25YR old with considerable amount of cash

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gillq41
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25YR old with considerable amount of cash

Post by gillq41 » Sat Mar 03, 2018 10:42 am

Thank you all for taking the time to read my post, any input would be greatly appreciated. I am new to the investing scene, as I recently purchased "The Bogleheads Guide to Investing" but am hooked already! With that being said by knowledge on investing is limited strictly to what I've read thus far so consider me a novice.

I lost my mother this past summer and while it was the most painful experience of my life I was fortunate in that she left me a considerable amount of life insurance that I am hoping you guys can give me suggestions on how to properly invest. Her and I had a small business together which was recently sold so at the current moment I am not working but am also debt free outside the 15k I owe on my car. My goal (if its even possible) is to invest this money and be able to earn a "salary" off of the interest that I can tack onto the salary of the job I eventually get. I was speaking with my grandfather who did quite well investing (although it was years ago) and he put about 900k into different markets and was pulling out about 80k per year and pocketing it and when he was done he pulled his original 900k back out. Are scenarios like this even still possible? If so, how? I am more so focused on the short term than the long term at the current moment. However I do plan to open a Roth IRA and begin maxing it out ASAP. Please let me know what you all think, thank you in advance!

750K to invest
1 year of emergency funds
25 years old
No Mortage
15K owed on my car
Focused on short term money making

EasternSierraEph
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Re: 25YR old with considerable amount of cash

Post by EasternSierraEph » Sat Mar 03, 2018 11:13 am

You have been handed a great gift. Now you must learn some life lessons to take advantage. My advice is to invest the money, and pretend you do not have it. Get a degree or license or certificate and go to work for 25 years, continue to invest your work earnings, while allowing your inheritance to grow in the market. Eat healthy, live healthy. Retire in your 50s.

Do NOT go spending that money. It's much more meaningful if you allow it to grow.

BlackStrat
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Re: 25YR old with considerable amount of cash

Post by BlackStrat » Sat Mar 03, 2018 11:21 am

I'm sorry for your loss. While that's a lot of money, it's not enough at your age to delude yourself into thinking you can afford a life of leisure. The best investment you can make now is in yourself and any marketable skills. Developing yourself to prepare for a satisfying and fruitful career while at the same time investing this windfall would really put you in position for the happiness you seek. Your older self will thank you.

Helo80
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Re: 25YR old with considerable amount of cash

Post by Helo80 » Sat Mar 03, 2018 11:35 am

First, sorry about your loss as it's an unfortunate event that led to this kind of financial situation.

Second, glad to hear that you are here and ready the BH Investment book. Absolutely DO NOT go to Edward Jones or Schwab or Fidelity or any other financial adviser for "help". They will "help" you and may exhibit genuine empathy for your situation, but $750K and 25 years old will cause them to see green for the wrong reasons. They will prey on you.

Third, I think it's unrealistic to expect a 10% market return in any fund. Otherwise, a lot of us would be retiring much earlier. It's hard to say what exactly your grandfather was invested in without looking at the funds and investment vessels. E.g. there are a handful of teens and early 20 somethings that got in big in bitcoin and talk like it's "easy" to make tons of money in crypto. Your grandpa may have been in the right time or right place for some crazy investment. There are people in Bentonville Arkansas that are otherwise normal looking folk, but are multi-millionaires from Walmart. If your grandpa through Sam Walton $200K b/c they were old buddies, your grandpa would probably be worth in the 8-digit range now.

Fourth, I would consider paying off your car just to be done with it. Then, you're truly debt free.

Last --- BH and the BH book are not really about "short term" money making. There really is not a "get rich quick" way in investing.... otherwise the Chinese would not be buying our Treasury bills nor would bonds and other mechanisms really exist. The take-away with the BH investment book should be long-term thinking...

RRAAYY3
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Re: 25YR old with considerable amount of cash

Post by RRAAYY3 » Sat Mar 03, 2018 11:43 am

Pay off car
Total US Market
Total Int’l Market

Admiral Shares. Done and done

retiredjg
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Re: 25YR old with considerable amount of cash

Post by retiredjg » Sat Mar 03, 2018 11:50 am

Welcome to the forum.

Unfortunately, your desires are not in sync with what is likely to happen. $750k is a considerable amount of money, but it is not enough to produce an income you can depend on......unless you can live on about $15k a year. A scenario like your grandfathers could possibly happen, but it is not something you can depend on. It might happen. It might not. In the meantime, you will need an income you can depend on.

Using the income to "tack on" to a salary is not a great idea either for the long run. If you want your $750k to grow, you can't be draining off the profits each year. You have to leave it alone.

Are you wanting to take a year off? Go back to school? Start a new business? You can probably do any or all of those things, but some caution is needed. $750k may seem like a lifetime of money to you, but it would be easy to go through it in a year or two if you are not very careful.

Putting money into a Roth IRA is a great idea if you have had or will have compensation from working this year. You can also make a contribution for 2017 up until tax day.

Tell us more about your long term plans.

mpsz
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Re: 25YR old with considerable amount of cash

Post by mpsz » Sat Mar 03, 2018 12:09 pm

I'm sorry for your loss.

Two pieces of advice from above should be clarified a bit:
- You must have "earned income" to contribute to an IRA (either Roth or Traditional). Earned income usually means wages from a job, plus a few other cases. So if you have wages for either 2017 or 2018, you can contribute to an IRA for the appropriate year. You have until tax day this year to make a previous-year (2017) contribution.
- It's perfectly fine to use Fidelity or Schwab as brokerages as long as you are trading by yourself. Do not use their advisor services where they charge a percentage fee. You should pay $0 in annual fees, management fees, etc. for your account. The only fee you should pay is the "expense ratio" of the fund/ETF you are invested in (and you don't see these as line-item fees).

First, make sure you have planned for any taxes related to the sale of the business. I wouldn't invest any money that is owed to the IRS or your state.

Then, read up on the 3-fund portfolio. You do not need to use Vanguard for this: Fidelity and Schwab also have excellent offerings as long as you avoid their advisor services. The 3-fund portfolio is all you need.

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rocket354
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Re: 25YR old with considerable amount of cash

Post by rocket354 » Sat Mar 03, 2018 1:01 pm

Agreed with posters above--pay off car immediately, and while this is a great financial opportunity, you aren't in position to retire or have a large income from the current money.

You have $750k - 15k (to car) = $735k. You are 25. If you want to consider it an income supplement, consider it supplementing the part of your income going towards retirement savings. Drop it into index funds (total stock market, total international 80/20) and consider your retirement taken care of. Then work as you usually would. Perhaps even save more into 401k/Roth if you can.

Then you can get married and start a family (if you haven't already), learn skills, be productive, make friends and you have a great opportunity to retire to a life of leisure at, say, 45.

Now I know for me at 25, the age of 45 seemed "forever" away, but I promise you it really isn't. And you'll be much happier being able to hang it up then if you want--even if you have three kids about to start college--then if you spend/waste the money today and have to keep your nose to the grindstone for yet another 20 years because you lacked some foresight.

tesuzuki2002
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Re: 25YR old with considerable amount of cash

Post by tesuzuki2002 » Sat Mar 03, 2018 1:07 pm

RRAAYY3 wrote:
Sat Mar 03, 2018 11:43 am
Pay off car
Total US Market
Total Int’l Market

Admiral Shares. Done and done
I like the simplicity!!! If I had an extra 750k I would do exactly that!

MotoTrojan
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Re: 25YR old with considerable amount of cash

Post by MotoTrojan » Sat Mar 03, 2018 1:21 pm

Another similar aged person in support of letting this grow as if you didn’t have it. You have a head start so now you can save less, which is additional income, but I’d still aim to contribute to a 401k when you can. Sorry for your loss, sounds like you had a great supportive mother. Enjoy the gift of a less stressful life.

This could double every 10 years if you let it sit for 40 years. That’s $12M.

Mike Scott
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Re: 25YR old with considerable amount of cash

Post by Mike Scott » Sat Mar 03, 2018 1:21 pm

Do you have any interest in getting into a property rental business?

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alpine_boglehead
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Re: 25YR old with considerable amount of cash

Post by alpine_boglehead » Sat Mar 03, 2018 1:25 pm

Sorry for your loss.
EasternSierraEph wrote:
Sat Mar 03, 2018 11:13 am
pretend you do not have it
this

The amount at this age is like a small lottery winning, so you should not tell others about it - it would probably attract envy, false friends, or perhaps worse, greedy financial advisers.

It sounds like you're the situation referred to in this Warren Buffett quote: "You give your children enough money to do something but not enough to do nothing".

The Bogleheads' Guide to Investing is a great book, if you haven't already take a look at the Bogleheads wiki, start here:
https://www.bogleheads.org/wiki/Getting_started

EasternSierraEph
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Re: 25YR old with considerable amount of cash

Post by EasternSierraEph » Sat Mar 03, 2018 3:05 pm

To gillq41,

Some words of wisdom: The next 25 years (from age ~26 to 51) is one big circle in which you will be searching for yourself. Don't get that 750K (or 735K if you buy off car) involved in that 25 year circle whatsoever. What money does is give you freedom to pursue what is in your heart.

At the end, you will find what is in your heart is not grandiose that money can buy, but an appreciation for the blessings in your life.

Consider that 750K your personal pension plan that you can start withdrawing from when you reach 60. That security and peace of mind is going to be much better for you than the temporary thrill of spending it. Plus it will allow you to take chances in regards to career, to pursue what you love.

Best wishes

Starper
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Re: 25YR old with considerable amount of cash

Post by Starper » Sat Mar 03, 2018 7:43 pm

I am sorry for your loss.

If I were you I would take a step back and ask myself what I want to achieve in life.

In your position, I would invest in in something like 50% Total US Stocks 30% Total International Stocks 20% bonds + emergency fund cash. All Vanguard, admiral funds. Then I would travel around the world and slowly but seriously and methodically look for opportunities to either start my own business or continue running a business (If you already have one) in a way that is location independent. I wouldn't necessarily invest money in risky business ideas but I would invest my sweat equity and take a lot more risks than I would otherwise. For example, working on something that interests me and makes me happy rather than something that just gives me a steady 6 figure paycheck.

You are in a very unique and privileged position. Most of us have to go to the same office every day and report to a boss. You don't. You have the financial cushion to set up your life in a way that gives you a lot of freedom. Does not having a boss and/or not having to live in a specific location near your office make you happy? These things matter to some but not all people. I personally know people who choose to live on $1000-1500/month in third world countries just to avoid having a boss and being told where to live and what to do. I also know multimillionaires who still choose to keep their regular jobs and commute 1 hour or more each way to work. Which type are you?

There are many places in the world where you can even retire right now. I don't suggest that you retire and do nothing in your 20s, but I think you should take a step back and explore different options, not just invest your money and get on with your life as if you don't have it.

kjvmartin
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Re: 25YR old with considerable amount of cash

Post by kjvmartin » Sat Mar 03, 2018 9:21 pm

I would call what your grandpa did speculating or even gambling compared to the term investing. If you set that as your goal, you could just as easily lose far more than he ever made. Focusing on short term money making is one of your goals. There's a considerable amount of risk in any short term money making operations. Are you willing to lose it all?

What is your field of interest? You have carte blanche to pursue whatever degree/field you want or start a business with no debt. That's the most important question. What is your living arrangement? Do you own a home? Could you buy one for cash?

I'm 33 and I shudder to think where I could be now if I had college and a house paid for at 25. Put the rest into a Target Date Retirement fund.

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳 Retired.

Re: 25YR old with considerable amount of cash

Post by Sandtrap » Sat Mar 03, 2018 9:29 pm

Condolences for your loss.
1
Read and absorb the following:
MANAGING A WINDFALL
https://www.bogleheads.org/wiki/Managing_a_windfall
2
Do nothing for now. The temptation is to "do something".
Instead continue as if you did not have the funds and invest in your financial education with the following.

Get all the books. Read them. Or at least a few.

When you are done with this toolbox you will know more than most. And be prepared for much that might come your way. And, know when you are being cheated or sold marginal financial advice.

GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
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

Do this. You have to have a solid short term and long range plan.

**Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement


Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Outline of Financial Planning (with links)
https://www.bogleheads.org/wiki/Outlin ... _planning
Funding Priority (what do I do first?)
https://www.bogleheads.org/wiki/Priori ... vestments
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Asset allocation in multiple accounts
https://www.bogleheads.org/wiki/Asset ... accounts
Risk Tolerance (what is your "sleep factor"?)
https://www.bogleheads.org/wiki/Risk_tolerance
Asset Allocation (what is right for you?) https://www.bogleheads.org/wiki/Asset_allocation
Emergency Fund
https://www.bogleheads.org/wiki/Emergency_fund

Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Forum Library of Investing Advice with links
https://www.bogleheads.org/wiki/Main_Page

Free Reading: "If You Can" by Bernstein
https://www.google.com/url?sa=t&rct=j& ... -SB3S580I5

While you are doing the above list:
1 pay off your bills
2 don't make any more bills
3 don't change your lifestyle right away, or place to live, etc, that will make more bills.
4 Make slow careful steps, learn and study first.
5 Guard your money and your lifestyle. Money is like honey and everyone wants your honey. Everyone. No exceptions.
6 Tap into the forum. There is a broad and deep field of financial and life experience here that are all willing to help and suggest.
7. There are financial and personal "black swans". Read the following to help avoid the latter.

Read this book right away.
"Life Code" by Dr. Phil. (especially read about "Baiters".
https://www.amazon.com/Life-Code-Rules- ... il+baiters
good luck,
j :D

Chris K Jones
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Re: 25YR old with considerable amount of cash

Post by Chris K Jones » Sat Mar 03, 2018 11:14 pm

Welcome. Sorry to hear about the loss of your Mom. I would suggest that you feel comfortable with whatever you do so move slowly. There is pkenty of information at this website. Read it and understand it. Look around elsewhere too. Just take your time.

That said, if it were me and I was 25 years old, I would invest all of it in Vanguard Stock index mutual funds. At 25, I would completely ignore bonds. I would probably use only two funds. For domestic, I would probably use Vanguard total stock market. The second would be a diversified international Vanguard mutual fund. I would probably do about 70% of the former and 30% International. Although there are no guarantees with investments, you could reasonably expect to end up with about 10 million dollars by the time you are 60. Good luck and Best Wishes.

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randomizer
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Re: 25YR old with considerable amount of cash

Post by randomizer » Sun Mar 04, 2018 2:02 am

You started off with exactly the right book, and you've come to exactly the right place for advice. Good luck!
75:25 — HODL the course!

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BolderBoy
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Re: 25YR old with considerable amount of cash

Post by BolderBoy » Sun Mar 04, 2018 11:46 am

Condolences on your loss...

If I were 25 y/o again and knew then what I know now, I would set an asset allocation 75/25 like this: 55% VG Total Stock Market Index, 20% VG Total International Stock Index and 25% in the VG Total Bond Market Index (or the VG Intermediate Term Tax-Exempt Fund).

Rebalance periodically. Reduce your stock exposure as you get older (75/25 -> 70/30 -> 65/35 -> 60/40 ...)

And pay off your car loan.

As Chris Jones pointed out, if you follow his outline (or mine above) you will likely have $10 million by the time you are 60 y/o.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

lostdog
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Re: 25YR old with considerable amount of cash

Post by lostdog » Sun Mar 04, 2018 1:23 pm

RRAAYY3 wrote:
Sat Mar 03, 2018 11:43 am
Pay off car
Total US Market
Total Int’l Market

Admiral Shares. Done and done
+1 This!

It really is that easy. Vanguard recommends 60% Total US market and 40% total international market.

Execute the plan and then go to tech school or college, get a job and have fun with your life. Check your portfolio once a year for rebalancing.
Vanguard Total World Equity Index - The rational portfolio

gillq41
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Re: 25YR old with considerable amount of cash

Post by gillq41 » Sun Mar 04, 2018 3:58 pm

I appreciate everybody taking the time to put their two cents in, you have given me a lot to research. I should have mentioned that I do already have a bachelors degree in political science, and I am currently renting a house with three other roommates (so I do not have a mortgage). It seems that the consensus is allocating most of the money into the total US and the total international stocks in a roughly 70/30 split. Can I ask why some of you have suggested avoiding bonds, while others suggest allocating about 20% to them? Also to Mike's question, I have given the rental property business some serious thought and have been doing a good amount of reading on it.

Chris K Jones
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Re: 25YR old with considerable amount of cash

Post by Chris K Jones » Sun Mar 04, 2018 4:14 pm

Good question. I am 60 and I didnt buy any bonds until I was 59. Bonds serve as ballast in your portfolio and decrease risk. It is not unheard of for stocks to drop 50% in a short period of time. In a bear market for bonds, they might drop 10 or 15%. That would be a lot for bonds. BUT, they decrease your return. Stocks have always bounced back. And you have plenty of time. So if they drop 50% tomorrow and come back in 5 years, it doesnt matter to a long term investor. Just stay the course and ignore the fluctuations. When you get older, maybe 50 or so, consider a bond allocation because you will have less time to make up a big loss from a stock correction. Best wishes.

Any pay off your car now :D

retiredjg
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Re: 25YR old with considerable amount of cash

Post by retiredjg » Sun Mar 04, 2018 4:56 pm

As a portfolio moves from about 70% stocks toward 100% stocks, the return for the risk taken gets a little smaller with each increasing increment of stocks. After about 80% stocks, you still get bang for your buck as you increase stocks, but less bang for your buck than earlier on that curve. 80% stocks and 20% bonds is in the neighborhood of the point of diminishing returns. I'm not sure there is much point in going more aggressive than that.

There are many people who just say "go for it" and stay 100% stocks until you retire. Unlike the person who posted just above, most of these people are young and inexperienced and have no idea what a gut wrench a good market crash can be. They are simply looking at the numbers while forgetting (or simply not knowing because they have not been there yet) that investing has an emotional component as well.

There are many people who believe that a portfolio just needs a certain amount of bonds - say 20%. Others think 10% bonds is OK and this is where a lot of the target funds reside.

The point is that there is no agreement on how aggressive a young person should be. And you will not know where you should be either until you get to the tough times. Then you will realize you are Ok or you are in over your personal risk tolerance and there is nothing to be done except stick it out, being miserable, for a few years. Or sell at the worst possible time. Neither of these are good places to be.

An excellent approach would be for all young people to start at 60% stock and 40% bonds and stay there until their first good market crash/bear market. When all that unpleasantness is over, you will have a true appreciation for where you should be - based on your own personal experience rather than what someone else thinks is good.

Unfortunately, few people are willing to try this approach and many will pay a price (one way or the other) for being too impatient to learn about their own investing tolerances.

Probably more than you wanted to hear. I suggest you start at 80% stock and 20% bonds and call it good for a decade or two.

uberational44
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Re: 25YR old with considerable amount of cash

Post by uberational44 » Sun Mar 04, 2018 5:09 pm

Something posted this already, but I cannot over-state...

Make sure no one except your immediate family knows about this. If people find out, they will try to snuggle up to get their share. People will start asking for loans. People will start asking you to pay for things.

Life will be far easier if you keep it to your self.

Sorry for your loss.

S
Marketeer investing as a hobby. Interested in modern takes on value investing, passive investing and general contrarianism.

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BolderBoy
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Re: 25YR old with considerable amount of cash

Post by BolderBoy » Sun Mar 04, 2018 5:15 pm

gillq41 wrote:
Sun Mar 04, 2018 3:58 pm
Can I ask why some of you have suggested avoiding bonds, while others suggest allocating about 20% to them?
Until you have gone through a 2008-type of meltdown where stocks lost 50% of their value, you don't really know how you will "feel" about it emotionally. Yes, stocks came back but it took quite some time and in the midst of 2008 it "looked" like the financial system was going to collapse completely. Plenty of folks who went through it let their emotions rule, bailed out at the bottom of the market and swear they'll never go back in - that is a mistake, too.

I (and many others here) suggest you hedge your initial investment asset allocation, especially since you have such a large starting nest-egg. A 100% stock portfolio isn't required for you to be a very comfortable multi-millionaire by the time you are 50. When the next recession comes you will find out what your real "risk tolerance" is and can adjust your asset allocation at that point.

retiredjg has given you some excellent wisdom...
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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BL
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Re: 25YR old with considerable amount of cash

Post by BL » Sun Mar 04, 2018 5:43 pm

The little 16-page pdf linked above has a lot of great info:
https://www.etf.com/docs/IfYouCan.pdf
Chapter 5 warns you about those "advisors" trying to get you to "invest" your money with them.
The 3-fund portfolio (search Wiki) is recommended here as well. Anywhere from 10 to 40% bonds is fine. Dr. Bernstein suggests starting with 1/3 each of total stock, total international, and total bond. You will pay taxes on all dividends each year unless you set up and contribute to a retirement account.

Keep your new money to yourself; don't tell anyone, although it may have happened already. If so, be ready to say no to all requests and suggestions.

Bonds are "fixed income". It could include CDs, Money market funds or bank accounts, savings accounts, I-bonds, etc. Some on-line banks such as Ally, have higher rates than local banks. Bonds can lose money, but usually not as much as stock funds. Seems like there was at least a 10-year period in the 2000's where bond funds came out ahead of stock funds.

I would pay off the car loan. Also check to get highest liability limits on your car insurance, in case you get sued. Some like an umbrella liability policy. If people know you have money, strange things can happen.

retiredjg
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Re: 25YR old with considerable amount of cash

Post by retiredjg » Sun Mar 04, 2018 5:58 pm

It's probably too late, but it is in your best interest to not tell people about this. Even the roommates. If you have more money than your friends, they will ask you for it in one way or another. For the ones who know, just keep quiet and if asked, just say it's "tied up in an investmet" for a long time.

Invest it and keep your lifestyle just like it is. Do not have any extra money. Do not be unusually generous. Be just like you were before. Get a job and live within your salary. I would not even pay off the car loan - better it looks like you are still paying ordinary bills.

If people ask you for a loan (they will) do not loan any money you are not willing to happily lose. And lose it gracefully because there will be loans that are not repaid. Realize every time you make a loan, you may be losing a friend because of it.

makinit
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Re: 25YR old with considerable amount of cash

Post by makinit » Sun Mar 04, 2018 7:24 pm

gillq41...

Your mother left you with a gift that takes many of us 30, 40 years, or a lifetime to accumulate. My thought is that you need to park the funds in an investment account's money market fund until you gather your thoughts and formulate a plan. Don't be in a rush, or be rash. Be thoughtful and deliberate.

Here's how I would approach it:
First of all, I'd think about what I'd want to do with my life. You have an opportunity to remake yourself if that something you'd want to consider. Advancing our skills and education is possible. You could go back to school and work towards an advanced degree or find a new direction/path going forward. This is the opportunity for change, if you desire it. Formulate a plan and figure out how this gift can enable you to achieve your dreams.
In the interim, I'd park the money in an on-line brokerage account's money market fund. This would keep the funds liquid and available for investment.

Once you figure out where you're going with your life, you'll be able to figure out what your immediate, intermediate and long term cash needs are, and be better able to manage the gift. Short term needs go into money market funds, uses more than 5 years out can be invested in stocks/funds. I'm not going to suggest you squirrel away the gift, nor would I suggest you spend it. My thought is that this gift was offered as a means to better your life and only you can decide how best to make use of it.

If you plan to invest the money in securities (stock/bonds/funds/EFTs), think about how actively you want to manage the investment. You can put the money into a mutual funds (for a hands off approach) or you could create your own stock portfolio that you would manage yourself. Investments in funds greatly reduce risk compared to managing your own stock portfolio. Do not be deluded to thinking that you will make quick money. There have been years when my mutual funds returned 20% but also years when they lost 30%. On average, you might hope for 8% average return.

I personally would diversify outside of a tax advantaged account by purchasing exchange traded funds or stocks where I would have control over the timing of taxable events. Mutual funds distribute earnings at year end and earnings from mutual funds not held in tax advantaged accounts such as a Roth or IRA would create an unpredictable tax liability at year end. ETFs and stocks generate those taxable events upon their sale when a capital gain is realized, and you have control over the timing of these sales.

Get an understanding of stocks, bonds, ETFs or mutual funds before you invest so you enter the room with both eyes open.

I wish you luck and success. I'm sorry for your loss; your mom left you a wonderful gift and opportunity.

John

EasternSierraEph
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Re: 25YR old with considerable amount of cash

Post by EasternSierraEph » Mon Mar 05, 2018 2:44 am

The young man has received 750,000, not 7,500,000.

750,000 at 26, invested wisely and left alone, is a comfortable middle class pension at 60, after experiencing a life he would normally have without receiving any money.

It's greatest value is the peace of mind it should give him between now and then.

Windylotus
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Re: 25YR old with considerable amount of cash

Post by Windylotus » Mon Mar 05, 2018 4:01 am

OP, sorry for your loss.

I as well experienced something similar at a young age. My father passed when I was 14 years old. Whatever life insurance was in place went to my mom to help raise me. Two years later my great grandmother passed away. Due to my father's passing, I was next inline for his inheritance. I received about $150k and wasn't actually given the stock funds until I was 18.

Boy did I wish I had bogleheads back then. The $150k was all AT&T stocks from the company first going public that my great grandfather bought and worked for back in the day.

Long story short, I sold off all the stock and blew the money on frivolous things. The only semi-smart thing I did was buy a five acre piece of land which I later sold and used for a down payment on my current home.

In retrospect, I completely dishonored my great grandparents memory by blowing what they worked hard their whole lives for. They wanted to leave a legacy for their heirs and that legacy is now gone. I now have my will set up that is very directed as how and when my children will receive their inheritance. No 18 year old kid should be given free access to that kind of money.

As I'm now 43 years old, I have increased my financial literacy and knowledge a hundred fold since then. Finding bogleheads was a big part of that. Listen to the wisdom of the crowd here. Particularly some of these older, wiser posters who have been through big market swings.

My advice to you is; Make your mother proud whatever you do with this inheritance. Don't blow it, invest wisely, live below your means, be generous, pay that car off and keep educating yourself financially and vocationally. It's a life-long journey so pace yourself.

Please keep us posted on this forum on how you are doing. You have the chance to have an incredible story out of this tragedy.
Best of luck to you.

makinit
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Re: 25YR old with considerable amount of cash

Post by makinit » Sat Mar 10, 2018 5:49 pm

Reply to Windylotus...

Your thoughts are genuine and well expressed. I'm impressed by your wisdom and balanced advice. All responding spoke from their individual perspectives of age and experience, and there's much wisdom in your response.

To gillq41:
I can only add my agreement with Windy that you honor your mom with whatever you do. This gift was offered in hopes you use it to better your life. You're young and have a life ahead of you, while many of us who responded, including me, are offering advice as older men and women. Our needs and perspectives are not yours. There will be temptations to spend on needs of youth (education, dating, car, housing, family) which will be competing with needs to save and invest for your future. Seek a balance. If you haven't, learn to use Excel and get some education in finance and personal investing... skills and education that last a lifetime, and enable you to plan and model what-if scenarios.

You mentioned your grandfather invested $900,000 and withdrew $80,000 a year for some period and then withdrew his starting investment. You ask if that is still possible. I would say yes, but not with certainty or forethought. Your grandfather's capital generated about 9% return, and the equities market has that kind of growth. Last year's market returns were much higher. But there are no guarantees and some years the market is flat or produces losses in capital value. Over the last 40 years, the stock market produced an average return of about 9% (not including reinvested dividends), and over 5% over the same period, adjusted for inflation.

My personal advice to you is to pay off your car loan, invest in your education or skills so that you set up yourself for a future of economic success, and take time to figure out what you want out of life. This gift is not enough to give you a lifetime of leisure, so don't entertain thoughts that you'll be living on the beach drinking rum and coke. But carefully managed, it can be a life altering gift. Set your goals, then use it wisely and honorably.

Some closing thoughts... Be careful of the huxters and scheisters who will try to separate you from your cash. Every broker will promise you riches in exchange for a commission. Learn to manage your money yourself. Educate yourself. Don't place all your bets on the same horse (another way of saying "diversify".) Be careful in relationships. As many have opined, friends will knock on your door looking for financial help. And most marriages now end in divorce, so as unromantic as it sounds, protect your wealth with a penup before entering into a marriage.

John

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Toons
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Re: 25YR old with considerable amount of cash

Post by Toons » Sat Mar 10, 2018 6:27 pm

Give yourself plenty of time to gather your thoughts.
It has been less than a year since the passing of your Mom.
Park the money in a bank account or money market.
Educate yourself.
Gain knowledge.
With time and knowledge and advice you will gain the confidence to make proper decisions.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

johnra
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Re: 25YR old with considerable amount of cash

Post by johnra » Sun Mar 11, 2018 12:30 am

Pay off the loan,
Put 100K into a checking/savings account with a debit card and check writing,
Put 500 into a world fund
Put the rest into a total bond fund
Go travel for about 1-6 months.

HJG0989
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Re: 25YR old with considerable amount of cash

Post by HJG0989 » Sun Mar 11, 2018 1:26 am

There is a lot of very good financial suggestions for you to ponder.

I just wish to express how sorry I am for your loss. You are still young but you sound very mature and responsible. Your Mother did a good job of raising you. I wish you the best. Be especially kind to yourself during this difficult time.

jeffh19
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Re: 25YR old with considerable amount of cash

Post by jeffh19 » Sun Mar 11, 2018 5:05 am

uberational44 wrote:
Sun Mar 04, 2018 5:09 pm
Something posted this already, but I cannot over-state...

Make sure no one except your immediate family knows about this. If people find out, they will try to snuggle up to get their share. People will start asking for loans. People will start asking you to pay for things.

Life will be far easier if you keep it to your self.

Sorry for your loss.

S
First of all the most important thing to say is I'm so sorry for your loss. I can't imagine how hard this has been and no amount of money can ever replace your mom. Always remember the great things and memories you've had.

I was scrolling this thread hoping someone said this above. This is the most important advice you can possibly get. Take it from someone who grew up in a much better financial situation than almost everyone around me as I grew up. I'd make friends and be close with someone and once I'd mention this or that or let someone in, they would change. Some more than others. Whether it's making comments, expecting me to pay for everything or just random stuff out of jealousy or anger that ruined the friendship or relationship.

And I was pretty careful as my mom always told me people treat you differently when they know you have money. I believed her, but I thought that people I trusted very close to me wouldn't change, but they did little or small. So believe me man as someone not too much older than you, keep this 100% to yourself. I've been extremely careful with women too. Don't drive or have anything flashy and for the love of God don't even give a girl a hint you have money until a long long time later. Find a great girl who you 100% know doesn't want you for your money and that you can trust and so on.

Protect yourself. Don't even consider ever getting married without an iron clad prenup. Everyone goes into a marriage expecting it and knowing that it will 100% work, but only half of them do. Don't get married until you know 100% she is the one, and get a prenup even if you are 1000% sure it will last forever. You never know what will happen and the last thing you want is for 5 years from know is for someone you end up hating to take half your money.

Life is great, people are great, but just be careful and protect yourself.


I wonder if setting up some kind of trust would be a good idea? I'll let others chime in on this one, but its probably the best way to protect your money forever.

jeffh19
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Re: 25YR old with considerable amount of cash

Post by jeffh19 » Sun Mar 11, 2018 5:22 am

As far as the financial side of things, most people have made good recommendations.

If it was me, I'd throw it all in VTSAX. Maybe up to 20% or so in international. Don't mess around with bonds. This is money you dont want to touch for 20 years or so. Sure you could have a 50% drop the day after you invest, but the market will recover and more soon enough. If you look at history, there are zero 10 year periods where the SP500 wasn't up. Warren Buffet is huge on recommending on just investing everything in the SP500. You can do bonds and such as you get older to lessen risk. Now it's 100% about growth. Only do extreme low cost index funds, Vanguard is what everyone here loves and recommends. Using something like Vanguard index funds over 20 years vs paying an advisor (who very well might not get what the average market returns give you) will cost you millions in fees alone over that time, no joke. VTSAX is total market index, which is similar to SP500 but also has mid/small market too, but is mostly weighted towards large cap/SP500. Has a little less risk and a little higher returns over time.

Pay off your car
Find out what you really want to do in life that will make you happy and provide a decent income, and use this to pay for school if need be.
Work for 20 years or so, max out your Roth IRA and your 401k. "Retire" as in slow down or get a fun job or work whenever you want when you are 40-50. If you are smart with investing in retirement accounts and max them starting now, you could use a very small chunk of what this money will become at that age to bridge you until 65 or so when you can start withdrawing your retirement accounts and use this money too. You'll be able to travel and see the world and do whatever makes you happy.

It's also important to enjoy and live your life when you are young too. Don't waste this money or do anything stupid, but Tomorrows are never guaranteed either.

If you are more of an entrepreneur you could look into getting into rentals or some other business that you are very knowledgeable and passionate about, but as someone who's not a handyman and doesn't know much about rentals or most things, I just put almost all my money in VTSAX and let it ride. :)

Longtermgrowth
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Re: 25YR old with considerable amount of cash

Post by Longtermgrowth » Sun Mar 11, 2018 5:33 am

jeffh19 wrote:
Sun Mar 11, 2018 5:05 am
uberational44 wrote:
Sun Mar 04, 2018 5:09 pm
Something posted this already, but I cannot over-state...

Make sure no one except your immediate family knows about this. If people find out, they will try to snuggle up to get their share. People will start asking for loans. People will start asking you to pay for things.

Life will be far easier if you keep it to your self.

Sorry for your loss.

S
First of all the most important thing to say is I'm so sorry for your loss. I can't imagine how hard this has been and no amount of money can ever replace your mom. Always remember the great things and memories you've had.

I was scrolling this thread hoping someone said this above. This is the most important advice you can possibly get. Take it from someone who grew up in a much better financial situation than almost everyone around me as I grew up. I'd make friends and be close with someone and once I'd mention this or that or let someone in, they would change. Some more than others. Whether it's making comments, expecting me to pay for everything or just random stuff out of jealousy or anger that ruined the friendship or relationship.

And I was pretty careful as my mom always told me people treat you differently when they know you have money. I believed her, but I thought that people I trusted very close to me wouldn't change, but they did little or small. So believe me man as someone not too much older than you, keep this 100% to yourself. I've been extremely careful with women too. Don't drive or have anything flashy and for the love of God don't even give a girl a hint you have money until a long long time later. Find a great girl who you 100% know doesn't want you for your money and that you can trust and so on.

Protect yourself. Don't even consider ever getting married without an iron clad prenup. Everyone goes into a marriage expecting it and knowing that it will 100% work, but only half of them do. Don't get married until you know 100% she is the one, and get a prenup even if you are 1000% sure it will last forever. You never know what will happen and the last thing you want is for 5 years from know is for someone you end up hating to take half your money.

Life is great, people are great, but just be careful and protect yourself.


I wonder if setting up some kind of trust would be a good idea? I'll let others chime in on this one, but its probably the best way to protect your money forever.
This is all good advice and it is unfortunate that many will try to take advantage. I'm no expert, but I always thought that a trust had to be established for you before receiving the money to have real protection.
As for myself, once they see my house, it's hard to hide the fact that wealth isn't only in real estate.

As far as how to invest, a portion in fixed income like CD's or bonds, and a portion in stocks. I would stay around 60% stocks at that age, minimum. If you get into the value premium like Larry Swedroe and Paul Merriman talk about, then maybe you'll put more stocks into large and small value funds. Otherwise, just keep it simple and go with the total market funds.

macheta
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Re: 25YR old with considerable amount of cash

Post by macheta » Sun Mar 11, 2018 5:39 am

I'm sorry for your loss. I would invest it and try to live off the interest. Keep the bills low and spend more time with my family instead of working.

aristotelian
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Re: 25YR old with considerable amount of cash

Post by aristotelian » Sun Mar 11, 2018 6:45 am

OP,
As far as income you can expect to this, the standard advice is that you can initially safely spend 4% and then keep doing so annually adjusting for inflation. However, being so young, in your case it is probably 3%-3.3%. If you pay off your car and subtract $50K to have as an emergency fund (major medical expense etc), that leave you with about $685K producing an expected $22K income. If you spend any more than that, you risk eventually frittering it away.

That might seem like a lot now, but what if you want to have kids and/or live a typical middle class lifestyle? You will probably want to at least double that income as you grow older. So, you will still need to work. This money doesn't change that, although it gives you the opportunity to consider less stressful lines of work and protection against periods of unemployment.

I would counsel you to invest it in stocks but try to leave it alone, living your life as you have and staying within your means. Consider setting aside perhaps $100K not only for emergency fund but also down payment on a house/condo. (Of course the more you set aside, the less income your portfolio will produce). View the portfolio as a large nest egg to dip into whenever you have a major expense and/or long term investment in your future (house, grad school).

Cheyenne
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Re: 25YR old with considerable amount of cash

Post by Cheyenne » Sun Mar 11, 2018 7:55 am

It sounds like you're the situation referred to in this Warren Buffett quote: "You give your children enough money to do something but not enough to do nothing".
Last week I saw Warren Buffett on TV when he said: "If you have $100,000 and you think that if you had $1,000,000 you would be happy, you'd be wrong.

westrichj312
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Re: 25YR old with considerable amount of cash

Post by westrichj312 » Sun Mar 11, 2018 8:50 am

pay that small car loan first anybody that would disagree with that don't listen to. Than dollar cost average your way into a vanguard low cost s&p fund.

Dottie57
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Re: 25YR old with considerable amount of cash

Post by Dottie57 » Sun Mar 11, 2018 9:11 am

BolderBoy wrote:
Sun Mar 04, 2018 5:15 pm
gillq41 wrote:
Sun Mar 04, 2018 3:58 pm
Can I ask why some of you have suggested avoiding bonds, while others suggest allocating about 20% to them?
Until you have gone through a 2008-type of meltdown where stocks lost 50% of their value, you don't really know how you will "feel" about it emotionally. Yes, stocks came back but it took quite some time and in the midst of 2008 it "looked" like the financial system was going to collapse completely. Plenty of folks who went through it let their emotions rule, bailed out at the bottom of the market and swear they'll never go back in - that is a mistake, too.

I (and many others here) suggest you hedge your initial investment asset allocation, especially since you have such a large starting nest-egg. A 100% stock portfolio isn't required for you to be a very comfortable multi-millionaire by the time you are 50. When the next recession comes you will find out what your real "risk tolerance" is and can adjust your asset allocation at that point.

retiredjg has given you some excellent wisdom...
+1

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F150HD
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Re: 25YR old with considerable amount of cash

Post by F150HD » Sun Mar 11, 2018 9:38 am

EasternSierraEph wrote:
Sat Mar 03, 2018 11:13 am
You have been handed a great gift. Now you must learn some life lessons to take advantage. My advice is to invest the money, and pretend you do not have it. Get a degree or license or certificate and go to work for 25 years, continue to invest your work earnings, while allowing your inheritance to grow in the market. Eat healthy, live healthy. Retire in your 50s.

Do NOT go spending that money. It's much more meaningful if you allow it to grow.
+1000
__

Act like you don't have the $$. Invest it, let it grow for 40+ years. Then you can also pass remaining on to children etc.

At 25, I'd personally go 100% VTSAX (stocks, and/or similar VG funds) and leave be. As one ages, slowly move some to bonds (way down the road). Would probably DCA in chunks over time versus dumping it all in at once.

Unclear if this in in an Inherited IRA or in a taxable account? Sorry if I missed this info somewhere.

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Re: 25YR old with considerable amount of cash

Post by BL » Sun Mar 11, 2018 10:28 am

If you are puzzled by the range of responses here, keep in mind that we are mostly an anonymous bunch of strangers, to you and to each other. Anyone can join Bogleheads, but most do try to give the best advice they can based on their experiences and reading of Bogleheads and suggested books, videos, etc., found in the Wiki. The Wiki has distilled the main details and is written by experienced and vetted Bogleheads, so I suggest you also look at their topics as well as suggested books.

You might also click on the name of a contributor, which leads you to information on when he/she joined Bogleheads and how many posts have been made. This shows up automatically on a large screen without looking it up, but the smaller screens and phones don't have room for it. Although there is good info from new contributors (and we are all new at some stage), if the comment doesn't seem to agree with most suggestions, I would consider information about the contributor carefully. After reading here for quite a while, I have come to recognize some regular contributors who seem to give consistently good advice (retiredjg, for example, is one I recognize on this thread.)

Have you ever heard about the "rule of 72"? It is a rule of thumb in calculating how long it takes to double your money at a given % interest rate. For example, at 6% interest, your time to double is 72/6 or 12 years. Thus in 12 years your money would double (2x) at 6%, double again (4x) at 24 years, double again (8x) at 36 years, double again (16x) in 48 years. Thus the time value of money, time in the market, is emphasized a lot. If you delay investing, or if you take out earnings, you are slowing down the growth a lot!

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Re: 25YR old with considerable amount of cash

Post by stupidkid » Sun Mar 11, 2018 10:54 am

At your age I had a friend with very similar circumstances. His mother passed away and he inherited about the same amount. He bought a 1936 48 foot wooden sailboat with a plan to sail to Spain and start a commune. He made it as far as Bermuda, where he got a girl pregnant. His money was mostly gone within two years of his mother's passing. We still enjoy talking about that adventure, but he'll be working for a long time to come and if he'd saved even half he'd be in a better spot today. I suggest having some fun now, take a long trip, see the world, but you can do that on $10-15k. Put the rest away.

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Re: 25YR old with considerable amount of cash

Post by Abe » Sun Mar 11, 2018 11:31 am

EasternSierraEph wrote:
Sat Mar 03, 2018 11:13 am
You have been handed a great gift. Now you must learn some life lessons to take advantage. My advice is to invest the money, and pretend you do not have it. Get a degree or license or certificate and go to work for 25 years, continue to invest your work earnings, while allowing your inheritance to grow in the market. Eat healthy, live healthy. Retire in your 50s.

Do NOT go spending that money. It's much more meaningful if you allow it to grow.
I agree. With $750k you have a head start. Even if you don't add to it, you should be able to compound it into a considerable sum in a few years. Invest the money and get yourself a job with benefits and live off the salary. In a few years you will be glad you did.
Slow and steady wins the race.

ny_knicks
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Re: 25YR old with considerable amount of cash

Post by ny_knicks » Sun Mar 11, 2018 11:38 am

I would not touch the money. I would go 100% VTSAX given the age and leave it for the next 20 years. Act like you never inherited any money and you'll likely FIRE well before most.

make_a_better_world
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Re: 25YR old with considerable amount of cash

Post by make_a_better_world » Sun Mar 11, 2018 1:50 pm

I am sorry to hear about your mother.

Your most important asset right now is not the 750k. It is your ability to earn. Keeping that in mind I would use some of the money to invest in developing yourself- education and career or business.

I agree with what someone said earlier in that I would assume you do not have the entire 750k. Do not spend it mostly on any one thing and do not spend it all. Keep some cash at all times. I disagree with what some have said about putting 100% in the stock market.

It is very tough to give specifics as I do not know the details of your situation or what you are passionate about. I am 37 and a cardiologist now. If it was me at your age, I would dig deep down and figure out who you want to be (I am not just talking about a job). Whatever career that includes, or let's say it was your own business since you mentioned having one, I would use some of the money to help get to your vision. Hopefully that would be no more than 50k.

I would invest some of it in the stock market. But not to make a quick income. As a longterm seed that will grow into a strong tree later. Don't plan on selling it for a minimum of 10 years. By the time you're 35, hopefully you will have learned you'll want to keep it in even longer when you get there. I would open a regular brokerage account in Vanguard and put 400k in. People have already recommended good funds.

I would always keep a lot of cash. The vast majority of people on this forum will disagree with that. But this is a forum for passive investors and cash in that context has a poor return because inflation causes your cash to decrease over time. You, however, are young and probably full of energy. If you get out there and learn things and look around you might be able to use the money to make more in an active sense. Some of my friends have done well flipping houses. I own a building on the side that is run as a restaurant and now brings me 90k a year as income indefinitely. I have another friend that started an online tea business using Shopify. Focus on your ability to earn. And be patient. If it takes you a year just to find one good place to try something, that is completely fine. Do not be quick to spend it. Do not spend it all on one thing.

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Re: 25YR old with considerable amount of cash

Post by fujiters » Sun Mar 11, 2018 2:29 pm

uberational44 wrote:
Sun Mar 04, 2018 5:09 pm
Something posted this already, but I cannot over-state...

Make sure no one except your immediate family knows about this. If people find out, they will try to snuggle up to get their share. People will start asking for loans. People will start asking you to pay for things.

Life will be far easier if you keep it to your self.

Sorry for your loss.

S
On this note, get an umbrella policy so you have (your insurance company's) lawyers ready to fight lawsuits at no additional cost to you. This is a good idea even without a large net worth, since umbrella insurance is very inexpensive and wages can always be garnished.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

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