Extreme newbie - what to do with inheritance

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Sylliec
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Location: Sacramento, CA

Extreme newbie - what to do with inheritance

Post by Sylliec » Mon Feb 12, 2018 8:02 pm

Hello Boglehead community,
I am one of those people who is not that great with money. I am 51 yrs old, divorced no kids, work for a state government (salary about $82,000 per year) and expect a pension, own a townhome (mortgage = 80,000 4.25% with about 8 yrs to being paid off). 401k $100,000, $10,000 savings, $1,500 credit card debt.

My father recently passed away and I am one of 7 siblings. I already inherited my share of an IRA account he had at Schwab ($80,000) and am expecting about $300,000 in cash in a few weeks. I got a Bogle’s Guide to Investing book from the library but I really do not know what I should do with the cash once I get it until I have had a chance to figure things out. I thought about just parking it in my savings account. Then I thought park it in money market funds at Schwab. I hope this isn’t a dumb question but this money is going to be my only nest egg and I do want it safe. Thanks in advance for any advice you can share.

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David Jay
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Location: Michigan

Re: Extreme newbie - what to do with inheritance

Post by David Jay » Mon Feb 12, 2018 9:46 pm

Do nothing quickly. Read, learn and move slowly.

Read the Wiki about managing a windfall here: https://www.bogleheads.org/wiki/Managing_a_windfall
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

NancyABQ
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Re: Extreme newbie - what to do with inheritance

Post by NancyABQ » Mon Feb 12, 2018 9:51 pm

I'd pay off the credit card debt and resolve to never allow it to build up again (always pay off credit cards in full each month).

Beyond that, put it in a high yield savings account (~1.3% interest+, these days) up to the $250K limit, or maybe split it evenly across two different banks ($150K each). Then research and figure out what you want to do with it long term.

PFInterest
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Re: Extreme newbie - what to do with inheritance

Post by PFInterest » Mon Feb 12, 2018 9:54 pm

Pay off the CC right now.
Then sit and learn and do nothing.

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Raymond
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Re: Extreme newbie - what to do with inheritance

Post by Raymond » Mon Feb 12, 2018 10:24 pm

Sorry about your father's passing.

Welcome to Bogleheads.

My suggestions:

#1: Keep your mouth firmly shut about this inheritance. Of course your siblings know, and possibly their spouses, but TELL NO ONE ELSE.

Otherwise your friends, church members, neighbors, insurance salesmen, "financial advisers" and God knows who else will start approaching you for "loans", gifts, offers to invest in deep-fried peanut-butter sandwich restaurants, variable annuities and other junk designed to transfer your money into their pockets.

At the very least, your friends may start expecting you to pick up the check every time you all eat out, because "you can afford it."

#2: Pay off the credit card debt, and always pay it off each month.

#3: Don't suddenly increase the visible cost of your lifestyle - if you show up to work one day with a new Bentley, or even something that's significantly upmarket from what you drive now - people will start wondering.

#4: As above, park the cash at Schwab or in an online savings account such as Barclays 1.50% APY. Ignore any invitations from Schwab or the bank to meet with their "private advisers" or "private bankers", who will have all sorts of wonderful investments designed to generate fat commissions for themselves, with the bare minimum regard as to whether they are suitable for you.

From William J. Bernstein's "If You Can":

"...Act as if every broker, insurance salesman, mutual fund salesman and financial advisor you encounter is a hardened criminal..."

#5: You may consider using this format: "Asking Portfolio Questions" and posting in the "Investing - Help with Personal Investments" forum.

If you post the stocks or mutual funds in your 401(k) and Inherited IRA, we may be able to make suggestions about those.

#6: Paying off the mortgage immediately may or may not be ideal, depending on how much it will cut into your potential retirement funds. You might consider making extra payments *towards the principal* to accelerate payoff and minimize total interest paid over the duration of the mortgage.

#7. See #1, "Loose lips sink ships."

Best wishes.

[Edit] If somehow an insurance salesman or financial advisor comes calling, just make up an imaginary advisor who is your, say, best friend from childhood at JP Morgan Chase/your nephew at Goldman Sachs/whatever.

On the rare occasions I've had to do this, I tell the salesman that my "best friend from the Air Force who is at USAA has been my financial advisor for thirty years, and I would *never* think of leaving him." :twisted:

I've been tempted to add that my friend "saved my life over Macho Grande", but that would give away the whole shtick.
Last edited by Raymond on Mon Feb 12, 2018 10:37 pm, edited 1 time in total.
"Ritter, Tod und Teufel"

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greg24
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Re: Extreme newbie - what to do with inheritance

Post by greg24 » Mon Feb 12, 2018 10:29 pm

The Schwab money market appears to be yielding 1.30%, which would be a good parking spot while you read up and educate yourself.

https://www.schwab.com/public/schwab/in ... oney_funds

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Watty
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Re: Extreme newbie - what to do with inheritance

Post by Watty » Tue Feb 13, 2018 12:01 am

Sylliec wrote:
Mon Feb 12, 2018 8:02 pm
I got a Bogle’s Guide to Investing book from the library but I really do not know what I should do with the cash once I get it until I have had a chance to figure things out. I thought about just parking it in my savings account.
Parking most of it someplace for 6 months is a VERY good idea and is highly recomended. A savings account or CD's would be fine.

A few things to do though;

1) Pay off the credit card.
2) Plan on taking the RMD from the inherited IRA.
3) Make a deductible IRA or Roth contribution for 2017 when you do your taxes if you are eligible.
4) Increase your payroll deductions to max out the 401k in 2018.
5) Make sure you have plenty of car insurance since you more likely to be sued now that you have more assets.
6) Get an Umbrella insurance policy, this should not be expensive unless you have a bad driving record.

Opinions might vary on these but these would be OK in my opinion;

1) Pay off your mortgage, that is like buying a risk free 4.25% bond. You can then save your "mortgage payment"

2) Consider if your car is reasonably safe. If it is an older car then it might not have a lot of the current safely features like ESC which became standard in 2012, advanced airbags, and all sorts of real advanced things like automatically braking before you hit something. I not saying to go out and spend $40K on some fancy car but you can get a lot of safety features even in base model cars now.

gotester2000
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Re: Extreme newbie - what to do with inheritance

Post by gotester2000 » Tue Feb 13, 2018 12:38 am

Sorry to hear about your father.

Keep the money in the bank while you decide where to invest it over time.

You have a stable govt job with pension, house and no dependents. I would spend some money on experiences like travelling while still healthy.

Finridge
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Re: Extreme newbie - what to do with inheritance

Post by Finridge » Tue Feb 13, 2018 1:13 am

NancyABQ wrote:
Mon Feb 12, 2018 9:51 pm
I'd pay off the credit card debt and resolve to never allow it to build up again (always pay off credit cards in full each month).

Beyond that, put it in a high yield savings account (~1.3% interest+, these days) up to the $250K limit, or maybe split it evenly across two different banks ($150K each). Then research and figure out what you want to do with it long term.
This!

Tarm
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Joined: Tue Dec 01, 2015 7:52 am

Re: Extreme newbie - what to do with inheritance

Post by Tarm » Tue Feb 13, 2018 8:06 am

1. Pay off credit cards.
2. Pay off mortgage.
3. Start funding annual Roth.
4. Invest the rest in a balanced no load, low cost (Vanguard) mutual fund.
5. Within reason, enjoy life.

Sylliec
Posts: 14
Joined: Sat Dec 23, 2017 11:08 pm
Location: Sacramento, CA

Re: Extreme newbie - what to do with inheritance

Post by Sylliec » Tue Feb 13, 2018 3:24 pm

Thanks everybody for all of your suggestions. My takeways is to keep my mouth shut and don’t go looking like you just inherited money, trust no financial advisor/salesperson, read and learn and do nothing, park money in savings or money market, pay off stupid credit card, max out 401k/457 (which recently changed to a Roth account going forward), consider paying off my mortgage, make sure I am adequately insured and get an umbrella policy added on, and my favorite tips consider buying a new car and think about traveling! My father was a boglehead-type and I miss him much. Thanks again for your advice!

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