"New to Me" Money

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

"New to Me" Money

Post by DJP1944 » Tue Jan 02, 2018 10:03 pm

I am a brand new forum member to this site so please forgive me if I'm ignorant of rules/customs in my first post. I look forward to becoming an active member of this great community. In reading through the different forum indexes I struggled to determine if I was asking an personal finance or an investing question. I think this topic could eventually turn into an investing question, but not initially.

About a month ago I received a business related windfall. The total amount to me is mid seven figures. Between tax and a portion to be held in the company for a couple of years the net to me was about half the total. My situation: married, four kids, mid forties, $600K mortgage, no other debt but also no other significant assets other than this "new to me" money. Regarding employment, I earn several hundred thousand per year between salary, bonus, and other incentives.

My questions are very basic. Essentially, I need some help in determining what to do next. I'm assuming I could benefit from some professional help from a good financial planner (RIA?). If that's true, how do I pick one? I've interviewed a couple but I haven't yet felt a good vibe from them. I need help with estate planning, etc....Should this be part of the financial planning service or should I intentionally keep them separate.

Alternatively, I'm not opposed to a "DIY" approach. While I'm no financial guru (clearly), I'm also not opposed to investing time and energy to learning to do it myself if there is strong evidence that this is a good route.

I'm assuming I'm probably not even asking all of the right questions so please chime in with any relevant advice even if I didn't ask!

Thank you in advance.

mega317
Posts: 2450
Joined: Tue Apr 19, 2016 10:55 am

Re: "New to Me" Money

Post by mega317 » Wed Jan 03, 2018 12:06 am

The problem with financial advisors is that I don't think many of them provide much value and if you know enough to separate the good and bad ones then you probably know enough to do it yourself.

But I have a problem. You're in your 40s, making 6 figures with a big family and big mortgage, and have no savings?

The first thing you need to do is track every dollar that you earn and spend and find out where your money is going. Or please explain more.

BUBear29
Posts: 151
Joined: Wed Aug 19, 2015 4:20 pm
Location: Dallas, TX

Re: "New to Me" Money

Post by BUBear29 » Wed Jan 03, 2018 12:13 am

DJP1944 wrote:
Tue Jan 02, 2018 10:03 pm
I am a brand new forum member to this site so please forgive me if I'm ignorant of rules/customs in my first post. I look forward to becoming an active member of this great community. In reading through the different forum indexes I struggled to determine if I was asking an personal finance or an investing question. I think this topic could eventually turn into an investing question, but not initially.

About a month ago I received a business related windfall. The total amount to me is mid seven figures. Between tax and a portion to be held in the company for a couple of years the net to me was about half the total. My situation: married, four kids, mid forties, $600K mortgage, no other debt but also no other significant assets other than this "new to me" money. Regarding employment, I earn several hundred thousand per year between salary, bonus, and other incentives.

My questions are very basic. Essentially, I need some help in determining what to do next. I'm assuming I could benefit from some professional help from a good financial planner (RIA?). If that's true, how do I pick one? I've interviewed a couple but I haven't yet felt a good vibe from them. I need help with estate planning, etc....Should this be part of the financial planning service or should I intentionally keep them separate.

Alternatively, I'm not opposed to a "DIY" approach. While I'm no financial guru (clearly), I'm also not opposed to investing time and energy to learning to do it myself if there is strong evidence that this is a good route.

I'm assuming I'm probably not even asking all of the right questions so please chime in with any relevant advice even if I didn't ask!

Thank you in advance.
First. Read the wikis. Think these will give you a good idea as to whether you feel you can do this yourself or want to hire a financial planner. If you do hire a planner get several quotes on fees. Based on your stated assets, your fee for aum should be 0.75% or less annually imo. Also ensure the individual is a CFP. https://www.bogleheads.org/wiki/Main_Page

Second. I would pay off the mortgage and any other lingering debt.

Third. Get your financial plan working and start socking away current income for retirement (you have the ability to max your available options). As posted above, it certainly appears you need a budget. Suggest YNAB to help you get started tracking expenses. Give every dollar a job.

Fourth. Get your estate planning in order - suggest having a trust set up to protect assets. Consult with a lawyer

Fifth. Set aside funds for college? Set up trusts for this purpose and future inheritance for kids if so desired. Consult with a lawyer. Or you could do a 529

Sixth. Stay on track and retire early.

Congrats to you
Last edited by BUBear29 on Wed Jan 03, 2018 12:25 am, edited 5 times in total.
There is no dignity quite so impressive, and no one independence quite so important, as living within your means.

student
Posts: 2296
Joined: Fri Apr 03, 2015 6:58 am

Re: "New to Me" Money

Post by student » Wed Jan 03, 2018 12:16 am

Given that you are able to generate such a business related windfall amount and that you have such a high income, you are obviously a very capable person. So I suggest that you read books such as https://www.amazon.com/Little-Book-Comm ... 0470102101

venkman
Posts: 629
Joined: Tue Mar 14, 2017 10:33 pm

Re: "New to Me" Money

Post by venkman » Wed Jan 03, 2018 12:28 am

DJP1944 wrote:
Tue Jan 02, 2018 10:03 pm
My questions are very basic. Essentially, I need some help in determining what to do next. I'm assuming I could benefit from some professional help from a good financial planner (RIA?). If that's true, how do I pick one? I've interviewed a couple but I haven't yet felt a good vibe from them. I need help with estate planning, etc....Should this be part of the financial planning service or should I intentionally keep them separate.

Alternatively, I'm not opposed to a "DIY" approach. While I'm no financial guru (clearly), I'm also not opposed to investing time and energy to learning to do it myself if there is strong evidence that this is a good route.
Investing is easy (because the best investments are usually the simplest). Read through the wikis here and learn to do that for yourself. Don't pay anyone to do it for you.

Comprehensive financial planning (taxes, estate planning, insurance, etc.) is a lot harder. Find professional(s) who can help you with that. Make sure you only pay them by the hour (or one flat rate for an overall plan). Never hire anyone whose fee is based on a percentage of your assets. It may cost a few thousand dollars, but that's a tiny percentage of your overall wealth and is well worth it.

2comma
Posts: 1235
Joined: Thu Jul 15, 2010 11:37 pm

Re: "New to Me" Money

Post by 2comma » Wed Jan 03, 2018 2:17 am

You can do the investment part yourself pretty easily and it makes no difference how much you are investing, the basic principles work the same on a dollar as they do on a billion dollars. A couple of books, perhaps one from John Bogle and one from the BogleHeads and you'll learn that you just want to get whatever the market gives you so do it with as low cost as possible. You want some stocks and some bonds, maybe some international stocks (Bogle says no others says yes), you decide. You decide how much growth you need and how much risk you can sleep well with and come up with an asset allocation (like I'll go 50% stock and 50% bonds), whatever. Then you stick to the plan and that's the hardest part of being a Boglehead.

Now look at this article from an ex-stockbroker on "how my advisor makes money" http://www.pamkrueger.com/how-does-my-f ... ake-money/ and follow along. First we are told that advisors on commission have a strong incentive to sell you products that make them money, that's the boogie man, the writer must be on our side. Then we define a fee-only advisor; charge by the hour, an annual retainer fee or a percent of assets under management. Hourly fee, ok, retainer ok, assets under management, let's explore that.

So go to an investment fee analyzer like http://buyupside.com/calculators/feesdec07.htm and plug in 2.5 mil, set the operating fee to 1% (which is on the low side of what she mentions), leave the growth rate at 6% (whatever) and since you're mid forties let's guess you make it to 85 so your investment horizon (number of years held) is eh, 40 years. Press calculate and suddenly you see if you paid no fees you'd have over 25 million but with the 1% fee you'd only have 17 million, your advisor got over 3 million of your money, and you lost another 5 million in opportunity costs. So all of those fees you paid your advisor never received the power of compounding. Up the fee to 2%, a lot more likely and you're out 14 million. She what it cost you if you make it to 95 years old.

Then the article goes on to explain fee-based and kind of leaves it at that (why the fee-only is a good thing) but is also implying that a "good" advisor knows how to steer us in good markets and in bad as if they can maybe predict the future? If you read the boot above you know it just ain't so. By the hour or even a retainer is ok but it's hard to find someone who can make a living doing business that way but there are a lot of them that are doing AUM fee-only, I wonder why?

I figure I can make a lot of mistakes on my own and easily come out ahead of someone who takes hundreds of thousands or in your case millions out of your pocket and if you follow the forum and learn a little bit about investing you're not going to make mistakes.

I agree taxes, estate planning and other stuff is harder and I'd pay CPA's and lawyers for that and it will be an hourly rate or a fixed fee and it won't be cheap but it won't be millions.

Learning some simple facts about investing has got to be the best ROI of your time of anything you'll ever spend.
If I am stupid I will pay.

DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

Re: "New to Me" Money

Post by DJP1944 » Wed Jan 03, 2018 8:43 am

Thank you much to all that have posted such thoughtful replies.
mega317 wrote:
Wed Jan 03, 2018 12:06 am
But I have a problem. You're in your 40s, making 6 figures with a big family and big mortgage, and have no savings?

The first thing you need to do is track every dollar that you earn and spend and find out where your money is going. Or please explain more.
This is a fair comment. I have savings (~$200K) but was commenting that it's not material relative to the newly found money. All that said, your advice about tracking every dollar is perfectly appropriate and appreciated. There is definitely a need to be more intentional about saving and investing.
Last edited by DJP1944 on Wed Jan 03, 2018 9:05 am, edited 2 times in total.

DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

Re: "New to Me" Money

Post by DJP1944 » Wed Jan 03, 2018 8:50 am

BUBear29 wrote:
Wed Jan 03, 2018 12:13 am
DJP1944 wrote:
Tue Jan 02, 2018 10:03 pm
I am a brand new forum member to this site so please forgive me if I'm ignorant of rules/customs in my first post. I look forward to becoming an active member of this great community. In reading through the different forum indexes I struggled to determine if I was asking an personal finance or an investing question. I think this topic could eventually turn into an investing question, but not initially.

About a month ago I received a business related windfall. The total amount to me is mid seven figures. Between tax and a portion to be held in the company for a couple of years the net to me was about half the total. My situation: married, four kids, mid forties, $600K mortgage, no other debt but also no other significant assets other than this "new to me" money. Regarding employment, I earn several hundred thousand per year between salary, bonus, and other incentives.

My questions are very basic. Essentially, I need some help in determining what to do next. I'm assuming I could benefit from some professional help from a good financial planner (RIA?). If that's true, how do I pick one? I've interviewed a couple but I haven't yet felt a good vibe from them. I need help with estate planning, etc....Should this be part of the financial planning service or should I intentionally keep them separate.

Alternatively, I'm not opposed to a "DIY" approach. While I'm no financial guru (clearly), I'm also not opposed to investing time and energy to learning to do it myself if there is strong evidence that this is a good route.

I'm assuming I'm probably not even asking all of the right questions so please chime in with any relevant advice even if I didn't ask!

Thank you in advance.
First. Read the wikis. Think these will give you a good idea as to whether you feel you can do this yourself or want to hire a financial planner. If you do hire a planner get several quotes on fees. Based on your stated assets, your fee for aum should be 0.75% or less annually imo. Also ensure the individual is a CFP. https://www.bogleheads.org/wiki/Main_Page

Second. I would pay off the mortgage and any other lingering debt.

Third. Get your financial plan working and start socking away current income for retirement (you have the ability to max your available options). As posted above, it certainly appears you need a budget. Suggest YNAB to help you get started tracking expenses. Give every dollar a job.

Fourth. Get your estate planning in order - suggest having a trust set up to protect assets. Consult with a lawyer

Fifth. Set aside funds for college? Set up trusts for this purpose and future inheritance for kids if so desired. Consult with a lawyer. Or you could do a 529

Sixth. Stay on track and retire early.

Congrats to you
Thank you much for the step by step approach. Regarding the second item, this one completely perplexes me. I would imagine even on this forum that there are differing opinions on whether eradicating a mortgage at 3.5% is the best move relative to what that money may earn invested. Like many, I can see both sides. Frankly, this topic is one of the main reasons that the financial planners I have talked with have rubbed me wrong. In both cases they have claimed that the math was indisputable and insisting on paying off a mortgage is driven more by emotion than anything else.

Grt2bOutdoors
Posts: 18833
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: "New to Me" Money

Post by Grt2bOutdoors » Wed Jan 03, 2018 8:59 am

Welcome to the forum.

1) Say nothing, nothing at all to anyone, including other family members about your windfall. Nothing and I mean nothing will attract flies faster than the thought of free money.

2) Take your time, take six months before you make any investing moves. You will need that time to read - suggest you start with The Little Book of Common Sense Investing - John Bogle. Also suggest The Four Pillars of Investing by William Bernstein, All About Asset Allocation - Rick Ferri and any of the books written by Larry Swedroe, I like his The Only Book You'll Even Need series. After that, your need for an investment planner will dissipate as you realize they provide little to no value. A financial planner might provide some value, but only if they are "fee only" and do not have self interest in either referrals or selling you some financial product.

3) Avoid whole life insurance, variable annuities - these are high commission products designed to siphon your money away to the seller's pockets.

4) Do you have a will? With this vast sum of monies, you may need to revisit your estate plan including the use of trusts. Search the forum for posts by BSteiner - well known estates and trust attorney.

Finally, ask any and all questions here.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

Re: "New to Me" Money

Post by DJP1944 » Wed Jan 03, 2018 9:10 am

Grt2bOutdoors wrote:
Wed Jan 03, 2018 8:59 am
Welcome to the forum.

1) Say nothing, nothing at all to anyone, including other family members about your windfall. Nothing and I mean nothing will attract flies faster than the thought of free money.

2) Take your time, take six months before you make any investing moves. You will need that time to read - suggest you start with The Little Book of Common Sense Investing - John Bogle. Also suggest The Four Pillars of Investing by William Bernstein, All About Asset Allocation - Rick Ferri and any of the books written by Larry Swedroe, I like his The Only Book You'll Even Need series. After that, your need for an investment planner will dissipate as you realize they provide little to no value. A financial planner might provide some value, but only if they are "fee only" and do not have self interest in either referrals or selling you some financial product.

3) Avoid whole life insurance, variable annuities - these are high commission products designed to siphon your money away to the seller's pockets.

4) Do you have a will? With this vast sum of monies, you may need to revisit your estate plan including the use of trusts. Search the forum for posts by BSteiner - well known estates and trust attorney.

Finally, ask any and all questions here.
This is perfect. Thank you for the book references and advice in general.

BUBear29
Posts: 151
Joined: Wed Aug 19, 2015 4:20 pm
Location: Dallas, TX

Re: "New to Me" Money

Post by BUBear29 » Wed Jan 03, 2018 9:30 am

DJP1944 wrote:
Wed Jan 03, 2018 8:50 am
BUBear29 wrote:
Wed Jan 03, 2018 12:13 am
DJP1944 wrote:
Tue Jan 02, 2018 10:03 pm
I am a brand new forum member to this site so please forgive me if I'm ignorant of rules/customs in my first post. I look forward to becoming an active member of this great community. In reading through the different forum indexes I struggled to determine if I was asking an personal finance or an investing question. I think this topic could eventually turn into an investing question, but not initially.

About a month ago I received a business related windfall. The total amount to me is mid seven figures. Between tax and a portion to be held in the company for a couple of years the net to me was about half the total. My situation: married, four kids, mid forties, $600K mortgage, no other debt but also no other significant assets other than this "new to me" money. Regarding employment, I earn several hundred thousand per year between salary, bonus, and other incentives.

My questions are very basic. Essentially, I need some help in determining what to do next. I'm assuming I could benefit from some professional help from a good financial planner (RIA?). If that's true, how do I pick one? I've interviewed a couple but I haven't yet felt a good vibe from them. I need help with estate planning, etc....Should this be part of the financial planning service or should I intentionally keep them separate.

Alternatively, I'm not opposed to a "DIY" approach. While I'm no financial guru (clearly), I'm also not opposed to investing time and energy to learning to do it myself if there is strong evidence that this is a good route.

I'm assuming I'm probably not even asking all of the right questions so please chime in with any relevant advice even if I didn't ask!

Thank you in advance.
First. Read the wikis. Think these will give you a good idea as to whether you feel you can do this yourself or want to hire a financial planner. If you do hire a planner get several quotes on fees. Based on your stated assets, your fee for aum should be 0.75% or less annually imo. Also ensure the individual is a CFP. https://www.bogleheads.org/wiki/Main_Page

Second. I would pay off the mortgage and any other lingering debt.

Third. Get your financial plan working and start socking away current income for retirement (you have the ability to max your available options). As posted above, it certainly appears you need a budget. Suggest YNAB to help you get started tracking expenses. Give every dollar a job.

Fourth. Get your estate planning in order - suggest having a trust set up to protect assets. Consult with a lawyer

Fifth. Set aside funds for college? Set up trusts for this purpose and future inheritance for kids if so desired. Consult with a lawyer. Or you could do a 529

Sixth. Stay on track and retire early.

Congrats to you
Thank you much for the step by step approach. Regarding the second item, this one completely perplexes me. I would imagine even on this forum that there are differing opinions on whether eradicating a mortgage at 3.5% is the best move relative to what that money may earn invested. Like many, I can see both sides. Frankly, this topic is one of the main reasons that the financial planners I have talked with have rubbed me wrong. In both cases they have claimed that the math was indisputable and insisting on paying off a mortgage is driven more by emotion than anything else.
No doubt you will get a range of advice on paying off the mortgage. My question is this: if you have ample funds to pay off the house, why wouldn’t you? You are paying interest to a 3rd party. Pay the principal off and be done with it then you NEVER have to obtain debt ever again. What a feeling and what an accomplishment that is. You can also set your children up to NEVER have debt at all - how awesome is that. Living within your means and debt free is the most amazing feeling, so yes it certainly is emotional. Why shouldn’t an emotion like that be elicited. So what if you earn an additional 3% on $600k, thats freakin $18k - a joke compared to your newly acquired net worth. Obviously you see where I stand, but I trust you will make a decision on your own that is right for you and your family/circumstance.

Also, on the trust issues. Read A Living Trust for Everyone by Ronald Sharp. Great insight to help you start to understand asset protection and benefits of a trust over a will.
There is no dignity quite so impressive, and no one independence quite so important, as living within your means.

DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

Re: "New to Me" Money

Post by DJP1944 » Wed Jan 03, 2018 10:57 am

BUBear29 wrote:
Wed Jan 03, 2018 9:30 am

No doubt you will get a range of advice on paying off the mortgage. My question is this: if you have ample funds to pay off the house, why wouldn’t you? You are paying interest to a 3rd party. Pay the principal off and be done with it then you NEVER have to obtain debt ever again. What a feeling and what an accomplishment that is. You can also set your children up to NEVER have debt at all - how awesome is that. Living within your means and debt free is the most amazing feeling, so yes it certainly is emotional. Why shouldn’t an emotion like that be elicited. So what if you earn an additional 3% on $600k, thats freakin $18k - a joke compared to your newly acquired net worth. Obviously you see where I stand, but I trust you will make a decision on your own that is right for you and your family/circumstance.

Also, on the trust issues. Read A Living Trust for Everyone by Ronald Sharp. Great insight to help you start to understand asset protection and benefits of a trust over a will.
Thank you for the reference for the "living trust" book.

Regarding the mortgage, you have articulated my "gut feel". The other upside with paying off the mortgage is it will enable more consistent and regular contribution to investments. As noted in other comments, this behavioral aspect has been a noted shortcoming that I want to change.

BUBear29
Posts: 151
Joined: Wed Aug 19, 2015 4:20 pm
Location: Dallas, TX

Re: "New to Me" Money

Post by BUBear29 » Wed Jan 03, 2018 5:04 pm

DJP1944 wrote:
Wed Jan 03, 2018 10:57 am
BUBear29 wrote:
Wed Jan 03, 2018 9:30 am

No doubt you will get a range of advice on paying off the mortgage. My question is this: if you have ample funds to pay off the house, why wouldn’t you? You are paying interest to a 3rd party. Pay the principal off and be done with it then you NEVER have to obtain debt ever again. What a feeling and what an accomplishment that is. You can also set your children up to NEVER have debt at all - how awesome is that. Living within your means and debt free is the most amazing feeling, so yes it certainly is emotional. Why shouldn’t an emotion like that be elicited. So what if you earn an additional 3% on $600k, thats freakin $18k - a joke compared to your newly acquired net worth. Obviously you see where I stand, but I trust you will make a decision on your own that is right for you and your family/circumstance.

Also, on the trust issues. Read A Living Trust for Everyone by Ronald Sharp. Great insight to help you start to understand asset protection and benefits of a trust over a will.
Thank you for the reference for the "living trust" book.

Regarding the mortgage, you have articulated my "gut feel". The other upside with paying off the mortgage is it will enable more consistent and regular contribution to investments. As noted in other comments, this behavioral aspect has been a noted shortcoming that I want to change.
Great-glad you have that gut feel bc I believe it is the correct decision everyday of the week.

Now go read the wikis and commit to a plan. Don’t forget to come up with your investment strategy and feel free to post in investing to get feedback on your plan. Follow the rules/template for posting and link this thread for reference.

Last of all don’t rush into anything except maybe the trust/asset protection portion - I highly suggest making rthis the priority so read that book first and find a lawyer with good references and acceptable rates. :) Also consider adding your primary residence into the trust as well. Your estate lawyer will be able to explain the benefits to you.
There is no dignity quite so impressive, and no one independence quite so important, as living within your means.

DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

Re: "New to Me" Money

Post by DJP1944 » Thu Jan 04, 2018 9:29 am

Thanks all for the great advice so far.

After taking in all this information I've decided that I'll take a bit of time before taking any action and commit to learning as much as I can. Based on some recommendations I have a few books to plow through in the coming weeks.

All that said, I'm leaning towards getting some flat fee/retainer assistance from a planner. Does anyone have any good tips for finding a very competent and trustworthy one?

Grt2bOutdoors
Posts: 18833
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: "New to Me" Money

Post by Grt2bOutdoors » Thu Jan 04, 2018 10:57 am

DJP1944 wrote:
Thu Jan 04, 2018 9:29 am
Thanks all for the great advice so far.

After taking in all this information I've decided that I'll take a bit of time before taking any action and commit to learning as much as I can. Based on some recommendations I have a few books to plow through in the coming weeks.

All that said, I'm leaning towards getting some flat fee/retainer assistance from a planner. Does anyone have any good tips for finding a very competent and trustworthy one?
Allan Roth, he’s in Colorado but well known and respected. Remember though, whomever you select, price may be what you pay, make sure you receive value.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bloom2708
Posts: 4447
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: "New to Me" Money

Post by bloom2708 » Thu Jan 04, 2018 10:58 am

I still think you need to wait before (If) contacting a fee only or other financial planner. Defining "good" and "trustworthy" are complicated. It may be hard to find someone who meets those criteria and fully understands where you are at and where you want to go. Think of the time it would take to get down into the details and really know you and your family.

You may need a good tax accountant. If you've paid all the tax and have $2 million (I'm just using that amount) to save, invest and pay down debt with, then you really do not need to consult a financial planner. Bogleheads is 100% free and you will get any/all advice.

You have 4 choices:

1. Spend some
2. Save some (0-5 year spending) Vacations, Cars, Taxes, Home, College (maybe in category #4)
3. Pay off Debt
4. Invest for retirement (Roth IRAs, 401k (not sure if you are currently working) or taxable (post tax) investing.

With a large sum, you can likely do all of these and do them well.

I would hold off on #1. #2 would be filling up some buckets for near term spending, not invested in stocks/bonds. More money market, Savings accounts.

#3 seems like a good option. Think of the interest saved with knocking off the mortgage. How much less you will spend each month without the mortgage payment.

#4 - Start by reading about the 3 Fund Portfolio and consider opening an account at Vanguard. It could hold your Roth IRAs and Taxable brokerage account. It really doesn't need to be more complicated that Total US stocks, Total International stocks + an appropriate Bond index. That may be taxable bonds or an int-term tax-exempt bond index depending on your marginal tax bracket. The new brackets for 2018 make things a little fuzzier.

Picking your mix of stocks/bonds will be important. You want the investments to grow, but not take too much risk. 70/30 or 60/40 seem in the reasonable range. It is not hard or complicated to do it yourself. There are all in one funds that can also be used.

I like two pieces of advice. Don't tell anyone and don't rush into anything with advisors or financial product people. They will work hard to separate you from your money.

Congrats and good luck!
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

ny_knicks
Posts: 193
Joined: Wed Jan 04, 2017 11:20 pm

Re: "New to Me" Money

Post by ny_knicks » Thu Jan 04, 2018 11:14 am

It sounds like your windfall was in excess of $2.5 million after taxes. With limited investing experience I would lean on getting professional help. That is a lot of money to get all at once.

Vanguard has an excellent low cost Personal Advisor Services with fees around 30 basis points. They'll follow the boglegead approach. Can learn from them and then flip the switch to managing it on your own down the road if you feel comfortable. They will also likely help you answer a lot of the questions like should you pay down debt/trust/estate planning/tax efficiency etc.

DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

Re: "New to Me" Money

Post by DJP1944 » Thu Jan 04, 2018 11:29 am

bloom2708 wrote:
Thu Jan 04, 2018 10:58 am
I still think you need to wait before (If) contacting a fee only or other financial planner. Defining "good" and "trustworthy" are complicated. It may be hard to find someone who meets those criteria and fully understands where you are at and where you want to go. Think of the time it would take to get down into the details and really know you and your family.

You may need a good tax accountant. If you've paid all the tax and have $2 million (I'm just using that amount) to save, invest and pay down debt with, then you really do not need to consult a financial planner. Bogleheads is 100% free and you will get any/all advice.

You have 4 choices:

1. Spend some
2. Save some (0-5 year spending) Vacations, Cars, Taxes, Home, College (maybe in category #4)
3. Pay off Debt
4. Invest for retirement (Roth IRAs, 401k (not sure if you are currently working) or taxable (post tax) investing.

With a large sum, you can likely do all of these and do them well.

I would hold off on #1. #2 would be filling up some buckets for near term spending, not invested in stocks/bonds. More money market, Savings accounts.

#3 seems like a good option. Think of the interest saved with knocking off the mortgage. How much less you will spend each month without the mortgage payment.

#4 - Start by reading about the 3 Fund Portfolio and consider opening an account at Vanguard. It could hold your Roth IRAs and Taxable brokerage account. It really doesn't need to be more complicated that Total US stocks, Total International stocks + an appropriate Bond index. That may be taxable bonds or an int-term tax-exempt bond index depending on your marginal tax bracket. The new brackets for 2018 make things a little fuzzier.

Picking your mix of stocks/bonds will be important. You want the investments to grow, but not take too much risk. 70/30 or 60/40 seem in the reasonable range. It is not hard or complicated to do it yourself. There are all in one funds that can also be used.

I like two pieces of advice. Don't tell anyone and don't rush into anything with advisors or financial product people. They will work hard to separate you from your money.

Congrats and good luck!
This advice is greatly appreciated. I just read material regarding the 3 fund profile (specific to vanguard). I'm a fan of simplicity.

Ironically, I was also just reading about Vanguards low cost advisor service mentioned in the subsequent comment by ny_knicks.

I feel very fortunate to have found this forum as it seems to have quickly helped remove a lot of the "mystery" behind the process.

Thanks again.

bloom2708
Posts: 4447
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: "New to Me" Money

Post by bloom2708 » Thu Jan 04, 2018 11:55 am

Vanguard Personal Advisory Service may well be a great place to start. Cancel after 1 or 2 years.

They often recommend a 4 fund portfolio and you will go through a questionnaire to determine your risk profile. You most likely land in the 70/30 to 60/40 range with significant assets. Take as much risk as you have to. No more.

The 4 fund looks like this:

Total US stocks
Total International stocks (20 to 50% of your stock allocation)
Total US bonds
Total International bonds (20 to 50% of your bond allocation)

3 Fund + 1 Fund portfolio. The Vanguard LifeStrategy fund family uses these 4 funds in different mixes of stocks/bonds.

I would argue it is not "worth" .3% to get the advice I just gave you free. Others may say to do it and see what happens. Let's say that you end up investing $1.5 million after paying off debt/setting aside an Emergency Fund and near term spending. That is $4,500 per year at .3%.

The $4,500 doesn't stay in your account to grow. It leaves. Now do that 20 or 30 times over the next period of years. As your portfolio grows, the fee grows. It adds up to a LOT of money. .3% is reasonable compared to 1%. But, what if you can do it yourself and save that? You can. :wink:
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

User avatar
Sandtrap
Posts: 5097
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: "New to Me" Money

Post by Sandtrap » Thu Jan 04, 2018 12:15 pm

Welcome :D

Congratulations on your successes and your windfall.

Read this:
MANAGING A WINDFALL
https://www.bogleheads.org/wiki/Managing_a_windfall

Read this:
Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Forum Library of Investing Advice with links
https://www.bogleheads.org/wiki/Main_Page

Read and do these:
Your Toolbox (will answer 99% of your questions and give you actionable steps to financial solidity and a long range goal)
Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement
Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Outline of Financial Planning (with links)
https://www.bogleheads.org/wiki/Outlin ... _planning
Funding Priority (what do I do first?)
https://www.bogleheads.org/wiki/Priori ... vestments
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Asset allocation in multiple accounts
https://www.bogleheads.org/wiki/Asset ... accounts
Risk Tolerance (what is your "sleep factor"?)
https://www.bogleheads.org/wiki/Risk_tolerance
Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation

Then or concurrently do this for a comprehensive portfolio review.
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Once doing this you will get "big picture" suggestions instead of a piecemeal approach as you learn bit by bit and ask bit by bit.

1
Do not "jump" in with any Financial Advisor, Consultant, Wealth Manager, etc. until you have learned more here.
When you know enough to pick a good FI you will likely be glad to do it yourself without paying 1+% in AUM fees. You have business savvy already. Just apply it to investment finance. Even if you delegate it, you still have to know enough to supervise and know when you are going well or getting fleeced, just as you do in your business.IMHO.
2
Vanguard VPAS is a great low cost alternative but you may want to learn more before deciding.
3
Right now a good first step is to do nothing. The instinct is to "do something". Don't. Just learn.
4
"Grt2bOutdoors" is a top portfolio reviewer. Follow his excellent post in this thread.
5
Estate planning is vital with your level of assets. If you have not done so already, explore your options for wills and trusts. Learn first then post questions. "bsteiner" and others will chime in. Read the lst book. (highly recommended here) 2nd one is optional.
Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (And Others)
https://www.amazon.com/gp/product/08873 ... UTF8&psc=1
Wills, Trusts, and Estates
https://www.amazon.com/gp/product/14548 ... UTF8&psc=1


Post and ask as often as you need along the way.
mahalo'
j :D

DJP1944
Posts: 33
Joined: Tue Jan 02, 2018 9:12 pm

Re: "New to Me" Money

Post by DJP1944 » Thu Jan 04, 2018 3:41 pm

Sandtrap wrote:
Thu Jan 04, 2018 12:15 pm


1
Do not "jump" in with any Financial Advisor, Consultant, Wealth Manager, etc. until you have learned more here.
When you know enough to pick a good FI you will likely be glad to do it yourself without paying 1+% in AUM fees. You have business savvy already. Just apply it to investment finance. Even if you delegate it, you still have to know enough to supervise and know when you are going well or getting fleeced, just as you do in your business.IMHO.
2
Vanguard VPAS is a great low cost alternative but you may want to learn more before deciding.
3
Right now a good first step is to do nothing. The instinct is to "do something". Don't. Just learn.
4
"Grt2bOutdoors" is a top portfolio reviewer. Follow his excellent post in this thread.
5
Estate planning is vital with your level of assets. If you have not done so already, explore your options for wills and trusts. Learn first then post questions. "bsteiner" and others will chime in. Read the lst book. (highly recommended here) 2nd one is optional.
Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (And Others)
https://www.amazon.com/gp/product/08873 ... UTF8&psc=1
Wills, Trusts, and Estates
https://www.amazon.com/gp/product/14548 ... UTF8&psc=1


Post and ask as often as you need along the way.
mahalo'
j :D
thanks Sandtrap, much appreciated.

There are a lot of common themes in the responses...I've ordered a bunch of books and will likely revive the thread after I've read them.

Thanks much to all!

clip651
Posts: 263
Joined: Thu Oct 02, 2014 11:02 am

Re: "New to Me" Money

Post by clip651 » Thu Jan 04, 2018 5:08 pm

DJP1944 wrote:
Wed Jan 03, 2018 8:50 am
Thank you much for the step by step approach. Regarding the second item, this one completely perplexes me. I would imagine even on this forum that there are differing opinions on whether eradicating a mortgage at 3.5% is the best move relative to what that money may earn invested. Like many, I can see both sides. Frankly, this topic is one of the main reasons that the financial planners I have talked with have rubbed me wrong. In both cases they have claimed that the math was indisputable and insisting on paying off a mortgage is driven more by emotion than anything else.
Keep in mind that the advisors have another math reason to encourage you not to pay off debt. The less debt you pay off, the more money you have to invest (with them, they hope, of course) and the more fees they can charge you. It's good that your radar was up!

I have read arguments on both sides, and I am certainly no expert. I personally would tend to lean towards paying it off for reasons you and others mention in previous posts.

Have fun with your reading, and best wishes!
cj

bltn
Posts: 145
Joined: Mon Feb 20, 2017 9:32 pm

Re: "New to Me" Money

Post by bltn » Fri Jan 05, 2018 6:55 am

2comma wrote:
Wed Jan 03, 2018 2:17 am
You can do the investment part yourself pretty easily and it makes no difference how much you are investing, the basic principles work the same on a dollar as they do on a billion dollars. A couple of books, perhaps one from John Bogle and one from the BogleHeads and you'll learn that you just want to get whatever the market gives you so do it with as low cost as possible. You want some stocks and some bonds, maybe some international stocks (Bogle says no others says yes), you decide. You decide how much growth you need and how much risk you can sleep well with and come up with an asset allocation (like I'll go 50% stock and 50% bonds), whatever. Then you stick to the plan and that's the hardest part of being a Boglehead.

Now look at this article from an ex-stockbroker on "how my advisor makes money" http://www.pamkrueger.com/how-does-my-f ... ake-money/ and follow along. First we are told that advisors on commission have a strong incentive to sell you products that make them money, that's the boogie man, the writer must be on our side. Then we define a fee-only advisor; charge by the hour, an annual retainer fee or a percent of assets under management. Hourly fee, ok, retainer ok, assets under management, let's explore that.

So go to an investment fee analyzer like http://buyupside.com/calculators/feesdec07.htm and plug in 2.5 mil, set the operating fee to 1% (which is on the low side of what she mentions), leave the growth rate at 6% (whatever) and since you're mid forties let's guess you make it to 85 so your investment horizon (number of years held) is eh, 40 years. Press calculate and suddenly you see if you paid no fees you'd have over 25 million but with the 1% fee you'd only have 17 million, your advisor got over 3 million of your money, and you lost another 5 million in opportunity costs. So all of those fees you paid your advisor never received the power of compounding. Up the fee to 2%, a lot more likely and you're out 14 million. She what it cost you if you make it to 95 years old.

Then the article goes on to explain fee-based and kind of leaves it at that (why the fee-only is a good thing) but is also implying that a "good" advisor knows how to steer us in good markets and in bad as if they can maybe predict the future? If you read the boot above you know it just ain't so. By the hour or even a retainer is ok but it's hard to find someone who can make a living doing business that way but there are a lot of them that are doing AUM fee-only, I wonder why?

I figure I can make a lot of mistakes on my own and easily come out ahead of someone who takes hundreds of thousands or in your case millions out of your pocket and if you follow the forum and learn a little bit about investing you're not going to make mistakes.

I agree taxes, estate planning and other stuff is harder and I'd pay CPA's and lawyers for that and it will be an hourly rate or a fixed fee and it won't be cheap but it won't be millions.

Learning some simple facts about investing has got to be the best ROI of your time of anything you'll ever spend.
DJP, This is your answer.

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