I will inherit 2Mil What to do with it?

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Topic Author
hawaii808
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I will inherit 2Mil What to do with it?

Post by hawaii808 » Tue May 07, 2019 9:01 pm

I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.

JoeRetire
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Re: I will inherit 2Mil What to do with it?

Post by JoeRetire » Tue May 07, 2019 9:04 pm

hawaii808 wrote:
Tue May 07, 2019 9:01 pm
Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.
People have been saying that for the past 10 years.
What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
Why do you need 3.5% to 4% ?

Topic Author
hawaii808
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Re: I will inherit 2Mil What to do with it?

Post by hawaii808 » Tue May 07, 2019 9:14 pm

Upside odds are not as good compared to the downside at this time.

I want to retire on on the 2 mIl as I am 70 of age.

surfstar
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Re: I will inherit 2Mil What to do with it?

Post by surfstar » Tue May 07, 2019 9:19 pm

Age 70?
2 mil?
Want? You CAN, retire.*

50/50 allocation
combination of wellington and wellesley could work - some people do 1/2 of each, call it a 50/50 portfolio and be done

*of course, your annual spending should be not more than 5% of the portfolio
Last edited by surfstar on Tue May 07, 2019 9:20 pm, edited 1 time in total.

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arcticpineapplecorp.
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Re: I will inherit 2Mil What to do with it?

Post by arcticpineapplecorp. » Tue May 07, 2019 9:20 pm

hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
when would you "want to start investing in stocks"?
If you say "at the next correction" how do you define a correction?
What if by correction you say "when the market falls 10%" (that's a typical definition) and you invest then and the market falls another 20% or 30% after you bought in at 10% lower prices? Will you feel like a chump for not having waited longer for the market to decline before investing?

What if you think the market will fall further so you wait to get in, and it reverses (and quickly...remember 2009? Stocks shot up 71.35% between the bottom 3/6/09 and 12/28/09 (source: https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D). Problem is, people were too frightened to buy into the market in March 2009. Even Jim Cramer said the market would fall (Dow to 5000. It never did). People wait on the sidelines for the smoke to clear and then miss out on fabulous returns. It's called market timing. It's what you're trying to do by waiting to get in at the next correction. You're likely kidding yourself but you don't know it yet.

considering a high quality intermediate bond is paying around 2.5% a year and high yield savings accounts are paying around the same, what do you suppose you'd have to do to get a return higher than that? (hint: you'd have to invest in something that rhymes with "socks")

considering you're looking for higher returns, what does that do to the amount of risk you take? (hint: they go together like peanut butter and jelly).

If you sell any of the investments where the money is now will you generate capital gains? I.E., is the $2 mil in a taxable account, or a tax-deferred/tax free (Roth) account? Do you understand tax efficiency and tax implications of selling funds in a taxable account?

Slow down. Read the following (managing a windfall):
https://www.bogleheads.org/wiki/Managing_a_windfall
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Topic Author
hawaii808
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Re: I will inherit 2Mil What to do with it?

Post by hawaii808 » Tue May 07, 2019 9:28 pm

Yes the 50/50 allocation would work for me, but wanted to wait a year or two before doing that.
So I was looking at bond ladders and income funds until the next correction before I do that.
Don't like to risk $$ in a 50/50 portfolio at this time.

Topic Author
hawaii808
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Joined: Fri Mar 22, 2019 12:25 am

Re: I will inherit 2Mil What to do with it?

Post by hawaii808 » Tue May 07, 2019 9:44 pm

arcticpineapplecorp. wrote:
Tue May 07, 2019 9:20 pm
hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
when would you "want to start investing in stocks"?
If you say "at the next correction" how do you define a correction?
What if by correction you say "when the market falls 10%" (that's a typical definition) and you invest then and the market falls another 20% or 30% after you bought in at 10% lower prices? Will you feel like a chump for not having waited longer for the market to decline before investing?

What if you think the market will fall further so you wait to get in, and it reverses (and quickly...remember 2009? Stocks shot up 71.35% between the bottom 3/6/09 and 12/28/09 (source: https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D). Problem is, people were too frightened to buy into the market in March 2009. Even Jim Cramer said the market would fall (Dow to 5000. It never did). People wait on the sidelines for the smoke to clear and then miss out on fabulous returns. It's called market timing. It's what you're trying to do by waiting to get in at the next correction. You're likely kidding yourself but you don't know it yet.

considering a high quality intermediate bond is paying around 2.5% a year and high yield savings accounts are paying around the same, what do you suppose you'd have to do to get a return higher than that? (hint: you'd have to invest in something that rhymes with "socks")

considering you're looking for higher returns, what does that do to the amount of risk you take? (hint: they go together like peanut butter and jelly).

If you sell any of the investments where the money is now will you generate capital gains? I.E., is the $2 mil in a taxable account, or a tax-deferred/tax free (Roth) account? Do you understand tax efficiency and tax implications of selling funds in a taxable account?

Slow down. Read the following (managing a windfall):
https://www.bogleheads.org/wiki/Managing_a_windfall
My plan is 20% stocks at this time the rest in MM and bonds if the market goes down 10% I would up my % to 35% if the market goes down 20% I would up it to 50/50. But for now keeping it low risk.
I do not think it's a good idea to jump it at anytime. Better to pick your time when you are retired.

JimInIllinois
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Re: I will inherit 2Mil What to do with it?

Post by JimInIllinois » Tue May 07, 2019 9:54 pm

hawaii808 wrote:
Tue May 07, 2019 9:14 pm
I want to retire on on the 2 mIl as I am 70 of age.
You should at least research putting some of it into an immediate fixed annuity.

Jags4186
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Re: I will inherit 2Mil What to do with it?

Post by Jags4186 » Tue May 07, 2019 10:05 pm

Hawaii808,

There is no good answer to your question. It comes up time and time again on this forum. You will not get an answer that is satisfactory.

You say you want to wait until the next correction. What if the market goes up 100% before dropping 10%, 20%, 30%, or 40%? If you wait for that drop you will still be behind where you would have been if you had put the money in now. What if the market drops 20% over the next month? Will you be able to invest the money then or will you be saying to yourself “the market dropped 20% in a month...it’s got way more downside now...I’m not putting my money in it now.”

The only answer you should get here is determine an appropriate asset allocation within your risk tolerance. Stocks can and do drop 50%. Are you okay losing 25% of your money? If so 50% in equities would be appropriate. If you are only okay losing 10% of your money, then 20% equities is appropriate.

Consider your needs going forward. Everything isn’t about maxing your return, especially when you already have “won”.

michaeljc70
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Re: I will inherit 2Mil What to do with it?

Post by michaeljc70 » Tue May 07, 2019 10:23 pm

hawaii808 wrote:
Tue May 07, 2019 9:28 pm
Yes the 50/50 allocation would work for me, but wanted to wait a year or two before doing that.
So I was looking at bond ladders and income funds until the next correction before I do that.
Don't like to risk $$ in a 50/50 portfolio at this time.
At what time will you do that??? What constitutes a "correction" in your view? What conditions will allow you to invest in a 50/50 AA? What if in a year or two the market is much higher? Will you still invest in it?

Frankly, I don't think you have a good plan. I would choose a period of time and DCA into an AA you feel comfortable with. If that is over 12 months or 24 months or 36 months, that is fine. Just come up with a plan that is more solid than what you have implied.

Thesaints
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Re: I will inherit 2Mil What to do with it?

Post by Thesaints » Tue May 07, 2019 10:27 pm

hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley
Maybe you could have inherited 4Mil...
Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
If you mean 3.5% before taxes and not counting inflation, high yield bonds pay over 5%, so I'd say a suitable mix with treasuries.
If you mean after taxes and after inflation, then all stocks is the only answer and you'll be exposed to the next downturn as well as to the next upturn.

Dottie57
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Re: I will inherit 2Mil What to do with it?

Post by Dottie57 » Tue May 07, 2019 10:35 pm

hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
When will you inherit? Is the money yours now?

Topic Author
hawaii808
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Re: I will inherit 2Mil What to do with it?

Post by hawaii808 » Tue May 07, 2019 10:44 pm

Dottie57 wrote:
Tue May 07, 2019 10:35 pm
hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
When will you inherit? Is the money yours now?
It is mine now, but I promised my dad I would not touch it until he passes. He is in Hospice now.

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Watty
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Re: I will inherit 2Mil What to do with it?

Post by Watty » Tue May 07, 2019 10:46 pm

arcticpineapplecorp. wrote:
Tue May 07, 2019 9:20 pm
Slow down. Read the following (managing a windfall):
https://www.bogleheads.org/wiki/Managing_a_windfall
+1

There is no hurry so take your time to figure out a long term plan.

A few thing you might do though;

1) If you don't already have it you should also get ample car insurance and an umbrella policy since you are more likely to be sued now that you have more assets.

2) Make sure that you are maxing out all your tax advantaged accounts.

3) Pay off all of your debt except for a mortage. The mortage is a less easy decision and you can wait a while to decide on that.

4) It would be good to also consider if you have relatively safe cars. It is just me but one of my pet peeves is when people post about having a lot of money but they drive an old beater that doesn't even have ESC or side airbags. I'm not saying that you should buy an expensive car with all the latest safety bells and whistles but they have improved the safety features a lot, especially over the last five years so you should consider if your current cars should be replaced with safer models.

michaeljc70
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Re: I will inherit 2Mil What to do with it?

Post by michaeljc70 » Tue May 07, 2019 10:49 pm

Watty wrote:
Tue May 07, 2019 10:46 pm
arcticpineapplecorp. wrote:
Tue May 07, 2019 9:20 pm
Slow down. Read the following (managing a windfall):
https://www.bogleheads.org/wiki/Managing_a_windfall
+1

There is no hurry so take your time to figure out a long term plan.

A few thing you might do though;

1) If you don't already have it you should also get ample car insurance and an umbrella policy since you are more likely to be sued now that you have more assets.

2) Make sure that you are maxing out all your tax advantaged accounts.


3) Pay off all of your debt except for a mortage. The mortage is a less easy decision and you can wait a while to decide on that.

4) It would be good to also consider if you have relatively safe cars. It is just me but one of my pet peeves is when people post about having a lot of money but they drive an old beater that doesn't even have ESC or side airbags. I'm not saying that you should buy an expensive car with all the latest safety bells and whistles but they have improved the safety features a lot, especially over the last five years so you should consider if your current cars should be replaced with safer models.
They are 70 years old!

KyleAAA
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Re: I will inherit 2Mil What to do with it?

Post by KyleAAA » Tue May 07, 2019 11:04 pm

Don’t try to time the market. Chances are the bottom of the next correction will be higher than stocks are right now. As bull markets go, the last 10 years have been quite tame. Hardly on a tear. If you are worried about ijs, it just means your asset allocation should be more conservative.

Thegame14
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Re: I will inherit 2Mil What to do with it?

Post by Thegame14 » Tue May 07, 2019 11:09 pm

money market is only going to get you about 2.5%, cd's you can probably get 3%, but that is it, not going to get 4% without some risk. Best bet is to just invest in cd ladder at 3% and have emergency fund in MM of 1-2 years expenses....

SovereignInvestor
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Re: I will inherit 2Mil What to do with it?

Post by SovereignInvestor » Tue May 07, 2019 11:10 pm

Absolutes csn be harmful. OP wants to wait until unspecified correction to enter which is timing market, but I understand desire to not get in at a high

Everyone commenting warns against timing market.

If he wants 50/50 allocatioj, why not go to that over time? Is 3 years too long to be allocated like you want?

Then put 1.5% of capital into stocks every month for the next near 3 years. If the market drops 10% then maybe put in a 10% chunk, and 20% then another 20% chunk so you're fully in the stock allocation in 3 years or in a correction/ bear market?

If you want 3-4% you can avoid equities, medium or long term corporates yield above 4% roughly.

VCLT VCIT near 4% yields.

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BL
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Re: I will inherit 2Mil What to do with it?

Post by BL » Wed May 08, 2019 12:14 am

It sounds like you might be a good candidate for a SPIA, a single premium Immediate annuity, the only good annuity, with part of your money. You would get back more than interest rates, because you would also be getting back a return of your premium. You could look at immediateAnnuities.com and try out some numbers.
This is not really an investment, but a way to get a higher regular income without investing that part in equities. Buying some now and some later might help take care of inflation. It is a permanent commitment so you couldn't get your money back if you changed your mind.

Putting 20% into equities immediately and then adding to it every month until you have 30-50% equities might work. Just waiting could backfire and any drop could be higher than it is currently. Have you seen the drop of this week? Not a huge % yet, but who knows? Maybe you want to do the "age in bonds" (or fixed income) and continue indefinitely with 30% equities. Buying an index Target retirement Income fund might also be fine. I wouldn't sell Wellesley if I had to pay tax to do it.

dcop
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Re: I will inherit 2Mil What to do with it?

Post by dcop » Wed May 08, 2019 1:13 am

VWETX Investment Grade Bond Fund will bring you about 4.5 but not qualified Divs as its actually interest. At 70 I would settle with 2.5 return in Money Market or break it up into FDIC CDs. But if you really want 3.5+ now put some of your MM into VWETX and keep the Wellington and Wellesley intact. Your principal is massive for age 70 unless of course you have huge (really huge) monthly expenses.

Dottie57
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Re: I will inherit 2Mil What to do with it?

Post by Dottie57 » Wed May 08, 2019 6:35 am

BL wrote:
Wed May 08, 2019 12:14 am
It sounds like you might be a good candidate for a SPIA, a single premium Immediate annuity, the only good annuity, with part of your money. You would get back more than interest rates, because you would also be getting back a return of your premium. You could look at immediateAnnuities.com and try out some numbers.
This is not really an investment, but a way to get a higher regular income without investing that part in equities. Buying some now and some later might help take care of inflation. It is a permanent commitment so you couldn't get your money back if you changed your mind.

Putting 20% into equities immediately and then adding to it every month until you have 30-50% equities might work. Just waiting could backfire and any drop could be higher than it is currently. Have you seen the drop of this week? Not a huge % yet, but who knows? Maybe you want to do the "age in bonds" (or fixed income) and continue indefinitely with 30% equities. Buying an index Target retirement Income fund might also be fine. I wouldn't sell Wellesley if I had to pay tax to do it.
I second this.

We do need to know OP’s objective. Doe he or she want to generate income? Does OP want to grow the money for next generation or charity? Purpose matters.

3-20Characters
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Re: I will inherit 2Mil What to do with it?

Post by 3-20Characters » Wed May 08, 2019 6:55 am

If the market drops 10% from when? Today? Last week? Last year?

S&P500: 2,872.75 - 10% = 2585.475

Do you know the last time the S&P500 was below your 10% dip line? Jan 14, 2019

wrongfunds
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Re: I will inherit 2Mil What to do with it?

Post by wrongfunds » Wed May 08, 2019 7:00 am

Did people just glance over the fact that OP is 70 years today?

3-20Characters
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Re: I will inherit 2Mil What to do with it?

Post by 3-20Characters » Wed May 08, 2019 7:07 am

wrongfunds wrote:
Wed May 08, 2019 7:00 am
Did people just glance over the fact that OP is 70 years today?
No. Advice given (except for one I can count) applies to any age.

ryman554
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Re: I will inherit 2Mil What to do with it?

Post by ryman554 » Wed May 08, 2019 8:23 am

hawaii808 wrote:
Tue May 07, 2019 10:44 pm
It is mine now, but I promised my dad I would not touch it until he passes. He is in Hospice now.
This worries me. How do you have it without actually inheriting it? If it was a gift -- that's fine, but realize you do not get a step-up in basis, so there may be significant taxes due when you sell.

Regardless, this is a difficult time where you are probably not thinking straight, so I strongly suggest you do nothing, and then do nothing more for six more months after he passes. During that time, don't change anything.

Afterwards, come back here again...

22twain
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Re: I will inherit 2Mil What to do with it?

Post by 22twain » Wed May 08, 2019 8:40 am

hawaii808 wrote:
Tue May 07, 2019 9:14 pm
I want to retire on on the 2 mIl as I am 70 of age.
How much do you have in other assets? (IRA, 401k, etc.)

About how much do you spend per year?

How much Social Security are you receiving?

All this affects how much you need to earn and/or draw from the $2M.
My investing princiPLEs do not include absolutely preserving princiPAL.

ohai
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Re: I will inherit 2Mil What to do with it?

Post by ohai » Wed May 08, 2019 8:55 am

OP, investment grade bonds, for instance LQD, are yielding 3.5% or maybe a bit higher. If you are not interested in preserving capital, I'd say look into annuities, as I think they will give you a higher yield that will likely guarantee your life expenses, but just no capital when you "expire".

LK2012
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Re: I will inherit 2Mil What to do with it?

Post by LK2012 » Wed May 08, 2019 9:24 am

First of all, I'm very sorry that your father is in hospice, and this must be a difficult time. It would be a good idea, as I think you said, to just take some time before making any decisions.

In the meantime, have you looked at how the current investments have done? Because you may not even want to change much. At 70 years old, 2 million conservatively invested (as it is) will do just fine.

I put the current asset allocation into Portfolio Visualizer (https://www.portfoliovisualizer.com/bac ... sisResults), and just made a Portfolio 1 as follows, with no rebalancing:

CASHX (for the money market) - 50%
VBISX (Vanguard Short-Term Bond Index) - 30%
(VWINX (Vanguard Wellesley) - 7.5%
VWELX (Vanguard Wellington) - 7.5%

The resulting portfolio from January 1985 to April 2019 had a Compound Annual Growth Rate (CAGR) of 4.70%, and a worst year loss of -2.06%.

After you've had some time to grieve, and read more about investing, you might want to make some changes, but give yourself time. As many people are pointing out, timing the market is impossible, and you will want to be comfortable with your final decisions.

GrowthSeeker
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Re: I will inherit 2Mil What to do with it?

Post by GrowthSeeker » Wed May 08, 2019 9:48 am

I'm 66, almost your age.
I used to think I could time the market.
Now I think I cannot time the market.
If I were in your shoes, the first thing I would do is stop, don't do anything except read and read. (which it sounds like you are doing). Good.
Next is to decide what percent stocks you want to be: I know you have said 20%, but you may change your mind once you get over the idea that you can time the market.

Although age and risk-tolerance are the main variables people talk about as the ones that should dictate one's asset allocation, I think that the "x-factor" should also be considered. So if we call your expenses minus income "x" (earned income, social security, pensions, and annuities). Then your invest-able net worth (minus emergency fund) is, say, 25 times x, then you are at 25x (so what I call your x-factor is 25). If your x-factor is infinity, e.g. all your expenses are met by SS, pensions etc then it really doesn't matter much what your AA is. Well, it doesn't matter much to you, but it theoretically matters to your heirs. But if your x-factor at age 70 is 20 then you have to either cut expenses or take more risk with your AA.

btw, RMDs don't count as income. RMDs are just taking money out of one pocket, giving some to the government and putting the rest into another pocket.
Just because you're paranoid doesn't mean they're NOT out to get you.

mancich
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Re: I will inherit 2Mil What to do with it?

Post by mancich » Wed May 08, 2019 10:44 am

As Bogleheads we are usually DIY'ers with our personal finances and investments (I am as well), but there would be no shame in the OP consulting with a fee-only financial advisor who is a fiduciary, and pay that person perhaps a one-time fee to provide another opinion. A CPA and estate lawyer is not a bad idea either, with that amount of money.

anoop
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Re: I will inherit 2Mil What to do with it?

Post by anoop » Wed May 08, 2019 10:47 am

hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
This asset allocation appears to be consistent with someone that is in retirement (i.e. very conservative allocation). I would leave it as is.

Valuethinker
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Re: I will inherit 2Mil What to do with it?

Post by Valuethinker » Wed May 08, 2019 11:47 am

Watty wrote:
Tue May 07, 2019 10:46 pm

4) It would be good to also consider if you have relatively safe cars. It is just me but one of my pet peeves is when people post about having a lot of money but they drive an old beater that doesn't even have ESC or side airbags. I'm not saying that you should buy an expensive car with all the latest safety bells and whistles but they have improved the safety features a lot, especially over the last five years so you should consider if your current cars should be replaced with safer models.
I had one interchange where someone was driving a 1968 Mustang? Not as a weekend fun car but as their main mode of transport.

I assume it had (front) shoulder belts. It would not have had a collapsible steering wheel I don't think.

Perhaps in the land of SUVs a car like is just likely to get crushed and no amount of safety equipment is going to save you against a bumper coming in at your shoulder height.

One could enumerate further, but it just chilled me.

My mother has been in 2 very serious car crashes in her life, and the punchline is she does not drive.

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TomatoTomahto
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Re: I will inherit 2Mil What to do with it?

Post by TomatoTomahto » Wed May 08, 2019 11:55 am

3-20Characters wrote:
Wed May 08, 2019 7:07 am
wrongfunds wrote:
Wed May 08, 2019 7:00 am
Did people just glance over the fact that OP is 70 years today?
No. Advice given (except for one I can count) applies to any age.
Except that SPIA, at age 90 with father in hospice (ie, longevity genes on at least one side), is much more favored than usual. I’d put a lot in SPIA, leave some aside for market timing whatever correction does or doesn’t happen, and enjoy retirement.
Okay, I get it; I won't be political or controversial. The Earth is flat.

3-20Characters
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Re: I will inherit 2Mil What to do with it?

Post by 3-20Characters » Wed May 08, 2019 12:09 pm

anoop wrote:
Wed May 08, 2019 10:47 am
hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
This asset allocation appears to be consistent with someone that is in retirement (i.e. very conservative allocation). I would leave it as is.
According to my calculations, OP currently holds 7.86% stock. If we count the short term bonds as cash, OP hold only 6.86% intermediate and long bonds and the rest (85.27%) is cash. This is basically an all cash portfolio.

The generally accepted principle here is to hold a minimum of 20-25% stocks. Vanguard target retirement fund holds 30% and never goes lower.

OP is 70 years old. 20-30 years of income may be needed. How’s OP’s health? What are OP’s yearly expenses? Is OP receiving SS/pension? Does OP intend to leave any $$ to heirs?

If OP has no tolerance for volatile holdings, OP should consider TIPS ladder and/or SPIA. OP however, is not saying that. OP wants to wait and time market. OP does not have set plan on how to time market (who does?). The greatest risks seem to be inflation + behavioral error, but since we have so few details, it’s hard to evaluate how much.

Corgitodd
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Re: I will inherit 2Mil What to do with it?

Post by Corgitodd » Wed May 08, 2019 12:44 pm

Call Vanguard and find out if theres a Flagship Rep assigned. Maybe look into Vanguard’s Personal Advisory Service, maybe they can prepare a Financial Plan for you to consider. You can always say no.
Last edited by Corgitodd on Wed May 08, 2019 12:45 pm, edited 1 time in total.

3-20Characters
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Re: I will inherit 2Mil What to do with it?

Post by 3-20Characters » Wed May 08, 2019 12:45 pm

TomatoTomahto wrote:
Wed May 08, 2019 11:55 am
3-20Characters wrote:
Wed May 08, 2019 7:07 am
wrongfunds wrote:
Wed May 08, 2019 7:00 am
Did people just glance over the fact that OP is 70 years today?
No. Advice given (except for one I can count) applies to any age.
Except that SPIA, at age 90 with father in hospice (ie, longevity genes on at least one side), is much more favored than usual. I’d put a lot in SPIA, leave some aside for market timing whatever correction does or doesn’t happen, and enjoy retirement.
I’m not against SPIA and others here have suggested it. Depends on on various data points currently unknown. I still think market timing is a bad idea.

chrisdds98
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Re: I will inherit 2Mil What to do with it?

Post by chrisdds98 » Wed May 08, 2019 12:53 pm

how much do you spend? if you live 30 years you could leave it all in cash and spend 67k + social security every year. Doing 30/60/10 stocks/bonds/cash seems very low volatility and reasonable.

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Psyayeayeduck
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Re: I will inherit 2Mil What to do with it?

Post by Psyayeayeduck » Wed May 08, 2019 1:07 pm

hawaii808 wrote:
Tue May 07, 2019 9:01 pm
Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.
Please refer to this https://www.flickr.com/photos/7166535@N05/44364009251/ from "financial experts" who though the market was going to dip in years' past. All of them have failed. Yes, there will be that one-time golden goose of an expert that will likely be right for a few moments in the future. Until then, I recommend the "stay the course" method -- a tried and true method.

anoop
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Re: I will inherit 2Mil What to do with it?

Post by anoop » Wed May 08, 2019 1:14 pm

Psyayeayeduck wrote:
Wed May 08, 2019 1:07 pm
hawaii808 wrote:
Tue May 07, 2019 9:01 pm
Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.
Please refer to this https://www.flickr.com/photos/7166535@N05/44364009251/ from "financial experts" who though the market was going to dip in years' past. All of them have failed. Yes, there will be that one-time golden goose of an expert that will likely be right for a few moments in the future. Until then, I recommend the "stay the course" method -- a tried and true method.
What is missing from this chart is the fed chairs making statements about assets being overvalued. That only started recently.

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hawaii808
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Re: I will inherit 2Mil What to do with it?

Post by hawaii808 » Wed May 08, 2019 1:39 pm

chrisdds98 wrote:
Wed May 08, 2019 12:53 pm
how much do you spend? if you live 30 years you could leave it all in cash and spend 67k + social security every year. Doing 30/60/10 stocks/bonds/cash seems very low volatility and reasonable.
After reading all the information here.
I think I have decided on doing 30/60/10 stocks/bonds/cash.
I can live daily well on $70,000 a year over the next 30 years.
The one question I have is how to divide the 60% bonds of the portfolio.
Do I go with a active bond fund or split it up myself or do a bond ladder?

wolf359
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Re: I will inherit 2Mil What to do with it?

Post by wolf359 » Wed May 08, 2019 2:00 pm

This isn't a question about market timing, or even what asset allocation you should use. This is a question about managing a windfall.

The OP is inheriting $2 million. It sounds like the OP does not already have $2 million, or much of any other savings at all. This implies that the OP is not sure what to do with the money, and doesn't have experience handling that amount of money.

The desire to wait until a crash before investing is just a symptom of this inexperience. The OP isn't espousing market timing as a strategy. The OP is 70 years old, wants to use this money to retire, and doesn't want to screw it up. The market can easily fluctuate about 5% in a week's time. This is normal, and nothing to be alarmed about. With a $2 million portfolio, that would be $100,000 loss or gain in a week. For someone not accustomed to that, the amounts gained or lost on a daily basis can be very alarming. (Honestly, would it bother you if your portfolio dropped $20,000 in a day, or was down $100,000 since last week? Or excite you if it went up a similar amount? With a portfolio of this size, that's just noise. 1%-5% gains or losses.)

I would suggest that the OP read the wiki on managing windfalls, located here: https://www.bogleheads.org/wiki/Managing_a_windfall

Don't do anything in haste. Take your time, and formulate a plan. You should probably engage professionals.

If you intend to retire, create a retirement budget. Know how much you need to spend, and determine if this portfolio (plus Social Security) will cover your needs.

Since you're inexperienced, and handling such a large amount of money, a financial advisor is a good idea. If you go this route, make sure you find one that is a FIDUCIARY. This means that they are legally obligated to put your needs first. No, that is not a given. You are not trying to get someone to manage your money for you. You are engaging someone to help you build a financial plan, so you know how to structure your investments and set up a withdrawal plan. Start by asking Vanguard if you can engage one of their personal advisors. Tell them your goals (you intend to retire with this money, and have it last the rest of your life.)

A Single Premium Immediate Annuity (SPIA) is a good choice for you, at least to cover your core expenses. This is because you don't have investing experience. This type of product is one in which an insurance company just mails you a check for the rest of your life. This is good because you don't have to worry about the markets. The tradeoff is that you DO have to worry about if that insurance company will go out of business. That check generally won't increase with inflation. Annuities are expensive, so you need to keep enough money to cover it if you have a big expense (like buying a car or replacing the roof on your house). I would limit your annuity exposure to just covering your core expenses. I would also limit each annuity contract to the life insurance/annuity guaranty limits covered by your state (usually around $250,000, but you have to check with your state). That way, you still get a check if the company goes out of business.

Here's a warning (or a quick test for your FA)-- if your financial advisor does recommend an annuity, and recommends something known as a variable annuity, then that financial advisor IS NOT A FIDUCIARY, regardless of what they claim. They are ripping you off. You are specifically looking for a type of annuity known as a SPIA. Vanguard sells them. So do immediateannuities.com and probably other locations.

There's also greater details about whether or not you're inheriting retirement accounts, taxable accounts, and so on. Just retitling accounts in your name while your father is still alive may have tax consequences. You need to post more specific information about what you have, and what type of account that it is in. For example, if you transfer taxable assets to your name, it is a gift. The amount he paid for it (called cost basis) transfers to you. Let's say Fund SAMPLE cost him $20 when he bought it, and it is now $100. If sold, you (or he) would pay tax on $80 worth of capital gains. That's because he probably bought it long ago, and it's gone up a lot since then.

On the other hand, if you inherit the asset, the cost basis becomes how much it cost on the day you inherited. Your cost basis of SAMPLE is now $100. If you sell it, your capital gain is zero, and you don't pay any tax.

But wait, you're going the gift route to avoid paying estate taxes! But there are no federal estate taxes on inheritances less than $11.18 million. There may be state taxes, but that varies by state. (I'm going to guess that you're in Hawaii. Hawaii's estate tax exemption is $5.49 million.)

I am not a lawyer, nor am I a tax accountant. You really may want to engage one BEFORE you take actions that cannot be reversed. Yes, it may cost money, but it will probably save you much more than the cost.

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hawaii808
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Re: I will inherit 2Mil What to do with it?

Post by hawaii808 » Wed May 08, 2019 2:20 pm

wolf359 wrote:
Wed May 08, 2019 2:00 pm
This isn't a question about market timing, or even what asset allocation you should use. This is a question about managing a windfall.

The OP is inheriting $2 million. It sounds like the OP does not already have $2 million, or much of any other savings at all. This implies that the OP is not sure what to do with the money, and doesn't have experience handling that amount of money.

The desire to wait until a crash before investing is just a symptom of this inexperience. The OP isn't espousing market timing as a strategy. The OP is 70 years old, wants to use this money to retire, and doesn't want to screw it up. The market can easily fluctuate about 5% in a week's time. This is normal, and nothing to be alarmed about. With a $2 million portfolio, that would be $100,000 loss or gain in a week. For someone not accustomed to that, the amounts gained or lost on a daily basis can be very alarming. (Honestly, would it bother you if your portfolio dropped $20,000 in a day, or was down $100,000 since last week? Or excite you if it went up a similar amount? With a portfolio of this size, that's just noise. 1%-5% gains or losses.)

I would suggest that the OP read the wiki on managing windfalls, located here: https://www.bogleheads.org/wiki/Managing_a_windfall

Don't do anything in haste. Take your time, and formulate a plan. You should probably engage professionals.

If you intend to retire, create a retirement budget. Know how much you need to spend, and determine if this portfolio (plus Social Security) will cover your needs.

Since you're inexperienced, and handling such a large amount of money, a financial advisor is a good idea. If you go this route, make sure you find one that is a FIDUCIARY. This means that they are legally obligated to put your needs first. No, that is not a given. You are not trying to get someone to manage your money for you. You are engaging someone to help you build a financial plan, so you know how to structure your investments and set up a withdrawal plan. Start by asking Vanguard if you can engage one of their personal advisors. Tell them your goals (you intend to retire with this money, and have it last the rest of your life.)

A Single Premium Immediate Annuity (SPIA) is a good choice for you, at least to cover your core expenses. This is because you don't have investing experience. This type of product is one in which an insurance company just mails you a check for the rest of your life. This is good because you don't have to worry about the markets. The tradeoff is that you DO have to worry about if that insurance company will go out of business. That check generally won't increase with inflation. Annuities are expensive, so you need to keep enough money to cover it if you have a big expense (like buying a car or replacing the roof on your house). I would limit your annuity exposure to just covering your core expenses. I would also limit each annuity contract to the life insurance/annuity guaranty limits covered by your state (usually around $250,000, but you have to check with your state). That way, you still get a check if the company goes out of business.

Here's a warning (or a quick test for your FA)-- if your financial advisor does recommend an annuity, and recommends something known as a variable annuity, then that financial advisor IS NOT A FIDUCIARY, regardless of what they claim. They are ripping you off. You are specifically looking for a type of annuity known as a SPIA. Vanguard sells them. So do immediateannuities.com and probably other locations.

There's also greater details about whether or not you're inheriting retirement accounts, taxable accounts, and so on. Just retitling accounts in your name while your father is still alive may have tax consequences. You need to post more specific information about what you have, and what type of account that it is in. For example, if you transfer taxable assets to your name, it is a gift. The amount he paid for it (called cost basis) transfers to you. Let's say Fund SAMPLE cost him $20 when he bought it, and it is now $100. If sold, you (or he) would pay tax on $80 worth of capital gains. That's because he probably bought it long ago, and it's gone up a lot since then.

On the other hand, if you inherit the asset, the cost basis becomes how much it cost on the day you inherited. Your cost basis of SAMPLE is now $100. If you sell it, your capital gain is zero, and you don't pay any tax.

But wait, you're going the gift route to avoid paying estate taxes! But there are no federal estate taxes on inheritances less than $11.18 million. There may be state taxes, but that varies by state.

I am not a lawyer, nor am I a tax accountant. You really may want to engage one BEFORE you take actions that cannot be reversed. Yes, it may cost money, but it will probably save you much more than the cost.
$200,000 are in IRA accounts which would be turned into an Inherited IRA which needs to be spent down.
$1,800,000 is in taxable account.
I am the beneficiary on the accounts so if I sell them after he dies who will pay tax on it. Me or his estate ?

Some other info my SS is $1500 and month and I get $2,000 a month from commissions from my business I sold.
I have $300,000 in my bank getting $2.5% and a condo I will inherit worth $600,000.
I am not use to investing large amounts of $$ but I do know the stock market very well. Bonds not so well.
I am trying to keep my stress level down these days, I don't need the stress in my life.

wolf359
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Re: I will inherit 2Mil What to do with it?

Post by wolf359 » Wed May 08, 2019 2:45 pm

hawaii808 wrote:
Wed May 08, 2019 2:20 pm
$200,000 are in IRA accounts which would be turned into an Inherited IRA which needs to be spent down.
$1,800,000 is in taxable account.
I am the beneficiary on the accounts so if I sell them after he dies who will pay tax on it. Me or his estate ?

Some other info my SS is $1500 and month and I get $2,000 a month from commissions from my business I sold.
I have $300,000 in my bank getting $2.5% and a condo I will inherit worth $600,000.
I am not use to investing large amounts of $$ but I do know the stock market very well. Bonds not so well.
I am trying to keep my stress level down these days, I don't need the stress in my life.
Since the assets are at Vanguard, check this link to be prepared. https://investor.vanguard.com/inherit/

If you inherit, then the step up on basis occurs. After the funds are retitled, they are yours. You pay income taxes on them (but since the basis is the current value, then you will only owe taxes on the gain.) There should be no estate taxes, since the estate sounds like it is well below both the state and federal exemptions. If there are, then the estate pays taxes on the amount that is above that exemption.

Again, don't rely solely on an anonymous person over the internet for tax or legal advice.

The inherited IRA doesn't necessarily need to be SPENT down. If you don't need the money, just re-invest the RMD into a taxable account. They just make you pay the income tax.

It's cheaper to use a bond ladder, but it's also more hassle. I just use a bond fund.

Actually, with 30/70 stocks/fixed income, you won't get much in the way of fluctuation, so you should be fine. You'll probably get close to $60K in dividends and interest, which combined with your social security and business commissions put you well over your $70K income target.

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dratkinson
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Re: I will inherit 2Mil What to do with it?

Post by dratkinson » Wed May 08, 2019 4:14 pm

Yours seems to be a simple problem to solve.

But since everything affects everything, you should take several weeks to research/think about everything before making your decisions.



Legacy. Do you want to leave something for heirs? The money you DON'T put into an SPIA can go to your heirs. The money you DO put into an SPIA is lost to your heirs.
--The needs of your retirement situation take first place in making a decision to use, or not an SPIA.
--I don't think you need an SPIA. See below.



The perpetual SWR. An annual safe withdrawal rate (SWR) of 2.5% ($50K = 2.5% x $2M) is reported to never exhaust the initial investment principle. An annual SWR of 4% ($80K = 4% x $2M) is reported to exhaust the initial investment principle in 30-years.

See "Ultimate Guide to SWR".
See: viewtopic.php?f=1&t=219423&newpost=3377708
See: https://earlyretirementnow.com/2016/12/ ... t-1-intro/



Other sources of retirement income and SWR.

Your other sources of income reduce your need to withdraw from your inheritance.

If I understand your correctly. You need $70K/yr to live in retirement and have $42K/yr (= (12 x 1500/mo SS) + (12 x 2000/mo commissions from sold business)) from other sources, so your inheritance only needs to supply $28K/yr (=$70K - $42K) to pay for your retirement living expenses. But since $28K/yr from $2M is a SWR of 1.4%, it sounds like you should have the full $2M to pass on to heirs. Why? Because your SWR is lower than the perpetual SWR. (In fact, the $2M should grow over time because you are withdrawing less than the perpetual SWR.)



Retirement AA. I recall reading the 40/60 stock/bond asset allocation (AA) is reported to last longest under withdrawal pressure in retirement. I'd want to begin moving toward my desired AA as soon as possible. I would not try to time the market. However I would temper my actions to minimize the tax owed in getting to my desired AA.
--Your chosen 30/60/10 is equivalent to 30/70. I believe your choice is good enough.
--As soon as the inheritance is yours, your stepped up cost basis should give you a $0 capital gain/loss in each investment. Meaning the tax would be $0 to make your (planned) changes at that time.



Taxable investment. Most of your investments will be in a taxable account. Most on the forum use some form of the 3-fund portfolio. It works well in both taxable and tax-advantaged accounts.

See: https://www.bogleheads.org/wiki/3-fund_portfolio
See: https://www.bogleheads.org/wiki/Princip ... _Placement

The recommended funds are tax efficient because they distribute a high percentage of QDI (qualified dividend income), which is taxed like LTCG (long-term capital gains).

Disclosure. I use only funds because I am not knowledgeable enough to select individual investments (stocks or bonds). To me it worth paying a little more to own funds managed by knowledgeable people making these selections.



Tax bracket. Do you know your federal and state income tax brackets? This information is needed to select the best bond fund options. See bond book recommendation below.

Disclosure. The forum advice is to use the safest bonds and take our risk on the equity side. However, I have enough that I can afford to take more risk with my bonds in retirement. So I do. That risk pays off in more after-tax income in retirement. And if anything goes wrong, I fall back on my other sources of income.

I believe with a $2M and a SWR of 1.4% that you can also take more risk with your bonds in retirement. If you choose to. But we (you and the forum) can discuss those options after you finish your recommended books and have come up to speed on general investing and bond knowledge.



Suggested readings to help you update your background information, and refine your understanding of your retirement situation and options.

Wiki. "Managing a windfall": https://www.bogleheads.org/wiki/Managing_a_windfall

Book. "The Bogleheads' Guide to Investing".

Book. "The Only Guide to a Winning Bond Strategy You'll Ever Need", Swedroe.

Book. "How to Make Your Money Last", Quinn

Book. "The Bogleheads' Guide to Retirement Planning".

Get the books from your local public library.

Reading both retirement planning book should give you a different perspective on the same facets of your retirement planning. Spend several weeks working your way through them and thinking about the options they present.
--Read in depth the topics that apply to your situation. Skim the topics that do not seem to apply (you may find something that is helpful).
--You can always ask clarifying questions on the forum.
--Plan all the changes you want to make when you receive your inheritance. Execute your plan after you get your inheritance and the stepped up cost basis. The sooner you execute your changes, the less the market will have changed, so the less will be your taxes.

It's a good idea to write down all of the things you will do, so you don't forget.



Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

retiredjg
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Re: I will inherit 2Mil What to do with it?

Post by retiredjg » Wed May 08, 2019 4:24 pm

hawaii808 wrote:
Tue May 07, 2019 9:01 pm
I will inherit 2Mil they are at vanguard
50% are in money market funds
35% are in short term bonds
15% are in Wellington and Wellesley

Since the market has been on a tear the past 10 years I don't want to start investing in stocks for now.

What would be the best way to get 3.5% to 4% going forward until the next correction in the market.
How can people suggest what you should do if they do not know what kind of account(s) this money is in? Taxable? IRA? Roth IRA? A 401k? Some combination of all that?

The answer is different for each account. And it also depends on what you already have.

Don't jump into this half cocked.

And stop timing the market. It will bring you nothing but loss and regret. Pick an asset allocation you can live with in the good times and the bad times and invest the money properly when it comes to you. Do not pay attention to what the market is doing or has done or will do. The past means nothing and the future is unknown. Again, invest in a way you can tolerate in the good times and the bad times both.

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Meg77
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Re: I will inherit 2Mil What to do with it?

Post by Meg77 » Wed May 08, 2019 4:25 pm

hawaii808 wrote:
Tue May 07, 2019 9:28 pm
Yes the 50/50 allocation would work for me, but wanted to wait a year or two before doing that.
So I was looking at bond ladders and income funds until the next correction before I do that.
Don't like to risk $$ in a 50/50 portfolio at this time.
I would just leave the investments as they are for now if you want to gradually increase your stock allocation over time - which I think is a perfectly fine option. Draw down the reserves to live on and also shift $25K per month or whatever you are comfortable with automatically from cash to Wellington (or VTSAX or whatever fund you choose to add stock exposure).
"An investment in knowledge pays the best interest." - Benjamin Franklin

Cody6136
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Re: I will inherit 2Mil What to do with it?

Post by Cody6136 » Wed May 08, 2019 8:14 pm

[quote=arcticpineapplecorp. post_id=4533766 ti

Slow down. Read the following (managing a windfall):
https://www.bogleheads.org/wiki/Managing_a_windfall
[/quote]

Wisdom!
Slow down. Read.
I realize this sounds Un-American but it is wisdom

dcop
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Re: I will inherit 2Mil What to do with it?

Post by dcop » Wed May 08, 2019 8:33 pm

After seeing that you have 3500/month income without the 2M and you say 70,000 a years provides more than you need and seem very apprehensive towards any level of risk go all fixed. Even at only 2% yield you would never outlive your balance and you could easily live better than 70K/year if you so desired. Not to sound like a buzz kill but after age 80 (sooner for many depending on health) life in the fast lane drops down to about 35 mph so there isn't a lot needed to spend living the good life.

fujiters
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Re: I will inherit 2Mil What to do with it?

Post by fujiters » Thu May 09, 2019 3:48 am

wolf359 wrote:
Wed May 08, 2019 2:00 pm
A Single Premium Immediate Annuity (SPIA) is a good choice for you, at least to cover your core expenses. This is because you don't have investing experience. This type of product is one in which an insurance company just mails you a check for the rest of your life. This is good because you don't have to worry about the markets. The tradeoff is that you DO have to worry about if that insurance company will go out of business. That check generally won't increase with inflation. Annuities are expensive, so you need to keep enough money to cover it if you have a big expense (like buying a car or replacing the roof on your house). I would limit your annuity exposure to just covering your core expenses. I would also limit each annuity contract to the life insurance/annuity guaranty limits covered by your state (usually around $250,000, but you have to check with your state). That way, you still get a check if the company goes out of business.
+1

OP is the ideal candidate for an SPIA: concerned with taking risk, wanting a 4% return, already retirement age, and inexperienced with managing investments.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

Chadnudj
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Re: I will inherit 2Mil What to do with it?

Post by Chadnudj » Thu May 09, 2019 4:59 am

SovereignInvestor wrote:
Tue May 07, 2019 11:10 pm
Absolutes csn be harmful. OP wants to wait until unspecified correction to enter which is timing market, but I understand desire to not get in at a high

Everyone commenting warns against timing market.

If he wants 50/50 allocatioj, why not go to that over time? Is 3 years too long to be allocated like you want?

Then put 1.5% of capital into stocks every month for the next near 3 years. If the market drops 10% then maybe put in a 10% chunk, and 20% then another 20% chunk so you're fully in the stock allocation in 3 years or in a correction/ bear market?

If you want 3-4% you can avoid equities, medium or long term corporates yield above 4% roughly.

VCLT VCIT near 4% yields.
And what if the market drops, but only by 9.5% instead of 10%? What then?

This is the problem with market timing -- your "trigger point" may never arrive, or may get close but not quite get triggered.

I'd just set the AA that the OP feels comfortable with and forget it (including looking into an annuity for a portion of the inheritance, to create an income floor for life). Alternatively (and this is much less my preference, but I get why some might consider it), I'd dollar-cost average based on a set formula over a certain portion of time into my desired AA (5% on the 1st of every month for 20 months, for instance -- OP can pick the monthly percentage and time period), and never deviate from that plan.

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