Receiving a large inheritance in the future
Hi, hope all of you are doing well during lockdown and are staying healthy!
Anyway here's the thing, I'm currently 20 and in my penultimate year of undergrad study. Because of my father passing away few years ago I have been left (originally 250k) with a 150k life insurance which I have been using for education (international fees abroad at a top university) and have an extra year left to pay for myself. My mental health has not been great the past few years and as such, I have been rather lackluster when it comes to internships and job applications/opportunities. However, I have made it a priority to graduate with good grades to the best of my ability. I graduated high school in hopes of studying economics/finance to enter the finance industry (which i got into a target university studying economics (quant with stats), but I started becoming more depressed in first year when it moved to a new country and with abusive/toxic family affairs, thus my grades/job application effort has not helped in me securing financial summer internships despite applying for over 50 internships in various roles such as M&A, PWM, venture capital etc.
There is a law suit happening within my family and I am expecting a 2-3 million inheritance when it ends in 1.5-2.5 years. I'm a very frugal and cautious person and absolutely live within my means and have been living a sheltered life since before all of this so I'm not worried about an urge to blow it quickly as I have been living as frugal as possible. I also have a relatively good understanding of the financial market and investment opportunities given that I study economics and was looking to go into a venture capital or private wealth management field in the future.
What would you do if you inherited this or what have you done if you inherited a similar amount? I plan on investing almost all of it in etfs or reits as I have previous experience in doing so, but am also looking at the real estate market or will learn more by contacting financial advisors in the future. Also I in no way am trying to be ostentatious about it, I really am just curious what others think and would do if there were in my position. Would you prioritize investing your assets as a full time job after graduation (well diversified of course), or would you enter a finance related job and just passively invest it in etfs and learn alongside the job? Obviously PWM is the perfect role for me in my situation so do you have any advice in using my situation to land a good role?
Thank you!
Edit: I am also considering doing an extra year at a masters Msc program in the UK (probably in management), I've realized that I hated the quantitative component in my undergrad degree and has been struggling because of it. Would also ask about comparing investments towards real estate (levereaged), stock market and buying start-ups and businesses as a beginning investment choice.
https://www.wallstreetoasis.com/forums/what-to-do-if-you-win-the-lottery
first things first - how are you receiving the money? are you getting it outright, via a trust, or some other mechanism (if you're outside the US)? that's very important. you may have carte blanche to do what you want, or you may be able to do very little. if it's outright, read on, if it's a trust, act like you don't have the money and conduct your affairs based on your current financial situation. get an understanding of the trust, but it's not yet your money.
second, a reality check. 1.5-2.5mm is not enough to live extremely well the rest of your life, you should work and continue savings, so glad you already are aware of that and are frugal by nature, that will serve you well. also, since this is not enough to retire on, I don't think you can justify it as a full time job immediately upon graduation. sure, invest/trade it to learn, but if I were you, I'd have a career for a few years to see if you're any good with trading real money. what if you suck? what if you decide to do some options play and the market moves against you or something and wipe out 30% of your assets? if you find you're good at it and can make money in all environments (you need to go through a bear market to really test this, and this one is just getting started methinks), by all means quit your job and work for your portfolio, but don't become a shut in. have some skills you can market if things turn south, also keep your network alive and well.
third, how to shop for an advisor, I mentioned this here, and it's still relevant today: https://www.wallstreetoasis.com/blog/how-pwm-really-works-part-4-miscon… I would start by asking any of your wealthy family members or connections who they use and if they're happy. I wouldn't necessarily pick the person who talks the most about finance in your family/inner circle, but the person who seems to be the most carefree about money, that's a better indicator.
finally, what would I do? I think I got a couple hundred bucks at graduation and had to use it all on moving expenses, so my experience is a bit different, but it's fun to dream. so here it goes.
take an extra semester/year but mostly use it to fuck around, online classes only. that, or study abroad. I'd probably not take anything in my major, I might try to get a senior seminar in spanish approve and just spend 3 months in central/south america surfing and working odd jobs like bartender/surf instructor/coconut removal, maybe I'd do a creative writing course online, something like that.
probably a month in costa rica/panama, surfing, fishing, diving. maybe next month do an overland tour of south america's pacific coast surfing my guts out, then drive up through argentina, finish in brazil, fly from sao paolo to africa and begin that leg. spend 2 months in africa, probably wouldn't do kilimanjaro, but definitely victoria falls, zanzibar, more diving, more surfing, more culture, maybe try to get a job or some volunteer work with waves for water or something like that. if nothing else, give free surf lessons to the locals and donate boards. fly to europe, maybe start in barcelona or lisbon, get my euro surfing done between iberia and france for a month (now we're up to 5 months total), ship my boards back stateside, and start the culture tour, probably working eastward from southwest france, hitting paris, normandy, and so on, probably not going further east than hungary, end in croatia, maybe that part takes 1.5 months. I'd then spend 2 weeks in italy eating, touring vineyards, etc., until I started to gain weight. then, I'd do the camino del santiago (or at least part of it), fly back to US to spend a month recharging batteries, seeing family, etc., before I begun asian leg. so far, we're at 8 months.
would then fly into japan (always wanted to go), do the food stuff in osaka and marvel at tokyo, surfing if I can (Japan has EXCELLENT waves), then hopping over to thailand, vietnam, cambodia, etc., eating all of the food I can, maybe this bit takes a month total (1.5 weeks japan, 2.5 weeks southeast asia). then it's indo/south pacific time. one month minimum, goal is nothing more than tube time and fishing. I'd be on a steady diet of shitty beer, freshly caught fish, and open ocean barrels, likely would rent one of those wavehunters yachts and invite my mates to come with me. may spend all of it in indo, may do 1.5 weeks in indo and then go further east towards french polynesia, total so far is 10 months. from there, one month in australia. would want to go straight west to perth, see that part of the country, and maybe do overland back east, stopping in victoria along the way, so 2 weeks for that, and then finish up with 2 weeks between QLD/NSW. apply for graduation, fly back to US with at least 5 months to look for jobs, and begin the rat race.
Sounds like a crazy good holiday for me! But I think you can’t really go back to “normal“ work after such incredible journey
that may be so, but you will never get an opportunity to do it again, at the right age, no obligations, nothing.
so the upside is limitless but the downside is...you might not be excited about work? yeah that sounds good. start your own company, find remote work, etc.
life is short, seize opportunities when they arise
wow wasn't accepting such a detailed and colorful answer haha, but thanks! It will most likely be in a form of inheritance but in a country that does not have inheritance tax laws (I'm not affiliated with the US at all). I've played around with few thousand dollars recently and also learned not to touch options or leverage much when it comes to equities especially if I'm not looking to risk as much. My situation is quite interesting because I'm actually studying in the UK but only have citizenship in HK and Canada. Do you have any advice when it comes to investing in the stock market, start-ups/businesses as well as leveraged real estate investments as those are probably the most common investments?
I'm not a fan of real estate for someone like you. your return profile is best if you're developer or managing the property yourself, and since you don't have experience in that I'd shy away.
on startups/private businesses, if you're not starting one yourself, I'd keep those investments minimal. learn the space, sure, but don't write big checks yet, you'll need to be able to make a ton of small investments in order to do well (in my opinion), since so many startups fail/never blossom, you need to have a large number of investments in hopes that just one goes parabolic.
on the stock market, best to buy something that's passive (notice I didn't say index), whether that's an index fund, a dogs of the dow strategy, a group of 50 magic formula stocks, whatever the case may be. you just want something you don't have to think about day in and day out, because you'll be working.
again, after the holiday, I would act as if I didn't need the money, probably keeping a healthy amount in cash (in case you decide to go to graduate school, find a good deal on an apartment in a city you want to move to) and putting the rest in some sort of passive diversified equities, with maybe 5% of it as play money. but if you want it to last and grow, don't touch it, earn your money elsewhere, add to it, and if it becomes big enough that you can afford not to work, then it's passion project time
Does everyone on this forum surf? Swear it's like every post about taking a long vacation/time off has some mention of surfing
hahaha yeah I just noticed this too actually. For what it's worth, I don't but I'd like to learn.
You have to work. Even if you were inheriting $20mm I would recommend you to work. It's good for your personal and professional development. You may think you have learned a lot in college ("relatively good understanding of the financial market" yeah right) but a few years experience doing any professional job will wipe that misconception out.
I understand your lack of recruiting success thus far may be hurting your morale. You have to act as if you're not inheriting money and don't have to work anymore, because it's not true. It sounds like you applied for lots of high end jobs like venture capital, M&A etc. but did you apply for Fortune 500 jobs? Big 4 (and other professional accounting firms)? Boutique consulting firms? Economic consulting firms?
I would guess that you have probably limited yourself unnecessarily and now are like "I can't get a job" when in reality you have just overestimated your worth & underestimated your competition. I was in your shoes (the recruiting part, not inheritance) and learned to realistically judge my CV at the last second in order to obtain a job that suited my actual CV and not my inflated opinion of myself at the time. If any of that rings true then get cracking back to figuring out your career and let the inheritance part be far in the background.
yeah I agree... thanks for the comment!
I would buy a house/apartment for about 800k all cash and put the rest in a very safe low return vehicle and go about my life as I would have done without the inheritance.
Edit: probably want a house that has a garden rather than an apartment in case another global pandemic happens
I'm sure you're a fine person, but this is not fine financial advice. let's do some math
say he buys an 800k house. so on the high end youd have 2.2mm left
taxes and insurance will be at least 10k a year depending on where you live. add in some maintenance, maybe another 5k a year.
the way to think about long term wealth preservation is you want the withdrawal rate to roughly equal the income you get from the portfolio, so based on current rates, 2 or 3% tops.
3% of 2.2mm is 66k, subtracting the minimum maintenance on the house leaves you with 51,000 a year after taxes in todays dollars (4250/mo). this is roughly equivalent to a $100k salary pretax but you get no savings/additions to your wealth.
in short, if you can live frugally forever, go for it. I don't think your plan is a good one however
I'd argue that living on 4250/month after tax w/o rent is very very comfortable, for me at least (in Germany we also only pay like about 300€ a year on property taxes on an 450k apartment, insurance about the same, at least I do. Maintenance is about right around there on the high side).
Supplement that with a cushy government 35h/week job and you'd be looking at at least 6k after taxes a month, which sounds amazing, and you could also save quite a lot.
Now, everyone has a different definition for "frugality", so I guess at the end of the day it depends on the person. But I'd rather be safe than losing my net egg chasing that additional 2%. I also very much value my sleep and free time, so.
I'd invest the $2-3M and focus my time pursuing a career that interests me and can cover my expenses, housing included. After letting it grow for 10-30 years untouched, I'd think about retiring, but ideally I would've found a job I enjoyed enough where I wouldn't want to.
I'm sorry that you had to say goodbye to your dad at such a young age. Can only imagine how difficult that must have been.
As others have said, you'll still need to work with $2-3m. But it will give you a level of freedom others don't have. If a job or career isn't delivering to you what it should, you'll have a lot more freedom to leave. Huge advantage most people can only dream of.
Having a few million in the bank also helps you relate to PWM clients in a way that most younger people can't. Between that and the freedom that having a financial backstop provides, you'd have a pretty big leg up in your career.
Disadvantage of investing full-time right out of school is that you won't be experienced yet and you'd feel pressure to live cheap. Better to get a job, live comfortably and build experience that will help you manage the wealth.
Appreciate it ! It's already been a while so I've gotten quite used to the situation.
Boats n' Hoes.
Start seeing a good therapist 1x a week for a while. That'll pay huge dividends.
I am going to receive a very large sum of money, notably more than 3 million when my parents pass away. The best piece of advice my parents have told me is to just put the money is bonds/treasury and just forget it exists for the first year or so. Then, once you've adjusted and calmed down a bit, invest it wisely and only use the interest- NEVER touch the principle
Not bad advice but watch out for inflation risk. Longer duration will get killed if the country gets comfortable with a longer-term plan of monetizing our debt and unfunded liability (which is 10x the national debt . . that’s right, $200T, no typo).
I think these days mixed stock/bond is actually more conservative than pure bond, because future inflation surprise is more of a risk than its been in the past.
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