Author Topic: New Inheritance  (Read 4198 times)

oldnostache

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New Inheritance
« on: March 14, 2018, 05:42:20 PM »
Im a 30 year old who has been semi-mustachian probably since birth and stumbled on to this site and was impressed with peoples insight/knowledge. I have grown my own $100,000 mustache over the past 5 years (in retirement accounts) after traveling around for a few years after college. I recently inherited about $500,000 unexpectedly (my grandpa had a millionaire next door stache). I was wondering if anyone had thoughts on how best to invest this money. With currently very high valuations on US stocks I was considering foreign stocks and just tricking in 10-15 thousand a month into vanguard equity funds.

I am fairly risk averse knowing that even with relatively low returns i can reach Fire in 5 years (im paranoid and basing on $20,000 expenses and a 2.5% extra safe withdrawal rate). Should i just jump in, consider other investment combo's or dollar cost average into the market while reinvesting dividends? Any thoughts?

nara

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Re: New Inheritance
« Reply #1 on: March 14, 2018, 06:34:18 PM »
We were in the same position (same inheritance amount) 3 years ago. We are also nearing FIRE because of this boost, so I am curious what advice others may give you.

I think in comparison studies of "timing the market" to dumping everything at once has shown that that exposing your money to the market asap creates the greatest gains. I was given the Boglehead's link to how to handle a windfall when we first got the inheritance. We put 50% down on our first home and put the rest into a one year CD (as Boglehead's windfall guide suggests just sitting on the money for a year!) This turned out to be my biggest regret. If you are not at risk of at all of being an idiot with your money, putting it into a Vanguard managed account asap is what I wish we had done right away. They will build you a retirement plan based on your retirement date and risk aversiveness and the fees are very low.

ysette9

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Re: New Inheritance
« Reply #2 on: March 14, 2018, 09:20:07 PM »
Some reading I recommend

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

https://investor.vanguard.com/investing/online-trading/invest-lump-sum

I think you should really dig into the research of safe withdrawal rates. Plenty of good reading from Kitces, Pfau, and bloggers like the mad fientist. https://www.madfientist.com/safe-withdrawal-rate/
In short, 4% is very conservative. 3% is prepper/guns and ammo in a bunker/never failed historically/ overly conservative. 2.5% is plain absurd. If you think events will be so bad as to not support a 3% withdrawal rate then financial investment performance is probably the least of your worries.

But read the research so you know and understand that rather than just do what some random people on the Internet say.

oldnostache

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Re: New Inheritance
« Reply #3 on: March 15, 2018, 04:52:04 PM »
Some good advice and appreciate all the input. Im going to read through all the links and more financial sites. Currently thinking of dumping half in vanguard funds and sitting on the rest for 6 months and see if/how i can manage any fluctuations mentally. Does anyone have any tricks to mentally disconnect from the market (bull, bear or boring)?

oldnostache

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Re: New Inheritance
« Reply #4 on: March 15, 2018, 05:01:16 PM »
As for the withdrawal rate, maybe i do have a few too many tin foil hats (joking....kinda). I just recognize the data is taken from roughly the last 100 years of US data which represents one of the greatest success periods for an individual country ever including a long period when due to WWII we were the only developed country not devastated but the war and boomed accordingly. Other reasons are due to demographics in the developed markets, negative real interest rates (interest - inflation) as far as the eye can see, staggering unsustainable Gov't dept, Pension Funding Crisis and that Warren Buffet possibly the most successful investor ever can't find anything to buy.

^^Sorry for the rant; not trying to pick a fight/argument just hoping you see where i'm coming from and would love any insight to lean me the other way as i know i am probably wrong given a long time line.

marty998

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Re: New Inheritance
« Reply #5 on: March 16, 2018, 12:42:37 AM »
How did your grandfather invest it in order to get that amount of capital?

Have you read up on his strategy? Might pay to take a leaf out of his book!

chickinyow

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Re: New Inheritance
« Reply #6 on: March 16, 2018, 09:35:27 AM »
How did your grandfather invest it in order to get that amount of capital?

Have you read up on his strategy? Might pay to take a leaf out of his book!

I know nothing about OP's grandfather, but my parents did no investing at all other than being lucky enough to buy their house in Victoria, BC back when things were still cheap (11K in 1971 lol). Their house would easily sell for $1 million now. They owned it free and clear by 1977 with only one parent working (and my dad made a very average wage, not professional or anything). Those days are sadly long gone. Dad had a government job with a good pension so no real need to invest.

ysette9

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Re: New Inheritance
« Reply #7 on: March 16, 2018, 09:38:59 AM »
Yes, the 120 years of stock market data generally used for things like cFIREsim and research backing up the 4% “rule” has seen periods of extraordinary growth. It has also seen things like Black Friday, the Great Depression, stagflation, the Great Recession, and so forth to counteract those rosy periods. I recommend you seek out the thread talking about why you shouldn’t worry about the 4% rule (it is a sticky in one sub forum, investing, I think?) It has a lot of good insight from smart people. I especially like some graphs in that thread showing your risk of portfolio failure versus your risk of being dead over time. I think it is easy to get fixated on the risk of running out of money to a degré that you can lose perspective.

oldnostache

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Re: New Inheritance
« Reply #8 on: March 16, 2018, 02:17:04 PM »
Grandpa, was a silver spoon type but lived very frugally and gave a lot to charity so it was hard to tell how he invested. Will give that sub forum a read. I know its mostly me getting in my own way but i remember reading how some of the best money managers were terrible at managing their own money so i just have to psyche myself out of it, make a plan and stick to it.

ysette9

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Re: New Inheritance
« Reply #9 on: March 16, 2018, 02:28:33 PM »
THat is exactly the right attitude. Do your research, write your personal investment policy statement, pick a simple portfolio of a few index funds, and then find something better to do with your time. :)

robartsd

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Re: New Inheritance
« Reply #10 on: March 16, 2018, 02:31:29 PM »
If you want a cheaper option to the Vanguard managed portfolio, you could just throw it all into their 2025 Retirement Fund -- the fees are higher than their barebones index funds, but you get a decent amount of diversification and reduce risk a bit that way.  I have a good chunk of our retirement accounts in the 2025 to 2035 funds for this reason.

And  the previous poster is correct -- studies have shown that returns are generally better when you throw it all in at once.  But for many people, it is easier to sleep at night when you dollar cost average in over time when you are dealing with such large sums.
You can also simulate the Target Date 2025 fund with the individual funds it is made up of.

oldnostache

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Re: New Inheritance
« Reply #11 on: March 18, 2018, 11:10:47 AM »
Thanks everyone for the feedback/insight.

I am thinking of jumping in next week with 20% in the 2025 Retirement Fund, 20% in the 2030 Fund, 20% in Vanguard Total World fund (Existing Tax Preference Accounts here) then adding 5% of the remaining month end cash value each for the first 6 months, 10% of the remaining cash value for the next 6 and then after that year is up putting the rest in lump sump (minus an emergency fun). I think i can sleep fairly easy with that and know i have a long term plan while just letting any dividends reinvest.

Any Thoughts?

Linea_Norway

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Re: New Inheritance
« Reply #12 on: March 18, 2018, 11:29:08 AM »
As for the withdrawal rate, maybe i do have a few too many tin foil hats (joking....kinda). I just recognize the data is taken from roughly the last 100 years of US data which represents one of the greatest success periods for an individual country ever including a long period when due to WWII we were the only developed country not devastated but the war and boomed accordingly. Other reasons are due to demographics in the developed markets, negative real interest rates (interest - inflation) as far as the eye can see, staggering unsustainable Gov't dept, Pension Funding Crisis and that Warren Buffet possibly the most successful investor ever can't find anything to buy.

^^Sorry for the rant; not trying to pick a fight/argument just hoping you see where i'm coming from and would love any insight to lean me the other way as i know i am probably wrong given a long time line.

I don't think you are crazy for have such thoughts. I have been reading books about how societies collapse, how we ruin our environment, how we mass kill species at rapid speed, about robots taking over most of our jobs in the near future. I have seen TED talks about a coming food crisis in 10 years time and I am very aware of the climate changes that will become very expensive and dramatic in many ways.

Yes, I believe we are living in the golden age and I have become very pessimistic that it will last and generate 7% growth forever. Still, I have invested the money that is not in my house in index funds, because I still believe it is the best and easiest strategy at the moment. All alternatives suck, like putting it in a bank account for low interest fees or buying bonds with low returns. Rental houses are an other option you could look into, but I have understood it is quite a bit of work and worry.

CSuzette

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Re: New Inheritance
« Reply #13 on: March 18, 2018, 02:58:51 PM »
Ala JL Collins. Just dump it into VTSAX. While you sit on the sidelines you are losing out on potential gains and the almost 2 percent dividends.