20M Inheritance - What is best option for small/no risk on principal?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
gvsucavie03
Posts: 1349
Joined: Sat Feb 16, 2013 8:30 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by gvsucavie03 » Sat Dec 08, 2018 8:35 am

In the grand scheme of things, $20M is really not a lot. To a middle class individual it seems like a mint.

Short term T-Bills and Bonds might create more than enough income now, but do not pose any growth for generational use. The taxman is going to rue the day when this money is inhereted each time, so without growth, this money will continue to decline if not having SOME invested for the future.

Then again, there's no law that says you can't Scrooge it all away and bounce the rental fee for the hearse... I guess it's ultimately up to you and what you intend to use the $ for (please read the Windfall section of the wiki).

Nate79
Posts: 3708
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Nate79 » Sat Dec 08, 2018 9:13 am

Only on BH would someone say $20M is not a lot. It would put someone well into the 99.5+% percentile of net worth in the US.

gvsucavie03
Posts: 1349
Joined: Sat Feb 16, 2013 8:30 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by gvsucavie03 » Sat Dec 08, 2018 9:26 am

Nate79 wrote:
Sat Dec 08, 2018 9:13 am
Only on BH would someone say $20M is not a lot. It would put someone well into the 99.5+% percentile of net worth in the US.
How many lotto winners squander their winnings in the blink of an eye? $20M can be a blessing or a huge regret.

Shallowpockets
Posts: 753
Joined: Fri Nov 20, 2015 10:26 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Shallowpockets » Sat Dec 08, 2018 9:58 am

Why all this talk? Should it be any different for 20 million than for 20k? Following the BH philosophy with asset allocation, stock/bond, and stay the course, plus the usual 20-30 year time frame and that the market always returns positive over time on the average with index funds, why is this any different?
To many a 20k windfall would mean the same to them as 2 million in this case. So the emphasis of this on CDs, TIPs, etc is curious.

User avatar
Blake7
Posts: 25
Joined: Fri Mar 30, 2018 2:52 pm
Location: USA

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Blake7 » Sat Dec 08, 2018 10:02 am

I’d simply put it in the Vanguard Treasury Money Market Fund (VUSXX) until you’ve consulted with a fee-only financial advisor or two. That way it’s 100% liquid in an extremely safe investment, earning approx. $440k/year in dividends until you decide how you want to invest it. Take your time.

User avatar
sperry8
Posts: 1659
Joined: Sat Mar 29, 2008 9:25 pm
Location: Miami FL

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by sperry8 » Sat Dec 08, 2018 11:42 am

Nate79 wrote:
Sat Dec 08, 2018 9:13 am
Only on BH would someone say $20M is not a lot. It would put someone well into the 99.5+% percentile of net worth in the US.
Agreed. Stunning statement imo. Perhaps time for a book on perspective and some global travel to regain humble nature.
Humbling BH contest results: 2017: #516 of 647 | 2016: #121 of 610 | 2015: #18 of 552 | 2014: #225 of 503 | 2013: #383 of 433 | 2012: #366 of 410 | 2011: #113 of 369 | 2010: #53 of 282

TallBoy29er
Posts: 492
Joined: Thu Jul 18, 2013 9:06 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by TallBoy29er » Sat Dec 08, 2018 12:47 pm

Dad, is that you? :mrgreen:

rasta
Posts: 34
Joined: Fri Jul 27, 2018 4:29 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by rasta » Sat Dec 08, 2018 1:07 pm

Shallowpockets wrote:
Sat Dec 08, 2018 9:58 am
Why all this talk? Should it be any different for 20 million than for 20k? Following the BH philosophy with asset allocation, stock/bond, and stay the course, plus the usual 20-30 year time frame and that the market always returns positive over time on the average with index funds, why is this any different?
To many a 20k windfall would mean the same to them as 2 million in this case. So the emphasis of this on CDs, TIPs, etc is curious.
how many yachts can you water ski behind? how much is enough?

midagelawyer
Posts: 60
Joined: Sun Jan 29, 2017 11:37 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by midagelawyer » Sat Dec 08, 2018 1:34 pm

What do people here think of hiring a JP Morgan, Morgan Stanley, Goldman Sachs type wealth adviser? Clearly that makes no sense if you don't have enough to benefit from their full suite of services (access to alternative investments, estate/tax planning, legal advice, customer service, etc.), but once you have a windfall of some number (call it maybe $100 million), it becomes imprudent not to expand beyond just public bonds and equities (direct real estate, commodities, distress strategies, etc.) and pretty complicated/time consuming without hiring someone to do it. At some point, i would think, it is worth the annual fee (say even if it's as high as 1%, $1 million) to have a strategy that you can more comfortably rely on for a steady 8% real rate of return with sufficient liquidity protection/risk tolerance to allow for regular withdrawals with that strategy (assuming that's possible). Or maybe another way to think of it is as 0% alpha, but more comfort/less risk. I presume if you're in asset accumulation phase anyway with a very steady/secure income, you might even be able to generate 12 or even 18% real returns over longer time horizons with limited liquidity and a very well diversified portfolio. I think another way to think of this is alpha generation through better risk tolerance techniques - It's not that your portfolio is more efficient (there is no free lunch), rather it is more diversified so you're able to move even further out the risk/reward spectrum of the efficient market and get rewarded for it. If they're doing their jobs right, you're getting out-sized rewards for this increased risk tolerance because they are targeting very limited liquidity investments where your ability to lock-up capital on their schedule (or your capital is super easy to tap, or the investment has some weird tax effect that doesn't make the investment as attractive to institutional investors, etc.) pays handsomely.

IOW, if you're comfortably making $7 million per year, are you not OK paying someone $1 million per year to just handle everything regarding your financial life?

Does anyone agree with me? If so, I'd be curious to hear thoughts on the various assumptions I clearly made above.

Thank you,

retiredjg
Posts: 34372
Joined: Thu Jan 10, 2008 12:56 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by retiredjg » Sat Dec 08, 2018 1:52 pm

midagelawyer wrote:
Sat Dec 08, 2018 1:34 pm
IOW, if you're comfortably making $7 million per year, are you not OK paying someone $1 million per year to just handle everything regarding your financial life?

Does anyone agree with me? If so, I'd be curious to hear thoughts on the various assumptions I clearly made above.

Thank you,
Can't say that it makes any sense to me. Why would I give someone 15% of my profit if I don't even need it in the first place? Why do I need 8% return when I don't need that much to live on?

The nice thing about a simple portfolio is that it is scalable. You can do essentially the same thing with a few thousand or many millions. Yes, there are some small issues like FDIC limits and tax-exempt bonds, but those are of little importance.

Silverado
Posts: 192
Joined: Fri Oct 18, 2013 6:07 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Silverado » Sat Dec 08, 2018 4:20 pm

Shallowpockets wrote:
Sat Dec 08, 2018 9:58 am
Why all this talk? Should it be any different for 20 million than for 20k? Following the BH philosophy with asset allocation, stock/bond, and stay the course, plus the usual 20-30 year time frame and that the market always returns positive over time on the average with index funds, why is this any different?
To many a 20k windfall would mean the same to them as 2 million in this case. So the emphasis of this on CDs, TIPs, etc is curious.
Yeah, for reasons I just don't understand, as soon as the numbers get to eight figures, suddenly a lot of people on here start saying they would talk to an advisor. I get consulting with a good tax person, but suddenly saying it's a good idea to work with an advisor is strange.

User avatar
Blake7
Posts: 25
Joined: Fri Mar 30, 2018 2:52 pm
Location: USA

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Blake7 » Sat Dec 08, 2018 4:48 pm

Silverado wrote:
Sat Dec 08, 2018 4:20 pm
Shallowpockets wrote:
Sat Dec 08, 2018 9:58 am
Why all this talk? Should it be any different for 20 million than for 20k? Following the BH philosophy with asset allocation, stock/bond, and stay the course, plus the usual 20-30 year time frame and that the market always returns positive over time on the average with index funds, why is this any different?
To many a 20k windfall would mean the same to them as 2 million in this case. So the emphasis of this on CDs, TIPs, etc is curious.
Yeah, for reasons I just don't understand, as soon as the numbers get to eight figures, suddenly a lot of people on here start saying they would talk to an advisor. I get consulting with a good tax person, but suddenly saying it's a good idea to work with an advisor is strange.
If I inherited $1M today, I would not need to talk to anyone; it would be invested along the BH guidlines. $20M, that’s a different story (at least for me it would be). $100M lottery win? Even more so. I’d want to know more about other investment options (i.e, real estate, business ventures, charitable foundations, etc.). Tax advisor? You bet. Accountant? Yep. I’ve done my own taxes and investing my entire life, but at a certain threshold, I’d be looking for at least one-time consultation with these peeps. $20M would meet that threshold for me. I think it would pay for itself many times over. :sharebeer

Retired CPA
Posts: 17
Joined: Mon Jan 30, 2017 8:15 pm
Location: Ventura, CA

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Retired CPA » Sat Dec 08, 2018 5:35 pm

[/quote]

If I inherited $1M today, I would not need to talk to anyone; it would be invested along the BH guidlines. $20M, that’s a different story (at least for me it would be). $100M lottery win? Even more so. I’d want to know more about other investment options (i.e, real estate, business ventures, charitable foundations, etc.). Tax advisor? You bet. Accountant? Yep. I’ve done my own taxes and investing my entire life, but at a certain threshold, I’d be looking for at least one-time consultation with these peeps. $20M would meet that threshold for me. I think it would pay for itself many times over. :sharebeer
[/quote]

Totally agree, and I think everyone has a different threshold. I think it would be difficult for me to say I would do this or that if I came into that kind of money, until I actually came into that kind of money. I think it may change one’s perspective more than one might expect. I find this a fascinating thread.

User avatar
sergeant
Posts: 943
Joined: Tue Dec 04, 2007 11:13 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by sergeant » Sat Dec 08, 2018 6:24 pm

What happened to the OP? I will give a hint as I've seen dozens of these silly threads where people claim to have inherited huge sums...we never hear from them again! In my over 10 years here I can remember one person that actually probably really inherited a large sum and stuck around for awhile.
Lincoln 3 EOW!

Retired CPA
Posts: 17
Joined: Mon Jan 30, 2017 8:15 pm
Location: Ventura, CA

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Retired CPA » Sat Dec 08, 2018 6:30 pm

The thought occurred to me that this might have been a planted thread, which I am sure is frowned upon by the community, but I still feel it has generated an informative discussion and each reader can scale it to their particular situation. I continue to be impressed by the community involvement and contributions.

Pinotage
Posts: 248
Joined: Sat Nov 12, 2011 6:02 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Pinotage » Sat Dec 08, 2018 6:53 pm

gvsucavie03 wrote: In the grand scheme of things, $20M is really not a lot.
Your scheme must be a lot grander than mine. Or that of anyone I know. Or anyone they know.
gvsucavie03 wrote: To a middle class individual it seems like a mint.
Oh, got it.

gvsucavie03
Posts: 1349
Joined: Sat Feb 16, 2013 8:30 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by gvsucavie03 » Sat Dec 08, 2018 9:54 pm

Pinotage wrote:
Sat Dec 08, 2018 6:53 pm
gvsucavie03 wrote: In the grand scheme of things, $20M is really not a lot.
Your scheme must be a lot grander than mine. Or that of anyone I know. Or anyone they know.
gvsucavie03 wrote: To a middle class individual it seems like a mint.
Oh, got it.
Again, the main point was that it can be $20, $20k or $20M and it can be squandered if not managed very carefully and emotions are put in check.

Let's see how many more people comment on my post as we completely lose sight of the OP.

finite_difference
Posts: 1075
Joined: Thu Jul 09, 2015 7:00 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by finite_difference » Sun Dec 09, 2018 12:02 am

averagedude wrote:
Thu Dec 06, 2018 7:14 pm
I would go 50/50 stocks and bonds and sleep like a baby at night.
+1.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

smectym
Posts: 252
Joined: Thu May 26, 2011 5:07 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by smectym » Sun Dec 09, 2018 12:05 am

Ruminating on how to manage someone else’s $20M payday is a lot like than fantasizing how one would invest that powerball draw IF it came up aces but here goes:

If I had that problem and were new to investing, I’d go to Treasury Direct, set up a maturity ladder, and collect the coupon while studying up on investing principles.

And if the conclusion I drew after all that study is to just roll over those treasury securities and then roll them over again, and again—–there are better investing strategies; but many worse

Smectym

smectym
Posts: 252
Joined: Thu May 26, 2011 5:07 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by smectym » Sun Dec 09, 2018 12:12 am

Few inherit $20M without also inheriting explicit or implicit fiduciary duties. Applying cookie-cutter Boglehead stock/bond portfolio allocation advice to portfolios of that size is inappropriate. I’d make it a point not to see any down days when reviewing portfolio statements with that kind of corpus.

Smectym

dmk395
Posts: 39
Joined: Sat Dec 30, 2017 9:13 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by dmk395 » Sun Dec 09, 2018 10:14 am

That's more money than most could imagine spending. I'd buy some rental property with big downpayment, hire a good management company to give you residual income. Put a good portion in the market, then CD and MM the rest. The key is protecting principal, [(removed) --admin LadyGeek] why take any chances

midagelawyer
Posts: 60
Joined: Sun Jan 29, 2017 11:37 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by midagelawyer » Sun Dec 09, 2018 10:59 am

retiredjg wrote:
Sat Dec 08, 2018 1:52 pm
midagelawyer wrote:
Sat Dec 08, 2018 1:34 pm
IOW, if you're comfortably making $7 million per year, are you not OK paying someone $1 million per year to just handle everything regarding your financial life?

Does anyone agree with me? If so, I'd be curious to hear thoughts on the various assumptions I clearly made above.

Thank you,
Can't say that it makes any sense to me. Why would I give someone 15% of my profit if I don't even need it in the first place? Why do I need 8% return when I don't need that much to live on?

The nice thing about a simple portfolio is that it is scalable. You can do essentially the same thing with a few thousand or many millions. Yes, there are some small issues like FDIC limits and tax-exempt bonds, but those are of little importance.
Am I reading your post correctly to say that you'd prefer to have a portfolio with lower expected net returns in order to pay lower fees?

averagedude
Posts: 345
Joined: Sun May 13, 2018 3:41 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by averagedude » Sun Dec 09, 2018 11:35 am

midagelawyer wrote:
Sat Dec 08, 2018 1:34 pm
What do people here think of hiring a JP Morgan, Morgan Stanley, Goldman Sachs type wealth adviser? Clearly that makes no sense if you don't have enough to benefit from their full suite of services (access to alternative investments, estate/tax planning, legal advice, customer service, etc.), but once you have a windfall of some number (call it maybe $100 million), it becomes imprudent not to expand beyond just public bonds and equities (direct real estate, commodities, distress strategies, etc.) and pretty complicated/time consuming without hiring someone to do it. At some point, i would think, it is worth the annual fee (say even if it's as high as 1%, $1 million) to have a strategy that you can more comfortably rely on for a steady 8% real rate of return with sufficient liquidity protection/risk tolerance to allow for regular withdrawals with that strategy (assuming that's possible). Or maybe another way to think of it is as 0% alpha, but more comfort/less risk. I presume if you're in asset accumulation phase anyway with a very steady/secure income, you might even be able to generate 12 or even 18% real returns over longer time horizons with limited liquidity and a very well diversified portfolio. I think another way to think of this is alpha generation through better risk tolerance techniques - It's not that your portfolio is more efficient (there is no free lunch), rather it is more diversified so you're able to move even further out the risk/reward spectrum of the efficient market and get rewarded for it. If they're doing their jobs right, you're getting out-sized rewards for this increased risk tolerance because they are targeting very limited liquidity investments where your ability to lock-up capital on their schedule (or your capital is super easy to tap, or the investment has some weird tax effect that doesn't make the investment as attractive to institutional investors, etc.) pays handsomely.

IOW, if you're comfortably making $7 million per year, are you not OK paying someone $1 million per year to just handle everything regarding your financial life?

Does anyone agree with me? If so, I'd be curious to hear thoughts on the various assumptions I clearly made above.

Thank you,
This sounds like a fantastic sales pitch that i would run, not walk away from.

User avatar
Mel Lindauer
Moderator
Posts: 28693
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Mel Lindauer » Sun Dec 09, 2018 11:42 am

fwdmotion wrote:
Thu Dec 06, 2018 6:30 pm

Does anyone have anyone they can recommend for a fee only advisor?
You can call Boglehead author and columnist, Allan Roth, CFP, CPA, MBA, at Wealth Logic. He's a fee-only advisor. His office number is 719-955-1001.
Best Regards - Mel | | Semper Fi

User avatar
8foot7
Posts: 855
Joined: Mon Jan 05, 2015 7:29 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by 8foot7 » Sun Dec 09, 2018 11:45 am

gvsucavie03 wrote:
Sat Dec 08, 2018 8:35 am
In the grand scheme of things, $20M is really not a lot. To a middle class individual it seems like a mint.
What a ridiculous statement that unfortunately colors the credibility of anything else said.

OP, I would spend a lot of time trying to understand specific reasons why the 3-fund portfolio would not work for me.

User avatar
JonnyDVM
Posts: 1604
Joined: Wed Feb 12, 2014 6:51 pm
Location: Atlanta, GA

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by JonnyDVM » Sun Dec 09, 2018 11:49 am

No doubt a made up story from a throw away account. Regardless, anyone falling into that much money who would ask a group of strangers on the internet what to do with it should consult a good financial advisor. Is there a difference between managing 20 million, 2 million, or 20k? Yes. A significant one. Tax strategies. Different investment options. Estate planning. It’s not as simple as throwing it all into a Vanguard target fund and calling it a day.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

User avatar
welderwannabe
Posts: 827
Joined: Fri Jun 16, 2017 8:32 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by welderwannabe » Sun Dec 09, 2018 12:03 pm

Why not just stick it in Vanguard's Treasury MM fund for a while?
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

retiredjg
Posts: 34372
Joined: Thu Jan 10, 2008 12:56 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by retiredjg » Sun Dec 09, 2018 2:18 pm

midagelawyer wrote:
Sun Dec 09, 2018 10:59 am
Am I reading your post correctly to say that you'd prefer to have a portfolio with lower expected net returns in order to pay lower fees?
No. Maybe. Why would it matter?

midagelawyer
Posts: 60
Joined: Sun Jan 29, 2017 11:37 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by midagelawyer » Sun Dec 09, 2018 2:31 pm

averagedude wrote:
Sun Dec 09, 2018 11:35 am
midagelawyer wrote:
Sat Dec 08, 2018 1:34 pm
What do people here think of hiring a JP Morgan, Morgan Stanley, Goldman Sachs type wealth adviser? Clearly that makes no sense if you don't have enough to benefit from their full suite of services (access to alternative investments, estate/tax planning, legal advice, customer service, etc.), but once you have a windfall of some number (call it maybe $100 million), it becomes imprudent not to expand beyond just public bonds and equities (direct real estate, commodities, distress strategies, etc.) and pretty complicated/time consuming without hiring someone to do it. At some point, i would think, it is worth the annual fee (say even if it's as high as 1%, $1 million) to have a strategy that you can more comfortably rely on for a steady 8% real rate of return with sufficient liquidity protection/risk tolerance to allow for regular withdrawals with that strategy (assuming that's possible). Or maybe another way to think of it is as 0% alpha, but more comfort/less risk. I presume if you're in asset accumulation phase anyway with a very steady/secure income, you might even be able to generate 12 or even 18% real returns over longer time horizons with limited liquidity and a very well diversified portfolio. I think another way to think of this is alpha generation through better risk tolerance techniques - It's not that your portfolio is more efficient (there is no free lunch), rather it is more diversified so you're able to move even further out the risk/reward spectrum of the efficient market and get rewarded for it. If they're doing their jobs right, you're getting out-sized rewards for this increased risk tolerance because they are targeting very limited liquidity investments where your ability to lock-up capital on their schedule (or your capital is super easy to tap, or the investment has some weird tax effect that doesn't make the investment as attractive to institutional investors, etc.) pays handsomely.

IOW, if you're comfortably making $7 million per year, are you not OK paying someone $1 million per year to just handle everything regarding your financial life?

Does anyone agree with me? If so, I'd be curious to hear thoughts on the various assumptions I clearly made above.

Thank you,
This sounds like a fantastic sales pitch that i would run, not walk away from.
Averagedude - this is the kind of response I was looking for, though I wish you would be able to more clearly explain both what makes this "fantastic" and why it would make you run, not walk, away from it. If you can poke specific holes in the assumptions/description, that would be particularly helpful. I would very much appreciate it!

midagelawyer
Posts: 60
Joined: Sun Jan 29, 2017 11:37 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by midagelawyer » Sun Dec 09, 2018 2:35 pm

retiredjg wrote:
Sun Dec 09, 2018 2:18 pm
midagelawyer wrote:
Sun Dec 09, 2018 10:59 am
Am I reading your post correctly to say that you'd prefer to have a portfolio with lower expected net returns in order to pay lower fees?
No. Maybe. Why would it matter?
Hmm. I think there's a difference between saying the fees are not worth it because you're not getting what you pay for (i.e., the returns are not actually any higher) and saying I don't want to pay the fees (even if they are worth it) because I'm OK with not getting the product those fees buy (better returns). The piece I'm trying to hone in on is whether you think the fees are never worth it, or are you saying that even where the fees are worth it, I still won't pay them, because I'm just against the notion of paying these types of fees.

Mrxyz
Posts: 599
Joined: Wed Feb 29, 2012 6:12 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Mrxyz » Sun Dec 09, 2018 3:12 pm

I really wonder if the OP will get as many response if the post was;

"$20,000 inheritance - What is the best option for small/no risk on principal?"

Does the answer touch on human perspective or behavior or failing?

Boglegrappler
Posts: 1104
Joined: Wed Aug 01, 2012 9:24 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Boglegrappler » Sun Dec 09, 2018 3:20 pm

The answer touches on simple math and common sense.

If you invested to "preserve" principal in a real sense, the best way would be 100% stocks. The yield on the S&P 500 is about 1.9%, so lets call it 2%.

That means that 20MM will give you annual dividend income of $400,000 pretax. The 20K inheritance will give you annual dividend income of $400.

Its a reality that on this message board, the majority of people are in a situation where they don't plan to pass "principal" on to the next generation, because of their own needs. If one is in the small minority where there is a meaningful amount that could be given to heirs (or other worthy causes), then the answer to how to invest becomes more multifaceted.

retiredjg
Posts: 34372
Joined: Thu Jan 10, 2008 12:56 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by retiredjg » Sun Dec 09, 2018 4:01 pm

midagelawyer wrote:
Sun Dec 09, 2018 2:35 pm
retiredjg wrote:
Sun Dec 09, 2018 2:18 pm
midagelawyer wrote:
Sun Dec 09, 2018 10:59 am
Am I reading your post correctly to say that you'd prefer to have a portfolio with lower expected net returns in order to pay lower fees?
No. Maybe. Why would it matter?
Hmm. I think there's a difference between saying the fees are not worth it because you're not getting what you pay for (i.e., the returns are not actually any higher) and saying I don't want to pay the fees (even if they are worth it) because I'm OK with not getting the product those fees buy (better returns). The piece I'm trying to hone in on is whether you think the fees are never worth it, or are you saying that even where the fees are worth it, I still won't pay them, because I'm just against the notion of paying these types of fees.
The topic you want to discuss is not really pertinent to the original poster's question. Even if it were, the original poster is obviously not interested in the types of investments you are talking about.

You really should take this discussion to the theory forum rather than hijack this poster's thread which is in the "help with personal investments" forum. :happy

User avatar
BolderBoy
Posts: 4170
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by BolderBoy » Sun Dec 09, 2018 4:14 pm

fwdmotion wrote:
Thu Dec 06, 2018 8:59 am
Looking at CD's which seem like I would have to do a CDARS network. I've seen banks offering 3.4-3.6% on 5 year cd's now which I figured if I'm not paying a 1% management fee is pretty great for no risk on the actual principle.
No risk: pretty limited to FDIC insured products and related instruments. Do you know how many different financial institutions you will need to use in order to stay under the insured maximum/institution?

Small risk: I'd go with a 25/75 or 30/70 stock/bond (fund) split. It should at least keep up with inflation over time. For bonds I'd use only tax-exempt bond funds, such as the Vanguard Intermediate Term Tax-Exempt Fund. The Total Stock Market Index for the stock fund (tax efficient).

See that word, "inflation"? That is your greatest risk and you need to account for that in order to protect your principal, regardless of how you decide to proceed.

Even with a 30/70 AA you are going to see a LOT of income per year going forward.

Oh, and congratulations. You've won the game.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Teague
Posts: 1216
Joined: Wed Nov 04, 2015 6:15 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Teague » Sun Dec 09, 2018 4:55 pm

Mrxyz wrote:
Sun Dec 09, 2018 3:12 pm
I really wonder if the OP will get as many response if the post was;

"$20,000 inheritance - What is the best option for small/no risk on principal?"

Does the answer touch on human perspective or behavior or failing?
I'd bet OP would have gotten more responses with the smaller amount. For me, it touches on the perceived credibility of a first-time poster claiming they just scored a $20 million inheritance.
Semper Augustus

lostdog
Posts: 1285
Joined: Thu Feb 04, 2016 2:15 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by lostdog » Sun Dec 09, 2018 5:00 pm

galeno wrote:
Thu Dec 06, 2018 9:46 pm
The best risk adjusted return portfolio would be 30/70.

30% VT + 50% BND + 20% TIPS would be ideal for you.
+1

Simple. Send the dividends to the sweep account or your checking account and go live your life.

Congratulations!

gvsucavie03
Posts: 1349
Joined: Sat Feb 16, 2013 8:30 am

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by gvsucavie03 » Sun Dec 09, 2018 7:18 pm

8foot7 wrote:
Sun Dec 09, 2018 11:45 am
gvsucavie03 wrote:
Sat Dec 08, 2018 8:35 am
In the grand scheme of things, $20M is really not a lot. To a middle class individual it seems like a mint.
What a ridiculous statement that unfortunately colors the credibility of anything else said.
It's a huge responsibility, that was my point. $20M is nothing if you squander it in 5 years.

Living Free
Posts: 129
Joined: Thu Jul 19, 2018 7:31 pm

Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by Living Free » Sun Dec 09, 2018 8:12 pm

Grt2bOutdoors wrote:
Thu Dec 06, 2018 11:25 pm
Living Free wrote:
Thu Dec 06, 2018 10:58 am
I believe that the FDIC limit of $250k still applies to CDs: https://www.fdic.gov/deposit/covered/notinsured.html. So you'd need to buy a lot of different CDs to hold and insure your full amount.
I agree with above that I'd want at least some stocks. Treasuries would be nice too.
That’s the beauty of Cdars, they spread the money around for you, all fdic insured.
thanks for mentioning them I wasn't familiar with Cdars

aqan wrote:
Sat Dec 08, 2018 8:32 am
I believe brokered CDs of 250k each will do it.
I wasn't familiar with brokered CDs either so thanks for pointing that out

trueblueky
Posts: 1376
Joined: Tue May 27, 2014 3:50 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by trueblueky » Sun Dec 09, 2018 8:44 pm

midagelawyer wrote:
Sat Dec 08, 2018 1:34 pm
What do people here think of hiring a JP Morgan, Morgan Stanley, Goldman Sachs type wealth adviser? Clearly that makes no sense if you don't have enough to benefit from their full suite of services (access to alternative investments, estate/tax planning, legal advice, customer service, etc.), but once you have a windfall of some number (call it maybe $100 million), it becomes imprudent not to expand beyond just public bonds and equities (direct real estate, commodities, distress strategies, etc.) and pretty complicated/time consuming without hiring someone to do it. At some point, i would think, it is worth the annual fee (say even if it's as high as 1%, $1 million) to have a strategy that you can more comfortably rely on for a steady 8% real rate of return with sufficient liquidity protection/risk tolerance to allow for regular withdrawals with that strategy (assuming that's possible). Or maybe another way to think of it is as 0% alpha, but more comfort/less risk. I presume if you're in asset accumulation phase anyway with a very steady/secure income, you might even be able to generate 12 or even 18% real returns over longer time horizons with limited liquidity and a very well diversified portfolio. I think another way to think of this is alpha generation through better risk tolerance techniques - It's not that your portfolio is more efficient (there is no free lunch), rather it is more diversified so you're able to move even further out the risk/reward spectrum of the efficient market and get rewarded for it. If they're doing their jobs right, you're getting out-sized rewards for this increased risk tolerance because they are targeting very limited liquidity investments where your ability to lock-up capital on their schedule (or your capital is super easy to tap, or the investment has some weird tax effect that doesn't make the investment as attractive to institutional investors, etc.) pays handsomely.

IOW, if you're comfortably making $7 million per year, are you not OK paying someone $1 million per year to just handle everything regarding your financial life?

Does anyone agree with me? If so, I'd be curious to hear thoughts on the various assumptions I clearly made above.

Thank you,
If there's a way to get reliable, steady, real rate of return of 8%, why doesn't some company do it and market it as 7.5%, keeping the difference? That's way higher than any guaranteed annuity on the market.

Gill
Posts: 4816
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Gill » Sun Dec 09, 2018 9:49 pm

pennylane wrote:
Thu Dec 06, 2018 7:55 pm
You inherited 20mill in cash?

Who holds that much cash??

Something doesn’t seem right...
Agreed. Two posts by OP to this point. I smell a troll.
Gill

User avatar
LadyGeek
Site Admin
Posts: 49128
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by LadyGeek » Sun Dec 09, 2018 10:12 pm

fwdmotion - Have we answered your questions?
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

averagedude
Posts: 345
Joined: Sun May 13, 2018 3:41 pm

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by averagedude » Sun Dec 09, 2018 10:36 pm

midagelawyer wrote:
Sun Dec 09, 2018 2:31 pm
averagedude wrote:
Sun Dec 09, 2018 11:35 am
midagelawyer wrote:
Sat Dec 08, 2018 1:34 pm
What do people here think of hiring a JP Morgan, Morgan Stanley, Goldman Sachs type wealth adviser? Clearly that makes no sense if you don't have enough to benefit from their full suite of services (access to alternative investments, estate/tax planning, legal advice, customer service, etc.), but once you have a windfall of some number (call it maybe $100 million), it becomes imprudent not to expand beyond just public bonds and equities (direct real estate, commodities, distress strategies, etc.) and pretty complicated/time consuming without hiring someone to do it. At some point, i would think, it is worth the annual fee (say even if it's as high as 1%, $1 million) to have a strategy that you can more comfortably rely on for a steady 8% real rate of return with sufficient liquidity protection/risk tolerance to allow for regular withdrawals with that strategy (assuming that's possible). Or maybe another way to think of it is as 0% alpha, but more comfort/less risk. I presume if you're in asset accumulation phase anyway with a very steady/secure income, you might even be able to generate 12 or even 18% real returns over longer time horizons with limited liquidity and a very well diversified portfolio. I think another way to think of this is alpha generation through better risk tolerance techniques - It's not that your portfolio is more efficient (there is no free lunch), rather it is more diversified so you're able to move even further out the risk/reward spectrum of the efficient market and get rewarded for it. If they're doing their jobs right, you're getting out-sized rewards for this increased risk tolerance because they are targeting very limited liquidity investments where your ability to lock-up capital on their schedule (or your capital is super easy to tap, or the investment has some weird tax effect that doesn't make the investment as attractive to institutional investors, etc.) pays handsomely.

IOW, if you're comfortably making $7 million per year, are you not OK paying someone $1 million per year to just handle everything regarding your financial life?

Does anyone agree with me? If so, I'd be curious to hear thoughts on the various assumptions I clearly made above.

Thank you,
This sounds like a fantastic sales pitch that i would run, not walk away from.
Averagedude - this is the kind of response I was looking for, though I wish you would be able to more clearly explain both what makes this "fantastic" and why it would make you run, not walk, away from it. If you can poke specific holes in the assumptions/description, that would be particularly helpful. I would very much appreciate it!
Of course this is fantastic. I can get 8% real returns with a possibility of getting 12% to 18% real returns on a long time horizon. Also this is presented very intelligently from a firm that only represents high net worth clients like myself. I also like the fact that im lucky that i don't have weird tax implications like large institutional investors. I also like that i can get in on commodities, direct real estate, and other distressed strategies with bright asset managers that can spot inefficiencies in the market using alpha and smart beta strategies.
The reason why i will run, not walk away is because i know another firm, with brighter managers, that has said that i can get 9% real returns with the possibility of getting 13% to 19% real returns on my 100 million.

AlphaLess
Posts: 1036
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by AlphaLess » Sun Dec 09, 2018 11:12 pm

These type of threads are basically brain massage and troll-feeding.
"You can get more with a kind word and a gun than with just a kind word." George Washington

User avatar
LadyGeek
Site Admin
Posts: 49128
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by LadyGeek » Sun Dec 09, 2018 11:26 pm

The discussion is getting derailed and a bit contentious. Let's stop it here. (Thread locked.)

fwdmotion - Please PM me and I'll reopen the discussion.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Locked