Inherited IRA Questions

[JD Student]

Hi Mustachians,

I have recently discovered MMM and am working my way through the posts in order.

My father passed away about 6 months ago and I was the beneficiary on his retirement account. This has been transferred to an inherited IRA on which I am required to take a minimum distribution (RMD) beginning in 2017. The total value is ~$500,000. I inherited the account with the same asset allocation my father used. It is a mix of individual stocks (120K), mutual funds (240K), and ETFs (140k). Should I leave the allocation as is, or liquidate everything and move into VFINX exclusively? I know I will have to pay taxes on my RMD, but don't know much else about the inherited IRA system. Are there any good resources I can read to learn more about managing my situation?

After a little more reading I plan to make a case study, but as I am still a second year law student, I feel like I cannot implement many of the strategies quite yet.

Looking forward to joining this great community!

Thanks All!

[Catbert]

You can buy/sell things inside the inherited IRA without tax consequences.  You'll just pay taxes on the RMDs.   Note:  You can always take out more than the RMD and pay taxes on it.

I would definitely sell the individual stocks since you have no time or interest in keeping track of their progress.  As for selling the ETFs and mutual funds, it depends in part on which ETFs and mutual funds they are.  If broad based and low fee then keeping them would be okay.  If you really don't want to figure it all out, selling all and buying a total stock market and a broad international  mutual fund would work.

[Mother Fussbudget]

+1 to what mary w said.  You might also consider moving the inherited IRA account to Vanguard where you can purchase the Vanguard ETF's you mention for zero commission.

[radram]

Hi Mustachians,

I have recently discovered MMM and am working my way through the posts in order.

My father passed away about 6 months ago and I was the beneficiary on his retirement account. This has been transferred to an inherited IRA on which I am required to take a minimum distribution (RMD) beginning in 2017. The total value is ~$500,000. I inherited the account with the same asset allocation my father used. It is a mix of individual stocks (120K), mutual funds (240K), and ETFs (140k). Should I leave the allocation as is, or liquidate everything and move into VFINX exclusively? I know I will have to pay taxes on my RMD, but don't know much else about the inherited IRA system. Are there any good resources I can read to learn more about managing my situation?

After a little more reading I plan to make a case study, but as I am still a second year law student, I feel like I cannot implement many of the strategies quite yet.

Looking forward to joining this great community!

Thanks All!

JD - Sorry for the loss of your father.  He gave you a very valuable gift.

Setting up the inherited IRA is THE best move you could have made.  Some people just say oh, here is this account.  Lets get it into my checking account and figure out what to do with it later.  Then BAM, most likely every penny of that money is subject to tax at your ordinary income rate.  It could easily be hundreds of thousands of dollars of tax.

Your inherited IRA account has given you the power to decide when that money is taxed, and at what rate, with the exception of the RMD.  You are correct that you must take RMD's. Whether you take more than that is your choice, and might be prudent based on other factors in your life.  You are a law student.  If you are a typical student with little income, it might be beneficial to withdraw more than the minimum, still keeping your income as high as you can while remaining in the 15% bracket.  You will most likely never have a lower income than you do now, unless you FIRE with years to go before SS and pension income.

Remember that you have until December 31st of next year to take your first distribution.  If you miss that date, you may be forced to take the full amount within 5 years, or even all at once.


With regard to what investments, that does depend on many factors.  Since you did not take possession of the money, and set up an inherited IRA, you are in a great position to decide where the money would be best for you.  This will take time. I bet the money still does not feel like it is "yours".   I would also bet that part of you might want to leave things as is, since it is what your father wanted to have.  It probably makes you feel closer   Embrace those feelings.  There is no rush here.  Do not pretend it is just money and there is no such thing as emotion.  It is one of the last gifts given to you by your father.  There will be emotions involved.


Long term, you need to decide what asset allocation you desire, and include this money in your overall allocation plans. There is no 1 answer to tell you the appropriate investment for you.  What is more important is your overall desired asset allocation.  Does this new money lead you to believe your overall asset allocation percentages should change?  If so, why?

Do you plan to invest in individual stocks? If not, then long term your idea of moving to VFINX or similar is probably a good one.  The mutual funds you mention could be something to address.  What are they? Are they loaded funds? What are their management fees? Same with the ETF's.  There is really no answer to "should I sell my mutual funds", because we know nothing about them.

Another factor is where the account is being held.  What are the fees to keep it there? Are you limited in what you can invest in? I know some places really limit what you can purchase. Your only options are loaded mutual funds with high management fees that do not outperform an index fund.

Did your father use an adviser of any kind?  I am sure many people here would be very interested in what the adviser has to say.  Some are good, some are bad, and sometimes trust is earned, though maybe not very well deserved.

Feel free to share as much as you are willing and keep us updated.

[Bicycle_B]

+1 to everything Radram said.

I inherited an IRA too (much smaller, around 60k).  As Radram says, it doesn't feel like "mine" yet, so I have moved slowly.  Am now in process of switching it from an Edward Jones account (my parent's company of choice) to a Vanguard account.  Am putting 20k of it into VTIAX simply because I haven't previously put enough into international, but which particular fund (or funds, or ETFs) is less important than just getting to a reasonably priced fund company such as Vanguard. Very nice that you have the flexibility and resources to make your path forward quite smooth.  Very sorry about your loss.

[Spork]

I'm pretty much in the same position as the OP. 

My advice:
* Move it to Vanguard and put it in something simple and applicable to your risk tolerance/asset allocation.  For example, you can do 60/40 VTSAX/VBTLX (adjust accordingly according to your AA.)  You didn't say who the IRA was with... but I am going to go out on a limb and bet your expenses are significantly higher than Vanguard.  (Mine were.)
* Run some numbers now.  Set up a spread sheet and play with it.  You're going to be aghast.  If you're a normal Mustacian type that has a reasonable stash in traditional IRA/401k... include that in your numbers.  Do some simple math where you get 6% growth.  Put in a column that computes your RMD and rolls to the next year.   I think what you will find is that when you start getting older, your RMD is going to be hundreds of thousands of dollars.  Now add another column where you do the same with your tIRA and compute the RMD starting at 70.5.     My rambling point here is:  It may actually be better for you to take more than the minimum amount out of the inherited IRA and invest it in Roth or taxable funds now.  Otherwise, it is very possible you will be in a much higher tax bracket in the future.

[JD Student]

Thank you everyone that has responded, especially RadRam for the very long and thorough post.

I realize I left out a lot of relevant information. I am an older law student (30) and married with a newborn son. My wife works and makes 67K/year. I also worked this past summer a earned 32k as a summer associate. In 2017 we will have my wife's income and I will be working 16 weeks at a firm again this summer with a bump to $3k/week. I don't know much about taxes, but I googled the married filling jointly tax bracket and it looks like we will be in the 25% bracket. I anticipate both of the firms I worked for/will work for will offer me full time positions and both pay a market rate of $155k.

I have enough saved to finish law school without any debt. We have no consumer debts and while she is not quite on board with the fully frugal lifestyle, she is intrigued by the early retirement idea. We both would like to have another child and she has loved staying home during her 16 weeks of maternity leave.

Regarding the inherited IRA, it is in a self directed account and I believe the only fees are related to trading ($8.95/trade for stocks). Below is the asset allocation:

Mutual Funds:
JEITX (JP Morgan Global RESH SEL)
OIEAX (JP Morgan Int'l Fund)
VFINX (Vanguard 500)
BRMKX (Blackrock Midcap I CL K)
MHYIX (Mainstay Hi YLD Corp-I)
EBSIX (Equinox Campbell Strat I)
BAFJX (Brown WMC JP Alpha Instl)
PDBZX (Prudential 17 Total RTRN Z)
GSZIX (Goldman Strat Income I)
VFIDX (Vanguard Invt Grade ADM)
MBFIX (WF ADV Core BD FD CL I)
HLLVX (JPMorgan Short Duratn-SL)
DHLSX (Diamond Hill LNG-SHRT I)
NLSIX (Neubrgr BRN LNG/SHT IN)

ETFs:
IVV (Shares Core S&P)
HEFA (Shares Currency)
VGK (Vanguard FTSE European ETF)

Stocks:
Appears to be very assorted: few bank stocks, few tech stocks, pharma, a total of 60 different stocks.

I don't know enough about individual stocks to invest in any, I think a smarter move for my limited knowledge is index funds, but I still should read up to understand what I am doing. My father did have an advisor and private banker, but I discontinued use of both and switch the fund to self directed as I did not want to pay any fees for management.

Please let me know if any additional information is needed.

Thank you all, I really appreciate the guidance.

[JD Student]

I'm pretty much in the same position as the OP. 

My advice:
* Move it to Vanguard and put it in something simple and applicable to your risk tolerance/asset allocation.  For example, you can do 60/40 VTSAX/VBTLX (adjust accordingly according to your AA.)  You didn't say who the IRA was with... but I am going to go out on a limb and bet your expenses are significantly higher than Vanguard.  (Mine were.)
* Run some numbers now.  Set up a spread sheet and play with it.  You're going to be aghast.  If you're a normal Mustacian type that has a reasonable stash in traditional IRA/401k... include that in your numbers.  Do some simple math where you get 6% growth.  Put in a column that computes your RMD and rolls to the next year.   I think what you will find is that when you start getting older, your RMD is going to be hundreds of thousands of dollars.  Now add another column where you do the same with your tIRA and compute the RMD starting at 70.5.     My rambling point here is:  It may actually be better for you to take more than the minimum amount out of the inherited IRA and invest it in Roth or taxable funds now.  Otherwise, it is very possible you will be in a much higher tax bracket in the future.

Lawyers (and future lawyers) are not math people, this type of excel work my well be beyond my skill level. Any where you could direct me to read up?

Thanks!

[Spork]

I'm pretty much in the same position as the OP. 

My advice:
* Move it to Vanguard and put it in something simple and applicable to your risk tolerance/asset allocation.  For example, you can do 60/40 VTSAX/VBTLX (adjust accordingly according to your AA.)  You didn't say who the IRA was with... but I am going to go out on a limb and bet your expenses are significantly higher than Vanguard.  (Mine were.)
* Run some numbers now.  Set up a spread sheet and play with it.  You're going to be aghast.  If you're a normal Mustacian type that has a reasonable stash in traditional IRA/401k... include that in your numbers.  Do some simple math where you get 6% growth.  Put in a column that computes your RMD and rolls to the next year.   I think what you will find is that when you start getting older, your RMD is going to be hundreds of thousands of dollars.  Now add another column where you do the same with your tIRA and compute the RMD starting at 70.5.     My rambling point here is:  It may actually be better for you to take more than the minimum amount out of the inherited IRA and invest it in Roth or taxable funds now.  Otherwise, it is very possible you will be in a much higher tax bracket in the future.

Lawyers (and future lawyers) are not math people, this type of excel work my well be beyond my skill level. Any where you could direct me to read up?

Thanks!

OMG.   CHECK. MY. MATH.  I am both terrible with transposing numbers and I have had a couple of glasses of wine.  Don't depend on this being accurate.

This is just an example of $500k and a 30 year old drawing minimums.  I am going to bet you're kind of a smart guy (lawyer) and will be stashing other money.  So just look at what your inherited IRA does on its own.  Your RMD goes over $100k in 2056.  And it goes screaming up after that.  The issue is that the formula is divided by your life expectancy, so the denominator of the division gets one year smaller every year.  It doesn't seem like much.... and then suddenly it's a lot of money.  Add this to your regular income/investments and it can bump you one or more tax brackets.

https://docs.google.com/spreadsheets/d/1WYWR5t4wWqHdj2MlX4a3mymYqzjxActl3i2gVhOgB1Q/edit?usp=sharing

[JD Student]

I'm pretty much in the same position as the OP. 

My advice:
* Move it to Vanguard and put it in something simple and applicable to your risk tolerance/asset allocation.  For example, you can do 60/40 VTSAX/VBTLX (adjust accordingly according to your AA.)  You didn't say who the IRA was with... but I am going to go out on a limb and bet your expenses are significantly higher than Vanguard.  (Mine were.)
* Run some numbers now.  Set up a spread sheet and play with it.  You're going to be aghast.  If you're a normal Mustacian type that has a reasonable stash in traditional IRA/401k... include that in your numbers.  Do some simple math where you get 6% growth.  Put in a column that computes your RMD and rolls to the next year.   I think what you will find is that when you start getting older, your RMD is going to be hundreds of thousands of dollars.  Now add another column where you do the same with your tIRA and compute the RMD starting at 70.5.     My rambling point here is:  It may actually be better for you to take more than the minimum amount out of the inherited IRA and invest it in Roth or taxable funds now.  Otherwise, it is very possible you will be in a much higher tax bracket in the future.

Lawyers (and future lawyers) are not math people, this type of excel work my well be beyond my skill level. Any where you could direct me to read up?

Thanks!

OMG.   CHECK. MY. MATH.  I am both terrible with transposing numbers and I have had a couple of glasses of wine.  Don't depend on this being accurate.

This is just an example of $500k and a 30 year old drawing minimums.  I am going to bet you're kind of a smart guy (lawyer) and will be stashing other money.  So just look at what your inherited IRA does on its own.  Your RMD goes over $100k in 2056.  And it goes screaming up after that.  The issue is that the formula is divided by your life expectancy, so the denominator of the division gets one year smaller every year.  It doesn't seem like much.... and then suddenly it's a lot of money.  Add this to your regular income/investments and it can bump you one or more tax brackets.

https://docs.google.com/spreadsheets/d/1WYWR5t4wWqHdj2MlX4a3mymYqzjxActl3i2gVhOgB1Q/edit?usp=sharing

Thank you very much! It's great to see the numbers.


Sent from my iPhone using Tapatalk

[radram]

Thank you everyone that has responded, especially RadRam for the very long and thorough post.

I realize I left out a lot of relevant information. I am an older law student (30) and married with a newborn son. My wife works and makes 67K/year. I also worked this past summer a earned 32k as a summer associate. In 2017 we will have my wife's income and I will be working 16 weeks at a firm again this summer with a bump to $3k/week. I don't know much about taxes, but I googled the married filling jointly tax bracket and it looks like we will be in the 25% bracket. I anticipate both of the firms I worked for/will work for will offer me full time positions and both pay a market rate of $155k.

I have enough saved to finish law school without any debt. We have no consumer debts and while she is not quite on board with the fully frugal lifestyle, she is intrigued by the early retirement idea. We both would like to have another child and she has loved staying home during her 16 weeks of maternity leave.

Regarding the inherited IRA, it is in a self directed account and I believe the only fees are related to trading ($8.95/trade for stocks). Below is the asset allocation:

Mutual Funds:
JEITX (JP Morgan Global RESH SEL)
OIEAX (JP Morgan Int'l Fund)
VFINX (Vanguard 500)
BRMKX (Blackrock Midcap I CL K)
MHYIX (Mainstay Hi YLD Corp-I)
EBSIX (Equinox Campbell Strat I)
BAFJX (Brown WMC JP Alpha Instl)
PDBZX (Prudential 17 Total RTRN Z)
GSZIX (Goldman Strat Income I)
VFIDX (Vanguard Invt Grade ADM)
MBFIX (WF ADV Core BD FD CL I)
HLLVX (JPMorgan Short Duratn-SL)
DHLSX (Diamond Hill LNG-SHRT I)
NLSIX (Neubrgr BRN LNG/SHT IN)

ETFs:
IVV (Shares Core S&P)
HEFA (Shares Currency)
VGK (Vanguard FTSE European ETF)

Stocks:
Appears to be very assorted: few bank stocks, few tech stocks, pharma, a total of 60 different stocks.

I don't know enough about individual stocks to invest in any, I think a smarter move for my limited knowledge is index funds, but I still should read up to understand what I am doing. My father did have an advisor and private banker, but I discontinued use of both and switch the fund to self directed as I did not want to pay any fees for management.

Please let me know if any additional information is needed.

Thank you all, I really appreciate the guidance.

Wow.  Your dad was serious.  He has quite an expansive list.  I did not look at all the mutual funds, but I did not see a loaded fund, that's good as I see it.  The fees seemed to mostly be moderate or low for their classes, with a few high, though most did seem to be managed.  That means many are considered low in a pool of high fee funds. Performance seems to be mixed, with some over-performing, and others not.  I did not look to see how many outperformed their equivalent index.  I would describe it to be beyond the complexity I am comfortable with. If you keep it all as is, you will take a lot of time to find your asset allocation, especially once you factor in the 60 stocks you have.

It would be interesting if you would be able to create something like a "My Dad Fund", whereby you compare the entire portfolio to just a couple index funds at your desired asset allocation.  You might find that all his(or his advisers) work really didn't outperform a simpler index fund selection. You might find it significantly did.

I do think long term you should at least UNDERSTAND what you own.  You might want to take that time. If not you will probably want to simplify with index funds.  That would be my choice.

[JD Student]

Thank you everyone that has responded, especially RadRam for the very long and thorough post.

I realize I left out a lot of relevant information. I am an older law student (30) and married with a newborn son. My wife works and makes 67K/year. I also worked this past summer a earned 32k as a summer associate. In 2017 we will have my wife's income and I will be working 16 weeks at a firm again this summer with a bump to $3k/week. I don't know much about taxes, but I googled the married filling jointly tax bracket and it looks like we will be in the 25% bracket. I anticipate both of the firms I worked for/will work for will offer me full time positions and both pay a market rate of $155k.

I have enough saved to finish law school without any debt. We have no consumer debts and while she is not quite on board with the fully frugal lifestyle, she is intrigued by the early retirement idea. We both would like to have another child and she has loved staying home during her 16 weeks of maternity leave.

Regarding the inherited IRA, it is in a self directed account and I believe the only fees are related to trading ($8.95/trade for stocks). Below is the asset allocation:

Mutual Funds:
JEITX (JP Morgan Global RESH SEL)
OIEAX (JP Morgan Int'l Fund)
VFINX (Vanguard 500)
BRMKX (Blackrock Midcap I CL K)
MHYIX (Mainstay Hi YLD Corp-I)
EBSIX (Equinox Campbell Strat I)
BAFJX (Brown WMC JP Alpha Instl)
PDBZX (Prudential 17 Total RTRN Z)
GSZIX (Goldman Strat Income I)
VFIDX (Vanguard Invt Grade ADM)
MBFIX (WF ADV Core BD FD CL I)
HLLVX (JPMorgan Short Duratn-SL)
DHLSX (Diamond Hill LNG-SHRT I)
NLSIX (Neubrgr BRN LNG/SHT IN)

ETFs:
IVV (Shares Core S&P)
HEFA (Shares Currency)
VGK (Vanguard FTSE European ETF)

Stocks:
Appears to be very assorted: few bank stocks, few tech stocks, pharma, a total of 60 different stocks.

I don't know enough about individual stocks to invest in any, I think a smarter move for my limited knowledge is index funds, but I still should read up to understand what I am doing. My father did have an advisor and private banker, but I discontinued use of both and switch the fund to self directed as I did not want to pay any fees for management.

Please let me know if any additional information is needed.

Thank you all, I really appreciate the guidance.

Wow.  Your dad was serious.  He has quite an expansive list.  I did not look at all the mutual funds, but I did not see a loaded fund, that's good as I see it.  The fees seemed to mostly be moderate or low for their classes, with a few high, though most did seem to be managed.  That means many are considered low in a pool of high fee funds. Performance seems to be mixed, with some over-performing, and others not.  I did not look to see how many outperformed their equivalent index.  I would describe it to be beyond the complexity I am comfortable with. If you keep it all as is, you will take a lot of time to find your asset allocation, especially once you factor in the 60 stocks you have.

It would be interesting if you would be able to create something like a "My Dad Fund", whereby you compare the entire portfolio to just a couple index funds at your desired asset allocation.  You might find that all his(or his advisers) work really didn't outperform a simpler index fund selection. You might find it significantly did.

I do think long term you should at least UNDERSTAND what you own.  You might want to take that time. If not you will probably want to simplify with index funds.  That would be my choice.

Thanks RadRam!! Do you have a preferred site for researching mutual funds?

[radram]

Thank you everyone that has responded, especially RadRam for the very long and thorough post.

I realize I left out a lot of relevant information. I am an older law student (30) and married with a newborn son. My wife works and makes 67K/year. I also worked this past summer a earned 32k as a summer associate. In 2017 we will have my wife's income and I will be working 16 weeks at a firm again this summer with a bump to $3k/week. I don't know much about taxes, but I googled the married filling jointly tax bracket and it looks like we will be in the 25% bracket. I anticipate both of the firms I worked for/will work for will offer me full time positions and both pay a market rate of $155k.

I have enough saved to finish law school without any debt. We have no consumer debts and while she is not quite on board with the fully frugal lifestyle, she is intrigued by the early retirement idea. We both would like to have another child and she has loved staying home during her 16 weeks of maternity leave.

Regarding the inherited IRA, it is in a self directed account and I believe the only fees are related to trading ($8.95/trade for stocks). Below is the asset allocation:

Mutual Funds:
JEITX (JP Morgan Global RESH SEL)
OIEAX (JP Morgan Int'l Fund)
VFINX (Vanguard 500)
BRMKX (Blackrock Midcap I CL K)
MHYIX (Mainstay Hi YLD Corp-I)
EBSIX (Equinox Campbell Strat I)
BAFJX (Brown WMC JP Alpha Instl)
PDBZX (Prudential 17 Total RTRN Z)
GSZIX (Goldman Strat Income I)
VFIDX (Vanguard Invt Grade ADM)
MBFIX (WF ADV Core BD FD CL I)
HLLVX (JPMorgan Short Duratn-SL)
DHLSX (Diamond Hill LNG-SHRT I)
NLSIX (Neubrgr BRN LNG/SHT IN)

ETFs:
IVV (Shares Core S&P)
HEFA (Shares Currency)
VGK (Vanguard FTSE European ETF)

Stocks:
Appears to be very assorted: few bank stocks, few tech stocks, pharma, a total of 60 different stocks.

I don't know enough about individual stocks to invest in any, I think a smarter move for my limited knowledge is index funds, but I still should read up to understand what I am doing. My father did have an advisor and private banker, but I discontinued use of both and switch the fund to self directed as I did not want to pay any fees for management.

Please let me know if any additional information is needed.

Thank you all, I really appreciate the guidance.

Wow.  Your dad was serious.  He has quite an expansive list.  I did not look at all the mutual funds, but I did not see a loaded fund, that's good as I see it.  The fees seemed to mostly be moderate or low for their classes, with a few high, though most did seem to be managed.  That means many are considered low in a pool of high fee funds. Performance seems to be mixed, with some over-performing, and others not.  I did not look to see how many outperformed their equivalent index.  I would describe it to be beyond the complexity I am comfortable with. If you keep it all as is, you will take a lot of time to find your asset allocation, especially once you factor in the 60 stocks you have.

It would be interesting if you would be able to create something like a "My Dad Fund", whereby you compare the entire portfolio to just a couple index funds at your desired asset allocation.  You might find that all his(or his advisers) work really didn't outperform a simpler index fund selection. You might find it significantly did.

I do think long term you should at least UNDERSTAND what you own.  You might want to take that time. If not you will probably want to simplify with index funds.  That would be my choice.

Thanks RadRam!! Do you have a preferred site for researching mutual funds?

For pure analysis I like http://www.morningstar.com/

To start, look at the general star rating, expenses, and the asset allocation.  Often, they will show a chart that compares growth of $10,000 if this fund or stock, to a relative index.  Note that this comparison is often BEFORE fees.   Many times, a fund will under-perform before deducting fees.  That means they were paid to do worse than "the market".

I ignore ALL funds where the load is not None.  Just too many funds out there without a load for me, and already too many choices.

I also like to look at fool.com. Less analysis and more opinion from regular people.  They have a CAPS rating system, where people can rate stocks and compare to others and the market as a whole.  It might require a free account setup to get to the CAPS section.

[seattlecyclone]

My opinion: don't even try to understand all those mutual funds. There's no good reason to own more than about five funds...once you go beyond that you're likely adding a bunch of overlapping funds that add complexity to your portfolio without adding any real diversity. Investing in a bunch of unnecessary and overlapping things is a common thing financial "advisors" do to make investing look too complicated to do on your own.

[JD Student]

My opinion: don't even try to understand all those mutual funds. There's no good reason to own more than about five funds...once you go beyond that you're likely adding a bunch of overlapping funds that add complexity to your portfolio without adding any real diversity. Investing in a bunch of unnecessary and overlapping things is a common thing financial "advisors" do to make investing look too complicated to do on your own.

Everything seems to be down over last few days for a total loss of ~7K. Which, while only a little over 1%, feels like a ton as that is almost a full year of law school tuition post scholarship. Should I wait for a rebound to liquidate and move to index? Is a single index acceptable?

Thanks all


Sent from my iPhone using Tapatalk

[Mother Fussbudget]

My opinion: don't even try to understand all those mutual funds. There's no good reason to own more than about five funds...once you go beyond that you're likely adding a bunch of overlapping funds that add complexity to your portfolio without adding any real diversity. Investing in a bunch of unnecessary and overlapping things is a common thing financial "advisors" do to make investing look too complicated to do on your own.

First: apologies for not saying so before, I'm sorry for your loss.  Condolences.  I lost my father/investment-buddy several years ago, and it's still a loss I feel greatly.

+1 to what seattlecyclone said.  Your father may have had a dividend capture strategy which might be determined by reviewing past statements.  And while this is might be a good strategy to follow if you're trying to build the portfolio, from your posts it sounds like your focus is on work & family, and not on managing your inherited portfolio. 
Suggestion:  simplify.

And now that you're thinking about stocks and allocations, I STRONGLY recommend reading ALL of JHCollins' "Stock Series".   His book has just been published, and I will probably recommend that (once I finally break down and read it).

[biglawinvestor]

Everything seems to be down over last few days for a total loss of ~7K. Which, while only a little over 1%, feels like a ton as that is almost a full year of law school tuition post scholarship. Should I wait for a rebound to liquidate and move to index? Is a single index acceptable?

I'm very sorry for your loss and agree with the earlier posters that this probably doesn't feel like "your" money yet.

The good news is you don't have to do anything quickly. I wouldn't worry about the market movements one bit. You need to read/learn and come up with a plan before you decide what is best for you.

For suggested reading, I highly recommend reading the Bogleheads Wiki on Inheriting an IRA and How to Manage a Windfall.

The Bogleheads forum will be a great resource for you. The people there are fantastic and it's truly one of the best places on the Internet. If you search the forum you will see a lot of topics similar to yours, so I suggest reading through those after you read the Wiki.

The key will be to coming up with an plan for how you want to handle the money. It needs to be something that you and your wife are comfortable with for the long term (index investing is the way to go!).

All the best,
Josh

[Bicycle_B]

JD Student,

My opinion: don't even try to understand all those mutual funds. There's no good reason to own more than about five funds...once you go beyond that you're likely adding a bunch of overlapping funds that add complexity to your portfolio without adding any real diversity. Investing in a bunch of unnecessary and overlapping things is a common thing financial "advisors" do to make investing look too complicated to do on your own.

Everything seems to be down over last few days for a total loss of ~7K. Which, while only a little over 1%, feels like a ton as that is almost a full year of law school tuition post scholarship. Should I wait for a rebound to liquidate and move to index? Is a single index acceptable?

Thanks all


Sent from my iPhone using Tapatalk

The short answer to your question is, don't do anything because the market moved.  Index is fine but you have time to learn what you're doing first, you don't have to rush just because of the market.

The full answer is: the market is going to bounce around the rest of your life but rarely, if ever, does it provide a good reason for doing anything.   You can make much better decisions by focusing on 1) your life situation and 2) investing fundamentals. 

Basically, your life situation for investing purposes consists of your:
a) demographics (age, education as a proxy for earning ability)
b) finances (income stream; in debt vs have cash; are renting vs do you own a home)
c) family situation (single vs married, do you have children or other dependents, do you want kids)
d) and personal goals.

Investing fundamentals will include:
e) what different types of investments are there
f) what are their costs and benefits and unique characteristics
g) how to select good versions of a particular investment
h) how to select the right investments for a given life situation.

The Jhcollins stock series gives an overview of investing fundamentals that is focused on stocks because that is likely to be a relevant focus for your life situation.  Jhcollins' series is uniquely clear and helpful in combining investment fundamentals plus application to real life.   It and many members of this board, including me, would likely conclude in your shoes that moving to index is a good solution for your life situation, but you need to learn the fundamentals and decide for yourself.  To Collins' series, I would add the following remarks:

i) Bonds/cash/bank savings are good at protecting against recessions and deflation. 
j) Real estate (some prefer gold), including rental property and Real Estate Investment Trusts, can provide some protection against inflation.
k) Annuities cause great debate in some forums but I think most people in this forum would agree are not likely good for you, treat with caution; can be safely ignored for now IMHO.
l) Life insurance is not an investment, no matter how much a salesperson says it is.  You probably know it's just protection in case an income provider dies, and remaining family needs financial support; just mentioning this to be thorough in case you discuss with advisors.
m) Stocks/mutual funds/ETFs provide participation in economic upswings, but can fall rapidly in recessions
n) The main thing about a diversified portfolio with several of the above investments is that it keeps you secure under all circumstances, or at least have something that goes up when the other investments go down
o) Collins will focus on stocks; decide for yourself whether to diversify, research accordingly.  For diversification, there is a great website called portfoliocharts.com that shows what the historical result of various diversification methods would have been; a fellow MMM participant runs it.  There are several threads in the MMM forums discussing whether diversification vs all stocks is better, and what type of diversification is better if any.  There will never be complete consensus on these issues, I just want to you have access to a good summary of the viewpoints.  I'd still start with Collins - very readable.

In any case, once you know investing fundamentals, you will decide on an investing strategy that suits your life situation.  Your strategy will include periodic adjustments (such as, you can do these in one afternoon per year) to respond gradually to market conditions.  You will not need to follow the market outside that afternoon, IMHO. 

[seattlecyclone]

Everything seems to be down over last few days for a total loss of ~7K. Which, while only a little over 1%, feels like a ton as that is almost a full year of law school tuition post scholarship. Should I wait for a rebound to liquidate and move to index? Is a single index acceptable?

There's no reason to wait, but also no reason to hurry. You could wait for your current funds to go up before swapping for an index fund, but the index fund will probably go up about the same amount in the meantime, so you're not really gaining anything by waiting for an increase. It's okay to take a few weeks to learn and decide and be deliberate about things.

[radram]

JD Student,

My opinion: don't even try to understand all those mutual funds. There's no good reason to own more than about five funds...once you go beyond that you're likely adding a bunch of overlapping funds that add complexity to your portfolio without adding any real diversity. Investing in a bunch of unnecessary and overlapping things is a common thing financial "advisors" do to make investing look too complicated to do on your own.

Everything seems to be down over last few days for a total loss of ~7K. Which, while only a little over 1%, feels like a ton as that is almost a full year of law school tuition post scholarship. Should I wait for a rebound to liquidate and move to index? Is a single index acceptable?

Thanks all


Sent from my iPhone using Tapatalk

The short answer to your question is, don't do anything because the market moved.  Index is fine but you have time to learn what you're doing first, you don't have to rush just because of the market.

The full answer is: the market is going to bounce around the rest of your life but rarely, if ever, does it provide a good reason for doing anything.   You can make much better decisions by focusing on 1) your life situation and 2) investing fundamentals. 

Basically, your life situation for investing purposes consists of your:
a) demographics (age, education as a proxy for earning ability)
b) finances (income stream; in debt vs have cash; are renting vs do you own a home)
c) family situation (single vs married, do you have children or other dependents, do you want kids)
d) and personal goals.

Investing fundamentals will include:
e) what different types of investments are there
f) what are their costs and benefits and unique characteristics
g) how to select good versions of a particular investment
h) how to select the right investments for a given life situation.

The Jhcollins stock series gives an overview of investing fundamentals that is focused on stocks because that is likely to be a relevant focus for your life situation.  Jhcollins' series is uniquely clear and helpful in combining investment fundamentals plus application to real life.   It and many members of this board, including me, would likely conclude in your shoes that moving to index is a good solution for your life situation, but you need to learn the fundamentals and decide for yourself.  To Collins' series, I would add the following remarks:

i) Bonds/cash/bank savings are good at protecting against recessions and deflation. 
j) Real estate (some prefer gold), including rental property and Real Estate Investment Trusts, can provide some protection against inflation.
k) Annuities cause great debate in some forums but I think most people in this forum would agree are not likely good for you, treat with caution; can be safely ignored for now IMHO.
l) Life insurance is not an investment, no matter how much a salesperson says it is.  You probably know it's just protection in case an income provider dies, and remaining family needs financial support; just mentioning this to be thorough in case you discuss with advisors.
m) Stocks/mutual funds/ETFs provide participation in economic upswings, but can fall rapidly in recessions
n) The main thing about a diversified portfolio with several of the above investments is that it keeps you secure under all circumstances, or at least have something that goes up when the other investments go down
o) Collins will focus on stocks; decide for yourself whether to diversify, research accordingly.  For diversification, there is a great website called portfoliocharts.com that shows what the historical result of various diversification methods would have been; a fellow MMM participant runs it.  There are several threads in the MMM forums discussing whether diversification vs all stocks is better, and what type of diversification is better if any.  There will never be complete consensus on these issues, I just want to you have access to a good summary of the viewpoints.  I'd still start with Collins - very readable.

In any case, once you know investing fundamentals, you will decide on an investing strategy that suits your life situation.  Your strategy will include periodic adjustments (such as, you can do these in one afternoon per year) to respond gradually to market conditions.  You will not need to follow the market outside that afternoon, IMHO.

BIG +1 on every single word, with an emphasis on these 3 words... YOU HAVE TIME

There was nothing I saw that was screaming Dump me. Take your time, decide what you want to do, then act.

From a financial standpoint, I agree with those that say simplify with a couple of index funds.  On the emotional side, you might feel you want to keep a little as it was given to you.  That is what I did when my grandfather passed about 18 years ago. I received some shares of stock.  It was not a life changing amount, but a very nice addition to what I had at the time.  Knew nothing about the stock, so I looked into it a little bit and decided to keep it.  Probably a bad financial decision since I did not "buy what you know".  To this day, every time I see that stock in my portfolio, I think of him.  Always good thoughts.  I have no idea whether an index would have been a better financial decision, but I do not care.  The continued thoughts of my grandfather are worth it.

Your situation is very different due to the amount involved and the quantity of different investments.

[radram]

Here is a recent article that looks at the best investors.

http://twocents.lifehacker.com/the-best-investors-literally-forget-about-their-portfol-1782581085

Turns out that those who forgot they had an account outperformed.  So did accounts where the investor had passed away.  If you do nothing, I bet your father still outperforms the average. I don't recommend you do nothing, but take your time.