Investing Inheritance at age 24

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ishotmybroker
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Investing Inheritance at age 24

Post by ishotmybroker »

Hello,

I was hoping that the Boglehead community could lend me some advice on how to wisely invest moneys received from an inheritance. I was told that I will receive a sum of $50k in the near future as a partial payment for my interest in an inheritance estate. The rest of the money is held in trust and serving as a life estate before being divided upon the family. Because of complicated family and trust issues, future payments have no degree of certainty.

Age: 24
Income: $40-50k
Vehicle: Owned
Home: Renting $1k monthly
Debt: $0

Current Holdings:
Roth IRA - $3,115 in Vanguard S&P 500
Roth 401k - $900 in Fidelity S&P 500
Taxable - $644 (Individual shares via Robinhood)
Savings - $ 5,000

I currently lack the employment history necessary to qualify for a mortgage. Also, it is likely that I may relocate due to opportunities in my field of work. Because of the rather large some of money, I am displaying symptoms of the 'fear of loss'. I fear losing all or some of the money due to poor decision making. If you were in my position, where would you put the money? Thank you for your time and consideration.
t3chiman
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Re: Investing Inheritance at age 24

Post by t3chiman »

ishotmybroker wrote:... I will receive a sum of $50k in the near future as a partial payment for my interest in an inheritance estate. ... If you were in my position, where would you put the money? .
Hello-
I have been in this situation (modest inheritance). I split it between "Vanguard Health Care Fund Investor Shares (VGHCX)" and "Vanguard Consumer Staples ETF (VDC)". Looking back, their average 10-year returns have been 11.4% and 10.3%, respectively.
HTH
Uniballer
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Re: Investing Inheritance at age 24

Post by Uniballer »

Use the incoming inheritance money for expenses, if necessary, so that you can max out your tax-advantaged accounts (money you invest in a Roth now will probably be much more valuable to you later in life than anything else you can do). If you have enough left over then open a taxable account and put it in Total Stock Market and Total International Stock Market and watch it grow.

I would prefer a total-market style portfolio than selecting specific market sectors as suggested by t3chiman. It is hard to beat a 3-fund portfolio, or a target date or lifestrategy fund, without a lot of work.
Last edited by Uniballer on Tue Jul 25, 2017 5:48 am, edited 1 time in total.
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22twain
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Re: Investing Inheritance at age 24

Post by 22twain »

Don't rush. For now, I would put the money in a savings account or a CD, depending on how soon you think you may actually need it, and what interest rates you can find. You won't get a whole lot of interest, but you should be able to get 1% or so, which is better than nothing. Then read the article in our Wiki about managing a windfall:

https://www.bogleheads.org/wiki/Managing_a_windfall

and think about your medium to long term goals for the money: use it to start a down-payment for a house, or a retirement fund, or what?

If you decide on long-term savings like for retirement, I would (as someone else suggested) use the money to maximize contributions to an IRA or your 401(k).
Epitaph: Here lies the noble word "princiPAL", smothered by its like-sounding impostor "princiPLE". May it rest in piece!
aristotelian
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Re: Investing Inheritance at age 24

Post by aristotelian »

This is cash, not an Inherited IRA, correct?

I would increase your emergency fund, then invest the rest conservatively in case you need it for a house down payment or large expense such as a college or professional education program. You can also use it to gradually make your Roth contributions for the near future.

I-Bonds with Treasury Direct are a great conservative investment. Guaranteed to match inflation, rates competitive with CDs but after a year they are fully liquid. Can be used tax free for educational expenses which may be relevant to you as a young person. Otherwise interest is tax deferred. Note you are limited to $10K per year.
Grt2bOutdoors
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Re: Investing Inheritance at age 24

Post by Grt2bOutdoors »

Welcome! You are not going to lose it, instead you are going to set upon a voyage to improve your immediate and future financial picture. Take $5,000 and set it aside in an FDIC insured savings account to solidify your emergency fund. Next, if you have not yet contributed to your 2017 roth ira, deposit 5,500 into it - invest it in a Target Retirement fund with an 80/20 allocation and dont tinker with it. Next, put aside another $5,500 for your conribution on January 2, 2018. Why so early? Simple, because its time in the market that gives you the opportunity to compound gains faster. So, that is now, $15,500 accounted for, the remainder goes into a liquid FDIC insured savings account until you can create your investment strategy. More importantly, tell no one about this inheritance - nothing brings the flies and gold diggers out of the woodwork than the thought of free money. No loans, no lending, no entourage, no buying things for friends, relatives, acquaintances. Zip it, put it in your pocket. If someone at bank approaches you with investment suggestions, kindly say no and walk away. Money does weird things to people. When the money is gone, so will they.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
rakornacki1
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Re: Investing Inheritance at age 24

Post by rakornacki1 »

Whatever your choice of investment, invest your lump-sum all at once. Don't worry about dollar-cost-averaging. Put your inheritance to work as soon as possible.
Good luck & great profits!
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TomatoTomahto
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Re: Investing Inheritance at age 24

Post by TomatoTomahto »

Grt2bOutdoors wrote:Welcome! You are not going to lose it, instead you are going to set upon a voyage to improve your immediate and future financial picture. Take $5,000 and set it aside in an FDIC insured savings account to solidify your emergency fund. Next, if you have not yet contributed to your 2017 roth ira, deposit 5,500 into it - invest it in a Target Retirement fund with an 80/20 allocation and dont tinker with it. Next, put aside another $5,500 for your conribution on January 2, 2018. Why so early? Simple, because its time in the market that gives you the opportunity to compound gains faster. So, that is now, $15,500 accounted for, the remainder goes into a liquid FDIC insured savings account until you can create your investment strategy. More importantly, tell no one about this inheritance - nothing brings the flies and gold diggers out of the woodwork than the thought of free money. No loans, no lending, no entourage, no buying things for friends, relatives, acquaintances. Zip it, put it in your pocket. If someone at bank approaches you with investment suggestions, kindly say no and walk away. Money does weird things to people. When the money is gone, so will they.
Agree with the above, a lot, but would also add that a head start on your investment strategy for the remainder (50k - 15.5k) is to read about the 3-fund portfolio. And then, do it. Pick some age appropriate asset allocation, but to be honest, 5% here or there is less important than getting the money off the street and into an investment.

Also, if you've already told friends about your inheritance, get it out of your (and thus, their) hands, so that you can honestly say, sorry, I've invested it.
I get the FI part but not the RE part of FIRE.
Grt2bOutdoors
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Re: Investing Inheritance at age 24

Post by Grt2bOutdoors »

One other point I failed to mention. You currently have $900 in a Roth 401k account, but your gross is $40-50K per year. Increase your annual contribution to that account, such that you are now contributing 15% of your gross pay into that account - that is $6K or $7.5K depending on salary. Use part of the inheritance to supplement your decrease in take home pay. Do this to solidify your retirement account - I know, you are only age 24 and retirement is a long, long way off, but before you know it, you'll be my age typing this advice or telling someone this advice and me, i'll be close to retirement if not retired. My point is, life goes by quickly and the steps you take today will benefit you greatly tomorrow.

Now, your reading assignment since no one posted it yet ----> https://www.etf.com/docs/IfYouCan.pdf Read it once, then read it again. Then head to your local library and see if you can rent those books for free - take your time, and read them. It will be the best education you ever get in personal finance and you won't have to pay anyone to steal your money. :)
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
SimplicityNow
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Re: Investing Inheritance at age 24

Post by SimplicityNow »

TomatoTomahto wrote:
Grt2bOutdoors wrote:Welcome! You are not going to lose it, instead you are going to set upon a voyage to improve your immediate and future financial picture. Take $5,000 and set it aside in an FDIC insured savings account to solidify your emergency fund. Next, if you have not yet contributed to your 2017 roth ira, deposit 5,500 into it - invest it in a Target Retirement fund with an 80/20 allocation and dont tinker with it. Next, put aside another $5,500 for your conribution on January 2, 2018. Why so early? Simple, because its time in the market that gives you the opportunity to compound gains faster. So, that is now, $15,500 accounted for, the remainder goes into a liquid FDIC insured savings account until you can create your investment strategy. More importantly, tell no one about this inheritance - nothing brings the flies and gold diggers out of the woodwork than the thought of free money. No loans, no lending, no entourage, no buying things for friends, relatives, acquaintances. Zip it, put it in your pocket. If someone at bank approaches you with investment suggestions, kindly say no and walk away. Money does weird things to people. When the money is gone, so will they.
Agree with the above, a lot, but would also add that a head start on your investment strategy for the remainder (50k - 15.5k) is to read about the 3-fund portfolio. And then, do it. Pick some age appropriate asset allocation, but to be honest, 5% here or there is less important than getting the money off the street and into an investment.

Also, if you've already told friends about your inheritance, get it out of your (and thus, their) hands, so that you can honestly say, sorry, I've invested it.
Agree with the wisdom of both Grt2bOutdoors and TomatoTomahto who have both given a lot of great advice to many who come to seek it on these forums.

You have a 30 -40 year time horizon here before you will need this money if you are earmarking it for retirement purposes.
I'd second the recommendation that the most valuable lesson here today is to learn more about investing. Start with the boglehead wiki and getting started guide on the forum. Read the free PDF "If You Can" by Dr. Bill Bernstein. Read the Bogleheads Guide to Investing which is available at many libraries. Read Rick Ferri's "All About Asset Allocation".

Then decide on an asset allocation. As you read more and you have more questions come here and ask.


Two other points.

1) I'd consider stop investing in individual equities through RobinHood and invest instead in low cost index mutual funds.
2)A good source to park your emergency fund is an 11 month, no early withdrawal penalty CD with Ally Bank currently paying 1.5% Money is available six days after deposit and if you pull it out early after those six days you keep the interest which accrues daily.

Good luck!
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BL
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Re: Investing Inheritance at age 24

Post by BL »

Here is a great little pdf to help get you off to a good start. There are some valuable suggestions in it, whether or not you have some extra to invest. I would consider a Roth at Vanguard with the 80/20 Life Strategy Aggressive fund, but Dr. Bernstein suggests a more conservative approach which is often a good idea for young people who have not lived through a market crash, and who might panic and sell at the worst possible time. Something like Total Stock Market and Total International Stock Market are ideal for the non-IRA account. Try to keep ERs low, and stick with total market funds rather than specific sectors that may have done great in the recent past (which does not mean they will be great going forward.)

Expense ratios (ER) are very important in 401k or other investing. Fill your 401k up to $18k if you are not already doing it, even if you have to use some of this money-consider it transferring to retirement savings. If you put $100 into a traditional 401k, it is the equivalent of ~ $75 if in 25% tax bracket ($85 if in 15% bracket), so you need less than the amount you are putting in.

https://www.etf.com/docs/IfYouCan.pdf
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Nate79
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Re: Investing Inheritance at age 24

Post by Nate79 »

t3chiman wrote:
ishotmybroker wrote:... I will receive a sum of $50k in the near future as a partial payment for my interest in an inheritance estate. ... If you were in my position, where would you put the money? .
Hello-
I have been in this situation (modest inheritance). I split it between "Vanguard Health Care Fund Investor Shares (VGHCX)" and "Vanguard Consumer Staples ETF (VDC)". Looking back, their average 10-year returns have been 11.4% and 10.3%, respectively.
HTH
So the OP should make a sector bet when they are a new to investing? That's very bad advice.
bkweathe
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Re: Investing Inheritance at age 24

Post by bkweathe »

t3chiman got lucky. Please don't assume that you will repeat his luck. Those particular funds have gone up a lot since he bought in. In other words, their prices are high. Don't buy high; you're likely to end up selling low.

BL, Grt2bOutdoors, TomatoTomahto, SimplicityNow, and others are giving you good advice: take a little time to learn from well-known, respected Bogleheads and follow their advice. They have mentioned several excellent books that are well-worth your time. The videos that explain the Boglehead philosophy in the Getting Started part of this web site are an excellent resource, too, especially if you learn well by watching videos. They're informative, short, entertaining, & free; in an hour or so, you'll know all you really have to know about investing.

Brad
Last edited by bkweathe on Wed Jul 26, 2017 10:14 am, edited 1 time in total.
t3chiman
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Re: Investing Inheritance at age 24

Post by t3chiman »

bkweathe wrote:t3chiman got lucky. Please don't assume that you will repeat his luck. Those particular funds have gone up a lot since he bought in. In other words, their prices are high. Don't buy high; you're likely to end up selling low...
On the contrary, Luck had precious little to do with my decision-making. In fact, I moved the timing window in various directions, over various durations. My conclusion: Vanguard has a set of analysts and managers associated with the various health funds that deliver, over time, on average, 2-3 percentage points superior performance, as compared with their colleagues. It's only sensible to take advantage of their expertise, offered to you at a bargain rate.
bkweathe
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Re: Investing Inheritance at age 24

Post by bkweathe »

t3chiman,

Please read this thread:
viewtopic.php?t=156573
and any of the resources that have been recommended for ishotmybroker (the OP of this thread).

You're in a very dangerous place if you think you can pick funds based on their past performance. I hope you understand the truth before you hurt yourself. It's a lot like a gambler thinking that they can consistently make money because they won their first bet.

Best Wishes,
Brad
Goal33
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Re: Investing Inheritance at age 24

Post by Goal33 »

At your income level, I'd max the Roth 401k. Use this money to meet your expense needs while you do that.
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TomatoTomahto
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Re: Investing Inheritance at age 24

Post by TomatoTomahto »

bkweathe wrote:You're in a very dangerous place if you think you can pick funds based on their past performance. I hope you understand the truth before you hurt yourself. It's a lot like a gambler thinking that they can consistently make money because they won their first bet.
I always tell my friends that, while I wish them well overall, I hope that their first few gambles turn out poorly. But, few listen or understand. Shrug.
I get the FI part but not the RE part of FIRE.
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