Inheritance money - all in the market or slowly put in?

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jenniferbarber
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Inheritance money - all in the market or slowly put in?

Post by jenniferbarber » Fri Jul 12, 2019 9:45 pm

I recently inherited an IRA and $200,000 cash.

I am married, 44 years old, have a fully funded emergency fund, 529 plans funded, cars paid for, and my husband and I are maxing out retirement accounts. Still owe $218k on the house on a 15 year mortgage at 3.3 percent.

Currently have everything at fidelity and would rather keep everything there.

Trying to decide on
1. Putting all $200K in a combo or ITOT and IXUS ASAP
2. Slowly putting in the $200 over 6 months to a year
3. Pay off the house

I would appreciate any advice!

lakpr
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Re: Inheritance money - all in the market or slowly put in?

Post by lakpr » Fri Jul 12, 2019 9:55 pm

No disrespect or aspersions intended on your spouse or your marriage. But I would strongly advise to keep your inheritance separate from your spouse, except for the RMDs that cannot be avoided. Invest everything in a single Target Date fund or a LifeStrategy fund that is closest to your desired asset allocation.

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Watty
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Re: Inheritance money - all in the market or slowly put in?

Post by Watty » Fri Jul 12, 2019 10:10 pm

There is a wiki on investing a windfall and one of the main points is to just put it into something ultrasafe for at least six months while you come up with a long term plan and get used to having the money.

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

There is also a wiki on dollar cost averaging and lump sum investing.

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

There is an additional dynamic in that you inherited the money but if you mix it in with your other funds or use it to pay off the house and then eventually get divorced then the money could be split with your ex. That gets complicated and how it works can vary with your state laws. It would be good to research that and maybe talk with a lawyer about how you should approach that. No one plans on getting divorced.

Putting the $200K into a CD for six months would be a fourth option to consider.

Momus
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Re: Inheritance money - all in the market or slowly put in?

Post by Momus » Fri Jul 12, 2019 11:56 pm

1. Separate brokerage/account from your wife, dump it all to whatever index fund you like - keep asset separate
2. Pay off house - divorce risk

Your choice

smectym
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Re: Inheritance money - all in the market or slowly put in?

Post by smectym » Sat Jul 13, 2019 1:29 am

OP Didn’t really ask about the issue of keeping funds separate from her spouse.

My advice would be this: the conventional Boglehead wisdom, and I think what you would hear from Vanguard, is to invest the money all at once.

My advice would be to do that, unless you’re not comfortable doing that, in which case bleed it in over six months to a year.

That’s not a crime; in hindsight it may or may not turn out to have been the optimal approach: but no one knows, and no one on this board, however stout their Boglehead conviction, will volunteer to indemnify you against any loss if you put the money in all at once.

smectym
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Re: Inheritance money - all in the market or slowly put in?

Post by smectym » Sat Jul 13, 2019 1:34 am

PS at a 3.3% mortgage, I wouldn’t pay off the house

fujiters
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Re: Inheritance money - all in the market or slowly put in?

Post by fujiters » Sat Jul 13, 2019 3:47 am

smectym wrote:
Sat Jul 13, 2019 1:29 am
OP Didn’t really ask about the issue of keeping funds separate from her spouse.

My advice would be this: the conventional Boglehead wisdom, and I think what you would hear from Vanguard, is to invest the money all at once.

My advice would be to do that, unless you’re not comfortable doing that, in which case bleed it in over six months to a year.

That’s not a crime; in hindsight it may or may not turn out to have been the optimal approach: but no one knows, and no one on this board, however stout their Boglehead conviction, will volunteer to indemnify you against any loss if you put the money in all at once.
+1

If you're uncomfortable dumpling it into the market in one go, perhaps split the difference. Invest half immediately and the rest over the course of 6-12 months.

Something else to consider is if you'd instead inherited $200k in the form of ITOT and IXUS shares, would you have sold them to reinvest over multiple months?
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

blahblahsunshine
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Re: Inheritance money - all in the market or slowly put in?

Post by blahblahsunshine » Sat Jul 13, 2019 8:43 am

I would pay down the mortage with some, or all the monies. I would also recast or reamortize the remainging mortgage balance to a reduce your monthly spend. Being without a mortgage or with a very low outflow is a good place to be given where we are...at least that is my sentiment.

Smoke
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Re: Inheritance money - all in the market or slowly put in?

Post by Smoke » Sat Jul 13, 2019 8:54 am

I would pay off the house, and then invest the current amount of mortgage payments into your retirement investments going forward for the next 15 yrs.
Arguing for the sake of arguing is something I am not going to engage in.

Grt2bOutdoors
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Re: Inheritance money - all in the market or slowly put in?

Post by Grt2bOutdoors » Sat Jul 13, 2019 9:17 am

jenniferbarber wrote:
Fri Jul 12, 2019 9:45 pm
I recently inherited an IRA and $200,000 cash.

I am married, 44 years old, have a fully funded emergency fund, 529 plans funded, cars paid for, and my husband and I are maxing out retirement accounts. Still owe $218k on the house on a 15 year mortgage at 3.3 percent.

Currently have everything at fidelity and would rather keep everything there.

Trying to decide on
1. Putting all $200K in a combo or ITOT and IXUS ASAP
2. Slowly putting in the $200 over 6 months to a year
3. Pay off the house

I would appreciate any advice!
You could get 3.05% in a 10 year FDIC Insured CD at Discover Bank today. You don't say what remaining term you have left on the 15 year mortgage. If you invested in a combination of stock/bond, you are likely to do better than 3.3% over the next 10-15 years. Paying off the mortgage is an emotional one in most cases, unless the rate is so high, that paying it off would beat the rate any "like duration" GSE (government sponsored entity) bond paid today.

What is your current asset allocation? Are you 100% equity or some combination of stock/bond?
Slowly investing the inheritance at your desired asset allocation is a method of minimizing regret and absolutely nothing wrong with it. The idea of investing a windfall instantly is to capture the returns of the market immediately, however if you have even the slightest bit of hesitation at this thought (asking the question to me is the same as hesitation because you are asking a collective bunch of anonymous people - which is better). I'll give you an example from my own personal experience, I hold an account which has a specific long term purpose - it's 100% equity, in the last 60 month period (5 years), it's had exactly 18 months (30%) where the account has ended up in the red with negative returns. The first few months where I had invested a sum of money, the account value was less than the investment. In your situation, if you were 100% equity, you could expect to see your $200K invested immediately, to be down as much as 30-40% of the time including the first few months after the initial investment. So long as you are comfortable with this, then go ahead and invest.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Caduceus
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Re: Inheritance money - all in the market or slowly put in?

Post by Caduceus » Sat Jul 13, 2019 5:09 pm

You won't know what was optimal until you finish the process. If the market keeps roaring higher, putting in the money all in is obviously the better strategy.

Warren Buffett, the smartest financial mind the world has ever produced, disagrees with conventional financial advice. He says that investors who are not smart enough to pick individual stocks should also be agnostic as to the timing of their purchases. Therefore, he recommends allocating things like inheritance money slowly over time. This was, I believe, in response to a shareholder question at one of the annual meetings. You can try to find the reference yourself for a fuller explication of his thoughts.

good luck

MotoTrojan
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Re: Inheritance money - all in the market or slowly put in?

Post by MotoTrojan » Sat Jul 13, 2019 5:24 pm

How much do you have in tax-advantaged accounts? If it made logical sense to take your time investing this then it would also make sense moving your 401k/IRA to money market and reinvesting that over time. Nobody does that though. Now emotionally you may feel better trickling this in but I wouldn’t.

Learn how to tax-loss harvest and use that if the market drops.

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fortyofforty
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Re: Inheritance money - all in the market or slowly put in?

Post by fortyofforty » Sat Jul 13, 2019 8:26 pm

The odds say putting it all in the market at once is the best strategy. I know my personal odds, and if I put in a lump sum the market would tank in a week. So, my personal strategy is always to put some in on a regular schedule, maybe over six months or so.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

yitzchakdov
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Re: Inheritance money - all in the market or slowly put in?

Post by yitzchakdov » Sat Jul 13, 2019 9:03 pm

100k Vanguard Wellington
100k Vanguard Wellesley
Set you’ve alarm for 6am and go for a jog, coffee and stay married.

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Toons
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Re: Inheritance money - all in the market or slowly put in?

Post by Toons » Sat Jul 13, 2019 9:48 pm

All In
Time Not Timing
:happy
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Elle06
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Re: Inheritance money - all in the market or slowly put in?

Post by Elle06 » Tue Jul 16, 2019 11:18 pm

I speak from experience when I say pay off the house. I inherited a large sum about 5 years ago. We used a portion to pay cash for our dream home and it was truly one of the best decisions we ever made. No mortgage pymt gives you lots of options.

psy1
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Re: Inheritance money - all in the market or slowly put in?

Post by psy1 » Wed Jul 17, 2019 12:00 am

Obviously, you are being advised that any option is reasonable: wait, all in, dollar cost average, pay off house, and some of everything.

The market is at an all-time high and you just received a significant lump sum. Not the time to take undue risk or act before you (and your spouse) are comfortable with the decision. You don't mention larger goals like how many years to retirement, when your kids will be off to college, etc. At 44, those events could be imminent or not for 15+ years. You also did not mention the total value of the portfolio so $200K might be a little cash or a ton of money.

Ideally, the house would be paid in full by the time your first child goes to college. I would use some of the money, if needed, to guarantee the house is paid at the right time. But at 3.3% I would not dump all of it into the house.

After you sort out the plan for the house, then I would dollar cost average in just for the sake of sanity. If the market goes up, you will still have more money than you started with. If the market goes down, you will be pleased that you are not risking the love/labor of your inheritance imprudently. In reality, even if you DCA over 12-18 months, that is essentially investing all at once if your consider a timeline of 20+ years until you are 65. So it is probably just fussing but better to have peace of mind.

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