$500K Inheritance and Banking

Why not do it for the summer and see if you like it? If not, then quit.

Also, does anyone have an suggestions on finding a money manager or managing it all on my own? Investment advice would be appreciated.

yeah go see this guy Madoff, he get's his investors ridiculous returns.

You are one of the lucky ones that can now do whatever you like to do in life!

Re investment advice: Your $500,000 probably isn't taxable, so if you have any income this year (SA stint) open a Roth IRA and put the maximum amount ($5000) in each year. You will be able to draw any gains from that roth tax-free after you retire. And you can actually take out your money (what you put in - not gains, interest) without penalty if you need it.

Other than that what I would do is open another (retirement) account and put in $100,000 and just buy the index (SPY) if you do not want to do research to invest on your own. If you beleive that the S&P500 will continue to grow at an average rate of 9% annually then you will have over $3,000,000 40 years from now for your retirement.

I would NEVER give my money to a money manager or anyone else to manage it.

Municipal Bonds? 4-5% tax free seems pretty good to me.

I'll manage it... I charge a commitment fee of 60K

Depends on what you mean by changing your career path. If you are talking about not working at all and managing $500k for living, it's stupid. You gain a lot of experience and knowledge from work. You can always choose to make a passive investment which won't take a whole lot of your time. That said, you should do what you want to do. If you are going into banking simply for the money, it's probably not the right path.

You want to help the underprivelaged, but you're also looking for a money manager to handle the cash that you fell assbackward into?

Give the money away, and then earn your own in a real job. Seriously, fund community centers and youth sports leagues and shit. Its not like you deserve or need the money anyway.

GolferDB:

Just found out early this week that I would be receiving just under $500k as an inheritance. I'm doing my summer at a BB but am re-thinking pursuing this career path now. Is this stupid of me to do?

$500,000 is not a ton, but all of a sudden money is not as big of an incentive any more. I kind of would rather help inner-city kids...

Do your summer stint and see how you like it. If you don't, go do something you enjoy.

There are lots of guys with that kinda money in their bank account who are starting in banking. Doing it for the money is a very bad reason anyway, this is a good point of time to reconsider your ambitions, but I would suggest just giving it a shot for the summer!

Muni's are an excellent choice. Commodities, of all sorts for a bit of inflation protection. You're gonna have to work, but that $$$ gives you an advantage. Save it for a house!!! trust me, it's an endless hole.

My dad was kind of in your situation except it was over 1 million and it wasn't an inheritance, it was savings.

You know what he did? He went to work like normal and was just as motivated as the day before and he used the entire savings on our 3 million dollar house in the NOVA/MD area.

A large sum of money is no substitute for work experience and the joy of making your own money (earning your way through life). Don't let that go to your head and you'll be fine. There are probably some nice housing deals going around, perhaps put a down payment on that.

Why would you even consider kissing the egregious amount of ass you'll have to kiss in banking when you've got a half a mil to fall back on?

First of all, if you're really interested in helping the needy, head for the closest strip club. Trust me, it's a win-win. No one is more needy than a single mom with rent due, and the lap dance is always more satisfying if the stripper is crying.

Don't be a tool. There's a couple dozen AIG guys that are wishing they had a half mil that they were CONTRACTUALLY OBLIGATED TO RECEIVE right now. Run as far as you can, as fast as you can.

$500,000 is an exit opp. Don't waste it.

IF I were you, I would save that $500K and live off of it. Don't listen to my advice...you should go seek a professional who deals with this stuff

500k is hardly a lot of money to live reasonably on. If you don't work your whole life and live off it, your standard of living will be below a HS dropout. Since you're going to get a job anyway, why not go in to banking? I presume it interests you, and it will give you a nice additional income so you don't feel guilty about your 500k. Of course, if you're content living moderately and have always wanted to do nonprofit work (which can actually pay very well), then do that. But I'd complete the SA - what else are you going to do for the summer at this point?

It's free money so go to Vegas and bet it all on red. You'll be a pretax millionaire before you graduate.

Of course I'm going to stick with the position for the summer. Non-profit work is an interest of mine, as well as real estate. I have a feeling though if I don't like my summer in banking, I could transition to the former two options pretty easily.

Real estate sounds good, you can probably use it for a monthly payment at this house http://news.yahoo.com/s/ap/20090327/ap_en_ce/spelling_mansion_for_sale

Fuck non-profit work. Just take more time to explore what you really wanna do. Put that money in an emerging market index fund.

Invest in real estate. Cannot go wrong with that. Prices are so freaking low.

As for non-profit vs BB. Non-profit will always be there waiting for you, BB won't if you reject your internship.

P.S.: I have a friend who inherited $200k from uncle before she started college. She continued living normal students life. If you think about it, $500k is not enough to say "F**k you world, I do whatever I want to do."

30% Bonds from cash rich companies (eg: MSFT, GS) 10% Risky bonds with potential huge windfall (eg: AIG, 27% implied yield, unlikely to default) 20% US Treasuries [provide you some liquidity in case of an emergency] 10% Commodities (if you put everything into GSCI should be good) 30% Stock (SP500 will do, but I would include some good EM as well [eg Brazil, Russia] to take advantage of recent massive currency devaluation.

Honestly, this shouldn't be enough money to affect your career plans. If you hadn't inherited this money, would your plan have been to walk away from finance once your bank account hit $500k?

I take back what I said.

to be honest, 500K isnt much.

If you wanted to do banking just for the money, dont do it.

i remember my dad basically told me to go work for him when i was depressed about not getting a good sa, and he said he could pay me more than any analyst can make...but that wasnt what i wanted

To what you really want, and be active in something that you will feel like give you happiness in life.

and to togetherasone

i think most people on the board are actually from pretty well off families. Given that most ibankers are from ivy leagues, their parents most of the times are also well educated, and therefore have some quite large sum of money saved up when they are in their 50s.

I am not sure what your point was with your 1.4 mil, cause that's really nothing to brag about.

If you are having such a hard time finding something to spark your interest, i think your life is actually pretty dull and you need to actually challenge yourself.

Buy the shit out of GE.

here's my advice

buy an apartment.

once you buy a place you will be able to live VERY cheap. you can get a job doing whatever you want and still be able to cover the bills. and if you want to make a go of it in investment banking, you'll be able to do that too

if you decide to invest, don't try to pick stocks. hire a manager or invest in indexes and/or mutual funds.

$500K is a lot of money. It is 20 years worth of salary for an average American.

Here is what I would do:

Buy a house for $300,000 in some growing neighborhood outside of a growing city anywhere in the country. It would be best if it is a foreclosed fixer-upper, as long as the other houses on the street are nice and occupied. You live in it for two years (IRS minimum for tax-free gain) fix it up for $50 - 100K, and sell it for $600K for a $200,000 tax free profit. If you lived within your means for $50K over those two years, you now have $650,000. And best of all you work for yourself and are able to do non-profit work in your spare time, which you will have plenty. Then you buy another house and do this all over again.

Also you start buying random patches of land (an acre or so) outside of bigger cities and just wait until those cities expand to sell for a profit.

This way you are satisfying your two desires (Real Estate, and non-profit work) while accumulating wealth. And I have to agree with Edmundo, absolutely do not go into banking if you have any doubts. There are a ton of profitable businesses that you can buy for that money and be your own boss.

Yeah, I agree buy a house or a nice condo for 150-200k, that will be the best investment especially now when prices are dirt cheap plus you will get 8k tax refund if u r a first time home-owner. You can rent the house out and make some money.

Don't listen to anyone telling you to buy real estate and flip it. First off, look at interest rates today - you'd have to be retarded to pay all cash when you can get loans so cheap. And don't just buy land outside of random cities - just because the real estate market is depressed doesn't mean the prices aren't right. I can't believe flipping real estate is being advocated on this board, especially at such low returns. If you want to go in to real estate, buy somewhere where prices have fallen but demand will always be there - Cape Cod, the Hamptons, Manhattan, etc. You'll enjoy living there more, likely see a higher return, and have made a much safer investment. Alternately, leverage the 500k to get 2ml in loans, buy a tenement and rent it out at onerous rates. Of course, I think both those options will bore you, so definitely don't advise them.

ps @ togetherasone - you reek of new money. Get some class and learn it is inappropriate to discuss such things.

First of all, I never said to pay cash for such a house. And second I never said to buy land because it is cheap, but because it is a great investment, and if you get lucky someone like Walmart may just need tha parcel you own 5-10 years from now which will result in a ten-fold increase from your purchase price. I know a guy who bought dozens of acres in South Dakota for $70K FIVE YEARS ago and now is selling it for $2.5 million.

This guy still has another year left in school, so what I am recommending is that he buys a house 1.5 years from now (which is when I expect the housing prices to be at or near the bottom). He then sells the house when the market rebounds which will be 2013 already.

House flipping is very profitable if you know what you are doing, especially if you fix it up yourself. It is like selling stocks, you want to buy now when they are cheap and sell high. It is the morons like you Drexelalum that will start buying houses to flip when the market is at its top (like people in Florida in 2006). You have to be a contrarian in finance and in life to take advantage of great opportunities like the current real-estate market; it is people like you (Drex) that get creamed in the market and get eaten for lunch by professionals.

Nice response stk. I'll just let your words respond for me:

stk123:

if you get lucky someone like Walmart may just need tha parcel you own 5-10 years from now ... House flipping is very profitable if you know what you are doing, especially if you fix it up yourself. It is like selling stocks, ...You have to be a contrarian in finance and in life to take advantage of great opportunities like the current real-estate market; it is people like you (Drex) that get creamed in the market and get eaten for lunch by professionals.

So you're saying he'll make money if he's lucky or if he is an expert and fixes it himself... ok dude, glad we've now assumed the OP is a real estate whiz. I was going to ask which basic cable tv show you'd recommend I watch to become an expert at flipping houses, but the pithy comment you put on the end convinced me you're a real pro. Which infomercial did you pull that gem off of?

fuck banking, use some of the cash to start a business

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If I had this money I wouldn't be worried about shit. I'd be getting a my masters and phd in philosophy and teaching in some small college town, using my investments to augment my income. I don't really give a shit about getting bottle service at clubs and fucking models.

DiPietro, you're a nerd then.

togetherasone and others... The money I received is actually because one of my parents passed away and I received half of the life insurance policy. That being said, I do come from an area that is quite well off, and although I feel lucky, I do not feel overly-privileged in any way. I know the financial status of my mother and hope that she lives long enough to use most of her savings up (i.e. I'm not expecting anything from her when the time comes).

Events like these really catch you blind-sided and I've done some soul-searching and have realized that I'm not going to change anything about my lifestyle. The only change will likely be that when I start work I will invest in a condo instead of living in an apartment and paying rent every month. This should be a strong investment. Truthfully, I would like to not touch the rest of the money and save it for big things (grad school, wedding, etc.) and live off of my salary just like everyone else. And then one day when I'm sick of the rat race I will have built myself a nice nest egg and I can focus solely on investing and non-profit work.

In the mean time, I will set aside some money each year for charity and spend some of my free time volunteering. It's interesting because as cool as it is to find out one day you have been given half a million dollars, there's a good amount of stress that comes with it. Like I better not fuck this up. And also a realization that if I want, I can totally skip the 20-somethings life and move onto bigger and better things. But how fun is that? Not so much when you realize you only live your 20-somethings once.

Just some thoughts...

togetherasone smellls of new money.

Definitely new money over 2 generations. I also have a lot of things to learn in life.

togetherasone, why did you edit your post ?

Realized that I didn't actually give any relevant advice

I would advise going to a professional you trust, not a bunch of wannabees on a forum.

500k is not enough to live on or retire on for life. You will burn through it within 5 years if you are not wise and left with nothing. You should continue your career and invest the money/buy a house with it. This is a leg up for you; not a free ticket to do nothing for the rest of your life. 500k is not that much money.

Sorry for your loss man. I can't imagine what it is like losing a parent before you even finish college.

My best wishes,

Agreed, sorry man, best of luck in the months ahead

wow that's terrible. good luck and hope you make the best out of it.

I'm inheriting $2 million whenever my mother dies (hopefully in 100 years) and I was given about $200k as a graduation gift. It shouldn't affect your career choice at all--$500k? That's $25k per year at 5% interest. It's hardly a life changer.

With potential inflation and garbage market returns, it'll probably get eaten by inflation anyway.

What amazing is, take an average Joe from streets. He'll be the happiest person alive getting $500k (aside from loosing relatives). He'll think he is set for life: buy house, nice car, etc.

And here we are, "Half a mil? Oh that's nothing, keep working son! And invest those money, although in current economy returns will be pretty shitty." We are either extremely rational, or extremely spoiled, or both.

To the OP, I saw that you are planning to buy a condo when you graduate. I don't know where you live or are planning to live, but as an apartment lender myself who spends much of my week analyzing markets and working economic and property math in Excel, I will say this--beware. It is a myth--an utter myth--that buying vs. renting is always beneficial. In fact, I'd argue that in only rare circumstances is buying vs. renting a financially beneficial proposition. So my advice to you is to take the time to do the math before pulling the trigger on the purchase of an illiquid asset.

Best of luck to you. My father died when I was 17--I understand how hard these times can be.

Ok, so as to not hijack the thread, I'll keep it brief:

1) Because there is already a $5,700 automatic tax deduction for all single persons ($11,400 for married couples), that automatically means that your net tax benefit/write-off for interest is reduced by $5,700 off the top. This is significant.

2) Start running the numbers--you'll see that the amount of cash foregone when purcashing vs. renting (even when you have renters) is substantial--principal, interest, taxes (which ALWAYS go up), insurance, maintenance, utilities. It adds up FAST. Add up opportunity costs with down payments and net out tax benefit of interest and the numbers are clear--you will need historically high appreciation to break-even with a 5-year holding period.

3) The 100 years through 1995, home price appreciation barely kept pace with inflation. The bubble hit between 1995 and 2006, which has masked the true value of real estate investing for young people who don't have the historical context.

4) If your holding period is less than 5 years, you will probably not break even vs. renting when you add up the dollars, unless you see 1995-2006 appreciation. Will we? Maybe, maybe not.

5) Unless you get lucky (i.e. bought in 2002, sold in 2005), buying condos is usually a bad investment. Because your target market is usually under 30, re-sale can be very difficult as you are trying to sell to people with the least amount of money and credit.

6) Despite what the bubble has told you, property depreciates--only land appreciates. When you buy a 15-year-old house or condo, it will be 20 years old in 5 years and 5 years less desirable.

Thanks for the question. I'm always happy to TRY to add value.

VT4Ever,

Great advice. Too many people buy into the fallacy that it is better to own than to rent. It took me years to show my wife on paper with actual figures how bad an investment a personal residence is.

Investment property can be another story, but I'd let the market shake out a little more before committing any money to it. I sold my house back in November, and ended up taking almost $100,000 less than it was worth 10 months earlier (still made a decent profit, though). The guy that bought it is HATING LIFE right now, as it has probably dropped another $40,000 since then. He thought he'd timed the bottom. Ooops.

Take it from someone who has flipped a dozen or so condos over the years (investment properties - I certainly wouldn't live in them), don't buy a condo as a primary residence. It's a suckers game - too much is outside your control.

Example: the HOA of one of my condos went broke and didn't pay the common area liability insurance. When I went to sell the place, no lender would loan buyers any money to buy there because if someone got hurt on the property, the liability was unlimited. All the condo owners were stuck with their properties and couldn't sell until seven months later when the problem was resolved.

Why would you ever put money in TIP's as an inflation hedge? If anything unlevered commodity index is the best inflation protection(Empirical evidence). Look at GSCI, MLMI, DJ-AIG......positive skew and above 3 kurtosis for GSCI and DJ-AIG in inflation periods.

How is that a "ludicrous" argument? What if we have 1970s type inflation twice over the next 40 years?

I challenge you to challenge yourself--run the numbers in Excel. What if you want to retire on a $100,000/year income in 2007 dollars in, say, 40 years, assuming you have no pension, while paying yourself out and preserving your capital against inflation so you don't end up with less each year over, say, a 25-year period. You'd be surprised what just a little annualized inflation can do to the value of your money, even if you are getting 8% annual returns.

All I'm pointing out is that $500k is a great start to retirement, but trust me, the math doesn't lie--inflation will swallow it, EVEN IF you have great returns. Again, run the numbers--it's a fun exercise. It was sobering when I ran them about a year ago. Basically, you cannot save your way into retirement barring extremely good planning and positive circumstances.

I say to hell with all of these ideas. Lets you and me start up a strip club. You put up the cash and I'll run it.

Thats fuckin great.

I would suggest you take out enough of that 500K and buy a modest place of your own to live.

The rest of it invest in a modest portfolio of CDs and a small portion in some high-upside stocks.... SIRI, GM, C, Ford, etc...

Go through your analyst stint. Go to a top BSchool and get your MBA. In addition to going to school, spend the remainder of your time coming up with your dream business venture. Graduate, take out all your savings, and utilize everything you learned in banking and b-school to launch your business.

FYI... If you several hundred K, experience in investment banking, a Harvard MBA (or comparable), and a thoughtful business idea and business plan, you probably have the potential to raise several million dollars of investment capital.

This would have been my ideal situation. Live without a safety net. If you fail and lose all your money, you're no worse off than if you had never inherited that money. You can go into IBD, PE, Venture Cap, or if you loved the entrepreneurship experience, dust yourself off and try again.

V10 Audi R8*

*No im not serious.....maybe

VT4, I agree with your assessment that (usually) it is not worth buying a house if you do not plan on living in it for at least 5 years, and with almost everything else you said. But I disagree on subtracting the entire $5,700 standard deduction, because you have to remember that by taking the standard deduction you are not taking advantage of other itemized deductions (such as sales tax that could be worth thousands of dollars, etc.) that you will now be able to use because of your house purchase that will cause you to itemize.