you and your sister a nice inheritance. If she didn't want you involved she would have instructed you not to be. As it is she wants you involved in the process and you are doing the prudent thing by choosing to look out for her interests foremost and yours second.

Priority #1: Get thee to a fee-only-financial advisor as quickly as possible. You can find one here:
http://www.napfa.org/

Priority #2: Get thee to an estate attorney. You need to explore whether trusts are something to consider.

Priority #3: If your mother plans to continue working, does your mother have a 401k plan at her job? Does she have a Roth 401k? If so get her to start contributing immediately. Get a Roth IRA for her at Vanguard to do the same. This will be in the best interests of you and your sister over the long term so that at least some of the inheritance will be in tax deferred accounts. It is debatable whether you want to fill these with Total Stock Market index funds (if available in the 401k) or bonds, but we will discuss that further. If the goal is to give you and your sister the most tax-free space for a stretch IRA then obviously stock funds are your best option. Though you lose the option here to fill up this space with bonds if you do so. In my opinion the larger you can get that stretch Roth IRA to be the better.

Priority #4: Get a nice long-term care policy for her.

Priority #5: Finally, ensure that your mother is gifting you and your sister and your spouses up to the gift tax exclusion of $14,000 (2013) each year. Reducing estate taxes is the name of the game.

Asset Allocation:

You have to be honest with yourself. A 10% allocation to bonds is not going to be appropriate for your mother given her age, and given that (I'm guessing) she has little prior experience with tolerating the swings of the stock market. As noted above, the real risk is not portfolio loss, per se, but the risk of: "The risk of throwing up and bailing out when you've lost 50% of your paper wealth temporarily". Given this risk it would seem prudent to stick with a 60/40 to 50/50 allocation with some of the fixed income in CD's. Certainly if you're going to tilt stick to a 50/50 allocation. Given the complexity that this portfolio is going to present and given that so much of it will be in taxable I'm not sure you want yet one more fund to manage. The best option, in my opinion, is to get a portfolio that you can manage now and if you want to tilt later than do so with some of the dividends that you will have.

Forget the actively managed funds. This is a taxable account. The capital gains that you're going to have to deal with simply arn't worth it. There is little chance that you are going to come out ahead here. The utility of low-cost active management is a potential arguable point within a tax-deferred/tax-free account, it is foolish in a taxable account. If you want to have a U.S. small cap tilt then VTMSX is probably your best option. However many folks would argue (and I am among them) that this is unnecessary.
So for your equity use:
70% VTSAX (Vanguard Total Stock Market Admiral Shares)
30% VTIAX (Vanguard Total International Stock Market Admiral Shares)

For your fixed income allocation, I'm a little wary of going 100% municipal bonds so here's what I would do:
Split one year of income ($100,000) between checking and a high yield savings account. Put 4 years of income ($400,000) in a CD ladder.
With the remainder put:
25% VWIUX (Vanguard Intermediate-Term Tax Exempt Admiral Shares)
25% VWLUX (Vanguard Long-Term Tax Exempt Admiral Shares) -- the is really a shorter duration long-term tax exempt fund therefore you have less interest rate risk than other types of long term bonds. You also forgo the potential for AMT with VWAHX, and have substantially less default risk, as well as losing very little in yield (0.20%)
50% in Vanguard Variable Annuity.
Yes, I am suggesting a variable annuity. These things don't always have to be terrible. If you must own a variable annuity than certainly one from Vanguard is your best option and I think your situation warrents one. By diversifying your fixed income you insure against the HIGHLY UNLIKELY event of a country wide muni bond blow-up you're covered. Within this variable annuity I would recommend an allocation to
30% Total Bond Market Index (ER=0.51%)
20% High Yield Corporate Bond Fund (ER=0.59%)
If you havn't paid much attention to the recent threads on high yield this is apparently controversial in some quarters (i.e. Swedroe camp). I find the arguments of Ferri and others quite convincing to the contrary. Therefore I follow that recommendation and allocation 20% of bonds to high yield and have been rewarded well for that decision.
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Re: Help me manage a $7 million portfolio.

Post by richard »

TexasInvestor wrote:Hang on, what about the average ~5% a year capital growth that the tax exempt fund has produced over the last 10 years? Why is SEC yield the only factor? Am I missing something?
You're missing that the capital growth was due to falling interest rates. Given how low rates are today, it's hard to see how they could fall enough to produce anything like 5% growth over the next 10 years.

How will your mother likely react if there is a major drop in equities, so that her portfolio value is down millions of dollars?
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Re: Help me manage a $7 million portfolio.

Post by Beat The Street »

Just call a financial planner so you don't mess this up and have the whole family mad at you.
“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have—or don’t have—in their portfolio.” -Taleb
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Re: Help me manage a $7 million portfolio.

Post by bogleenigma »

Beat The Street wrote:Just call a financial planner so you don't mess this up and have the whole family mad at you.
I second that.
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Re: Help me manage a $7 million portfolio.

Post by fishnskiguy »

mdpsychcrnp wrote:
Beat The Street wrote:Just call a financial planner so you don't mess this up and have the whole family mad at you.
I second that.
I don't .

Picking a financial adviser requires enough financial knowledge to know when you've got a good one or a crook. TexasInvestor has demonstrated that he does not have that knowledge yet. He needs to go to the wiki and read, read, read some of the books recommended there.

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Re: Help me manage a $7 million portfolio.

Post by assumer »

As another thought, immediateannuities.com says that a $100k / year annuity, guaranteed for life, would cost about $1.8MM. And that's without laddering (i.e. just getting an annuity using the current low-interest environment) and could be cheaper in the future if interest rates rise (hence somebody else mentioning laddering). That would give you the floor you want.
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Re: Help me manage a $7 million portfolio.

Post by staythecourse »

I don't mean to offend the OP, but a 26 y.o. person has NO BUSINESS managing 7 million dollars ESPECIALLY with no financial background.

There are so many issues here. With this much wealth I don't see your mom working much longer and will need to live off some of it. There are tax ramifications. There are estate planning issues. Handling the behavioral issues of simply investing. There is TLH. These are just a couple of the issues.

I can gaurantee that the OP will end up losing more of this money by handing it themselves then just paying an honorable FA money to hande it, i.e. Bernstein, Ferri, Swedroe, etc...

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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Re: Help me manage a $7 million portfolio.

Post by rvaboglehead »

Hi TexasInvestor,

I'm performing the same role for my Grandmother - managing all of her assets. She had used someone at Morgan Stanley to help her buy muni bonds for years, but in the past couple of years her MS advisor kept telling her she had to get out of muni's because rates were so low. Anyways, I offered to take on the management for her, and here's what was helpful for me in getting things set up.

#1: Educate yourself
As other posters have recommended, read the key books mentioned in the wiki. I'd also strongly recommend Jim Otar's ebook Unveiling the Retirement Myth. It's the best book I've read that specifically addresses how to manage portfolios in the distribution stage (which is often much different than the accumulation stage).

#2: Determine your mom's risk tolerance
This is not easy, as other posters have mentioned. But it's critical to note it's HER money, not yours. You may have a high risk tolerance, she will almost certainly not. With my grandmother, I put together a table using FIRECALC (google it) with her starting $ and various stock bond scenarios, each one showing worst, best and average case. When she saw this, she picked 85/15 bond/stock.

#3: Create an Investment Policy Statement
There's lots of good info on the wiki about this. Below is a summary of the IPS I put together for my Grandmother
  • Financial Goals - list all of your mom's goals. My grandmother's main goals are to be able to pay for good nursing/long-term care if needed, and not to be a burden to her children. Given those goals, a high stock allocation is totally inappropriate. What if the stock market tanks just when she needs high-cost nursing care? Disaster for her portfolio.
  • Key Financial Stats - list all of her SS/pension/salary income, expenses, and income needed from portfolio
  • Investing Guiding Principles - hers/mine are stay the course, passive investing, keep it simple, and avoid individual issue muni's, each with text explaining why these are our guiding principles
  • Emergency Fund - details on emergency fund requirements (2 years expenses in cash equivalents at all times)
  • Asset Allocation - %'s allocated to stock/bond and to sub-classes within these
  • Asset Allocation explanation - WHY we are investing per the asset allocation. This is important to put on paper to prevent yourself from tinkering/market timing.
  • Cash Distribution Rules - explain where distributions should come from. Jim Otar's Unveiling the Retirement Myth is an excellent resource for this.
  • Rebalancing Rules - lay out a specific plan for rebalancing. I use the 5/25 bands discussed often on this site.
  • Rules for maintaining/changing IPS - VERY IMPORTANT. We have set a 6 month waiting period on any IPS changes to again prevent me from market timing/tinkering/not staying the course.
  • Yearly Checkup - straight from Otar's great book.
  • Results - here I calculate her annualized return and compare to the benchmark we identified. I also keep track of other passive income and total taxes paid to make sure that I'm tax-loss harvesting and otherwise doing everything to minimize her tax bill.
#4: Review and obtain sign-off of IPS from your mom.
It's important that your mom sees the IPS as hers, not yours. This is a huge responsibility and you want to make sure she is informed and that you have clear guidelines to follow.

Hope this helps.
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TexasInvestor
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Re: Help me manage a $7 million portfolio.

Post by TexasInvestor »

Thanks for the replies, I didn't expect this many.

I know some of you guys are just trying to help but I don't appreciate being told I shouldn't be managing the money due to my age and my lack of knowledge; that's why I came here! So I'd prefer more advice on the numbers/math side and less on why I shouldn't be managing the money. I think we'd all agree most financial advisors, especially brokerage house ones, would hurt my mother's portfolio worse than I ever could, even before I came to this forum.

So, does everyone agree that putting the entire bond allocation in intermediate munis is okay? My initial thought was, what if something horrible happens to the US fiscal situation, etc? Aren't I sort of taking on country-specific risk by allocating the bonds entirely to US munis? I'd still like some help with figures showing some good ways to earn about $10,000 a month or 120,000 a year from investment income.

Side note on some concerns: Neither her or I will bail out due to market volatility. She knows little about investing but even she knows selling an underperforming asset class/panicking and dumping is stupid. If we make the right choices, she and I are prepared to ride out anything as long as the fundamental ownership reasons remain the same.
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Re: Help me manage a $7 million portfolio.

Post by letsgobobby »

TexasInvestor wrote:I think we'd all agree most financial advisors, especially brokerage house ones, would hurt my mother's portfolio worse than I ever could, even before I came to this forum.
I would absolutely positively disagree with this statement. A fair, fee only advisor charging 0.5% per year or even better hourly would prevent the major behavioral finance mistakes which sink most amateurs. And both you and your mom are amateurs.

It is one thing to "know" that selling during a selloff is the wrong thing to do. It is another thing entirely to *buy* during a selloff - ie, to not only know the right thing to do, but to do the right thing that you know. In essence, that is the entire raison d'etre of behavioral finance.

Anyway, you need tax planning and estate planning too. So why not get an actual team, at least for the set up?
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Re: Help me manage a $7 million portfolio.

Post by RNJ »

staythecourse wrote:I don't mean to offend the OP, but a 26 y.o. person has NO BUSINESS managing 7 million dollars ESPECIALLY with no financial background.

There are so many issues here. With this much wealth I don't see your mom working much longer and will need to live off some of it. There are tax ramifications. There are estate planning issues. Handling the behavioral issues of simply investing. There is TLH. These are just a couple of the issues.

I can gaurantee that the OP will end up losing more of this money by handing it themselves then just paying an honorable FA money to hande it, i.e. Bernstein, Ferri, Swedroe, etc...

Good luck.
+1
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TexasInvestor
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Re: Help me manage a $7 million portfolio.

Post by TexasInvestor »

I'm not against seeing a planner or lawyer for tax and estate advice, but to be honest, I'd rather listen to the collective wisdom on this forum for the actual asset allocation; you guys seem to be very knowledgeable and since this is an internet forum, have no financial incentives that might distort your recommendations or create a conflict of interest. Malcolm brought up an interesting point earlier; with this much money, wouldn't it make sense that this portfolio can afford to be "riskier" (equities/small cap overweight) than a smaller portfolio? Also, I still need some help on the bond allocation per my reply earlier. Thanks again!
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Re: Help me manage a $7 million portfolio.

Post by bsteiner »

TexasInvestor wrote:...I'd like some collective wisdom on how to manage my mother's 7 million dollar portfolio. ... We live in [location removed by admin LadyGeek] and she is 58 years old ...; most of this 7 million is new found wealth resulting from a late 2012 divorce and her father (my grandfather) passing away and leaving a sizable estate.
If she has $7 million, there's a good chance she'll have a taxable estate. It's too bad her father's Will didn't provide for her in trust rather than outright, to keep her inheritance out of her estate, and to protect against potential creditors, including possible future spouses.

If it's within 9 months since he died, she may be able to disclaim (waive) some of her inheritance. She may wish to discuss this with the attorney handling her father's estate.

If not, she may want to begin shifting some wealth to her children. There are lots of ways she can do this, depending upon the amount she's comfortable shifting. She can give as little as $14,000 per year to each child (the amount she can give with no estate or gift tax consequences). Or, if she wants, she can make additional transfers in various ways. She may wish to discuss this with the lawyer who handles her estate planning. The transfers can be in a trust in which she pays the tax on the trust's income and gains, thus effectively shifting additional wealth free of transfer tax.

In either case, she should consider providing for her children in trust rather than outright, to keep her children's inheritances out of their estates, and to better protect the assets against her children's potential creditors, including spouses.
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Re: Help me manage a $7 million portfolio.

Post by LadyGeek »

TexasInvestor wrote:I think we'd all agree most financial advisors, especially brokerage house ones, would hurt my mother's portfolio worse than I ever could, even before I came to this forum.
I don't. For all of the reasons stated above (especially mdpsychcrnp and rvaboglehead) get a financial planner: Financial planner

If the financial planner is doing his/her job, you will be strongly requested to get an estate planning attorney (the field of study is called elder law). bsteiner has provided some good reasons to do so.

The wiki will help you understand what to tell the financial planner and how to follow the advice: Getting Started

Another reason to do this: Using an experienced 3rd party removes you from all responsibility. "Never do business with friends or relatives, as you will lose your friends and you can't get rid of your relatives." If things go wrong, you will get blamed. It doesn't matter what caused it, or that they went into this understanding what can happen, you will get blamed.
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Re: Help me manage a $7 million portfolio.

Post by BolderBoy »

TexasInvestor wrote:create a conflict of interest.
While most/all of us probably have no conflict of interest here, YOU absolutely do and should recognize that at the very least. Yours is that you want to set this up so that YOU (and your sister) inherit $7 million when the time comes. While I'm sure your intentions are wholly noble with respect to providing for your mother, a pro to sign-off on your plan may ease everyone's conscience a bit.

By assuming this duty, you may be taking on a fiduciary responsibility that is fraught with peril, should the outcome not be as you (or your sister) wish.

A fee-only advisor could at least give you peace-of-mind over what you glean from us.
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Re: Help me manage a $7 million portfolio.

Post by matjen »

BolderBoy beat me to the punch.

There is a some great advice her so I won't go through the investing piece. It is the process and posture that I wish to comment on.

1) Get a full time adviser to START. Ferri, Swedroe, Roth, etc. Make it clear that this isn't expected to be a long term relationship. Perhaps 3 years. The pro will server two functions. First he/she will ensure there are no conflicts and everyone feels good about the decisions made, and two, he/she will serve as a mentor for you to eventually take over the reins and keep the plan he/she designs on course. Win/win for minimal extra in fees. You will all sleep much better.

2) Get a T&E attorney. Heck, she could give you each 2.5 million tomorrow and use up her gift tax exemption if she really desired.
A man is rich in proportion to the number of things he can afford to let alone.
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Re: Help me manage a $7 million portfolio.

Post by bsteiner »

LadyGeek wrote:If the financial planner is doing his/her job, you will be strongly requested to get an estate planning attorney (the field of study is called elder law). bsteiner has provided some good reasons to do so.
While there's some overlap, and lawyers in each field should have some general familiarity with the other even if they don't practice in the other, trusts and estates law and elder law are more different than alike.

Elder law deals mainly with Medicaid, guardianships and disability law. Trusts and estates law deals mainly with estate planning (both from a tax standpoint and an asset protection standpoint) and administration. In this case, the person is in her 50s and has a taxable estate, so a trusts and estates lawyer would be a better fit than an elder law attorney. Given the size of the estate, ideally he/she should be tax-oriented and used to dealing with estates of this size. Many lawyers practice in both tax and trusts and estates.
bogleenigma
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Re: Help me manage a $7 million portfolio.

Post by bogleenigma »

Texasinvestor,

Regarding some of the inappropriate comments from posters above, please keep in mind that quite a few of our ilk (what a rowdy bunch we are!) like to get a bit flustered when there is any perception that a youngster is fleecing their elders. Folks like to get a bit hyper-emotional despite the fact that it's not their business. Regarding the above recommendation to "ease our consciences" -- our consciences are not of YOUR concern. As stated above you came here asking for our wisdom and assistance and it appears that a minority of us are ruining your day. Pay them no heed.

I agree with the above recommendation to consult a T&E attorney. Perhaps that needs to be your first action. Second, I echo matjen and bolderboy, there is a a LOT of wisdom in advising you to BEGIN with one of the firms mentioned by the posters: Ferri, Swedroe, Roth, etc. Not that my opinion means much, but if you're looking for a "smaller outfit" with more personalized attention, a dear friend of mine, John Smartt, performs a similar service to the above. He was very instrumental for me when I was in a similiar situation to your own (though not with QUITE the amount of assets you're dealing with). He's a fine, trust-able soul and I would recommend him without hesitation. http://www.johnsmarttcpa.com/ . He uses exclusively Vanguard funds. He charges a 0.5% AUM fee, which is quite reasonable. You'll get more personalized attention and EDUCATION from him than you will get from any of the above advisors. My second choice would be Ferri's firm: http://www.portfoliosolutions.com/ . If you go with Ferri, just request that you have only Vanguard funds rather than any DFA funds (though I'm fairly certain he only uses them in tax-deferred). Folks rave about Portfolio Solutions. But any of the Boglehead friendly firms should be just fine.

Just explain, as the above poster noted, to the chosen advisor that this will not be a long-term relationship. Get them to create a custom portfolio for your mother that everyone can live with and everyone can understand (as much as possible). Make GOOD use of any education that said adviser can provide you. Make GOOD use of the AUM fee you're paying and ask away, because when you no longer use their services you would be paying $150/hr to a fee only advisor for the same thing. Do this for a year or two and then manage things on your own if you wish. Read a few books. Start with Bogle's "The Little Book of Common Sense Investing", then progress onto Ferri's and Swedroe's books. Learn from the brilliant folks on this forum for the duration of that time, and you'll be more than ready to manage the portfolio on your own. You won't regret it. Your mother and your sister won't regret it. Everyone will be happy.

I hear your resentment regarding the individual above who questioned your ability due to your age to manage a portfolio of this size. The comment was somewhat inappropriate. Your age has little to do with it. But, by the same token, there is WISDOM contained in this comment: you've clearly been reading the forum and you've clearly dedicated yourself to learning about investing but it appears from the content of your posts that you have limited investment experience of your own. Further you simply don't have the personal experience of managing a seven million dollar portfolio. Perhaps you have managed your own portfolio (of whatever size) but you have not managed one of this size. You can make errors in the management of your portfolio when you are young and the repercussions are minimal because the portfolio size is small. This is more money than many folks here will see in their lifetimes. The potential repercussions are BIG. And most importantly, it's actually not your money, and may not be your money for 30 years. This is your mother's ticket to spend the rest of her life doing whatever she wants to do, in whatever way she deems fit. If well-managed it is your ticket and your sister's ticket (and hopefully generations of your children and your children's children) to a prosperous retirement and life. So it is an awesome responsibility that she has tendered to you to allow you to help her manage her financial future. You should be proud that she trusts you enough to allow you this opportunity. Obviously you've earned it as a responsible son. But pay heed to the collective wisdom here. If you don't you will likely regret it. Have humility and wisdom. For your mother's sake, for yours and your sister's sake, for the future generations of children of your sister and yourself.
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