Help! Wife and I don't know what to do with our money!!

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CMLAW1
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Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

I would like to say first that I am excited to have come across this forum. I have been reading for days and now have finally wanted to post my situation. Something that I particularly need a lot of help with. Long story short my wife and I (both in late 20s) came across money from an inheritance. Within 2 years we will have 1.03 million dollars after tax. We make 5800 net per month. We live in a high-income area with our young child.

We have no debt. Own 1 new car. 16k in Roth IRA.

I would love advice from such a well-rounded and intelligent forum. Thank you in advance for any help!
BogleBoogie
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Re: Help! Wife and I don't know what to do with our money!!

Post by BogleBoogie »

I will defer to much more knowledgeable authorities on this great forum to give you specific advice. I am smart enough to recognize what I know and what I don't know. I do know, you have come to the right place for guidance and you are in a very good position with the numbers you have provided.

Hopefully you have read the Boglehead's Guide to Investing! I do think that given that amount of money, you should treat yourself to a modest vacation (cruise, destination, etc.) and invest the vast majority of it. Congrats! :sharebeer
mhalley
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Re: Help! Wife and I don't know what to do with our money!!

Post by mhalley »

Sorry for your loss. You should probably start with the wiki on windfall. http://www.bogleheads.org/wiki/Managing_a_windfall
Is the money in taxable accounts, iras, or a life insurance settlement? This would have some bearing on recommendations.
Mike
Last edited by mhalley on Sun Sep 06, 2015 9:06 pm, edited 1 time in total.
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LadyGeek
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Re: Help! Wife and I don't know what to do with our money!!

Post by LadyGeek »

(^^^ Posted the same time as mhalley. The format listed below will help provide the answers to mhalley's questions.)

Welcome! Yes, you've come to the right place. Relax, take your time and do some reading.

Learning how to invest is a life-long skill that will pay for itself many times over. Take your time and ask lots of questions (keep everything in this thread so we have everything in one spot).

You've got what's known as a "windfall." Read this first: Managing a windfall The 2nd paragraph is the important point.

Next, here's what to do with your money: Getting started

Your first step is to understand what you have now. Take a crack at posting what you have now in this format: Asking Portfolio Questions Sure, a lot of those entries will be blank. However, the information will help us to point you in the right direction.

If you get stuck, just ask for help here.
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LadyGeek
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Re: Help! Wife and I don't know what to do with our money!!

Post by LadyGeek »

This thread is now in the Investing - Help with Personal Investments forum (Portfolio help). Sorry, I should have spotted that earlier. It's not a big deal, but this forum is better focused to help you.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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BL
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Re: Help! Wife and I don't know what to do with our money!!

Post by BL »

You have received good advice.

Here is another little booklet by recommended author, Dr. William Bernstein, that might help you get started as a newcomer to investing:
http://www.etf.com/docs/IfYouCan.pdf
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Raymond
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Re: Help! Wife and I don't know what to do with our money!!

Post by Raymond »

Congratulations! This will make a huge difference in the futures of you and your family.

If you don't mind, could you clarify the situation, please?

- What exactly do you mean by "came across an inheritance"? Was this a recent discovery in a dusty old attic, or did a relative's attorney contact you? Sorry if that sounded snarky, but I thought the phrasing was odd.

- Are you or your wife the heir, or was the money willed to you both?

- Is this money in a trust, and what is the reason the money will take two years to disburse?

One thing I would definitely advise: Keep your mouths firmly shut about this inheritance.

If your friends and family (those that don't already know) learn about this, expect to be bombarded with requests for money, envious remarks, and calls from insurance salesmen and dubious "financial advisors".

You may even discover new friends and long-lost relatives who would be glad to help you spend your windfall :greedy
"Ritter, Tod und Teufel"
southbay
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Re: Help! Wife and I don't know what to do with our money!!

Post by southbay »

No debt? Do you plan to buy a home? I would use a good chunk of that on a home.
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Re: Help! Wife and I don't know what to do with our money!!

Post by Grt2bOutdoors »

1) Umbrella policy - get one, between your income and assets, you will be one big fat target if you get sued. Buy a $1MM policy, shouldn't cost more than a couple hundred per year, it will be amongst the cheapest insurance policies you ever buy.

2) Keep your mouth shut. Nothing attracts flies/gold diggers faster than word that you have alot of money in cold hard cash. Keep it between your wife and yourself, no one else.

3) A will, go to a lawyer and get a will, advanced health directive, durable power of attorney and designate guardian for child in unfortunate event of demise.

4) Read the wiki section on "windfalls". Make no sudden rash moves. Between now and the time you are anticipated to receive the windfall, you should read one or more of the following: The Little Book of Common Sense Investing - John Bogle, All About Asset Allocation - Rick Ferri, Think, Act, Invest like Warren Buffett - Larry Swedroe.

5)Avoid financial advisors/salespersons like the plague, stay away from Edward Jones, any of the major brokerage houses that will buy you coffee, lunch, dinner (in actuality, you will be paying for it and then some, if you sign up with them), avoid life insurance products, including whole-life insurance, variable life insurance, universal life insurance, variable annuities.

6) Ask any and all of your questions here.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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BL
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Re: Help! Wife and I don't know what to do with our money!!

Post by BL »

Good advice given above! You would think people would be happy for you, but then envy, greed, avarice, and all sorts of bad things can come in instead. You have just acquired a target on your back, and others will do their very best to transfer money from your pocket to theirs. Even the well-meaning people may try to convince you of ways to spend/save your money that will not be in your best interest. Don't tell another soul about it! Most people on this website will want what is best for you, and we don't know you so have no conflict of interest.

The first thing to do is--- nothing! Don't sign or promise anything! Don't give away to needy relatives or friends! Never lend or co-sign anything. It is much better to just sit tight and do nothing. Banks are not your friend, either, as they are good for FDIC guaranteed money storage but terrible for investing. Brokers and insurance people will be calling you, but again don't have your best interests in mind. It is almost impossible to judge which of them will be your fiduciary, so be very cautious. Read cautionary stories online about lottery winners and athletes who come into lots of money but lose it all.

Sorry for any tragedy that led to this inheritance. Give yourself a year to do nothing while your mind gets used to new circumstances. Don't make any permanent money committments, but do get umbrella insurance, wills, and similar new needs in place.
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goingup
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Re: Help! Wife and I don't know what to do with our money!!

Post by goingup »

Start reading. Sounds as though you have plenty of time to prepare. https://www.bogleheads.org/RecommendedReading.php

Also, a word of dour caution. I wouldn't bank too heavily on something like that until it's been actually disbursed.
Buckeye
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Re: Help! Wife and I don't know what to do with our money!!

Post by Buckeye »

You could consider your retirement fully funded! Just use withdrawals from your account to fully fund your Roths every year and to offset your reduced net take home pay that will happen when you fully fund your 401ks.

Must feel neat to be done saving for retirement in your 20's!

Though not very tax efficient....you might consider dumping the whole thing in Target Retirement 2050.
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BL
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Re: Help! Wife and I don't know what to do with our money!!

Post by BL »

Buckeye wrote: Though not very tax efficient....you might consider dumping the whole thing in Target Retirement 2050.
Even better might be the tax-advantaged balanced fund with US stocks and munis:
https://personal.vanguard.com/us/funds/ ... IntExt=INT

One third in each of the funds mentioned in If You Can, should also work just fine:
1/3 Total Stock Market
1/3 Total International
1/3 Total Bond Municipal bonds, maybe intermediate term
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

CMLAW1 wrote:I would like to say first that I am excited to have come across this forum. I have been reading for days and now have finally wanted to post my situation. Something that I particularly need a lot of help with. Long story short my wife and I (both in late 20s) came across money from an inheritance. Within 2 years we will have 1.03 million dollars after tax. We make 5800 net per month. We live in a high-income area with our young child.

We have no debt. Own 1 new car. 16k in Roth IRA.

I would love advice from such a well-rounded and intelligent forum. Thank you in advance for any help!
That might seem like a lot of money but it's not THAT much.

1) Read up on "the 4% rule" to get an understanding of whether you have enough to retire on. Basically you can safely spend 4% and have enough money to last until you die. But you're only in your 20's. Expenses are going to go up.... health insurance... get long term care insurance when you turn about 60.

2) Absolutely stay away from the financial sharks, meaning commission based advisers and guys who want to constantly manage your money. If you need help then ONLY hire a fee-only fiduciary adviser on a 1-time or 1-tast basis. Avoid the "free" guys. Also watch out for dually licensed guys who will say "yeah I'm a fiduciary" then turn around a act in the capacity of a non-fiduciary (salesman). It has to be documented IN WRITING each year. A legitimate registered investment adviser will provide you with copies of both parts of a "Form ADV", and provide you with a written disclosure of exactly how he will / may be compensated for his services and list any potential conflicts of interest. Do not work with any adviser who does not provide you with these critical documents once per year!!!

3) Learn about bond/stock allocation ratio. If you're 30 then perhaps 80% stocks /20% bonds is a good start.

4) Only invest in index funds. It can be as simple as owning only two like AGG (total bond market index fund) and VOO (S&P 500 index fund). You will well diversified. Again, avoid the sharks who want to sell you alternative investments including private equity (anything that is not traded on the stock market). Stick with bond and stock index funds.
Last edited by Bogle_Feet on Mon Sep 07, 2015 2:37 pm, edited 3 times in total.
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Toons
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Re: Help! Wife and I don't know what to do with our money!!

Post by Toons »

Grt2bOutdoors wrote:1) Umbrella policy - get one, between your income and assets, you will be one big fat target if you get sued. Buy a $1MM policy, shouldn't cost more than a couple hundred per year, it will be amongst the cheapest insurance policies you ever buy.

2) Keep your mouth shut. Nothing attracts flies/gold diggers faster than word that you have alot of money in cold hard cash. Keep it between your wife and yourself, no one else.

3) A will, go to a lawyer and get a will, advanced health directive, durable power of attorney and designate guardian for child in unfortunate event of demise.

4) Read the wiki section on "windfalls". Make no sudden rash moves. Between now and the time you are anticipated to receive the windfall, you should read one or more of the following: The Little Book of Common Sense Investing - John Bogle, All About Asset Allocation - Rick Ferri, Think, Act, Invest like Warren Buffett - Larry Swedroe.

5)Avoid financial advisors/salespersons like the plague, stay away from Edward Jones, any of the major brokerage houses that will buy you coffee, lunch, dinner (in actuality, you will be paying for it and then some, if you sign up with them), avoid life insurance products, including whole-life insurance, variable life insurance, universal life insurance, variable annuities.

6) Ask any and all of your questions here.
+1
Great Advice :happy
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patrick013
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Re: Help! Wife and I don't know what to do with our money!!

Post by patrick013 »

After tax inheritance ?

The IRS has excluded over $5 million dollars from estate tax
and most states have similar high exclusions from state estate
tax.
age in bonds, buy-and-hold, 10 year business cycle
Gill
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Re: Help! Wife and I don't know what to do with our money!!

Post by Gill »

patrick013 wrote:After tax inheritance ?

The IRS has excluded over $5 million dollars from estate tax
and most states have similar high exclusions from state estate
tax.
Don't forget that there income taxes involved with inheritances from qualified plans, IRA's, trusts and savings bonds.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
downshiftme
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Re: Help! Wife and I don't know what to do with our money!!

Post by downshiftme »

With two years until expected disbursement, if I were in your situation, I would do the following.

1. Tell no one. It's weird how expectations of money affect people.

2. Make sure I have adequate insurance protection (life you should have already) especially umbrella liability.

3. Change nothing and plan your finances as if you had no expectation of this money.

4. AFTER the money actually gets disbursed, sit on it for at least 6 months and do nothing but contemplate how it changes your finances and what you want to do with it.

5. Depending on the results of 4 above, do that. If it were me, I would invest in low cost funds. Up my work 401k and IRA contributions to maximum, taking some of those invested funds if necessary to make sure I could. Otherwise I'd leave it to grow almost as if it weren't there in a very simple three fund low cost Vanguard portfolio, or just a target date fund if I was overwhelmed by the 3 fund concept. It's a nice headstart on a portfolio, but not so much to change your lifestyle radically. When in doubt, spend a little on experiences and family adventure. Give your kids all the lessons and education they can stand. Let it sit there invested and grow for you and you will have the luxury of choices in employment, early retirement if you wish, or other financial freedom as it grows.

6. Still tell no one. Money expectations can really mess up relationships and even friendships.
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CMLAW1
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Re: Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

Ah! Thanks! What a breath of fresh air! I appreciate all the advice.

I will go back and try and answer all the questions. But I know one question was how we acquired it. My wife's father passed away when she was 3 years old in an airplane crash. Wife's mother died airplane company, won the case, and invested the money in annuities.

Thank you! Will answer any and all questions. For those that are saying to sit and not touch it, where do I put it in that time? A CD?
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

CMLAW1 wrote:For those that are saying to sit and not touch it, where do I put it in that time? A CD?
Sitting on a million dollars is really stupid advice. Inflation will eat away at it. You HAVE to put your money to work for you. That means bond and stock index funds.
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CMLAW1
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Re: Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

mhalley wrote:Sorry for your loss. You should probably start with the wiki on windfall. http://www.bogleheads.org/wiki/Managing_a_windfall
Is the money in taxable accounts, iras, or a life insurance settlement? This would have some bearing on recommendations.
Mike
Money is coming in an annuity. Quarterly payments for 2 years and 1 lump sum of the rest.
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CMLAW1
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Re: Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

Raymond wrote:Congratulations! This will make a huge difference in the futures of you and your family.

If you don't mind, could you clarify the situation, please?

- What exactly do you mean by "came across an inheritance"? Was this a recent discovery in a dusty old attic, or did a relative's attorney contact you? Sorry if that sounded snarky, but I thought the phrasing was odd.

- Are you or your wife the heir, or was the money willed to you both?

- Is this money in a trust, and what is the reason the money will take two years to disburse?

One thing I would definitely advise: Keep your mouths firmly shut about this inheritance.

If your friends and family (those that don't already know) learn about this, expect to be bombarded with requests for money, envious remarks, and calls from insurance salesmen and dubious "financial advisors".

You may even discover new friends and long-lost relatives who would be glad to help you spend your windfall :greedy
Money is coming in an annuity. My wife is the heir. See other post for clarification of situation
tibbitts
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Re: Help! Wife and I don't know what to do with our money!!

Post by tibbitts »

You have an extremely high income as-is, so I'd put the money (as you receive it over time) into some reasonable combination of funds, like the 3-fund portfolio, with an eye toward tax efficiency, since the income will be taxable. If for some reason you don't fully fund retirement accounts now, you can use the earnings from this money to do so. You can put less tax-efficient funds in these deferred accounts as they grow.
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CMLAW1
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Re: Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

southbay wrote:No debt? Do you plan to buy a home? I would use a good chunk of that on a home.
We do plan on buying a home. We actually were just looking to possibly buy one. I do want to clarify more of the situation because I wasn't expecting to get such an overwhelming response. Here are the actual numbers broken down:

We have:
158k invested. This is money we already received. It is invested with an advisor who is also our accountant. He receives 1.4% broken down into quarterly payments. This investment is in stocks, mutual funds, etfs.

16k in Roth IRA. 258,000 in savings account.

She receieves 2900/month untaxable on an annuity. I make 5300 gross. Her annuity increases 3% per year forever. She receives annuity guaranteed up until 65 and also for life.

We are now getting the last of the annuity which is quarterly payments of 67,000 with 15% tax paid on it (supposed to be 79) for the next 2 years. Also getting 2 untaxable sums of 100k each within next 2 years. This adds up to 736k.

In regards to housing situation, we currently rent and were thinking of buying a home. Situation we wanted was to mortgage 200k. Put down 180. And put about 100k in renovations into house. This is how much a standard family of 4 house is around where we live. We currently have a 3 yo and are having another one soon.
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William4u
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Re: Help! Wife and I don't know what to do with our money!!

Post by William4u »

BL wrote:
Buckeye wrote: Though not very tax efficient....you might consider dumping the whole thing in Target Retirement 2050.
Even better might be the tax-advantaged balanced fund with US stocks and munis:
https://personal.vanguard.com/us/funds/ ... IntExt=INT

One third in each of the funds mentioned in If You Can, should also work just fine:
1/3 Total Stock Market
1/3 Total International
1/3 Total Bond Municipal bonds, maybe intermediate term
You are getting some very good advice here. After all the dust has settled, eventually you should invest it. Invest the money you will not need to spend for a while. Put some money aside for a emergency fund (6-12 months of spending). Then, invest in index funds. Buckeye's recommendation above is great. 1/3, 1/3, 1/3. (If you want to be super-conservative, you can do 1/4 1/4 1/2 domestic-international-bond, respectively). I would follow what he says for sure!

Make sure to rebalance annually between Vanguard Total Domestic Index, Vanguard Total International Index, and Vanguard Total Bond Index. I strongly recommend the not-for-profit Vanguard for all these investments. Vanguard gives solid advice and won't try to fleece you like so many other would. Many other firms (with very charming and flattering "money managers") will try to fleece you, trust me.
downshiftme
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Re: Help! Wife and I don't know what to do with our money!!

Post by downshiftme »

Unless you are really terrified of all things financial, you should consider doing this yourself and saving that hideous adviser fee.
He receives 1.4% broken down into quarterly payments.
This is a very serious drag on your returns and over time. The adviser will do better that you do if you leave it with him long enough. A three fund portfolio, or a target date fund, are really pretty simple to manage yourself. You'll be a lot better off.
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

It is invested with an advisor who is also our accountant. He receives 1.4% broken down into quarterly payments.
1.4% is outrageous. Even Ric Edelman "only" charges 1%. What does he do to justify paying him 1.4% anyway? I would LOVE to earn $14,000 a year to rebalance a portfolio and answer a few questions once in a while! Would LOVE to! BTW the size of your account should have no affect on the amount of work that an adviser does. Keep in mind that once you decide on an allocation ratio, all you do is percentage rebalance a portfolio when needed. Vanguard explains very simply what value an advisor provides.... https://pressroom.vanguard.com/content/ ... .2014.html
Hire accountants to be accountants, hire lawyers to be lawyers, etc. Don't hire accountants to be investment advisers. Again, index investing is simple and easy. You don't need an adviser.
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CMLAW1
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Re: Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

Bogle_Feet wrote:
It is invested with an advisor who is also our accountant. He receives 1.4% broken down into quarterly payments.
1.4% is outrageous. Even Ric Edelman "only" charges 1%. What does he do to justify paying him 1.4% anyway? I would LOVE to earn $14,000 a year to rebalance a portfolio and answer a few questions once in a while! Would LOVE to! BTW the size of your account should have no affect on the amount of work that an adviser does. Keep in mind that once you decide on an allocation ratio, all you do is percentage rebalance a portfolio when needed. Vanguard explains very simply what value an advisor provides.... https://pressroom.vanguard.com/content/ ... .2014.html
Hire accountants to be accountants, hire lawyers to be lawyers, etc. Don't hire accountants to be investment advisers. Again, index investing is simple and easy. You don't need an adviser.
eh sorry this is going to sound dumb but he charges 1%, I just looked at it..still too much imo but just didn't know what to do with the $ and didn't want to spend it. I will look into the vanguard with the possible allocation that is suggested above (1/3, 1/3, 1/3)
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

Portfolio selection tool....
https://personal.vanguard.com/us/funds/ ... reset=true
Another one. No need to own so many funds but this tool is good for deciding bond/stock allocation
https://gps.ricedelman.com/
Another good tool for determining the optimum stock/bond allocation
http://www.vanguard.com/nesteggcalculator
Grt2bOutdoors
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Re: Help! Wife and I don't know what to do with our money!!

Post by Grt2bOutdoors »

patrick013 wrote:After tax inheritance ?

The IRS has excluded over $5 million dollars from estate tax
and most states have similar high exclusions from state estate
tax.
While the IRS has excluded it, the great states like New Jersey have not!! In fact, let's say the fellow inheriting it is a distant cousin of the decedent, they would be subject to the highest tax rate, in NJ that is 16% of the total pot after the first $675,000. You know the saying "NJ and you, perfect together"? right down to your big ole bank account. :twisted:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Grt2bOutdoors
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Re: Help! Wife and I don't know what to do with our money!!

Post by Grt2bOutdoors »

Bogle_Feet wrote:
CMLAW1 wrote:For those that are saying to sit and not touch it, where do I put it in that time? A CD?
Sitting on a million dollars is really stupid advice. Inflation will eat away at it. You HAVE to put your money to work for you. That means bond and stock index funds.
Making rash moves is even more stupid. More money has been lost making rash moves than money sitting in a plain ole vanilla savings account. One does not need to "HAVE" or "DO" anything, other than to become self-informed, The easiest way to do that is what the OP is doing now, asking questions. The second easiest way is to read the books that have been suggested. Relying on others is usually what causes "great estates" to become little estates by the time the money-changers have meddled with the accounts.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

Making rash moves is even more stupid. More money has been lost making rash moves than money sitting in a plain ole vanilla savings account.
Investing is not a "rash move". LOL
Sitting on cash is a fools game. All you are doing is putting off risk by not investing. And if you can't stomach volatility then you get more into bonds. Simple. The "rash move" of being invested at all times is a time tested strategy. Market timing is a fool's game. I could quote a zillion experts that market timing doesn't work.
Grt2bOutdoors
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Re: Help! Wife and I don't know what to do with our money!!

Post by Grt2bOutdoors »

Bogle_Feet wrote:
Making rash moves is even more stupid. More money has been lost making rash moves than money sitting in a plain ole vanilla savings account.
Investing is not a "rash move". LOL
Sitting on cash is a fools game. All you are doing is putting off risk by not investing. And if you can't stomach volatility then you get more into bonds. Simple. The "rash move" of being invested at all times is a time tested strategy. Market timing is a fool's game. I could quote a zillion experts that market timing doesn't work.
One is "not playing the market timing game" if one is just entering the market for the very first time as an investor. That is what the OP will be when they receive the inheritance, a first time investor. A market-timer is one who moves in and out of markets thinking they've discovered the perfect system on selling high and buying low on a consistent foolproof basis with no risk of error. That is where "market-timing" has been proven not to work.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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BL
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Re: Help! Wife and I don't know what to do with our money!!

Post by BL »

You have FDIC guarantee up to 250k/person or named account at a single bank. So you can spread it around at several banks or credit unions (insured) in savings or CDs, or check if your bank is part of the CDARS network where they can handle larger amounts
http://www.cdars.com/

If you keep it in a bank, be sure to stick with FDIC fixed income rather than get enticed into the bank investment part which is neither guaranteed nor a good place to invest.

You could also have Vanguard "pull" it from where it is and buy a money market fund or a short term bond fund to hold your money until you invest it, slowly or not. They even have brokered CDs for fixed income but there are details I don't know much about such as you could lose money if you sell on the open market before their due date.

If you should need more advice than you can get for free here and from Vanguard, V does now have an advisory service at 0.30%/year which isn't bad and they would not try to sell you expensive things. You could quit after a year or more and not have problems. I have heard they recommend the 4 funds in the Target Date funds (3-fund + International Bond), which is also reasonable.
VortexStreet
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Re: Help! Wife and I don't know what to do with our money!!

Post by VortexStreet »

Bogle_Feet wrote:
CMLAW1 wrote:For those that are saying to sit and not touch it, where do I put it in that time? A CD?
Sitting on a million dollars is really stupid advice. Inflation will eat away at it. You HAVE to put your money to work for you. That means bond and stock index funds.
Sitting on a million dollars in cash for a long period of time may be "really stupid advice", but sitting on it for a few months while you learn about investing, get used to the new situation, and put together a solid plan is fantastic advice. Sitting on cash until you understand what you are investing in is far better than jumping into the markets without knowing what you are doing, especially when it is a large sum of money like this. CDs or savings accounts are fine choices in the meantime.
jackholloway
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Re: Help! Wife and I don't know what to do with our money!!

Post by jackholloway »

I received an inheritance worth roughly an eighth of my portfolio, and will get roughly half again that much from my parent's estate. I sat on it in a short term bond fund and various insured vehicles for roughly six months, then dollar value averaged it in over the next six. That pause was a darn fine idea, because during that time, I discovered several truths:
  • 80/20 did not make sense for me, as I really started to stress during both up and down moves
  • My wife wanted much closer to 60/40
  • Both of us are comfortable at 65/35
  • Having a state college paid for mattered to me
  • i really do not buy the small value premium as other than a risk story
  • i do believe there is a behavioral or information story in micro caps, but it takes time
  • While international funds make some sense, I really do not see them as 30-40% of my holdings
  • i have no problem with 10% in asset diversifiers, like international, mid cap, micro cap, reits, or whatever, but there is value in simplicity
Had I dumped it in the market, I would have had about the same amount after the recent market stumble, and I would have lost a lot of sleep.

Do spend the time to educate yourself, so that next year, you can have an AA you understand and like,
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

VortexStreet wrote:
Bogle_Feet wrote:
CMLAW1 wrote:For those that are saying to sit and not touch it, where do I put it in that time? A CD?
Sitting on a million dollars is really stupid advice. Inflation will eat away at it. You HAVE to put your money to work for you. That means bond and stock index funds.
Sitting on a million dollars in cash for a long period of time may be "really stupid advice", but sitting on it for a few months while you learn about investing, get used to the new situation, and put together a solid plan is fantastic advice. Sitting on cash until you understand what you are investing in is far better than jumping into the markets without knowing what you are doing, especially when it is a large sum of money like this. CDs or savings accounts are fine choices in the meantime.
And unless he gets steered by a shark then he will come to the exact same conclusion that I am saying as well as any legit no-commission fiduciary adviser... invest in stock and bond index funds. And index funds are not load funds or funds that have "surrender penalties". If he doesn't like something he can sell at any time for any reason for less than $10. The previous poster doesn't understand how index funds work. It isn't a "rash decision" to buy something that you can sell at any time without penalty.

The only other thing I will add is to always place LIMIT ORDERS.
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just frank
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Re: Help! Wife and I don't know what to do with our money!!

Post by just frank »

Bottom line, the OP couple needs to work out their AA, and put the $$ to work. Given that they have decades to grow it, they could start a little conservative, like 50:50.
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Re: Help! Wife and I don't know what to do with our money!!

Post by Jack FFR1846 »

The reason that it is good advice to "do nothing" for some time....even for a year is to take the time to learn, to avoid bad, irreversible decisions and to give you time to make non emotional choices.

I would absolutely disagree with those who say to "invest" it right away. Here's why. You don't yet have the knowledge to wisely invest this money. Let me give you an example of bad choices to hurry up and invest:

Buy a whole life policy to shelter the money from tax and insure yourself and your kids forever. Sounds reasonable, right? And a salesman will pile on the claims giving you an impression that you are taking advantage of loopholes in the system. In reality, you are signing up for an immediate 8% commission to the salesman and years of huge fees with little to show for it. This is the way to get yourself $100k in 30 years simply by agreeing to pay $500k over that 30 year time period.

Invest in a retail broker. The friendly neighborhood Edward Jones who makes coffee and has piano music in the background. They put you into 28 funds that make no sense but they will spin a great story as to why they are best for you. Oh, and they charge a 5% sales load to buy in. Next year, they will diligently watch the market and trade these for other funds for another 5% load because market conditions have changed.

This is why you simply wait and do nothing for a while.
Bogle: Smart Beta is stupid
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

Jack FFR1846 wrote:The reason that it is good advice to "do nothing" for some time....even for a year is to take the time to learn, to avoid bad, irreversible decisions and to give you time to make non emotional choices.

I would absolutely disagree with those who say to "invest" it right away. Here's why. You don't yet have the knowledge to wisely invest this money. Let me give you an example of bad choices to hurry up and invest:

Buy a whole life policy to shelter the money from tax and insure yourself and your kids forever. Sounds reasonable, right? And a salesman will pile on the claims giving you an impression that you are taking advantage of loopholes in the system. In reality, you are signing up for an immediate 8% commission to the salesman and years of huge fees with little to show for it. This is the way to get yourself $100k in 30 years simply by agreeing to pay $500k over that 30 year time period.

Invest in a retail broker. The friendly neighborhood Edward Jones who makes coffee and has piano music in the background. They put you into 28 funds that make no sense but they will spin a great story as to why they are best for you. Oh, and they charge a 5% sales load to buy in. Next year, they will diligently watch the market and trade these for other funds for another 5% load because market conditions have changed.

This is why you simply wait and do nothing for a while.
Again, index funds are not long-term investments. Change your mind at any time for any reason without penalty. Index investing is what Bogleheads is all about. He SHOULD invest right away while stocks have been on sale. He could dollar cost average a little bit, but again, this is just putting off risk. You HAVE to get in the game and put your money to work. Inflation does not wait around.
Yes, never mix insurance with investments and never deal with commission-based "advisers". They will screw over your financial future with long-term, crap financial products.
VortexStreet
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Re: Help! Wife and I don't know what to do with our money!!

Post by VortexStreet »

Bogle_Feet wrote:Again, index funds are not long-term investments. Change your mind at any time for any reason without penalty. Index investing is what Bogleheads is all about. He SHOULD invest right away while stocks have been on sale. He could dollar cost average a little bit, but again, this is just putting off risk. You HAVE to get in the game and put your money to work. Inflation does not wait around.
Yes, never mix insurance with investments and never deal with commission-based "advisers". They will screw over your financial future with long-term, crap financial products.
Maybe this is the part where we should bow out and stop trying to argue with someone who is reluctant to see counter-arguments or alternatives to their position, but there are a large number of reasons not to invest without understanding what you are doing, and I don't want the OP, or anyone else reading this thread, to think otherwise. Your statement that you can change your mind at any time for any reason without penalty is demonstrably false in all but the most limiting circumstances, such as when there has been no change in fund value since your investment. Index funds, especially in a taxable account, are absolutely long term investments.

Say someone doesn't know what they are doing or why, but takes your advice to invest in index funds, and takes a second person’s advice to invest in a small cap value index, because that person told them that there was a value premium. A third person convinced them that since they don’t need the money for many years and have a good stable job, they have a high risk tolerance. Now this person has just invested their entire $1million into stock index funds, with a heavy tilt to small cap value. Over the next three months, the value of the funds drops 50%. Never in their wildest dreams did this person realize that “high risk tolerance” investments might mean losing $500,000 in three months, so they cut their losses and sell. Luckily they can make trades for just $10, so this whole situation only cost them $500,010.

On the flip side, say that this person takes your advice to only invest in index funds, but someone else convinces them that they should be well diversified, including stocks, bonds, REITs, and commodities. They follow this advice and invest the inheritance accordingly in a taxable account. As the person continues to learn more over the next 6 months, they realize that REITs are horribly tax inefficient, and that their stock allocation is too high for their risk tolerance. Over this time period, stocks have gone up 20%. Uncomfortable with their high stock allocation they sell a bunch of stock, incurring a five figure short term capital gains tax bill, on top of the taxes on the REIT distributions.

It’s not that hard to make a mistake that will make losing a few tenths of a percent to inflation look like chump change, and it is just silly to suggest that you can change your mind at any time without ramifications because it is an index fund.
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Bogle_Feet
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Re: Help! Wife and I don't know what to do with our money!!

Post by Bogle_Feet »

Maybe this is the part where we should bow out and stop trying to argue with someone who is reluctant to see counter-arguments or alternatives to their position, but there are a large number of reasons not to invest without understanding what you are doing, and I don't want the OP, or anyone else reading this thread, to think otherwise. Your statement that you can change your mind at any time for any reason without penalty is demonstrably false in all but the most limiting circumstances, such as when there has been no change in fund value since your investment. Index funds, especially in a taxable account, are absolutely long term investments.

Say someone doesn't know what they are doing or why, but takes your advice to invest in index funds, and takes a second person’s advice to invest in a small cap value index, because that person told them that there was a value premium. A third person convinced them that since they don’t need the money for many years and have a good stable job, they have a high risk tolerance. Now this person has just invested their entire $1million into stock index funds, with a heavy tilt to small cap value. Over the next three months, the value of the funds drops 50%. Never in their wildest dreams did this person realize that “high risk tolerance” investments might mean losing $500,000 in three months, so they cut their losses and sell. Luckily they can make trades for just $10, so this whole situation only cost them $500,010.

On the flip side, say that this person takes your advice to only invest in index funds, but someone else convinces them that they should be well diversified, including stocks, bonds, REITs, and commodities. They follow this advice and invest the inheritance accordingly in a taxable account. As the person continues to learn more over the next 6 months, they realize that REITs are horribly tax inefficient, and that their stock allocation is too high for their risk tolerance. Over this time period, stocks have gone up 20%. Uncomfortable with their high stock allocation they sell a bunch of stock, incurring a five figure short term capital gains tax bill, on top of the taxes on the REIT distributions.

It’s not that hard to make a mistake that will make losing a few tenths of a percent to inflation look like chump change, and it is just silly to suggest that you can change your mind at any time without ramifications because it is an index fund.
And if you had read this ENTIRE thread you would see that I posted links to help the OP in determining allocation ratio. You don't put 100% of your money in the stock asset class. You are presenting a false choice, as insurance salesmen are famous for doing. A 20 year old has a long time horizon. If they want to be conservative then they simply put more into bonds. When stocks fall money runs to the safety of bonds.

Also index funds ARE stock diversified. You don't need to buy individual stocks. Period.

REIT's are "horribly" tax INefficient compared to high dividend paying index funds as outlined in this article https://blog.wealthfront.com/tax-effici ... investing/ Vanguard's portfolio selector does not include a separate allocation to REIT's. Ric Edelman's does allocate about 4%. Makes little difference. REIT's are actually MORE volatile than commodities, large caps or even small caps. Again, you don't know what you are talking about to say that stocks are more volatile than REITs. https://www.mfs.com/wps/FileServerServl ... nd=default

There is nothing wrong with investing in as little as a couple of bond and stock index funds.
Maybe it's time you bow out indeed. You absolutely don't know what you are talking about with regard to index funds. You can sell at any time for any reason and without penalty. Stop spreading ignorance. You are REALLY sounding like a non-fiduciary commission-based product salesman.
Last edited by Bogle_Feet on Wed Sep 09, 2015 12:22 am, edited 1 time in total.
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Peter Foley
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Re: Help! Wife and I don't know what to do with our money!!

Post by Peter Foley »

As I read through this thread I did not see a couple things I would suggest. The OP should be investing in his 401k/403b account. Look at the options offered in such a plan and choose broad based low cost mutual funds. You will have a lot of money flowing into your taxable account so you can use that to create a balanced AA that is appropriate for your risk tolerance.

If you wife is not working you should use a spousal IRA for some tax deferred savings. Depending on your tax bracket, Roth accounts may be the better option.
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Re: Help! Wife and I don't know what to do with our money!!

Post by Grt2bOutdoors »

I predict a lock......this thread has become quite argumentative. My! :o
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Re: Help! Wife and I don't know what to do with our money!!

Post by rixer »

Maybe I read it wrong but I thought the OP would receive the inheiritance in 2 years. So he already has time to wait and decide.
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Re: Help! Wife and I don't know what to do with our money!!

Post by Grt2bOutdoors »

rixer wrote:Maybe I read it wrong but I thought the OP would receive the inheiritance in 2 years. So he already has time to wait and decide.
No, you read it right. It was a select crowd who read it wrong. I indicated the best thing to do was to a)ask for advice and b) become self-informed through reading.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Help! Wife and I don't know what to do with our money!!

Post by Mel Lindauer »

Let's focus on responding directly to the OPs question and skip the side arguments and bickering.
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Raymond
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Re: Help! Wife and I don't know what to do with our money!!

Post by Raymond »

CMLAW1,

As mentioned above, please do not let your accountant/"financial advisor" get his mitts on the rest of the money.

You and your wife may also think about whether or not he is even worth the 1% fee on your other investments.

Chances are pretty darn good that with some reading and good advice here, the two of you will do as well or better than he does, and save yourselves $1580/year (the 1% fee on your existing investments with him).

If you put the entire $1.03 million under his control, that's $10,300 per year for him. Cha-ching!

If your investments make, for example, 4% in a year, he gets to keep 25% of that - what a deal!

May we ask what "stocks, mutual funds, etfs" he has your $158,000 invested in?

You might consider starting a separate thread following this format: "Asking Portfolio Questions"
"Ritter, Tod und Teufel"
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CMLAW1
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Re: Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

Raymond wrote:CMLAW1,

As mentioned above, please do not let your accountant/"financial advisor" get his mitts on the rest of the money.

You and your wife may also think about whether or not he is even worth the 1% fee on your other investments.

Chances are pretty darn good that with some reading and good advice here, the two of you will do as well or better than he does, and save yourselves $1580/year (the 1% fee on your existing investments with him).

If you put the entire $1.03 million under his control, that's $10,300 per year for him. Cha-ching!

If your investments make, for example, 4% in a year, he gets to keep 25% of that - what a deal!

May we ask what "stocks, mutual funds, etfs" he has your $158,000 invested in?

You might consider starting a separate thread following this format: "Asking Portfolio Questions"
Yes, the 158k is invested in the following way:

2 ETFS. 9% in SPDR SnP MIDCAP 400 ETF (MDY) and 8% in GUGGENHM SnP MIDCAP 400 ETF (RSP).

9 mutual funds.
10% in AMERN BRDGWY L/C VALUE Y (BWLYX)
11.5% in Dodge and Cox income fund (DODIX)
8.5% in Litman Grgry Into Instl (MSILX)
10% in Oppenhmr Into Growth Y (OIGYX)
9% in Loomis Sayles Invt TR I (LSBDX)
10% in vanguard 500 index adm (vfiax)
11% in vanguard sml-cap ind-adm (vsmax)
8.5% in vanguard reit index fd (vgslx)
8.5% in vanguard shrt trm treas (vfirx)

Thoughts?

Also please see my next post, will put together some questions based on feedback I have gotten in this forum.

Thanks!
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CMLAW1
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Re: Help! Wife and I don't know what to do with our money!!

Post by CMLAW1 »

Mel Lindauer wrote:Let's focus on responding directly to the OPs question and skip the side arguments and bickering.
Does everyone agree on a few of the following things:

1. Purchase a 1M umbrella policy to avoid getting sued
2. Find legal and get a will done
3. Take all money we are receiving and place it in a savings account
4. Set up emergency account with approx 8 months emergency funds
5. Continue to max out my wife's Roth IRA

To avoid confusion within 2 years I will have the $. Right now we are looking to purchase a home. I currently have ~325k in savings and 158k invested.

Questions:

Should the 325 remain on the sidelines?

Should I buy a home? If so, can I spend 300k out of the 1.03M to buy our house? This would be to ensure that I am only spending 15-20% of our monthly income on housing. This will help us have the ability to save and live within our means.

My wife has an IRA but I am teacher. Should I have a separate Roth IRA? Seems like overkill because I will have a pension from my job.

With the rest of the $, should I invest in the 1/3, 1/3, 1/3 Vanguard portfolio that many stated in this post? Should I start that now and continue to reblance and contribute the annuity checks to it?

Should I ditch the financial advisor now or wait until taxes are done with this stuff? He does know my situation.

That is all from now. I appreciate any and all advice but let's please not bicker about garbage. People have differing opinions and that's OK.

Thanks guys! You guys have been an extroadinary help thus far
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