‘Play money’ invested by Dad growing huge - what would you do?

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gronkman
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‘Play money’ invested by Dad growing huge - what would you do?

Post by gronkman »

I originally had a UTMA from my parents, which has morphed into an investment account which I let my dad invest in any way he sees fit. It is mostly individual stocks and has see-sawed way up and down over the past 20 years.

I have always left this account alone and treated it as ‘play money’, not including it to plan my retirement horizon. But recently it has taken off in value (close to 900k now) driven mostly by huge gains from Tesla and Apple.

Everything else in my portfolio follows Boglehead philosophy. So this has me torn as I am uncomfortable due to the sheer concentration on a few stocks, as well as the confounding stock price of Tesla. But I can’t complain about the results of his fortunate (albeit risky) stock picking. I also have a great relationship with my dad which I would like to maintain.

What would you do?

Background:
US, age ~45, married w/2 kids (12 and 8)
Income: 600k combined
Allocation: 64% domestic/16% intl/20% bonds
180k cash/emergency fund
1.5m 401k/IRA, index funds
50k taxable, index funds
1.9m house, 1.3m mortgage balance 2.875% 30-year fixed
100k in 529s for each kid
Last edited by gronkman on Fri Aug 28, 2020 11:14 am, edited 2 times in total.
whereskyle
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by whereskyle »

gronkman wrote: Fri Aug 28, 2020 9:38 am I originally had a UTMA from my parents, which has morphed into an investment account which I let my dad invest in any way he sees fit. It is mostly individual stocks and has see-sawed way up and down over the past 20 years.

I have always left this account alone and treated it as ‘play money’, not including it to plan my retirement horizon. But recently it has taken off in value (close to 900k now) driven mostly by huge gains from Tesla and Apple.

Everything else in my portfolio follows Boglehead philosophy. So this has me torn as I am uncomfortable due to the sheer concentration on a few stocks, as well as the confounding stock price of Tesla. But I can’t complain about the results of his fortunate (albeit risky) stock picking. I also have a great relationship with my dad which I would like to maintain.

What would you do?

Background:
US, married w/2 kids, age ~45
Income: 600k combined
Allocation: 64% domestic/16% intl/20% bonds
180k cash/emergency fund
1.5m 401k/IRA, index funds
50k taxable, index funds
1.9m house, 1.3m mortgage balance
I would sell it all and put my $900k into the lowest risk asset I could find, probably a short-term treasury Index Fund. You've won the play money game so stop playing.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Stinky
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Stinky »

Does your dad consider this to be “his” money, or “your” money?

Hopefully, he thinks of it as “yours”. If so, I’d begin the process of derisking the portfolio now and reinvesting the proceeds according to your asset allocation. You’ll have some capital gains taxes - just pay those.

If it won’t damage the relationship, I’d sell the whole thing now.
It's a GREAT day to be alive - Travis Tritt
alfaspider
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by alfaspider »

whereskyle wrote: Fri Aug 28, 2020 9:42 am
gronkman wrote: Fri Aug 28, 2020 9:38 am I originally had a UTMA from my parents, which has morphed into an investment account which I let my dad invest in any way he sees fit. It is mostly individual stocks and has see-sawed way up and down over the past 20 years.

I have always left this account alone and treated it as ‘play money’, not including it to plan my retirement horizon. But recently it has taken off in value (close to 900k now) driven mostly by huge gains from Tesla and Apple.

Everything else in my portfolio follows Boglehead philosophy. So this has me torn as I am uncomfortable due to the sheer concentration on a few stocks, as well as the confounding stock price of Tesla. But I can’t complain about the results of his fortunate (albeit risky) stock picking. I also have a great relationship with my dad which I would like to maintain.

What would you do?

Background:
US, married w/2 kids, age ~45
Income: 600k combined
Allocation: 64% domestic/16% intl/20% bonds
180k cash/emergency fund
1.5m 401k/IRA, index funds
50k taxable, index funds
1.9m house, 1.3m mortgage balance
I would sell it all and put my $900k into the lowest risk asset I could find, probably a short-term treasury Index Fund. You've won the play money game so stop playing.
Agree with others that it might be time to cash your chips in, but I'd pay down the mortgage before putting it in short term treasuries. You'll likely take a substantial tax hit, but you could use it to buy down the mortgage to a conforming loan (much cheaper than jumbos these days).
winterfan
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by winterfan »

alfaspider wrote: Fri Aug 28, 2020 9:51 am
Agree with others that it might be time to cash your chips in, but I'd pay down the mortgage before putting it in short term treasuries. You'll likely take a substantial tax hit, but you could use it to buy down the mortgage to a conforming loan (much cheaper than jumbos these days).
I like this. Plus, your dad may find it amenable to secure a roof (albeit a nice roof) over his grandchildren rather than have play money for stocks.
Grt2bOutdoors
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Grt2bOutdoors »

I would cut the risk - sell Tesla and keep Apple. What is the difference? One company actually has strong revenues, worldwide demand, net income, great cash flow. The other has Willy Wonka at the helm, not much in the way of profits and when your market cap eclipses that of several large businesses with actual earnings you know it’s time to reduce exposure. Since you are in a high tax bracket you are likely going to pay a significant chunk in capital gains and Medicare tax, so I’d sell half of Tesla (i would sell it all if you really want to get out of it).
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Impatience
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Impatience »

That mortgage! Hoo boy. I agree with those who say sell it and pay that bad boy down. But, you may also just want to sell a part of it. For example sell half to pay down the mortgage and leave the rest to potentially keep appreciating. That will keep dad happy and you can sleep better at night knowing your risk is much lower but you’re still exposed to the upside.
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Kenkat
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Kenkat »

Hey dad, you’ve been killing it with the stock picks lately. What do you think about taking a little money off the table?

See what he says and then you can go from there.
jaj2276
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by jaj2276 »

Given your income and ex-play money financial picture I would continue to let my dad invest the account as he sees fit. It it goes to 0 because of idiosyncratic issues with Apple or Tesla, you won't be affected too much. And maybe he gets lucky and continues to have absurdly good fortune and this account grows to something that will truly affect your outcome (i.e. a +$5m account).
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by abuss368 »

gronkman wrote: Fri Aug 28, 2020 9:38 am I originally had a UTMA from my parents, which has morphed into an investment account which I let my dad invest in any way he sees fit. It is mostly individual stocks and has see-sawed way up and down over the past 20 years.

I have always left this account alone and treated it as ‘play money’, not including it to plan my retirement horizon. But recently it has taken off in value (close to 900k now) driven mostly by huge gains from Tesla and Apple.

Everything else in my portfolio follows Boglehead philosophy. So this has me torn as I am uncomfortable due to the sheer concentration on a few stocks, as well as the confounding stock price of Tesla. But I can’t complain about the results of his fortunate (albeit risky) stock picking. I also have a great relationship with my dad which I would like to maintain.

What would you do?

Background:
US, married w/2 kids, age ~45
Income: 600k combined
Allocation: 64% domestic/16% intl/20% bonds
180k cash/emergency fund
1.5m 401k/IRA, index funds
50k taxable, index funds
1.9m house, 1.3m mortgage balance
Personally I would sell and put the proceeds after tax into low risk total market index funds. The concentration risk is too great.
John C. Bogle: “Simplicity is the master key to financial success."
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nedsaid
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by nedsaid »

I think the first thing I would do is thank your dad. What he has done for you is pretty amazing. You could ask him about maybe taking some off the top in the riskier stocks to reduce risk. Gosh, no one in my family has ever done anything like that for me.
A fool and his money are good for business.
alfaspider
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by alfaspider »

nedsaid wrote: Fri Aug 28, 2020 10:20 am I think the first thing I would do is thank your dad. What he has done for you is pretty amazing. You could ask him about maybe taking some off the top in the riskier stocks to reduce risk. Gosh, no one in my family has ever done anything like that for me.
I agree gratitude is in order from a family relationship standpoint, but the issue is that luck is indistinguishable from skill here. Had he bet poorly, dad could have just as easily lost all the play money. And just because he bet well once doesn't mean he always will.
Boglegrappler
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Boglegrappler »

I'll play devil's advocate here and say you might want to let things ride.

Tesla is problematic in certain ways, but it has to be noted that it produces a product that generated 24 billion (yes, BILLION) in revenue last year.

Apple is a different animal, with 260 billion in sales latest fiscal year, but not as much growth. Profitability though, is remarkably high, and liquidity is rather good as they hold close to 200 billion of cash and liquid investments.

I think the downside risk in these is less than on might think on the face of things.

Some of this depends on what your Dad thinks about it, since he is the source of these assets, in more ways than one.

Your income seems quite good to me, but there is always the issue of how risky that is. Highly paid 45 ish year olds are nearing the risk of layoff category in certain industries and firms. If that is the case, it might make sense to de-risk the concentration level somewhat. Your overall asset level doesn't seem that high relative to your current income level, especially in the non-retirement accounts. You also have the issue of educational costs likely coming shortly, so that might be another reason to de-risk some. My guess is you will be/are full-pay at whatever university your children attend.

Good luck deciding what to propose to dad.
LFS1234
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by LFS1234 »

gronkman wrote: Fri Aug 28, 2020 9:38 am I originally had a UTMA from my parents, which has morphed into an investment account which I let my dad invest in any way he sees fit.

Recently it has taken off in value (close to 900k now) driven mostly by huge gains from Tesla and Apple.

What would you do?
You're beyond the age at which a parent typically would have hands-on engagement in your finances, and you're clearly doing very well.

What better time for you to take over than right now, when your dad can have the luxury of "retiring" with such an impressive investment track record?

At some point you'll have to take over in any case. It would be more pleasant all around if you could do so now on a high note, than after a major correction. I'd take advantage of the opportunity to take over fully right now, rather than doing so in a more gradual manner or postponing it altogether.
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gronkman
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by gronkman »

Thanks so much for the responses so far.

The mortgage is very high, but we live in a VHCOL area (Northern VA). It’s a 2.875% fixed 30-year and we itemize our deductions (we are grandfathered into 1m mortgage interest deduction), so it isn’t urgent to refinance or pay down - but I will give it some thought.

I have had philosophical discussions with my dad about my indexing strategy versus picking stocks. He obviously believes that you can beat the market with enough research, while I believe in diversifying mostly to reduce risk. What’s ironic is that he was the one who originally gave me Bogle’s book on Common Sense Investing!

In terms of Tesla, he took a flyer back when it was originally listed - my split-adjusted share cost basis is around $38 (!!!) So it’s not like current speculators, who are just dumb in my opinion. He did recently sell 25 shares at $1875 (out of 250), so he’s not averse to taking money off the table.
tashnewbie
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by tashnewbie »

jaj2276 wrote: Fri Aug 28, 2020 10:10 am Given your income and ex-play money financial picture I would continue to let my dad invest the account as he sees fit. It it goes to 0 because of idiosyncratic issues with Apple or Tesla, you won't be affected too much. And maybe he gets lucky and continues to have absurdly good fortune and this account grows to something that will truly affect your outcome (i.e. a +$5m account).
+1. It was never really "your" money anyway, unless your name is on the account. You'll be fine either way, as user above described. Good luck!
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gronkman
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by gronkman »

Also, I didn’t mention educational assets for the kids (12 and 8) because I didn’t think that was relevant, but perhaps that was in error. We’ve saved about 100k in 529s for each. I’ll edit the original post to reflect that.

I also have set up UTMAs for each of them, ~25k so far. I am hoping to pay forward what my parents did for me, but in a Boglehead way; 100% in VTSAX/VFIAX (switching due to tax gain harvesting every year).
Last edited by gronkman on Fri Aug 28, 2020 11:13 am, edited 1 time in total.
ymmt
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by ymmt »

I would also let it ride. What's the harm exactly? You're already financing your debt at dirt-cheap levels (how in the world did you get a sub 3pct jumbo?!? I wanna know!)

You are doing totally fine in terms of your income, savings, lifestyle. If this money disappeared tomorrow, you would still be perfectly fine.

What are your goals? Plan on retiring early?

I'm a few years younger than you and we have around the same NW, and I don't think such a large allocation trade makes sense. Shifting 900K (almost 1/3 of NW) out of stocks and into real estate is not something I can justify. Maybe a middle ground is take 1/4 out to pay down mortgage, 1/4 into index, and let your dad continue to 'play' with the rest?
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gronkman
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Re: ‘Play money’ invested by Dad growing huge - what would you d

Post by gronkman »

ymmt wrote: Fri Aug 28, 2020 11:02 am I would also let it ride. What's the harm exactly? You're already financing your debt at dirt-cheap levels (how in the world did you get a sub 3pct jumbo?!? I wanna know!)

You are doing totally fine in terms of your income, savings, lifestyle. If this money disappeared tomorrow, you would still be perfectly fine.

What are your goals? Plan on retiring early?

I'm a few years younger than you and we have around the same NW, and I don't think such a large allocation trade makes sense. Shifting 900K (almost 1/3 of NW) out of stocks and into real estate is not something I can justify. Maybe a middle ground is take 1/4 out to pay down mortgage, 1/4 into index, and let your dad continue to 'play' with the rest?
My plan is to retire 5-10 years early if possible and work on Roth conversions up to 24% tax bracket. I’m fluid, so we’ll see how things work out.

I used the following topic to get a .5% mortgage discount from Citibank for transferring my IRA:

viewtopic.php?t=280692

However, I understand that jumbo loans aren’t super low at the moment. I transferred the money out to Fidelity 6 months after closing - mostly due to dissatisfaction with the terrible state of Citibank website and mobile apps.

Thank you everyone for their viewpoints, I am leaning towards the idea about maybe taking 25-50% out of the market, putting it into index funds, and letting my dad continue playing with the remainder.
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Jack FFR1846 »

Honestly.....what I would do if this were in my control?

1) Sell all.
2) pay estimated taxes
3) Use what's left and buy VTI in a new brokerage to get the sign on bonus.
Bogle: Smart Beta is stupid
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JoeRetire
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by JoeRetire »

gronkman wrote: Fri Aug 28, 2020 9:38 am What would you do?
If it's your Dad playing with his money, I would encourage him to continue to have fun.

If it's you, I would invest it according to my investment plan. For me, that wouldn't concentrate investments in just a few individual stocks. Your mileage may vary.

By definition, "play money" is money you can afford to lose. We each get to decide that "play" means to us.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
delamer
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Re: ‘Play money’ invested by Dad growing huge - what would you d

Post by delamer »

gronkman wrote: Fri Aug 28, 2020 12:27 pm
ymmt wrote: Fri Aug 28, 2020 11:02 am I would also let it ride. What's the harm exactly? You're already financing your debt at dirt-cheap levels (how in the world did you get a sub 3pct jumbo?!? I wanna know!)

You are doing totally fine in terms of your income, savings, lifestyle. If this money disappeared tomorrow, you would still be perfectly fine.

What are your goals? Plan on retiring early?

I'm a few years younger than you and we have around the same NW, and I don't think such a large allocation trade makes sense. Shifting 900K (almost 1/3 of NW) out of stocks and into real estate is not something I can justify. Maybe a middle ground is take 1/4 out to pay down mortgage, 1/4 into index, and let your dad continue to 'play' with the rest?
My plan is to retire 5-10 years early if possible and work on Roth conversions up to 24% tax bracket. I’m fluid, so we’ll see how things work out.

I used the following topic to get a .5% mortgage discount from Citibank for transferring my IRA:

viewtopic.php?t=280692

However, I understand that jumbo loans aren’t super low at the moment. I transferred the money out to Fidelity 6 months after closing - mostly due to dissatisfaction with the terrible state of Citibank website and mobile apps.

Thank you everyone for their viewpoints, I am leaning towards the idea about maybe taking 25-50% out of the market, putting it into index funds, and letting my dad continue playing with the remainder.
I don’t understand whose name is on the account and what the tax implications are for you or your father if you sell investments.
Soon2BXProgrammer
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Soon2BXProgrammer »

gronkman wrote: Fri Aug 28, 2020 9:38 am I originally had a UTMA from my parents, which has morphed into an investment account which I let my dad invest in any way he sees fit. It is mostly individual stocks and has see-sawed way up and down over the past 20 years.

I have always left this account alone and treated it as ‘play money’, not including it to plan my retirement horizon. But recently it has taken off in value (close to 900k now) driven mostly by huge gains from Tesla and Apple.

Everything else in my portfolio follows Boglehead philosophy. So this has me torn as I am uncomfortable due to the sheer concentration on a few stocks, as well as the confounding stock price of Tesla. But I can’t complain about the results of his fortunate (albeit risky) stock picking. I also have a great relationship with my dad which I would like to maintain.

What would you do?

Background:
US, age ~45, married w/2 kids (12 and 8)
Income: 600k combined
Allocation: 64% domestic/16% intl/20% bonds
180k cash/emergency fund
1.5m 401k/IRA, index funds
50k taxable, index funds
1.9m house, 1.3m mortgage balance 2.875% 30-year fixed
100k in 529s for each kid

https://www.youtube.com/watch?v=gDwCMxPwJ_4
SwampDonkey
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by SwampDonkey »

Congrats. Your dad hit a homerun with his $38 Tesla buys.

If it were me, I'd have the conversation with my dad and suggest I wanted to take 1/2 of the current money and invest it in a like-minded ETF which is still innovation / growth focused, but at a lower risk.

If you've never heard of them, check out Ark funds - they have 4-5 funds they manage and they are all VERY successful (FINTECH, Innovation, robotics, etc...): https://ark-funds.com/active-etfs. Their performance speaks for themselves.
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gronkman
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Re: ‘Play money’ invested by Dad growing huge - what would you d

Post by gronkman »

delamer wrote: Fri Aug 28, 2020 12:52 pm I don’t understand whose name is on the account and what the tax implications are for you or your father if you sell investments.
Sorry for not making it clear; this account is now purely under my name only. Selling stocks will incur LTCG of 20% + possible NIIT of 3.8%.
Chuck
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Chuck »

I would take half the money and pour it into the mortgage. The other half, dump Tesla and Apple (they are not going to have another 100x run-up) and have your dad look for the next batch of 100x stocks.
delamer
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Re: ‘Play money’ invested by Dad growing huge - what would you d

Post by delamer »

gronkman wrote: Fri Aug 28, 2020 1:17 pm
delamer wrote: Fri Aug 28, 2020 12:52 pm I don’t understand whose name is on the account and what the tax implications are for you or your father if you sell investments.
Sorry for not making it clear; this account is now purely under my name only. Selling stocks will incur LTCG of 20% + possible NIIT of 3.8%.
Any state tax implications?
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Spirit Rider »

tashnewbie wrote: Fri Aug 28, 2020 10:58 am +1. It was never really "your" money anyway, unless your name is on the account. You'll be fine either way, as user above described. Good luck!
Go back and read the original post. This was in a UTMA account. It was irrevocably his money the money was gifted to the UTMA account.

It is either still a UTMA account which would be a gross violation of the rules, since it should have been transferred to his name at the age of UTMA termination for his state (most at age 21).
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by sambb »

i would let it ride
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by cogito »

I would agree with what others have said to thank and congratulate your father, and then talk about cashing in his victory. Hey Dad, you've killed it, thank you, what do you think about doing A, B, and C for us and the grandkids, as a hallmark to your legacy that they will always remember. Then you can teach your kids to be bogleheads. But don't deprive him of some well deserved praise, Bogleheads as a whole have been wrong on TSLA, and he was right. So well done to him.
HopeToGolf
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by HopeToGolf »

If you can get your head around the idea, you should take a bit off the table and pay off part of the mortgage or place more into the 529s (if you plan to fully fund your offsprings’ education which may include private college). This may not be the best and value maximizing idea but I think it is a decent approach that represents a balance between recognizing that your existing portfolio carries lots of risk while allowing you to continue the “play money” game.

The problem with owning stocks like Tesla and Apple after the run ups is deciding when to sell and in what to invest. This is especially true if you do not plan to spend the money or don’t “need” it.

Congratulations. In this day, not many recognize how a gift like this from your father can really put your family in a very comfortable place and allow you and your children to “win.” You seem thankful.
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by 2tall4economy »

pay the mortgage. thank your dad for buying your house.

On a more serious note, your debt vs savings would keep me up at night. this is a great way to fix that.
You can do anything you want in life. The rub is that there are consequences.
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by JonnyDVM »

nedsaid wrote: Fri Aug 28, 2020 10:20 am I think the first thing I would do is thank your dad. What he has done for you is pretty amazing. You could ask him about maybe taking some off the top in the riskier stocks to reduce risk. Gosh, no one in my family has ever done anything like that for me.
Seriously, your dad is crushing it. Let him continue to do his magic. Talk about looking a gift horse in the mouth. If the people on this forum had control of your UTMA you’d have a safe 130k right now. Is that what you would prefer ?
I’d trade it all for a little more | -C Montgomery Burns
vtjon02
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by vtjon02 »

If you do any charitable giving, you might want to consider a DAF for the appreciated securities.
shess
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by shess »

gronkman wrote: Fri Aug 28, 2020 9:38 am Everything else in my portfolio follows Boglehead philosophy. So this has me torn as I am uncomfortable due to the sheer concentration on a few stocks, as well as the confounding stock price of Tesla. But I can’t complain about the results of his fortunate (albeit risky) stock picking. I also have a great relationship with my dad which I would like to maintain.
IMHO, the pair of you have had a very lucky run - and you should consider ways to exit this situation before it sours. Dad should not be creating tax situations for you, in fact dad should not even have direct access to this account. I don't mean that in a finger-wagging "grow up" way, I mean that in a "You are the one who's name is on the dotted line" way. For instance, if something goes awry with a trade, when you explain the situation to the brokerage, they have an out to leave you hanging, even if it's an honest mistake or something that might have been their fault (unless you signed their document to let someone else manage the account on your behalf). Likewise, if something is wrong WRT taxes, you're the one sitting in the auditor's office and/or tax court, not your dad. I'm not saying any of this is going to happen intentionally, just that even though I love my dad, I'm not comfortable leaving him inside my base like that (if anyone is going to screw up my portfolio or taxes, it's going to be me!).

I mean, yeah, tell him he did a great job, and that you really appreciate it, and it really helps a lot, grease the skids, etc. But then suggest you'd like to get your mortgage under the conforming cap. Or tell him you consulted an estate planner and they were horrified by the situation and told you that you need to remedy it immediately. Or tell him that it feels like he's had a run of very positive luck and you want to take some off the table before it reverts to the mean.

If your relationship is great, then his response should be something like "Yeah, I guess it's your money now, isn't it?"

---

As far as what to do with it? I don't even care. I'd probably take some gains off the table to get the Apple/Telsa pair down to maybe 20% of your portfolio or less - so, say, unload half of it. I keep doing that with my leftover tech concentration, and every couple years it battles back to 25% and I have to trim it again!
cjking
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by cjking »

I tend to the view that if a little of something is good, more of it is better. So I understand those saying sell all/leave things as they are. But I think this is a case where compromise make sense.

Sometimes, managing money is a game, in which the balance has little significance as money, it's a points score. (Read Dostoevsky "The Gambler" for a superb short novel on this. Should be able to find it online, it's out of copyright.) I don't think you should take Dad's fun away. On the other hand, as long as he looks at the right measure, say CAGR instead of balance, the exact size of funds under management need not be an issue. So make sure he is looking at the right kind of measure, then suggest a way to systematically take funds off the table. e.g. take half whenever the balance hits $1 million. Then he still has a fund to play with, and you've had some benefit. (Obviously hoping it does hit 1 million before it goes wrong.)

(I'm maybe assuming that he's more active and interested in investing than he is, obviously you will have to decide if my suggestion fits the reality.)

Edit: a slight improvement to my suggestion, maybe tell him you're starting to feel nervous, so take half now, with an understanding that any future halves will be taken whenever $1 million is hit.
LFS1234
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by LFS1234 »

gronkman wrote: Fri Aug 28, 2020 10:38 am I have had philosophical discussions with my dad about my indexing strategy versus picking stocks. He obviously believes that you can beat the market with enough research, while I believe in diversifying mostly to reduce risk. What’s ironic is that he was the one who originally gave me Bogle’s book on Common Sense Investing!

In terms of Tesla, he took a flyer back when it was originally listed - my split-adjusted share cost basis is around $38 (!!!) So it’s not like current speculators, who are just dumb in my opinion. He did recently sell 25 shares at $1875 (out of 250), so he’s not averse to taking money off the table.
The market value of the remaining Tesla stake (225 shares) is $498,015.00 at yesterday's close. It has gone up 10-fold in just over a year. By any normal metrics, it's way into bubble territory. Elon Musk tweeted "Tesla stock price is too high imo" on May 1st, when the stock was less than half of today's price.

This should be a good time for one of those philosophical discussions. When does a stock position need to be sold down due to lack of diversification? When does the downside risk of a stock outweigh its upside potential? What was your dad's experience during the dot.com bubble? (He probably missed the 'Nifty Fifty" debacle of the early 1970s.)

As was pointed out upthread, your dad's actions affect your taxes. Is your dad holding back because he's concerned about the tax effects? It could be that you both are coming to the realization that this arrangement no longer makes as much sense as it once seemed to.
Olemiss540
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Olemiss540 »

I would take the money off the table, pay the taxes, buy my dad a new car, and then put the rest into a 3 fund portfolio. This additional post tax money will speed your way to FI dramatically if it doesnt get slammed by Tesla going BK or getting cut dramatically once the majors catch up. No idea if that will happen but I would say it's more likely than tesla going up 10x or 15x from it's current price.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
gmc4h232
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by gmc4h232 »

Sell everything, pay off debt. Keep 100k in cash and tell old dad to work his magic again.
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vineviz
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by vineviz »

winterfan wrote: Fri Aug 28, 2020 9:59 am
alfaspider wrote: Fri Aug 28, 2020 9:51 am
Agree with others that it might be time to cash your chips in, but I'd pay down the mortgage before putting it in short term treasuries. You'll likely take a substantial tax hit, but you could use it to buy down the mortgage to a conforming loan (much cheaper than jumbos these days).
I like this. Plus, your dad may find it amenable to secure a roof (albeit a nice roof) over his grandchildren rather than have play money for stocks.
I also like this plan
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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jfn111
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by jfn111 »

gmc4h232 wrote: Sat Aug 29, 2020 7:10 am Sell everything, pay off debt. Keep 100k in cash and tell old dad to work his magic again.
+1
Pessimist55
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Pessimist55 »

Dump tsla. Slowly sell your apple for voo
terran
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by terran »

I like how all the market timers and speculators come out to play as soon as we're talking about "free" money. Money is money, it doesn't matter where it comes from. Sounds like all of you should hire this guy's dad to manage your hard earned $900k portfolios. I agree that this is a delicate situation and you don't want to damage the relationship with your dad, but other than that consideration (which shouldn't be minimized) this money is no different than any other money you have and should be invested in a way you're comfortable with.
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prudent
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by prudent »

I think one of the dangers of holding onto huge winners is that if they start to slump, people have a tendency to think they've lost money ("it's down 10% from what I had three months ago"), then they want to hold until it recovers to the all-time high rather than being dispassionate and thinking "I've made ten-fold on this investment, I ought to protect those gains". A lot of people have ridden huge wins all the way down to losses by waiting, waiting, waiting for that comeback.

We all understand intellectually "buy low, sell high", but then if the winners start to fade they focus on the peak value and forget they could still be "selling high".

When you've made enough to where you need to start thinking about protecting huge wins, I think it's time to cash out. It's not about trying to understand if they could go even higher, it's remembering risk vs reward.
The 19th hole
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by The 19th hole »

You could point out the current favorable tax environment for capital gains and the risk of a significant shift upwards (New Pres., COVID costs, etc.). It may create a good opening for the conversation.
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JoMoney
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by JoMoney »

I don't know what information/reasoning went into selecting the individual stocks to begin with, and any framework I might use to evaluate the quality of the information outside of maybe the risks and expenses, is extremely poor. So, I certain don't know whether or not there's an advantage to selling the position now, relative to any other position you might go into.
As someone who is prone to gambling, and from that gambling perspective, I have a rule of thumb that as soon as I start mentally spending the money, thinking about what I might do with it, it stops being "funny money", I'm no longer willing to accept the risk of loss, and it's time to cash it in.

As far as investments go, I just keep enough in cash and short-term bonds that I sleep well at night, and the rest in a low-cost broad market index fund.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by michaeljc70 »

Personally, I'd sell it all and use it to either pay down the mortgage or invest it using my plan. As the OP said in the first post, over 20 years this portfolio has gone up and down so it doesn't sound like every investment has been a home run. The market, and particularly those two stocks (Tesla+Apple) have had unbelievable run-ups recently.

Based on the title, doesn't your father have his own money to "play" with?
RetiredAL
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by RetiredAL »

Spirit Rider wrote: Fri Aug 28, 2020 7:49 pm
tashnewbie wrote: Fri Aug 28, 2020 10:58 am +1. It was never really "your" money anyway, unless your name is on the account. You'll be fine either way, as user above described. Good luck!
Go back and read the original post. This was in a UTMA account. It was irrevocably his money the money was gifted to the UTMA account.

It is either still a UTMA account which would be a gross violation of the rules, since it should have been transferred to his name at the age of UTMA termination for his state (most at age 21).
Spirit Rider - I still have access to the account what was my youngest son's UGMA, via POA. Until he bought a house 9 month's ago, it has had no trades for years. It's prime holding is Schwab's SP500 fund.

He did not change the account's title for a couple of years after he turned 21. My recollection is that when he turned 21, my access changed to view only.
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by Spirit Rider »

RetiredAL wrote: Sat Aug 29, 2020 11:18 am
Spirit Rider wrote: Fri Aug 28, 2020 7:49 pm
tashnewbie wrote: Fri Aug 28, 2020 10:58 am +1. It was never really "your" money anyway, unless your name is on the account. You'll be fine either way, as user above described. Good luck!
Go back and read the original post. This was in a UTMA account. It was irrevocably his money the money was gifted to the UTMA account.

It is either still a UTMA account which would be a gross violation of the rules, since it should have been transferred to his name at the age of UTMA termination for his state (most at age 21).
Spirit Rider - I still have access to the account what was my youngest son's UGMA, via POA. Until he bought a house 9 month's ago, it has had no trades for years. It's prime holding is Schwab's SP500 fund.

He did not change the account's title for a couple of years after he turned 21. My recollection is that when he turned 21, my access changed to view only.
Your reply has nothing to do with @tashnewbie's post or my reply.
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Re: ‘Play money’ invested by Dad growing huge - what would you do?

Post by HomeStretch »

If your dad is not amenable to making investment changes to and withdrawals from the account, perhaps he would be persuaded by:

1) you wanting to sell a portion of the account to pay down/off your mortgage to de-risk in these uncertain times, and

2) stopping dividend reinvestment and using the investment income to make 529 contributions for your kids education.
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