Investing an Inheritance

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Topic Author
TommySalami
Posts: 2
Joined: Mon May 03, 2021 8:21 am

Investing an Inheritance

Post by TommySalami »

Hello all. First post here.

I have inherited a decent amount of money in bank accounts and stocks about 3 months ago TOD. There is some real estate property that is in the estate that is in probate but not really thinking of that right now until the estate settles.

Prior to this event, I adhered to the Boglehead philosophy pretty tightly, have read the Boglehead guide, lurked on this website for guidance, read Bogle's books, a Random walk... etc. and prior to this inheritance feel like I had a good financial plan.

I am now a bit fluxed on the best way to move the money into the market/my Boglehead plan. A purist approach I believe would be jump in head first and distribute the money to my allocation plan in my index funds but at the very least feel like I should do a dollar cost average.

I know it is not very Bogle, but I have some trepidation of where the market is compared to what I think is world reality in terms of buying possibly at a peak/bubble.
If I do a DCA on investing, what is the opinion on the length overall? The prevalent opinions I see in the wikis are 6 months.

Also happy to hear logic that my above thought is unfounded.

Much appreciated any advice

Thank you
User avatar
Watty
Posts: 22346
Joined: Wed Oct 10, 2007 3:55 pm

Re: Investing an Inheritance

Post by Watty »

There is a Boglehead wiki on investing a windfall and one big point is to park the money someplace that is very safe for six months to a year while you come up with a long term plan.

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

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

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

Taking six months or a year to invest the money is fine if that is what you would feel comfortable with. Your investing horizon goes out until you are 95 so being out the market for a year is not a big deal.

One other way to dollar cost average is to pay off your mortgage if you have one then invest your freed up mortgage payment each month.
TommySalami wrote: Mon May 03, 2021 10:27 am I have inherited a decent amount of money in bank accounts and stocks about 3 months ago TOD.
The stocks should have gotten a step up in the cost basis(I am not sure if this is always true for a trust). You can sell them now and only need figure out the capital gains since they day that the person died. I would go on and sell any individual stocks or mutual funds that are not index funds. It is Ok if the money sits cash while you come up with a long term plan.

One thing you may want to do is to make sure that you are maxing out all your tax advantaged accounts. For something like a 401K you can do something like increase your payroll withholding by $1,000 a month and then use $750 a month from the inhertence to pay for your living expenses. The $250 difference is assuming that you are in a 25% combined tax bracket and get $250 in tax savings by making the 401k contribution.
Topic Author
TommySalami
Posts: 2
Joined: Mon May 03, 2021 8:21 am

Re: Investing an Inheritance

Post by TommySalami »

Thank you for the quick reply. This website has always amazed me on the wealth of knowledge available here. I had read the 2 wikis a few days ago you referenced and they were very helpful.

Mortgage is already paid off and am debt free. I think I'm already maxed out of the tax advantaged but its a good point and I'll review those to make sure. Other than rebuilding the emergency fund (covid has had me out of work for a year+,) and some deferred house maintenance, the vast majority is going into investments.

I believe you are correct on the Cost Basis now being the date of her passing.

My other dilemma is where to put the money in a safe spot that isn't stagnant. Savings accounts, CDs, money markets seem to have such minuscule return vs inflation. Maybe I'm overthinking that.

I've got a bit of time being a low 50 something.

Again, thank you for your reply.
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