Receiving 250-300k And Torn On How To Grow It

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jamm1227
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Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

To make a long story short, I am a teenager whose father is receiving 250-300k from an injury lawsuit. My parents are seriously contemplating only spending about 15k for a car and redecoration of our apartment and leaving the rest of the money to ME to manage. They know I took a recent interest in business, investing, and economics and therefore trust me, even know I'm very new to the world of business and have more questions than answers. I'm contemplating if I should buy my father a business to manage, buy rental property, invest in real estate, invest in mutual funds, be the lender of a real estate trust deed, or possibly invest in equity in growing businesses. I'm torn and frankly I don't trust myself, though I trust myself more than my parents :wink: I'm wondering if I can have any advice on this matter and perhaps an idea of what would you do with this money if the intent is generating income from investments?

I'm thinking the safest option is to buy my father a business because in this economy (US), jobs are scarce and job security is shaky. It's always stressful working for someone else, let alone receiving a tiny portion of the boss's salary. My father's background is in sale's management and I'm thinking he would be fit to manage and own a business with an already built-in success model. That's the great thing about buying a business, assuming the original owner is quitting for relocation or retirement - there is an existing successful business model with an established reputation and consumer base.

I've also pondered buying a rental property as it is a goal of mine in addition to becoming a physician. I consider rental properties a protection against inflation since the rent can be adjusted. Furthermore, there are always people looking for homes unlike owning a business where suddenly demand is crippled by a recession. There's also that fulfilling feeling of owning your own property, which is why it's a goal of mine. I'm just worried on how much the usual commitment would be...I intend to go to college and eventually medical school, meaning I won't have the time to really manage the property like a full time owner can. I do hear, though, that there are people with multiple properties who do just fine. Perhaps owning property with minimal involvement can be done if one hires a management team to oversee all needs for repairs? Sure, the investment would be diluted, but I would be secure.

Are REITs a better option than owning actual real estate? I've heard from a few people that they generate a nice return with no involvement and people are flocking to them. I'm just worried about the whole REIT deal because I've been reading Austrian economics and the future looks grim for businesses like these. The returns are only profitable at this moment due to borrowing at very low interest rates and once interest rates raise (and they'll probably raise dramatically), all this hype will collapse ... another bubble ended.

Real estate trust deeds seem VERY profitable and safe since the borrower is basing this loan in collateral and the interest rates from private lenders are much higher than banks. I've heard that within a few years, the original lending amount can be doubled. This is a huge return, but the obvious downfall is that your money will be 'locked' for 5 years or so. I'm looking to generate sustainable monthly income so maybe this route isn't the best for my goals.

Since I have a thrill seeking side of myself, venture capital and business investing so attractive to me, attractive enough for me to fantasize about being an angel investor after I've an established professional. I've entertained the idea of taking on a greater risk to invest in start up companies for equity. Of course, the only drawback is the risk. How does one determine a potential profitable company from a flop? I heard direct equity investing in already established big businesses looking for even more growth is safer, but how big are the returns? Is it worth it?

That's all I'll write because I'm almost positive no one wants to continue reading such a lengthy post. I've been known to struggle with brevity and end up annoying a lot of people in the process, so I'll leave it at this. Thanks SO SO much for taking the time to read this and for your advice.
Easy Rhino
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Easy Rhino »

okay we need more information.

The main thing I'm curious about is how your folks thought that having a teenager manage the money would be a good idea. One possibility is that they're so wealthy that a few hundred grand is no big deal to them. Another is that they're disastrous at managing money and don't have much saved and are scared of it. There are other possibilities.

Anyway, we need more information. A good idea would be to gather the info required to fill out one the "preferred bogleheads format" posts (you can add the info to this topic):

http://www.bogleheads.org/forum/viewtop ... f=1&t=6212

This in itself is probably going to take a lot of work, some involvement from your folks, and since families can get weird about money, things may get awkward. It's important to work through it. (and this is just the information gathering stage!)

now... regardless of what info you come up with, my advice is probably to find a professional investment advisor.
livesoft
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Re: Receiving 250-300k And Torn On How To Grow It

Post by livesoft »

Buying a business is risky, so don't kid yourself. Even a successful business with a new owner can fail. This is certainly NOT the safest option. :)

It also seems that your post has a complete disconnect between risk and reward. Simply put: Things that might pay more are riskier and might lose more. So your REIT idea is somehow ignoring the risks involved.
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floatingdoc
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Re: Receiving 250-300k And Torn On How To Grow It

Post by floatingdoc »

deleted....
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BL
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Re: Receiving 250-300k And Torn On How To Grow It

Post by BL »

Congratulations on becoming interested in financial concerns at such an early age.

Unless you are 18, you probably cannot enter into legal contracts.

I suggest parking the money in an FDIC insured bank or NCUA credit union guaranteed safe by the federal government while you all read some of the books recommended here such as Bogleheads Guide to Investing. Some could be spent instead of salary while directing the maximum into IRAs, 401Ks, to get more into tax-advantages locations. Up to $10,000 each per year can be put directly into government I-Bonds through treasurydirect.gov. These are not taxed by federal income taxes. These can be researched there and do currently pay a variable rate that is higher than CDs.

This board is primarily suggesting investing in low-cost index funds in the best proportion for each individual's situation. This might be the best proportion of Total Stock Market, Total International Stock, and either Total Bond or Tax-exempt bonds, (depending on their tax bracket) in order to be more tax-efficient. Click on Amazon link to look at some of those books.

Some of the business investments you mentioned could be right for the proper individual but more likely would waste most if not all of this windfall. They are not for amateurs who have not had a lot of prior experience in the field. People who are good at sales, for example, could be horrible at managing a business. There will probably be all kinds of people showing up with great-sounding investments or insurance products such as annuities that would not be wise. So good sales resistance is advised.

Since you are contemplating med school, investing in your education and then you paying them back might be something to consider, if you are a responsible kind of person who will succeed in that. It sounds like they are wise in not blowing through lots of money immediately, but they would benefit from some of the information here in the wiki and the suggested reading as well, as it is their money. If they would like to post their situation here according to the recommended format, they could get some good suggestions from folks who have been on this board a long time.
ginyah
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Re: Receiving 250-300k And Torn On How To Grow It

Post by ginyah »

I see that you want to be a doctor. Do you already have the money set aside to pay for college and med school? If not that your injury award will go a long way to paying those costs, thought it may not cover it entirely. Rather than worrying about how to invest it in a business or real estate or the market, why not invest it in yourself? Getting your education and a profession is the best investment you could make and probably the safest.
SP-diceman
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Re: Receiving 250-300k And Torn On How To Grow It

Post by SP-diceman »

Looks like you’re looking in all the wrong directions.
Walking into businesses and real-estate because it sounds good is probably the biggest reason people go broke.

Also, “thrill seeking side” and “safest option” don’t typically go together.

That being said, there’s not enough info to give advice.


Thanks
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bottlecap
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Re: Receiving 250-300k And Torn On How To Grow It

Post by bottlecap »

You seem quite smart, but you are still quite young. I agree with others about your misunderstanding of risk - there is nothing that is very profitable and safe.

I had a couple of other thoughts:

Why the rush? You seem like you feel you need to spend or invest this sum the minute your father gets it. That's not necessarily the case.

Macroeconomic theory has its place, but should not govern personal investment decisions. If economists could control for enough variables to be right more than 50% of the time, they wouldn't need to teach or write.

Does your father need to own a business? Being an employee is not such a bad thing and employees do not get a cut of the bosses' salary or profits. That's not how things work. If being an employee will allow your father to reach his goals with this settlement, does he really need to risk the settlement?

Why are you making the decision for your father, particularly about what business he should buy? Your father will have to decide what he wants to do, how much he wants to take on, etc... You can't decide that for him. Starting or buying a business is risky and almost sure to fail if his heart isn't in it.

A windfall like this is easy to lose for someone who's never handled that kind of money (whether you or your father). Use caution.

Good luck,

JT
Five Scoop
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Five Scoop »

ginyah wrote:I see that you want to be a doctor. Do you already have the money set aside to pay for college and med school? If not that your injury award will go a long way to paying those costs, thought it may not cover it entirely. Rather than worrying about how to invest it in a business or real estate or the market, why not invest it in yourself? Getting your education and a profession is the best investment you could make and probably the safest.

I would hesitate recommending the poster to "invest in himself" since it really is not his money. It is his father's money. And it might be needed to provide for retirement or living expenses for his father. I went through medical school and borrowed all of my tuition. It is not an ideal situation but I have been able to aggressively pay back my loans. The important thing is that this was my education and I took the responsibility to pay for it. I think that any thoughts of the poster using his father's money for his own benefit would be inappropriate.
Muchtolearn
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Muchtolearn »

This post really struck me. First, as others said, this is the parents' money, not his. The father asked for help investing it, not putting it to the son's use. I am going to risk getting lambasted or censured for this. The father is not operating with a clear head. And OP, you are a wonderful and nice young man who cares. You have no clue what to do with the money. Nor should you like any other teenager. Your father is entrusting essentially all of his money to a child who isn't past high school? One who thinks it is good to start a business? Please. I beg you as your parents do not sound wealthy or sophisticated. Read here about teh 3-fund portfolio. Advise your parents about it and let them read about it and let them make the transaction themselves. It is their money. And please, forget the businesses and real estate. You do not know from cash flow, risk analysis, payrolls, business licenses, liability, accounting needs, etc. If you proceed the way you are suggesting I suspect you will lose everything they gave you and more as you will likely have them leverage things up a bit.
Johm221122
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Johm221122 »

Welcome to Bogleheads, read Boglehead philosophy
http://www.bogleheads.org/wiki/Boglehea ... philosophy
Good luck
john
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Raymond
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Raymond »

Just get it over with.

Hookers, blow, and fast red sports cars.

What could go wrong?

Your parents won't have any money left, but you'll have incredible memories, if you survive the experience :twisted:

-----

OK, I'll stop being a jerk.

Your parents have come into a large sum of money. You said your father received this money from an injury lawsuit - how physically disabled is he? If he's not able to work anymore, this money will have to last your parents for the rest of his life, unless (as Easy Rhino said), this is just part of a larger family portfolio.

If your parents are not good at managing money, and you don't have any experience in managing money, real estate, running a business, or venture capital, I would implore you to follow the advice already given here.

Your parents are in a situation similar to that of lottery winners. I've posted the following link in an earlier thread here on Bogleheads, but it may be useful to you (just ignore the lottery-specific advice.) (Warning: Some NSFW language, and the post is on a firearms discussion board, if that is offensive to you):

Austrian's Semi-Annual "Guide For Recent Lottery Winners (Or Deluded Hopefuls)" Post - AR15.com

Please update us on your progress. I am sorry your father was injured, but this money is a unique opportunity to change the path of your family's fortunes. Tread carefully, and watch out for insurance salesmen, "financial advisers", and long-lost relatives who suddenly reappear with their hands out :annoyed
"Ritter, Tod und Teufel"
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William4u
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Re: Receiving 250-300k And Torn On How To Grow It

Post by William4u »

I'd also be concerned that a smooth talking "financial manager" (or other sales person) will take advantage of this and fleece the family. When I was 18, I didn't know much about money management. But if I was an 18 year old with my 50 year old knowledge, I would take the $250k and:

1. Have mom, dad, and myself each get a $10k 2012 Ibond at treasurydirect.gov. I'd get another 30k in 2013.

2. Put an emergency fund with 6 months expenses in a Credit Union savings account like penfed.org or a local NCUA Credit Union (unless you already have that).

3. I'd put the rest in a Vanguard account and create a three fund portfolio. http://www.bogleheads.org/wiki/Three-fund_portfolio

I'd start the 3 fund portfolio in Roth IRAs for everyone eligible (everyone who had income this year). I'd put the rest in taxable. I'd do 50% bonds in VWIUX/ibonds, 30% Vanguard Total Domestic VTSAX, and 20% Vanguard Total International VTIAX. Once you figure out the long term goals for the money, you can adjust the risk of this portfolio (but only adjust when you know what risk is and what the goals are after doing a lot of reading... http://www.bogleheads.org/readbooks.htm ).

HOWEVER, the odds of an 18 year old pulling this off strike me as low. The odds are that some sales person with a fancy title will get a hold of the teenager and trick him or her into doing something bad (this happens more than you know). Also, the "buying a business" idea is a bad idea (a recipe for disaster IMHO).

Overall, the best thing the 18 year old can do is this: focus on school. If you are a strong student (top of your class) and become a physician and live below your means, then the 250k will be a drop in the bucket in a decade or two. The real money is in your career, which depends on your schooling and being the best student you can be. Over a lifetime a physician will make many millions of dollars. I wouldn't spend any time of this financial stuff if it takes an hour from your school work.
jbmitt
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jbmitt »

People don't just get 250-300k injury settlements without extensive outstanding medical bills, permanent injuries, disabilities, fatalities and usually attorney fees. I speak with knowledge, because this is the field that I work in. If your dad is receiving such a settlement, it is probably intended to make up for a whole body impairment rating, loss of future earnings, shortened lifespan, etc.

I'd wait until you have money in hand. I've had more than one person tell me that ''their attorney will get them (insert # hundred thousand or million) dollars" on a claim that typically resolves for a few thousand.
KyleAAA
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Re: Receiving 250-300k And Torn On How To Grow It

Post by KyleAAA »

Running a business is far more stressful than having a job. At my job, I get to go home at 5 and not care again until tomorrow. With my business, nothing will ever get done unless I make it happen. There's no such thing as time off. Yeah, I can just not do work, but then my income drops.
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Toons
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Toons »

Invest it ,take your pick from the following funds :happy


https://personal.vanguard.com/us/funds/ ... rementList
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
investor1
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Re: Receiving 250-300k And Torn On How To Grow It

Post by investor1 »

William4u wrote:I'd also be concerned that a smooth talking "financial manager" (or other sales person) will take advantage of this and fleece the family. When I was 18, I didn't know much about money management. But if I was an 18 year old with my 50 year old knowledge, I would take the $250k and:

1. Have mom, dad, and myself each get a $10k 2012 Ibond at treasurydirect.gov. I'd get another 30k in 2013.

2. Put an emergency fund with 6 months expenses in a Credit Union savings account like penfed.org or a local NCUA Credit Union (unless you already have that).

3. I'd put the rest in a Vanguard account and create a three fund portfolio. http://www.bogleheads.org/wiki/Three-fund_portfolio

I'd start the 3 fund portfolio in Roth IRAs for everyone eligible (everyone who had income this year). I'd put the rest in taxable. I'd do 50% bonds in VWIUX/ibonds, 30% Vanguard Total Domestic VTSAX, and 20% Vanguard Total International VTIAX. Once you figure out the long term goals for the money, you can adjust the risk of this portfolio (but only adjust when you know what risk is and what the goals are after doing a lot of reading... http://www.bogleheads.org/readbooks.htm ).

HOWEVER, the odds of an 18 year old pulling this off strike me as low. The odds are that some sales person with a fancy title will get a hold of the teenager and trick him or her into doing something bad (this happens more than you know). Also, the "buying a business" idea is a bad idea (a recipe for disaster IMHO).

Overall, the best thing the 18 year old can do is this: focus on school. If you are a strong student (top of your class) and become a physician and live below your means, then the 250k will be a drop in the bucket in a decade or two. The real money is in your career, which depends on your schooling and being the best student you can be. Over a lifetime a physician will make many millions of dollars. I wouldn't spend any time of this financial stuff if it takes an hour from your school work.
This is the best advice in this thread. In addition to that, I would talk to the parents about what (if anything) they want to contribute to college. The Roths might be enough to cover that, or you might want to consider a 529b or a similar college savings account. Also, pay off all debt and stop paying others interest.
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Raymond
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Raymond »

I hope the OP returns to this thread, which I think has a lot of useful advice.

It would be a pity if he never returned, even more so if we were just being trolled :(
"Ritter, Tod und Teufel"
thebogledude
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Re: Receiving 250-300k And Torn On How To Grow It

Post by thebogledude »

Raymond wrote:I hope the OP returns to this thread, which I think has a lot of useful advice.

It would be a pity if he never returned, even more so if we were just being trolled :(
I think so since I know of no teenager who understands risk in REITS or uses the phrase "struggle with brevity".
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jamm1227
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

okay we need more information.

The main thing I'm curious about is how your folks thought that having a teenager manage the money would be a good idea. One possibility is that they're so wealthy that a few hundred grand is no big deal to them. Another is that they're disastrous at managing money and don't have much saved and are scared of it. There are other possibilities.

Anyway, we need more information. A good idea would be to gather the info required to fill out one the "preferred bogleheads format" posts (you can add the info to this topic):

viewtopic.php?f=1&t=6212

This in itself is probably going to take a lot of work, some involvement from your folks, and since families can get weird about money, things may get awkward. It's important to work through it. (and this is just the information gathering stage!)

now... regardless of what info you come up with, my advice is probably to find a professional investment advisor.
I'm sorry for over simplifying the matter. The comment was made in passing, actually. It wasn't a serious offer. What really happened was my mother commented to me saying my father thought it would be a good idea to give a portion of the money to me as a gift as well as ask me what I thought we (as a family) should invest in to grow our money. They're not wealthy, but they're not horrible with managing money either. They were asking for tips I might have picked up from online reading; that's all.

I looked at the extra information I need to provide and unfortunately I do not know most of the particulars. What I do know is we have no debt we need to pay back, which helps a lot.
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jamm1227
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

livesoft wrote:Buying a business is risky, so don't kid yourself. Even a successful business with a new owner can fail. This is certainly NOT the safest option. :)

It also seems that your post has a complete disconnect between risk and reward. Simply put: Things that might pay more are riskier and might lose more. So your REIT idea is somehow ignoring the risks involved.
I meant buying an established business with longevity. When I browsed the businesses for sale in my area (NJ/NYC), I read most of the owners are prepared to train the buyer for a month or so and review the business plan with them to ensure the past success the retiring owner received thus far. I also know that buying a business requires all information, including reviewing the owner's gross income and take home profit after operating fees over a period of years. Of course I wouldn't want to purchase a business without reviewing all the ins and outs. An owner's salary is better than an employee's salary, ergo I was exploring this option.

I'm also completely aware of the positive correlation with risk and reward. Higher yields almost always require a greater risk and I realize that. If reasonably hefty gains are desired, risk must be taken into consideration. That is why I was inquiring for experienced opinions on the more risky investments like real estate, businesses, and venture capital. If one is educated and receives competent advice in this area, some risk would be diminished and the gamble would be worth it.
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jamm1227
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

BL wrote:Congratulations on becoming interested in financial concerns at such an early age.

Unless you are 18, you probably cannot enter into legal contracts.

I suggest parking the money in an FDIC insured bank or NCUA credit union guaranteed safe by the federal government while you all read some of the books recommended here such as Bogleheads Guide to Investing. Some could be spent instead of salary while directing the maximum into IRAs, 401Ks, to get more into tax-advantages locations. Up to $10,000 each per year can be put directly into government I-Bonds through treasurydirect.gov. These are not taxed by federal income taxes. These can be researched there and do currently pay a variable rate that is higher than CDs.

This board is primarily suggesting investing in low-cost index funds in the best proportion for each individual's situation. This might be the best proportion of Total Stock Market, Total International Stock, and either Total Bond or Tax-exempt bonds, (depending on their tax bracket) in order to be more tax-efficient. Click on Amazon link to look at some of those books.

Some of the business investments you mentioned could be right for the proper individual but more likely would waste most if not all of this windfall. They are not for amateurs who have not had a lot of prior experience in the field. People who are good at sales, for example, could be horrible at managing a business. There will probably be all kinds of people showing up with great-sounding investments or insurance products such as annuities that would not be wise. So good sales resistance is advised.

Since you are contemplating med school, investing in your education and then you paying them back might be something to consider, if you are a responsible kind of person who will succeed in that. It sounds like they are wise in not blowing through lots of money immediately, but they would benefit from some of the information here in the wiki and the suggested reading as well, as it is their money. If they would like to post their situation here according to the recommended format, they could get some good suggestions from folks who have been on this board a long time.
Thanks. Finances has always been a source of stress for me and so I wanted to familiarize myself with the business world. Once I can do this, I can take charge of the volatility of life that so many become a victim of.

I feel uneasy about trusting our family's finances to the US government due to the deficit and grim future of the dollar. The pay-offs from Treasury Bonds always attracted me, but seeing as I'm fearful of a default and/or devalued interests, I was considering Canadian Treasury Bonds. What do you think? I will also definitely check out and show my family "Bogleheads Guide To Investing" as we all have a lot to learn!

Thanks very much for introducing me to "index funds". I'm glancing over their concept and they seem *very* attractive to me from their reliability, low cost, and ease of investment. S&P seems worthwhile to look into for using index funds to invest in commodities. I'll surely consider this and read further.

I'm aware some of the business investments I mentioned are very 'hit & miss' and because we are amateurs, I was asking for advice on where to get started if that's a route we want to explore as well. I know some of the rewards are resultant of high risk dumb luck, though a lot of it is earned through the 'knack for recognizing profitability' as I'd like to call it - something I hope to acquire.

Thank for your consideration. I'm very fortunate to have my parents volunteer to pay for college since it'll be rather cheap (Rutgers), and I'm expecting to pay back my medical debt from my residency salary. Because we are fortunate to have some money that will be leftover, I will absolutely recommend the reading to them, as well as read it myself. Thanks again!
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jamm1227
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

ginyah wrote:I see that you want to be a doctor. Do you already have the money set aside to pay for college and med school? If not that your injury award will go a long way to paying those costs, thought it may not cover it entirely. Rather than worrying about how to invest it in a business or real estate or the market, why not invest it in yourself? Getting your education and a profession is the best investment you could make and probably the safest.
I explained this just above ^ I'm very lucky to not have to worry about paying most of my education back. That's why I'm racking my brain over what to do with the money we'll have to ourselves. This is an opportunity for me I really feel I can take advantage of if I develop a firm understanding of the investing world.
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jamm1227
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

SP-diceman wrote:Looks like you’re looking in all the wrong directions.
Walking into businesses and real-estate because it sounds good is probably the biggest reason people go broke.

Also, “thrill seeking side” and “safest option” don’t typically go together.

That being said, there’s not enough info to give advice.


Thanks
SP-diceman

Business and real estate is indeed risky, but so many people have profited greatly as a result of it. That's why I hope to get some tips so if I approach this avenue, I'll be facing it prepared with a good shot to succeed.

Of course, thrill seeking and security are opposing goals. I constantly juggle with the prospects in my head ... "Go safe and gain a little or go for greatness and risk losing a significant portion". I just think of all the young venture capitalists and entrepreneurs who begin their life middle class and suddenly change their fate from investing in the right thing at the right time. These stories are so inspiring me and this new money allows me to believe it's possible to take their path.

As I said before, I unfortunately do not know the particulars to my family's financial situation, but I *do* know we have no debt and that's important.
livesoft
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Re: Receiving 250-300k And Torn On How To Grow It

Post by livesoft »

Long live the enthusiasm and exuberance of Youth!
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jamm1227
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

Muchtolearn wrote:This post really struck me. First, as others said, this is the parents' money, not his. The father asked for help investing it, not putting it to the son's use. I am going to risk getting lambasted or censured for this. The father is not operating with a clear head. And OP, you are a wonderful and nice young man who cares. You have no clue what to do with the money. Nor should you like any other teenager. Your father is entrusting essentially all of his money to a child who isn't past high school? One who thinks it is good to start a business? Please. I beg you as your parents do not sound wealthy or sophisticated. Read here about teh 3-fund portfolio. Advise your parents about it and let them read about it and let them make the transaction themselves. It is their money. And please, forget the businesses and real estate. You do not know from cash flow, risk analysis, payrolls, business licenses, liability, accounting needs, etc. If you proceed the way you are suggesting I suspect you will lose everything they gave you and more as you will likely have them leverage things up a bit.
I certainly won't lambast you considering your good intentions. I need all the help I can get and I'm very thankful for everybody's time.

My father didn't exactly say he'll be entrusting all the money to me. What he did was ask me what I know so far and if I think I have good ideas on how to put the money to good use. He and my mother know better than to let me do whatever I want with this :happy I'll have to show them my plans and they'll research them before adopting my plans.

I'll look into the 3-fund portfolio. I've just glanced at part of it and would have to read more to talk it over with my family. Thanks for the reference.

And concerning risk analysis, cash flow, payrolls, and the like ... what I do know is these matters will be much more secure if we *buy* an already successful business as far as start a business ourselves. I never recommended started our own business. If we do buy a business, we will of course look over all the owners business stats.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

bottlecap wrote:You seem quite smart, but you are still quite young. I agree with others about your misunderstanding of risk - there is nothing that is very profitable and safe.

I had a couple of other thoughts:

Why the rush? You seem like you feel you need to spend or invest this sum the minute your father gets it. That's not necessarily the case.

Macroeconomic theory has its place, but should not govern personal investment decisions. If economists could control for enough variables to be right more than 50% of the time, they wouldn't need to teach or write.

Does your father need to own a business? Being an employee is not such a bad thing and employees do not get a cut of the bosses' salary or profits. That's not how things work. If being an employee will allow your father to reach his goals with this settlement, does he really need to risk the settlement?

Why are you making the decision for your father, particularly about what business he should buy? Your father will have to decide what he wants to do, how much he wants to take on, etc... You can't decide that for him. Starting or buying a business is risky and almost sure to fail if his heart isn't in it.

A windfall like this is easy to lose for someone who's never handled that kind of money (whether you or your father). Use caution.

Good luck,

JT

Thank you very much. I know nothing is profitable and safe, which is why I think it's a good idea to put a portion of money into 'secure funds' and perhaps try to earn a high return of the rest through some risk.

I'm in a rush because money is a source of anxiety for me. I want to know it won't be wasted and withered away like lottery winners who blow through it all and leave themselves even worse off than they originally were. I want to use this amazing opportunity to improve our lives, not waste it.

I think macroeconomic theory should be dealt with a priori to personal finance management. If it is not done this way, the effect on the owner's currency through poor policy can ruin personal investments and devalue one's entire savings.

As to whether or not my father needs to own a business, I really don't know, so I'm allowing for this possibility and thus preparing for it. This injury won't allow him to work at his prior job, so my mother is actually searching a new one during this time period before worker's compensation ceases. I'm very nervous about the job situation in my area even though my mother implores me not to worry and that he will find a good job. I'm preparing for the worst case scenario where he won't find an acceptable job and would need a business to take advantage of his own future, not wait until someone else accepts him. Besides, an owner's salary surely beats an employee's salary.

I suppose I am worrying too much, as I always do. I will use caution and probably won't even have to utilize this plan. We'll see :happy
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

Johm221122 wrote:Welcome to Bogleheads, read Boglehead philosophy
http://www.bogleheads.org/wiki/Boglehea ... philosophy
Good luck
john

Will do, as well as direct this to my mother and father. Thank you.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by 3CT_Paddler »

My suggestion is to start a thread on here and track your decisions and outcomes with said money. Ever since MarketTimer (a poster on here with a previous scheme for easy wealth) crashed and burned, Bogleheads hasn't been as exciting. You can be the guy that draws hundreds of Bogleheads to check the site daily for nothing more than to see what "jamm" is getting into today with his windfall.

...

PS The above post is not a serious recommendation. My serious recommendation is to put the money in something safe until you have read a lot more about investing, and experienced life a little more. And if you are going to try and start a business, know that risking all of this capital on your first business venture is likely to leave you with nothing more than an expensive lesson. Its better to start small with something like 10% of this windfall (or less) and try to build a business. Oh and don't go into debt.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

Raymond wrote:Just get it over with.

Hookers, blow, and fast red sports cars.

What could go wrong?

Your parents won't have any money left, but you'll have incredible memories, if you survive the experience :twisted:

-----

OK, I'll stop being a jerk.

Your parents have come into a large sum of money. You said your father received this money from an injury lawsuit - how physically disabled is he? If he's not able to work anymore, this money will have to last your parents for the rest of his life, unless (as Easy Rhino said), this is just part of a larger family portfolio.

If your parents are not good at managing money, and you don't have any experience in managing money, real estate, running a business, or venture capital, I would implore you to follow the advice already given here.

Your parents are in a situation similar to that of lottery winners. I've posted the following link in an earlier thread here on Bogleheads, but it may be useful to you (just ignore the lottery-specific advice.) (Warning: Some NSFW language, and the post is on a firearms discussion board, if that is offensive to you):

Austrian's Semi-Annual "Guide For Recent Lottery Winners (Or Deluded Hopefuls)" Post - AR15.com

Please update us on your progress. I am sorry your father was injured, but this money is a unique opportunity to change the path of your family's fortunes. Tread carefully, and watch out for insurance salesmen, "financial advisers", and long-lost relatives who suddenly reappear with their hands out :annoyed

The beginning of your post was pretty silly, but I think you provided me with the best advice I could have asked for, so thanks a lot.

The article you linked me to really spoke to me because I can relate to the situation almost completely. More money indeed can spark more problems if it is handled even slightly irresponsibly. I knew lottery winners suffered harsh fates but not to the extent I'm reading. Truly tragic.

Furthermore, this part of the article just might have been written exclusively for me:
"You are going to be really tempted to starting being a big investor. You are going to be convinced that you can double your money in Vegas with your awesome Roulette system/by funding your friend's amazing idea to sell Lemming dung/buying land for oil drilling/by shorting the North Pole Ice market (global warming, you know). This all sounds tempting because "Even if I lose it all I still have $XX million left! Anyone could live on that comfortably for the rest of their life." Yeah, except for 33% of everyone who won the lottery.

You're not going to double your money, so cool it. Let me say that again. You're not going to double your money, so cool it."

I need to remind myself to secure most of it first and 'gamble' with only a small portion of it if I decide the angel investor/business funder path at all. My daring side keeps assuring me I can more than double the money if I use it right, becoming very wealthy. I know this is dangerous thinking that needs to be balanced in practicality.

The most valuable piece of information I've received from the article was *where* to put percentage of the funds in. I knew already not to trust financial advisers who would eventually hide it and funnel most of it to themselves. The S&P index funds looks like an excellent idea to safely protect the principal as well as grow it. The bond idea is terrific to generate the passive income I'm aiming for and because I'm "paranoid" like the article says, I think I wish to use international bonds in more secure currencies. I feel this is what I can convince my parents to do with most of the money.

My whole idea was to generate passive income either through dividends, rentals, or real estate investments so we can "have fun" having a lot to spend on non-essentials while the capital remains in tact. The article really dealt with those concerns.

And thanks very much for your kindness. This injury negatively impacted all of us mentally while my father had to share the physical and mental anguish over it. This is indeed an opportunity to change our lives for the better and that is why I'm very careful as I'm seeking the best advice I can get, which you have just offered me.

Best regards and I'll use this info wisely!
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Re: Receiving 250-300k And Torn On How To Grow It

Post by 3CT_Paddler »

jamm1227 wrote: I'm in a rush because money is a source of anxiety for me. I want to know it won't be wasted and withered away like lottery winners who blow through it all and leave themselves even worse off than they originally were. I want to use this amazing opportunity to improve our lives, not waste it.
So you don't want to be like lottery winners who blow it all quickly, by rushing big financial decisions? :?
I think macroeconomic theory should be dealt with a priori to personal finance management. If it is not done this way, the effect on the owner's currency through poor policy can ruin personal investments and devalue one's entire savings.
Trying to determine the direction of the markets using macroeconomic theory is likely a losing proposition. Its one step from fortune telling. If the best and brightest don't know where the market will be in 5 years or what the next world event/technology that changes the current balance of things, neither do I or you.

If you are trying to avoid savings being devalued, then you need to look at securities with inflation protection like Ibonds or TIPs or precious metals. But what you are doing in essence is paying for insurance against currency devaluation or unexpected inflation with those vehicles. And just like regular insurance, it is a cost, that subtracts from your total return. It depends on your goal with this money. Is your goal to slowly and safely grow this amount (Treasuries) or to take risks that could potentially leave you with nothing (a large business investment) or somewhere in between (Vanguard Three Fund portfolio or Target Retirement fund)?
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

William4u wrote:I'd also be concerned that a smooth talking "financial manager" (or other sales person) will take advantage of this and fleece the family. When I was 18, I didn't know much about money management. But if I was an 18 year old with my 50 year old knowledge, I would take the $250k and:

1. Have mom, dad, and myself each get a $10k 2012 Ibond at treasurydirect.gov. I'd get another 30k in 2013.

2. Put an emergency fund with 6 months expenses in a Credit Union savings account like penfed.org or a local NCUA Credit Union (unless you already have that).

3. I'd put the rest in a Vanguard account and create a three fund portfolio. http://www.bogleheads.org/wiki/Three-fund_portfolio

I'd start the 3 fund portfolio in Roth IRAs for everyone eligible (everyone who had income this year). I'd put the rest in taxable. I'd do 50% bonds in VWIUX/ibonds, 30% Vanguard Total Domestic VTSAX, and 20% Vanguard Total International VTIAX. Once you figure out the long term goals for the money, you can adjust the risk of this portfolio (but only adjust when you know what risk is and what the goals are after doing a lot of reading... http://www.bogleheads.org/readbooks.htm ).

HOWEVER, the odds of an 18 year old pulling this off strike me as low. The odds are that some sales person with a fancy title will get a hold of the teenager and trick him or her into doing something bad (this happens more than you know). Also, the "buying a business" idea is a bad idea (a recipe for disaster IMHO).

Overall, the best thing the 18 year old can do is this: focus on school. If you are a strong student (top of your class) and become a physician and live below your means, then the 250k will be a drop in the bucket in a decade or two. The real money is in your career, which depends on your schooling and being the best student you can be. Over a lifetime a physician will make many millions of dollars. I wouldn't spend any time of this financial stuff if it takes an hour from your school work.
This is amazing advice and I appreciate all the time you dedicated. One thing I do know for sure is not I will NOT trust a financial adviser or smooth talking sales person. That's why I'm asking on here where I'm lucky to get quality advice from people who are not trying to take our money.

About the IBond, do you think it'll be a better idea to be invest in a Real Estate Trust Deed? With an IBond, even though it is adjusted for inflation, cannot be touched until it matures. A Real Estate Trust Deed is same, only money can be doubled over a couple of years, more than what an IBond yields. I wouldn't call the Trust Deed a major risk either, considering the loan is based in physical collateral.

I keep getting recommendations on the Vanguard account, especially the S&P 500 Index Fund, so I will definitely put a chunk of the amount in that investment. It has a low dividend yield, but it is low cost and very reliable. I'm thankful to be introduced to this type of investment - simple & safe. I think as long as I base it in commodities, I can get inflation working FOR me against of against me as commodities rise.

And yes, my school work always comes first. I'm on track to graduate top 10 in my grade because I put my schoolwork above all else. Finance and entrepreneurial ventures are just a side interest to me, not something to ever allow me to lose my way. I know of doctors who invest as a hobby and this type of life has always appealed to me. It's all about balance and responsibility.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by jamm1227 »

So you don't want to be like lottery winners who blow it all quickly, by rushing big financial decisions? :?
Well, I just wanted to have a foolproof plan set in motion before I receive it, which will be before the end of this year. It'll be tempting having a large sum of money and forcing yourself to keep it untouched before you decide what you do with it.
Trying to determine the direction of the markets using macroeconomic theory is likely a losing proposition. Its one step from fortune telling. If the best and brightest don't know where the market will be in 5 years or what the next world event/technology that changes the current balance of things, neither do I or you.

If you are trying to avoid savings being devalued, then you need to look at securities with inflation protection like Ibonds or TIPs or precious metals. But what you are doing in essence is paying for insurance against currency devaluation or unexpected inflation with those vehicles. And just like regular insurance, it is a cost, that subtracts from your total return. It depends on your goal with this money. Is your goal to slowly and safely grow this amount (Treasuries) or to take risks that could potentially leave you with nothing (a large business investment) or somewhere in between (Vanguard Three Fund portfolio or Target Retirement fund)?
Considering the state the US is in with unemployment, inflation, and an impossible amount of debt ... I strongly sense a chance for default or mass printing, especially with all the money China is owed. This is why I'm scared to stay in the US dollar, seeking international currency and physical investments.

I never heard of TIPS before, so thanks for the introduction. I'm looking at the essence of them and the semi-annual interest payment is attractive to me, unlike the IBonds where payments are withheld. I am aware of precious metals and I've been considering putting savings in a combination of silver and gold. I can't see precious metal dropping in value, only gaining.

I'm mainly desiring something in between - putting a great portion of it into safe investments (index funds, precious metals, possibly TIPS) and perhaps using some portion for higher risk investments. Angel investing is probably the most risky, so I'm leaning towards either rentals or REITs. There is a fear of a drop in demand in REITs with the eventual rise in interest rates, but I believe if REITs are kept traditional (based in rentals) demand will rise in a high interest environment.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by HomerJ »

jamm1227 wrote:Real estate trust deeds seem VERY profitable and safe since the borrower is basing this loan in collateral and the interest rates from private lenders are much higher than banks. I've heard that within a few years, the original lending amount can be doubled. This is a huge return, but the obvious downfall is that your money will be 'locked' for 5 years or so. I'm looking to generate sustainable monthly income so maybe this route isn't the best for my goals.
No, the obvious downfall is you could lose your entire investment instead of it being doubled.

What percentage of your parent's net worth is this $250k-$300k? They have $3 million elsewhere, and are willing to let you play and learn with 10% of their net worth? Or do they have $300k saved, and are letting you risk 50% of their net worth? :shock:

First thing to do is nothing. Read some books in the wiki http://www.bogleheads.org/readbooks.htm I especially recommend "The Four Pillars of Investing".

Take your time making a decision with any windfall money.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by HomerJ »

jamm1227 wrote:Besides, an owner's salary surely beats an employee's salary.
Except when the business goes broke, which many do.

No need to rush into anything.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by 3CT_Paddler »

jamm1227 wrote: Considering the state the US is in with unemployment, inflation, and an impossible amount of debt ... I strongly sense a chance for default or mass printing, especially with all the money China is owed. This is why I'm scared to stay in the US dollar, seeking international currency and physical investments.
I don't know if you have looked at the rest of the developed world, but the US is currently one of the prettiest pigs at the fair. :D And the emerging markets and developing countries have a history of numerous defaults. Its certainly possible that the US could experience inflation like the 70's or worse, but right now the markets (which are comprised of lots and lots of smart people) are pricing in deflation, not inflation (based on bond yields). By all means, diversify internationally, but currency risk is a very real risk. Just because the situation for a company, or even a currency looks bad, does not mean an investment will do poorly. Often its the companies that nobody wants to touch that can be a great investment if things happen to turn around for them.
I never heard of TIPS before, so thanks for the introduction. I'm looking at the essence of them and the semi-annual interest payment is attractive to me, unlike the IBonds where payments are withheld. I am aware of precious metals and I've been considering putting savings in a combination of silver and gold. I can't see precious metal dropping in value, only gaining.
The feature where IBonds withhold payment is actually a benefit for most investors, because you get tax deferred earnings (more tax efficient). The only downside to IBonds are the purchase limits.

Best of luck to you, and I hope that you take your time with this. It may feel like you NEED to act, but I would resist the urge to do anything bold for at least a year.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by harikaried »

jamm1227 wrote:The S&P index funds looks like an excellent idea to safely protect the principal as well as grow it.
Generally here, people view US total market index funds as more risk, but that's because they're comparing it to total market bond funds, which tend to be more stable. For you, it seems like you're comparing it against much riskier investments such as a purchasing a business or rental properties, so perhaps it is indeed relatively less risky.

As others have linked, checked out Bogleheads® investment philosophy -- in particular "Never bear too much or too little risk."

One approach to estimate the right amount of risk is to ask yourself (and your family), how much of that money are you willing to drop in half in a single day? That amount of money is put into equities like US total market index funds because it's actually not unprecedented to lose 50% in a short time. Using that approach, you could ask yourself how much money are you willing to invest in businesses or properties that might be worthless (or actually have a negative growth on the rest of your wealth from maintenance, legal, etc.)
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Re: Receiving 250-300k And Torn On How To Grow It

Post by bottlecap »

Like I said, you seem intelligent and write quite well. However, you are young and have a lot of misconceptions. One of those misconceptions is that your father has to do something with the money receives almost immediately when he receives it. This is not the case and is almost a sure way to lose it. Your father might benefit from some books on managing a windfall. He might also consult a Certified Financial Planner, preferably one compensated by a fee-only arrangement.

Good luck,

JT
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Re: Receiving 250-300k And Torn On How To Grow It

Post by kenyan »

Just to clarify (you may know this but the wording of your posts suggest a slight misunderstanding) -

I Bonds can be redeemed far before maturity (30 years). There is a 12-month period where they cannot be touched. From 1 year to 5 years, you can redeem them in full, but with a penalty of the last 3 months' interest earned. Any time after 5 years, you can redeem them with zero penalty.

It is true that they do not provide regular income. As noted above, this is a benefit for most people, allowing tax-deferred growth.
Retirement investing is a marathon.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by HomerJ »

jamm1227 wrote:I can't see precious metal dropping in value, only gaining.
You've got to stop saying things like this. There are no sure things. Precious metals could indeed drop in value... a lot.

No one knows what asset class is going to do best next... Stocks, bonds, precious metals, REITs, emerging markets?

So we invest in them all. And take the average. We won't double our money quickly this way, but it's the best way to not lose money either.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by TA_Lurker »

If the long term picture for the USA is so bleak how do you explain the 30 year treasury?

As far as I can tell you have not yet answered the question about how the scale of 250k-300k compared with your parents' other assets. 300k is not a lot of money in the grand scheme of things. It definitely isn't enough money to make you an angel investor and depending on where you live may not even buy you a rental property in a middle class neighborhood.

If the 250k-300k represents a non-trivial portion of your parents' assets you should be focusing on the preservation of their wealth. Has your father fully recovered from his injury? Will he work again? How will your parents provide for themselves?
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William4u
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Re: Receiving 250-300k And Torn On How To Grow It

Post by William4u »

jamm1227 wrote:
William4u wrote:
1. Have mom, dad, and myself each get a $10k 2012 Ibond at treasurydirect.gov. I'd get another 30k in 2013.

2. Put an emergency fund with 6 months expenses in a Credit Union savings account like penfed.org or a local NCUA Credit Union (unless you already have that).

3. I'd put the rest in a Vanguard account and create a three fund portfolio. http://www.bogleheads.org/wiki/Three-fund_portfolio

I'd start the 3 fund portfolio in Roth IRAs for everyone eligible (everyone who had income this year). I'd put the rest in taxable. I'd do 50% bonds in VWIUX/ibonds, 30% Vanguard Total Domestic VTSAX, and 20% Vanguard Total International VTIAX. Once you figure out the long term goals for the money, you can adjust the risk of this portfolio (but only adjust when you know what risk is and what the goals are after doing a lot of reading... http://www.bogleheads.org/readbooks.htm ).
About the IBond, do you think it'll be a better idea to be invest in a Real Estate Trust Deed? With an IBond, even though it is adjusted for inflation, cannot be touched until it matures. A Real Estate Trust Deed is same, only money can be doubled over a couple of years, more than what an IBond yields. I wouldn't call the Trust Deed a major risk either, considering the loan is based in physical collateral.

I keep getting recommendations on the Vanguard account, especially the S&P 500 Index Fund, so I will definitely put a chunk of the amount in that investment. It has a low dividend yield, but it is low cost and very reliable. I'm thankful to be introduced to this type of investment - simple & safe. I think as long as I base it in commodities, I can get inflation working FOR me against of against me as commodities rise.
Others have mentioned it, and I agree with them that:

1. A REIT (Real Estate Trust) is a stock and is as risky as just about any stock. A few years ago the US REIT stock index dropped something like 70%. Ibonds, by contrast, cannot drop in (nominal) value. Ibonds play a very different role in a portfolio than REITs. You should max out your Ibonds (10k per person per year) for a number of years at least. Ibonds are much more tax efficient than REITs as well. I wouldn't own a pure REIT fund in a taxable account. And since REITs are part of the US stock market, they are part of the Vanguard Total Domestic VTSAX fund. I wouldn't recommend owning REITs aside from that, although some wise people do go to 10% of their portfolio in the Vanguard REIT index fund VGSLX. I wouldn't go higher than that 10% in REITs, and I would only own a REIT index fund if I owned any REITs at all.

2. Concerning the S&P 500. IMHO, the Vanguard Total Domestic VTSAX fund should be 30% of your portfolio (the other parts should be 50% bonds and 20% total international). 80% of VTSAX is the S&P 500 by market weight. The other 20% of VTSAX is mid and small cap stocks, which are good to hold in the total market weight. I would own all my REITs and S&P 500 through VTSAX. Note, however, that investing in the S&P 500, like all stocks, is risky (it dropped by around 65% just a few years ago). To mitigate risk, you should own plenty of bonds, diversify your stocks, and have a long term horizon. Bonds (and the other diversifies) help keep the ship on an even keel during the wild market swings.

Read the Bogleheads Guide to Investing. It is a good place to start.
Last edited by William4u on Tue Aug 14, 2012 4:05 pm, edited 1 time in total.
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Re: Receiving 250-300k And Torn On How To Grow It

Post by Balanthalus »

Just to echo a couple things other posters have said:

1) You seem to believe that using your knowledge of economics and current events, you can predict short- and medium-term movements in certain asset classes in a way that will allow you to be on the right side of a trade with someone else who believes they possess the same ability. And that you can do this not only a few times, but consistently enough, after transaction fees, to beat a passively managed portfolio of boring index funds. This is a common belief, but around here it garners about as much skepticism as claiming the ability to levitate. Simply put, no one, including people who do this for a living, is able to reliably execute such a strategy.

2) You repeatedly call risky (here by "risky" I mean volatile) asset classes "safe". The most glaring of these is precious metals. Gold in particular is an asset with a long-term inflation-adjusted rate of return of zero percent with high volatility; one of the riskiest assets out there. (see, e.g., http://www.efficientfrontier.com/ef/adhoc/gold.htm) Stocks are a little better, but an S&P 500 fund can still drop precipitously, and did drop around 37% in 2008. I would guess most REIT funds are more volatile than S&P 500 funds, but don't have the numbers handy.

Finally, we know nothing about your family's need and ability to take investment risk, given that we know nothing about when this money will be needed. At times, it seems like you are suggesting that your family doesn't really need the money (when you say there's no debt--does this include medical bills?), and at other times you say that you're looking for an income stream, suggesting that they need money now. We don't know whether there are upcoming expenses that your family expects to spend the money on, whether there is an adequate emergency fund and adequate insurance, whether your parents are fully funding their retirement acounts, etc etc. And without such information, while the general advice to slow down and educate yourself is good, it would be perilous to follow any advice you receive telling you to invest in any particular asset class.
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