Author Topic: Newbie Mustachian with a windfall.  (Read 2940 times)

Heroes821

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Newbie Mustachian with a windfall.
« on: May 14, 2015, 07:29:03 AM »
Hello new friends!  First posts are always exciting. I Just found this blog about 3 weeks ago and I'm vastly enjoying it. So here's my current situation:

I just got a new job and moved and sold my previous house. My current financial advisor is a major proponent of whole life insurance which according to MMM and these forums seems to be a don't do it mentality. I get the basic reasons why, so with the largest sum of money I've ever had at one time in my hands I need to know a wise way of handling it. The VFINX fund seems to be MMMs go to but I can't seem to get a clear answer on how the dividends work. Are they paid into my checking and I have to manually reinvest? Do they sit in an account with vanguard for 30 days and if I ignore them they get reinvested? Is there anything else I should be doing with this amount of money? 

I have zero debt right now and for discussion let's say the amount I have is exactly 50,000.

Thanks in advance for any help!

GardenFun

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Re: Newbie Mustachian with a windfall.
« Reply #1 on: May 14, 2015, 07:39:12 AM »
Welcome to the forums!

In Vanguard funds (and most other mutual funds), you have the option for the dividends to get disbursed to you (check, direct deposit) or reinvested.  It is an option during the fund set-up phase.  You can also make changes in future to the distribution location. 

Most MMM people reinvest their dividends because they want their new money working hard to make more money. 


nereo

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Re: Newbie Mustachian with a windfall.
« Reply #2 on: May 14, 2015, 07:46:32 AM »
First, why did your financial advisor push whole-life insurance?  Generally I think it's a terrible idea, especially for folks like us who aspire to be financially independent (FI) early on in our lives. For that reason, term life insurance is often best (if you need insurance at all) Do have no debt, but do you have dependents (small children perhaps?)  If not, then I see no reason why you need ANY life insurance.  Could you 'advisor' be getting a healthy commission off every life insurance policy sale?  If so, that's a conflict of interest.

AS GardenFun said, when you open an account with Vanguard (or any other broker... there are other great ones) you can choose to have the dividends reinvested or paid out to your bank account.  Choose the former while you are building your nest egg.

RexualChocolate

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Re: Newbie Mustachian with a windfall.
« Reply #3 on: May 14, 2015, 07:52:20 AM »
VFINX is just the biggest 500 firms in America. VTSAX is much more comprehensive and encompasses the entire market.

Head over to www.bogleheads.org and check out their Asset Allocation page. You can also post a summary of what to invest in.

Assuming you are 30, I'd do this for 50k. It's an 80/20 allocation for all investible assets, assuming this is your entire portfolio.

Additional points:
Reinvest all dividends
Put Bond funds in Tax Advantaged space if you have any (may require some being in investor shares)

30k VTSAX (total domestic market)
10k VSBTLX (total bond)
10k VTIAX (total international market)

Ditch the financial advisor immediately. He's either incompetent or greedy, neither of which should be managing your money. Whole life is a hilariously terrible investment. With no dependents you have absolutely zero need for this product.


Heroes821

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Re: Newbie Mustachian with a windfall.
« Reply #4 on: May 14, 2015, 08:01:06 AM »
Under 30 (28) with no dependants.
Yeah I was getting that feeling regarding keeping him yesterday when I last spoke to him. I will check out those links.

nereo

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Re: Newbie Mustachian with a windfall.
« Reply #5 on: May 14, 2015, 10:05:37 AM »
Under 30 (28) with no dependants.
Yeah I was getting that feeling regarding keeping him yesterday when I last spoke to him. I will check out those links.
In that case it's almost criminal to push whole-life insurance on you.  Without dependents and without any debt there's no obvious person this will benefit except for the one selling you the insurance policy.

I highly recommend reading the JLCollins stock series.  Easy to read, short articles, lots of info.
http://jlcollinsnh.com/stock-series/

PS ditch your financial advisor.  If you must, find one that's fee only and see them once a year.  However, I'm a strong believer that everyone can manage their own finances with very little effort.

OR

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Re: Newbie Mustachian with a windfall.
« Reply #6 on: May 14, 2015, 11:13:22 AM »
At your age, just stash it somewhere productive.  The vanguard discussion and suggestions all seem fine to me, just pick what makes sense to you personally.  Then just forget about it and let it ride.  Down the road, you will have given your future self a very nice present.  Congrats and good luck. 

Anagy1517

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Re: Newbie Mustachian with a windfall.
« Reply #7 on: May 14, 2015, 01:02:12 PM »
Here's a roadmap for which kinds of accounts to use:

1.  Fund your 401(k) or other work retirement plan up to the max.
2.  Fully fund a Roth IRA.
3.  Pay off a mortgage.  (You've paid off other debt or never incurred it, of course.)
4.  If you still have a pile of money and you want to save it up for retirement, look for a variable annuity.  Look for a cheap one.  Vanguard offers one, though I don't know the details.
5.  If you want to leave a pile of cash to your heirs, then think about variable or whole life insurance.

I'd put the pile of cash into a bank or someplace quite safe, then year by year put it into the 401(k) and the Roth.  Once you have cash in those accounts, you can put it in Vanguard funds or somplace interesting.

One caveat:  401(k)s and Roth IRAs don't work so well for early retirement, like MMM at age 30.  If you aspire to that, then put some or all of the pile into Vanguard funds now and fund the 401(k) and Roth as you are able.

Oh, and as far as whole life goes, your financial adviser is required to FINRA rules to make recommendations to you that are "suitable."  He could have some explaining to do to FINRA if they ever ask him about it.  It's very hard for me to see how whole life would be suitable at all for you, unless you have small children who will be left helpless if you die.  It's true that you can build up a nice stash in a whole life policy, but it's an awfully expensive way to save money.  Way too conservative and expensive for you.

nereo

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Re: Newbie Mustachian with a windfall.
« Reply #8 on: May 14, 2015, 01:30:19 PM »
Quote
One caveat:  401(k)s and Roth IRAs don't work so well for early retirement, like MMM at age 30.  If you aspire to that, then put some or all of the pile into Vanguard funds now and fund the 401(k) and Roth as you are able.
I do not agree with this at all.  Regardless of whether you are planning on retiring in 10 years or 40 years, contributing to a 401(k) and an IRA are GREAT ways to save for retirement - even an early one. In the majority of cases I'd recommend contributing to a tIRA over a ROTH, but there are plenty of threads specifically on that topic.  And yes, you absolutely CAN get money out of both a 401(k) and an IRA without paying penalties before you are 59.5

trailrated

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Re: Newbie Mustachian with a windfall.
« Reply #9 on: May 14, 2015, 01:46:29 PM »
My current financial advisor is a major proponent of whole life insurance which according to MMM and these forums seems to be a don't do it mentality.

The purpose of life insurance (If you get it, go term life insurance) is to replace your income to support someone else if you die.

Do you have someone that depends on your income? That can't support themselves for some reason? Unless there is a strong reason to believe that is going to happen, you don't need life insurance let alone the option to be insured in the future.