Inheriting a large sum, slightly intimidated.

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Captain kangaroo
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Inheriting a large sum, slightly intimidated.

Post by Captain kangaroo »

Long time reader here, first time poster. I've been reading this forum for about a year now trying to educate myself as much as possible, but now I need some advice of my own.

I am currently 28, make 60k a year as a police officer, have no debt and live in Maryland. I have roughly 2k in an emergency fund, and 10k in my Vanguard Roth all in the total stock market index fund.

I will be inheriting roughly 2,000,000 and am slightly intimidated on what to do with it. I love the three fund portfolio, but I think my allocation would be a little more conservative, closer to a 50/50 split of stocks and bonds. I would call myself a boglehead, I want to buy and hold for a long, long time, only dipping into money for something I need. My plan is max out my Ira and boost my emergency fund, then move on to taxable.

Would I be better off using a fund like mdxbx, t Rowe prices Maryland municipal bond fund rather then the total bond fund? I feel like the total bond fund would hit me pretty hard tax wise.

Also, I am considering putting the money into fidelity instead of Vanguard. I absolutely love Vanguard funds, but I feel fidelity will have more options down the line, especially with brick and mortar stores that my family can go to in the result that I pass away.

Anyway, any general thoughts or advice would be very appreciated.
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Watty
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Re: Inheriting a large sum, slightly intimidated.

Post by Watty »

There is a wiki on managing a windfall.

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

For the most part it is important to just put most of the money somewhere ultrasafe for at least six months while you get used to having it and come up with a long term plan.

A few things to do though;
1) Make sure that you have high limits on your car insurance and that you have an umbrella policy. You are more likely to be sued now.

2)Max out your retirement accounts in 2017.

3) Make sure that you have an updated will and the beneficiary on any accounts are up to date. With the assets that you have there is no sense in not using a good local lawyer to make a will.

4) This one is just my personal opinion. Make sure you have a good safe car. You don't have a get an expensive car with all the newest safety features but if you are driving a 10+ year old car it may not even have ESC and the airbags be not be the latest generation airbags. They enhanced the crash tests about five years ago and manufactures have modified their cars to do better on the new tests too. An older car may also be more prone to breaking down in a dangerous situation.
Captain kangaroo wrote: Mon Nov 27, 2017 8:50 am Also, I am considering putting the money into fidelity instead of Vanguard. I absolutely love Vanguard funds, but I feel fidelity will have more options down the line, especially with brick and mortar stores that my family can go to in the result that I pass away.
I have accounts at both because of historical reasons. I agree that in a lot of ways Fidelity has better customer service and the local office is nice to have. If you can managing the account yourself you can do just about as well at either place or even some of the other big name financial firms. The problem is that it sounds like you could use some professional help for at least the next few years and at Fidelity there is a risk that their advisors will charge you a higher fee and try to put you into higher cost actively managed funds. Vanguard will provide advice for a 0.3% fee and not try to put you into higher cost funds.

https://investor.vanguard.com/financial ... ial-advice

Be sure to ask if you don't understand when the vast majority of "financial advisors" are really just sales people that will put you into terrible investments just to earn a commission. You can search these board for company names like Edward Jones or Raymond James to see what experiences other people have had with them
livesoft
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Re: Inheriting a large sum, slightly intimidated.

Post by livesoft »

I was in the library today and skimmed through a book "What Your Financial Advisor Isn't Telling You", so if you end up thinking about a financial advisor, I suggest you read this book first. The book is NOT anti-financial advisor for those wondering about that.
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123
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Re: Inheriting a large sum, slightly intimidated.

Post by 123 »

Button your lips. Don't tell a soul about the windfall. People will expect you to help them directly or pick up the total tab for entertainment etc and you won't know who your "real" friends are.
The closest helping hand is at the end of your own arm.
LarryAllen
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Re: Inheriting a large sum, slightly intimidated.

Post by LarryAllen »

You are so smart to be here asking questions.

My #1 bit of advice is worry more about your spending and by that I mean do not change a thing. Live on your income. You'll be able to retire young. You will be very set between this nest egg and your police pension. I am envious.

Beyond that a nice mix of 3-4 funds and then set it and forget it for 20 years. Re-balance every year or two but don't worry so much about that.

Key is spending. Keep an eye on it!

Best of luck to you.
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David Jay
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Re: Inheriting a large sum, slightly intimidated.

Post by David Jay »

Captain kangaroo wrote: Mon Nov 27, 2017 8:50 am My plan is max out my Ira and boost my emergency fund, then move on to taxable.
You will also want to max-out your employer's plan (403b, etc.).

You want to convert as much of your portfolio as possible to tax-advantaged space. Typically you are allowed to contribute $24,000 a year. Spend $24,000 out of your taxable inheritance each year for living expenses and contribute the max to your employer plan from your salary.
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FreeAtLast
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Re: Inheriting a large sum, slightly intimidated.

Post by FreeAtLast »

1) Don't forget to consider some long-term CD's (five year). Me personally, I would throw a million into them.
2) You have read this forum a long time. You can easily invest by yourself with no financial adviser necessary. But advice from an estate lawyer and tax lawyer....yeah.
3) The only family and friends you can trust are those who don't pester you for money. Tell as few people as possible about your windfall.

Good Luck, Captain. :beer
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Tyler Aspect
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Re: Inheriting a large sum, slightly intimidated.

Post by Tyler Aspect »

Perhaps half in Vanguard Lifestrategy Moderate Growth, half in Vanguard Tax Managed Balanced. You will get wide coverage of all asset types, with a 55% stock / 45% bond allocation. Exceedingly simple and on auto-pilot.
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LeeMKE
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Re: Inheriting a large sum, slightly intimidated.

Post by LeeMKE »

I also have my accounts at Fidelity. When your deposits crest over a certain amount (guessing, but it seemed to happen about $600,000.00) you get assigned to the more experienced advisors. They have been willing to offer advice when asked, and understand I am an index investor and will remain so. My guess is that smaller accounts go to more junior advisors, who might vere off to try out a sales pitch for more expensive options you don't need.

If something happens to me, DH will want a local office and someone to talk to. And the advice I've been given at Fidelity has been excellent.

FWIW,
The mightiest Oak is just a nut who stayed the course.
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Sandtrap
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Re: Inheriting a large sum, slightly intimidated.

Post by Sandtrap »

Welcome :D
I have had many close personal friends and relatives in similar financial positions.
1. As "Watty" has suggested. Read the link on managing a windfall.
2. Tell nobody.
3. Invest it wisely and then proceed as if it was not there. Earn your income. Save. Etc.
4. Be a careful steward of what you've been blessed with. One way is to be an active Boglehead. Learn. Learn. Learn.
5. Post your entire portfolio and financial, etc, for portfolio review and update often at this site. Set your goals. Establish an IPS. The experts will help and guide.

Congratulations on your good fortune.
j. :D

Some helpful links:
Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit
Define General Investment Goals and Objectives
https://www.bogleheads.org/wiki/Invest ... statement
Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
What the experts say about investing
https://www.bogleheads.org/wiki/What_ ... investing
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Wiki Bogleheads Wiki: Everything You Need to Know
MotoTrojan
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Re: Inheriting a large sum, slightly intimidated.

Post by MotoTrojan »

Do the math on the Total Bond after tax vs. muni's. At your income you may still be better in Total Bond, and then as mentioned ensure you max-out your tax-advantaged space and move bonds over. Not only are bonds preferred in tax-advantaged, but they'll have much smaller gains than equities hopefully, so no biggy to sell in taxable and transfer over.

Could also setup a CD ladder to support funding your tax-advantaged space, and consider it part of your bond allocation.
kerplunk
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Re: Inheriting a large sum, slightly intimidated.

Post by kerplunk »

Put 50% in Total Stock Market and 50% in Small-Cap Value. Forget about it. Look at it in 20 years. Retire.
krow36
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Re: Inheriting a large sum, slightly intimidated.

Post by krow36 »

You don't mention contributing to a 403b or a 457 retirement plan. You can contribute up to 18k per year to each plan. Your city or county employer no doubt has these plans available. If you are a Maryland state employee, the state has these plans: http://msrp.maryland.gov/plans.htm
noco-hawkeye
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Re: Inheriting a large sum, slightly intimidated.

Post by noco-hawkeye »

At this level, Vanguard provides access to an advisor for free. It's not day to day account management and hand holding, but they will help you get setup or help with a periodic question. I used them for a smaller windfall and found them to be reasonable and helpful, and very trustworthy from my limited contact.
ThrustVectoring
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Re: Inheriting a large sum, slightly intimidated.

Post by ThrustVectoring »

Captain kangaroo wrote: Mon Nov 27, 2017 8:50 am I love the three fund portfolio, but I think my allocation would be a little more conservative, closer to a 50/50 split of stocks and bonds.
Then do the three fund portfolio? The three-fund portfolio is a starting point for which funds to invest in, and isn't a hard specification for what weights to use. I'd do VTI/VXUS/BND, probably weighted at something like 30/20/50 proportionally. The mutual fund equivalents are fine too. Any weighting between 40% and 60% equities would probably work great.

Also I'm kind of shocked that the rest of the thread hasn't mentioned the fact that this inheritance is enough to retire on, assuming that he doesn't start having a more expensive lifestyle. 2MM / 60k = 33.33. Maybe work a couple more years if you want to run up the score a bit since you're so young, but yeah, congrats, if you don't want to ever work again you can probably afford to make that choice. Especially if you're willing to cut expenses if there's a stock market downturn - the simulations assume constant inflation-adjusted expenses.

So yeah, the biggest thing I'd worry about is budgeting, lifestyle inflation, insurance, and making sure the money doesn't screw up your social relationships. The actual investment part is pretty straightforward, and you're basically on the right track.
Current portfolio: 60% VTI / 40% VXUS
daveydoo
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Re: Inheriting a large sum, slightly intimidated.

Post by daveydoo »

Great advice above. You're fortunate in that you've been paying attention and already do the right things. You'll do great. I don't see any red flags in the minor variations your weighing (e.g., 50/50 vs 60/40, etc.).

Not addressed above, there's a risk that this windfall will take some of the wind out of your sails, earnings-wise and career ambition-wise. Your job is a hard one and an important one but not always a rewarding one. You're pretty young (for a BH, I mean) and it's way too early to coast, imo. I'm talking in terms of your sanity, sense of self-worth, productivity, role-modeling for your kids, etc. Based on your career choice, these have all been important considerations for you.

I'm guessing you knew the windfall was coming and maybe have already mentally factored this is. Allow it to buy you security but not necessarily your dream home or car(s). Knowing that you can cover kids' college or survive a lay-off or swing a relocation brings a lot of peace-of-mind. Buying a 6,000 ft2 house does not.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"
mega317
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Re: Inheriting a large sum, slightly intimidated.

Post by mega317 »

kerplunk wrote: Mon Nov 27, 2017 7:04 pm Put 50% in Total Stock Market and 50% in Small-Cap Value. Forget about it. Look at it in 20 years. Retire.
You are seriously suggesting 100% stocks for someone who has indicated some risk-aversion, and that he maintain that allocation until the day of retirement?
kerplunk
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Re: Inheriting a large sum, slightly intimidated.

Post by kerplunk »

mega317 wrote: Mon Nov 27, 2017 7:16 pm You are seriously suggesting 100% stocks for someone who has indicated some risk-aversion, and that he maintain that allocation until the day of retirement?
Yes. He said he wants to “buy and hold for a long, long time.”

I hope he enjoys his $10 million in 20 years.
radiowave
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Re: Inheriting a large sum, slightly intimidated.

Post by radiowave »

Captain kangaroo wrote: Mon Nov 27, 2017 8:50 am Long time reader here, first time poster. I've been reading this forum for about a year now trying to educate myself as much as possible, but now I need some advice of my own.

I am currently 28, make 60k a year as a police officer, have no debt and live in Maryland. I have roughly 2k in an emergency fund, and 10k in my Vanguard Roth all in the total stock market index fund.

I will be inheriting roughly 2,000,000 and am slightly intimidated on what to do with it. I love the three fund portfolio, but I think my allocation would be a little more conservative, closer to a 50/50 split of stocks and bonds. I would call myself a boglehead, I want to buy and hold for a long, long time, only dipping into money for something I need. My plan is max out my Ira and boost my emergency fund, then move on to taxable.

Would I be better off using a fund like mdxbx, t Rowe prices Maryland municipal bond fund rather then the total bond fund? I feel like the total bond fund would hit me pretty hard tax wise.

Also, I am considering putting the money into fidelity instead of Vanguard. I absolutely love Vanguard funds, but I feel fidelity will have more options down the line, especially with brick and mortar stores that my family can go to in the result that I pass away.

Anyway, any general thoughts or advice would be very appreciated.
Hi welcome to the forum.

We need a little more info where the anticipated inheritance is and what type of investments. Is this all in a taxable account or a portion in tax deferred (e.g. 401k, IRA). If some or most is an inherited IRA you'll have to content with required minimum distributions of the family member who passed (will pass) away, just an FYI. The typical asset allocation from a 3 fund perspective has bonds, e.g. total bond mutual fund, in tax deferred and equity (domestic and international) generally in a taxable account. See the tax efficient placement in the Wiki (below). Also, if there are multiple investments, you'll be able to use current cost basis so if you have high expense ratio funds, individual stocks, etc. you'll get a one time zero out of cost basis and relief from capital gains - other members on the forum can better explain this.

As for CDs, yes they have a role to play in creating safe investments, but too conservative, e.g. high % CDs may limit your long term growth.

As for Vanguard vs. Fidelity, to be honest, if you are happy with VG, I don't see any reason to move for the sake of moving. Fidelity has local offices, but I haven't used mine in a few years. Fidelity does have some good cash management products and eBill pay, worth considering from a total personal finance perspective.

One other thing to consider, set asset allocation, e.g. % stock funds to bond funds, across your entire portfolio, not each account.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page
TallBoy29er
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Re: Inheriting a large sum, slightly intimidated.

Post by TallBoy29er »

Much good info has been said above. Thanks for what you do as a police officer. It is much appreciated.

Keep your head screwed on straight, and you'll do well. All the best -
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Captain kangaroo
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Re: Inheriting a large sum, slightly intimidated.

Post by Captain kangaroo »

You guys are amazing. Thank you very much.

I would definitely like to go at this on my own and with the help of you guys. Not a fan of financial advisors.
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sergeant
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Re: Inheriting a large sum, slightly intimidated.

Post by sergeant »

1. Don't tell any of your beat partners. They will be hitting you up for loans and you will be paying for code-7's for the rest of your career.
2. Max out your deferred comp account.
3. All new cops buy a new truck or car when they get hired. Keep the one you have now, don't run out and upgrade.
4. If the only option is 60/40 or 50/50 I would choose 60/40 at 28 years old.
5. I like Vanguard, I'm sure Fidelity would be fine.
6. Stay here and continue to read and learn.
7. Take some time. No big hurry. Do watch out for FDIC limits when you get the funds and park them.
8. Do you have a college degree? Get one, a degree is mandatory for promotion. You don't want to be a patrolman chasing calls when your 45 years old.
9. Enjoy your career, being a cop is an excellent calling. I loved almost every day.
10. Read "Emotional Survival for Law Enforcement Officers" by Dr. Gilmartin.
For the ashes of his fathers, And the temples of his gods. | Pensions= 2X yearly expenses. Portfolio= 40X yearly expenses.
chrischris
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Re: Inheriting a large sum, slightly intimidated.

Post by chrischris »

Fellow cop here.

Don’t tell anyone about the inheritance. It will absolutely affect your career and it’s something you can’t take back once it’s out.

I wouldn’t worry about where to specifically invest the money, as long as it’s placed somewhere. Read the wiki everyday for three months, then make a decision. With that kind of money, just make a reasonable decision (50/50 stocks and bonds sounds good) and stay the course.

I have no idea what your lifestyle or values are. I enjoy my line of work and I can’t imagine retiring right now.

Don’t spend it all :)
gvsucavie03
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Re: Inheriting a large sum, slightly intimidated.

Post by gvsucavie03 »

Congrats on the windfall, and yes, you are absolutely in the right place to ask what to do.

Some good advice so far. I would not go 100% stock. You have no need to assume that much risk.

You have a high statistical chance of blowing this money. Wait 6 months or a year. Do. Nothing. Now....

It's easy for the peanut gallery here to throw out advice. You need 6 months to a year to learn, plan, and will quickly realize how fast $2M will burn up. Ask a pro athlete that blows a life's fortune in a heartbeat....

Do nothing. Wait. Put it in a bunch of CD's at different banks. Invest/spend only when you are absolutely sure of exactly what you want to do. You need a year to get your pulse rate down and realize what the responsibility and magnitude of this legacy means.

If it were me... and this is easy to say since it isn't me getting the windfall.... spend no more than 10% now - car, vacation, enjoyment. Someone wants to see you enjoy this money.

A paid-for house isn't a horrible idea, but only if you invest what you would have spent on a mortgage.

I'd pay off a house and continue to invest heavily. Lots of security there. Paying off a house saves a lot in interest paid and that money can go in your pocket. You also have less risk on your life.

Umbrella and liability insurance is a must from now on. You'll be wealthy.

Check in with a CPA when you get the windfall about taxes that will be due for that year.

Drop a bunch in your retirement for 2017 and 2018.

Again, easy to say for us. You are the one with the big decision to make. Go slow, take your time. Spend more time learning.
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cockersx3
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Re: Inheriting a large sum, slightly intimidated.

Post by cockersx3 »

Captain kangaroo wrote: Mon Nov 27, 2017 8:50 am Long time reader here, first time poster. I've been reading this forum for about a year now trying to educate myself as much as possible, but now I need some advice of my own.

I am currently 28, make 60k a year as a police officer, have no debt and live in Maryland. I have roughly 2k in an emergency fund, and 10k in my Vanguard Roth all in the total stock market index fund.

I will be inheriting roughly 2,000,000 and am slightly intimidated on what to do with it. I love the three fund portfolio, but I think my allocation would be a little more conservative, closer to a 50/50 split of stocks and bonds. I would call myself a boglehead, I want to buy and hold for a long, long time, only dipping into money for something I need. My plan is max out my Ira and boost my emergency fund, then move on to taxable.

Would I be better off using a fund like mdxbx, t Rowe prices Maryland municipal bond fund rather then the total bond fund? I feel like the total bond fund would hit me pretty hard tax wise.

Also, I am considering putting the money into fidelity instead of Vanguard. I absolutely love Vanguard funds, but I feel fidelity will have more options down the line, especially with brick and mortar stores that my family can go to in the result that I pass away.

Anyway, any general thoughts or advice would be very appreciated.
Hi Captain,

My wife and I received a similar seven-figure windfall some time ago, and would echo the other posters here in my comments.

First, tell no one. Your life will become far, far more complicated if everyone around knows that you're now a multi-millionaire. We elected to keep the news to ourselves, and I think it served us well. Eventually we'll need to tell our (now teenage) kids, but I don't expect to do that until they are much older.

Since this is an inheritance, I would first talk to a lawyer and/or accountant to make sure that you've addressed the tax consequences of the windfall. My understanding from similar threads is that are some weird (to me anyway) tax rules around inheritances, especially if they are transferred to you via a tax-deferred account such as a traditional or Roth IRA. May not be an issue for you, but you really should do your due diligence and verify. In my case, my windfall was tax-free (verified with a lawyer) so this wasn't an issue for me, but YMMV.

Third, I would recommend that you don't make any major moves with the money for a few months. The Boglehead wiki on windfalls is spot-on in that aspect of it. As strange as everything feels right now, there will eventually be a point within the next few months that this will all become a normal part of your life. Hard to believe maybe, but in my case it was true. With that kind of money, I would open up an account at Fidelity or Vanguard and just dump the money into their basic money market fund - whatever their equivalent of a cash account is - until the newness of all of this wears off. This was a mistake that we made initially - we immediately invested our windfall into a set of Vanguard funds that we read about, and we ended up tweaking things several times in the first few months until we got to something that we were comfortable with. In retrospect, I wish we had stopped and thought more about what we were doing before making moves like that.

Along the same lines, I would try not to make any major spending decisions either for a few months, until you've become more used to the new situation you're in. Just keep things the same regarding spending until everything settles down and the newness wore off. We actually didn't spend any of the money - just ended up beefing up our emergency fund and investing the rest.

Before you decide how to invest the money, it's really important to first decide what you want to do with it. This is a life-changing amount of money, so you need to think long & hard about how to best make use of it. For example, if invested properly that inheritance can potentially replace the after-tax portion of your annual salary, so early retirement may now be a possibility if you are interested in that. (But at your age, you may not be.) Seriously, I would start thinking about larger life goals that you may have, and then start thinking about how that money could help you achieve those goals. This will help you decide when (or even if) you'd need to spend that money, which would help you nail down the amount of near-term risk you can tolerate which is the basis for an asset allocation. In our case, we eventually decided that early retirement would be our new goal, and we set up a investment plan and asset allocation that made sense for that goal. (This actually helped us not spend the money on other things, since we could easily see the impact of that spending on our goal - every dollar we spent was a dollar we couldn't invest, which slowed down the march to "our number" as a goal.)

Regarding being intimidated about managing this kind of money on your own - don't be. There are BH's on this forum right now self-managing larger portfolios than that. Surprisingly, I'm learning that how you manage a $100K portfolio is actually not much different than how you'd manage a $1MM portfolio - really, it's not as much different than you may think. I use the 3-fund portfolio and it seems to work for us - very simple to manage with decent returns and low fees. My experience with financial advisers is that they didn't seem to provide any advice that I could easily have gotten elsewhere, so the costs didn't seem worth it to me which is why I roll my own. We also went through the 2007-2008 crash without selling anything, so we felt that we didnt need the "hand holding" that a good financial advisor should be expected to do in that kind of situation. (Of course, YMMV...)

Regarding the use of the Total Bond fund in taxable, I actually wouldnt worry about that at least in the near and medium term. The dividends this fund throws off would be subject to ordinary tax rates so technically it's tax inefficient, but at current interest rates the overall amounts we're talking about probably aren't larger enough to really worry about.

Oh, and if you haven't already done so, read The Boglehead's Guide to Investing. Hands down, this is the best "investing basics" guide out there. We read this cover-to-cover after I received my windfall, and it helped me understand all the terminology better and to make sense of the advice I read in this forum. Very helpful.

Finally - my condolences for the loss that you experienced to receive this windfall. My windfall came at a high price as well, and so I had (and continue to have) mixed feelings about it. While I'm grateful for the money, it came at the expense of significant physical pain for me and heartache / emotional pain for my family. At a minimum, I've evolved to have a much different outlook on life than I had before everything happened leading to the windfall. so maybe it was a good thing on balance. In any event, make sure to take time to work through it - money isn't everything...!
newbie_Mo
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Re: Inheriting a large sum, slightly intimidated.

Post by newbie_Mo »

I think the other question you should ask is how do you protect your wealth. I am assuming you are a police officer because you love your job. How often do you have to use force (physically and use of a weapon) to subdue someone in your job? Will you get sued if someone is hurt by you or your partner? Good luck and be safe.
IFKC
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Re: Inheriting a large sum, slightly intimidated.

Post by IFKC »

Op,

I often don't offer suggestions in the forum because, quite frankly, I think there are so many others here that know so much more and my perspective would add minimal value. I echo cockersx3's points.

But let me highlight one issue, as someone who received significant $$$ (to me) at 17: Why be so conservative at a young age with such a large amount of $$$? I get the (likely) 20 year plan, but you haven't really gotten into the other crucial issues of what's your post-LEO plan, personal/family goals, etc. A 50/50 stock/bond split is extremely conservative for a (probably healthy) 28 y/o with a pension. Maybe you've got great reasons to go 50/50, but, depending on the lifestyle you want (which you indicted you pretty much want to live a $60k lifestyle for the foreseeable future) receiving $2 million and setting a heavy stock allocation means you'll likely be passing on wealth to your kids, your grand-kids, and possibly further.
A happy father and tepid lawyer, trying to do the right thing
mega317
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Re: Inheriting a large sum, slightly intimidated.

Post by mega317 »

gvsucavie03 wrote: Mon Nov 27, 2017 8:34 pm spend no more than 10% now - car, vacation, enjoyment.
That is a whole lot of car, vacation, and enjoyment. I think spending 10% risks snowballing.
aristotelian
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Re: Inheriting a large sum, slightly intimidated.

Post by aristotelian »

I wouldn't worry too much about taxes. Remember, you only have to pay taxes on gains, and that is a good problem to have. If Total Bond Market works for you, I would not hesitate to hold it. I do think a muni bond fund would be a good option as well for a portion of your bond allocation. If any of the funds are held within an Inherited IRA, you could hold Total Bond Market in the IRA without any tax consequences.
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Re: Inheriting a large sum, slightly intimidated.

Post by noco-hawkeye »

aristotelian wrote: Mon Nov 27, 2017 9:23 pm I wouldn't worry too much about taxes. Remember, you only have to pay taxes on gains, and that is a good problem to have. If Total Bond Market works for you, I would not hesitate to hold it. I do think a muni bond fund would be a good option as well for a portion of your bond allocation. If any of the funds are held within an Inherited IRA, you could hold Total Bond Market in the IRA without any tax consequences.
I agree. If you are concerned about the tax bill, you could also have dividends held in the money market (not reinvested) and pull from there to cover your taxes. Once you get into the swing of things, you will have a better idea how the taxes work after a few years have passed. At this point fine tune things as needed.
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Re: Inheriting a large sum, slightly intimidated.

Post by msk »

50:50 stock:bonds is far too conservative at age 28, IMHO. My youngest kids are in their early 20s and I plan to pass onto each a couple million $ when they settle down (i.e. steady job/marriage). Currently about to start grad studies. My instructions/advice to each will be simple: Put the whole lot into stocks worldwide by free market weight (Vanguard VT is a good match) and withdraw 5% of the total portfolio annually for splurging for the rest of eternity. Yes, all simulations confirm that as the median forecast. Of course, the max has to go to tax-advantaged slots, but those details will only come out once they have proper jobs. I really do not see any reason why they should deprive themselves of an extra $100k income (fluctuates with stock market gyrations, but overall should keep up with inflation for many decades) when young, awaiting some far future that may never come. YOLO. Enjoy today and tomorrow. Worst thing they could do is stash the money in an easy-to-withdraw cash account and continuously be tempted to buy an overly-large house, boat, or Ferrari. Keep the dough away from temptation, let the world's largest businesses work for you. Retire whenever you want. $2mil enables that. $100k annually goes a long way on some remote beach... The fundamental points are that you must not fritter away large chunks of the windfall (do NOT be tempted!) and that the bulk of it must be "invested" not just parked. The security of bonds is paid for by non growth.
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Re: Inheriting a large sum, slightly intimidated.

Post by IFKC »

msk wrote: Mon Nov 27, 2017 9:42 pm 50:50 stock:bonds is far too conservative at age 28, IMHO. My youngest kids are in their early 20s and I plan to pass onto each a couple million $ when they settle down (i.e. steady job/marriage). Currently about to start grad studies. My instructions/advice to each will be simple: Put the whole lot into stocks worldwide by free market weight (Vanguard VT is a good match) and withdraw 5% of the total portfolio annually for splurging for the rest of eternity. Yes, all simulations confirm that as the median forecast. Of course, the max has to go to tax-advantaged slots, but those details will only come out once they have proper jobs. I really do not see any reason why they should deprive themselves of an extra $100k income (fluctuates with stock market gyrations, but overall should keep up with inflation for many decades) when young, awaiting some far future that may never come. YOLO. Enjoy today and tomorrow. Worst thing they could do is stash the money in an easy-to-withdraw cash account and continuously be tempted to buy an overly-large house, boat, or Ferrari. Keep the dough away from temptation, let the world's largest businesses work for you. Retire whenever you want. $2mil enables that. $100k annually goes a long way on some remote beach... The fundamental points are that you must not fritter away large chunks of the windfall (do NOT be tempted!) and that the bulk of it must be "invested" not just parked. The security of bonds is paid for by non growth.
Man, props to someone >40 (I'm mid-30s) who's using "YOLO." YOLO indeed. :D

Believe it or not, the YOLO song has some interesting financial advice... https://www.youtube.com/watch?v=z5Otla5157c
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Re: Inheriting a large sum, slightly intimidated.

Post by ThrustVectoring »

newbie_Mo wrote: Mon Nov 27, 2017 8:46 pm I think the other question you should ask is how do you protect your wealth. I am assuming you are a police officer because you love your job. How often do you have to use force (physically and use of a weapon) to subdue someone in your job? Will you get sued if someone is hurt by you or your partner? Good luck and be safe.
Usually police departments pay for that sort of thing in the US - qualified immunity is a huge hurdle to get over.
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Re: Inheriting a large sum, slightly intimidated.

Post by denovo »

Sandtrap wrote: Mon Nov 27, 2017 6:51 pm 2. Tell nobody.
I second this advice, but at the end of the day, I think depending on how you end up spending your windfall, people are going to find out. If a police officer suddenly goes and buys a $60,000 sports car and buys a new home in the good area of town, his co-workers and relatives aren't stupid presumably.
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Captain kangaroo
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Re: Inheriting a large sum, slightly intimidated.

Post by Captain kangaroo »

denovo wrote: Mon Nov 27, 2017 11:48 pm
Sandtrap wrote: Mon Nov 27, 2017 6:51 pm 2. Tell nobody.
I second this advice, but at the end of the day, I think depending on how you end up spending your windfall, people are going to find out. If a police officer suddenly goes and buys a $60,000 sports car and buys a new home in the good area of town, his co-workers and relatives aren't stupid presumably.
Or I'll be investigated for corruption! Haha.
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Re: Inheriting a large sum, slightly intimidated.

Post by denovo »

Captain kangaroo wrote: Mon Nov 27, 2017 11:49 pm
denovo wrote: Mon Nov 27, 2017 11:48 pm
Sandtrap wrote: Mon Nov 27, 2017 6:51 pm 2. Tell nobody.
I second this advice, but at the end of the day, I think depending on how you end up spending your windfall, people are going to find out. If a police officer suddenly goes and buys a $60,000 sports car and buys a new home in the good area of town, his co-workers and relatives aren't stupid presumably.
Or I'll be investigated for corruption! Haha.
Ya, I was going to make a joke about raiding the evidence locker. :happy
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Re: Inheriting a large sum, slightly intimidated.

Post by Finridge »

msk wrote: Mon Nov 27, 2017 9:42 pm 50:50 stock:bonds is far too conservative at age 28, IMHO.
Agreed. If that is that it takes to sleep well at night, then go with that. But if you are investing for the long term (20-30 years or more), then you owe it to yourself to look at the pros and cons of having more more equities in your portfolio.
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Re: Inheriting a large sum, slightly intimidated.

Post by psteinx »

Some good, albeit varied and somewhat inconsistent, advice in this thread already.

Some thoughts:

1) There's a major psychological aspect to this. Adjusting mindset, etc. Perhaps you've been anticipating a large inheritance at some point, perhaps not. But taking a little time waiting for this to settle in is not a terrible idea. OTOH, don't let that morph into long term inaction.

2) I agree that you'll want tax advice. If you haven't used a CPA in the past, now would probably be a good time to find one - pay him/her for a bit of consulting time up front, and probably to do your taxes at least for the first year or two. Perhaps a lawyer, too...

3) Yes, in my opinion, 50/50 is probably too conservative, in the long term. But that doesn't mean you need to be or should be 100/0 or 90/10 either.

4) For bonds, broad taxable funds (i.e. total bond), national munis (such as Vanguard provides), or state specific (trickier since you're apparently in Maryland, for which I don't think there's a Vanguard fund). Do some math. You'll want to know your likely federal and state marginal tax rates, which may be higher in the future than in the past, given income from this inheritance. However, compare apples to apples. If you're comparing a fund with somewhat higher or lower risk, adjust appropriately. My guess is that for a non-Vanguard, state specific fund, the higher expense ratio will pretty much offset or exceed the state tax savings.

5) Read widely.

6) Discuss with your spouse, if you have one.

7) Using an advisor, while often scorned on these forums, is not necessarily a terrible move. There are various options, and various fee levels and arrangements. Vanguard has options that may range in price from "free" to "pretty reasonable" (in my opinion). I agree that it's probably not a great idea for someone with the motivation, interest, intelligence, and emotional fortitude to pay 1% or more, per year, to an adviser. But there are lower cost options, and in any case, not everyone is well suited to do it on their own.

EDIT: tweaked in a minor way...
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Re: Inheriting a large sum, slightly intimidated.

Post by Sandtrap »

denovo wrote: Mon Nov 27, 2017 11:48 pm
Sandtrap wrote: Mon Nov 27, 2017 6:51 pm 2. Tell nobody.
I second this advice, but at the end of the day, I think depending on how you end up spending your windfall, people are going to find out. If a police officer suddenly goes and buys a $60,000 sports car and buys a new home in the good area of town, his co-workers and relatives aren't stupid presumably.
True. This happened to me to some degree when I liquidated a large R/E holding. Folks I knew were aware. But just not the extent of it. Low key. Same beat up pickup truck. Same old me. . . . I think it was "discretion is the better part of valor" or something like that.
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johnra
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Re: Inheriting a large sum, slightly intimidated.

Post by johnra »

1) Put $50,000-100,000 into a checking or savings account with a debit card, pay off any loans, buy a new tv or sound system, get some fresh paint or whatever projects or upgrades you have been putting off, go out to a nice restaurants, and enjoy having liquid savings at your fingertips for ready use.

2) Put $200,000 into a stock fund and $200,000 into a bond fund

3) Wait and think--what is your dream? are you living it? why aren't you?

4) I like Fidelity--very good customer service and products, incl advisors without financial incentives if you want help, bricks and mortar, and I worry about Vanguard--they have gotten huge
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Re: Inheriting a large sum, slightly intimidated.

Post by SGM »

50/50 is too conservative for a 28 year old. Not having enough stock when you are young is a mistake that even the author Bill Bernstein admits to having made. You might not have the stomach for a higher stock allocation, but it is in your best interest to buy and hold and reinvest dividends for the long term. You could consider a higher bond or CD allocation if you are considering buying a home with some of your cash. As an aside you should be maximizing your tax deferred accounts.

You might consider holding your funds in a trust to protect it from claims resulting from a divorce or some other issue. Speak to an attorney.

In my experience estate taxes are taken out prior to you receiving the inheritance. In Maryland currently the estate tax is 16% for estates over $3 million which should be paid via the executor prior to you receiving your inheritance. If you are not a direct relative of the deceased there is an additional inheritance tax of 10% customarily paid via the executor. Federal estate tax is currently 40% for estates over $5.49 million.

Maryland has an estate tax exemption of $3 million in 2017 scheduled to go up in 2018 and eventually match the federal exemption.

My point is that the executor must make sure these taxes are paid prior to distributing your inheritance if the estate is large enough. Your taxes will be on future earnings and capital gains once you receive your inheritance. You should be able to figure out your future taxes without the need for a CPA. Although a good CPA can be helpful if things get complicated.
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Re: Inheriting a large sum, slightly intimidated.

Post by angler-39 »

Captain K - you seem to have a logical grasp of your situation, it will serve you well. Two tomes I highly recommend (although somewhat dated) are the following:
The Challenges of Wealth: Mastering the Personal and Financial Conflicts - Amy Domini, et al 1988 (expensive but worth its weight in gold);
Sudden Money - Susan Bradley 2000

I do recommend that you ignore the sections dealing with financial advisors and query this board instead. Both works involve the emotional and psychological aspects of sudden and life-changing wealth. If you are already familiar with the three-fund portfolio then the financial aspect is already well within your wheelhouse.

In reading Domini's book, I absolutely devoured the references in the footnotes - those additional sources allowed me some very specific and actionable items that I may not have discovered on my own.
Susan Bradley has made a career of counseling individuals and families with 'sudden money' and also digs into the emotional aspects. As she has made her own fortune guiding those clients.

Finally, I have to recommend Serious Money - Rick Ferri 2000.

Condolences on your loss and I sincerely wish you the best on this journey.
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Re: Inheriting a large sum, slightly intimidated.

Post by Olemiss540 »

You are getting alot of GREAT advice, but you would benefit from describing what your goals are with this money and what types of assets you are inheriting.

This is not a place to advocate early retirement, but is that a strong consideration? Seems possible you could walk away today and begin a whole new life involving other (safer) passions if you have any.

Personally, I would pay off my house and begin planning MY life. Start thinking in broader terms of passion and joy and what could maximize both from this point to my last breath. Give! Learn about charitable foundations, get involved in community organizations. Lastly, do NOT buy high dollar material items that can cause you to burn through this gift before your 40!

Good luck,
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Watty
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Re: Inheriting a large sum, slightly intimidated.

Post by Watty »

SGM wrote: Tue Nov 28, 2017 4:43 am 50/50 is too conservative for a 28 year old.
There is a reasonable school of thought about investing that says, "When you have won the game, stop playing."

There is no one right answer. Anywhere between 20/80 and 80/20 stock and bond asset allocation could be a very reasonable choice.
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22twain
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Re: Inheriting a large sum, slightly intimidated.

Post by 22twain »

chrischris wrote: Mon Nov 27, 2017 8:29 pmjust make a reasonable decision (50/50 stocks and bonds sounds good)
gvsucavie03 wrote: Mon Nov 27, 2017 8:34 pmI would not go 100% stock. You have no need to assume that much risk.
IFKC wrote: Mon Nov 27, 2017 9:11 pmWhy be so conservative at a young age with such a large amount of $$$?
msk wrote: Mon Nov 27, 2017 9:42 pm50:50 stock:bonds is far too conservative at age 28, IMHO.
psteinx wrote: Tue Nov 28, 2017 12:25 amin my opinion, 50/50 is probably too conservative, in the long term. But that doesn't mean you need to be or should be 100/0 or 90/10 either.
SGM wrote: Tue Nov 28, 2017 4:43 am 50/50 is too conservative for a 28 year old. Not having enough stock when you are young is a mistake that even the author Bill Bernstein admits to having made. You might not have the stomach for a higher stock allocation, but it is in your best interest to buy and hold and reinvest dividends for the long term.
As you can see, there's a wide range of opinion here on what your % of stocks would be. To oversimplify, there are two kinds (maybe better described as extremes) of people with respect to managing money: the "maximizers" who look for ways to grow their stash, no matter how much they already have, and the "satisficers" whose priority is having "enough" to retire on and preserving it once they've got it.

You need to spend some time looking into yourself and deciding which camp you lean towards. With this amount of money, plus a pension later on (assuming you stay in your job), if you stick to a $60K lifestyle, you'll have no financial problems with retirement either way. Just don't make stupid mistakes that cause you to lose most or all of it like those football and basketball players, lottery winners, and yes, people who inherit a lot of money, that you read about sometimes.

For what it's worth, I'm a "satisficer" myself. When I inherited a sum in my mid 50s that increased my assets by more than 50%, I bought myself a nice new computer which I'm still using nearly ten years later, put most of the money into CDs, and started maxing out my 403(b) contributions. A couple of years later, after interest rates dwindled to near zero, I started moving the money into mutual funds at about 50% stock, the same ratio as I've been using in my 403(b) since I started contributing to it more than 30 years ago.
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onthecusp
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Re: Inheriting a large sum, slightly intimidated.

Post by onthecusp »

Great advice above. Just wanted to add that one way to think about this new sum is not that you have $2MM but that, properly invested, you have access to an ongoing $80,000/year or so (4% of $2MM). You got a nice, even huge, raise but now you can decide what to do with that.

Spend a little, reinvest a lot until you want to retire early, is an assumption for much of the advice here. It is your decision and you are asking great questions. If kids are in the future that $80k would let you cash flow their college and give them a great start loan free, without materially affecting your future income. That kind of thing is a benefit of hidden wealth so long as you continue to live like your peers otherwise. :sharebeer
Slothmeister
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Re: Inheriting a large sum, slightly intimidated.

Post by Slothmeister »

After maxing out your Roth IRA and 403(b), I would put 200,000 in high-yield savings. One million in five different 7-year CDs and split the rest in Fidelity Total Stock Market Index Fund and Fidelity 500 Index Fund.
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Re: Inheriting a large sum, slightly intimidated.

Post by deltaneutral83 »

I'd start at no lower than 60/40 but also don't see the need for anything above 70/30 with the OP's situation. Reassess in 5 years. 60/40 gives you tremendous bang for your buck. What was it, 32% down peak to trough Oct 2007 to March 2009? That's very doable.
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Re: Inheriting a large sum, slightly intimidated.

Post by jb1 »

Id retire, pick up a part time job that doesnt risk your life.
-Put 1 million in a conservative portfolio living off dividends. (if put in total bond market that will be 25k a year in dividends right?)
-use 500k for a rental properties
-Buy a GTR for 100k
-Spend 25k traveling the world for a year

Rest is up to you.

Must be nice to inherit money! I had money that was supposed to be gifted to me, but a gold digging lady came by instead on 3 occasions haha. :oops:
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Re: Inheriting a large sum, slightly intimidated.

Post by bertilak »

msk wrote: Mon Nov 27, 2017 9:42 pm 50:50 stock:bonds is far too conservative at age 28, IMHO.
Another perspective. If the inheritance was $1MM instead of $2MM and the entire $1MM was invested in equities that would presumably avoid your "far too conservative" reaction. So pretend that's exactly what 50/50 is for a $2MM inheritance -- $1MM invested 100% in stocks and the bonds are just gravy!

This is how I look at a 50/50 AA. Someday he will be really happy about one of those 50s and the other 50 will probably have done OK as well. The odds are in favor of the equity 50, but those are odds, not a sure thing. Never scoff at conservative, if you can afford it. It's a good way to spend money.
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