Best way to invest a fairly large inheritance, what would you do?
Hey guys! In case you couldn't tell I'm new here.
Anyway here's the thing, when I graduated college at age 22 I had about 180k in various mutual funds just from family inheritance and no student loans or anything, I also own a car and my parents offered to pay for any grad school. I recently received the first part of another inheritance from a family farm being sold and now have about 210k total to my name and in 2 years will receive another 240k approximately. In total by that time I should have about 440-470k (let's say 400k+ to be conservative) depending on how much I earn and spend between then I've estimated. I'm a very frugal and cautious person and absolutely live within my means so I might take a vacation or something, maybe live abroad but won't even touch the vast majority of that money.
Does this seem like a lot for someone in their mid 20's to you? (I'm 25 now and will be 27 when I receive all of the money). I feel in the grand scheme of things it isn't a ton of money but for many people it would be. 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 smart, safe funds, nothing too crazy. I'm sure there is great growth potential. Also I in no way am trying to be ostentatious about it, I really am a humble person I was just curious what others think.
Thank you!
First off, congratulations on being rich. I think the number one goal for you should be to not squander it and to continue to grow it. I would seek a conservative investment portfolio that will net you about 5% a year on your investment and forget about the money for the next 30 years. Then go ahead and retire early cause you'll have one hell of a nest egg. Some quick math for you, 400k at 5% a year over 40 years is $2.8 million. Not an incredible amount, but enough. At that point your dividend payments will be six figures a year before any other retirement funds you have set aside.
Also, consider taking 10-20k and doing something memorable. Take an extended vacation to Europe or Asia or save it for a honeymoon.
P.S. Consider a prenup.
depending on how the assets are structured, this may or may not be necessary.
another thing to consider is if the assets are in trust, what restrictions do you have on types of investments/withdrawals/etc. if you're trustee, you have a fiduciary duty not to violate the purpose of the trust.
I would sit in cash with a nice shopping list of high quality players for the next big downturn in the market, probably only invest 150-200k of that sum, by writing myself into discounted and growing cash flow. I'm pretty sure a mutual f̶u̶c̶k̶ fund, would be the last place I'd park a very healthy inheritance which has now assured you financial cushion for the rest of your life.
Don't blow that shit on a house either until, again, blood on the streets and you are in a good career.
And by next downturn, I mean like SnP 1225 or lower.
At your age, it is quite a bit of money relative to the average American but you have to remember your audience as many of us on this board have spent our careers working in finance and have accumulated decent capital bases over that time. Since this topic has been beaten to death you should do a search as there are plenty of good threads on the topic. If you are too lazy to search the summary is as follows: set aside an emergency fund (3-6 months of living expenses), pay off all high interest rate debt, invest in your education, max out your 401k (esp if there is a company match), and allocate the rest across various low cost ETFs/index funds along with individual securities based on your inclination and risk tolerance. This is all contingent upon your risk tolerance, time horizon, earnings potential, etc. but its a start. Good luck
Well, I definitely don't think 400k+ makes anyone rich these days, unless I move to a third world country. My concern is that the money won't grow much faster than inflation however there are certain funds that give a 10% return that are generally safe, my dad has a few and was teaching me about them. It's kind of odd though, now that I have a decent chunk of money I'm scared to spend any of it. I guess that's a good thing though, shows I'm fiscally responsible. Some people truly would squander the vast majority of it but I can't comprehend how someone could be so brainless.
http://www.wallstreetoasis.com/forums/the-last-what-should-i-do-with-my…
shameless plug, I know.
real answer: yes it's a lot for most 25 year olds but there are thousands of 25 year olds with more money than you so don't get cocky; humility is one of the ingredients for investment success. I'd take care of the necessities, ball out a bit (truck, golf trip with the boys, vacation, engagement ring for my long-suffering girlfriend) and then invest the remainder in the stocks I buy for clients (I eat my own cooking), let it ride, and get back to work. there's no right or wrong way to invest, and most people on this forum have no clue what they're talking about (read: anyone who pitches a stock here should not be listened to), so if I were you (and didn't know a lot about investing), I'd try betterment or wealthfront for a bit (maybe with half-75% the money) and learn about investing the hard way (by actually doing it with the remainder). no amount of novels, WSO threads, or stock tips from guys like @Blankfein'sdildo will make you an astute investor. you have to learn by doing. yes, reading is a pre-req to that, good advisors are helpful (lots of bad info out there), but ultimately it's what works for you. I'm in the value camp, and that doesn't work for everybody. I could never do technical analysis or growthy investing a la Richie Freeman. I also don't understand currency markets well enough to make money with it, so trades like the one making Soros famous baffle me. it's a matter of preference, there are tons of ways to make money in the markets on God's green earth, give it a whirl. obviously my bias is with value investing.
when you grow that money a bit more, PM me, we could use some younger clients.
I never said I was going to get cocky about it, quite the opposite. With due respect though, it probably puts me in the top 5% or so of my age group even if there are people (mostly in investment banking or just from richer families) who have more.
you are very blessed, yes, and you should be thankful. my cocky comment was pre-emptive. we see too many inheritors who think that their increased net worth makes them a better person, more prestigious, more worthy, more qualified to discuss business, and downright snooty. be above that influence, be humble.
When did I ever claim to be? Get off your high horse.
Dude, no offense, but you sound naive and downright clueless. I have no advice, but definitely do not go at this alone. Ask a financial adviser or at least pops.
Gee so sorry I'm not a finance expert such as yourself and no I'm not going at it alone. My dad is an economics professor and is good with this kind of thing so that should help.
I think your average sane person would be a little overwhelmed inheriting this kind of money, that doesn't make me clueless.
If anyone is telling you to invest at these prices especially at this point in the market cycle, they are a goddamn fool. Period.
Agree. Feels a bit like trolling.
Worth noting is that tax avoidance will grow your wealth much better than picking the right investments. FA will help with this.
not at this asset level. the impact of tax avoidance is only really profound when you're dealing with the tippy top bracket. if he has $500k and even if his portfolio yields 10% plus another 10% in cap gains, that's $100k per year. add in a typical analyst salary, you're barely scratching AMT. this also assumes he does zero pretax 401k, zero deductions for mortgage interest, and he doesn't offset gains with any losses. yes, tax planning is crucial, but it only starts to matter if your income is consistently above AMT and in other environments where cap gains rates are higher.
I'm starting to develop a complex.
Rent beach house. Invite lots of friends. Buy lots of booze and drugs. Finish all of them. Emerge a week later and do what @"thebrofessor" said with the rest and don't touch the principal.
I think @"thebrofessor" said it best, stay humble. Which from the way I read it, you are and that's great. @"GoldenCinderblock" don't shit on the guy because he was fortunate enough to inherit this "small" fortune. He is asking for personalized help since he sees WSO as a relatively reliable source of wisdom (could have done a bit more forum research, but we probably all could from time to time). - OP, definitely seek a financial advisor and make sure their team isn't trying to sell you but genuinely wants to help guide you through the rest of your life. Good luck!!!
To OP - so you come from a family that has enough wealth to just dividend a member of the family in their mid-twenties almost $500,000, yet you're so naive that you created an account on WSO today to ask a bunch of anonymous strangers on the internet if it seems like a lot of money and what you should do with it?
Ask your family, clearly they're doing something right and whatever they suggest is going to be above all of our heads...
first impression – OP is just trolling. I would keep working and forget about those funds (invest it as said above: pay out debts, set a modest fund for living, etc.) unless I would come up with a really good use.
Hi, first of all, god bless on your inheritance. Its also a great thing that you haven't let the money go to your head and are humble about it. Things I would do with that kind of money: 1- Save about 25% in a Fixed deposit/Buy treasury bills/ the safest-no risk option there is 2- Invest 15% into Small Cap stocks, the entire small cap index if possible. (Reason: From S&P Small cap 600 has gained the just above 20% in the last 5 years. This is a historical trend of small cap indexes and are a safe bet for a long term investment) 3- Invest 5% into a startup that you can relate to. (Reason: Apple was a startup once, so was Amazon and facebook and so on. Find a startup which has a service/product that is exclusive and something that you can relate to. Help them expand with a part of your inheritance and if it works out, you are in line to reap huge benefits) 4- Invest 10% into Real Estate. My advice, just buy land in a up and coming town, which 10 years down the line you could sell for a profit to a real estate developer. 5- Donate 5% to charity. Give to others so that you can receive more. It has something to do with positive vibes. Read it in the book- Secrets of the Millionaire Mind. 6- You are now left with 40% of inheritance. Of this use 10% to invest into whatever you like. Be it a sports car/house/vacation/whatever u can get. Use the other 30% to live your daily life, and remember to keep investing in yourself by continuing to learn new things.
That what I would do with that kind of money.
"2- Invest 15% into Small Cap stocks, the entire small cap index if possible. (Reason: From S&P Small cap 600 has gained the just above 20% in the last 5 years. This is a historical trend of small cap indexes and are a safe bet for a long term investment)"
Well, there you go guys.
wait, you mean to tell me that startups aren't a sure thing?
wait, you mean to tell me that just because something's gone up recently that doesn't mean it will continue to rise?
wait, you mean to tell me that fixed rate instruments aren't safe?
wait, you mean to tell me that not all small town land goes to the moon?
my mind=blown
This is by far some of the worst advice I have seen on this website, that includes the obviously sarcastic advice. At least that advice usually gives you a shot of getting laid. This is just well horrible.
On the real estate note. Do you have any idea how much real estate actually costs? It's continuing costs, operational costs, and liquidity costs? I am going to guess no you don't.
Investing in land with the hope that it will simply appreciate in value is a losers game. Are there winners? Sure but they have inside information that 500k wouldn't even buy you an ear into the room let alone a foot in the door. If you want to invest in real estate you have to go about in in the income producing realm at this level.
What sort of information do these winnders usually have? I've always thought RE is relatively simple but I don't know much about it.
Are you an econ professor by chance?
that would explain the bad investment advice
you asked for a review. this is half snark, half serious. caught a dead point in the day (the PWM world dramatically slows down during the summer)
I'll assume this is dry powder and an emergency fund, fine with this. This deserves its own thread. The small cap effect is skewed by liquidity constraints and survivorship bias. If you don't know what survivorship bias is, look it up. By liquidity constraints I mean that the long term "outperformance" of small caps was captured by very few individuals, because the bid-ask spread on some of the biggest winners (penny stocks namely) is such that it would've been impossible to actually purchase the company low enough to capture the profit. David Dreman does a study on this in his latest book (Contrarian Investment Strategies), pick up a copy. Sure, small companies have bigger profit potential, but I think you can do just fine with less exposure here and more to large & mid caps. Small caps are not safe, they just aren't. by nature, they are risky companies with lots of leverage, a shaky balance sheet, or both. the reason the returns are so good is because they may have a disruptive technology that accounts for 100% of it's revenue, get bought by a bigger firm, or simply become successful in their industry (and have their worth multiplied many times over due to leverage. there are small companies out there that have a wide margin of safety such that it becomes a fat pitch type investment, but to say that they're "safe," that's blasphemous. same comments relative to small caps. I don't disagree with this, but I'd pick 3 or 4 that give you equity stakes, class A shares, and a seat on the board. don't do this. until you get heister money, non income-producing RE is a terrible idea unless it's your primary residence. horribly illiquid, huge chance it goes nowhere, and you will sink money into it for maintenance & taxes (nobody ever talks about this). nothing wrong with RE as an asset class, but I think it's something you dabble in as your asset level grows, not right now. now if it's income producing (like farmland, timberland, or hunting land), that's another story. another bad idea. not because of the charity part, because of the amount. you can easily spend 5% per year (if invested properly) and not touch principal, but if you give 5% this year and only $100 next year, you will look like a chotch. either set up a CRT/CLT or start a pledge program ($10k over 10 years) with an organization that matters to you. if you create a trust, you could also ask for a seat on the board, great networking opps. I agree with this, you need to splurge a little bit. I wouldn't buy a house or a sports car. it's only $400k, 10% of that is $40k, can't buy many sports cars or houses with that. buy some clothes, maybe rent a beach house and rack up some thousand dollar bar tabs then call it a day.wrong. use your income to live your daily life, you should never rely on long term money to pay for near term expenses. this is a windfall, invest it for the long term and try to have the same lifestyle you would have if you just had your income, not this inheritance as well. think about it like this: to preserve the principal of $400k, you should withdraw no more than 3-4% (I said 5 earlier, but that's a bit lofty for a long period of time), so that's 12-16k per year. most any analyst will get a bonus this size, and that amount when considered in the context of a six figure salary will not change your life. instead, live slightly modestly and allow that inheritance to swell, like your ancestors would've wanted.
@"thebrofessor" Well thank you. I agree with the fact that I was wrong about the whole invest in Real Estate thing. Maybe I was influenced by the fact that thats what a lot a people do in my home country (India). So yes I agree, was wrong with that. Secondly, for the small cap stocks, I kind of agree kind of don't. Because I see that amount as something to play around with, risky investments. Maybe 15% was a little too much, but I wanted to keep it in multiples of 5 so as to make the math easy. But I was surprised (should have known though) to learn about the survivorship bias that you were talking about. It makes sense and thats something I will remember the next time I give investment advice (not for the next 2-3 years atleast) Thirdly, again because I wanted to keep it in multiples of 5, the charity amount seems too big. I agree with that 100K over 10 years proposition. Sounds better. Lastly, again I was wrong with the whole 30% spend it on daily life comment. I can see why I am getting so much shit thrown at me, but hey thanks to you I learnt something new. So thank you for your review. I appreciate it
Do you ride Heister's dick because you agree with everything he says or because you want him to let you manage his money?
Stick it in a place you can't touch It. I'd go property buy to let. You can survive any downturn as you aren't borrowed money, rent it out, cash in every month, use that to build a deposit to buy your own place. Leave it renting out for the rest of your life. You have a safety net but also a goose with a golden egg that you can't slaughter.
Hey guys, I am new here, so don't throw monkey shit at me.
The deal is - I have a serious problem. Not sure if you useless people falling into 99% could even understand this, but I'll try to use simple phrases. You know, I am rich. Young and rich. But I am also very smart, and that's not just because I am rich. Anyway, I am way smarter than others.
So I would like to share some of my joy and proudness with you, poor bankers and other persons. You know, I don't care if there are a plenty of similar topics on WSO, I said I am new here and just want to talk about myself for a bit with you, mortal mankind.
Maybe even to give you an opportunity to help me. I mean, why not? Everyone is willing to help me, it is me who is reach here. I am 1%.. or wait, maybe even 0.5%, so this is an honor for you to speak to me here. ^^^^^
I know, that's the most plain sarcasm you ever saw. But come on, is it only me or it is so popular now to create topics with 'I have X money...' in the header? I am not just blaming the idea (or enviing), I am saying these topics now are useless - because we discussed it so many times already.
PS there is a 1% possibilty that Mr Josh93 is sincere and don't have a clue that the idea to create such a topic is not unique. And that he really seeks help here. If this is the case - than sorry man. Oh, wait, maybe 0.5%... Cheers to your dad, economics professor!
BR, Mark
Sorry if you got dogged out. I think the 5% comment set it off.
I think your dad has the right idea with the mutual funds, etc. I have a financial advisor at Edward Jones that takes care of things and does a good job; maybe look into that by finding a good advisor there, the management fee is super low. Use as little of the income from the principal to complement your work income. Live far below your means and don't let anyone know what you have unless there is a need to know (business-related). As you make more money and save more money in your job, maybe start looking into possibly buying real estate or farm land, etc.
Best of luck
@thebrofessor has the right idea. 500k is not a lot of money. It's one kid's private college tuition and a 2 br condo if you're lucky. Don't squander it
Get on my level bro, Also you fucked up royally when you inherited cash from the family farm sale. You should have swooped in and bought that shit for pennies on the dollar and had the family finance it back to you. Your lot in life would have jumped up several steps. Also, I am just a bit older than you. We don't even play in the same park, let alone the same sandbox.
the sandbox with blondes and Dan Bilzerian?
I don't understand why you have this feeling that you're superior to people....you're not
Nice. Does your sandbox have any little toy private jets?
Wow. Thank you everyone who responded to my comment for warm welcome. It is most appreciated. First of all, all the advice I gave was something I believed to be true. Maybe the real estate one wasn't great, but so what. I am learning as I go, so the least you all could do, is tell me why and what was wrong with all my suggestions? That way when I do make money of own, I don't do something that apparently everyone here thinks is stupid.
So I truly appreciate the help I can get, if someone is willing to give it!
So why wouldn't you just hire a professional? So you're telling me your family has all this wealth and has no one managing it or at least keeping an eye on all of it?
Do you all remember when that Walton died?
I damn near cried, nothing is more sad than dying young with a billion dollars in the bank.
I don't think you understand, he created hundreds of thousands of jobs. He had more of an impact on society by lunch than most people will in their entire lives. It was by HIS hand and his alone. Definitely not anyone else... ;-)
The question OP asks is popping up more and more on this forum, and strilkes me as the financial equivalent of asking a girl if "it was good for her, too" or whether your wang is big enough.
Also, I don't think anyone with negative points should simply be a 'chimp' in the points system, WSO needs a different name to serve as a badge of dishonor to these folks.
well this thread got out of hand quickly
It seems you have two core questions: 1) Is my inheritance deemed to be a lot? & 2) What would everyone else do with this amount of money?
Number one is entirely subjective; for some $400k would be a lot to inherit, for others, it would be a drop in the bucket. Geography plays a big role here, but it is my view that this is not enough to be trying to see if you fall in the top % bracket for those your age and so on. I wouldn't even mention an inheritance, ever, but that's just me.
As for the second issue, ask your family what you should do. If for some reason you don't want to, begin vetting professionals who specialize in exactly what you are looking for. Align yourself with people that have a solid track record and that you trust -- if you do, all should go well.
and here I was all happy because I finally saw a modest amount of positive net worth after working my ass off for 2 years paying off student loans...
Kyle Bass style: everything in guns, gold, and nickels
Put it all in FB. Nuff said. Put all your money on THE ZUCK.
You could buy munis too so you aren't taxed and have a relatively safe income stream but who wants munis when you have FB. Stay in cash though.
Correction should be coming anytime lol...
You sound like a real douchebag asshole.
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