help, inheritance of $3.5M, read & read BogleH, & still in the dark

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Tryn2C
Posts: 4
Joined: Wed Jun 20, 2018 8:07 pm

help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Tryn2C » Wed Jun 20, 2018 9:14 pm

Hi all, I'm 60, recent inheritance of $3.5M.

1st of all, I read the windfall article, so I'm good there. I'm also naturally extremely frugal and private, so this most risky area is not a factor for me.

My History. A career as a self employed cash income business owner, a financially trashing divorce 20 years ago, and then a certain early death health scare 10 years ago, led to a life of no long term financial planning, nor investing undertaken.

But I lived on (hope'n for 30 more years), and am currently selling recently inherited real estate worth $3.5M (a collection of homes).

My plan is to buy a home for about $1M and Bogle invest the rest (4% annual draw). It's been a bit tough, as I do not have a natural love for investment theory, as you all do, and reading BogleHead threads is just not doing it for me.

I have a market knowledgeable family member that has offered advise. Seems the advise concept is basically 80% in an extremely safe diversified preferred stock portfolio currently paying about 4% annual dividends. Buy a home using a portfolio loan (this family member tells me that's how the big dogs do it). Live off the dividends.

The following was copy and pasted from this knowledgeable family member email to me.

"Have your main bank account at a regional bank. They can be one of your investment accounts for the portion of your money that you want to keep in fixed assets and then have available for cash withdrawals on big outlays.
3+ brokerage/private banking accounts to split the risk in case of hacking.
Charles Schwab (easiest way to invest in mutual funds)
Interactive Brokers (has the best fees for trading and safest account encryption)
Etrade
Vanguard is also great for investing in their very low fee mutual funds. However, they hold such a huge percentage of the US account value now that I think it is merely a matter of time before some hacker breaks into that massive fort knox so you should not end up leaving much there long term."

That's about it in a nutshell. Where to from here? and sorry if another rookie whining is tiresome.

Thanks in advance... from an extremely frugal and private, college educated, recently retired white collar professional... just Tryn2C

User avatar
mrspock
Posts: 93
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by mrspock » Wed Jun 20, 2018 10:42 pm

Congrats on the windfall! I will let others dig into the details on this one, but we Bogleheads are not dividend stock investors, we are (equity/bond) index investors. This is a very big difference, one requires picking stocks, the other does not (and has more diversification). Also, the advice about Vanguard or Schwab being hacked is utter nonsense, and it’s a red flag for me on whoever gave the advice (however well intended).

I think the biggest challenge/key for your situation will be managing the capital gains on the real estate sales, make sure you understand what you will be left with after taxes on these sales. Hopefully others on the board who have had similar situations can chime in. Once that is done, at your age, general advice is anything from a 40/60 to a 60/40 portfolio (*low cost* index funds/bonds funds), whatever makes you sleep at night. Contrary to the advice you were given on brokerages, either Vanguard or Schwab are good choices, some like Fidelity on here too.

Good luck, and its not hard to be a Boglehead, it sounds like you have the right demeanor for it too!
Last edited by mrspock on Thu Jun 21, 2018 1:13 am, edited 2 times in total.

User avatar
Sandtrap
Posts: 5360
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Sandtrap » Wed Jun 20, 2018 10:45 pm

Complete these readings and your knowledge will dwarf your "knowledgeable family member".
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
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
Bogle 3 Fund Portfolio Basics and Beyond
https://www.bogleheads.org/wiki/Three- ... _portfolio

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

Outstanding write up on the 64/40 allocation by Bernstein.
http://web.archive.org/web/20061214061 ... in6040.pdf
R. Ferri on Bernstein's 60/40
http://www.etf.com/sections/index-inve ... nopaging=1

ONWARD:

*Forget how the "big dogs do it". Just do it normally and conservatively for the long term.
* Your suggested 80% in a diversified portfolio. . etc. etc. . is vague and may not apply to you. You're in the right place to explore it better.

Actionable initial steps. Not in order.

1. Brick and Mortar Bank of your choice and convenience for day to day transactions, checking, etc.

2. Establish brokerage account at Schwab for free banking, checking, etc, and access to their small family of index funds.

3. Establish brokerage account at Vanguard for access to their large family of low cost index funds. *your family member's fears of hacking are real but pall in comparison to day to day reality. Certainly not a reason to avoid Vanguard.

4. Establish ACH transfer links between #1-3.

5. Purchase a home within your means, in cash. Do not take on debt. Do this after you have figured out how much to put in your Emergency Fund, Tier 1 savings (CD ladders, MM, etc), and long term investments for retirement.

6. Estimate what your annual expenses will be in retirement. Base your investment portfolio to fill that need, adjust both.
This is important. Your baseline will start at approx. 25x that amount at age 65, then adjust up or down from there depending on your retirement income streams, etc.
***Punch in your numbers here. You will be surprised at just how long, or short, your money will last.
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com


7. Post a Portfolio Review of your finances, retirement, expected SS, etc, in the forum format so suggestions will have a larger context. Note the link above for funding priority. There's more to it than just picking funds or delegating to a financial advisor (when you know enough to pick one and not get ripped off, you will likely not need one).
**** In this format. You can edit your original post.Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

8. Do #7.

9. Pay attention to the capital gains you will owe for the sale of the properties. You can either sell and take the hit and move on or if you choose, an option, do 1031 Exchanges to income property such as multi unit housing rentals. **But only if you are a skilled and savvy businessman and want to get into being a landlord.

10. For now, until you realize why. Avoid eTrade, Interactive Brokers, Financial Advisors, Wealth Managers, and all the kind folks and companies that want to "help" your with your money.

11. After you do #7, perhaps a consult with Vanguard VPAS will be in order.

aloha
j
Last edited by Sandtrap on Wed Jun 20, 2018 10:53 pm, edited 5 times in total.

Doctor Rhythm
Posts: 166
Joined: Mon Jan 22, 2018 3:55 am

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Doctor Rhythm » Wed Jun 20, 2018 10:48 pm

"Have your main bank account at a regional bank. They can be one of your investment accounts for the portion of your money that you want to keep in fixed assets and then have available for cash withdrawals on big outlays.
I don't know of any major advantage to a regional bank versus a national bank or an on-line bank for your main bank account. I'd go with whichever gives you a good interest rate and is convenient.


3+ brokerage/private banking accounts to split the risk in case of hacking.

seems overly complicated, especially for someone who self-describes as not interested in financial planning. Is hacking a risk? Sure. Is it easy to protect yourself in ways that don't involve splitting your money between 6+ institutions? Yes. One bank for your cash and one brokerage company for your investments is fine.

Charles Schwab (easiest way to invest in mutual funds)
Interactive Brokers (has the best fees for trading and safest account encryption)
Etrade

I would go with Schwab, Vanguard, or Fidelity. I don't think you should buy individual stocks. You should not pay any fees, and if one is required, you should invest elsewhere.

Vanguard is also great for investing in their very low fee mutual funds. However, they hold such a huge percentage of the US account value now that I think it is merely a matter of time before some hacker breaks into that massive fort knox so you should not end up leaving much there long term."

There's that hacking paranoia again. Put your money where you want, but just realize that this fear is nothing close to conventional wisdom.

Dottie57
Posts: 4644
Joined: Thu May 19, 2016 5:43 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Dottie57 » Wed Jun 20, 2018 11:03 pm

Do forget the big dogs and how they invest.

Do the reading list from Sandtrap.

Don’t buy a big expensive house until you know what expenses go with it. I am fine with a small but well appointed home. Low maintenance , low property taxes.

You’ve been given a gift. Use it well.

HJG0989
Posts: 157
Joined: Sat Oct 13, 2007 2:18 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by HJG0989 » Wed Jun 20, 2018 11:15 pm

My advice is to keep it simple, broadly diversified, tax efficient and low cost. You can achieve all of this by using the three fund portfolio approach.

If you go with individual stocks you will have to monitor them and quite possibly sell at times when you don't need the money. This could result in unnecessary capital gains taxes. Plus, do you really want to have to stay current with the individual companies you are invested in?

Do yourself a huge favor and read up on the three fund portfolio. I really wish I had done this from the get go.

JoinToday
Posts: 762
Joined: Sat Mar 10, 2007 9:59 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by JoinToday » Wed Jun 20, 2018 11:39 pm

Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
.....
I have a market knowledgeable family member that has offered advise. Seems the advise concept is basically 80% in an extremely safe diversified preferred stock portfolio currently paying about 4% annual dividends. Buy a home using a portfolio loan (this family member tells me that's how the big dogs do it). Live off the dividends.
...
Let me tell you how "The Big Dogs" really do it. (if I recall correctly)

Big dog #1: Warren Buffet is putting $100M for his heirs. $90M in S&P 500, $10M in US Treasury bonds.
Bog dog #2: John Bogle: He is not doing anything close to what your relative is recommending.
Really Big Dog #3: Taylor Larimore: 3 fund portfolio.

What do you think your family member knows that Warren, John, and Taylor don't know?

If you have no interest or knowledge, engage with Vanguard Porfolio Advisor service (PAS)

Having said all that, listen & follow what Sandtrap recommends. Even if you use VG PAS, the more you know the better. Sandtrap's post is golden.
I wish I had learned about index funds 25 years ago

delamer
Posts: 6267
Joined: Tue Feb 08, 2011 6:13 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by delamer » Wed Jun 20, 2018 11:46 pm

Have you looked into the carrying costs of a $1 million dollar home?

Property taxes, utilities, insurance, lawn and exterior maintenance, furnishing, and repairs will use a big chunk of your income, even if you don’t have a mortgage.

Frankly, it is not consistent with the behavior of someone who considers herself/himself to be extremely frugal.

Overspending on a house is one of the most harmful things you can do to your financial security.

jbranx
Posts: 264
Joined: Thu Feb 09, 2017 6:57 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by jbranx » Wed Jun 20, 2018 11:56 pm

I have invested some of my "play" money in preferred stocks for a quarter century, but I have yet to find a "extremely safe diversified preferred stock portfolio...." Preferreds, among many other problems, are mainly issued by financial, utility, and real estate trust firms. The "duration" of preferreds, unlike bonds, are unknown, meaning in a rising rate environment like now, the issues will not be called at par and will trade like they are very long-term issues. There are very, very few highly rated preferreds, consisting mainly of issues by closed-end mutual funds that are required by law to have 2 X coverage for the issue. They trade in small volumes, meaning you can move the market with a very small order. If you research the pref. ETFs like PFF, you will find that most of the issues currently trade above par, which means when called there will be a loss. Don't be fooled by the high dividends; they are higher than bonds for a reason. If you don't understand everything I just wrote above, you have no business investing in preferreds. Search for the three fund portfolio here and allocate among the three according to your risk tolerance. Otherwise, call Vanguard and inquire about their relatively low cost portfolio advisory services.

Sandi_k
Posts: 807
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Sandi_k » Thu Jun 21, 2018 1:01 am

Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
I am currently selling recently inherited real estate worth $3.5M (a collection of homes).

My plan is to buy a home for about $1M and Bogle invest the rest (4% annual draw). It's been a bit tough, as I do not have a natural love for investment theory, as you all do, and reading BogleHead threads is just not doing it for me.
It's not hard:

- Live below your means
- Don't overbuy on housing
- Diversify your portfolio via low-cost index funds
Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
I have a market knowledgeable family member that has offered advise. Seems the advise concept is basically 80% in an extremely safe diversified preferred stock portfolio currently paying about 4% annual dividends. Buy a home using a portfolio loan (this family member tells me that's how the big dogs do it). Live off the dividends.
Hmmm. "Diversified" and "preferred" portfolios are not necessarily the same thing.

IIWY, I'd take 3x my recent average annual earnings, and that would be my house budget. $100k annually? Buy a $300k house.

Benefits:

1) You're not depleting your nest egg overmuch.
2) You're not stuck with a house with out-sized, ongoing carrying costs, such as taxes and insurance and utilities and furniture.
3) You've discovered "stealth wealth" instead of FLASHY wealth.
4) Your neighbors will be much more relatable
Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
The following was copy and pasted from this knowledgeable family member email to me.

"Have your main bank account at a regional bank. They can be one of your investment accounts for the portion of your money that you want to keep in fixed assets and then have available for cash withdrawals on big outlays.
Umm, your investments accounts should have nothing to do with your bank. They fill different niches in your financial world. So, no.
Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
3+ brokerage/private banking accounts to split the risk in case of hacking.
How about instead splitting between Fidelity (brick and mortar usually available close by) and Vanguard (low cost index fund leader)? Also, enable two-factor authorization on your accounts, and record a voice-print for your account? And finally - trades only allowed via confirmation of the above?
Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
Charles Schwab (easiest way to invest in mutual funds)
Also Fidelity or Vanguard, although Vanguard has no in-person offices (which is why I'm with Fidelity & Schwab).
Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
Interactive Brokers (has the best fees for trading and safest account encryption)
According to what standard? Trading fees are *part* of what you pay - but how about front loads? Or expense ratios? (which matter a lot more to me than trading fees, since I trade infrequently)...
Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
Etrade
Vanguard is also great for investing in their very low fee mutual funds. However, they hold such a huge percentage of the US account value now that I think it is merely a matter of time before some hacker breaks into that massive fort knox so you should not end up leaving much there long term."
Actually, the reason I'd stay away from Vanguard is no B&M store, and they've gotten so big, their customer service is struggling...

In short, your "expert" isn't. ;) Read the Windfall entry in the Wiki, stash cash for 6 months as you educate yourself and set up accounts, read Sandtrap's reading list, and know that you'll be fine.

So:

- Buy reasonably-priced home.
- Sell real estate, stashing cash as it is freed up.
- Set up accounts at Fidelity/Schwab/Vanguard
- Begin investing $3M in index funds with no loads and low expense ratios.
- Take a 4% withdrawal (so $120k annually on $3M) for now.
- Elect SocSec at age 70, to maximize income. Consider reducing w/d rate to RMDs at this time (3.65%?) if you want to leave an inheritance.

Best of luck!

22twain
Posts: 1552
Joined: Thu May 10, 2012 5:42 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by 22twain » Thu Jun 21, 2018 5:58 am

Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
My plan is to buy a home for about $1M
Some context might be helpful here. Are you somewhere like the San Francisco area where $1M gets you a rather modest house, or somewhere in "flyover country" where $1M gets you a mansion on a huge lot?
My investing princiPLEs do not include absolutely preserving princiPAL.

Luckywon
Posts: 197
Joined: Tue Mar 28, 2017 10:33 am

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Luckywon » Thu Jun 21, 2018 5:59 am

Tryn2C, excellent advice, comments and information have been written above. I'd add that it will surely best to avoid, as much as possible, further involvement of this family member (and other family and friends) in your finances, at least until you have read and fully digested the readings suggested by Sandtrap. The advice you receive from this forum is being offered with no conflict of interest or ulterior motive. That will usually not be true of advice you receive in person elsewhere.

Jack FFR1846
Posts: 7960
Joined: Tue Dec 31, 2013 7:05 am

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Jack FFR1846 » Thu Jun 21, 2018 6:23 am

First, I'd say to not listen to family members, friends, people at church and their stupid ideas.

Next, create a reasonable emergency fund at a bank or credit union or online bank.

Third, make yourself a 3 fund portfolio at one of the low cost places (Vanguard, Fidelity, Schwab) or just get a target date fund at Vanguard.

Last, just live your life. That really is it. The end.
Bogle: Smart Beta is stupid

mouses
Posts: 3815
Joined: Sat Oct 24, 2015 12:24 am

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by mouses » Thu Jun 21, 2018 6:29 am

I would not take advice from this "market knowledgeable family member." Just as I was reading along and came to the part about blowing a third of your inheritance on an extremely expensive home, the hair started standing up on the back of my neck. Say something polite and then go your own way.

If I were you, I would be cautious about doing anything until I understood the consequences.

First I would look at selling the unwanted real estate after talking with a good CPA about the tax consequences of doing this. (If I understand the law correctly, your cost basis is the value of the property at the time of death of the person who left you this, so hopefully the capital gains are minimal.)

Then you will be sitting on about $3.5 million dollars. As they say, you have won the game. You can be quite conservative and still have a very comfortable lifestyle. Myself, I would think about how much house I wanted, where I wanted to live, and take my time looking at houses until I found something I really liked. I would pay cash for it.

I would also take a good look at the sum of property tax, insurance (homeowners, umbrella liability, flood, earthquake), house maintenance (at some point the roof will need replacing, the house will need painting, the air conditioning system will fail, etc.) Regardless of the house, you need umbrella liability as having this much in assets means you are a target for claims.

Then I would sock the rest of the money into federally insured CDs, but I am more financially conservative than most bogleheads.

basspond
Posts: 1085
Joined: Wed Nov 27, 2013 4:01 am

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by basspond » Thu Jun 21, 2018 7:06 am

I would diffinitely shop around for financial advisors especially with your feelings. With this amount of money most will discount their services. I thought about DIY since I did it in my earning years, but this life stage is a different animal. It has been a relief for me. The main reasons I choose one is how they explained investments and their philosophy to preserve capital while still combating the effects of inflation. Good luck.

retiredjg
Posts: 34165
Joined: Thu Jan 10, 2008 12:56 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by retiredjg » Thu Jun 21, 2018 7:23 am

Another caution about the $1 million house (unless you already live in San Francisco or similar). If your income will only be about $100k (with maybe 20% of that going to taxes), you may find the expenses of a $1m house to be burdensome.

I don't see any need to find a new bank if you are happy with the one you have now. I don't even see the need for a bank at all since credit unions usually offer the necessary banking services at a lower cost. It seems that banks want to nickel and dime you to death on even the simplest of services.

It would not hurt to use a couple of different brokerages. Even without the hacking fear, one might be involved in a natural disaster that could disrupt services right when you need money.

Living on dividends is fine if you don't have to skew your portfolio too far toward dividend producing products. However, I believe that hoping for a 4% dividend yield is a bit wishful from what Bogleheads would consider a well balanced portfolio - 2% is more likely. Also, there are some tax-advantages for selling assets for part of your income - long term capital gains tax rates are lower than ordinary income rates.

I think it would be more wise to set up a well balanced portfolio, take the 2% or so of dividends you get from it and supplement that with income from selling taxable assets. Here is some reading material on that.

https://personal.vanguard.com/pdf/s557.pdf

If you decide to use a financial advisor, Vanguard's PAS (personal advisor service) is the only one I can recommend. Yes, there are good financial advisors available at almost every brokerage, but there can be a problem locating them. Because of Vanguard's financial structure, the Vanguard advisors do not recommend funds that will line their own pockets. They have no financial incentive to do so. This is not true of other places - some will want you to buy products that benefit the salesperson more than the client.

I would avoid all the "wealth management" places, even the big names such as Raymond James, Edward Jones, Ameriprise, LPL, etc. There are some good advisors at these places as well, but their income is based on selling you things that make them money. That means you make less money.

There is no need to love or even understand investment theory. Investing can be very simple and you do not need a "diversified portfolio of preferred stocks" to do it. Simply owning a fund of US stocks, a fund of foreign stocks, and some fixed income assets (bond funds, CDs, etc) will do the trick.

You already know how to handle money.

You pretty much have to continue listening to your family member at least for awhile. But that does not mean you need to follow that advice. Few people here would because there is a simpler and lower cost way to accomplish what you need. If I were you, I'd listen and be very appreciative because s/he is only trying to help you. But start inserting some distance there, at least about financial matters.

You cannot follow someone else's path on things like this. You must make your own way. I figure that is why you landed here and decided to post your question - you are already wondering if your family member's method is the right one for you. I suspect it is not.

Edited to add: there is little sense in taking a loan for the home.
Last edited by retiredjg on Thu Jun 21, 2018 7:56 am, edited 1 time in total.

User avatar
Rick Ferri
Posts: 8594
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Rick Ferri » Thu Jun 21, 2018 7:44 am

If I were in your shoes, I would:

1) pay $1 mm cash for the home, leaving $2.5 mm
2) put the money at one custodian (Schwab or Vanguard). There is no risk in this.
3) invest in a simple 50 % stock, 50% bond portfolio of core stock and bond index funds (mostly US stock, and use an intermediate-term bond fund).
4) draw a fixed amount out each month to pay your expenses and anything else. ($10,000 approx).

You’re not going to outlive your money, so don’t worry about it.
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

aristotelian
Posts: 4770
Joined: Wed Jan 11, 2017 8:05 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by aristotelian » Thu Jun 21, 2018 7:53 am

Before jumping on the home, think carefully about your future expenses. You want to make sure your portfolio can cover your needs and lifestyle in retirement. A general rule of thumb is that you want to have 25 times your annual expenses. Expenses include taxes, health care, etc. If you drop $1M on a house, that would leave you enough to afford about $100K per year. Is that enough? That would be fine for most of us but just wanted to flag as a concern.

Then the next step will be to set up the portfolio in a way that will keep you ahead of inflation and minimize taxes, etc.

The investing piece is easy. If Bogleheads Guide was over your head, you might start with "If You Can" free PDF by William Bernstein. As he says, index fund investing is a strategy that a seven year old can understand and outperforms the majority of active funds and finance professionals.
Last edited by aristotelian on Thu Jun 21, 2018 8:01 am, edited 3 times in total.

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by livesoft » Thu Jun 21, 2018 7:55 am

Welcome to the forum.

It looks like info from your friend (I wouldn't do what they suggest) and all the responders to this thread will just increase your anxiety and get you practically nowhere. Even Rick Ferri who I admire very much has made it complicated.

So even though I have some ideas (actually just one idea) for you, I won't give it because it will just be all noise to you.

The reason why I wrote this is because I recently helped an acquaintance whose spouse had died. The spouse had done the right things with investments, but the surviving spouse was being pulled many different ways by all their friends at church, the bank, and even the reputable investment advisor that the couple used. The surviving spouse was just not in the right state of mind to decipher who was friend or foe. I saw that even advice from me was not going to sink in, but at least I evaluated their financial advisor who was doing the right thing, so the best course of action for the surviving spouse was to do nothing for the time being. And that has worked out so far.

So basically, you have the benefit of time. Use it.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
David Jay
Posts: 5677
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by David Jay » Thu Jun 21, 2018 8:00 am

Rick Ferri wrote:
Thu Jun 21, 2018 7:44 am
If I were in your shoes, I would:

1) pay $1 mm cash for the home, leaving $2.5 mm
2) put the money at one custodian (Schwab or Vanguard). There is no risk in this.
3) invest in a simple 50 % stock, 50% bond portfolio of core stock and bond index funds (mostly US stock, and use an intermediate-term bond fund).
4) draw a fixed amount out each month to pay your expenses and anything else. ($10,000 approx).

You’re not going to outlive your money, so don’t worry about it.
Tryn2C:

Here is advice directly from a "big dog" (go to Amazon, type in "Richard A Ferri", check out the list of financial books).

Your relative is apparently into active trading ("Interactive Brokers" is a strong clue when coming from a US resident). This is not the person you should be following if you are not market savvy and don't particularly want to "play" in the market.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
Taylor Larimore
Advisory Board
Posts: 27507
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

The Three-Fund Portfolio

Post by Taylor Larimore » Thu Jun 21, 2018 8:06 am

Tryn2C:

Welcome to the Bogleheads Forum!

This is The Three-fund Portfolio mentioned above.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

delamer
Posts: 6267
Joined: Tue Feb 08, 2011 6:13 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by delamer » Thu Jun 21, 2018 9:47 am

22twain wrote:
Thu Jun 21, 2018 5:58 am
Tryn2C wrote:
Wed Jun 20, 2018 9:14 pm
My plan is to buy a home for about $1M
Some context might be helpful here. Are you somewhere like the San Francisco area where $1M gets you a rather modest house, or somewhere in "flyover country" where $1M gets you a mansion on a huge lot?

Even if a $1 million house is not considered a high-end home in the area where the OP is considering buying, the carrying costs will still be a drag on her/his budget.

S/he needs to understand the financial implications of buying a home at that price, especially given that s/he identifies as “extremely frugal.” S/he may have no idea what costs go along with a million dollar home, over and above the purchase price.

GAAP
Posts: 610
Joined: Fri Apr 08, 2016 12:41 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by GAAP » Thu Jun 21, 2018 10:14 am

The first thing you do with this money is -- NOTHING.

You may do something when you understand the choices you have, and the reasons for making the decisions you make.

There have already been a lot of good suggestions here -- make sure you understand why they were made and why you might want to follow or not follow them.

It's time to start studying...

senex
Posts: 72
Joined: Wed Dec 13, 2017 4:38 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by senex » Thu Jun 21, 2018 12:33 pm

The $1M house is a big red flag for a "frugal" person. Depending on locale, you're likely to pay $20-50k/year just to maintain it -- and that's if you do no improvements. (That's just taxes, insurance, utilities, ordinary repairs).

Most people, when they get an inheritance, immediately go and buy the most expensive thing they know how to buy: a house. Then they become "house poor" because all their spare income goes toward home maintenance and taxes.

Don't do that. Keep living where you're living now. Make a simple 3-fund portfolio at Vanguard. Ignore your relative. Big dogs don't use margin loans.

bloom2708
Posts: 4905
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by bloom2708 » Thu Jun 21, 2018 1:49 pm

Lots of good advice.

A demure $1 million home for a "frugal" person. Hmmm. Is moving an option with your new pile of cash money?

Move somewhere where a $350k home is very nice. Lower taxes. Lower everything.

Put $3 million in the Vanguard Tax Managed Balanced Admiral fund. Send dividends to your settlement account.

It doesn't have to be expensive, difficult, complicated. No re-balancing.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

Boglegrappler
Posts: 1093
Joined: Wed Aug 01, 2012 9:24 am

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Boglegrappler » Thu Jun 21, 2018 2:34 pm

Seems the advise concept is basically 80% in an extremely safe diversified preferred stock portfolio currently paying about 4% annual dividends. Buy a home using a portfolio loan (this family member tells me that's how the big dogs do it). Live off the dividends.
You should be aware that if you select a portfolio of stocks paying an overall 4% dividend yield, you will be selecting a group of companies whose growth prospects are below average, and which will, over time, and taken as a whole, have difficulty increasing their dividends to keep up with the market growth or inflation.

The dividend yield on the s&P 500 is about 1.8% currently, so if you want companies that have the prospect of being able to increase their dividends over time in pace with the market, a portfolio yield of about 2% will put you in that ballpark. If you insist on getting 4% current dividend yields, you'll see that it comes from very mature companies which are likely to grow only at GDP rates, if that.

johnra
Posts: 176
Joined: Sun Dec 28, 2014 12:07 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by johnra » Sat Jun 23, 2018 1:24 am

(1) I would hire a financial advisor for 0.5-1.0% at Fidelity or Charles Schwab with fiduciary responsibility. That will take the management off your hands--the people on this forum groove on doing it your self, but that is not normal for most.

(2) I would not buy a 1M house--a lot of responsibility, a lot of new costs, you make a big jump in lifestyle that you are not sure you will like, and at time when housing costs are high.

(3) I would not work with a relative as an adviser--too much downside, and there are a few red flags already in the advice he has given you.

User avatar
Sandtrap
Posts: 5360
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Sandtrap » Sat Jun 23, 2018 1:48 pm

johnra wrote:
Sat Jun 23, 2018 1:24 am
(1) I would hire a financial advisor for 0.5-1.0% at Fidelity or Charles Schwab with fiduciary responsibility. That will take the management off your hands--the people on this forum groove on doing it your self, but that is not normal for most.

(2) I would not buy a 1M house--a lot of responsibility, a lot of new costs, you make a big jump in lifestyle that you are not sure you will like, and at time when housing costs are high.

(3) I would not work with a relative as an adviser--too much downside, and there are a few red flags already in the advice he has given you.
vanguard VPAS services are lower costs

Dottie57
Posts: 4644
Joined: Thu May 19, 2016 5:43 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Dottie57 » Sat Jun 23, 2018 2:50 pm

Sandtrap wrote:
Sat Jun 23, 2018 1:48 pm
johnra wrote:
Sat Jun 23, 2018 1:24 am
(1) I would hire a financial advisor for 0.5-1.0% at Fidelity or Charles Schwab with fiduciary responsibility. That will take the management off your hands--the people on this forum groove on doing it your self, but that is not normal for most.

(2) I would not buy a 1M house--a lot of responsibility, a lot of new costs, you make a big jump in lifestyle that you are not sure you will like, and at time when housing costs are high.

(3) I would not work with a relative as an adviser--too much downside, and there are a few red flags already in the advice he has given you.
vanguard VPAS services are lower costs
I think VPAS would give better advice too. They would use VG index funds,

User avatar
Sandtrap
Posts: 5360
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by Sandtrap » Sat Jun 23, 2018 3:08 pm

Dottie57 wrote:
Sat Jun 23, 2018 2:50 pm
Sandtrap wrote:
Sat Jun 23, 2018 1:48 pm
johnra wrote:
Sat Jun 23, 2018 1:24 am
(1) I would hire a financial advisor for 0.5-1.0% at Fidelity or Charles Schwab with fiduciary responsibility. That will take the management off your hands--the people on this forum groove on doing it your self, but that is not normal for most.

(2) I would not buy a 1M house--a lot of responsibility, a lot of new costs, you make a big jump in lifestyle that you are not sure you will like, and at time when housing costs are high.

(3) I would not work with a relative as an adviser--too much downside, and there are a few red flags already in the advice he has given you.
vanguard VPAS services are lower costs
I think VPAS would give better advice too. They would use VG index funds,
+1
I have had consults with Fid, Schwab, and Vanguard.
Would go with VPAS if I had to choose.

gerntz
Posts: 466
Joined: Fri May 06, 2011 3:37 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by gerntz » Sat Jun 23, 2018 3:35 pm

The op has 1 total post on the forum.

gerntz
Posts: 466
Joined: Fri May 06, 2011 3:37 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by gerntz » Sat Jun 23, 2018 3:37 pm

johnra wrote:
Sat Jun 23, 2018 1:24 am
(1) I would hire a financial advisor for 0.5-1.0% at Fidelity or Charles Schwab with fiduciary responsibility. That will take the management off your hands--the people on this forum groove on doing it your self, but that is not normal for most.
At $2.5M+ of investment assets, 0.5% advisor fee is way too much by me.

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by livesoft » Sat Jun 23, 2018 4:25 pm

gerntz wrote:
Sat Jun 23, 2018 3:35 pm
The op has 1 total post on the forum.
I think the OP is following the advice that I gave in this thread. :)
Wiki This signature message sponsored by sscritic: Learn to fish.

inbox788
Posts: 5647
Joined: Thu Mar 15, 2012 5:24 pm

Re: help, inheritance of $3.5M, read & read BogleH, & still in the dark

Post by inbox788 » Sat Jun 23, 2018 4:44 pm

OP is probably overwhelmed by everything, and some of the postings here probably contain way more information than he can immediately process. The important thing right now is to DO NOTHING! Sit back, relax, and enjoy the moment.

Put the $3.5M under your mattress and for the next 35 years, take out $100k a year and spend it. How much do you spend each year now?

Seriously, instead of the mattress,
Set aside six months to one year's income requirements in a transaction account such as your checking account. Place the remaining windfall assets in separate accounts holding secure low-risk savings vehicles, such as FDIC guaranteed bank accounts and CDs, money market funds, and treasury bills.
https://www.bogleheads.org/wiki/Managin ... _your_time

BTW, "knowledgeable family member" plan is way too much, and the "professional advisors" are going to be even worse! Don't go down that rabbit hole!

Post Reply