Can having wealthy parents be a justification for a more aggressive investment strategy?

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hp12see
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Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by hp12see » Mon Aug 12, 2019 9:12 pm

Hi Bogleheads,

I've been lurking here for a bit but this is my first post on the forum.

I'm in my early 30s and increasingly interested in personal finance and planning for the future. About a year ago I began having detailed discussions with my parents about their finances and it turns out they a) have built a sizable net worth, b) live on a fraction of their income so that net worth continues to grow, and c) intend to pass it on to me and my two siblings.

I know anything can happen and I hope my parents both live for a very long time to come, but I'd peg the odds of this inheritance coming through (i.e. not being squandered, spent down, or given away to the circus) at 99%. That said, my wife and I are still saving for retirement as if we're on our own. I know that's the only responsible way to live and I'm certainly not looking to cut off retirement savings in order to live some kind of lavish lifestyle. Instead my question is this: can the high probability of a large inheritance be valid justification for investing in a riskier (i.e. 100% stock index funds) portfolio?

If not, then I'd like to ask how much riskier a 100% stock index fund portfolio is over the recommended stock/bond approach? My understanding is that you can expect higher average returns with equity investments but you're in for a bumpier, more volatile ride. If someone has the tolerance for increased volatility wouldn't they be better off sticking to 100% equities? I've heard much of the risk is investors panicking and selling off their stocks in a recession. I'm not thinking I'd ride the 100% stock train into retirement but maybe stay at that level for 20 years and then start investing in bonds to balance things out for the next 10-15 years before retirement.

Thanks and I hope this question hasn't been beat to death already. I found a variation or two on it with the search function but nothing exactly like I'm asking.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by LadyGeek » Mon Aug 12, 2019 9:57 pm

hp12see wrote:
Mon Aug 12, 2019 9:12 pm
Instead my question is this: can the high probability of a large inheritance be valid justification for investing in a riskier (i.e. 100% stock index funds) portfolio?
Welcome! The answer is "No". There are far too many situations that will take that near-certain probability to zero. What happens if they need the money to live on? Or, they simply change their mind and want to spend it all? Or, a sibling contests the will? Or, they get divorced and change the will?

Invest like you would without the inheritance. Consider it a windfall if it does come to you at a later time.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by AlohaJoe » Mon Aug 12, 2019 10:10 pm

Sure, it can be a justification. Much of investing is based around probabilities, not certainties.

My old boss is currently worth $8 billion. His kid might not inherit all $8 billion but would be equally ridiculous to tell the kid that they need to invest in bonds for stability.

But there are no bright lines or hard & fast rules. Just as people need to take human capital & Social Security into account when investing, I don't see anything wrong with taking dynastic wealth into account, so long as they understand the huge amounts of variance that are possible in the absence of actual, real estate planning.

And a lot of people would see it the other way around: If you're so sure about inheriting so much money...why bother investing in stocks at all? What's the point? Put your money in 100% bonds.

Anyway, contrary to what you might think by reading Bogleheads, lots of people in their 30s & 40s are 100% equities, even without having dynastic wealth to fall back on.
Last edited by AlohaJoe on Mon Aug 12, 2019 10:12 pm, edited 1 time in total.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Raymond » Mon Aug 12, 2019 10:11 pm

Welcome to the Bogleheads.

One could make a strong case that you would have been better off *not* knowing about your parents' financial situation.

Better to assume you won't get a blessed thing, then anything you do inherit will be gravy.

What asset allocation (stock/fixed income) were you thinking of before you received this information?
"Ritter, Tod und Teufel"

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by TheMadEph » Mon Aug 12, 2019 10:11 pm

Counterpoint - the answer is sure. Be aggressive, if you want.
Just be aggressive with the knowledge (as lady geek pointed out) that you MAY not have anything at the end of the day.
But absolutely you should be more aggressive. There is a huge difference between relying on a potential future inheritance and being more aggressive because you have potential financial backing behind you. I would say this is particularly true in decisions like: (i) should i start my own business, (ii) should i join the startup with potential huge stock gains, etc.
It is like any other piece of your financial overall picture that you can take into account. For example, if you have a pension you can be more aggressive with your investments. Is there a risk the pension dissappears because the company goes backrupt and you get back pennies on the dollar from the PBGC? Sure.... Is there a chance that your father dies, money goes to mother, mother remarries, money goes to new husband and you get bupkus... Sure. Is that super likely? Probably not. And, if you are more aggressive, to really get screwed you need to have (i) your investments go really bad AND (ii) a crazy family situation arises ALSO.
And realistically, to actually be screwed you need to have those both happen at effectively the same time. If one parent dies, and the estate goes all to other parent (no direct transfer to you or your kids at that time), then maybe dial back aggressiveness. Just be open minded - to change approach and always keep in mind all the things that Lady Geek pointed out.... you still need to save and invest and be responsible, but absolutely you can dial up the risk...

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by HEDGEFUNDIE » Mon Aug 12, 2019 10:14 pm

Raymond wrote:
Mon Aug 12, 2019 10:11 pm
Welcome to the Bogleheads.

One could make a strong case that you would have been better off *not* knowing about your parents' financial situation.

Better to assume you won't get a blessed thing, then anything you do inherit will be gravy.

What asset allocation (stock/fixed income) were you thinking of before you received this information?
I am sure a motivating factor for the parents revealing the information was exactly to prevent financial concerns from dominating their children's decision-making. In other words, gift them with the freedom to take more risk in their lives.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by stimulacra » Mon Aug 12, 2019 10:20 pm

No, I would say it's all the more reason to have a moderate or more conservative investment strategy. Counting on an inheritance is a good recipe for disappointment.

Having a safety net of intergenerational wealth would be a good justification for taking full advantage of your human capital, pursue your passions and follow your interests.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by AlohaJoe » Mon Aug 12, 2019 10:26 pm

HEDGEFUNDIE wrote:
Mon Aug 12, 2019 10:14 pm
Raymond wrote:
Mon Aug 12, 2019 10:11 pm
One could make a strong case that you would have been better off *not* knowing about your parents' financial situation.
I am sure a motivating factor for the parents revealing the information was exactly to prevent financial concerns from dominating their children's decision-making. In other words, gift them with the freedom to take more risk in their lives.
Exactly. An acquaintance of mine had a similar conversation with her parents -- but much earlier in life. Because she didn't have to worry about being destitute, she decided to follow a career as a documentary film maker. Among other things, she's made documentaries about smuggling endangered wildlife. Which, to me at least, seems like a much better use of her life than becoming yet another accountant or marketing peon at a nameless big company. And it was only possible because she knew she had the freedom to take career risks.

We clearly understand the value of "social safety nets" at a societal level. It should be easy to see the same dynamic can work at a family level. Warren Buffett didn't raise his children to be wage slaves, assuming they will inherit nothing and will be eating cat food under a bridge if they don't use a Target Date Fund and max out their employer match on their 401k. He raised his children to be philanthropists. One of them, Peter, pursued a career in music (16 albums so far), which isn't something a person does when they have to worry about putting food on the table.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by CurlyDave » Mon Aug 12, 2019 10:38 pm

Even without wealthy parents someone in their early 30s can reasonably be quite aggressive with their AA. If there is a market crash early on, you have lots of time to recover. And, a seldom recognized fact is that post crash investments will be made at bargain prices if your employment holds out.

I had moderately wealthy parents, but my mother died early and my father remarried. He felt he had to provide for my step mother, so my brother and I have inherited nothing.

My brother's retirement plan was to inherit, which did not work out well for him. I saved and invested aggressively which has worked out well for me.

A lot of my investing was before Bogleheads existed, but I did follow a lot of Jack Bogles advice. I considered pensions and SS as the equivalent of bonds (now disfavored on this board, but still Jack's advice), invested early and often. I departed from the board by investing in brick and mortar real estate, and I am not at all mortgage-adverse. This worked out quite nicely.

One of the advantages of aggressive early investing is that I could project various scenarios, and when I got to a point where retirement would be sustainable even in the event of a 50% market crash, I could afford to continue to be aggressive in my investments. Now that I am in my 70s I have just started to keep a year or two of withdrawals in cash and the rest in stocks and real estate.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Goal33 » Mon Aug 12, 2019 10:39 pm

you'd may be surprised by reckless behavior still left in the tank for your parents.

....


after my parents divorced, my dad married a woman 30 years younger... you can figure out the rest.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Ben Mathew » Mon Aug 12, 2019 10:44 pm

The good news for you is that people in their early 30s should be 100% stocks anyway unless they are exceptionally risk averse or plan to retire early. See Lifecycle Investing by Ayres and Nalebuff for why. So you don't need wealthy parents to justify a more aggressive investment strategy. In fact, as AlohaJoe mentioned, taking the inheritance into consideration might indicate that you should be more conservative. For example, if you expect a large inheritance and it is aggressively invested, you might not need to take on more stock risk in your own portfolio.

As to whether or not to assume the inheritance, it depends a lot on your personal circumstances. Parents might live longer than expected, have unexpectedly high nursing home expenses, leave it all to charity, get defrauded, and so on. Only you can estimate the probabilities. Of course it's safest not to count on it, but it might also be overly conservative to assume zero. (Not relevant for OP, but parents who have more than enough resources and want to increase their kids' sense of financial security, should consider gifting some of the money to the kids while they are still alive. I know some people on this board do this. $1 given when young is probably worth more to your kids than $2 late in life--assuming of course that it doesn't sap their motivation.)

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by ohai » Mon Aug 12, 2019 10:50 pm

All the arguments above aside regarding the potential instability in inheritance, the fact of the matter is that if you are a normal risk averse individual, the presence of potential large inheritance increases your expected net worth and your tolerance for loss. Therefore, your utility maximizing portfolio should rationally be more risky than it would be without the inheritance. It's not a choice between a completely aggressive or completely non aggressive life. You can be riskier by increments.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by ohai » Mon Aug 12, 2019 10:51 pm

Ben Mathew wrote:
Mon Aug 12, 2019 10:44 pm
The good news for you is that people in their early 30s should be 100% stocks anyway unless they are exceptionally risk averse or plan to retire early.
Why stop at 100% leverage? Surely, this optimal limit cannot be the same for everyone.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by abyan » Mon Aug 12, 2019 11:03 pm

I have much less of a problem with you being 100% equity, especially at your age, than I do your reasoning for it. You sound as if you might not be 100% equity if you weren’t convinced you were getting a large inheritance. That’s what concerns me. As others have stated, there is no guarantee you’re getting the money. Your parents could be sued. Business goes bankrupt. Catastrophic illness. Long term care for both parents. My grandfather was rich too, until he wasn’t.

Having said all of that, I don’t find 100% equity very risky at your age. Provided you don’t freak out when the market eventually dives.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Ben Mathew » Mon Aug 12, 2019 11:04 pm

ohai wrote:
Mon Aug 12, 2019 10:51 pm
Ben Mathew wrote:
Mon Aug 12, 2019 10:44 pm
The good news for you is that people in their early 30s should be 100% stocks anyway unless they are exceptionally risk averse or plan to retire early.
Why stop at 100% leverage? Surely, this optimal limit cannot be the same for everyone.
Beyond 100% gets into the difficulties of leverage. We can't borrow at the same rate as we can invest, and most forms of leverage will involve call risk. It also requires more time and energy and attention to maintain a leveraged position. Some might rationally push past 100% into margin territory. But I think very few people can handle it well. For most people I think 100% would be a good place to stop.

But indirect forms of leverage like holding onto the mortgage when you can pay it down can be widely used. If we take that into account, I am recommending that most people push past 100% (i.e. keep the mortgage and invest in stocks).

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Ben Mathew » Mon Aug 12, 2019 11:11 pm

ohai wrote:
Mon Aug 12, 2019 10:50 pm
All the arguments above aside regarding the potential instability in inheritance, the fact of the matter is that if you are a normal risk averse individual, the presence of potential large inheritance increases your expected net worth and your tolerance for loss. Therefore, your utility maximizing portfolio should rationally be more risky than it would be without the inheritance.
Wealth increases one's tolerance for loss, but also reduces the benefit from the gain. So on net, it's hard to get a clear direction for the relationship between wealth and risk level. A person with CRRA preferences would keep risk constant regardless of wealth.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Sandtrap » Mon Aug 12, 2019 11:20 pm

Some considerations and real life examples:

1. Fellow #1. Parents owned an entire street of apartment buildings and condo high rise buildings. Very substantial wealth.
He get's teaching degree early on, low level, and teaches elementary school. Does not save money. Does not buy a home. Expects at least a substantial share of what "his parents told him he would get his whole life". Parents pass away. Wealth goes into trust. Sister is executor and trustee forever. Gives her brother a modest monthly dispersal of funds. Enough to live on. No more. The huge windfall never comes.

2. Fellow #2. Parents have substantial wealth. Large business holdings and operations. Otherwise, same as above except, beneficiaries contest the will/trust and litigate. Things take decades to settle out. The windfall never appears.

3. I have a ton of these real life examples from folks I've known, etc. (enough for now).

4. In some ways, having wealthy parents, especially if "promised" a legacy, is a huge limitation. (insert deep divisive discussions)

5. It is better for you if you pursue a lucrative career and a personal financially independent investment strategy, and work toward your own retirement, as if the proposed windfall inheritance does not exist. Later, someday, it will be a bonus. Don't change your allocation based on external promises.

j
Last edited by Sandtrap on Tue Aug 13, 2019 7:38 am, edited 1 time in total.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Raymond » Mon Aug 12, 2019 11:24 pm

HEDGEFUNDIE wrote:
Mon Aug 12, 2019 10:14 pm
Raymond wrote:
Mon Aug 12, 2019 10:11 pm
Welcome to the Bogleheads.

One could make a strong case that you would have been better off *not* knowing about your parents' financial situation.

Better to assume you won't get a blessed thing, then anything you do inherit will be gravy.

What asset allocation (stock/fixed income) were you thinking of before you received this information?
I am sure a motivating factor for the parents revealing the information was exactly to prevent financial concerns from dominating their children's decision-making. In other words, gift them with the freedom to take more risk in their lives.
Fair enough, but OP hasn't mentioned the level of parental wealth involved - is it Buffett/Gates-level, decamillionaire-level, or a Boglehead garden-variety "two-comma" level?

Agreed that 100% stock for he and his wife is reasonable for their ages, and it's outstanding that they are saving.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by mottooscillator » Mon Aug 12, 2019 11:26 pm

Wealthy parents are a common theme for young entrepreneurs and other investors in Silicon Valley. There is safety net of knowing even if a risky approach completely fails, you won't be out on the street.

I think instead of looking at just your investment strategy you should look at how family wealth may allow you take risk in your life in general.

Or not. You could ignore the family wealth and proceed as an adult in charge of their own destiny.

If you ever decide your parental wealth is an important factor in your decision making, TELL THEM. Doing so should help prevent any misunderstandings like: "we never intended to share any of this money with you, in fact, we just donated 90%+ of it to charity!"

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by 123 » Mon Aug 12, 2019 11:37 pm

If you do anything in life with the expectation that your parents will bail you out if something goes wrong you still have some growing up to do.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by veindoc » Mon Aug 12, 2019 11:52 pm

I would invest simply based on your risk tolerance and goals, ignoring the inheritance. The thing about an inheritance is you don’t know when it’s coming and how much.

My parents were typical LBYM’ers and they had a healthy income, so I knew their savings were considerable. They also were not shy to tell us that they were working for “us” and one day, all of this will be for “us”. So I expect a sizeable inheritance and am 99.99% sure it will happen.

Well I’m 46 now, financially independent, and started my own business recently that is doing well. If I had focused solely on the inheritance as my backstop I don’t know if I would have been in such a good position to pursue my goals.

At this point based on the health of my parents, acknowledging that anything can happen, I don’t anticipate seeing a drop of that money for another 10-15 years. While the inheritance is likely to double my net worth and possibly triple, it won’t affect anything because I have lived my life the way I wanted to now and on my own.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by StormShadow » Mon Aug 12, 2019 11:54 pm

hp12see wrote:
Mon Aug 12, 2019 9:12 pm
I know anything can happen and I hope my parents both live for a very long time to come, but I'd peg the odds of this inheritance coming through (i.e. not being squandered, spent down, or given away to the circus) at 99%.
Umm, about that...
Goal33 wrote:
Mon Aug 12, 2019 10:39 pm
after my parents divorced, my dad married a woman 30 years younger... you can figure out the rest.
+1000

My advice... hope for the best, but prepare for the worst.

It makes the most sense to assume you will get nothing and proceed from there. Hey, if you end up getting a sizeable inheritance then terrific (except, you know, that your folks will be gone).

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by LFS1234 » Tue Aug 13, 2019 12:41 am

Ben Mathew wrote:
Mon Aug 12, 2019 10:44 pm
The good news for you is that people in their early 30s should be 100% stocks anyway....
+1

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Watty » Tue Aug 13, 2019 1:04 am

If you are married then it would be unwise to take an overly aggressive strategy since your spouse could be in a very bad situation if the risky investments turn out badly.

The problem is that you could die or get divorced before you inherit the money and then your spouse would need to depend on whatever their share of the savings is that you accumulated while you were married.

There is also a chance that your parents could leave the funds in a trust that your spouse would not have access to if he or she outlives you in retirement. By this I mean a situation like;

1) You inherit a large trust when you are 60.
2) You die when you are 70 and your spouse is still alive. At that point the trust might not provide for the widowed spouse so he or she would then need to live on your savings.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by msk » Tue Aug 13, 2019 1:32 am

Save and invest 30% of your after tax income, till you retire. Blow the rest on anything you fancy. YOLO (You Only Live Once).
Very quickly your investment income will boost that 70% disposable part :moneybag Paying off principal on your home mortgage counts as investing, but not the interest part or buying consumables like cars. Never mistake volatility as risk (for the stock market). In the accumulation phase personally I see no solid reason for bonds. Only buy bonds for the sound sleep factor. I never bought a bond my entire life, now 75, and I managed to acquire an 8 figure NW to date. Ignore what you "may" inherit in the distant future. Enjoy that 70% disposable income in the meantime. It's enough! While many may treat investment income as sacrosanct, not to be touched, in the accumulation phase, to me it quickly became obvious in my 40s that this was being unnecessarily stingy. At the time, a large fraction of my NW was in rental RE and the net income from those investments soon eclipsed my job income. Stock investments often supply better investment income long term compared to RE but that is often not so obvious because of the volatility. But YOLO. Enjoy life. After you retire you lose the energy to go coral reef diving or whatever strikes your fancy today, even though you will be far better off vis a vis affording it. Better a used Ferrari at 45 than a new Ferrari at 75 when you get the inheritance. 100% stocks for that 30% all the way IMHO, inheritance or not.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by rossington » Tue Aug 13, 2019 4:35 am

LadyGeek wrote:
Mon Aug 12, 2019 9:57 pm
hp12see wrote:
Mon Aug 12, 2019 9:12 pm
Instead my question is this: can the high probability of a large inheritance be valid justification for investing in a riskier (i.e. 100% stock index funds) portfolio?
Welcome! The answer is "No". There are far too many situations that will take that near-certain probability to zero. What happens if they need the money to live on? Or, they simply change their mind and want to spend it all? Or, a sibling contests the will? Or, they get divorced and change the will?

Invest like you would without the inheritance. Consider it a windfall if it does come to you at a later time.
Agreed 100%, it's not your money now.
You did not inform us how much you "expect" to receive. But it is divided 3 ways what ever it is.
You didn't say what what 100% stocks will mean...Funds or individual stocks? (100% better at your age than later in life but how much of a market drop can you stomach?). Bonds and/or fixed income/cash help mitigate stock market volatility....it's your decision.
Put any potential inheritance thoughts in the back of your mind...your concern now should be for your parents not their money.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by JoeRetire » Tue Aug 13, 2019 5:24 am

hp12see wrote:
Mon Aug 12, 2019 9:12 pm
I'm in my early 30s and increasingly interested in personal finance and planning for the future. About a year ago I began having detailed discussions with my parents about their finances and it turns out they a) have built a sizable net worth, b) live on a fraction of their income so that net worth continues to grow, and c) intend to pass it on to me and my two siblings.

I know anything can happen and I hope my parents both live for a very long time to come, but I'd peg the odds of this inheritance coming through (i.e. not being squandered, spent down, or given away to the circus) at 99%.
Sorry, no.

Unless your parents have already funded an irrevocable trust for you, your odds are not 99%. You are seeing only what you want to see. (And this is why some parents don't want to discuss their wealth with their family.)
That said, my wife and I are still saving for retirement as if we're on our own. I know that's the only responsible way to live and I'm certainly not looking to cut off retirement savings in order to live some kind of lavish lifestyle. Instead my question is this: can the high probability of a large inheritance be valid justification for investing in a riskier (i.e. 100% stock index funds) portfolio?
Sure. You could bet that your retirement will be rescued by mom and dad. Maybe it will work out for you, maybe not. But it's your bet to make.

It's not something I would do.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by 3-20Characters » Tue Aug 13, 2019 5:26 am

The question to ask here is how is this is even something to think about (I.e, relevant)? At roughly age 30, vanguard suggests a TD fund that is that 90% equities. I don’t think inheritance is going to be a factor to someone who is 90% equities to push them to a 100%. That’s more a personality factor. Some people want to be 100% and some people feel queasy as they think about going over 75-80%—no matter their age. There was a thread here by a younger person who is 50/50. I can’t see him/her saying, oh, I have an inheritance coming down the road. I’ll go 100% equities. OTOH, I’ve seen one older poster here state that he/she is a 100% equities, has been for life, and doesn’t see ever changing.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by billfromct » Tue Aug 13, 2019 5:47 am

My late 20/early 30 kids are 100% stocks in their retirement accounts with about 15% of their total financial assets in fixed income in their taxable accounts, where they can get at the money if needed.

I have recommended to them to move to their retirement account fixed income allocation starting in their late 30s/early 40s (20-25 years before retirement) eventually moving to a 60%/40% asset allocation in retirement.

I will work with them to move into a glide path through balanced funds or Target retirement funds as I get older & may not have the mental capacity to help guide their financial decisions. They don't have the interest in investing as the people reading this forum. I do review their balance sheet with them every time they come home & review financial strategies like retirement accounts, SS, investment accounts, stock/bond allocation, insurance requirements, etc.

As others may have suggested (I haven't closely read each post), make sure you create a investment policy statement (IPS) & review it periodically & when you are contemplating asset allocation changes.

bill

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by jimmyq » Tue Aug 13, 2019 6:37 am

Taking a different approach... how much older are your parents? The odds that one of them live to age 90 is 45%, so there's a very good chance you would not receive any inheritance before you want to retire. I agree with other posters... if you want to go 100% stocks, do that based on your personal risk tolerance, excluding the possibility of an inheritance.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by aristotelian » Tue Aug 13, 2019 6:42 am

No. Make your own way and invest accordingly. Then you will feel like your wealth is deserved as a productive member of society. Plus you will not be sitting around with part of your brain wondering when they will die. Ideally, I would like my parents to feel like they have the freedom to donate to charity if that is their wish. If you should receive inheritance, you will have the option to donate to charity or pass on to your own kids.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by goblue100 » Tue Aug 13, 2019 6:57 am

At 30 I was pretty much 100% stocks, so I'm not sure what you are talking by riskier? Bitcoin? Leverage? I would say no to the first. I might say yes to the second, but I'm not sure I would do it now (yes, I know that's market timing)
If I was in your shoes I wouldn't change my AA. I MIGHT change how much I was socking away based on how it seemed things were going. For example, instead of saving 15% I might only save 10%.

Speaking from the parents side of things, if they really know they have no intention of ever spending the money, small gifts while they are alive can do wonders for their children. I don't want to inflame the " it's not your money crowd" but as an example I was able to make a gift to my daughter and husband and they could drop PMI from their mortgage.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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hp12see
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by hp12see » Tue Aug 13, 2019 7:02 am

abyan wrote:
Mon Aug 12, 2019 11:03 pm
I have much less of a problem with you being 100% equity, especially at your age, than I do your reasoning for it. You sound as if you might not be 100% equity if you weren’t convinced you were getting a large inheritance. That’s what concerns me. As others have stated, there is no guarantee you’re getting the money. Your parents could be sued. Business goes bankrupt. Catastrophic illness. Long term care for both parents. My grandfather was rich too, until he wasn’t.

Having said all of that, I don’t find 100% equity very risky at your age. Provided you don’t freak out when the market eventually dives.
Thank you for this.

I'm actually in favor of 100% equity (index funds) at this point in time and thought, perhaps erroneously, that this was ill advised and the "right thing" to do would be to have 10-20% in bonds already. It sounds like being 100% in equities is a reasonable strategy regardless of any potential for inheritance so I'll happily continue saving the way I have thus far.

Follow-up question: for folks who do promote investing in 100% equities when you're younger, is there a recommended age at which you start to diversify into bonds? 25 years before retirement? 10 years? Or is this also a function of risk tolerance and it varies for everyone?

I've seen someone on Reddit say saving for retirement is 90% savings rate and the rest of what we discuss with regards to portfolio allocations and the like is just attempting to optimize for that last 10%. Does that ring true?

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Stinky » Tue Aug 13, 2019 7:24 am

hp12see wrote:
Tue Aug 13, 2019 7:02 am
abyan wrote:
Mon Aug 12, 2019 11:03 pm
I have much less of a problem with you being 100% equity, especially at your age, than I do your reasoning for it. You sound as if you might not be 100% equity if you weren’t convinced you were getting a large inheritance. That’s what concerns me. As others have stated, there is no guarantee you’re getting the money. Your parents could be sued. Business goes bankrupt. Catastrophic illness. Long term care for both parents. My grandfather was rich too, until he wasn’t.

Having said all of that, I don’t find 100% equity very risky at your age. Provided you don’t freak out when the market eventually dives.
Thank you for this.

I'm actually in favor of 100% equity (index funds) at this point in time and thought, perhaps erroneously, that this was ill advised and the "right thing" to do would be to have 10-20% in bonds already. It sounds like being 100% in equities is a reasonable strategy regardless of any potential for inheritance so I'll happily continue saving the way I have thus far.

Follow-up question: for folks who do promote investing in 100% equities when you're younger, is there a recommended age at which you start to diversify into bonds? 25 years before retirement? 10 years? Or is this also a function of risk tolerance and it varies for everyone?

I've seen someone on Reddit say saving for retirement is 90% savings rate and the rest of what we discuss with regards to portfolio allocations and the like is just attempting to optimize for that last 10%. Does that ring true?
Welcome to the Board!

I agree that 100% equities makes a lot of sense for you at your age. It's what I did, and it's what I'm advising my children (who are about your age) to do. Personally, I'd begin to taper back somewhere in the age 45-50 timeframe; that may be more aggressive than many.

OP, I don't think that you've said how old your parents are. If you're in your early 30s, your parents could be as young as their early 50s. And, if that's the case, one of them could easily be alive 40 years from now. I'd hate to see you in 2059, being over 70 years old, not having saved enough for retirement, waiting for your parent to die for an inheritance. Far better for you to save as if your parents didn't exist, and then have a windfall if an inheritance comes to you someday.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by hp12see » Tue Aug 13, 2019 7:33 am

Stinky wrote:
Tue Aug 13, 2019 7:24 am
Welcome to the Board!

I agree that 100% equities makes a lot of sense for you at your age. It's what I did, and it's what I'm advising my children (who are about your age) to do. Personally, I'd begin to taper back somewhere in the age 45-50 timeframe; that may be more aggressive than many.

OP, I don't think that you've said how old your parents are. If you're in your early 30s, your parents could be as young as their early 50s. And, if that's the case, one of them could easily be alive 40 years from now. I'd hate to see you in 2059, being over 70 years old, not having saved enough for retirement, waiting for your parent to die for an inheritance. Far better for you to save as if your parents didn't exist, and then have a windfall if an inheritance comes to you someday.
Thanks for the warm welcome! That 45-50 range is about what I had in mind but for me that's only backed up by "yeah it feels right".

My folks are in their mid-60s and their net worth is approx. $50 million. Gross income is approx. $2.5 million and they live on about $120-150k/yr. I have an advanced degree and earn a low six-figure income right now but I see that growing in the future. I'm really not trying to shirk my duty to save, but rather looking for permission to stay in equity index funds and delay investing in bonds (and it sounds like this isn't a contentious idea even without inheritance entering the picture).

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by louiethelilac » Tue Aug 13, 2019 7:41 am

hp12see wrote:
Tue Aug 13, 2019 7:33 am
Stinky wrote:
Tue Aug 13, 2019 7:24 am
Welcome to the Board!

I agree that 100% equities makes a lot of sense for you at your age. It's what I did, and it's what I'm advising my children (who are about your age) to do. Personally, I'd begin to taper back somewhere in the age 45-50 timeframe; that may be more aggressive than many.

OP, I don't think that you've said how old your parents are. If you're in your early 30s, your parents could be as young as their early 50s. And, if that's the case, one of them could easily be alive 40 years from now. I'd hate to see you in 2059, being over 70 years old, not having saved enough for retirement, waiting for your parent to die for an inheritance. Far better for you to save as if your parents didn't exist, and then have a windfall if an inheritance comes to you someday.
Thanks for the warm welcome! That 45-50 range is about what I had in mind but for me that's only backed up by "yeah it feels right".

My folks are in their mid-60s and their net worth is approx. $50 million. Gross income is approx. $2.5 million and they live on about $120-150k/yr. I have an advanced degree and earn a low six-figure income right now but I see that growing in the future. I'm really not trying to shirk my duty to save, but rather I'm looking for permission to stay in equity index funds and delay investing in bonds (and it sounds like this isn't a contentious idea even without inheritance entering the picture).
If you've had a detailed discussion about their intentions then it would make sense to ask how they intend to do so. Via a gifting strategy now? A type of trust? That will give you a better idea of how much if any you can count on, and when. They have won the game. Depending on the tactics they wish to use to leave you money, it's possible you may have won it as well.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by RadAudit » Tue Aug 13, 2019 7:44 am

hp12see wrote:
Mon Aug 12, 2019 9:12 pm
My understanding is that you can expect higher average returns with equity investments but you're in for a bumpier, more volatile ride. If someone has the tolerance for increased volatility wouldn't they be better off sticking to 100% equities? I've heard much of the risk is investors panicking and selling off their stocks in a recession. I'm not thinking I'd ride the 100% stock train into retirement but maybe stay at that level for 20 years and then start investing in bonds to balance things out for the next 10-15 years before retirement.
I'm an old codger who came of age at a time where, in addition to the ideas of returns among various financial assets, one had to factor in how to cover expected expenses to raise the family if one of the partners died. Given the volatility of stock returns and the relative inelasticity of expenses into / through retirement would argue for a more conservative approach.
hp12see wrote:
Mon Aug 12, 2019 9:12 pm
I'd peg the odds of this inheritance coming through (i.e. not being squandered, spent down, or given away to the circus) at 99%.
Yeah, I've got a couple of kids like that, too. (Not as much money though.) Boy, are they going to be surprised.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Sandtrap » Tue Aug 13, 2019 7:45 am

hp12see wrote:
Tue Aug 13, 2019 7:33 am

Thanks for the warm welcome! That 45-50 range is about what I had in mind but for me that's only backed up by "yeah it feels right".

My folks are in their mid-60s and their net worth is approx. $50 million. Gross income is approx. $2.5 million and they live on about $120-150k/yr. I have an advanced degree and earn a low six-figure income right now but I see that growing in the future. I'm really not trying to shirk my duty to save, but rather looking for permission to stay in equity index funds and delay investing in bonds (and it sounds like this isn't a contentious idea even without inheritance entering the picture).
At age 30, given available data, (a portfolio review would be better per forum format, consider doing this), an aggressive allocation is common and works for many.

You've got a good idea. Go with it.

As for the $50 mil.
It's amazing and interesting what can happen over the next 40 years, or less.

j :happy
Last edited by Sandtrap on Tue Aug 13, 2019 7:55 am, edited 1 time in total.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by hp12see » Tue Aug 13, 2019 7:50 am

RadAudit wrote:
Tue Aug 13, 2019 7:44 am
hp12see wrote:
Mon Aug 12, 2019 9:12 pm
I'd peg the odds of this inheritance coming through (i.e. not being squandered, spent down, or given away to the circus) at 99%.
Yeah, I've got a couple of kids like that, too. (Not as much money though.) Boy, are they going to be surprised.
Are they going to be surprised because you intend to spend it or give it away?

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Jack FFR1846 » Tue Aug 13, 2019 7:54 am

It's far wiser to assume you're getting zero. My wife has an aunt who was unsafe in her home. We helped to get her into assisted living. Soon after, the house was sold and proceeds will pay for about 2 years in the assisted living facility. Except we expect her condition to deteriorate and for the care needed to step up. Say one of your parents pass and the other goes into a facility. Certainly, if they have a Billion dollars, they'll never run out of money but if they have a Million, it's certainly possible that it'll be gone when they pass. Nursing home prices vary widely by facility and location. The one where my wife would step into is $15k a month. Some are cheaper, some are more expensive.

My point is that you very well could be left with nothing. If you plan for that, you won't be disappointed if it does happen.
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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Mullins » Tue Aug 13, 2019 7:58 am

I believe there's a sense of self-esteem, purpose and accomplishment which comes from attaining goals yourself. Despite what I may inherit I set my eyes on becoming self-reliant. What's more, your last surviving parent may live to be 103 and if you're still waiting at the age of 73 for that inheritance, if it's still in the cards at that point, because you didn't plan well and invest aggressively (without any hoped for inheritance in mind) or sufficiently what will you do? So my advice would be to save as you would if there weren't any inheritance to be had. And at age 30, I'd imagine you'd be aggressive about it.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Northster » Tue Aug 13, 2019 8:02 am

I have been on both sides of this. I took the conventional advice and paid no attention to any possible inheritance, with the result that I got quite a windfall. We have a lot of anecdotes on the topic; does anyone know of actual data?
On the other side, I have made a point of informing our beneficiaries of their likely payoff, even though there are many unknowns. They seem to be taking it in stride. We have been doing some gifting so they have some immediate benefit. Life is uncertain, but knowledge is a good thing.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by cherijoh » Tue Aug 13, 2019 8:08 am

LadyGeek wrote:
Mon Aug 12, 2019 9:57 pm
hp12see wrote:
Mon Aug 12, 2019 9:12 pm
Instead my question is this: can the high probability of a large inheritance be valid justification for investing in a riskier (i.e. 100% stock index funds) portfolio?
Welcome! The answer is "No". There are far too many situations that will take that near-certain probability to zero. What happens if they need the money to live on? Or, they simply change their mind and want to spend it all? Or, a sibling contests the will? Or, they get divorced and change the will?

Invest like you would without the inheritance. Consider it a windfall if it does come to you at a later time.
I agree with LadyGeek. Long-term care can be expensive. I have several friends whose parent or spouse had to go into a memory care unit because of Alzheimer's. Taking care of them at home was not an option.

There are also numerous cases when one parent dies, the other remarries and leaves the money to their new spouse either outright or for the life of the second spouse (who might not be much older than you). .

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Nowizard » Tue Aug 13, 2019 8:12 am

I think this issue involves the interaction between pragmatism and emotion. Planning for what happens when close family members die is emotional, and finances are an issue that is sensitive whether it be from the standpoint you mention or one where family members are possibly facing supporting others in their later years. We have all heard of situations where family members actively hope others will die and leave an inheritance in addition to those focused on logical and practical issues. This site does mention the former but focuses on the latter.
That being said, at your age you really don't have to make investment decisions with much of an eye on a possible inheritance. Being 31, you can be aggressive based on the time to retirement alone since virtually all investment strategies recommend early and more aggressive approaches. You can invest 100% equities regardless of a potential inheritance, though that is a strategy to investigate as well. Relying on a potential inheritance is not a viable strategy. However, depending on the openness to discussion by your parents and siblings, the size of your parents net worth, their living expenses, etc., it could be that beginning to disburse their assets now is sustainable and beneficial for all. Basically, doing so, if justified pragmatically from the side of your parents, could benefit them emotionally, you and your siblings emotionally and pragmatically. Allowances for specific issues such as LT care would be part of the discussion affecting decisions.

Tim
Last edited by Nowizard on Tue Aug 13, 2019 8:14 am, edited 1 time in total.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by H-Town » Tue Aug 13, 2019 8:13 am

hp12see wrote:
Tue Aug 13, 2019 7:33 am
Stinky wrote:
Tue Aug 13, 2019 7:24 am
Welcome to the Board!

I agree that 100% equities makes a lot of sense for you at your age. It's what I did, and it's what I'm advising my children (who are about your age) to do. Personally, I'd begin to taper back somewhere in the age 45-50 timeframe; that may be more aggressive than many.

OP, I don't think that you've said how old your parents are. If you're in your early 30s, your parents could be as young as their early 50s. And, if that's the case, one of them could easily be alive 40 years from now. I'd hate to see you in 2059, being over 70 years old, not having saved enough for retirement, waiting for your parent to die for an inheritance. Far better for you to save as if your parents didn't exist, and then have a windfall if an inheritance comes to you someday.
Thanks for the warm welcome! That 45-50 range is about what I had in mind but for me that's only backed up by "yeah it feels right".

My folks are in their mid-60s and their net worth is approx. $50 million. Gross income is approx. $2.5 million and they live on about $120-150k/yr. I have an advanced degree and earn a low six-figure income right now but I see that growing in the future. I'm really not trying to shirk my duty to save, but rather looking for permission to stay in equity index funds and delay investing in bonds (and it sounds like this isn't a contentious idea even without inheritance entering the picture).
I think it’s best to ignore the inheritance and focus on your goals. I would still going aggressive in stocks. But it’s not because of your parents’ assets, but because I can and I want to feel good achieving my personal goals.

The possibility of large inheritance should give you the freedom to go after your goals, whatever it might be. Most people out there would be happy to be able to save for a comfortable retirement. On the other hand, you might be able to save and invest aggressively when you’re young, spread your assets across different asset classes (stock, real estate, businesses, etc.) This freedom in the investing world is often underestimated. You never know, you might end up having a larger portfolio than your parents’ and do a lot of good things with it.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by DecumulatorDoc » Tue Aug 13, 2019 8:15 am

You absolutely should allocate your own assets based on your own risk tolerance and life expectancy. Do not factor in any potential inheritance.

Having said that, it is your parents that should alter their asset allocation based on their intent to pass it on. The excess funds they expect to bequeath should be invested with regard to the life expectancy and risk tolerance of their heirs.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by Watty » Tue Aug 13, 2019 8:20 am

hp12see wrote:
Tue Aug 13, 2019 7:02 am
Follow-up question: for folks who do promote investing in 100% equities when you're younger,.....
You need to take the 100% equities comments with a huge grain of salt.

The stock market is still near a record high and we are in a ten+ year bull market so frankly a lot of what is being said sounds like bubble talk.

Point 3 of the Boglehead philosophy is "Never bear too much or too little risk" and while it is not dogma 100% stocks goes against that so it should give you pause.

https://www.bogleheads.org/wiki/Boglehe ... ittle_risk

There is a Warren Buffet quote, "You only find out who is swimming naked when the tide goes out." and it has been a long time since there has been a bad bear market.

There are a couple of other factors;

1) One fundamental rule of investing is that your risk level should match your need to take risks. Your original question was,
hp12see wrote:
Mon Aug 12, 2019 9:12 pm
Instead my question is this: can the high probability of a large inheritance be valid justification for investing in a riskier (i.e. 100% stock index funds) portfolio?
If you are expecting a large inheritance then a very good argument can be made that you should be investing more conservatively since you have less need to take the risks.


2) Even if your parents have not said it one concern that they will have is how capable you will be of managing the money if you inherit it since they may have a vague vision of it lasting for generations. The way that you handle your own money is in effect an audition to show how responsible you are with handling money. It does not matter if you are comfortable with 100% stocks, if your parents are not comfortable with your investing style they may decide that they don't want to risk having you manage the inheritance and they may tie it up in a trust that is managed by some expensive money manager.

3) If you decide to depend on the inheritance for your retirement then the money you are investing in your account will be used for something else and likely be spent in well before you are 65. Money that may be used in 10 years when you are 45 should be invested a lot differently than money you will not spend for 30 to 60 years when you are 65 to 95 years old.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by deltaneutral83 » Tue Aug 13, 2019 8:21 am

123 wrote:
Mon Aug 12, 2019 11:37 pm
If you do anything in life with the expectation that your parents will bail you out if something goes wrong you still have some growing up to do.
Many, many entrepreneurs come from upper middle class or above backgrounds and can afford to spread some seed money in different endeavors hoping for something to click. As mentioned, silicon valley is full of these. I think that's different than thinking you can go live beyond your means with day to day consumption expecting to be bailed out which I am assuming is more toward what your post referenced?

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by hp12see » Tue Aug 13, 2019 8:28 am

deltaneutral83 wrote:
Tue Aug 13, 2019 8:21 am
I think that's different than thinking you can go live beyond your means with day to day consumption expecting to be bailed out which I am assuming is more toward what your post referenced?
I'm not directing this at you specifically (or you alone) but either people aren't reading my post or, perhaps more likely, I did a poor job of wording it. We live below our means and are saving for retirement. I'm not looking for an excuse to stop saving or start spending more than we should. I'm truly only asking whether and how this situation should affect our asset allocation for retirement savings.

Some of the replies I've gotten sound like I'm trying to stop saving for retirement, spend every penny I make, and sit around hoping for my parents' death so I can get bailed out.

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Re: Can having wealthy parents be a justification for a more aggressive investment strategy?

Post by deltaneutral83 » Tue Aug 13, 2019 8:43 am

hp12see wrote:
Tue Aug 13, 2019 8:28 am

I'm not directing this at you specifically (or you alone) but either people aren't reading my post or, perhaps more likely, I did a poor job of wording it. We live below our means and are saving for retirement. I'm not looking for an excuse to stop saving or start spending more than we should. I'm truly only asking whether and how this situation should affect our asset allocation for retirement savings.

Some of the replies I've gotten sound like I'm trying to stop saving for retirement, spend every penny I make, and sit around hoping for my parents' death so I can get bailed out.
I think most can agree to that as I can see you're more directing your comment to consumer spending and being bailed out, however, your original post said "for any reason" and someone in silicon valley that uses a sizable amount of money to invest in himself or another business that becomes 50,000x the original investment is obviously a good use of family money I would think.

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