How to invest $1.4 mil inheritance?

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inbox788
Posts: 7737
Joined: Thu Mar 15, 2012 5:24 pm

Re: How to invest $1.4 mil inheritance?

Post by inbox788 »

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?
Congrats! Terrific investment plan! KISS! Are there any estate taxes, either already accounted for or to be paid? Inheritance taxes? State taxes?
pteam wrote:Really big shopping spree?
They certainly could afford it! Or easily choose not to frivolously spend any of it.
goodenyou wrote: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.
I'm assuming they were already doing this before the windfall, and doing quite well. For all we know, they have terrific pension and millions in retirement in 50/50 allocation. There's an argument that 80/20 isn't aggressive enough and they can afford to take on even more risk!
Minot wrote:Donate some to charity?
Great idea, but it's better to do it later, not now, unless taxes are going to be lower than now in the future, or they will donate more than they can ever deduct. Gains from the investments lead to higher deductions in the future. There reaches a point where the deductions going to be income limited, so some estimates and calculation for the future might be helpful on how soon to begin.

http://www.legalzoom.com/taxes/personal ... w-much-can
Jim127 wrote: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.
Paying off the low interest mortgage would generate less future expected value, so the opposite is better financially. Take out maximum cashout from mortgage and invest it! Most people wouldn't do this or even consider doing this, so the next best strategy is to just pay it off on schedule. Advance payments are just giving away a positive expected value statistical arbitrage play.

http://www.extramoneyblog.com/arbitrage ... tion-tool/
scienceguy wrote: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.
Long Term Care Insurance is a strange animal, and only beneficial up to a certain net worth. At some point, if you have enough wealth, you just self insure. The max payout is often lifetime capped at a very modest sum. Finding unlimited policies with long exclusionary periods might be worthwhile, but they're hard to find and harder at decent premiums.
Topic Author
scienceguy
Posts: 121
Joined: Sun Feb 16, 2014 5:26 pm

Re: How to invest $1.4 mil inheritance?

Post by scienceguy »

goodenyou wrote:

"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."

Just wanted to say thanks for the incredibly useful statement, that has helped turn my thinking on this general issue to a less equities investing posture.

Its funny, I think use of the term "aggressive" for me complicates the ability to make decisions about how to deploy the inheritance. We have plenty of other income, 401K, and assets for our future needs, so it was easy for me to think - "invest the inheritance as aggressively as possible, since we don't need it and this will maximize the inheritance for our kids in 25-35 years." But, your comment helped me realize that by doing that, my wife and I may not be able to actualize the possible benefits of wealth in OUR lifetimes. What are those benefits? As you say - choices - in terms of career, in terms of wants (vacation property? - almost certainly not, but who knows), in terms of emergencies, etc. If the money is almost all stocks, our ability to enact those possible choices is dependent on the market NOT being down, since there is absolutely NO WAY we are ever going to sell stocks when the market is down except for in some kind of family emergency. So, AS YOU write, the best way to preserve choices (and therefore the major benefit of wealth) is to keep a chunk of the money in a capital preservation stance, perhaps in a tax-free bond fund. Yes, the kids will probably get less that way down the road, but they'll still get plenty enough to have choices themselves. Enough to do something, but not enough to do nothing.

So, I think the word "aggressive" is not quite right for this kind of a decision, because it does not meaningfully encapsulate the real issue. We COULD be maximally aggressive, but WHY if part of the goal is to preserve the most important benefit of wealth - choice. So, when thinking about this kind of an issue, for me it is better to think in terms of - how much $$$$ do we want to definitely preserve to maintain our ability to preserve options/choice. NOT in terms of PERCENT of total inheritance, but in terms of ACTUAL dollars for capital preservation.

So, based on this line of thinking, perhaps we should take $300-400K of the inheritance and put in a tax free bond fund (Vanguard Intermediate tax free bond fund), and invest the rest (~$900K) in the stock market (25% Vanguard international index, 75% Vanguard total stock market index). There is no need to rebalance into bond funds as the years go by (though will definitely rebalance between US and foreign equities funds), since the goal is NOT to maintain a certain % stance when it comes to bonds, but rather to just make sure there is a certain amount of dollars available at all times. Therefore, the expectation is that (paradoxically) as the years go by, the equities will appreciate more than the bonds, and the % of total inheritance in bonds will actually go down as we age, instead of the standard advice to increase % of bonds as you age (we won't do that since this is not $$$ for retirement, but instead to pass on to heirs). I know this is basically the same as a 30 bonds/70 stocks portfolio (except for the lack of rebalancing into bond funds), but the way I got there is different. It is NOT by thinking in terms of more/less aggressive. Instead, it is - how much money do we want to preserve in the near term to keep our options open and be receptive to opportunities/interests that we could not otherwise foresee.

Maybe this is obvious, but somehow it wasn't totally obvious to me until I/my wife thought about it and talked about it. Thanks, goodenyou.
leonard
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Re: How to invest $1.4 mil inheritance?

Post by leonard »

Billionaire wrote: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.
"Her"?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: How to invest $1.4 mil inheritance?

Post by leonard »

I would pay off mortgage. It may or may not be the best financial move. It is one of the great life simplification moves. No concern about whether the check arrived, the electronic payment happened, etc. One of the monthly of headaches of life - simply gone and trust me you will feel better never having to devote another sliver of energy to it again.

Then, fold the remaining money in to your overall portfolio plan. To the best of your ability, manage the entire amount tax efficiently by buying bonds with your tax advantaged accounts and investing the rest of the taxable inheritance in tax efficient funds. Do not arbitrarily bookmark this money as "the inheritance" and manage it differently. All your money is one portfolio - whether you choose to manage it that way or not.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
freddie
Posts: 920
Joined: Sat Feb 08, 2014 11:06 pm

Re: How to invest $1.4 mil inheritance?

Post by freddie »

Basic money rules of money in a marriage:
Your money is "our" money.
My money is my money.

Pretty simple right?:)

Everyone will feel differently about how things like inheritances and the like should be commingled. You can do the separate route but then you get to have debates like you want a new couch why not spend your inheritance while if you mingle everything it goes "I don't think you should use grannies money to buy that Porsche". Something like a kids inheritance/college fund should be a lot less messy but you never know.

leonard wrote:
Billionaire wrote: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.
"Her"?
gulliver
Posts: 94
Joined: Wed Aug 05, 2009 12:54 pm

Re: How to invest $1.4 mil inheritance?

Post by gulliver »

Based on some of your statements and questions, your time would be extremely well spent if you read this (twice!):

http://www.bogleheads.org/wiki/Main_Page

then read a couple of these (especially anything by William Bernstein)

http://www.bogleheads.org/wiki/Books:_R ... nd_Reviews

Whatever you decide to do about the mortgage, you should at least understand the math behind the don't pay it off argument.

Only thing I can add is that you might look into front loading your 529s - putting five years worth of contributions all at once. Since you're going to invest the money anyway, may as well get it sheltered.

Good luck!
leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: How to invest $1.4 mil inheritance?

Post by leonard »

freddie wrote:Basic money rules of money in a marriage:
Your money is "our" money.
My money is my money.

Pretty simple right?:)

Everyone will feel differently about how things like inheritances and the like should be commingled. You can do the separate route but then you get to have debates like you want a new couch why not spend your inheritance while if you mingle everything it goes "I don't think you should use grannies money to buy that Porsche". Something like a kids inheritance/college fund should be a lot less messy but you never know.

leonard wrote:
Billionaire wrote: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.
"Her"?
A buck is a buck. Money is fungible that way. To treat it otherwise leads to bad decisions.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
inbox788
Posts: 7737
Joined: Thu Mar 15, 2012 5:24 pm

Re: How to invest $1.4 mil inheritance?

Post by inbox788 »

leonard wrote:I would pay off mortgage. It may or may not be the best financial move. It is one of the great life simplification moves. No concern about whether the check arrived, the electronic payment happened, etc. One of the monthly of headaches of life - simply gone and trust me you will feel better never having to devote another sliver of energy to it again.

Then, fold the remaining money in to your overall portfolio plan. To the best of your ability, manage the entire amount tax efficiently by buying bonds with your tax advantaged accounts and investing the rest of the taxable inheritance in tax efficient funds. Do not arbitrarily bookmark this money as "the inheritance" and manage it differently. All your money is one portfolio - whether you choose to manage it that way or not.
I agree, simplification is terrific! So if you're indifferent about something, choose the simpler answer. However, I'm of the opinion that investing in the market beats mortgage, so lean that way.

I disagree with folding money into portfolio. Life was grand and optimized before the windfall. If there was something suffering in the plan before the windfall, then yes, by all means, spend the cash, but if the plan was decent as I assume, then don't add complications by finding ways to spend it or invest it. Make a simple plan as to when and what it's to be used for, set a course and let it free. Given long term plan (25 years?) for passing on to heirs, I'd invest accordingly. I keep separate buckets for retirement, college funds, speculative fund, home improvements/new car/spending fund, donations, etc. Mentally, having one bucket more filled does indirectly impact my thinking on the other buckets, but each bucket is a goal in and of itself. If all the buckets are sufficiently filled and on course, I don't see the need to overfund any particular bucket, so extra funds wind up in spec or spending funds.
leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: How to invest $1.4 mil inheritance?

Post by leonard »

inbox788 wrote:
leonard wrote:I would pay off mortgage. It may or may not be the best financial move. It is one of the great life simplification moves. No concern about whether the check arrived, the electronic payment happened, etc. One of the monthly of headaches of life - simply gone and trust me you will feel better never having to devote another sliver of energy to it again.

Then, fold the remaining money in to your overall portfolio plan. To the best of your ability, manage the entire amount tax efficiently by buying bonds with your tax advantaged accounts and investing the rest of the taxable inheritance in tax efficient funds. Do not arbitrarily bookmark this money as "the inheritance" and manage it differently. All your money is one portfolio - whether you choose to manage it that way or not.
I agree, simplification is terrific! So if you're indifferent about something, choose the simpler answer. However, I'm of the opinion that investing in the market beats mortgage, so lean that way.

I disagree with folding money into portfolio. Life was grand and optimized before the windfall. If there was something suffering in the plan before the windfall, then yes, by all means, spend the cash, but if the plan was decent as I assume, then don't add complications by finding ways to spend it or invest it. Make a simple plan as to when and what it's to be used for, set a course and let it free. Given long term plan (25 years?) for passing on to heirs, I'd invest accordingly. I keep separate buckets for retirement, college funds, speculative fund, home improvements/new car/spending fund, donations, etc. Mentally, having one bucket more filled does indirectly impact my thinking on the other buckets, but each bucket is a goal in and of itself. If all the buckets are sufficiently filled and on course, I don't see the need to overfund any particular bucket, so extra funds wind up in spec or spending funds.
Mental Accounting. I would recommend reviewing it in the Bogleheads Wiki.

A dollar doesn't know if it is an "inherited", "earned", or any other moniker. It's simply a dollar. Money's fungible.

And, the OP's portfolio is one portfolio - perhaps with multiple goals - but still one. Treating it as such will more likely optimize AA.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
freddie
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Joined: Sat Feb 08, 2014 11:06 pm

Re: How to invest $1.4 mil inheritance?

Post by freddie »

A buck isn't always a buck. Commingling the funds could expose the money to lawsuits against the hubby for example. And it will be accounted for differently in divorce cases.

But yeah most of the difference is purely mental and it can drive you crazy. IN another month or so I will hear a lot about people spending the free money they got from their tax refund......

leonard wrote:
A buck is a buck. Money is fungible that way. To treat it otherwise leads to bad decisions.
leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: How to invest $1.4 mil inheritance?

Post by leonard »

freddie wrote:A buck isn't always a buck. Commingling the funds could expose the money to lawsuits against the hubby for example. And it will be accounted for differently in divorce cases.

But yeah most of the difference is purely mental and it can drive you crazy. IN another month or so I will hear a lot about people spending the free money they got from their tax refund......

leonard wrote:
A buck is a buck. Money is fungible that way. To treat it otherwise leads to bad decisions.
Huh - I missed the OP indicating his wife wanted to hedge in case of a divorce. Oh, and how is that in the OP's best interest. BTW - the risk of divorce applies to every pot of money.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
inbox788
Posts: 7737
Joined: Thu Mar 15, 2012 5:24 pm

Re: How to invest $1.4 mil inheritance?

Post by inbox788 »

leonard wrote:Mental Accounting. I would recommend reviewing it in the Bogleheads Wiki.

A dollar doesn't know if it is an "inherited", "earned", or any other moniker. It's simply a dollar. Money's fungible.

And, the OP's portfolio is one portfolio - perhaps with multiple goals - but still one. Treating it as such will more likely optimize AA.
I call it budgeting. I don't think we're talking about the same thing, or that there is a consensus on the matter. Which path is more optimal, the young family that buys target 529 fund and target 2060 fund, the family that has one portfolio invested 60/40, or the one that changes their AA up and down when the kids are in high school, college, and afterwards. Any suggestions for "optimal" path for the latter? Two buckets that are optimized work for me.
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 7:40 pm

Re: How to invest $1.4 mil inheritance?

Post by Laura »

I agree that paying off the mortgage is a good option. After that I would take the $1 million that is there and look at it with your existing assets and then blend them all together. However, you can now change your overall asset allocation so if you were 70/30 you could now be 50/50 or something like that. Pick figures that work for you. You have less need to take on risk however you want to make sure the asset is there if you need it.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
2stepsbehind
Posts: 894
Joined: Wed Jun 20, 2007 10:03 am

Re: How to invest $1.4 mil inheritance?

Post by 2stepsbehind »

leonard wrote:
freddie wrote:A buck isn't always a buck. Commingling the funds could expose the money to lawsuits against the hubby for example. And it will be accounted for differently in divorce cases.

But yeah most of the difference is purely mental and it can drive you crazy. IN another month or so I will hear a lot about people spending the free money they got from their tax refund......

leonard wrote:
A buck is a buck. Money is fungible that way. To treat it otherwise leads to bad decisions.
Huh - I missed the OP indicating his wife wanted to hedge in case of a divorce. Oh, and how is that in the OP's best interest. BTW - the risk of divorce applies to every pot of money.
I missed the part in boglehead's philosophy where we only had to be concerned about the OP's best interest and should ignore the wife's (or decedent's) interests. In the vast majority of states, inherited funds would not be considered as part of the property to be divided in the case of a divorce.
Dandy
Posts: 6385
Joined: Sun Apr 25, 2010 7:42 pm

Re: How to invest $1.4 mil inheritance?

Post by Dandy »

You might consider intermediate tax exempt for a lot of your fixed income allocation. You might also consult with an estate planner to see what options make sense for you and your children.
Topic Author
scienceguy
Posts: 121
Joined: Sun Feb 16, 2014 5:26 pm

Re: How to invest $1.4 mil inheritance?

Post by scienceguy »

It seems to me that the issue of whether to put all the money together is a semantic issue rather than a real issue. Of course we (and all smart people) consider the entirety of their assets as one big pot on some level, making sure not to deviate from their general investment strategy when considering them together. But, when it comes to ACTUALLY combining all assets together (for example, in a single Vanguard account), there are generally lots of good reasons to avoid that. Obviously maximizing tax deferred accounts such as 529s makes it impossible to have all the money together in the same actual account. And, inherited money comes with important history and attached emotions that, in my view, often cause it to make sense to keep the money in a separate set of accounts and often in the name of the person who specifically inherited the money. Life, relationships, humans are complicated, and to pretend that those things are unimportant or invalid because "money is fungible" is, in my view, a mistake and is insufficiently respectful to the people before us who were good stewards of the now inherited money. One day when my children inherit the (hopefully dramatically appreciated) money, I want them to know that that money, in that specific set of accounts, came from their late grandparents, and know the story that goes along with it.
inbox788
Posts: 7737
Joined: Thu Mar 15, 2012 5:24 pm

Re: How to invest $1.4 mil inheritance?

Post by inbox788 »

scienceguy wrote:It seems to me that the issue of whether to put all the money together is a semantic issue rather than a real issue. Of course we (and all smart people) consider the entirety of their assets as one big pot on some level, making sure not to deviate from their general investment strategy when considering them together. But, when it comes to ACTUALLY combining all assets together (for example, in a single Vanguard account), there are generally lots of good reasons to avoid that. Obviously maximizing tax deferred accounts such as 529s makes it impossible to have all the money together in the same actual account. And, inherited money comes with important history and attached emotions that, in my view, often cause it to make sense to keep the money in a separate set of accounts and often in the name of the person who specifically inherited the money. Life, relationships, humans are complicated, and to pretend that those things are unimportant or invalid because "money is fungible" is, in my view, a mistake and is insufficiently respectful to the people before us who were good stewards of the now inherited money. One day when my children inherit the (hopefully dramatically appreciated) money, I want them to know that that money, in that specific set of accounts, came from their late grandparents, and know the story that goes along with it.
No, I don't think it's as simple as a semantic issue (nor number of accounts). I've thought about it, and I think it depends on how rich or wealthy one is or thinks he is. The rules are different for the poor, the rich and the wealthy. I make the distinction between wealthy and rich to delineate these that have far more than they could spend in their lifetime, and include the middle-class among the rich (many a middle-class/upper middle-class in the US have moved to developing world countries to instantly be re-classified as wealthy - making the move from NYC to Kansas achieves similar effect). I mention the poor only to point out that they struggle with day-to-day activities, that investing for their future, let alone future generations is nowhere in their thinking, planning or financial ability. How much wealth separates rich and wealthy is dependent a lot of factors, but net worth of $1B or $100M or more is probably sufficient. With this much wealth, you'll likely outlive it (never say never, http://www.businessweek.com/articles/20 ... -5-billion), so one plan/pool for investing is sufficient. Taking out $1M for college for a couple of kids during a 5 year period isn't going to make a dent in the future investment plans. Whether the market is up or down 30% in a given year is not really relevant in the long run for these folks. Spending $50k/year on private schools for K-12 isn't something that requires 2nd though, whereas plenty of "rich" folk in NYC and other locales question whether it's worth it.

For the Average Joe, as he gets richer, he may think more like being wealthy, but savings, spending, and investments are much more closely tied and timed. When to buy a new car, home, college, medical expense, retirement, etc. The optimal AA isn't a simple function tied to any one parameter. At some point, someone rich enough may start to think like a wealthy person, but before then, I think these are some of the factors that make optimal AA a complex decision. Is $1.4M more net worth enough to be considered wealthy? And what is the responsibility of inherited wealth? $20k? I'm buying a new car and future generates will never hear of it again. $20M+ might be handed down multiple generations, if not squandered. $1M - ???
The distinction between rich and wealthy being that the rich work for the wealthy, and the wealthy do not work at all.
http://liberalbeef.com/2011/11/22/grove ... in-heaven/
Of those with investable assets worth $1 million to $5 million, only 28% answered yes to the question “Do you consider yourself wealthy?” The majority of investors surveyed with $5 million or more in investable assets consider themselves wealthy, but perhaps not in the overwhelming numbers you might imagine: just 60% answered yes to the question. In other words, 4 in 10 Americans with assets of $5 million or more think they’re not truly rich.
people tend to look at individuals doing twice as well financially as they are as rich. “Those with $100,000 in incomes say $200,000, while those worth $5 million say $10 million,” the story explained.
“Who’s rich? It’s a good question,” Williams said. “Rich depends on where you live and with whom you are comparing yourself.”
http://business.time.com/2013/07/24/wha ... ica-today/
leonard
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Re: How to invest $1.4 mil inheritance?

Post by leonard »

2stepsbehind wrote:
leonard wrote:
freddie wrote:A buck isn't always a buck. Commingling the funds could expose the money to lawsuits against the hubby for example. And it will be accounted for differently in divorce cases.

But yeah most of the difference is purely mental and it can drive you crazy. IN another month or so I will hear a lot about people spending the free money they got from their tax refund......

leonard wrote:
A buck is a buck. Money is fungible that way. To treat it otherwise leads to bad decisions.
Huh - I missed the OP indicating his wife wanted to hedge in case of a divorce. Oh, and how is that in the OP's best interest. BTW - the risk of divorce applies to every pot of money.
I missed the part in boglehead's philosophy where we only had to be concerned about the OP's best interest and should ignore the wife's (or decedent's) interests. In the vast majority of states, inherited funds would not be considered as part of the property to be divided in the case of a divorce.
The reality is that we ignore or downplay that risk all the time. The standard advice is for a married couple to manage all accounts - IRA's, 401k's, taxable, etc. - AS one portfolio. This is almost never the right advice if one is hedging a divorce. However, unless an OP brings up divorce risk, we (Boglehead's) ignore hedging for divorce and tell them to treat all money as one portfolio. I'd say I am on the right side of the BH philosophy regarding this issue.

In the real world, all the money gets scrutinized when looking at who gets what and who pays alimony.

So, if we take the take that a couple's money is one portfolio, a buck is a buck. You can't have it both ways.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
beachplum
Posts: 276
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Re: How to invest $1.4 mil inheritance?

Post by beachplum »

scienceguy wrote:It seems to me that the issue of whether to put all the money together is a semantic issue rather than a real issue. Of course we (and all smart people) consider the entirety of their assets as one big pot on some level, making sure not to deviate from their general investment strategy when considering them together. But, when it comes to ACTUALLY combining all assets together (for example, in a single Vanguard account), there are generally lots of good reasons to avoid that. Obviously maximizing tax deferred accounts such as 529s makes it impossible to have all the money together in the same actual account. And, inherited money comes with important history and attached emotions that, in my view, often cause it to make sense to keep the money in a separate set of accounts and often in the name of the person who specifically inherited the money. Life, relationships, humans are complicated, and to pretend that those things are unimportant or invalid because "money is fungible" is, in my view, a mistake and is insufficiently respectful to the people before us who were good stewards of the now inherited money. One day when my children inherit the (hopefully dramatically appreciated) money, I want them to know that that money, in that specific set of accounts, came from their late grandparents, and know the story that goes along with it.
My husband and I are one of those who combine all assets, including that which was inherited on both sides, for the benefit of both of us and our children. This is what is right for us, it may not be what's right for someone else.When my husband more recently inherited it was more me who felt the responsibility to do the research on what was the best way for us to preserve what his family worked very hard for to eventually leave to him and his sister. If it were up to my husband the money would have remained in individual stocks under the management of a market timing advisor who had no qualms making gambling bets on that hard earned money. My grown children already know the story of where this money came from and how it has enabled them to obtain undergrad and grad degrees debt free among other perks. We don't need the money to be in a specific account under my husband's name for it to be appreciated. Time will tell, but so far I think his side of the family would have been pleased to know that I, with the support of my husband, took the time to learn and improve on what they started.
2stepsbehind
Posts: 894
Joined: Wed Jun 20, 2007 10:03 am

Re: How to invest $1.4 mil inheritance?

Post by 2stepsbehind »

leonard wrote:
2stepsbehind wrote:
leonard wrote:
freddie wrote:A buck isn't always a buck. Commingling the funds could expose the money to lawsuits against the hubby for example. And it will be accounted for differently in divorce cases.

But yeah most of the difference is purely mental and it can drive you crazy. IN another month or so I will hear a lot about people spending the free money they got from their tax refund......

leonard wrote:
A buck is a buck. Money is fungible that way. To treat it otherwise leads to bad decisions.
Huh - I missed the OP indicating his wife wanted to hedge in case of a divorce. Oh, and how is that in the OP's best interest. BTW - the risk of divorce applies to every pot of money.
I missed the part in boglehead's philosophy where we only had to be concerned about the OP's best interest and should ignore the wife's (or decedent's) interests. In the vast majority of states, inherited funds would not be considered as part of the property to be divided in the case of a divorce.
The reality is that we ignore or downplay that risk all the time. The standard advice is for a married couple to manage all accounts - IRA's, 401k's, taxable, etc. - AS one portfolio. This is almost never the right advice if one is hedging a divorce. However, unless an OP brings up divorce risk, we (Boglehead's) ignore hedging for divorce and tell them to treat all money as one portfolio. I'd say I am on the right side of the BH philosophy regarding this issue.

In the real world, all the money gets scrutinized when looking at who gets what and who pays alimony.

So, if we take the take that a couple's money is one portfolio, a buck is a buck. You can't have it both ways.
The reality is the community is divided on this area and it has nothing to do with the core bogleheads investment philosophy, see http://www.bogleheads.org/wiki/Boglehea ... philosophy. The keys to boglehead are low cost and tax efficiency--you can certainly do that whether or not you commingle funds. The reality is a buck isn't just a buck. We treat money in tax-advantaged accounts differently than we treat money in taxable accounts and some may choose to treat inherited accounts/funds differently than community property. There is no "right" side here--the difference is as significant as whether you drink grape juice or wine during communion.
lhl12
Posts: 660
Joined: Mon May 27, 2013 8:24 am

Re: How to invest $1.4 mil inheritance?

Post by lhl12 »

scienceguy wrote: So, based on this line of thinking, perhaps we should take $300-400K of the inheritance and put in a tax free bond fund (Vanguard Intermediate tax free bond fund), and invest the rest (~$900K) in the stock market (25% Vanguard international index, 75% Vanguard total stock market index).
If you're inclining towards putting $300-400K into a fixed income fund, then I would favor paying off the mortgage first. That will be a much higher yielding fixed income return than you will get from the bond fund.
supernova
Posts: 302
Joined: Fri Feb 21, 2014 8:45 am

Re: How to invest $1.4 mil inheritance?

Post by supernova »

Since it sounds like you have a decent amount besides this, I would pay off the mortgage and then go:

45% domestic stocks index
25% international index
30% bonds

I wouldn't want to get hit with taxes and do too many bonds, but you probably want to be a bit careful. It depends on your other allocations, though, too, in my opinion. You could put all your retirement assets in bonds, then all of this in stocks, for tax purposes. Lots of ways you could go about doing it, each with good merit :D
Billionaire
Posts: 339
Joined: Sat Jan 04, 2014 3:05 pm

Re: How to invest $1.4 mil inheritance?

Post by Billionaire »

leonard wrote:
Billionaire wrote: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.
"Her"?
I'm not married to a "HIs".
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fourwedge
Posts: 323
Joined: Sun Sep 22, 2013 10:10 pm

Re: How to invest $1.4 mil inheritance?

Post by fourwedge »

First I would tithe 10% right off the top.

Second I would pay off the mortgage. That 3% is plenty more then you can make in any bond fund recommended. Paying interest to get the small if any tax saving is just idiotic. It NEVER saves you more then you paid in Interest...especially if you make 250 k per year.

Third I would max out all retirement option, HSA, 529 options. Every year forward...

4th I think you 80-20 allocation into the 3 fund portfolio is perfect. Set it and forget it. Let it grow for 30-50 years. And teach your children how to be responsible with millions.
Max out your tax sheltered retirement accounts with inexpensive, well diversified, index funds and you will beat 90% of all investors.
bulldog1
Posts: 46
Joined: Thu Nov 29, 2012 10:06 pm

Re: How to invest $1.4 mil inheritance?

Post by bulldog1 »

If this happened to me, I would:

1. Pay off mortgage.
2. Invest it in the 3 fund portfolio in taxable. 50/50
* Total Stock Market
* Total International Market
* Intermediate Term Tax Exempt (in place of Total Bond Market).

Then move on with your life and re-balance with new money when needed.

Simplicity.
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