20M Inheritance - What is best option for small/no risk on principal?

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fwdmotion
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20M Inheritance - What is best option for small/no risk on principal?

Post by fwdmotion » Thu Dec 06, 2018 8:59 am

Looking at CD's which seem like I would have to do a CDARS network. I've seen banks offering 3.4-3.6% on 5 year cd's now which I figured if I'm not paying a 1% management fee is pretty great for no risk on the actual principle.

Any other options worth looking into?

bloom2708
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by bloom2708 » Thu Dec 06, 2018 10:51 am

Start here:

https://www.bogleheads.org/wiki/Managing_a_windfall

We would need more information to really help. If you spend $2 million/year, $20 million isn't all that much. If you spend $150k/year, you are set many times over.

With a windfall like this, you are in the position where you do not have to risk principle. CD rates are up a bit, but you still have some inflation risk with an all CD strategy. If you just sit on $20 million for 10 years and earn 0% real, then you don't have $20 million anymore as your purchasing power declined.

If it was me, I'd probably be 30-50% stocks. The fixed income side would be a mix of Cash/CDs/Intermediate Treasuries and perhaps Municipal bonds for tax free earnings. Not too complicated, but spreading out to a few different types of fixed income products.

Tell nobody. Go slow. Do not sign up with an financial advisor with a big fee structure. They will be licking their chops to bite into that inheritance. This is a great place to learn, read, ask questions. $0 fees. Welcome!
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RickBoglehead
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by RickBoglehead » Thu Dec 06, 2018 10:55 am

Better yet would be if you could not risk principal. I would never violate my principles to put my principal at risk. :wink:

Living Free
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by Living Free » Thu Dec 06, 2018 10:58 am

I believe that the FDIC limit of $250k still applies to CDs: https://www.fdic.gov/deposit/covered/notinsured.html. So you'd need to buy a lot of different CDs to hold and insure your full amount.
I agree with above that I'd want at least some stocks. Treasuries would be nice too.

gtd98765
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by gtd98765 » Thu Dec 06, 2018 11:00 am

With that much money I would try to find a good fee-only financial planner to discuss both investment and tax strategies with.

GAAP
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by GAAP » Thu Dec 06, 2018 11:03 am

fwdmotion wrote:
Thu Dec 06, 2018 8:59 am
Looking at CD's which seem like I would have to do a CDARS network. I've seen banks offering 3.4-3.6% on 5 year cd's now which I figured if I'm not paying a 1% management fee is pretty great for no risk on the actual principle.

Any other options worth looking into?
Keep in mind, inflation is a risk also. True, you won't lose principal, but it could easily have much less real value if inflation takes off.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

chicagoan23
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by chicagoan23 » Thu Dec 06, 2018 11:09 am

GAAP wrote:
Thu Dec 06, 2018 11:03 am
fwdmotion wrote:
Thu Dec 06, 2018 8:59 am
Looking at CD's which seem like I would have to do a CDARS network. I've seen banks offering 3.4-3.6% on 5 year cd's now which I figured if I'm not paying a 1% management fee is pretty great for no risk on the actual principle.

Any other options worth looking into?
Keep in mind, inflation is a risk also. True, you won't lose principal, but it could easily have much less real value if inflation takes off.
Agreed; locking up $20 million for five years at 3.5% seems like a massive risk to me. I’d much rather put it in Treasury bills that may pay a little less but also carry no risk of principal loss and turn over every few months. In five years we could see 10% interest rates, who knows.

scophreak
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by scophreak » Thu Dec 06, 2018 11:10 am

bloom2708 wrote:
Thu Dec 06, 2018 10:51 am
With a windfall like this, you are in the position where you do not have to risk principle. CD rates are up a bit, but you still have some inflation risk with an all CD strategy. If you just sit on $20 million for 10 years and earn 0% real, then you don't have $20 million anymore as your purchasing power declined.
Unless I'm reading this wrong, isn't this incorrect? Isn't the definition of "earning 0% real" that you have exactly kept up with inflation and therefore your purchasing power is constant?

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by Nate79 » Thu Dec 06, 2018 11:24 am

For the time being until you understand how you want to invest this for the long run I would buy individual tbills of short and mid duration. I would not use CD's - that would be a huge pain to stay within FDIC limits...... Perhaps a high yield savings account or money market fund for any money you need to spend on expenses for the next 6 months -1 year.

megabad
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by megabad » Thu Dec 06, 2018 11:26 am

fwdmotion wrote:
Thu Dec 06, 2018 8:59 am
Looking at CD's which seem like I would have to do a CDARS network. I've seen banks offering 3.4-3.6% on 5 year cd's now which I figured if I'm not paying a 1% management fee is pretty great for no risk on the actual principle.

Any other options worth looking into?
I don't really see the point of CDARS for any entity without a fiduciary obligation but you don't indicate whether you have this obligation or not? Do you just like paying taxes and getting low interest? If you look into it, be careful with the interest rate tiers and limits. They seem to vary a lot. Interest rates and terms are normally a lot less than retail CDs.

If you are very conservatively minded, I would throw it all into highest grade individual munis. The risk of default while not zero, is presumably very very low on the highest grades. I would probably not go out beyond 10 yrs or so because that is a lot of interest rate risk with very little increase in rate (if any).

robertmcd
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by robertmcd » Thu Dec 06, 2018 11:27 am

With that windfall I would hold almost exclusively CDs, treasuries, brokered CD's. Early withdrawal penalties are very small compared to the insurance they provide.

Gill
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by Gill » Thu Dec 06, 2018 11:28 am

RickBoglehead wrote:
Thu Dec 06, 2018 10:55 am
Better yet would be if you could not risk principal. I would never violate my principles to put my principal at risk. :wink:
Love it! One of my pet peeves.
Gill

aristotelian
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by aristotelian » Thu Dec 06, 2018 11:30 am

CDs, Treasuries, TIPS. The number of zerosdont really affect the options aside from the issue of FDIC insurance.

Keep in mind that principal risk is only one risk. You may want stocks for diversification and to stay ahead of inflation.

I would also encourage you to think more about tax, charitable giving, and estate planning. You have so much money that what you invest in is secondary.

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by bloom2708 » Thu Dec 06, 2018 11:33 am

scophreak wrote:
Thu Dec 06, 2018 11:10 am
bloom2708 wrote:
Thu Dec 06, 2018 10:51 am
With a windfall like this, you are in the position where you do not have to risk principle. CD rates are up a bit, but you still have some inflation risk with an all CD strategy. If you just sit on $20 million for 10 years and earn 0% real, then you don't have $20 million anymore as your purchasing power declined.
Unless I'm reading this wrong, isn't this incorrect? Isn't the definition of "earning 0% real" that you have exactly kept up with inflation and therefore your purchasing power is constant?
You are right. Should have said "do not" earn 0% real or not keeping up with inflation.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by JW-Retired » Thu Dec 06, 2018 2:28 pm

fwdmotion wrote:
Thu Dec 06, 2018 8:59 am
........................ is pretty great for no risk on the actual principle.

Any other options worth looking into?
fwdmotion,
Can you explain your reason for not wanting to risk "actual principle"? A conservative mixture of stocks & bonds is pretty low risk. Would something dire happen if the value did drop below some level?
JW
Retired at Last

MotoTrojan
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by MotoTrojan » Thu Dec 06, 2018 2:31 pm

Living Free wrote:
Thu Dec 06, 2018 10:58 am
I believe that the FDIC limit of $250k still applies to CDs: https://www.fdic.gov/deposit/covered/notinsured.html. So you'd need to buy a lot of different CDs to hold and insure your full amount.
I agree with above that I'd want at least some stocks. Treasuries would be nice too.
With even a portion of this sum I believe you can go to a firm and have them split it up into FDIC insured accounts without needing to personally manage them all. I think Fidelity etc... could handle.

There are also plenty of safe non FDIC-insured options.

I agree though, you need to hold some percentage of equity. 100% fixed-income would be negligent.

ponyboy
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by ponyboy » Thu Dec 06, 2018 2:41 pm

All savings accounts are now paying 2%, or a bit more.

Wouldnt 2% on $20,000,000 equate to around $400k/year just in interest?

Im not saying this is the best method...but you could spread your money out/up to the fdic insured amount...Yeah, tha'd be 80 accounts...but its protected...and you'd still earn $400k in interest every year.

Im not even sure if there are 80 different savings account...but id be willing to bet you could easily do up to 20 accounts from major places that you can "trust." Then throw some in CD's, etc.

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by Boglegrappler » Thu Dec 06, 2018 2:51 pm

Read from mid page 17 to page 19. It's short, but will cause you to think quite a bit, and quite often. That will be good.

The Basic Choices for Investors and the One We Strongly Prefer

http://www.berkshirehathaway.com/letters/2011ltr.pdf

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by JamalJones » Thu Dec 06, 2018 3:07 pm

__

$20,000,000!? That's some hardcore money! Why not 95/5 or 90/2.5/2.5 (equities/bonds/CDs)? I mean, if the market drops 55%, you'd still have over $10,000,000 and it would bounce back - likely in 1-3 years. You would be much better of in the long term if you did something like:

90%/95% Total US Market
5% or 10% bonds/money market/savings account/CDs

OR

90%/95% Total US Market/Total International Market/whatever small cap/EM/etc. tilt
5% or 10% bonds/money market/savings account/CDs

If you're not comfortable with such a high percentage of equities, then don't go so high. But I think your proposal is WAY too conservative.

Even though you didn't tell us your age/goals/family situation/other assets, etc. I would at the least have 50% of the $20,000,000 in some mix of equities.
TSP + Vanguard Roth IRA + Vanguard Taxable: 80% equities / 20% bonds | Yap, yap, yap, yap, - the bottom line is ya gotta buckle up the chin strap!

rasta
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by rasta » Thu Dec 06, 2018 3:11 pm

depending on how you title the accounts, you can easily get more than 250,000 of FDIC insurance at a single bank.

joint accounts would have 500K protection.
TOD accounts, owner insured $250,000 for each unique beneficiary designated, so if you have 3 unique beneficiaries on the account, FDIC insurance would be 750K.

I would ladder into T-bills, then into CD's with maturity > 1 year. if you live in a high income tax state, then T-notes may be a better option than CD's

you could easily achieve a blended return of at least 3.0%, that is over 600K of income in a year. I see no need to place this money in the market,
you have already won the game.

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bligh
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by bligh » Thu Dec 06, 2018 3:19 pm

The safest way I can think of to hold that kind of money is to buy and hold 5 year TIPS directly. The only way you lose principle is in the case of deflation. You are guaranteed your 1% real yield and it is lower risk than CDs (unless you are planning on opening 80 separate CDs to stay under the FDIC limits.

In all honesty, 20 million is some serious money. If I were you I would get consultations with two or three fee only advisor (to get second and third opinions) to help guide you through the various options. You want to think about taxes, estates & inheritance, umbrella insurance, and a whole host of those things.

I would also not go 100% Bonds, TIPS, CDs or Treasuries.

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by michaeljmroger » Thu Dec 06, 2018 4:02 pm

For someone who doesn't know anything about investing (no offense, but since you mention relying exclusively on CDs, I think it's safe to assume you're new to the topic), I'd suggest Schwab Intelligent Advisory. You'll get useful guidance at extremely low cost, which is sort of the sweet spot between the pure Bogleheads philosophy and the expensive wealth management by Merrill Lynch and friends.

If you insist on doing it yourself and if you really don't want to invest in stocks (which is a mistake if you ask me), I'd personally do something like this:
  • 40% Short-term treasuries (e.g. SCHO)
  • 30% TIPS (e.g. SCHP)
  • 25% CDs
  • 5% Cash / Money market

viz
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by viz » Thu Dec 06, 2018 5:05 pm

Current dividend yield on ITOT is 2% with historic growth for US stock market around 6%. Even if you put 100% in stock, you get ~400k in dividends + potential growth.

If I were you, and I wish I had a chance at getting 20M (no chance), I would put 10 years of expenses in CD and do a 60/40 portfolio for the rest. It would ensure safety net + capital growth.

Unless, you have a reason that you can't tolerate any loss in capital

fwdmotion
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by fwdmotion » Thu Dec 06, 2018 6:30 pm

Thank you so much for all the replies - much appreciated! I called Vanguard to see about talking with an advisor for what they had to split up all the cd's bc of fdic limits, just waiting on a call from senior advisor.

The local bank I called for CDARS that was in network just wanted to sell us on everything else but what we asked for and free lunch (this would have been a great trick when we needed the free lunch for sure)

The cd rates I've seen are around 3.4-3.5% for 5 year maturity so I figured even with a 1% broker it's really 4.4-4.5% without the risk beyond interest rating continuing to go up.

Does anyone have anyone they can recommend for a fee only advisor?

livesoft
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by livesoft » Thu Dec 06, 2018 6:47 pm

A $20 million portfolio would not need a 1% AUM advisor. Lots of the decent ones will do it for much less. You get a price break because the AUM are so large. Fees are negotiable anyways.
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nalor511
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by nalor511 » Thu Dec 06, 2018 6:50 pm

You won't get those rates with CDARS, IMO, those are the teaser rates you get if you do your own CDs. CDARS rates are lower, because they're making it easier for you by doing a lot of the legwork. If you can accept that, fine. Personally I'd throw at least 50% into stocks, and the other 50% into treasuries

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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by MotoTrojan » Thu Dec 06, 2018 7:09 pm

fwdmotion wrote:
Thu Dec 06, 2018 6:30 pm
Thank you so much for all the replies - much appreciated! I called Vanguard to see about talking with an advisor for what they had to split up all the cd's bc of fdic limits, just waiting on a call from senior advisor.

The local bank I called for CDARS that was in network just wanted to sell us on everything else but what we asked for and free lunch (this would have been a great trick when we needed the free lunch for sure)

The cd rates I've seen are around 3.4-3.5% for 5 year maturity so I figured even with a 1% broker it's really 4.4-4.5% without the risk beyond interest rating continuing to go up.

Does anyone have anyone they can recommend for a fee only advisor?
Inflation is the risk, not CD rates increasing.

I think it would help everyone here if you explained why you aren’t comfortable investing any of this in equities. Do you have children? You could setup several generations of financial freedom.

averagedude
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by averagedude » Thu Dec 06, 2018 7:14 pm

I would go 50/50 stocks and bonds and sleep like a baby at night.

retiredjg
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by retiredjg » Thu Dec 06, 2018 7:16 pm

I think using CDs for that size portfolio would be a mistake for two reasons. You would have money in so many different places and with something maturing all the time, it would likely drive you nuts. I believe it would be very labor intensive and not very profitable.

Second, a portfolio of all CDs is almost certainly riskier than a portfolio of stocks and bonds. What would be the point in doing that?

I'd suggest you consider a portfolio of approximately 20% stocks and 80% fixed income assets (bonds and/or CDs). This would be a very safe portfolio and has at least some chance of keeping up with inflation.

Maybe it would be helpful to learn why you want only CDs in your portfolio.

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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Leesbro63 » Thu Dec 06, 2018 7:25 pm

averagedude wrote:
Thu Dec 06, 2018 7:14 pm
I would go 50/50 stocks and bonds and sleep like a baby at night.
+1 And short to intermediate term muni bond funds at that, to minimize taxation. And if you hold your stock index funds forever, you'll only pay tax on the dividend. Doing 50/50 will yield about 2-3% and you could live off that forever, and won't require much brainpower on a withdrawal plan. At 2% of $20M, that's $400,000 with about as bulletproof an income/portfolio as exists.

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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by IHateCasinos » Thu Dec 06, 2018 7:41 pm

While deciding who/what/where, .... buy 3 or 4 week US treasuries. Sit out the duration of the bond ie 3 weeks. no capital risk. (only) 99.99% guaranteed of course.
On the secondary market you can easily find treasuries maturing on almost any date in the next few weeks.
you lose $1,200 per day ie 35k per month waiting.
Be carefull to buy via a broker that charges fixed fee per trade. mine charges fixed. others wanted a percentage!!!
It will take you many years to get used to that kind of size asset. Be very dilligent. There is much to learn.
Well done for finding this board. whomever led you here is a very good friend.
Welcome, and sorry for your loss.

pennylane
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by pennylane » Thu Dec 06, 2018 7:55 pm

You inherited 20mill in cash?

Who holds that much cash??

Something doesn’t seem right...

Robert_007
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by Robert_007 » Thu Dec 06, 2018 8:42 pm

I think I would go vt and bndw 50/50 if I were lucky enough to be in that position. That way I would let be compelled to change it every three months when I read an enticing boglehead tilt post

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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by RadAudit » Thu Dec 06, 2018 9:27 pm

Doesn't the risk in a portfolio have to be a function of the goals of the individual (along with ability and willingness)? I don't remember what the OP wanted to do with the portfolio other than ensure its safety. If safety is the only concern, then a number of the replies may adequately address those concerns. But, it looks like a number of the respondents jumped to the idea that the OP had no other concerns other than his own retirement and / or his own life span - not that there is anything wrong with that. Maybe OP has larger and / or longer term goals.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The calvary isn't coming, kids. You are on your own.

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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by 123 » Thu Dec 06, 2018 9:43 pm

Treasury bills and notes would work quite nicely for the portion that you decided has to be fixed income. If you buy at auction you are limited to $5M per issue per auction for some securities when you do a non-competitive bid/purchase. Us Boglesheads address that $5 million dollar limit by diversifying our purchases, you can do that as well.
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galeno
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by galeno » Thu Dec 06, 2018 9:46 pm

The best risk adjusted return portfolio would be 30/70.

30% VT + 50% BND + 20% TIPS would be ideal for you.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by segfault » Thu Dec 06, 2018 9:50 pm

fwdmotion wrote:
Thu Dec 06, 2018 6:30 pm
The local bank I called for CDARS that was in network just wanted to sell us on everything else but what we asked for and free lunch (this would have been a great trick when we needed the free lunch for sure)
Nothing to add here, but just wanted to say you gave me a much needed laugh when you said they offered you a free lunch for potentially bringing $20M in assets into their bank. :P I'd have to guess that is the absolute cap (either by the regulators or by corporate) on the freebies they're allowed to give.

grog
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by grog » Thu Dec 06, 2018 9:58 pm

There are different ways to look at "risk" in this context. Short-term fixed income is "safe" if you are most concerned with preservation of nominal principal and low volatility. But it's arguably risky in terms of maintaining and growing wealth, especially over the long-term. Personally I would feel better with a classic 60/40 than a bunch of t-bills, but that's just me.

nix4me
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by nix4me » Thu Dec 06, 2018 10:33 pm

i think i would do:
60% Total Stock Market or S&P.
38% Total Bond Market
2% Money Market

And when the cash in the money market started getting low, i would turn dividend re-investment off for a bit until it built back up.

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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by OregonDucksFan » Thu Dec 06, 2018 11:16 pm

Sit on it a while before deciding.

If it were my money, I would put in something like Vanguard Life Strategy Income (20% stocks / 80% bonds) or Vanguard Life Strategy Conservative Growth (40% stocks / 60% bonds). These funds charge 0.13% or so. You could build your own portfolio with the same underlying 4 funds contained in LS Income and LS Conservative Growth for lower expense, which can be significant saving for $20 million. The underlying funds are: Total Stock Market Index, Total International Stock, Total Bond Market, and Total International Bond.

It all depends on if you need to use the money now or how soon, or you just need to leave it to grow for a long, long time.

Another consideration is what is the $20 million currently invested in. That might be already acceptable? Or if you change, you might want to move gradually from 100% bonds to 40% stocks / 60% bonds. Or 80% stocks / 20% bonds to 20% stocks / 80% bonds.

Vanguard offers Flagship Select with additional services (some free, some fee-based at reduced fee) for $5 million plus.

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by Grt2bOutdoors » Thu Dec 06, 2018 11:25 pm

Living Free wrote:
Thu Dec 06, 2018 10:58 am
I believe that the FDIC limit of $250k still applies to CDs: https://www.fdic.gov/deposit/covered/notinsured.html. So you'd need to buy a lot of different CDs to hold and insure your full amount.
I agree with above that I'd want at least some stocks. Treasuries would be nice too.
That’s the beauty of Cdars, they spread the money around for you, all fdic insured.
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l1am
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by l1am » Thu Dec 06, 2018 11:48 pm

30% stocks
20% munis
50% treasuries/CDs

After thinking about it for all of 2 minutes. I’d probably get an advisor with negotiated fees with that kind of money though, hesitantly.

Crazy windfall, one can only dream. I hope I get 1000th of that in my lifetime. :)

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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by AlphaLess » Thu Dec 06, 2018 11:56 pm

bloom2708 wrote:
Thu Dec 06, 2018 10:51 am
This is a great place to learn, read, ask questions. $0 fees. Welcome!
I think we should start charging fees, no?
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clockman323
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by clockman323 » Fri Dec 07, 2018 10:51 am

I would consider keeping the money invested similar to how the original owners had the money invested. Unless it was from selling as business or land in which case it is no longer invested, but rather sitting as cash.

20 million is a lot of money to live off of. You could invest a few million very conservatively and use that money for your living expenses. That should last for the rest of your life. The remainder can be invested for growth. That means mostly stocks, which would be a much higher chance of growing faster than inflation, with some short term downside risk.

chicagoan23
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by chicagoan23 » Fri Dec 07, 2018 1:06 pm

fwdmotion wrote:
Thu Dec 06, 2018 6:30 pm
Thank you so much for all the replies - much appreciated! I called Vanguard to see about talking with an advisor for what they had to split up all the cd's bc of fdic limits, just waiting on a call from senior advisor.

The local bank I called for CDARS that was in network just wanted to sell us on everything else but what we asked for and free lunch (this would have been a great trick when we needed the free lunch for sure)

The cd rates I've seen are around 3.4-3.5% for 5 year maturity so I figured even with a 1% broker it's really 4.4-4.5% without the risk beyond interest rating continuing to go up.

Does anyone have anyone they can recommend for a fee only advisor?
Respectfully, your comments are a little concerning to me and I'm not sure you are understanding the risks you are taking. Just because something can't lose money doesn't mean that it is risk-free. It's also concerning that you continue to rationalize the absence of a fictional 1% broker fee that no one would ever pay if they are just keeping the money in cash, as you suggest.

It's good that you are focused on what you want, which is total preservation of capital. It is not your goal to maximize your windfall, which is fine. But I think you're going about it the wrong way.

Having FDIC insurance on the full $20 million of CDs (through CDARS or otherwise) means that your savings are basically backed by the full faith and credit of the U.S. government, which is also the standard for Treasury securities. In other words, Treasuries are just as secure as CDs that have FDIC protection. That puts aside any ancillary risks with CDARS, which requires all of those various deposits at banks around the country to comply with FDIC requirements in order to have that protection, as described here. That creates a cost too. But chances are you will be fine with CDARS from a preservation of capital perspective.

I would also be concerned about liquidity risk. What will it take for you to get all of the money out if you need/want some of it sometime within that five-year period? What are the early withdrawal penalties for getting out? Is it really 900 days of interest, as described here?!? That would be disastrous and means you could actually lose money if you take it out in the first two and a half years. And what happens if the actual deposit bank fails, and you have to unwind the CDARS? Would the penalty apply? You should probably be OK from an insurance standpoint but it would be a hassle and would take time to get your money out. Make sure you fully understand the rules and the process.

You are also ignoring inflation risk. Diversification is a good idea not just in types of investments but also in duration. Why not have some very short-term funds that can be continually reinvested at higher rates if interest rates rise, along with longer-term holdings? You say that 3.5% is pretty good, but it would not be if interest rates double from here. Five-year Treasuries were yielding less than 1% just two years ago. If someone had bought a 1% five-year CD then, they are tied up with a bad investment that is losing purchasing power until they get out of it. Don't repeat that mistake now.

And have you considered taxes? Is it better to have your $20 million in CDs yielding 3.5%, or in AAA-rated municipal bonds yielding somewhere around 2.1% for five years? Or a mix of those? Have you had an accountant look at the tax consequences of your various strategies? To say nothing of your exposure for estate taxes.

It seems like a mix of CDs, TIPs, Treasury bills/notes and AAA-rated municipal bonds would not lose principal and would account for some of the risks listed.

A great windfall carries with it a great responsibility. You should be thinking things through with a team of experts before making your decision. Good luck to you.

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jakehefty17
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by jakehefty17 » Sat Dec 08, 2018 6:27 am

galeno wrote:
Thu Dec 06, 2018 9:46 pm
The best risk adjusted return portfolio would be 30/70.
+1
OregonDucksFan wrote:
Thu Dec 06, 2018 11:16 pm
If it were my money, I would put in something like Vanguard Life Strategy Income (20% stocks / 80% bonds) or Vanguard Life Strategy Conservative Growth (40% stocks / 60% bonds)

Vanguard offers Flagship Select with additional services (some free, some fee-based at reduced fee) for $5 million plus.
+1

I'd consult a financial planner (or three), and possibly a cardiologist. (I think I'd have a heart attack)

I'd set up whatever safety net I deemed necessary with CDARS, and invest the rest somewhere between 20/80 and 40/60.
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence." -Charles Bukowski

gvsucavie03
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by gvsucavie03 » Sat Dec 08, 2018 7:36 am

clockman323 wrote:
Fri Dec 07, 2018 10:51 am
20 million is a lot of money to live off of. You could invest a few million very conservatively and use that money for your living expenses. That should last for the rest of your life. The remainder can be invested for growth. That means mostly stocks, which would be a much higher chance of growing faster than inflation, with some short term downside risk.
I'm not sure I could have millions in cash laying around without spending it. This recommendation seems riskier than even stocks.

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sperry8
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by sperry8 » Sat Dec 08, 2018 7:46 am

I'd consider this (3.45% yield) Vanguard Short-Term Investment-Grade Fund Admiral Shares (VFSUX) https://investor.vanguard.com/mutual-fu ... file/vfsux and doesn't have the $250k CD FDIC limit. Agree with prior poster that of full $20 million some portion should be in stocks. 30-50% seems prudent (although its hard to get an exact # without knowing your spend)
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riverguy
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Re: 20M Inheritance - What is best option for small/no risk on principal?

Post by riverguy » Sat Dec 08, 2018 8:19 am

Short term treasury bills. Enjoy your risk free $500k per year with 0 principal risk. Short term so if things change you can change with it.

aqan
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Re: 20M Inheritance - What is best option for small/no risk on principle?

Post by aqan » Sat Dec 08, 2018 8:32 am

I believe brokered CDs of 250k each will do it.
Living Free wrote:
Thu Dec 06, 2018 10:58 am
I believe that the FDIC limit of $250k still applies to CDs: https://www.fdic.gov/deposit/covered/notinsured.html. So you'd need to buy a lot of different CDs to hold and insure your full amount.
I agree with above that I'd want at least some stocks. Treasuries would be nice too.

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