How to invest $1.4 mil inheritance?

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scienceguy
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How to invest $1.4 mil inheritance?

Post by scienceguy »

Wife very recently inherited about $1.4 mil. We are in mid 40s with plenty of income ($250K) and no debts except $400K low rate fixed mortgage. Tenured prof with 100% secure job for next 25 years. No need for this money for any reason we can reasonably foresee (have other savings for kids college, weddings, etc).

I was thinking to stick it all in Vanguard funds with:

60% Total Stock Index
20% International Index
20% Total Bond Index

Rebalance every two years or so to keep these %s.

Is this reasonable? Is this too simple? Am I missing something?
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pteam
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Re: How to invest $1.4 mil inheritance?

Post by pteam »

Really big shopping spree?
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Re: How to invest $1.4 mil inheritance?

Post by goodenyou »

That is an aggressive approach. 80/20 allocation is aggressive. It's not how I would allocate money with little need to take risk. For me, a dollar-cost average approach into a 3-fund portfolio over 1-2 years at 60/40 would be my choice. I would use Tax-Exempt Intermediate for Bonds as well. I would, of course, maximize all tax-advantage spaces and 529, including looking into a DHCP with an HSA and maximally funding that as well. I would buy $20k of I-Bonds per year (for you and spouse) and forget about them. I would probably consider paying off my mortgage if it were over 3.5%. It's a good position to be in.
Last edited by goodenyou on Sun Feb 16, 2014 6:20 pm, edited 2 times in total.
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elgob.bogle
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Re: How to invest $1.4 mil inheritance?

Post by elgob.bogle »

you might consider using some of the funds to buy 30 year TIPS (for inflation protection) at this week's Treasury auction.

elgob
manwithnoname
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Re: How to invest $1.4 mil inheritance?

Post by manwithnoname »

scienceguy wrote:Wife very recently inherited about $1.4 mil. We are in mid 40s with plenty of income ($250K) and no debts except $400K low rate fixed mortgage. Tenured prof with 100% secure job for next 25 years. No need for this money for any reason we can reasonably foresee (have other savings for kids college, weddings, etc).

I was thinking to stick it all in Vanguard funds with:

60% Total Stock Index
20% International Index
20% Total Bond Index

Rebalance every two years or so to keep these %s.

Is this reasonable? Is this too simple? Am I missing something?
If you are investing for the long term of 20+ years and don't need the money for retirement, its reasonable.
sambb
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Re: How to invest $1.4 mil inheritance?

Post by sambb »

Thats aggressive.
Consider a 50/50 mix of interned term tax exempt and total stock. Reconsider in a few years if you are comfortable.
Minot
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Re: How to invest $1.4 mil inheritance?

Post by Minot »

Donate some to charity?
Jim127
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Re: How to invest $1.4 mil inheritance?

Post by Jim127 »

I would pay off the mortgage and then take the remaining $1 million and invest it in the three funds you have listed. Like others have said, you probably don't need to have 80% in stock, but given your financial position, the added risk probably doesn't cause any real burden to your overall financial picture.
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Re: How to invest $1.4 mil inheritance?

Post by Jack FFR1846 »

Everyone has their own way of going about this. What I would do:

Pay off mortgage
Maximum iBonds for you, wife, each child
Max into each 529 for the year

Then fund as you indicated. You'll have the conservative portion covered by getting the debt out of the way and funding the college funds and iBonds.
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JonnyDVM
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Re: How to invest $1.4 mil inheritance?

Post by JonnyDVM »

I would say pay off the mortgage and personally I think that planned asset allocation is OK because it sounds like your planned time horizon to retirement is pretty long but why not go a little more conservative and retire early? Lastly, if it were me, I would definitely have fun spending some money on frivolous toys for myself.
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killjoy2012
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Re: How to invest $1.4 mil inheritance?

Post by killjoy2012 »

I would payoff the mortgage as well. Make sure you're maxing out Roth IRAs, HSAs, 529s. Three fund portfolio approach is fine for the rest, but be careful with the bonds in taxable as already mentioned. 80/20 for a windfall in your mid-40s is a little aggressive IMO, but not a show stopper.
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Re: How to invest $1.4 mil inheritance?

Post by Crimsontide »

Mortgage be gone !!!
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InvestorNewb
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Re: How to invest $1.4 mil inheritance?

Post by InvestorNewb »

I would also be tempted to pay off the mortgage. Apart from that, I think you have a good plan.
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Billionaire
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Re: How to invest $1.4 mil inheritance?

Post by Billionaire »

Although we are older, we may be in a similar situation shortly. I wonder how my wife would react if I asked her to payoff our $352,000.00 mortgage balance with her inheritance. Hmmm.
Topic Author
scienceguy
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Re: How to invest $1.4 mil inheritance?

Post by scienceguy »

Interesting that so many are suggesting to pay off the $400K mortgage. Not something I had really thought of. Very cheap $$$ (can't remember the rate but I think low 3's%), + major tax benefits to keeping mortgage. Why pay it off?
Novine
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Re: How to invest $1.4 mil inheritance?

Post by Novine »

What's your retirement portfolio look like? Pensions? Not sure how to know if this makes sense without knowing what else you have in retirement accounts, taxable investments, etc.
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Re: How to invest $1.4 mil inheritance?

Post by goodenyou »

scienceguy wrote:Interesting that so many are suggesting to pay off the $400K mortgage. Not something I had really thought of. Very cheap $$$ (can't remember the rate but I think low 3's%), + major tax benefits to keeping mortgage. Why pay it off?
You will read many threads and thousands of opinions of why or why not pay if off. Just do a search here. It's a matter of opinion. In high income individuals with little need to take risk, a guaranteed 3-4% return on a portion of their portfolio is welcomed. They don't suffer paralysis by analysis of how to maximize returns by asset allocation and use the extra cash flow generated each month by the reduction of debt to invest over time. Some believe they will constantly beat and effective 2.4% (assuming 40% bracket and mortgage interest deduction on 4% money), so they elect to borrow cheap money and invest the rest. No right or wrong, but some passionately try to persuade why their opinion is correct.
Last edited by goodenyou on Sun Feb 16, 2014 7:41 pm, edited 1 time in total.
Calm Man
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Re: How to invest $1.4 mil inheritance?

Post by Calm Man »

With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
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Re: How to invest $1.4 mil inheritance?

Post by goodenyou »

Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.
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Re: How to invest $1.4 mil inheritance?

Post by JonnyDVM »

Having any debt at all when you already have a good income and savings and one and a half million clams just got dumped in your lap seems very silly to me. I think many on this forum take the no debt of any kind rhetoric to the extreme, but in this case it just makes sense to get rid of that mortgage. You'll still have a million left to play with!
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Re: How to invest $1.4 mil inheritance?

Post by Crimsontide »

goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.

+1, that's how a marriage is supposed to work. That is how ours has worked for the last 30 years...
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Re: How to invest $1.4 mil inheritance?

Post by Streptococcus »

goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.
+2
I have to assume that if he started the thread, then they treat their wealth as one as many couples do. Isn't this one of the bogleheads principles? Treat your household portfolio as one.

1. Because of your lack of need to take risk, I would not go any more aggressive than 60/40. I would probably stick with 50/50 with a 3 fund portfolio and 50% international.
2. As others have said I would max out 529 yearly
3. Max out tax deferred accounts
4. Max out I bonds
5. Stay away from bonds in taxable, invest in tax-exempt muni instead
6. Consider penfed CD ladders as bond/cash allocation.
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Re: How to invest $1.4 mil inheritance?

Post by abuss368 »

Here would be my plan.

I would consider a very simple and effective Three Fund Portfolio. There is an excellent (and log) thread on the forum with the title of the same name.

* Total Stock Market
* Total International Market
* Intermediate Term Tax Exempt (in place of Total Bond Market)

There are so many positives and advantages to this portfolio.

I would however increase the bond percentage considering age and nest egg. Sometimes it is more important to protect what we have than to risk it all trying to gain more.

Do not leave it in a bank (excluding the impact of inflation for the moment) where the FDIC insurance is only $250,000.

Consider increasing your umbrella insurance policy as a result of increased assets.

I would not pay off a low rate mortgage (which probably has a lower rate after tax) compared to keeping the asset growing at a higher rate in the market over time from compounding.

Jack Bogle has noted that "simplicity is the master key to financial success".
John C. Bogle: “Simplicity is the master key to financial success."
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Watty
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Re: How to invest $1.4 mil inheritance?

Post by Watty »

scienceguy wrote:I was thinking to stick it all in Vanguard funds with:
60% Total Stock Index
20% International Index
20% Total Bond Index
It would likely be best to look at this in combination with your other account like 401K's and put the funds in the account that is the best tax wise so that your overall asset allocation of all your accounts is what you want. If you must hold bonds in a taxable account then that a hard look at muni's to see they make sense for you.

http://www.bogleheads.org/wiki/Principl ... _placement


A agree with prior comments about paying off the mortgage and that asset allocation being more aggressive than you need since you are in your 40's.

It is not exact but in some ways the mortgage is like a negative bond and if you search the boards you will find lots of comments on this. You probably have other assets but with just these numbers (roughly rounded up to 1.5 million to make the math easy) you would have;

1) Mortgage: bond -400K
2) Total stock: stock 900K
3) International Index: stock 300K
4) Total Bond: Bond 300K

For a total asset allocation of 1200K stock and -100K bond or very roughly 110% stock and -10% bonds because of the mortgage leverage. That is way to aggressive.
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Re: How to invest $1.4 mil inheritance?

Post by freddie »

There are a lot of very risk adverse and debt adverse people out there. Ask yourself if you had an extra 10k at the end of the year, do you make an extra couple mortgage payments or do you dump it into your portfolio.

Lets assume that you don't need this money to fund your life (i.e. retirement is taken care of, kids college,....), then you and you wife have to sit down and ask yourself how is this going to affect your life. Do you want to retire 10 years earlier (a lot of peoples dreams. )? Would you rather have another 50k/yr in income starting now? Want to gamble in the market and try to get a large sum of money to pass down to future generations? Be a big donor later in life? Some combo. Live your life not somebody elses.

Personally I am pretty comfortable with an 80/20 portfolio when you have a 25+ year time horizon but I could also see going 20/80 or pretty much anything in between.

As far as maxing out 529s, I don't know how old your kids are but sticking ~140k/per kid into the 529 might be excessive unless you think you kid is going to Harvard and then med school. You might want to think about if this is going to result in you having too much money later and if you want to start passing it on to the kids by setting up various type of trust funds.
scienceguy wrote:Interesting that so many are suggesting to pay off the $400K mortgage. Not something I had really thought of. Very cheap $$$ (can't remember the rate but I think low 3's%), + major tax benefits to keeping mortgage. Why pay it off?
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Re: How to invest $1.4 mil inheritance?

Post by Calm Man »

goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.
Do you have children? If you do and you die, do you want the wife's next husband and his children to get the funds if she dies first? Your rosy view of the world is great as long as all goes according to plan. It seldom does.
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Watty
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Re: How to invest $1.4 mil inheritance?

Post by Watty »

One more thought. When you set up the funds you might want to set them up so that the dividends and capital gains distributions are not automatically reinvested. This will be more efficient on your taxes since you can do much of your rebalancing buy reinvesting all of these in the mutual fund that is low and needs to be increased.
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Re: How to invest $1.4 mil inheritance?

Post by goodenyou »

Calm Man wrote:
goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.
Do you have children? If you do and you die, do you want the wife's next husband and his children to get the funds if she dies first? Your rosy view of the world is great as long as all goes according to plan. It seldom does.
I have children and a happy marriage. No paranoia. All is well for me. Good outcomes come from good behavior not luck.
Last edited by goodenyou on Sun Feb 16, 2014 8:56 pm, edited 1 time in total.
Laura
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Re: How to invest $1.4 mil inheritance?

Post by Laura »

I would pay off the mortgage but also adjust your retirement plans at work to hold only bonds. Make your entire portfolio something like 60/40, not just this money from the inheritance. The three funds you selected are perfect.

Laura
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scienceguy
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Re: How to invest $1.4 mil inheritance?

Post by scienceguy »

Wow this wonderful and amazing to have tall this free advice. Thanks so much everyone for posting. A few clarifications that might be useful:

1. $$$ will remain in wife's name, though it is 100% shared and are figuring out how to invest it together since we view all of our money as shared. We have estate plan already intact to take care of details if one/both of us dies. It is her money legally, but really both of ours since we both benefit from it in terms of family stability and enhanced standard of living. I tend to do most of the macroeconomics on our family, so that is why I am asking the question on this board. But, we will invest it together and she has total veto power.

2. Why intermediate tax exempt fund instead of total bond index?

3. Will max 529s as much as makes sense for three kids.

4. Why are so many recommending individual ibonds instead of just bond funds (or the intermediate tax exempt fund)? Why buy ACTUAL iBonds?

5. Don't need the $$$ for retirement (have Vanguard 401K in target retirement fund which will have plenty by then).

6. Main goal for this money is to enable slightly higher standard of living, increase charitable activities, but mostly maximize the eventual inheritance for our kids.
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Re: How to invest $1.4 mil inheritance?

Post by 2stepsbehind »

Crimsontide wrote:
goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.

+1, that's how a marriage is supposed to work. That is how ours has worked for the last 30 years...
That's a pretty pejorative statement. Just because you and your wife have arranged your affairs in that manner doesn't mean it is necessarily right or the way things are supposed to work. Historically that isn't how it worked (see the modest widow's dower). In any event, some people might prefer in the case of an untimely death that the inheritance be distributed to other family members of the deceased rather than the spouse. If the bequest wasn't made to the couple as a whole, I agree with Calm Man that there may be some value to keeping it separate. In the vast majority of cases an inheritance isn't the lotto--it comes steeped with heritage and history.
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Re: How to invest $1.4 mil inheritance?

Post by goodenyou »

scienceguy wrote:Wow this wonderful and amazing to have tall this free advice. Thanks so much everyone for posting. A few clarifications that might be useful:

1. $$$ will remain in wife's name, though it is 100% shared and are figuring out how to invest it together since we view all of our money as shared. We have estate plan already intact to take care of details if one/both of us dies. It is her money legally, but really both of ours since we both benefit from it in terms of family stability and enhanced standard of living. I tend to do most of the macroeconomics on our family, so that is why I am asking the question on this board. But, we will invest it together and she has total veto power.

2. Why intermediate tax exempt fund instead of total bond index?
The income tax free return of Intermediate Tax Free may surpass the taxable return of TBM at high bracket levels. Remember, dividends from bonds are taxes at ordinary income levels and it you don't need the income (or the tax burden that comes with it)

3. Will max 529s as much as makes sense for three kids.
Good idea. If your children go all the way way through graduate school, you will be doing them a huge favor. If they have anything left over, you will be doing them a huge favor by helping their children with educational expenses. If a legacy is important, I don't think you can over fund this option. By the time your grandchildren get to college, a few million should be sufficient :D

4. Why are so many recommending individual ibonds instead of just bond funds (or the intermediate tax exempt fund)? Why buy ACTUAL iBonds?
They add additional diversification that are inflation protected. They can act a lot like cash, with little penalty for cashing them in. If inflation goes up, they go up. You don't lose principle. In reality, it is a small percentage of your portfolio either way.

5. Don't need the $$$ for retirement (have Vanguard 401K in target retirement fund which will have plenty by then).

6. Main goal for this money is to enable slightly higher standard of living, increase charitable activities, but mostly maximize the eventual inheritance for our kids.
The ability to preserve capital will give you choices. If you decide that, with this inheritance, you want a change in life and career, you have options. In my opinion, capital preservation is important because I want the flexibility to be able to have choices. With money, there are choices that can be made in real time if you have some capital preservation. This is often overlooked in investment strategy. "I love what I do, and can do it for the next 25 years" is not the sentiment for everyone. Best of luck.
Last edited by goodenyou on Mon Feb 17, 2014 1:56 am, edited 2 times in total.
Calm Man
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Re: How to invest $1.4 mil inheritance?

Post by Calm Man »

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Re: How to invest $1.4 mil inheritance?

Post by goodenyou »

2stepsbehind wrote:
Crimsontide wrote:
goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.

+1, that's how a marriage is supposed to work. That is how ours has worked for the last 30 years...
That's a pretty pejorative statement. Just because you and your wife have arranged your affairs in that manner doesn't mean it is necessarily right or the way things are supposed to work. Historically that isn't how it worked (see the modest widow's dower). In any event, some people might prefer in the case of an untimely death that the inheritance be distributed to other family members of the deceased rather than the spouse. If the bequest wasn't made to the couple as a whole, I agree with Calm Man that there may be some value to keeping it separate. In the vast majority of cases an inheritance isn't the lotto--it comes steeped with heritage and history.
Convincing someone how to run their marriage is a losing proposition (can already see Lady Geeks red letters). Whatever works for you is the right choice. If everyone is happy with the decisions, you have a good outcome. Some believe a pre-nup is a good idea too. Not for everyone. Investing, like marriage, is personal.
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Re: How to invest $1.4 mil inheritance?

Post by Laura »

1. $$$ will remain in wife's name, though it is 100% shared and are figuring out how to invest it together since we view all of our money as shared. We have estate plan already intact to take care of details if one/both of us dies. It is her money legally, but really both of ours since we both benefit from it in terms of family stability and enhanced standard of living. I tend to do most of the macroeconomics on our family, so that is why I am asking the question on this board. But, we will invest it together and she has total veto power.
Sounds good.
2. Why intermediate tax exempt fund instead of total bond index?
You are interested in the highest after tax return which often comes from a tax exempt fund instead of the total bond index. Here are a few calculators that might help with the comparison. Morningstar Taxable-Equivalent Yield Calculator The Finance Buff Taxable-Equivalent Yield Calculator
3. Will max 529s as much as makes sense for three kids.
Study the rules carefully on qualified education expenses since you may not need as much in the 529s as you think. Not all expenses can be paid for out of a 529.
4. Why are so many recommending individual ibonds instead of just bond funds (or the intermediate tax exempt fund)? Why buy ACTUAL iBonds?
I-bonds grow tax deferred and you don't pay tax until you cash in the I-bonds. They work well for this reason in a taxable account. However, in your case it might not be worth the trouble. You are limited to $10k per person each year. Given the size of your holdings I would just stick to bond funds. The ability to easily manage a portfolio is worth something to me.
5. Don't need the $$$ for retirement (have Vanguard 401K in target retirement fund which will have plenty by then).
Whether you think of this as retirement money or not it is there so you should restructure your 401k and any other retirement accounts to place all bonds inside then hold your equities in your taxable account. The exception may be in the roth where you may want to keep equities. By restructing you can maintain tax efficiency and lower your tax bill. Also, if you are not maximizing all retirement accounts you should. You can use this taxable money to cover the gap in your living expenses. See if you have a 457 available through your university in addition to the 401k.
6. Main goal for this money is to enable slightly higher standard of living, increase charitable activities, but mostly maximize the eventual inheritance for our kids.
Sounds good but the best gift for the kids is financially ready parents. You may not need as much long term care insurance, for example so you will want to step back and do a bit of thinking about this but there is obviously no rush. Also, since you have younger children make sure you have wills in place. Young kids cannot inherit directly so you will need some sort of structure for this. If you want them to get everything when they turn 18 that is one thing. If you want to spread this out over more years then think about that as well.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
scienceguy
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Re: How to invest $1.4 mil inheritance?

Post by scienceguy »

Interesting to me that Laura mentions Long Term Care Insurance, I have thought that the major risk to our children's ultimate inheritance is that my wife or I could get a chronic illness such as Alzheimers that would eat up all the $$$. Given that risk, I plan to look in to long term care insurance ASAP.
tj
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Re: How to invest $1.4 mil inheritance?

Post by tj »

scienceguy, if you live in a state with an income tax, You might want to look into a state muni fund for a portion of your bonds, as that would be exempt from state taxation as well. Vangaurd has funds for some states, but not all. There was a recent thread on Virginia muni bond funds - which TRP and USAA offer, but not Vanguard.
Laura
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Re: How to invest $1.4 mil inheritance?

Post by Laura »

Insurance protects you from expenses that would wipe you out. Even Alzheimers wouldn't wipe you out although it could take a good chunk of the assets your kids could receive. There are two ways to look at this - insure so your money stays mostly whole or say you will self insure. There isn't one correct answer so it is something to think about. Life insurance is another. Do you need it now that you have this money? Maybe not or maybe you need less. On the other hand, make sure you have proper umbrella insurance. These are certainly better dilemmas than the "how do I pay my bills" question.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
freddie
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Re: How to invest $1.4 mil inheritance?

Post by freddie »

I would talk to some about if moving the money into trusts for the kids now make sense. You might think that you are never going to have 10 million real dollars (lets assume no changes to the tax law) but having that money might result in excessive income later that you don't need. Same thing about potentially putting money into donor directed funds.

As far as taxable bonds versus munis, you are right around the break even point. There might be some advantages of avoiding more income (you are getting close to the point where the the 3.8% medicare tax kicks in. And not having to worry about balancing with your tax deferred accounts has some appeal.
scienceguy wrote:Wow this wonderful and amazing to have tall this free advice. Thanks so much everyone for posting. A few clarifications that might be useful:

6. Main goal for this money is to enable slightly higher standard of living, increase charitable activities, but mostly maximize the eventual inheritance for our kids.
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sometimesinvestor
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Re: How to invest $1.4 mil inheritance?

Post by sometimesinvestor »

Mid 40s is a bit early for long term care insurance (disability insurance might be right). About 10 years from now look into long term care insurance. You have enough assets so underinsuring seems reasonable/ i.e look for a policy that pays the 2025 equivalent of $200 /day so probably something like 275-300 per day with a payment that goes up by 3% a year. That won't be enough if you or your wife will need it (and you probably won't)but it will help a lot and will protect the bulk of your estate
beachplum
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Re: How to invest $1.4 mil inheritance?

Post by beachplum »

scienceguy wrote:Interesting that so many are suggesting to pay off the $400K mortgage. Not something I had really thought of. Very cheap $$$ (can't remember the rate but I think low 3's%), + major tax benefits to keeping mortgage. Why pay it off?
When my husband received a windfall, the one thing our advisor insisted on was for us to pay off our mortgage, and we did and never regretted it. It helps not having that bill every month so we can afford to max out all our tax deferred funds. We spent 16 years paying down the mortgage and couldn't see the logic in paying any more for the house then we already had. the mortgage interest deduction did not equal the amount of interest being paid on the house over 30 years.

To the OP, we pretty much did what you did with the 3 fund portfolio, but closer to 60/50 stocks/bonds since we are older. though We put most of the fixed allocation into CDs with higher yields then bond funds. We also invested all the money over a couple of months not years, which worked out very well for us back in 2011.
2stepsbehind
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Re: How to invest $1.4 mil inheritance?

Post by 2stepsbehind »

goodenyou wrote:
2stepsbehind wrote:
Crimsontide wrote:
goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.

+1, that's how a marriage is supposed to work. That is how ours has worked for the last 30 years...
That's a pretty pejorative statement. Just because you and your wife have arranged your affairs in that manner doesn't mean it is necessarily right or the way things are supposed to work. Historically that isn't how it worked (see the modest widow's dower). In any event, some people might prefer in the case of an untimely death that the inheritance be distributed to other family members of the deceased rather than the spouse. If the bequest wasn't made to the couple as a whole, I agree with Calm Man that there may be some value to keeping it separate. In the vast majority of cases an inheritance isn't the lotto--it comes steeped with heritage and history.
Convincing someone how to run their marriage is a losing proposition (can already see Lady Geeks red letters). Whatever works for you is the right choice. If everyone is happy with the decisions, you have a good outcome. Some believe a pre-nup is a good idea too. Not for everyone. Investing, like marriage, is personal.
For the record, I'm not trying to convince anyone on how to run their marriage. I was responding specifically to the bolded. Each couple has to navigate these issues for themselves. What may be right in one particular relationship isn't universally applicable.
Last edited by 2stepsbehind on Wed Feb 19, 2014 7:53 am, edited 1 time in total.
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White Coat Investor
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Re: How to invest $1.4 mil inheritance?

Post by White Coat Investor »

scienceguy wrote:Wife very recently inherited about $1.4 mil. We are in mid 40s with plenty of income ($250K) and no debts except $400K low rate fixed mortgage. Tenured prof with 100% secure job for next 25 years. No need for this money for any reason we can reasonably foresee (have other savings for kids college, weddings, etc).

I was thinking to stick it all in Vanguard funds with:

60% Total Stock Index
20% International Index
20% Total Bond Index

Rebalance every two years or so to keep these %s.

Is this reasonable? Is this too simple? Am I missing something?
Why not give some to charity, spend some, and fold the rest into your asset allocation, perhaps making the whole thing less aggressive than otherwise since you now have less need to take risk.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
socraticbogler
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Re: How to invest $1.4 mil inheritance?

Post by socraticbogler »

I had a similar windfall recently and appreciate this thread. Thoughts:
- I looked into long term care insurance and decided it was too expensive to benefit us (so, we'd effectively self-insure).
- You probably already know this, but you can set up a "Donor Advised Fund" if you want to set aside money for charity into a fund that grows and allows you to actually give away the money over time. I looked at a bunch and chose Fidelity.
- You should get umbrella insurance, if you don't have it, and max out your car insurance premiums.
- I personally decided to "ease into" a position with the windfall, even though I got a lot of advice to just dump it into an asset allocation. As it turns out, I should have just dumped it into an asset allcoation... :)
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Crimsontide
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Re: How to invest $1.4 mil inheritance?

Post by Crimsontide »

2stepsbehind wrote:
Crimsontide wrote:
goodenyou wrote:
Calm Man wrote:With all due respect, and I would be saying this OP if it were you who inherited the money...
Your wife should be asking the question or if you must, it should be asking the question for her...
She should keep this in her name only and it should have no association with you. This will shield it from your creditors and potential spouses in the event of either a divorce or her death and your remarriage. She can control where it goes upon her death.
The investment piece is easy as others have suggested.
Please wish your wife good luck in the deployment of her inheritance.
I can't imagine treating any windfall in a marriage as separate. Sure wouldn't be in my marriage. We share the fruits of labor no matter if it results in a paycheck or not. I earn 99% of the money and it's ours, not mine. She has total access to everything at all times. It is based on mutual respect. We share lottery tickets proceeds too. If I die, I have total confidence in my wife to make the right decisions. That's why I married her.

+1, that's how a marriage is supposed to work. That is how ours has worked for the last 30 years...
That's a pretty pejorative statement. Just because you and your wife have arranged your affairs in that manner doesn't mean it is necessarily right or the way things are supposed to work. Historically that isn't how it worked (see the modest widow's dower). In any event, some people might prefer in the case of an untimely death that the inheritance be distributed to other family members of the deceased rather than the spouse. If the bequest wasn't made to the couple as a whole, I agree with Calm Man that there may be some value to keeping it separate. In the vast majority of cases an inheritance isn't the lotto--it comes steeped with heritage and history.
Sorry, you have to remember I'm "Old School", or maybe just old...
technovelist
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Re: How to invest $1.4 mil inheritance?

Post by technovelist »

With that much money, you shouldn't have to take much risk. In fact, you might want to consider some serious "tail-risk" insurance in the form of the Harry Browne Permanent Portfolio, about which there have been several threads here.
In theory, theory and practice are identical. In practice, they often differ.
TareNeko
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Re: How to invest $1.4 mil inheritance?

Post by TareNeko »

I don't think 80/20 is risky at all. I would pay-off the mortgage, which will leave you $1M. $200k of bonds would be enough to keep you going for easily 5 years (since the mortgage is paid off) if we have another recession and you and your wife get laid off. So from that perspective, it is not risky to have 80/20 split.
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Clearly_Irrational
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Re: How to invest $1.4 mil inheritance?

Post by Clearly_Irrational »

First pay off the mortgage, with that size lump sum it's a no brainer. Then you've increased your ability to take risk but reduced your need to do so, I'd invest it at whatever AA you were using previously.
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Cosmo
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Re: How to invest $1.4 mil inheritance?

Post by Cosmo »

scienceguy wrote:Interesting that so many are suggesting to pay off the $400K mortgage. Not something I had really thought of. Very cheap $$$ (can't remember the rate but I think low 3's%), + major tax benefits to keeping mortgage. Why pay it off?
What I find even more interesting is that folks are making this recommendation without knowing the exact rate AND LENGTH OF MORTGAGE.
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6miths
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Re: How to invest $1.4 mil inheritance?

Post by 6miths »

It is very nice to have a mortgage that is paid off. I would do that and then go with the AA and funds you have suggested. I think that I would view this more as money that I was investing for my children and assume an even longer time horizon.
'It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so!' Mark Twain
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