My daughter's inheritance.

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Luke Duke
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Re: My daughter's inheritance.

Post by Luke Duke » Wed Sep 12, 2018 11:08 am

You've received some good advice here. After the dust settles and your daughter begins to take interest in managing the money, you should do your best to ensure that she understands the freedom that the money could allow her, if it is properly managed. She could retire in her 40's, she could set up future generations, she can afford to take the risk of starting her own business, she can choose to use the money to help others, etc.

It would probably be wise to get as much of the money as allowed into a ROTH IRA while she is in a low tax bracket. She will need earned income to do this.

afan
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Re: My daughter's inheritance.

Post by afan » Wed Sep 12, 2018 11:32 am

Gill wrote:
Wed Sep 12, 2018 10:50 am
afan wrote:
Wed Sep 12, 2018 9:48 am
Do not sign up with anyone who will charge more than 0.3% of assets.
I'm glad I'm no longer selling bank trust services when I see comments like this! :happy :happy :happy
Gill
Well, I did say they had no need of trust services. Just money management, if that.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

psteinx
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Re: My daughter's inheritance.

Post by psteinx » Wed Sep 12, 2018 11:32 am

1) Many folks here on BH will post that it is easy and obvious - you should do X, Y, and Z.

2) But, the specifics of X, Y, and Z will vary, perhaps dramatically, among these posters.

3) In the outside world, a similar phenomenon will exist. Whether you're talking to specific financial advisors, or reading advice in books, magazines, or on websites.

4) Ergo, it's probably not as simple as many would suggest.

5) But that doesn't necessarily mean you should pay an advisor $10K/year for advice!!!! The advisor is one of many voices, offering a specific recipe of advice, portfolio suggestions, etc., but at a much higher cost that the free or very cheap alternatives.

6) So, you need to start by educating yourself (and ideally, encouraging your daughter to educate herself).

7) You also have a feel for what's right for your daughter, and for you.

8) It's going to be really hard to avoid regrets of some sort. If you invest in "safe" assets (money markets, CDs, and the like), the money will earn around 2%, which is basically treading water against inflation (and probably lagging a bit, after taxes). But if the market continues to rise, then 2 or 5 years from now you or she may look back and regret not taking a more aggressive approach. Conversely, if you go into the market in a significant way, and another 2008-9 occurs, or even something milder, you'll be kicking yourself for that.

9) There are sub-species of #8, for different types of investments. If you read widely on these forums, you'll see folks advocating/mourning investments in international markets, value-tilted portfolios (a form of factor based investing), and many other flavors of investing. The decisions you make with regard to these things may impact future returns substantially. The problem is, it's hard to know in advance which way they'll make an impact. :(

10) Re: More re regrets and such. A basic problem is that, while we can debate what expected future returns for different kinds of investments are, for the riskier ones (i.e. most equities), the variability is pretty high, in comparison to the expected returns. So, you can think that equities have an expected return of ~7%, and that's obviously higher than ~2% on typical, safe, short-term interest bearing investments (CDs, MMs, etc). But that 7% is only the midpoint of a wide range. When you're looking back in 3 years, and the ACTUAL returns were -15%, or +35%, or whatever, there will be no shortage of folks saying it was OBVIOUS that returns were gonna be lousy/great.

11) This issue is a little worse because you're helping someone else make the investments. It's at least possible that your daughter may be the one looking back saying "it's obvious you/we should have done [something very different from what we did]".

12) Unfortunately, there's no easy answer to this conundrum. Even sticking the money under a mattress is a choice, with consequences (and a pretty poor one IMO).

As for **MY** recommended recipe :)

13) Simple, "set and forget" is easy, and probably a good target.

14) There will be tax consequences in pretty much any reasonable case, necessitating that you/your daughter dive a bit deeper down the tax filing rabbit hole a little sooner than might otherwise have been the case. But it doesn't need to be SO bad. Still, this would encourage me (were I in your shoes) to avoid paths that involve lots of different holding entities (the multiple CDs at different banks approach).

15) If you feel at all self-confident, after reading up on this stuff, and not too freaked out about the likelihood that, in retrospect whatever you recommend will look sub-optimal, then I would lean towards a more self-directed approach, or one at most lightly directed by professional advice. (i.e. A cheap service like Vanguard's or a pay by the hour/session type advisor or whatever).

16) Vanguard is a reasonable custodian, but the lack of physical offices is a negative. It can also be a semi-positive (less chance to be upsold on some mediocre investments). Fidelity and Schwab are also reasonable choices, with more offices.

17) Money markets are OK for the short term, and I wouldn't be unduly worried about them, safety-wise (relative to say, CDs).

18) But really, for a young person who won't likely NEED the money in any short term way, equities have, in my opinion, a far higher expected return than money markets. (Note though, my concerns about actual returns versus expected).

19) So, bottom line, I'd lean towards a heavy equity portfolio, in a simple portfolio construction - 2 or 3 fund would be fine.

20) Good luck!
Last edited by psteinx on Wed Sep 12, 2018 12:49 pm, edited 1 time in total.

adam1712
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Re: My daughter's inheritance.

Post by adam1712 » Wed Sep 12, 2018 12:14 pm

Along with taking your time before deciding where to invest the money, don't forget that it all doesn't have to be moved out of cash or CDs at once. You might consider starting an investment account in index funds with $50k-100k that is self-managed to see how it goes. You might be surprised how simple it is.

Just remember that stock investments are risky. It may grow much faster than CDs or have a significant loss over short periods of time. But over the long run stocks on average have had higher returns.

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Meg77
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Re: My daughter's inheritance.

Post by Meg77 » Wed Sep 12, 2018 12:36 pm

I'm so sorry for the tragic loss of your daughter's father. It's great that you are stepping in to help her. I am a CFP and a private banker, and I also manage a 7 figure portfolio for my mother who recently moved it from Edward Jones to Vanguard at my suggestion. Here are a few points from my perspective.

1. I have family members and friends who have worked for Edward Jones and Morgan Stanley as well as many other banks and brokerages. Not all of those advisors are bad, and not all fees are bad, but given your daughter's needs (buy and hold and generally ignore the money for years if not decades), the higher fees charged by those full service firms are not warranted.

This is particularly true given your daughter's interest level and life stage. One of the things you get for your money at places like Morgan Stanley especially are networking opportunities with other high net worth clients, golf outings and free lunches at the club with your advisor, invitations to investment seminars with the managers of the underlying funds, and access to IPOS, private equity and other investment opportunities for accredited investors. Presumably your daughter would not be participating in any of those activities. In addition, you get a full time advisor ready to hold your hand through setting up an estate plan, hiring CPAs or attorneys, structuring an income distribution plan, making sure required minimum distributions are taken and structured properly from retirement accounts, and setting up trusts for children etc. Again, your daughter needs no such high touch service at this stage. So don't pay for it yet!

2. In this situation it appears she/you just need to select an asset allocation (I recommend 80% stocks and 20% fixed income) and the underlying investments (I recommend index funds as do most on this forum) and then leave the portfolio alone for decades. The best and easiest and cheapest way to do this is to go to Vanguard or Schwab or Fidelity, open a brokerage account, and do that. If you want to pay a financial planner by the hour to help you, go right ahead. But as others have pointed out, reps from those firms will be happy to help you as well. It's really very simple; the process is the same whether you are investing $10,000 or $100,000 or $1,000,000. Given the amount of money involved, I'd invest 25% of it each quarter for a year rather than lump sum investing all of it into the market at one time. But that's up to you; statistically speaking it shouldn't matter especially over the long term.

3. Keep a relationship with one bank and one brokerage. Setting up deposit accounts for a trust is a pain, especially as you and your daughter will both have to sign everything as co-trustees. You do not want to go about setting up a CD ladder at multiple banks and going through this process continually - and dealing with statements from multiple institutions (a nightmare at tax time, trust me). Besides, CDs aren't paying much more than money market funds now. Just keep the funds in a money market earning 2% rather than tying it up in CDs to earn 2.25% or whatever you are seeing.

4. You daughter will need to develop an interest and aptitude in money over time in order to become a good steward of these funds and her future income. Worst case this money sits untouched for decades and she can check saving for retirement off her list. But best cash it is a source of funds for her for graduate school, buying a home(s), starting a business, or any other life milestones that may arise.

Good luck to you both.
"An investment in knowledge pays the best interest." - Benjamin Franklin

afan
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Re: My daughter's inheritance.

Post by afan » Wed Sep 12, 2018 2:06 pm

you get a full time advisor ready to hold your hand through setting up an estate plan, hiring CPAs or attorneys, structuring an income distribution plan, making sure required minimum distributions are taken and structured properly from retirement accounts, and setting up trusts for children etc.
Interesting point, Meg. But have you found that the salespeople from these brokers are actually useful for this planning?

I thought they got where they were because of their ability to sell stocks, annuities or whatever, not their knowledge of financial planning.

Also an interesting explanation of why someone would want to go to concerts or presentations with a group of people when all they had in common was where they parked their money. I routinely dump all these invitations but I can see my attitude might be different if I were trying to sell stuff to the participants.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Boglegrappler
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Re: My daughter's inheritance.

Post by Boglegrappler » Wed Sep 12, 2018 2:28 pm

Some of the advice has been overly complicated. If it were my daughter, I'd invest the money mostly in short term US treasury bills (2-3 years maturity) through a good discount broker (Fidelity or Schwab or Vanguard), and then slowly work it into the market using an S&P500 index fund. The t-bills will throw off about 2.5% yield currently. She'll have between 25 and 30k of interest income to start out, and will have to remember to file estimated taxes since there won't be any tax withholding by the broker. You could move 10-15% of it into the stock market every year or even six months until you get the stock allocation up to where you'd like it to be.

It's "borrowing trouble" to touch on this next point, but I think its worthwhile to mention. I hope that the valuation of the deceased father's business is something that everyone concerned is comfortable with. There is more than a reasonable chance that the number you're expecting to receive is lower than it ought to be. However,this is an issue of what the ownership agreements say, and who is representing you in the determination of the value of the interest. Obviously, re-opening valuation discussions would create a great deal of bad blood, and expense, and wouldn't be a good idea to do unless there was a valuation "error" that was an order of magnitude rather th an just a couple hundred thousand.

Luke Duke
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Re: My daughter's inheritance.

Post by Luke Duke » Wed Sep 12, 2018 4:13 pm

Boglegrappler wrote:
Wed Sep 12, 2018 2:28 pm
I hope that the valuation of the deceased father's business is something that everyone concerned is comfortable with. There is more than a reasonable chance that the number you're expecting to receive is lower than it ought to be. However,this is an issue of what the ownership agreements say, and who is representing you in the determination of the value of the interest. Obviously, re-opening valuation discussions would create a great deal of bad blood, and expense, and wouldn't be a good idea to do unless there was a valuation "error" that was an order of magnitude rather th an just a couple hundred thousand.
If insurance was recently purchased by the ex-husband and his business partner to buy the other out, then I would imagine that the valuation was agreed upon by the business owners.

jdb
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Re: My daughter's inheritance.

Post by jdb » Wed Sep 12, 2018 6:59 pm

Been there done that. At least with respect to several children’s trusts for more monies. Sorry for your daughter’s loss. Make it simple. Vanguard account. 50 percent equity, I like 500 equity index fund. 50 percent bonds. Since taxable account I suggest Vanguard intermediate tax exempt for 40 percent and short term tax exempt for 10 percent. And no need to pay advisors. Good luck.
Last edited by jdb on Thu Sep 13, 2018 8:30 am, edited 1 time in total.

SoAnyway
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Re: My daughter's inheritance.

Post by SoAnyway » Wed Sep 12, 2018 7:33 pm

SoAnyway wrote:
Tue Sep 11, 2018 10:37 pm
NancyABQ wrote:
Tue Sep 11, 2018 8:56 pm
Given that this is a revocable living trust, that seems a lot simpler. There are no weird tax consequences -- the income would be under your daughter's taxes directly.

I don't think any financial advisor is necessary, but if OP is not used to handling this amount of money, you might consider getting some advice (but there is no reason to rush into getting an advisor involved).

Personally I'd consider transferring the whole amount to your broker of choice (I like Schwab, many here would suggest Vanguard -- make sure the account is titled correctly as a living trust, with the trustees setup, etc), and then put it all in a Money Market fund while you figure out how to invest it. If you're uncomfortable with the Money Market (not FDIC insured) then 3-6mo Treasuries? You can also buy a bunch of brokered CDs at the brokerage firm, just making sure no more than $250K per banking institution.

That seems (much) simpler than trying to setup multiple trust accounts in different online banks, to stay under the FDIC limits.

Once you have taken time to figure things out, then it's just a matter of investing the money according to the plan you come up with, using the same brokerage where the money will already be located -- the account will already be setup. You can take your time coming up with that plan (asset allocation, tax efficiency, etc). Bogleheads here will be happy to help you work out a good investment plan. There is no rush.

P.S. Please consider editing your original message (first one in this thread) to include the important information that you are talking about a revocable living trust. That will help late-comers get caught up. Use the pencil icon at the top right of your original post.
+1

OP, my condolences to you and your daughter. It's no fun dealing with this financial minutiae in the current emotional situation. On the up side, you and your ex raised a great kid with a terrific head on her shoulders. Moreover, from what I've seen in your posts, "like mother, like daughter". :happy

My thoughts:
1. No financial advisor necessary, esp. not EJ, Morgan Stanley, "wealth management branch" of a local bank, or any of their "ilk". OP, no one here benefits financially from the advice offered here, and most of it is exceptional. Be confident that you can do this.
2. You can decide whether you need an advisor later. The most immediate need is to get the distribution to someplace that you feel is safe for your daughter. Personally, I'd move it all to Vanguard and stick it in the Prime Money Market Fund until you and your daughter have gotten your bearings. BTW, I have accounts at Vanguard, Schwab and Fidelity - the only 3 options I'd consider in your situation. For your situation, I'd recommend that you start with Vanguard. (If you want to know why, PM me.)
3. You're an amazing Mom, and your daughter is lucky to have you.
OP, many of the subsequent posts have offered very good and very well-intentioned advice on where you should invest the funds later. I stand by my original assertion in #2 above, and I'd add that you can make decisions later on your investment allocations, etc. For now, forget about where the funds should be invested ultimately and definitely don't sign on with EJ/MS/other high-fee, high-churn salespeople/sharks "advisors".

The best thing you can do as a Mom is just get the funds someplace safe and low-risk/low-maintenance/low-cost that you and your daughter are comfortable with (CDs/MMF/T-bills/whatever you decide) while you and your daughter attend to the immediate emotional shock and the more important issue of your mental/emotional health. This money will be around for your daughter's lifetime and she's young, so you lose very little by getting it to a safe place, taking the time to attend to your emotional matters while getting educated on why most here advocate for Vanguard/Schwab/Fidelity and a diversified portfolio of low-cost index funds, and then (and only then) making the investment decisions. BTW, I reiterate my #3 above.
Nothing in this post constitutes legal or medical advice. | Consult your attorney or physician to verify if/how anything stated might or might not be applicable to your specific situation.

Dottie57
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Re: My daughter's inheritance.

Post by Dottie57 » Wed Sep 12, 2018 9:08 pm

Gill wrote:
Tue Sep 11, 2018 8:30 pm
desiderium wrote:
Tue Sep 11, 2018 8:27 pm
At the risk of being contrary to the dominant paradigm here:

You daughter’s youth and understandable lack of focus on the financial work involved plus tax and trust issues do argue for considering a full service fiduciary fee only financial adviser. I would suggest exploring Buckingham asst management, Larry Swedroe’s firm. They have the depth needed to steer things well for many years to come. They do not profit off the investments and the fees may be reasonable for what she needs. I do not use them myself but would readily consider if my interest in investing was not as strong.
There really are no trust or tax issues here. Retaining such an advisor would be overkill.
Gill
+1

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FIREchief
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Re: My daughter's inheritance.

Post by FIREchief » Wed Sep 12, 2018 10:38 pm

Luke Duke wrote:
Wed Sep 12, 2018 11:08 am
She could retire in her 40's, she could set up future generations, she can afford to take the risk of starting her own business, she can choose to use the money to help others, etc.
If I read this correctly, we're talking about $1.25M, not $12.5M. This is likely not enough money to even consider all of those things. As many others have suggested, just stick it in a two or three fund portfolio (or perhaps just a target date fund) at VG or Fidelity and go back to life/school/work. Check it in thirty years and then think about FIRE, philanthropy, etc.

Also, IMHO, investing a once in a lifetime opportunity like this in a small business is likely the most certain way to lose it all.....
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Luke Duke
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Re: My daughter's inheritance.

Post by Luke Duke » Thu Sep 13, 2018 10:28 am

FIREchief wrote:
Wed Sep 12, 2018 10:38 pm
Luke Duke wrote:
Wed Sep 12, 2018 11:08 am
She could retire in her 40's, she could set up future generations, she can afford to take the risk of starting her own business, she can choose to use the money to help others, etc.
If I read this correctly, we're talking about $1.25M, not $12.5M. This is likely not enough money to even consider all of those things. As many others have suggested, just stick it in a two or three fund portfolio (or perhaps just a target date fund) at VG or Fidelity and go back to life/school/work. Check it in thirty years and then think about FIRE, philanthropy, etc.

Also, IMHO, investing a once in a lifetime opportunity like this in a small business is likely the most certain way to lose it all.....
According to this website the S&P is up 479.357% with dividends reinvested and AFTER INFLATION since 9/1993 (25 years). If you can't retire at 45 with over $7MM in today's money, you are doing something wrong.

It is up 2044.712% over the past 40 years after inflation and with dividends reinvested. If $20+MM isn't enough to setup future generations, I don't know what is.

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FIREchief
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Re: My daughter's inheritance.

Post by FIREchief » Thu Sep 13, 2018 5:25 pm

Luke Duke wrote:
Thu Sep 13, 2018 10:28 am
FIREchief wrote:
Wed Sep 12, 2018 10:38 pm
Luke Duke wrote:
Wed Sep 12, 2018 11:08 am
She could retire in her 40's, she could set up future generations, she can afford to take the risk of starting her own business, she can choose to use the money to help others, etc.
If I read this correctly, we're talking about $1.25M, not $12.5M. This is likely not enough money to even consider all of those things. As many others have suggested, just stick it in a two or three fund portfolio (or perhaps just a target date fund) at VG or Fidelity and go back to life/school/work. Check it in thirty years and then think about FIRE, philanthropy, etc.

Also, IMHO, investing a once in a lifetime opportunity like this in a small business is likely the most certain way to lose it all.....
According to this website the S&P is up 479.357% with dividends reinvested and AFTER INFLATION since 9/1993 (25 years). If you can't retire at 45 with over $7MM in today's money, you are doing something wrong.

It is up 2044.712% over the past 40 years after inflation and with dividends reinvested. If $20+MM isn't enough to setup future generations, I don't know what is.
No doubt (and thanks for posting those numbers). My point was that the time to think about all those good things you mentioned is AFTER all that spectacular compounding. Not now, when it is $1.25M. That's the risk for a situation like this. That somebody will suddenly feel rich and instead of just investing it wisely, with a high probability of future wealth, they will start to live "like a millionaire," and wind up with nothing. I also understand that some make big money by starting their own business, but many more wind up blowing big money by starting their own business. If DD can project a good future without the risk of running a business, then that is the path I would choose.

I don't know anything about starting a small business, except that about two in three fail misserably, and that having a tremendous concept/business model is just as important, if not more so, then having a million dollars.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Cascade425
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Re: My daughter's inheritance.

Post by Cascade425 » Mon Oct 01, 2018 4:11 pm

I think you are looking at this very reasonably. I would suggest you also consider Fidelity's service to manage assets. We used them for a few years until we got more comfortable with Bogleheads materials. The Fidelity crew were very helpful and reasonable. They charged 0.8% (I think) per year of AUM which was lower than the 1% I expected. They did a good job and made us feel secure.

Once we learned more we moved it to a three fund strategy within Fidelity and all they said was "those are really good investment choices". I would not touch Edward Jones at all. Too expensive. Way too expensive.

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KRBerly
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Follow-up to: My daughter's inheritance

Post by KRBerly » Sun Jan 20, 2019 1:21 pm

[Thread merged into here, see below. --admin LadyGeek]

Hi Bogleheads,
My daughter and I are further down the road, and I have returned to this site with additional questions. I did move her 1.25+M to Vanguard, and presently it sits in a Money Market fund while we weigh our investment options. We are close to the year anniversary of her father's death, and I think we are both ready to move forward with making some decisions about her money. Recently, we had a phone conference with a personal adviser at Vanguard who presented us with an investment plan for my daughter's funds. So, now I would like your feedback on that proposed plan. We are leaning toward starting out using Vanguard's Personal Advisory Service, but I would like the adviser to set us up in a plan simple enough that I can manage it myself in the future.

We have decided to invest 1M in an 80/20 slit of stocks and bonds with a 70/30 split of US/International stocks within that 80%. The $250,000+ will remain in the Money Market fund for expenses such as estimated taxes, Roth IRA contributions, and a possible down payment on a house in the future. Below are the funds being recommended to us:

US large cap: 39%
VG Total Stock Market Index Fund Admiral Shares

US mid/small-cap: 17%
VG TSM Index Fund Admiral Shares

International stock: 24%
VG Total International Stock Index Fund Admiral Shares

US short-term bond: 6%
VG Short-Term Investment-Grade Fund Admiral Shares
VG Total Bond Market Index Fund Admiral Shares

US Intermediate-term bond: 7%
VG Intermediate-Term Investment Grade Fund Admiral Shares
VG TBM Index Fund Admiral Shares

US long-term bond: 1%
VG TBM Index Fund Admiral Shares

International bond: 6%
VG Total International Bond Index Fund Admiral Shares


1) So, first question: is this plan basic enough that I can manage it and the tax implications of rebalancing the portfolio when needed? It seems like this plan has a lot of funds, especially on the bond side. When it comes time to rebalancing, having to consider and balance capital gains in all these funds seems cumbersome.
2) My daughter and I agree we want to gradually work into the market, but I would like to hear your thoughts on the pace of that: over the course of one year? Two years? The market seems unpredictable at this time, so is slower better at this point in the current market cycle? The adviser is recommending moving the $200,000 into bonds all at once, and then investing $200,000 each quarter in stocks over the course of a year at the percentages outlined above. I'm just wondering if stretching it out over two years has any benefits given where the market may be headed?
3) Also, do you think we are leaving enough cash in the Money Market account for things like supplementing her income once she starts working full-time in a few years and needing to max-out any 401K available to her for tax benefits? I know the future is full of unknowns-where she will live and work, if she will want to buy a home, if she will get married, etc. But I want to consider these factors as best we can in how we set things up now.


I know people will have varying options about the details of the plan, but in general, is it sound? And can I manage it myself in a few years without too much headache once it gets set up or should I have VG simplify the bond side of the plan?

Thank you for your time and advice!
Concerned Mom

livesoft
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Re: Follow-up to: My daughter's inheritance

Post by livesoft » Sun Jan 20, 2019 1:30 pm

I think the stock market is always unpredictable. One can invest today at last year's prices, so it might be a bargain to invest all at once, but no one can predict the future.

For those looking at the proposed investments (including yourself), they have to understand that the breakdown between US large-cap and mid/small caps of 39% + 17% is artificial. The suggestion is actually All-caps in Total US Stock Market index of 53% which is perfectly fine.
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dbr
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Re: Follow-up to: My daughter's inheritance

Post by dbr » Sun Jan 20, 2019 1:35 pm

You might notice that a lot of that breakdown is really just the allocation within a single fund, namely total stock and total bond index funds. The actual number of funds is just 6. Two of those funds are to tilt the bond allocation a little more to investment grade, which is a sort of neither here nor there thing to do. Allocation to international bonds is also debatable.

You could just as well invest in the traditional three fund portfolio, but PAS apparently tends to be adamant about you taking what they want you to take. There is nothing wrong with what they are suggesting but if I were doing this for myself I wouldn't invest in that many funds.

I think phasing the stock investment over time is silly, but you can find contentious discussion all over this forum about that. I think they are doing it so you can't come back later and ask them why they put all that money in stocks just before a decline in the market, if there is one.

Holding back a cash reserve of $250,000 makes sense if it does. That means do you see that there will be needs for spending like that in the near future? I would have thought college tuition would have been a more obvious need than thinking of buying a house. This inheritance probably short circuits any chance of getting financial aid, but that only seems fair. Taxes and IRA contributions hardly need that much money on hand.

staythecourse
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Re: Follow-up to: My daughter's inheritance

Post by staythecourse » Sun Jan 20, 2019 1:36 pm

You make a PERFECT candidate for a 3 fund. ANYONE can manage a 3 fund portfolio with very little effort once you learn the basics. The only difference is I would do total international mid/ small vs. total international, but that is just me.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Jack FFR1846
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Re: Follow-up to: My daughter's inheritance

Post by Jack FFR1846 » Sun Jan 20, 2019 1:42 pm

Given that you're asking about being able to manage it, I would recommend the following:

For now, put everything in a single target date fund.

Later, as it becomes more clear that investing in the entire market can easily be done with 3 funds, create a 3 fund and move to that. Or just leave it in the target date fund.
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dbr
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Re: Follow-up to: My daughter's inheritance

Post by dbr » Sun Jan 20, 2019 1:49 pm

Jack FFR1846 wrote:
Sun Jan 20, 2019 1:42 pm
Given that you're asking about being able to manage it, I would recommend the following:

For now, put everything in a single target date fund.

Later, as it becomes more clear that investing in the entire market can easily be done with 3 funds, create a 3 fund and move to that. Or just leave it in the target date fund.
Yes, a target date fund could be a good idea, but see below to support three fund.

I really wonder what benefit you are getting from paying $3750 a year to VPAS for what they want you to do.

Also beware that in taxable accounts it may not be easy to change investment choices as time goes by and investments accrue unrealized capital gains that will be taxed when you sell the position for one reason or another. That is one reason the three fund approach is the most flexible in a taxable account. It is unlikely that a TSM or TISM fund in a taxable account would ever be a bad idea. Bond funds are much less susceptible to accruing gains, so that is less a worry.

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StormShadow
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Re: Follow-up to: My daughter's inheritance

Post by StormShadow » Sun Jan 20, 2019 2:08 pm

KRBerly wrote:
Sun Jan 20, 2019 1:21 pm
Hi Bogleheads,
My daughter and I are further down the road, and I have returned to this site with additional questions. I did move her 1.25+M to Vanguard, and presently it sits in a Money Market fund while we weigh our investment options. We are close to the year anniversary of her father's death, and I think we are both ready to move forward with making some decisions about her money. Recently, we had a phone conference with a personal adviser at Vanguard who presented us with an investment plan for my daughter's funds. So, now I would like your feedback on that proposed plan. We are leaning toward starting out using Vanguard's Personal Advisory Service, but I would like the adviser to set us up in a plan simple enough that I can manage it myself in the future.

We have decided to invest 1M in an 80/20 slit of stocks and bonds with a 70/30 split of US/International stocks within that 80%. The $250,000+ will remain in the Money Market fund for expenses such as estimated taxes, Roth IRA contributions, and a possible down payment on a house in the future. Below are the funds being recommended to us:

US large cap: 39%
VG Total Stock Market Index Fund Admiral Shares

US mid/small-cap: 17%
VG TSM Index Fund Admiral Shares

International stock: 24%
VG Total International Stock Index Fund Admiral Shares

US short-term bond: 6%
VG Short-Term Investment-Grade Fund Admiral Shares
VG Total Bond Market Index Fund Admiral Shares

US Intermediate-term bond: 7%
VG Intermediate-Term Investment Grade Fund Admiral Shares
VG TBM Index Fund Admiral Shares

US long-term bond: 1%
VG TBM Index Fund Admiral Shares

International bond: 6%
VG Total International Bond Index Fund Admiral Shares


1) So, first question: is this plan basic enough that I can manage it and the tax implications of rebalancing the portfolio when needed? It seems like this plan has a lot of funds, especially on the bond side. When it comes time to rebalancing, having to consider and balance capital gains in all these funds seems cumbersome.
2) My daughter and I agree we want to gradually work into the market, but I would like to hear your thoughts on the pace of that: over the course of one year? Two years? The market seems unpredictable at this time, so is slower better at this point in the current market cycle? The adviser is recommending moving the $200,000 into bonds all at once, and then investing $200,000 each quarter in stocks over the course of a year at the percentages outlined above. I'm just wondering if stretching it out over two years has any benefits given where the market may be headed?
3) Also, do you think we are leaving enough cash in the Money Market account for things like supplementing her income once she starts working full-time in a few years and needing to max-out any 401K available to her for tax benefits? I know the future is full of unknowns-where she will live and work, if she will want to buy a home, if she will get married, etc. But I want to consider these factors as best we can in how we set things up now.


I know people will have varying options about the details of the plan, but in general, is it sound? And can I manage it myself in a few years without too much headache once it gets set up or should I have VG simplify the bond side of the plan?

Thank you for your time and advice!
Concerned Mom
The plan they have for you is fine. It’s really about her comfort level with that portfolio and whether or not to dollar cost average.

Personally, I would keep it simple with a three fund portfolio and lump sum it now. But that’s just me. If she feels more comfortable with a 1 year approach then that’s fine... a two year approach then that’s fine too. Odds are best if you put it all in now.

My condolences on your loss.

dbr
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Re: Follow-up to: My daughter's inheritance

Post by dbr » Sun Jan 20, 2019 2:16 pm

In general is it sound? Yes.

I guess in the soundness department, do you and your daughter understand the risk in stock investing and that the greatest practical danger is to panic, bail out, and sell low in a stock crash? In theory having to go through PAS to panic and sell provides a brake, but they can't refuse to accommodate your decision if you insist.

Ithrive
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Re: Follow-up to: My daughter's inheritance

Post by Ithrive » Sun Jan 20, 2019 2:29 pm

You remind me of me.

First, fire the paid advisor-- you get better, freer, clearer advice here
Then read Bogleheads Guide To Investment. It'll "teach you to fish."
Then (or simultaneously) read the educational material on this website.
If your daughter is old enough (i.e., able to read) have her read them too.

Establish the three fund portfolio.

Stay the course.

All joking aside, it's really super easy, otherwise, you're likely doing something wrong; in which case, come back here to ask questions. Lots of smart, friendly, capable, unbiased people will rally to your support.

Cheers

Ithrive
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Re: Follow-up to: My daughter's inheritance

Post by Ithrive » Sun Jan 20, 2019 2:31 pm

Condolences on your loss.
May his soul rest in perfect peace.
I pray strength and grace for you and your daughter.

Cheers

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Re: My daughter's inheritance.

Post by LadyGeek » Sun Jan 20, 2019 4:41 pm

KRBerly - In order to give appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. It's much easier to see what happened before and to compare with your current situation.

Update: In reference to ResearchMed's post 2 below from here, members can get our attention by reporting the post using the "!" in the top-right corner of the post. One of the reasons is "Duplicate thread". Explain what's wrong we'll take care of it.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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KRBerly
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Re: My daughter's inheritance.

Post by KRBerly » Sat Jan 26, 2019 12:22 pm

Thank you LadyGeek for merging the posts-I knew that probably needed to be done but I wasn't sure how to do that.

Thanks once again for the advice. You all pretty much told me what I expected and what my gut is telling me too.

I'll let you know what we decide to do.

Thank you!

ResearchMed
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Joined: Fri Dec 26, 2008 11:25 pm

Re: My daughter's inheritance.

Post by ResearchMed » Sat Jan 26, 2019 12:35 pm

KRBerly wrote:
Sat Jan 26, 2019 12:22 pm
Thank you LadyGeek for merging the posts-I knew that probably needed to be done but I wasn't sure how to do that.

Thanks once again for the advice. You all pretty much told me what I expected and what my gut is telling me too.

I'll let you know what we decide to do.

Thank you!
Just so you know, "for the next time" (if there is another similar situation, etc.), probably the easiest way is to add the "new" post to the end of your initial posting thread, rather than starting a new thread that needs to be merged. Then... no merge needed :happy

(And we civilians can't do the merging anyway. LadyGeek and other mods have those magical powers :wink: )

RM
This signature is a placebo. You are in the control group.

Dottie57
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Re: My daughter's inheritance.

Post by Dottie57 » Sat Jan 26, 2019 12:42 pm

TXJeff wrote:
Wed Sep 12, 2018 10:24 am
KRBerly wrote:
Tue Sep 11, 2018 8:36 pm
One other question I forgot to ask. If I go the multiple CD route for now, how do I go about this with multiple banks? The estate account ended up being invested in CDs by the financial advisor I mentioned earlier (She is a friend of the estate attorney's and that is how I got connected with Edward Jones.) When the estate settles, I can move the funds to an account set up in the name of my daughter's trust. Then what? Go to five different local banks?
Sorry for your loss, and your daughter’s loss.

There are two main ways you could place the money into CD’s:

1. Purchase through a brokerage company
Select a brokerage company, transfer the funds, and buy CD’s. (It’s as simple as viewing a page on the brokerage website with a long list of available CD’s, and clicking a couple of times to buy.) The three brokerage companies recommended here on Bogleheads: Vanguard, Fidelity, and Schwab. Each has their fans. Check out this current thread for a comparison. viewtopic.php?p=4114541#p4114541
The upside of this option: easy transfer of money, easy purchasing process, one convenient tax reporting document.
The downside: if you need the money before the CD term, you’d be $$ penalized more than if you’d bought directly from a bank. Also, at Schwab or Fidelity, likely requests that you let them manage your money, which might not be in your best interest.

2. Purchase directly through banks
Identify 5 banks, set up accounts and directly buy the CD’s. Banks do not need to be local—you can set up accounts purely online.
Upside: if you need the money before the CD term, the penalty is lower than with #1.
Downside: more work to set up, multiple tax documents.

In your situation, I’d choose #1, for the upside reasons above, plus easy transition into investing the funds. To choose the brokerage, search this forum for posts on “compare Schwab, Vanguard and Fidelity” and you’ll get a sense for the pluses and minuses of each.
I have been buying FDIC insured CDs through Fidelity. The CDs are from a variety of banks. It is easy and convenient to do so. The rates are good. A couple of differences from the local bank: 1) Interest is not compounded. 2). You can’t break the Cd but instead sell it which may include a larger cost when interest rates are rising. I love being able to do the purchasing within a brokerage account.

texasdiver
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Re: My daughter's inheritance.

Post by texasdiver » Sat Jan 26, 2019 1:43 pm

A couple comments:

1. With over $1 million invested you qualify for Vanguard Flagship Services that should provide enough portfolio advice for free that you don't need to pay for anything else. They should provide enough advice on basic portfolio construction that you won't make any big mistakes.

2. Keep things very simple. Nothing wrong with the portfolio that they gave you but it is a little complex. All those different bond funds can basically be had by simply buying just one total bond index fund. The percentages allocated to each type of bond might be slightly different but not in enough of a way that will have any meaningful affect on your portfolio. A lot of people here are advocating a 3 fund portfolio (US stock index fund, International stock index fund, total bond index fund). The more complicated portfolio that Vanguard designed is unlikely to perform meaningfully differently than a simple 3-fund portfolio that with the same ratios that you specified.

3. $250,000 in money market funds strikes me as rather excessive given how low money market interest rates are. For taxes you'll likely not even need 1/10 of that amount in reserve. Vanguard offers CDs in the 2-3% range depending on duration. https://personal.vanguard.com/us/FixedIncomeHome whereas the money market rates are in the 0.16% range. I would at least park the cash in CDs of various duration or create a CD ladder with the bulk of the cash, leaving a smaller amount in a money market fund for expenses. You are giving up about $7000 per year in potential interest income by parking the money into money market funds rather than CDs. I would leave no more than $50,000 in the money market and put the rest in CDs of varying durations. You can probably find slightly higher CD rates outside of Vanguard but what Vanguard offers is not bad.

You can create a CD ladder where you take the $250,000 and invest $50,000 each into 1, 2, 3, 4, and 5 year CDs. Then each new year when you have a $50,000 CD maturing you deduct what is required of that $50,000 for taxes and other expenses and reinvest the balance in another 5 year CD. That will make $50,000 of cash available every year for expenses while keeping the rest invested in higher interest 5-year CDs staggered a year apart.

4. Roll as much funds as you can into tax-deferred or tax-exempt retirement savings every year. Your daughter should open a Roth immediately and contribute the maximum every year and look for ways to make other tax-deferred retirement savings. For example, if she is working at her university and they have a 401k plan she should be dumping the maximum into it. There are annual limits to how many dollars you can shelter in tax-deferred retirement savings each year. Don't miss any years while she is young. You won't get those years back.

clip651
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Re: My daughter's inheritance.

Post by clip651 » Sat Jan 26, 2019 4:28 pm

texasdiver wrote:
Sat Jan 26, 2019 1:43 pm
A couple comments:


3. $250,000 in money market funds strikes me as rather excessive given how low money market interest rates are. For taxes you'll likely not even need 1/10 of that amount in reserve. Vanguard offers CDs in the 2-3% range depending on duration. https://personal.vanguard.com/us/FixedIncomeHome whereas the money market rates are in the 0.16% range. I would at least park the cash in CDs of various duration or create a CD ladder with the bulk of the cash, leaving a smaller amount in a money market fund for expenses. You are giving up about $7000 per year in potential interest income by parking the money into money market funds rather than CDs. I would leave no more than $50,000 in the money market and put the rest in CDs of varying durations. You can probably find slightly higher CD rates outside of Vanguard but what Vanguard offers is not bad.

You can create a CD ladder where you take the $250,000 and invest $50,000 each into 1, 2, 3, 4, and 5 year CDs. Then each new year when you have a $50,000 CD maturing you deduct what is required of that $50,000 for taxes and other expenses and reinvest the balance in another 5 year CD. That will make $50,000 of cash available every year for expenses while keeping the rest invested in higher interest 5-year CDs staggered a year apart.
Money Market funds at Vanguard are offering much higher rates these days, so the difference between the right money market fund and a CD ladder is a lot less than you are estimating.

Right now the Vanguard Federal Money Market Fund (VMFXX), which is the default settlement fund at Vanguard, has an SEC yield of 2.31%. Other money market funds will vary (some at other brokerages are a lot lower, from what I have heard), so look at the particular money market fund available to you before dismissing them as a fixed income option, at least for the short run.

VMFXX:
https://investor.vanguard.com/mutual-fu ... view/vmfxx

best wishes,
cj

grilli
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Re: My daughter's inheritance.

Post by grilli » Sat Jan 26, 2019 5:47 pm

I think that you have done very good job, and that your plan is basically sound. I have a few suggestions in response to your questions, but it would be fine to carry out your plan without any changes.

1) a very easy way to simplify is to combine all the US bonds into one fund, such as VG Intermediate-Term Investment Grade Fund Admiral Shares. If you still feel there are too many funds, it would not make a big difference to move what is allocated to US mid/small cap into the Total Stock Market Index Fund.

2) I think that the adviser's suggestion is a good compromise, but if it makes you and your daughter uneasy there is nothing wrong with doing it over two years.

3) I think that you are leaving too much cash in the money market fund. If you want to leave that much as a sort of "emergency"/"consumption"/"taxes" fund, you could at least put half of this ($125,000) into a 3 year CD, which you can buy through Vanguard. Unless there's some reason I don't know about where she might need up to $125,000 in the next three years. Then, three years from now, she can re-assess. Maybe then put some of this money in the "investment" part of the portfolio.

One other point for future reference, a few years from now. Once your daughter starts to have significant non-taxable accounts, she may want to fill them with bonds, and switch some of the bonds in her taxable accounts to equities.

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cockersx3
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Re: Follow-up to: My daughter's inheritance

Post by cockersx3 » Sat Jan 26, 2019 7:53 pm

StormShadow wrote:
Sun Jan 20, 2019 2:08 pm
KRBerly wrote:
Sun Jan 20, 2019 1:21 pm
Hi Bogleheads,
My daughter and I are further down the road, and I have returned to this site with additional questions. I did move her 1.25+M to Vanguard, and presently it sits in a Money Market fund while we weigh our investment options. We are close to the year anniversary of her father's death, and I think we are both ready to move forward with making some decisions about her money. Recently, we had a phone conference with a personal adviser at Vanguard who presented us with an investment plan for my daughter's funds. So, now I would like your feedback on that proposed plan. We are leaning toward starting out using Vanguard's Personal Advisory Service, but I would like the adviser to set us up in a plan simple enough that I can manage it myself in the future.

We have decided to invest 1M in an 80/20 slit of stocks and bonds with a 70/30 split of US/International stocks within that 80%. The $250,000+ will remain in the Money Market fund for expenses such as estimated taxes, Roth IRA contributions, and a possible down payment on a house in the future. Below are the funds being recommended to us:

US large cap: 39%
VG Total Stock Market Index Fund Admiral Shares

US mid/small-cap: 17%
VG TSM Index Fund Admiral Shares

International stock: 24%
VG Total International Stock Index Fund Admiral Shares

US short-term bond: 6%
VG Short-Term Investment-Grade Fund Admiral Shares
VG Total Bond Market Index Fund Admiral Shares

US Intermediate-term bond: 7%
VG Intermediate-Term Investment Grade Fund Admiral Shares
VG TBM Index Fund Admiral Shares

US long-term bond: 1%
VG TBM Index Fund Admiral Shares

International bond: 6%
VG Total International Bond Index Fund Admiral Shares


1) So, first question: is this plan basic enough that I can manage it and the tax implications of rebalancing the portfolio when needed? It seems like this plan has a lot of funds, especially on the bond side. When it comes time to rebalancing, having to consider and balance capital gains in all these funds seems cumbersome.
2) My daughter and I agree we want to gradually work into the market, but I would like to hear your thoughts on the pace of that: over the course of one year? Two years? The market seems unpredictable at this time, so is slower better at this point in the current market cycle? The adviser is recommending moving the $200,000 into bonds all at once, and then investing $200,000 each quarter in stocks over the course of a year at the percentages outlined above. I'm just wondering if stretching it out over two years has any benefits given where the market may be headed?
3) Also, do you think we are leaving enough cash in the Money Market account for things like supplementing her income once she starts working full-time in a few years and needing to max-out any 401K available to her for tax benefits? I know the future is full of unknowns-where she will live and work, if she will want to buy a home, if she will get married, etc. But I want to consider these factors as best we can in how we set things up now.


I know people will have varying options about the details of the plan, but in general, is it sound? And can I manage it myself in a few years without too much headache once it gets set up or should I have VG simplify the bond side of the plan?

Thank you for your time and advice!
Concerned Mom
The plan they have for you is fine. It’s really about her comfort level with that portfolio and whether or not to dollar cost average.

Personally, I would keep it simple with a three fund portfolio and lump sum it now. But that’s just me. If she feels more comfortable with a 1 year approach then that’s fine... a two year approach then that’s fine too. Odds are best if you put it all in now.

My condolences on your loss.
I had the same exact reaction. The portfolio they recommend is fine. I tend to bias towards being lazy and keeping things simple, so if I was managing it I would have combined all the bond fund selections into a single line for VG's Total Bond Market fund (VBTLX). This is the classic "three fund portfolio" you'll hear about elsewhere on this forum, and it's actually how I manage my portfolio (in the same range as your daughter's). But if PAS will manage it for you, I say leave it the way it is. If you ever do decide to take this on for yourself, I would sell those and bring them all into VBTLX to make it easier to manage.

For what it's worth, I've read in several threads that the bond split being proposed is typical for Vanguard - they tend to break up the bond index funds, add international, and "goose" it with investment-grade corporate bonds for yield.

Regarding the LifeStrategy funds - I made the mistake of jumping into one of those funds immediately after receiving a large windfall some years ago. It's not a terrible idea or anything, but it does deprive you of better tax management of your overall portfolio, especially once your daughter starts a 401(k) plan at her employer (once she's employed of course). I eventually sold them and went with the three-fund portfolio, and never looked back. When your daughter does start a 401k, talk to the PAS advisor about it since there are things you can do in a tax-deferred account (like a 401k) that can save some money in income taxes on your overall portfolio.

By they way, I'm wicked impressed that your daughter is behaving so responsibly with this money - adding a trusted adult to the account to help guard her from herself, and keeping it a secret from everyone is impressive. More than I would have been able to do at that age, I suspect. Sounds like she'll do fine. :happy

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BL
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Re: My daughter's inheritance.

Post by BL » Sun Jan 27, 2019 12:41 am

The way it is broken out makes it look more complicated than it is.
Total Stock Market is mentioned twice.
International stock market once.
International bonds once.
Short and intermediate one each.
Total bond is mentioned 3 times.

total is 6 funds.
If you took over later, you could combine the bonds into one and you would have the 3-fund portfolio.

We are almost all diy here with investing, but there is no harm in going to a fiduciary at PAS for a while. It gives her time to get used to this and lets you off the hook a bit when the market crashes. Also it might help to avoid panic selling during a crash. This can be worth a lot. Even some BHs were talking about selling out during the '08-'09 crash.

If it were just you, and you felt confident about it and felt sure you wouldn't be tempted to sell no matter how scary things got, no harm in doing a 3-fund portfolio on your own from the beginning.

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Davinci
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Re: My daughter's inheritance.

Post by Davinci » Sun Jan 27, 2019 12:52 am

I have talked to two financial advisors presenting various plans for the funds. Morgan Stanley proposed an Assets Under Management fee structure, and Edward Jones presented a fee-based-type investment plan with some passively, some actively managed investments.
krberly,

Sorry for your loss and this difficult situation with your daughter, be strong.

You have gotten excellence advice, personally I would stay away and run from anything offered by Morgan Stanley and Edward Jones. Most people in this forum prefer Vanguard, Schwab and Fidelity, all of them offer fine passive low cost diversified index funds for a 3 fund 2nd graders simple lazy portfolio which has beaten all portfolios consistently for years.

https://www.marketwatch.com/lazyportfolio

Best of luck on this situation.
" Simplicity is the ultimate sophistication" Leonardo Da Vinci.

texasdiver
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Re: My daughter's inheritance.

Post by texasdiver » Sun Jan 27, 2019 2:02 pm

clip651 wrote:
Sat Jan 26, 2019 4:28 pm
texasdiver wrote:
Sat Jan 26, 2019 1:43 pm
A couple comments:


3. $250,000 in money market funds strikes me as rather excessive given how low money market interest rates are. For taxes you'll likely not even need 1/10 of that amount in reserve. Vanguard offers CDs in the 2-3% range depending on duration. https://personal.vanguard.com/us/FixedIncomeHome whereas the money market rates are in the 0.16% range. I would at least park the cash in CDs of various duration or create a CD ladder with the bulk of the cash, leaving a smaller amount in a money market fund for expenses. You are giving up about $7000 per year in potential interest income by parking the money into money market funds rather than CDs. I would leave no more than $50,000 in the money market and put the rest in CDs of varying durations. You can probably find slightly higher CD rates outside of Vanguard but what Vanguard offers is not bad.

You can create a CD ladder where you take the $250,000 and invest $50,000 each into 1, 2, 3, 4, and 5 year CDs. Then each new year when you have a $50,000 CD maturing you deduct what is required of that $50,000 for taxes and other expenses and reinvest the balance in another 5 year CD. That will make $50,000 of cash available every year for expenses while keeping the rest invested in higher interest 5-year CDs staggered a year apart.
Money Market funds at Vanguard are offering much higher rates these days, so the difference between the right money market fund and a CD ladder is a lot less than you are estimating.

Right now the Vanguard Federal Money Market Fund (VMFXX), which is the default settlement fund at Vanguard, has an SEC yield of 2.31%. Other money market funds will vary (some at other brokerages are a lot lower, from what I have heard), so look at the particular money market fund available to you before dismissing them as a fixed income option, at least for the short run.

VMFXX:
https://investor.vanguard.com/mutual-fu ... view/vmfxx

best wishes,
cj
You are right. I guess I was out of date or looked up the wrong number. Money market rates have ticked up remarkably in the past year or two and don't differ dramatically from shorter term CDs so they are indeed a reasonable place to park short-term funds.

I think the Vanguard advisor gave good advice but perhaps made the portfolio slightly more complex then it needs to be. Which is not a problem, per-se. It is just more funds to track and pay attention to. I think it is unlikely to perform much differently than a simple 3-fund portolio in which the different bond funds are just condensed into a single total bond fund.

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