Multi million dollar inheritance where do i start

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wellmoneyed
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Post by wellmoneyed »

verygoodthings wrote:I think everyone on here is ignoring several good options. Hedge funds actually are a decent diversification play here, domestic commodity producers (with tax incentives), perhaps private equity. Those items become of value when you can take a substantial amount of money (let's say 500k), and allocate towards it, without accounting for more than 5-10% of your portfolio. Why do you think huge endowment funds have about an average allocation of 15% to these alternatives? It is because they are smarter than the average person here on Bogleheads (Oh my?!).
Really? I am all ears. I got all kinds of money to invest. Just give me some proof. :D

That's the rub...

In fact in research (which compared to most of the stuff done on this board is poor) the returns from hedge funds is average at best.
verygoodthings wrote: What I really dislike in threads like this (I have 20M to invest, where should I put it?!) is that people respond "Take 3M and put it in this vanguard ticker, hold 2 million in cash, take 6 million and put it in this bond fund".... Large amounts like this aren't handled on a napkin. Did you put together that breakdown honestly expecting this guy to just made 17M in fund orders tomorrow?
What I really hate are these types of comments...and actually that is exactly what I did. Read the books, posted on the board, executed a plan. If this is "wrong" post some studies.
Last edited by wellmoneyed on Fri Apr 22, 2011 8:16 pm, edited 1 time in total.
Sidney
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Post by Sidney »

verygoodthings wrote:I think everyone on here is ignoring several good options. Hedge funds actually are a decent diversification play here, domestic commodity producers (with tax incentives), perhaps private equity. Those items become of value when you can take a substantial amount of money (let's say 500k), and allocate towards it, without accounting for more than 5-10% of your portfolio. Why do you think huge endowment funds have about an average allocation of 15% to these alternatives? It is because they are smarter than the average person here on Bogleheads (Oh my?!).

What I really dislike in threads like this (I have 20M to invest, where should I put it?!) is that people respond "Take 3M and put it in this vanguard ticker, hold 2 million in cash, take 6 million and put it in this bond fund".... Large amounts like this aren't handled on a napkin. Did you put together that breakdown honestly expecting this guy to just made 17M in fund orders tomorrow?

Not many people here talking about DFA, but its a no brainer in my mind, for some funds. I could see about 60-100% of this money (equity portion) being in DFA. And you have the value added benefit of needing a manager anyway.
This is the only data I have seen on hedge fund performance. Do you have any longer term performance metrics?

http://moneywatch.bnet.com/investing/bl ... blog-river
I always wanted to be a procrastinator.
assurancefp
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Post by assurancefp »

Rcole33856,

First of all, as everyone has said before, congratulations on your windfall and upcoming life changes. It is quite obvious that you have also worked very hard in your life to get to where you are currently without the inheritance. I am extremely happy to see that you have come to the Bogleheads forum for advice.

Without a doubt, you will need an excellent planning team to help you make this transition. Your goal will be go find a financial planner that is willing and able to quarterback a team of estate attorneys, CPAs and asset managers. A planner could help more with the psychology of the large inheritance and how you plan on spending it once you do get the assets. The benefits you will get from an advisor will be far beyond asset allocation alone. (Insurance planning and estate planning are a must, even without children).

There has been a significant amount of talk about actual withdrawal rates and what is feasible for the long term. I would approach the problem from the other end. What are the things you would want to do if you had a blank check? You mentioned vacations, but there are all levels of vacation expenses. Private jet or first class? $1K/night hotels or $10K/night hotels. 1 Ferrari or 3? New cars every year or could you wait a few years? Would there be an initial spending for the first few years and after that, you would get bored trips and new items? What is truly important to you? I think actually identifying your goals would really help in figuring out if there are any give and takes.

As far as spending the money, it is yours to spend however you wish. The important part is making it last your lifetime. I’m sure there will be many changes along the way. After a few years, I would obviously urge you to consider the charitable side of things (think of how much $15K/year for a public university education would mean to someone from a low income family), but that is your decision and yours alone.

As a financial planner that is starting a firm (in Texas), obviously you would be the client of anyone’s dreams. Just take your time, interview with many different advisors and see which one fits best with you. An advisor should know how you tick, your though process, and your goals and interest down to a T. The fees you will pay them are to make your life easier so that you can spend your time doing things that you enjoy. With the firms you do interview, make sure their fees are appropriate for what you are looking for. Be open to a combination of an asset manager like Evanson and a fee-only investment advisor to handle coordination and spending. If you have any additional questions, feel free to ask the forum or private message me.

Congratulations again,

Geoff
ark
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Post by ark »

I will confess that I have not read every message in this thread, but the ones I did read all seem to make the same mistake: They talk about a "withdrawal rate" and the possibility of running out of money in the same paragraph.

If you have an investment portfolio of any kind at all, and you withdraw a constant percentage of the principal each year, so long as the percentage is less than 100%, you will never run out of money. You might get so close to zero that rounding error will make it look like you have run out, but you will never actually run out. Try it for yourself and see.

When investment advisors talk about running out of money, they usually mean withdrawing a specific dollar amount the first year, then increasing that amount each year to account for inflation regardless of the portfolio's performance. If that's your plan, you can probably afford to start with 4% or so--but there are no guarantees.

If you pick a percentage and withdraw that percentage each year, what will happen is that the amount you wind up withdrawing will bounce around as the portfolio goes up and down. Over the long term, the amount available to withdraw will either keep up with inflation or it won't.

There's a west coast financial advisor named Paul Merriman who has published a fair amount of useful information about such matters online. I'm too new on this forum to be allowed to post links directly, but if you search for How much money can you prudently take out of your investments in retirement you will find the article. In that article are lots of tables that look back in time and show how much money would have been available for withdrawal for people who retired at particular times with particular asset allocations. It is absolutely not a sales pitch, and I've found the numbers in that article to be useful in helping me figure out my own strategy.

I get the impression that over the past 30 years, his recommended portfolio has performed approximately at inflation + 6%, so your plan of withdrawing 5%/year would have allowed the principal to keep up with inflation over that period. Whether it will do so in the future, of course, is anybody's guess.
BruDude
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Post by BruDude »

Do you have kids or want to leave the money to someone else if you die? If so, make sure you talk to a top estate planning lawyer too. You will likely need some fancy estate planning techniques or a second-to-die life insurance policy to pay the estate taxes if you want to pass along your windfall to your own heirs. Even with a $5M exemption for each spouse you still have a $5M+ taxable estate today. You are only 45, so if you to live to 80, how much will that be worth then? As they say, you can share your money with your family or you can share it with 300 million wonderful taxpaying citizens when you kick the bucket.
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White Coat Investor
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Post by White Coat Investor »

leod wrote:as my aunt would say "it is a gift and give 10% to charity" i am not sure why it is always 10%
http://biblia.com/bible/esv/Genesis%2014.20
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dbr
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Post by dbr »

EmergDoc wrote:
leod wrote:as my aunt would say "it is a gift and give 10% to charity" i am not sure why it is always 10%
http://biblia.com/bible/esv/Genesis%2014.20
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Anon1234
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Post by Anon1234 »

rcole33856 wrote:
Oneanddone wrote:
rcole33856 wrote:Even if I put the money under my mattress and take out 500k per year it will last 30 years. So yes i believe I can get another ten years if need be with prudent investments.
1) You just lowered your withdrawal rate to 3.33% from 5%.
2) You are ignoring inflation. In 30 years, you will need $1.6 million to have the same purchasing power with 4% inflation. In 20 years, you will need $1.1 million

What you need isn't just prudent investments. You also need some luck and/or the willingness to take out less money.

The problem with SWR scenarios is that they simply don't mirror how people handle money in the real world.

For instance, ignoring inflation for ease, I have $1,000,000 and I'm 70 and 10 years later, I have $2,000,000, there is no reason for me to hold my withdrawals to my initial $40,000.

Also, it is just natural to have some years with big expenses and some with smaller expenses. The year in which you take the entire family on a safari and have 3 kids in college and buy a new car is much different than the following year when there is 1 kid in college, no safari and no new car.
Im leaning more to the fixed percentage of 5% of my total portfolio per year regardless of inflation. Yes I am aware there could be large fluctuations from year to year but I have alot of wiggle room. I also did not say I was going to spend every dime each year but yes I could accumulate fine art or extra homes over the lifetime.
I think you were here at the very beginning. Have you gained anything from the 107 posts here? Just wondering. You've had a lot of people type up a lot of links, suggested reading, and investment ideas on your behalf.
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steadyeddy
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Post by steadyeddy »

Chuck wrote:Okay, but you've gotten the answer a dozen times. A 5% withdrawal rate will not last 40 years unless you get a consistent return of 4% over the entire period. That might work, and it might not. Also, your idea of ignoring inflation is a bad one.

That said, doing it for 10-20 years and then reevaluating would be harmless. You could do whatever you want. I would plan for 2% real return and my SWR would be 3.66% adjusted for inflation.
He said he is planning on withdrawing 5% of the total portfolio each year--a variable amount. To me this sounds like sure way to withdraw less than you hoped to spend throughout much of your retirement.

rcole33856, I hope you will consult a fee-based planner to form a comprehensive plan for both your retirement spending and charitable giving. I think you have some good ideas mixed with a few bad ones rolling around in your head, and you'll want to do a bit of sifting with a trusted advisor.
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rcole33856
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Post by rcole33856 »

Anon1234 wrote:
rcole33856 wrote:
Oneanddone wrote:
rcole33856 wrote:Even if I put the money under my mattress and take out 500k per year it will last 30 years. So yes i believe I can get another ten years if need be with prudent investments.
1) You just lowered your withdrawal rate to 3.33% from 5%.
2) You are ignoring inflation. In 30 years, you will need $1.6 million to have the same purchasing power with 4% inflation. In 20 years, you will need $1.1 million

What you need isn't just prudent investments. You also need some luck and/or the willingness to take out less money.

The problem with SWR scenarios is that they simply don't mirror how people handle money in the real world.

For instance, ignoring inflation for ease, I have $1,000,000 and I'm 70 and 10 years later, I have $2,000,000, there is no reason for me to hold my withdrawals to my initial $40,000.

Also, it is just natural to have some years with big expenses and some with smaller expenses. The year in which you take the entire family on a safari and have 3 kids in college and buy a new car is much different than the following year when there is 1 kid in college, no safari and no new car.
Im leaning more to the fixed percentage of 5% of my total portfolio per year regardless of inflation. Yes I am aware there could be large fluctuations from year to year but I have alot of wiggle room. I also did not say I was going to spend every dime each year but yes I could accumulate fine art or extra homes over the lifetime.
I think you were here at the very beginning. Have you gained anything from the 107 posts here? Just wondering. You've had a lot of people type up a lot of links, suggested reading, and investment ideas on your behalf.
Yes I have learned alot and I have read every link posted a trusted advisor will definetely be a plus. Nothing is concrete regarding withdrawl rates those can be adjusted as needed and advised whether 4% -5% with or without inflation. Thanks to all for their input. Yes DFA's were not discussed that much Evanson uses those alot and i read about them at his site. They seem to be even better than the index funds.
dr_g
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Post by dr_g »

rrosenkoetter,

Go to IMMEDIATEANNUITIES.COM and do the IRR calculations. You'll see that if you die at your actuarial death age, SPIAs pay about 2%.
scouter
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Post by scouter »

rcole33856 wrote:We also dont have children so any left over is just going to charity. I dont need to leave millions to anyone.
Slightly OT, but you could sleep really well, knowing that one day the remainder of your nest egg will help to change the world, if you leave it to carefully chosen charities.
caseynshan
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Post by caseynshan »

Sounds like you are planning on giving sizable amounts to charities and enjoying travel. I would encourage you to visit some areas where you might be interested in giving and keeping an eye open for which organizations are doing quality work...
verygoodthings
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Post by verygoodthings »

I find it funny everyone in this thread is praising you for throwing the word charity out there as an afterthought. You seem to fit the profile of someone who will not contribute anything meaningful during your lifetime, and if anything is left over, it may end up going to charity (or it very well may not).

I say that based on the fact that you mention no current charity work, yet seem to be looking to live on around 750-800k a year in personal consumption.

Consider it a dare if you will, but would you be willing to put 10% of your CURRENT consumption towards charity? This should separate the men from the boys.
jmbkb4
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Post by jmbkb4 »

scouter wrote:
rcole33856 wrote:We also dont have children so any left over is just going to charity. I dont need to leave millions to anyone.
Slightly OT, but you could sleep really well, knowing that one day the remainder of your nest egg will help to change the world, if you leave it to carefully chosen charities.
CAREFULLY, CAREFULLY, CAREFULLY...

Charities are some of the most non-charitable organizations out there...
floatingdoc
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Post by floatingdoc »

Methinks VERYGOODTHINGS has a bit of the little green monster :roll:

congrats- what do you do in the healthcare bus.?
Take it from this doc I would hang up this stethoscope tomorrow for A LOT LESS THAN 15M
statsguy
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Post by statsguy »

I just saw this post and have only read rcole33856's posts....

We inherited a sizable amount a long-time ago. The first thing you need to do is go slowly. I would work at least one more year or at the very least live frugally for at least a year.

Taxes. This is your first concern. I think a financial planner can help here. It took us about five years to get our taxes under control... writing six figure checks to the treasury is fun once, do it several times and it gets old.

What ever you do, go slowly... the old saying haste makes waste is appropriate here.

Lastly, at 45 a 4% withdrawal rate is stretching it. I would aim for 3.5%. You seem to be set on a 5% withdrawal rate, even to the point of saying you will not raise it in the face of inflation. Your comment about putting the money under your mattress and spending $500K/year tells me you don't take inflation as seriously as you ought to. I don't think you realize that means lowering your standard of living over time. In ten years of rather tame 3% inflation that makes living off $750K turn into living off $558K. Said another way, you retire on $600K today, in ten years, with tame 3% inflation, you will be withdrawing $800K a year, and in twenty years you will be withdrawing over a million a year to maintain your $600K lifestyle.

I am not going to give any suggestions for your portfolio as you seem to be happy with index funds. We use dividend stocks as well as index funds to fund our retirement.

Have you thought about what you want to do in retirement? What a typical day will be like? It is hard on a marriage when both the husband and wife retire at the same time and it is more tough when it is new money that makes this possible. If possible, I suggest that you (or your spouse) work about two years longer than the one who retires now.

15 million sounds like a lot until you start living off it.

Best of luck
Stats
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tc101
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Post by tc101 »

as my aunt would say "it is a gift and give 10% to charity" i am not sure why it is always 10%
But be careful. Lots of charities don't do much good. Think about how Warren Buffet gave much of his money to Bill Gates because he knew Gates would use it well.

It I had as much money as you are about to get, I might start my own foundation, just as Gates did, rather than give it away to other charities.
. | The most important thing you should know about me is that I am not an expert.
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