Help with inherited investment account

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ridgeline73
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Help with inherited investment account

Post by ridgeline73 » Thu Jan 11, 2018 8:45 pm

Hi, I need some help/advice with how to best invest an inherited IRA from my grandmother.

Here is what is in the Edward Jones account I inherited (we all had to open an account to obtain our share).

$38k in cash
$13k in stocks
$31 in mutual funds
$10k in ETF's
$10k in bonds

I don't really know what to do with it. I have spoken several times with Vanguard about moving the money there. They have recommended an 80/20 stock/bond split.

I am 44 years old. I am a public employee that has a pension available starting at age 58. At that point I get 66% of the average of my highest 5 years salary. Outside of that I have an employer funded 403b that has $4500 that my employer contributes 2% of my salary to.

I also inherited part of a farm when my grandma passed. It is currently rented and my income would be $6k / year from that farm. I would like to sell, but not sure that is an option with the other parties involved.


1) What do I do with the Edward Jones Portfolio? Do I move it to Vanguard and invest it? If so, what should it be put into?
2) What can I do with the yearly farm income to invest?
3) What do I do with the required minimum distribution every year?
4) It is imperative that all of the inherited property remain my property and do not become community property. What do I need to do to keep these assets protected?


Thanks in advance for any help or suggestions. I am pretty lost on what to do.
Last edited by ridgeline73 on Fri Jan 12, 2018 2:58 pm, edited 1 time in total.

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CAsage
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Re: Help with inherited IRA

Post by CAsage » Thu Jan 11, 2018 10:19 pm

Read the Wiki on this site about windfalls and asset allocation. What you do with it should fit in with your overall diversification plan. If you have a secure pension, more stocks are possible.

With regard to (4)... I would suggest that you carefully check the requirements of whatever state you are in. Laws vary. In general, I would suggest you open an account at a place you do not normally bank (one investment firm for the assets, and one checking account in a CU/bank to manage the payments and cash flow from the RMD and rental income back into the investment firm), and then NEVER NEVER contribute to those funds with any of your earnings or accounts from your job (for example). In CA, inheritance is not community property, but salary and earnings are. If you mix the funds (called commingling), then it can become community property. Consider writing a check from that bank to cover the taxes due on those additional funds. Note that this is just street advice, lots of my friends are divorced and we know all about community property and commingling....

And I would sell everything in that overpriced EJ account, and move it to a simple, cheap index fund at Schwab/Fidelity/Vanguard wherever, and invest it simply (read the Wiki) on 2 or 3 broad, super cheap index funds. There are many worse plans.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

ridgeline73
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Re: Help with inherited IRA

Post by ridgeline73 » Fri Jan 12, 2018 8:46 am

The move to Vanguard is already in the works. I just want to make sure what I do is right. Since I am pretty clueless, I am probably going to have them manage the portfolio.

I don't know what to do with the farm rental income or the money from the RMD. So I get a checking account it flows into and then I want to reinvest it, I can't put it in the inherited IRA, what do I put it in?

On point 4) It sounds like (In CA at least) you would recommend I pay taxes out of the inheritance on the amount of taxes the inheritance generates? If I use essentially what is community funds to pay the tax bill that jeopardizes the status of the inheritance?

Thanks again.

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BL
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Re: Help with inherited IRA

Post by BL » Fri Jan 12, 2018 9:18 am

Good ideas to keep things separate and move to a low-cost place like Vanguard. Other places might also work, especially if you don't listen to their advice on what to do with your money. V folks don't work on commission, so won't try to sell you overpriced products or management. V does have PAS that would manage your money for 0.3% if you decide you want some advice. Almost all of V funds are low-ER so that would not be a problem.

You do need to think about what % fixed income (bonds, etc.) you would be happy with. Some suggest somewhere between your age and (age - 20) for conservative to aggressive investing. So the suggested 20% is quite aggressive. Of course expecting a pension helps there as you have guaranteed fixed income in your future. The 60 stock/40 bond ratio is sometimes considered the default. Someone else says never less than 25% nor more than 75% bonds. Will you be able to sleep at night when the market drops 50%? The more bonds, the less % drop you will personally experience. So this is something that you will ultimately have to decide for yourself.

You have a choice between managing by PAS, buying a balanced fund that is set and forget with your preferred % bonds (Vanguard has lots of low-ER choices), or a simple 3-fund portfolio that you should check maybe once a year to balance back to preferred stock/bond ratio (AA). It depends on how hands-on you want to be. You may have to take RMD before you move it, and each following year. You can take out (sell) more than RMD but never less. You will owe tax on it.

See if co-owners would buy you out or agree to sell. That would make your life simpler. Even buying them out and then selling would be an option. There are probably emotions involved.

The Wiki has a list of recommended reading to get a better idea of investing. Dr. William Bernstein has written a 16-page pdf for new investors that has everything in a nutshell, so that might be a good start:
https://www.etf.com/docs/IfYouCan.pdf

Best wishes.

ridgeline73
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Re: Help with inherited IRA

Post by ridgeline73 » Fri Jan 12, 2018 9:29 am

So, I will have an Inherited IRA, which I am unable to add money to, and 403B through my employer that they add money to and I will not be contributing to, and I have my pension.

What should I be investing the cash rent from the farm and the RMD into?

I wish I could buy everyone out, or sell my portion, it just really isn't going to happen at this point.

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BL
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Re: Help with inherited IRA

Post by BL » Fri Jan 12, 2018 12:56 pm

Once you get the IRA set up at V or ??, open a separate regular personal account at V so you can deposit from your special checking account as you wish. The choices could be, for example: the same fund(s) you removed as RMD and buy in your personal account; a tax-efficient fund like total Stock Market or Total International Stock Market and keeping or increasing your bond funds in IRA; if high tax bracket, a tax-managed Balanced Fund composed of stock fund and municipal bond; or municipal bonds, but maybe better to increase bonds in IRA and stock funds in taxable (personal) account. Keep in mind the over-all bond % you decided on, and add to whichever has lost money whenever you have inheritance income to invest. It should be fine to choose CDs instead of some of your bonds for guaranteed (small) return.

ridgeline73
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Re: Help with inherited IRA

Post by ridgeline73 » Fri Jan 12, 2018 1:56 pm

OK, this is not an IRA I am inheriting. It is just an investment account that was part of a trust from my grandparents.

The probate attorney says I am free to do what I want with it and the taxes were paid at the time of my grandfather's death.

So it doesn't have to go into an inherited IRA. And I can continue to contribute to it with the rent proceeds from the inherited farm.

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CAsage
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Re: Help with inherited IRA

Post by CAsage » Fri Jan 12, 2018 2:23 pm

Ok (suggest fixing title of thread..). If it's not an IRA, your life is easier. You will end up with a plain old brokerage (i.e. investment) account at Vanguard. That account will hold one or more funds - an easy choice is a Target 2040 fund, or 1/3 each Vanguard Total Bond, Total Stock, and International Stock. That would be a pretty generic diversified account - the mix of stock/bond is determined by your comfort level! Don't angst over it, just pick something in the middle. The checking account will be linked to that Vanguard account, and used to deposit farm rental income and pay taxes. While the taxes on the inheritance itself are paid, it will naturally generate income in the future (like interest), and you will need to pay income taxes on the farm income and your gains from the investments. Note that I (and others...) suggested you pay the increased income tax due on your inherited investments to avoid any issues with a presumed spouse - I'm not really sure that you have to do that. But for sure, deposit no funds into either the checking or Vanguard account except from the farm.

Who does your taxes? Might be more complex now.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Fri Jan 12, 2018 3:23 pm

I used to do them (taxes) myself. I will probably farm that out to somebody qualified now.

The biggest question I have is if I have to pay taxes on the farm income and gains from a separate account to avoid commingling the inheritance.

I think I am good with putting the money in a vanguard target retirement 2035 account and just letting it sit for the next 15 years. Is that a good option? Or is that going to be too conservative for right now?

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CAsage
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Re: Help with inherited investment account

Post by CAsage » Fri Jan 12, 2018 8:32 pm

Target 2035 is probably fine. You should check with a lawyer on the tax-payment question; I don't think it matters, since even in a community property state half your income does belong to you! Kind of depends on how much of an issue this turns out to be.... Unsure. Check state law.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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BL
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Re: Help with inherited investment account

Post by BL » Sat Jan 13, 2018 10:25 am

If it was in an IRA, a Target date fund would be fine, as you could always sell and buy a more suitable one with no tax concerns if the stock/bond ratio change doesn't suit you.

In a regular account, you may owe taxes if you change the funds. That would be the advantage of using the components in Target fund (I would skip international bonds and just add that to bonds) instead. 1/3 each of the three would work fine (consider municipal bonds if higher tax bracket). Then you could sell just the amount you wanted to minimize tax. I would plan to just add to bonds with extra money when stocks are doing well. You could check once a year to see if things are in balance according to your age and preferences. Allowing it to swing 5-10% either way means you would rarely need to re-balance.

The only tax-advantaged single fund I know of is the Tax-managed balanced fund. That has about 1/2 stocks/bonds and kicks out tax-free bond interest.

ccieemeritus
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Re: Help with inherited investment account

Post by ccieemeritus » Sat Jan 13, 2018 11:52 am

It sounds like you are suffering from some information overload here. As a result you have talked with vanguard several times but not moved the account.

I think the original vanguard suggestion is good. Just move the account over and go 80/20. Have vanguard help with the paperwork.

A low cost target fund is fine too.

Reading the thread update, this is a taxable account. The cost basis will be based on the value on day of death (warning: I am not a tax professional). So making this move before the prices rise significantly will help minimize taxes.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sat Jan 13, 2018 6:13 pm

Information overload would be correct :)

Unless someone tells me this is a bad move I plan to transfer it over to the 2035 Target Retirement Fund.

That way I can put it there and not worry about it. I don't understand the tax implications, so if this is a bad move please feel free to chime it.

Also found out Friday I have $25k in life insurance headed my way that I plan to add to the fund.

Thank you all for your help. I really do appreciate it.

****Edit*****

What I am reading is suggesting that Target Funds are not tax efficient. I just need something I can put the money in and leave it be for 15 years (continuing to add farm rental income to it). I am all ears. I plan to move the money this week. Just need a good solution that makes sense for my situation.

THanks.

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CAsage
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Re: Help with inherited investment account

Post by CAsage » Sat Jan 13, 2018 8:51 pm

Is your tax bracket high enough that you are worried about taxes? Are you willing to go in once a year and rebalance (move money) from one asset to another? Note that they have very easy ways to do this online, and you are going to be making deposits anyway. You can always start out with the Target date fund, and then change in a year. Or two. Or look into tax-managed funds. If your income is high enough, municipal or tax-free bond funds are available, but they pay less than corporate taxable bond funds....

So, like everything, it depends!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sun Jan 14, 2018 10:55 am

I doubt my tax is high enough.....I make $110k/year. Wife is probably $10-15k working part time.

I don't mine going in once per year and re balancing if it is a fairly straight forward process and more advantageous scenario than a target fund.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sun Jan 14, 2018 6:44 pm

reading....reading.....reading.

Do I really need bonds in a taxable account?

Could I do 65% in VTSAX or VFIAX and 35% in VTIAX and roll with that?

Or should I do 60/30/ and 10% in some sort of bond fund like VBTLX. I ready different things, but in general to avoid that in a taxable account.

Is it too risky to have a stock only taxable account? Is there something else I should be considering?

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Thu Jan 18, 2018 2:34 pm

I need to get this money transferred over to Vanguard.

Does anyone want to share a recommended strategy for a taxable account portfolio and exactly what that looks like?

Again, I plan to let it sit for ~15 years. I have a defined benefit position through work.

Thank you in advance.

brother7
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Re: Help with inherited investment account

Post by brother7 » Thu Jan 18, 2018 2:50 pm

ridgeline73 wrote:
Thu Jan 18, 2018 2:34 pm
I need to get this money transferred over to Vanguard.

Does anyone want to share a recommended strategy for a taxable account portfolio and exactly what that looks like?

Again, I plan to let it sit for ~15 years. I have a defined benefit position through work.

Thank you in advance.
  1. Be sure your inherited IRA is titled properly, something like: Grandma Doe IRA (deceased) FBO Grandson Doe, beneficiary
    A properly titled account ensures that the beneficiary can stretch the RMDs over the beneficiary's life expectancy.
  2. Be sure to research when RMDs must be distributed. One key fact to know is whether or not the deceased owner had or had not reached the required beginning date (RBD).
  3. It's my suggestion to NOT do an in-kind transfer. Rather, liquidate all assets and move the cash.
  4. Finally, for a recommended Vanguard portfolio, look at Paul Merriman's recommended tax-deferred portfolio for Vanguard. If you're gonna leave it for 10-15 years, go Aggressive!
EDIT: I re-read the thread and realize that you are NOT inheriting an IRA or any retirement account at all. In that case, everything will go into a taxable account at Vanguard. Forget points 1-2 above; points 3-4 are still valid.

Regarding farm income, direct that to a separate checking account in your own name as others have suggested, then funnel it into the same taxable Vanguard account and invest using the allocation mentioned in point 4 above.
Last edited by brother7 on Thu Jan 18, 2018 2:59 pm, edited 1 time in total.

TwstdSista
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Re: Help with inherited investment account

Post by TwstdSista » Thu Jan 18, 2018 2:55 pm

If this is a taxable account -- then Total Stock (VTSAX) and Total International (VTIAX) are the way to go. Can you put bonds in a tax deferred account to maintain your asset allocation?

Otherwise, maybe Vanguard's Tax Managed Balanced Fund (VTMFX) for the bond portion of your AA? It's 50/50 US stocks and bonds, so you'd have to do some math.

Just a thought....

ETA: If this is a taxable account, there may be tax consequences to selling the funds/stocks you inherited. You should look into this before making decisions.

brother7
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Re: Help with inherited investment account

Post by brother7 » Thu Jan 18, 2018 3:01 pm

TwstdSista wrote:
Thu Jan 18, 2018 2:55 pm
ETA: If this is a taxable account, there may be tax consequences to selling the funds/stocks you inherited. You should look into this before making decisions.
If this is an inheritance, he should benefit from a stepped-up basis. But he should double-check with a tax professional and/or estate expert.

ThriftyPhD
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Re: Help with inherited investment account

Post by ThriftyPhD » Thu Jan 18, 2018 3:19 pm

Since you're not currently saving anything yourself into retirement accounts, you could live off the investments while maxing out your 403b ($18.5k) and Roth IRA ($5.5k 2017, $5.5k 2018). However, I'm not sure how this would impact your 4th bullet, on keeping it your property and not community property. As has been mentioned by others, this varies state to state so it would be best to seek out legal advice in your area to know what the community property rules are.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Thu Jan 18, 2018 3:21 pm

brother7 wrote:
Thu Jan 18, 2018 2:50 pm
ridgeline73 wrote:
Thu Jan 18, 2018 2:34 pm
I need to get this money transferred over to Vanguard.

Does anyone want to share a recommended strategy for a taxable account portfolio and exactly what that looks like?

Again, I plan to let it sit for ~15 years. I have a defined benefit position through work.

Thank you in advance.
  1. Be sure your inherited IRA is titled properly, something like: Grandma Doe IRA (deceased) FBO Grandson Doe, beneficiary
    A properly titled account ensures that the beneficiary can stretch the RMDs over the beneficiary's life expectancy.
  2. Be sure to research when RMDs must be distributed. One key fact to know is whether or not the deceased owner had or had not reached the required beginning date (RBD).
  3. It's my suggestion to NOT do an in-kind transfer. Rather, liquidate all assets and move the cash.
  4. Finally, for a recommended Vanguard portfolio, look at Paul Merriman's recommended tax-deferred portfolio for Vanguard. If you're gonna leave it for 10-15 years, go Aggressive!
EDIT: I re-read the thread and realize that you are NOT inheriting an IRA or any retirement account at all. In that case, everything will go into a taxable account at Vanguard. Forget points 1-2 above; points 3-4 are still valid.

Regarding farm income, direct that to a separate checking account in your own name as others have suggested, then funnel it into the same taxable Vanguard account and invest using the allocation mentioned in point 4 above.
What Vanguard was suggesting was for them to take the investments in-kind then liquidate them. They told me this would cost approx $100 total.

So I would just follow the percentages for the "Taxable Portfolio" and recreate? Am I ok with that as my sole account outside of my pension (and a small 403b)?

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Thu Jan 18, 2018 3:23 pm

brother7 wrote:
Thu Jan 18, 2018 3:01 pm
TwstdSista wrote:
Thu Jan 18, 2018 2:55 pm
ETA: If this is a taxable account, there may be tax consequences to selling the funds/stocks you inherited. You should look into this before making decisions.
If this is an inheritance, he should benefit from a stepped-up basis. But he should double-check with a tax professional and/or estate expert.
I was told this money was taxed already as part of my grandfather's trust.........it was mine to do with as I please.

At this point however it has gained ~$2k in value over the past 1.5 months.

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BL
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Re: Help with inherited investment account

Post by BL » Thu Jan 18, 2018 4:28 pm

I believe the gains from inheritance are called Long Term gains even if you have held them only a short time.
So you are probably looking at 15% tax on those gains, if you are above the 15% tax bracket.

The 3-fund portfolio in whatever ratio you choose would be good. Taxes on bonds at 22% shouldn't be so very much (2-4% dividends/year). The Prime Money Market is paying a decent amount for fixed income if you want lower risk than Total Bond Market. Total US and International Stock market funds are quite tax-friendly. (See Wiki for 3-fund portfolio).

Taylor started a long thread on the Three-Fund Portfolio. Do a search for that.
Total Stock Market
Total US Stock Market
Total Bond Market.
Simple, diversified, low cost. You decide what % of each.
ex.,30,30,40%.
Last edited by BL on Thu Jan 18, 2018 4:34 pm, edited 1 time in total.

brother7
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Re: Help with inherited investment account

Post by brother7 » Thu Jan 18, 2018 4:33 pm

ridgeline73 wrote:
Thu Jan 18, 2018 3:21 pm
What Vanguard was suggesting was for them to take the investments in-kind then liquidate them. They told me this would cost approx $100 total.

So I would just follow the percentages for the "Taxable Portfolio" and recreate? Am I ok with that as my sole account outside of my pension (and a small 403b)?
If Vanguard can accept the transfer in-kind and liquidate for ~$100, I guess the cost is reasonable.

After the liquidation, you should have all cash at Vanguard. Just re-invest the cash using the percentages for the "Taxable Portfolio - Aggressive". Since you say you're ok to let it ride for 10-15 years and that you'll have a pension, I feel comfortable being 100% stocks, which is what the Aggressive allocation is.

One thing to note... the symbols are for the Admiral Shares of the listed mutual funds. Admiral Shares require a $10,000 minimum. If your allocation doesn't allow for that, use the Investor Shares for that mutual fund, which has a $3,000 minimum and will have a different symbol.

What do you estimate your initial portfolio value at Vanguard to be? I'll do the math and give you the exact symbols to use.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Thu Jan 18, 2018 4:56 pm

$120000

brother7
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Re: Help with inherited investment account

Post by brother7 » Thu Jan 18, 2018 5:30 pm

With $120k, you'll have no problem building a portfolio using Vanguard Admiral Shares.

Your portfolio will look something like this:

Code: Select all

 12%   $ 14,400   VFIAX   500 Index
 13%   $ 15,600   VVIAX   Value Index
 12%   $ 14,400   VTMSX   Tax-Managed Small-Cap
 13%   $ 15,600   VSIAX   Small-Cap Value Index
 10%   $ 12,000   VTMGX   Developed Markets Index
 20%   $ 24,000   VTRIX   International Value
 10%   $ 12,000   VFSVX   FTSE All-World ex-US Small-Cap Index
 10%   $ 12,000   VEMAX   Emerging Markets Stock Index
----   --------
100%   $120,000
This is a well-diversified, all-world equity portfolio.
50% US / 50% international with a tilt towards small-cap and value.

Grt2bOutdoors
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Re: Help with inherited investment account

Post by Grt2bOutdoors » Thu Jan 18, 2018 5:44 pm

brother7 wrote:
Thu Jan 18, 2018 5:30 pm
With $120k, you'll have no problem building a portfolio using Vanguard Admiral Shares.

Your portfolio will look something like this:

Code: Select all

 12%   $ 14,400   VFIAX   500 Index
 13%   $ 15,600   VVIAX   Value Index
 12%   $ 14,400   VTMSX   Tax-Managed Small-Cap
 13%   $ 15,600   VSIAX   Small-Cap Value Index
 10%   $ 12,000   VTMGX   Developed Markets Index
 20%   $ 24,000   VTRIX   International Value
 10%   $ 12,000   VFSVX   FTSE All-World ex-US Small-Cap Index
 10%   $ 12,000   VEMAX   Emerging Markets Stock Index
----   --------
100%   $120,000
This is a well-diversified, all-world equity portfolio.
50% US / 50% international with a tilt towards small-cap and value.
In a taxable account I do not suggest the OP use actively managed funds that throw off taxable distributions. International value is actively managed, what you think you are earning in excess returns over the total international index will be eroded by the taxes you pay on distributions. There is a reason why a 3 fund portfolio was suggested OP - low cost, widely diversified, low taxable distributions enabling you to keep more of your fair share of returns. But the more important reason is Simplicity. Very easy to monitor and rebalance when you are only dealing with 3 Funds. IMO, you can hold a 3 fund portfolio that is 50/50 domestic and international. You don’t need an 8 fund portfolio.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Thu Jan 18, 2018 5:48 pm

What 3 funds and what percentages? Would like to be moderately aggressive.

Thanks.

TwstdSista
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Re: Help with inherited investment account

Post by TwstdSista » Thu Jan 18, 2018 5:52 pm

VTSAX (Total US) and VTIAX (Total Int'l) in taxable. I'm not sure re: bonds in taxable -- someone else can chime in, I'm sure.

What state are you in? Are you subject to state taxes?

Grt2bOutdoors
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Re: Help with inherited investment account

Post by Grt2bOutdoors » Thu Jan 18, 2018 6:09 pm

ridgeline73 wrote:
Thu Jan 18, 2018 5:48 pm
What 3 funds and what percentages? Would like to be moderately aggressive.

Thanks.
Total stock market index - VTSAX: 40%
Total international stock index - VTIAX: 20%
Total bond market index - 40%, if in high tax bracket use Tax Exempt Intermediate term

That is a 70/30 domestic international split, 60/40 equity bond moderate allocation. If you want a more aggressive mix, change percentages to 49%, 21%, 30% respectively by Funds above.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

brother7
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Re: Help with inherited investment account

Post by brother7 » Thu Jan 18, 2018 7:09 pm

Grt2bOutdoors wrote:
Thu Jan 18, 2018 5:44 pm
brother7 wrote:
Thu Jan 18, 2018 5:30 pm
With $120k, you'll have no problem building a portfolio using Vanguard Admiral Shares.

Your portfolio will look something like this:

Code: Select all

 12%   $ 14,400   VFIAX   500 Index
 13%   $ 15,600   VVIAX   Value Index
 12%   $ 14,400   VTMSX   Tax-Managed Small-Cap
 13%   $ 15,600   VSIAX   Small-Cap Value Index
 10%   $ 12,000   VTMGX   Developed Markets Index
 20%   $ 24,000   VTRIX   International Value
 10%   $ 12,000   VFSVX   FTSE All-World ex-US Small-Cap Index
 10%   $ 12,000   VEMAX   Emerging Markets Stock Index
----   --------
100%   $120,000
This is a well-diversified, all-world equity portfolio.
50% US / 50% international with a tilt towards small-cap and value.
In a taxable account I do not suggest the OP use actively managed funds that throw off taxable distributions. International value is actively managed, what you think you are earning in excess returns over the total international index will be eroded by the taxes you pay on distributions. There is a reason why a 3 fund portfolio was suggested OP - low cost, widely diversified, low taxable distributions enabling you to keep more of your fair share of returns. But the more important reason is Simplicity. Very easy to monitor and rebalance when you are only dealing with 3 Funds. IMO, you can hold a 3 fund portfolio that is 50/50 domestic and international. You don’t need an 8 fund portfolio.
Grt2bOutdoors is correct that VTRIX International Value is actively managed. It's included in the portfolio to gain exposure to International Value which can't be targeted using a Vanguard index fund. If the fact that it's actively managed overrides the desire for international value exposure, simply reallocate the 20% VTRIX to VTMGX Developed Market Index, bringing its total up to 30%.

Using the same reasoning, VTMSX Tax-Managed Small Cap is actively managed and can be replaced with VSMAX Small-Cap Index.

The new all-index 7-fund portfolio:

Code: Select all

 12%   $ 14,400   VFIAX   500 Index
 13%   $ 15,600   VVIAX   Value Index
 12%   $ 14,400   VSMAX   Small-Cap Index
 13%   $ 15,600   VSIAX   Small-Cap Value Index
 30%   $ 36,000   VTMGX   Developed Markets Index
 10%   $ 12,000   VFSVX   FTSE All-World ex-US Small-Cap Index
 10%   $ 12,000   VEMAX   Emerging Markets Stock Index
----   --------
100%   $120,000
I prefer this portfolio over the Bogleheads' 3-fund portfolio because academic research suggests that over long periods, value will outperform growth and small-cap will outperform large-cap. Not everyone believes the academics. I do.

Grt2bOutdoors
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Re: Help with inherited investment account

Post by Grt2bOutdoors » Thu Jan 18, 2018 9:22 pm

brother7 wrote:
Thu Jan 18, 2018 7:09 pm
Grt2bOutdoors wrote:
Thu Jan 18, 2018 5:44 pm
brother7 wrote:
Thu Jan 18, 2018 5:30 pm
With $120k, you'll have no problem building a portfolio using Vanguard Admiral Shares.

Your portfolio will look something like this:

Code: Select all

 12%   $ 14,400   VFIAX   500 Index
 13%   $ 15,600   VVIAX   Value Index
 12%   $ 14,400   VTMSX   Tax-Managed Small-Cap
 13%   $ 15,600   VSIAX   Small-Cap Value Index
 10%   $ 12,000   VTMGX   Developed Markets Index
 20%   $ 24,000   VTRIX   International Value
 10%   $ 12,000   VFSVX   FTSE All-World ex-US Small-Cap Index
 10%   $ 12,000   VEMAX   Emerging Markets Stock Index
----   --------
100%   $120,000
This is a well-diversified, all-world equity portfolio.
50% US / 50% international with a tilt towards small-cap and value.
In a taxable account I do not suggest the OP use actively managed funds that throw off taxable distributions. International value is actively managed, what you think you are earning in excess returns over the total international index will be eroded by the taxes you pay on distributions. There is a reason why a 3 fund portfolio was suggested OP - low cost, widely diversified, low taxable distributions enabling you to keep more of your fair share of returns. But the more important reason is Simplicity. Very easy to monitor and rebalance when you are only dealing with 3 Funds. IMO, you can hold a 3 fund portfolio that is 50/50 domestic and international. You don’t need an 8 fund portfolio.
Grt2bOutdoors is correct that VTRIX International Value is actively managed. It's included in the portfolio to gain exposure to International Value which can't be targeted using a Vanguard index fund. If the fact that it's actively managed overrides the desire for international value exposure, simply reallocate the 20% VTRIX to VTMGX Developed Market Index, bringing its total up to 30%.

Using the same reasoning, VTMSX Tax-Managed Small Cap is actively managed and can be replaced with VSMAX Small-Cap Index.

The new all-index 7-fund portfolio:

Code: Select all

 12%   $ 14,400   VFIAX   500 Index
 13%   $ 15,600   VVIAX   Value Index
 12%   $ 14,400   VSMAX   Small-Cap Index
 13%   $ 15,600   VSIAX   Small-Cap Value Index
 30%   $ 36,000   VTMGX   Developed Markets Index
 10%   $ 12,000   VFSVX   FTSE All-World ex-US Small-Cap Index
 10%   $ 12,000   VEMAX   Emerging Markets Stock Index
----   --------
100%   $120,000
I prefer this portfolio over the Bogleheads' 3-fund portfolio because academic research suggests that over long periods, value will outperform growth and small-cap will outperform large-cap. Not everyone believes the academics. I do.
There are many roads to Dublin. For a new investor on the forum who is lost, simplicity is better. There are countless threads on which method is better, but for someone who is looking to invest with a minimum of hassle and yet capture 95%+ of the returns, there are few portfolio strategies that can meet or beat the returns of a 3 fund portfolio while not requiring extensive tinkering/rebalancing of the account when required.
Why add complexity when it's not required? Vanguard seems to agree, their Target Date funds and Lifestrategy funds use 4 funds at most.

The OP is free to read up on the Small Value discussions using the search tool, there are tons of pages dedicated to "is it necessary, isn't it?, tracking error vs. total stock market, etc".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Thu Jan 18, 2018 10:14 pm

Grt2bOutdoors wrote:
Thu Jan 18, 2018 6:09 pm
ridgeline73 wrote:
Thu Jan 18, 2018 5:48 pm
What 3 funds and what percentages? Would like to be moderately aggressive.

Thanks.
Total stock market index - VTSAX: 40%
Total international stock index - VTIAX: 20%
Total bond market index - 40%, if in high tax bracket use Tax Exempt Intermediate term

That is a 70/30 domestic international split, 60/40 equity bond moderate allocation. If you want a more aggressive mix, change percentages to 49%, 21%, 30% respectively by Funds above.
I have a hard time believing in the grand scheme of things I am in a high tax bracket.........

What if I wanted to be more aggressive?

56/24/20
or even
63/27/10

Or is that too aggressive?

Grt2bOutdoors
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Location: New York

Re: Help with inherited investment account

Post by Grt2bOutdoors » Thu Jan 18, 2018 10:38 pm

ridgeline73 wrote:
Thu Jan 18, 2018 10:14 pm
Grt2bOutdoors wrote:
Thu Jan 18, 2018 6:09 pm
ridgeline73 wrote:
Thu Jan 18, 2018 5:48 pm
What 3 funds and what percentages? Would like to be moderately aggressive.

Thanks.
Total stock market index - VTSAX: 40%
Total international stock index - VTIAX: 20%
Total bond market index - 40%, if in high tax bracket use Tax Exempt Intermediate term

That is a 70/30 domestic international split, 60/40 equity bond moderate allocation. If you want a more aggressive mix, change percentages to 49%, 21%, 30% respectively by Funds above.
I have a hard time believing in the grand scheme of things I am in a high tax bracket.........

What if I wanted to be more aggressive?

56/24/20
or even
63/27/10

Or is that too aggressive?
Why stop there? Go 100% equity, then you would be super aggressive. But that is not what you indicated, you indicated you wanted moderately aggressive. That is 70/30, if the market tanked by 50% tomorrow, your account goes down by 35%. Now, take your thoughts up above and apply the same hypothetical scenario, 80% allocation goes to 40%, 90% goes down by 45-50%. Are you mentally ready for that? How would you feel if $120K became $60K tomorrow and did not come back for 2-3 years, if you were in Japan, it is just getting close to coming back - after 30 years!!! Got 30 years to find out how it turns out? If you've never experienced a bear market, you usually find out you are too aggressive when you fail to SWAN. (sleep well at night). You do have the time (years) but you also will need patience, alot of it, most new investors have a difficult time staying the course after a severe or prolonged market disruption and hence sell out at the wrong time when the market is low instead of waiting it out. Holding bonds that yield 2-4% doesn't seem appealing when equities are going up by 10%+, when equities decline by 20% or more, those bonds will let you sleep at night while providing interest income and an ability to buy cheap equities that are on sale.

If you haven't read any books yet - recommend reading All About Asset Allocation, 2nd ed. - Rick Ferri

See my signature line - need, ability and willingness when you fulfill those three criteria then you proceed, however, if you have any doubts at all, erring on the side of conservatism will serve you well.
Last edited by Grt2bOutdoors on Thu Jan 18, 2018 10:49 pm, edited 1 time in total.
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Grt2bOutdoors
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Re: Help with inherited investment account

Post by Grt2bOutdoors » Thu Jan 18, 2018 10:44 pm

ridgeline73 wrote:
Sun Jan 14, 2018 10:55 am
I doubt my tax is high enough.....I make $110k/year. Wife is probably $10-15k working part time.

I don't mine going in once per year and re balancing if it is a fairly straight forward process and more advantageous scenario than a target fund.
Is the inherited money in an IRA? I think you said it is not. Do you already have an IRA?
How about your wife - employer retirement plan or IRA? I have a suggestion on what you should do with your farm earnings but it depends on how you respond to the questions above.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Fri Jan 19, 2018 8:35 am

Grt2bOutdoors wrote:
Thu Jan 18, 2018 10:44 pm
ridgeline73 wrote:
Sun Jan 14, 2018 10:55 am
I doubt my tax is high enough.....I make $110k/year. Wife is probably $10-15k working part time.

I don't mine going in once per year and re balancing if it is a fairly straight forward process and more advantageous scenario than a target fund.
Is the inherited money in an IRA? I think you said it is not. Do you already have an IRA?
How about your wife - employer retirement plan or IRA? I have a suggestion on what you should do with your farm earnings but it depends on how you respond to the questions above.
It is not in an inherited IRA, just a brokerage account.

My wife does not have an IRA, she is under the same pension plan for state employees that I am.

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Re: Help with inherited investment account

Post by Grt2bOutdoors » Fri Jan 19, 2018 1:11 pm

ridgeline73 wrote:
Fri Jan 19, 2018 8:35 am
Grt2bOutdoors wrote:
Thu Jan 18, 2018 10:44 pm
ridgeline73 wrote:
Sun Jan 14, 2018 10:55 am
I doubt my tax is high enough.....I make $110k/year. Wife is probably $10-15k working part time.

I don't mine going in once per year and re balancing if it is a fairly straight forward process and more advantageous scenario than a target fund.
Is the inherited money in an IRA? I think you said it is not. Do you already have an IRA?
How about your wife - employer retirement plan or IRA? I have a suggestion on what you should do with your farm earnings but it depends on how you respond to the questions above.
It is not in an inherited IRA, just a brokerage account.

My wife does not have an IRA, she is under the same pension plan for state employees that I am.
Take your farm earnings and open a ROTH IRA with it. The benefit of ROTH IRA is two fold, principal contributions can be withdrawn under certain circumstances, any earnings are tax free after 5 year window from contribution date has been reached, you can elect to either make withdrawals at age 59.5 tax free or keep it for heirs or whatever. This option is better than a traditional taxable only account. I would put the ROTH IRA in your wife's name with you as beneficiary, her earnings are much lower than yours so its logical to believe her pension benefit will be lower than yours. This is what I would do if it were me and your wife will thank you for it in 15 years, if not sooner. :) Put it in a Target Retirement fund for 2035 or 2030 and let it compound for you.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Fri Jan 19, 2018 2:08 pm

Is there are reason why I put it in my wife's name? Is there a reason I cannot open one in my name?

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Re: Help with inherited investment account

Post by peterwantstosave » Fri Jan 19, 2018 2:25 pm

Reading everything you've said, I'd open:

Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)

Put it all (100%) in there.

My rationale is that one fund will make it so much easier to manage, that's a great fund, it's moderately aggressive, and really cheap to hold.

Hope this helps, Peter

Grt2bOutdoors
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Re: Help with inherited investment account

Post by Grt2bOutdoors » Fri Jan 19, 2018 3:00 pm

ridgeline73 wrote:
Fri Jan 19, 2018 2:08 pm
Is there are reason why I put it in my wife's name? Is there a reason I cannot open one in my name?
Sure you can put it in your name and that's fine if you want to keep inheritance money separate in case of anything down the road.
You should designate your spouse as beneficiary though.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Help with inherited investment account

Post by Grt2bOutdoors » Fri Jan 19, 2018 3:01 pm

peterwantstosave wrote:
Fri Jan 19, 2018 2:25 pm
Reading everything you've said, I'd open:

Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)

Put it all (100%) in there.

My rationale is that one fund will make it so much easier to manage, that's a great fund, it's moderately aggressive, and really cheap to hold.

Hope this helps, Peter
Compare your selection to that of a Roth - tax managed does not beat out the tax advantages of a ROTH near term or long term.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

peterwantstosave
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Re: Help with inherited investment account

Post by peterwantstosave » Fri Jan 19, 2018 4:45 pm

Grt2be is correct. I was understanding that the money was in a taxable account.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Fri Jan 19, 2018 4:54 pm

It is.

Is their money can out into an IRA?

Can I do a Roth every year with my farm income? That will be approx $6k/yr

After liquidating my grandmother's brokerage account I would have $120k approx to invest.

Looking for answers for all of it.

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BL
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Re: Help with inherited investment account

Post by BL » Fri Jan 19, 2018 7:42 pm

Just to clarify, the farm income (if you are not the farmer) does not qualify you for Roth IRA. However, if you or your spouse are working, and within income limits for Roth, it doesn't matter where the actual money comes from.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sat Jan 20, 2018 8:56 am

We are within income limits.

Can I take a portion of the inherited money and put it towards the max Roth IRA? Then every year put $5500 in that account?

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BL
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Re: Help with inherited investment account

Post by BL » Sat Jan 20, 2018 9:20 am

ridgeline73 wrote:
Sat Jan 20, 2018 8:56 am
We are within income limits.

Can I take a portion of the inherited money and put it towards the max Roth IRA? Then every year put $5500 in that account?
A Roth accepts the money, it doesn't matter where it comes from.

Keeping it separate in case of divorce could have another answer.

You can have your son as beneficiary of your Roth, AFAIK.

Their may be taxes to be paid, no matter where it comes from. The income from farm + dividends from funds are probably taxable income that you will have to pay, no matter what you do with that money. Selling a fund can generate Capital Gains, which is taxed at a lower rate. Not sure why you would sell since you already have to pay tax on the income you receive, unless you need more money.

Outside of this topic, it seems that you and your spouse do not have much saved for retirement, besides the pension. It would be a good idea to try to increase this: Roth IRAs for both each year, increasing about 1000/year after age 50, and more invested in your 403b or whatever work plan is available (457?). Eliminating debt, and saving more, will make for a better retirement. Is health care included in pension benefits?
Last edited by BL on Sat Jan 20, 2018 9:40 am, edited 1 time in total.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sat Jan 20, 2018 9:38 am

You know I am starting to think there might some merit in just parking it in VTMFX for now. If I get the hang of all this I could then move it around right?

Maybe put the majority in that and a smaller portion in VTSAX. Maybe an 80/20 split between those two funds.

This is all a little overwhelming and maybe the smart play is to just move it into a couple of funds that are solid.

Thoughts?

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BL
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Re: Help with inherited investment account

Post by BL » Sat Jan 20, 2018 9:50 am

ridgeline73 wrote:
Sat Jan 20, 2018 9:38 am
You know I am starting to think there might some merit in just parking it in VTMFX for now. If I get the hang of all this I could then move it around right?

Maybe put the majority in that and a smaller portion in VTSAX. Maybe an 80/20 split between those two funds.

This is all a little overwhelming and maybe the smart play is to just move it into a couple of funds that are solid.

Thoughts?
Market summary > Vanguard Tax-Managed Balanced Fund Admiral Shares
MUTF: VTMFX
I had to look it up. Please don't speak in Ticker language only!
Yes, either one or both would be fine. You need to choose what works for you, and where you won't panic when the crash comes. Age in bonds is one of many ideas to consider.

If you are going to have two funds, one total stock (or total world) and one bond would be nice and cleaner. You would know at a glance your bond amount, and could sell which of the two you choose and not have to sell both as in selling a Balanced fund.

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