Case Study:Inheritance Windfall for Young Investor - Thoughts from MMM Community

[FLDogdien]

Hello -

I am a new MMM reader after hearing about the site during a podcast. I am very interested in getting more involved in my financial situation and to get the MMM community's thoughts & advice on my situation. I have always lived within my means and manage to save money each year but do not consider myself frugal. I have never made a budget or put much thought into my spending or investment goals, in fact I think this case study is the first time I have laid out all of my investments in one place.

A little about me before all the specifics - after a few years after college bouncing around not sure what I wanted to do, I stumbled into a career I enjoy and have been with my firm for ~6 years. I work for a small family office and help manage three medium size logistics companies they own. My salary has grown nearly 3x since joining, and a little over three years ago I inherited a windfall when my grandparents passed away - I have not touched their investments since inheriting them.


Life Situation: 32 and single, no dependents, Florida resident

Gross Salary/Wages: $450,000 ($225k base salary and $225k annual bonus)

Individual amounts of each Pre-tax deductions: I contribute $19,500 annually to 401k, healthcare/phone/gym fully paid by company

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: None

Rental Income, Actual Expenses, and Depreciation: None

Adjusted Gross Income: $430,500 less the standard deduction

Taxes: note these are monthly estimates as I am taking my taxes on base pay and doubling it for annual pay:

  Federal:  $6,974
  State:  $0
  Social Security:  $686
  Medicare:  $543

Monthly Post-tax Income:  $27,670

Current expenses: fluctuates quite a bit, but below are averages totaling ~$6800 monthly:

  Rent:  $3,850
  Utilities:  $190
  Internet:  $50
  Insurance (car/renters/umbrella):  $70
  Groceries:  $610
  Toiletries/Household items:  $60
  Eating out/bars:  $800
  Entertainment/activities:  $270
  Travel:  $310
  Clothing:  $110
  Dry Cleaning:  $60
  Misc: $400

Assets:

Cash
  Checking account:  $2,005 
  Marcus savings account:  $696,681
  Marcus 12-mo CD:  $336,869

Brokerage Accounts
  Vanguard total stock market index fund:  $852,258
  Vanguard high div yield stock index fund:  $48,462
  Vanguard health care fund:  $200,368
  JP Morgan equity income fund:  $2,040,057
  JP Morgan equity index fund:  $1,982,383
  JP Morgan intrepid growth fund:  $289,021

Retirement Accounts
  JP Morgan core bond fund:  $151,648
  JP Morgan emerging market bond fund:  $58,685
  JP Morgan government bond fund:  $115,605

Physical Assets
  Condo:  $537,532 (according to Zillow - inherited from grandparents in no-rental building and have been meaning to sell)
  Car:  ~$20,000 (2017 Lexus IS 350 - no loan)

Liabilities: None

I am interested to hear everyone's thoughts on what I could be doing better, especially with my investments with regards to asset allocation, tax efficiency, etc. I have received some calls from advisors at both JP Morgan and Vanguard but always find their advice to be geared towards more expensive products.

I realize I could probably cut my expenses down considerably, it is not something I have spent much time on. I am considering buying an apartment instead of renting when my current lease expiries in 2021.

Thanks in advance for your help & advice!

[PJC74]

Definitely beef up your checking account. 2k and if you have monthly bills of 6.5k +.

Otherwise looks pretty good!

[Sibley]

I personally would move the investments to Vanguard. I use them, and it's very possible to select a couple of funds that work for you and then pretty much put them on auto pilot. You can do the same at Fidelity too, but I have a preference for Vanguard's legal structure. google J Collin's Stock Series for a good primer on investing if you need it.

Inherited retirement accounts have extra rules attached. I don't know them, and too lazy to look them up. Maybe someone else will. Regardless, I would optimize those accounts in whatever way works with the rules. If you end up getting distributions, then just reinvest the distributions in whatever account you want.

I assume that you don't want to live in the condo. Sell it. You can't rent it out, so it's just costing you money. Get a realtor and sell it. If your market is anything like mine, you'll be able to get a good price relatively quickly.

Basically, you're FI. You don't have to work. Get everything setup, streamlined so its minimal work/headache for you going forward. You should come up with an investment allocation and investment statement, then live your life. If you do get married in future, you will want a prenup. As for a budget - it's less about pinching pennies and more about making sure that you're spending your money in support of a satisfying life, and not just spending money because you have it.

[oldladystache]

Qualified Dividends & Long Term Capital Gains: None

If you have around 5 million in index funds you must have around a hundred thousand in dividends.

[lhamo]

What was the appraised value of the condo when you got the title?  If it has appreciated at all since then you could mitigate any potential capital gains by living in it for awhile before selling.   I think you have to live there for one or maybe two years before you can pro-rate the capital gains exclusion.  If you really don't want to live there then I would sell ASAP and buy the place you want -- if you want to stay in your current rental until the end of your current lease you would have time to do whatever renovations or improvements you want to do before moving.

Why do you have your retirement accounts in bond funds?  Since you clearly won't be needing that money for a LOOOONG time (if ever) I would up the risk there.  Maybe move some of your taxable accounts into less risky/lower paying investments since you are going to have quite a tax hit when dividends and capital gains pay out.

I have never had enough income to do the whole backdoor roth thing, but if you are allowed to do that I would look into it so you can start moving as much of your ample stash as possible into tax-free buckets for the future. 

I would look for a FIRE-knowledgeable CPA and lawyer to help you optimize things, especially on the tax planning side. 

You basically have more than enough money to FIRE comfortably tomorrow.    What are your dreams?  Any thoughts about charitable giving?

[Steeze]

Congrats on the stash and the career.

Definitely look into moving your funds into self-directed low cost index funds. Nothing with an expense ratio more than say 0.15% You don’t need a manager or any fancy services. Just get your expense ratios down. There may be tax implications, so be sure to consult an accountant before you move anything. Definitely make sure JP Morgan isn’t charging you a fee that is a % of assets under management.

You can have a pretty simple portfolio, no need to get too complex. You don’t need to hit it out of the park on growth, you are looking for stability. A well balanced and diversified portfolio will serve you well. That means a mix of US stocks/bonds and International stocks/bonds. Somewhere in the 20-50% international and 60%-90% stocks will be suitable. Total market funds are the cheapest and most diversified, no need for anything exotic or sector/strategy specific. If you want to speak with an advisor find a fiduciary that charges by the hour and not a % of your account balance. The people here and on Bogleheads are a great resource, and with a bit of reading you can be confident and up to speed in a few months.

The important thing is to pick an allocation and stick with it for years or decades, diligently rebalancing only once or twice a year. Your dividends are more than your spending so you should never have to sell shares. Read about and create an Investment Policy Statement. I recommend you become familiar with the Bogleheads Wiki. Bogleheads in general is a bit more conservative and more geared to higher net worth individuals which might suit you.

Your stash is significantly larger than your needs. If you keep your expenses in the <$200k range you are set. In the <$100k range and your net worth will grow significantly throughout your life. For this reason you should focus on protecting your assets. Make sure you are well insured. You should have a 5M umbrella on top of your home & auto insurance. Create a will, get a prenup, take care of your health, don’t drink and drive, and don’t tell people your actual net worth.

Otherwise your expenses are reasonable - sell the condo, use the money to buy a home that suits you. Florida has the best homestead rules, having a nice primary residence is a decent way to protect your stash.

Congratulations again!

[FLDogdien]

Thank you everyone for your responses. A little more data & thoughts based on your comments:

(1) Condo --> It is located in Northern Virginia so I wouldn't be able to live in it. Frankly, it has just been an emotional thing to get rid of and I have only been there once since their passing. I am embarrassed to admit I have been paying an avg of $436 a month in HOA fees for it including a recent assessment. Perhaps I could use COVID to go up there to take a few thing and clean it out so I could sell it.

(2) Inheritance --> all of the JP Morgan accounts are the ones I have inherited plus some cash which I have either held in savings account or put a bit into Vanguard back in April. JP Morgan funds are in the 'Select' class of mutual funds so the expense ratios range from 0.6-0.95%. I would change them to Vanguard but I am worried about the taxable gain for doing so?

(3) Dividend Income --> These are auto re-invested in the funds, but I do see on my tax return I had about $120k last year. Also, I forgot to include my 401(k) with Voya is $118,757 in a target dated fund 2055 which I need to change.

(4) Relationship --> I do have a gf of 3 years and plan on proposing next year. She works as a PA, makes about $105k per year but only been working 2 years - she has $110k in student loans outstanding but otherwise seems to be a good budgeter and has been paying it down. Two questions - how have you brought up prenups before? She knowns my income and that I inherited money but haven't really discussed how much. Also, I was debating paying off her student loans as about 80% of it is >7% interest rate - thoughts on this?

(5) Asset Allocations --> after reading a bit more on the site, I am leaning towards a 70/30 stock/bond allocation but that means I need a lot more bond allocation which doesnt seem like a great time to buy bonds. Also looking into adding some international exposure.

(6) Insurance --> I currently have a $2m umbrella policy but will look at raising this. My company covers life insurance at 1x base salary, I have never thought about paying to increase it as I have no one to give it to (only child, no surviving parents/grandparents), but perhaps after getting married would consider.

[Abe]

My thoughts on your questions:

(1) Condo --> See if you can rent it out if you want. Otherwise sell it.

(2) Inheritance --> they are charging you ~$40k a year to just hold onto your own damn money. Vanguard offers equivalent funds with a 0.03%-0.05% fee, thus costing about $1200-$2000 a year. I'm guessing if you've held the inherited money for 3 years, you've had about a 25% return, and will owe 20% of that 25% in capital gains. (The cost basis, or the starting value, of the investment is whatever it was worth when you inherited it, not when they bought shares in the various funds). Almost certainly it's cheaper to sell, transfer to Vanguard and eat the capital gains cost now rather than decades of excess fees.
 

(3) Dividend Income --> that happens!

(4) Relationship --> inheritance is usually not marital property, but varies from state to state. Regarding your other choices -that's between you and your girlfriend. My wife and I have a similar salary differential but do not have a prenuptial agreement. Pay off the loans after you get married.

(5) Asset Allocations --> 70/30 seems a bit conservative since you don't need the money. However, it's up to you. You can get your allocation balanced towards 70/30 over time by investing dividends into a bond mutual fund. The best time to work towards an allocation is the present.

(6) Insurance --> Increase umbrella insurance to cover your inheritance value, since non-retirement accounts can usually be targeted in lawsuits. Life insurance isn't strictly necessary for the reasons you noted, even if you get married. However, the premiums do become more expensive as you age, so if you're planning on having kids it's worth having a policy now that can cover projected expenses of raising them if you died. My wife and I have policies that would pay for our house, funeral expenses, daycare/college and several years of living expenses. No reason to have a widow worried about money & raising a kid on their own.

[secondcor521]

Some comments:

2.  You likely received a step-up in basis on the inherited assets, which means you will only owe capital gains taxes on the difference between the value on the day that the grandparent from whom you inherited the assets passed away and the value when you sell them.  Also, inherited assets always get long term capital gains rates, regardless of your holding period.  So depending on how those investments have done during your ownership, you may not owe as much as you think.  Given your high income, I'm pretty sure you'd be in the 23.8% capital gains bracket (20% capital gains plus 3.8% NIIT).

So yes, you'll pay taxes, but then you'll also be able to invest in lower fee options (my Vanguard portfolio averages 0.04%), and possibly in something that performs better and is more in line with your goals instead of your grandparents.

Back to 1, for a minute.  Hopefully your grandparents would want you to honor them by using this inheritance towards your goals, and I don't think they would feel disrespected if you chose to move the assets from the form that you inherited them in to one that helps you get where you want to go.  That's how I'd feel anyway about my kids when they inherit from me.

4.  I would not pay off her loans until the day you get back from your honeymoon, but I'm old-fashioned that way.  Once you're married I like the one pot approach, but you and she would have to figure out what works best for you.

5.  I don't consider valuations when making AA decisions.  Set your AA after careful thought and consideration of your risk tolerance, assets, goals, etc, then stick with it for the next 50 years.  Bond prices today vs. next year vs. two years from now is not something I'd worry about.

6.  I'd look at upping your umbrella insurance, especially if you have anything slightly more interesting than the most dull and boring life ever, which you probably do.  At a quick glance your NW is somewhere in the $7M plus range, and you're in Florida.  You could ask a local personal injury attorney what a likely maximum damage award would be to get an idea, but in your shoes I personally would strongly consider a $5M policy.  The premium should only be a couple thousand a year, which is affordable for you.

You're certainly FI if you want to be, but if you enjoy your job you certainly have a very nice income as well.  Congratulations!

(As an aside, what was your degree in?  My son is finishing an SCM/IT degree and your mention of logistics spurred my interest.)

[doggyfizzle]

I’d suggest looking into Vanguard Wellesley.  This is a 60/40 bond/equity fund that has returned almost 10%/year since 1970.  Admiral shares with a 0.16% expense ratio are offered; if you park your inheritance in that fund you’re set and never have to work again using a 4% SWR.  Even looking at max drawdown in 2008, the fund only dropped ~10% compared to the broad market -37% drop, so market fluctuations just become background noise.  I suggest this fund because it seems to provide a bit more “risk” than the investments you’ve listed (bond funds), while still adhering to a pretty conservative investment risk profile.

[Telecaster]

(2) Inheritance --> they are charging you ~$40k a year to just hold onto your own damn money. Vanguard offers equivalent funds with a 0.03%-0.05% fee, thus costing about $1200-$2000 a year. I'm guessing if you've held the inherited money for 3 years, you've had about a 25% return, and will owe 20% of that 25% in capital gains. (The cost basis, or the starting value, of the investment is whatever it was worth when you inherited it, not when they bought shares in the various funds). Almost certainly it's cheaper to sell, transfer to Vanguard and eat the capital gains cost now rather than decades of excess fees.

Another option is to do a transfer in kind to Vanguard.  Then consult a tax professional regarding selling the JP Morgan junk and still be tens of thousands of dollars ahead. 

[FLDogdien]

Thanks again everyone from the replies - I really do appreciate the time and thoughtful replies. A few further responses/questions based on your posts:

(1) I like all the advice you all have given, as far as 3rd party services I am going to look for a tax advisor (I have an accountant who prepares my returns but doesn't offer much advice, seems like it could be worth paying for advice on an hourly basis) and an insurance agent (my current policy I just bought online). I am going to forego any financial advisor and do it myself. To sell the condo, any tips for choosing a real estate agent when you have no contacts/familiarity with the local market?

(2) Thanks very much for the advice that the basis in my investments starts when I inherited them, I didn't know that and that makes moving them a lot easier. I will have to look at what type of gains I have made since inheriting, but agree long term the lower fees will outweigh the one-off tax hit

(3) A person asked about my background - I actually only have a history degree from college! My current career is a complete random story but I met this guy (I will keep his name confidential) at a hotel bar about 7 years ago when a flight was cancelled and the airline put the passengers up overnight. He is Italian but happened to be managing a grocery chain in Latin America, that chain got bought by Walmart in the 90s and he became the country manager for Walmart. I don't know his exact net worth, but when he retired and moved to Miami it seems his Walmart stock was worth some good money. There are 6 of us who help manage his business interests, he has his hands in a lot of random businesses - both successes and failures.

(4) On changing funds and asset allocation and perhaps putting more cash into the market - do you advise I do it all at once or slowly over a period of time? I guess the uncertainty around COVID, etc makes me nervous about lump sum even though I realize being nervous about short term events while long term investing is stupid

(5) It is interesting someone in the comments mentioned when married they take a one-pot approach. Is it common in the MMM community to take that approach or to keep things separate?

(6) Lastly, someone mentioned to not tell people about your net worth - what exactly to you mean by that? Are you saying it from a risk perspective - that if people know they are more likely to ask for favors? How do you keep it hidden if compared to my friends (most who are finishing paying off student loans, buying their starter homes, etc) I buy an apartment that is out of their budgets?

[secondcor521]

1.  Ask friends whom you respect in the area where the condo is for references, then interview the potential realtors yourself and choose one that you trust and respect.  That, or consider FSBO.

3.  Thanks for the reply on your background.

4.  Pick your AA then stick with it.  Only change your AA if your goals or situation change.  Ignore market fluctuations and the news of the day.  There's always something to be afraid of - COVID, the Russians, the Chinese, WWII, WWI, Korea, stagflation, the gold standard, the Gulf War, the Great Depression, Black Monday.

5.  I mentioned the one pot approach.  It's not common on MMM but it happens to be my preference.  But then, I was married, we did the one pot approach, and now we're divorced.  Did the one pot approach help or hurt?  I dunno.  Figure out something that works for both of you.

6.  I didn't mention that, but I agree with whomever did.  I just have a policy not to discuss hard numbers about my assets or my income, and I chalk that up to not wanting finances to get in the way of friendships.  If others want to make guesses or assumptions they can.  I don't worry about it much, but I'm older and so it's not quite as surprising that I am where I am.  I can see how it would be harder for someone in your shoes, but the principle may still apply - just keep your finances (and your politics, religion, and sex life IMHO) to yourself and those who have a need to know.

[Jack0Life]

Someone making $450k asking what he could do better.
Enjoy life.

[lhamo]

Some other optionss to explore for finding a real estate agent, if you don't know anybody in the area:

1)  See if there is a Choose FI Facebook group for the area your condo is located in.  They have a more robust FB presence than MMM, but a similar mindset.  Usually a fair number of people doing real estate investment in some shape or form

2)  If you can't find any real person referrals, try looking on Zillow or Redfin for recent sales in the immediate area (especially your building) and contact the agents who handled those sales.  If it is a hot area they may already have clients or contacts to other agents with contacts who lost out on a prior bidding war.  If you find someone who looks promising, ask for referrals from their recent buyers/sellers.  And double-check with property tax records -- you can usually find names of current owners (and maybe past owners), who you can try cold-calling/emailing to get their input on how the agent did.

[Steeze]

4) once you decide on an asset allocation I would either lump sum or make automatic investments over a set period of time like one year. Vanguard mutual funds make this easy. You drop the lump sum into the money market account then set up automatic recurring purchases that transfer from the money market to whatever funds you chose. Then you are not worrying about the price on the day you are buying. - I would avoid any manual purchasing so you don’t get stressed out about the decision. - for me I have a % of my paycheck that goes directly into the MM account, then daily automatic purchases that occur (one weekly purchase scheduled each day of the week). Keeps me from trying to get the best price, set and forget.

5) DW and I use a one pot approach (after marriage of course). It’s nice having the transparency, and neither of us are big spenders. We are a team after all. I think it is pretty split around the forum though, with passionate opinions on both sides. Not sure what I would think about a large inheritance though, I would probably just think of it as principal which isn’t to be touched, but dividends which we could use or give away.

When we got together I was ~$70k in student loan debt with an ok income around $60k. She was a student. When we got married she inherited about $300k to buy a house so we did. I was able to accelerate my loan payments by not having to pay rent or a mortgage. Aside from the house I consider all of our assets 50/50 even though my income is ~50% higher. The house is hers as far as I am concerned.

6) as far as not telling people, I mean friends, coworkers, relatives, etc. Money makes people act strange. If you don’t have a flashy lifestyle then no one needs to know. You have a six-figure job, you can have a six figure life without anyone questioning it. They don’t need to know you don’t have a mortgage and don’t have a car payment. They certainly don’t need to know you have a 7 figure net worth. Maybe they know you make six-figures because you were excited to tell them once. They don’t need to know the actual figure or bonuses or raises. Just don’t bring it up. If you don’t drive a Lamborghini and live in a 5M villa then no one is going to know. “Stealth Wealth”. If you buy a new BMW or a Porsche then just get a low interest loan and complain about the payments :) The apartment also, they don’t need to know you could have paid cash, and you probably should have a mortgage anyway. Just buy it and complain about your mortgage once in a while to blend in.

For me, my financial journey has been somewhat public to my friends and family. I was $100k in debt and struggling, paid it all off in just a few years and am now trying to retire early. It was a good and inspiring story for a few years. Except now I’ve been asked for loans and stuff. My parents know I could bail them out of their financial mistakes and don’t. My sisters think millionaire = evil capitalist and that all savings should be seized and given to the poor. (They have no problem spending 100% of their six figure income mind you). My best friend made some rude comments about my father in law being a rich businessman to my wife because he knows we were gifted the house.

If I could go back I probably wouldn’t tell anyone, or at least use vague numbers. Even now I won’t use the real numbers anymore. My parents used to ask me all the updates on my road to “0” net worth. One time when they asked how much I had invested and I told them around $200k at the time, they didn’t seem very happy for me. Even when they found out we had the house paid for they seemed half happy half jealous or suspicious maybe.

Now I just try to be relatable. “Car insurance went up, need to look into switching”, “hope to buy a rental property some day”, “don’t know how I am going to afford a kid with the prices of daycare”, “I really want a PS5 just can make myself spend the money”, “Can’t believe how much health insurance costs these days”. When I talk about my “house payments” they don’t need to know I am talking only about the taxes and utilities. I would just not go around paying for everyone and telling people you are a millionaire, I think it is a recipe for bad relationships.

Maybe if I had friends in real life that were on a similar path it would be different, but all of my friends are on the debt treadmill, will be working for the next 40 years, and probably will never save for retirement.

[habanero]

Unless you plan to become a massive spender you are all set pretty much whatever you do. You pay a lot in rent, but guess that might be partly due to where you live (where the high income is available) and also how you live. I would make the fund holdings simpler and cheaper (but check tax implications) as mentioned.

The biggest issue for you is probably gonna be, if you want to, to come to realize that given your wealth you should probably switch from "playing to win" to "playing not to loose" as you have already won both int he wealth and income department. Your principal is so big you could get away with less risk than most people and still be perfectly fine and lower, but more stable returns will serve you fine and then some.

If you enjoy your job, by all means stick to it, but in your position you are completely free to pursue whatever brings you the most joy and you will most likely never need any salary  to live a very comfy life. If you at some point should submit to massive lifestyle inflation, all bets can be off if the expenses become high enough. As long as you avoid that you'll be fine pretty much whatever you do.

[Car Jack]

I think it's time to seriously ask yourself some questions.

1) Do you think it's reasonable to pay for HOA fees on a condo you'll never live in and never rent? 

2) Do you like paying $47,000 in expense ratios plus likely another $47,000 in management fees?  Think about it....that's a hundred grand for NOTHING!.  You can move it IN KIND to Vanguard (or Schwab or Fidelity) and exit the management fees first.  Then bite the tax bullet and sell these expensive turd funds.  As a comparison, I pay less than $400 (four hundred) in TOTAL for a $3M portfolio.  Really.....just sell.  Pay the taxes.  Then put the money to work for yourself at a good brokerage like Vanguard, Schwab or Fidelity.

You CAN keep renting, if you like your apartment.  Why not?  When you own a home, it's more work and more costs.  If you really want to buy, first, figure out why.  If you really want a back yard of your own or to be able to knock down a wall, go ahead.

[ysette9]

I didn’t have time to read the whole thread, but in case someone else didn’t already mention it, be sure the money you have in your savings account isn’t in a single account because you are over the FDIC limit. If necessary just open up a second account and move money over into you have no more than $250k in any one account.

[McStache]

I didn’t have time to read the whole thread, but in case someone else didn’t already mention it, be sure the money you have in your savings account isn’t in a single account because you are over the FDIC limit. If necessary just open up a second account and move money over into you have no more than $250k in any one account.

Some institutions (Fidelity and Schwab for sure, probably others too) will handle this sweep automatically for you.  Though I also think it's worth thinking about how much you need in savings and moving some of that to investment accounts.

[evme]

As a comparison, I pay less than $400 (four hundred) in TOTAL for a $3M portfolio.

How do you manage that?

[waltworks]

You don't *need* to do anything. You have many times the money you need to retire/do whatever you want. Good work, you won the money game.

So now your focus should be on 1) quality of life, and 2) risk mitigation (maybe - you have so much more than you need that you probably can just let things ride where they are and not even think much about AA or anything else).

I'd sell the condo - it's stealing your time/joy/life.

Move all your assets somewhere that you can deal with them in one place easily with minimal hassle. Vanguard is great. Schwab is great. Fidelity is great. All of them will be plenty cheap enough, no need to freak out about .04% vs .06% fees. Do whatever seems easiest.

Think about what you want to do with the rest of your life, and then go do it.

-W

[MrThatsDifferent]

You’re 32, making $450k and have $7m networth. Nothing I could possibly say could improve your situation, except yeah, get a will, do your estate planning and definitely have a pre-nup.  Oh, and enjoy every second of your life.

[FLDogdien]

Hi everyone -

Thanks again for all your continued responses and ideas. Based on your comments, I am going to do the following and have given myself a time limit to accomplish these by year end:

(1) Transition the JP Morgan funds to Vanguard
(2) Hire real estate agent to list condo
(3) Meeting with tax advisor/lawyers to discuss will & tax situation

Also, curious on a couple comments people made:

(1) Does anyone have any experience (positive or negative) on addressing a pre-nup with a significant other? I don't know much about pre-nups, but would a lawyer draft a pre-nup and would that lawyer act for both parties - i.e. myself and fiancé? If not, would I also hire a lawyer to review on my fiancés' behalf? Seems like an uncomfortable situation overall...

(2) I have only been reading the site the past week, but am surprised people haven't attacked my spending (seems people here call it a 'facepunch'). Is that because given my luck in inheritance the trophy is not worth the hunt type thing or does the MMM community regard frugality as a lifestyle regardless of net worth? Regardless, I have few bad spending habits I would like to reign in - whether I increase my savings or shift that spending to other hobbies/interest I am not sure.

(3) Curious if others sometimes feel the same, but despite the net worth (which I have only inherited in past 3 years and never touched so it doesn't really feel like it has impacted my life), do any of you also experience anxiety over net worth? Whether you have enough, what would happen if lost job, etc. Whether it is practical or not to have this, just curious....

(4) I really like the comment someone made about 'playing not to loose' rather than 'playing to win'. My investments are all mutual funds, very boring, I rarely check them and haven't made any substantive changes in years. A lot of friends my age are actively trading individual stocks, crypto, buying rental properties, etc and like to brag about gains they have made on this or that. It always bothers me as I never contribute to the conversation as I am not an active trader but from what I know about their financial situation question if those gains are really material, if they realize the risks they take on to achieve those gains, always seem to baseline their gain against nothing versus a comp like the S&P500, and lastly never seem to lose money.

[waltworks]

There's no point in facepunching someone spending <1/5 of their annual salary. It's always worth thinking about whether or not your spending is truly making you happy, and also whether the things you're buying/consuming are negatively affecting others/the environment. But you're just not really a facepunch candidate from what you've posted here.

I was just as broke as my spouse when we got married, but I'd guess the best thing to do is be *completely* up front about your finances, financial goals, etc, as soon as possible. IMO a prenup is a good idea. If he/she is not into that or upset about it... better to know now than when you're married, I guess. Bite the bullet!

Your investments are almost certainly plenty conservative. Given your relatively low spending, you could let it all ride on 100% stocks and not be in any real danger. If you're the type who gets upset about losses, move to something 60/40ish instead. But it sounds like you're good at ignoring it on a day to day basis, so just consolidating to save effort and then doing nothing is just fine. Your bitcoin friends are probably not getting rich.

-W

[ysette9]

(4) I really like the comment someone made about 'playing not to loose' rather than 'playing to win'. My investments are all mutual funds, very boring, I rarely check them and haven't made any substantive changes in years. A lot of friends my age are actively trading individual stocks, crypto, buying rental properties, etc and like to brag about gains they have made on this or that. It always bothers me as I never contribute to the conversation as I am not an active trader but from what I know about their financial situation question if those gains are really material, if they realize the risks they take on to achieve those gains, always seem to baseline their gain against nothing versus a comp like the S&P500, and lastly never seem to lose money.

Investing should be boring. Much research has shown that the most successful strategies are the boring buy-and-hold strategy. That is what Warren Buffet recommends for his widow when he dies and it is good enough for me and most people around these parts.

What your friends describe to me sounds more like gambling, the thrill of the chase and the win and conveniently forgetting the losses. High adrenaline.... it might be fun but it isn’t a good recipe for financial security for decades go come. So just ignore them. :)

As for a prenup, I have no idea because we got together when we were both broke, but what do you want the prenup to do? You should think on that before bringing up the topic. Keep all of your current assets separate in case of divorce? Give her $X should you divorce? I don’t imagine there are easy answers there. Best of luck to you.

[birdie55]

For a prenups believe you each need your own attorney.  Also there might be a time suggestion, like signing at least 30 days before the marriage takes place.  Google Prenup requirements to see what they are and if your state has any specific requirements.

[oldladystache]

How about putting your inheritance in an account that you never touch, keeping it your own separate property, and using the one pot method for everything else?

You could explain that Grandpa meant the money for you and you are respecting his wishes. If you find you need some of the money from the inheritance you can take it out but it will then no longer be just your own. Just don't add to the account later.

Talk it over with a good lawyer. And the GF.

[secondcor521]

(1) Does anyone have any experience (positive or negative) on addressing a pre-nup with a significant other? I don't know much about pre-nups, but would a lawyer draft a pre-nup and would that lawyer act for both parties - i.e. myself and fiancé? If not, would I also hire a lawyer to review on my fiancés' behalf? Seems like an uncomfortable situation overall...

(2) I have only been reading the site the past week, but am surprised people haven't attacked my spending (seems people here call it a 'facepunch'). Is that because given my luck in inheritance the trophy is not worth the hunt type thing or does the MMM community regard frugality as a lifestyle regardless of net worth? Regardless, I have few bad spending habits I would like to reign in - whether I increase my savings or shift that spending to other hobbies/interest I am not sure.

(3) Curious if others sometimes feel the same, but despite the net worth (which I have only inherited in past 3 years and never touched so it doesn't really feel like it has impacted my life), do any of you also experience anxiety over net worth? Whether you have enough, what would happen if lost job, etc. Whether it is practical or not to have this, just curious....

(4) I really like the comment someone made about 'playing not to loose' rather than 'playing to win'. My investments are all mutual funds, very boring, I rarely check them and haven't made any substantive changes in years. A lot of friends my age are actively trading individual stocks, crypto, buying rental properties, etc and like to brag about gains they have made on this or that. It always bothers me as I never contribute to the conversation as I am not an active trader but from what I know about their financial situation question if those gains are really material, if they realize the risks they take on to achieve those gains, always seem to baseline their gain against nothing versus a comp like the S&P500, and lastly never seem to lose money.

1.  If you decide on a pre-nup, then you'll need your attorney and she'll need her attorney.  It would be unwise for you to pay for her attorney.  The general idea is that she needs to make her own independent decision about the pre-nup, and anything that could be viewed as coercion or pressure by you could invalidate it.  IANAL, YMMV.

2.  Meh.  Agree with @waltworks.  Your rent seems high relative to what *I* pay for housing over in frozen flyover country, but you might have a nice place that you like, and relative to your salary it's not an issue.

3.  Understandable.  It takes time to adjust.  You're normal.  Don't worry about it as long as the anxiety and other feelings aren't adversely affecting your daily life.  Eventually your perspective will likely adjust and you'll probably realize you do have enough.  (Now that I'm in the "I think I have enough" stage, my only anxiety is more just a concern that I manage it well for the next generation.)

4.  Your friends are almost certainly losing based on an after-tax, risk-adjusted basis.  People tend to focus on their winners and ignore or minimize their losers; it's human nature.  The math and research says that boring, low-cost, broadly diversified, high quality investments bought early and held forever have an overwhelming likelihood of winning over the long term.  Read stuff by Bogle, Warren Buffett's Berkshire shareholder letters, or Benjamin Graham.

[ericrugiero]

Hi everyone -

Thanks again for all your continued responses and ideas. Based on your comments, I am going to do the following and have given myself a time limit to accomplish these by year end:

(1) Transition the JP Morgan funds to Vanguard
(2) Hire real estate agent to list condo
(3) Meeting with tax advisor/lawyers to discuss will & tax situation

Also, curious on a couple comments people made:

(1) Does anyone have any experience (positive or negative) on addressing a pre-nup with a significant other? I don't know much about pre-nups, but would a lawyer draft a pre-nup and would that lawyer act for both parties - i.e. myself and fiancé? If not, would I also hire a lawyer to review on my fiancés' behalf? Seems like an uncomfortable situation overall...

(2) I have only been reading the site the past week, but am surprised people haven't attacked my spending (seems people here call it a 'facepunch'). Is that because given my luck in inheritance the trophy is not worth the hunt type thing or does the MMM community regard frugality as a lifestyle regardless of net worth? Regardless, I have few bad spending habits I would like to reign in - whether I increase my savings or shift that spending to other hobbies/interest I am not sure.

(3) Curious if others sometimes feel the same, but despite the net worth (which I have only inherited in past 3 years and never touched so it doesn't really feel like it has impacted my life), do any of you also experience anxiety over net worth? Whether you have enough, what would happen if lost job, etc. Whether it is practical or not to have this, just curious....

(4) I really like the comment someone made about 'playing not to loose' rather than 'playing to win'. My investments are all mutual funds, very boring, I rarely check them and haven't made any substantive changes in years. A lot of friends my age are actively trading individual stocks, crypto, buying rental properties, etc and like to brag about gains they have made on this or that. It always bothers me as I never contribute to the conversation as I am not an active trader but from what I know about their financial situation question if those gains are really material, if they realize the risks they take on to achieve those gains, always seem to baseline their gain against nothing versus a comp like the S&P500, and lastly never seem to lose money.

(1)  I'm pretty sure my wife would have been offended if I brought up a pre-nup.  You are a great candidate for one because of your high net worth so most people would say it's worth it for you.  I only had about $15,000 when we married. With or without a pre-nup, you should definitely get the inherited money set up in it's own account(s) before you get married and then never add to it.  That establishes it as your money that was not co-mingled and could be important if things ever went South with your wife.  I would even go as far as putting the inherited money in Vanguard and the money you and your wife earn into Fidelity (or vice versa).  Once you separate the inheritance money, I would just co-mingle the other money in one pot with your wife (after you get married of course). 

(2) You are in great shape financially and are setting yourself up to be even more efficient.  Could you cut expenses some? Sure.  But your spending is such a small % of your income and your net worth that it's really hard to criticize.  As others mentioned, just make sure you are spending on things that actually make you happy and that align with your beliefs rather than just mindless spending.

(3) I think most of us worry about money to some extent whether it makes sense or not.  You are about as "safe" as you can be.  In your shoes, I might buy some gold, silver, land, or even put some money overseas just in case.  These aren't typically the most beneficial ways to invest but with your excess money you could afford to spend some money to add some safety.  Just don't go crazy.  Most of your money should be invested in boring low cost index funds. 

(4)  People like to brag.  It's human nature to talk about when we win and not when we lose.  I watched a guy play video poker for hours.  He would put in a $20 bill and play for a while.  He either lost it or cashed out at around $40 and promptly put in another $20.  At the end of the night I asked him how he did and he said "I cashed out for $150".  There was no mention of all those $20's I watched him feed into the machine.  I'm confident your friends are doing the same thing on a bigger scale.  Don't get sucked in.  The worst thing you could do is start "gambling" with your fortune and lose it all.  You have very little to gain since you are already set for life and a lot to lose. 

Additional thoughts.  Read this: https://jlcollinsnh.com/stock-series/ and get yourself a good accountant/tax guy who can really help optimize your taxes.  . 
   

[joemandadman189]

You’re 32, making $450k and have $7m networth. Nothing I could possibly say could improve your situation, except yeah, get a will, do your estate planning and definitely have a pre-nup.  Oh, and enjoy every second of your life.

This.

simplify the investments, GET THE PRE-NUP, and enjoy the ride, do what you want

[cincystache]

congrats, I've learned I need to befriend more people in airport bars.... In all seriousness, good job getting to this point, much of it was luck in the form of an inheritance but I'm sure you also work very hard to deserve that income. As others have said, enjoy your life. You really don't need to be thinking all that much about money unless you want to. Think about what legacy you want to leave that would honor your grandparents who generously bestowed a huge windfall to you. Make them proud and use your wealth to help others and make the world a better place. That would be my focus in your situation and is my focus even though you have a couple extra zeros on your income and net worth. Don't sweat the small stuff, you already have that covered. Move on to fixing bigger problems outside yourself.

Make your financial life as simple as possible and focus your time and energy on other things

[jeroly]

You are in good financial shape and the only real questions are around making things even better.

You have too many funds, many of which are charging high expense ratios.  Take advantage of the step-up in basis you received upon inheriting the funds and sell while the capital gains are lower than they will be later.  Even if you have to pay on say $2 million in capital gains it will be a tax of $475,000 that if your expenses are 1% lower you will recoup that in about seven years (plus you'd have had to pay CG taxes on those gains eventually, possibly at a higher future rate).

When you do make the move to Vanguard or Fidelity or some other institution that offers low-cost index funds, consider a three-fund portfolio for simplicity's sake.  Total US stock fund, Total US bond fund, International (ex-US) fund. Rebalance annually. Done.

A 7 million portfolio, using a standard 4% withdrawal rate, would support expenditures up to $280K/year, so if you're comfy with spending at that level or less, only work if it's something you enjoy!

As far as a pre-nup goes, you can certainly talk about this with a lawyer.  I'm not one nor do I play one on TV, but my understanding is that the assets you enter a marriage with are, at least in most states, not considered to be communal property, and it's only the assets you acquire over the course of the marriage that are involved.  While it's true that that would include the earnings on those assets (not including the retirement accounts IIRC), you'd still be at such a high level that even if the worst comes down and the marriage doesn't last, you'd still be sitting pretty.  So if you get that confirmed, you may want to consider whether the potential cost in terms of division of some investment income is worth the risk to marital trust and partnership that might be engendered by a pre-nup.

[Much Fishing to Do]

With these expenses and that nut I'd face punch you if you cut your spending on anything other than pure waste....

You're in such great shape you only need to protect against a disaster.  Keeping investments simple protects against a disaster (keeps you from ending up investing in some scheme).  Good insurance coverage (umbrella, etc) protects against a disaster.  I like that you have like 10 years in cash, that can protect against a market disaster (you would have been one of the few people who could have retired in 1999 and made it thru 2010 without a care but still had lots of investments riding the market to catch the eventual rebound...), though maybe look into how to keep that cash worth what its worth (stuff that will protect against inflation).  Divorce can be a disaster, talking to someone about a pre-nup sounds right.

The most important thing is take care of your physical and mental health.  You shouldn't have any money issues, which leaves you time and energy to worry about all those many other things that matter.  A person who is dead, or in physical or emotional pain, doesn't give a crap whether they are worth $1 or $10M.  A person who feels they have purpose seems happier than any amount of money brings.  You've got that little money thing taken care of so can put more focus on these other things.

[Dancin'Dog]

I haven't read all the posts here, but since you've mentioned a prenup I'm think that it wouldn't be a bad idea for you to consider creating a trust.  Trusts protect assets from many types of liability, and there are other advantages. 


You also asked about keeping you wealth info private.  While it will be evident that you "have money" by the things to own, etc, you do not need to share the numbers with others.  Your friends with regular jobs & lifestyles cannot conceive the numbers you're dealing with.  The daily fluctuations in your investment accounts will often be more than their annual incomes.  A 2% swing is $100K.   The daily ups & downs are as much as a very nice care.  There's no good reason for you to share that info with anyone that isn't in a similar position.  You'll be getting enough little envious comments from the professionals that are privy to those details. 

[PDXTabs]

Assets:

Cash
  Checking account:  $2,005 
  Marcus savings account:  $696,681
  Marcus 12-mo CD:  $336,869

Brokerage Accounts
  Vanguard total stock market index fund:  $852,258
  Vanguard high div yield stock index fund:  $48,462
  Vanguard health care fund:  $200,368
  JP Morgan equity income fund:  $2,040,057
  JP Morgan equity index fund:  $1,982,383
  JP Morgan intrepid growth fund:  $289,021

Retirement Accounts
  JP Morgan core bond fund:  $151,648
  JP Morgan emerging market bond fund:  $58,685
  JP Morgan government bond fund:  $115,605

Physical Assets
  Condo:  $537,532 (according to Zillow - inherited from grandparents in no-rental building and have been meaning to sell)

...

I am interested to hear everyone's thoughts on what I could be doing better, especially with my investments with regards to asset allocation, tax efficiency, etc.

Personally, I would sell the condo if you don't want to live in it, keep at most 12 months of cash, and move everything else into VT or equivalents both inside and outside of your retirement accounts.

But I would also retire if I was in your shoes so WTF do I know?

[PDXTabs]

(4) Relationship --> I do have a gf of 3 years and plan on proposing next year. She works as a PA, makes about $105k per year but only been working 2 years - she has $110k in student loans outstanding but otherwise seems to be a good budgeter and has been paying it down. Two questions - how have you brought up prenups before? She knowns my income and that I inherited money but haven't really discussed how much. Also, I was debating paying off her student loans as about 80% of it is >7% interest rate - thoughts on this?

Get an iron clad prenup. Start negotiating with two separate attorneys well before the wedding. And if it were me, I'd pay off her student loans as a wedding present.

[thedayisbrave]

Don't know if you've made any progress on selling the house but seems you've gotten a lot of good advice about investments.

I'm a Realtor so I can speak a little as to finding a good agent.  It depends on how the market is where your condo is, most likely if it's anything like most real estate markets in the US right now it's a super competitive sellers market -- which is good for you!!! I would sell ASAP especially if you can't rent it and have no plans to live there in the near future.  I would also look into insurance in the interim and make sure you're covered -- I'm sure as a condo, the HOA has some sort of policy in place but ask your insurance agent about a vacant policy.  Ask me how I know--- it's saved my butt a few times!!

Even though it is a competitive RE market though, a few things to keep in mind:

• Pricing: Pricing it well is THE most important thing you can do.  A good Realtor will show you comparable sales giving you a range of market value for the home.  There is a lot of strategy that goes into this, but pricing it low can often have the opposite effect of driving the price up because the "low" price attracts more eyeballs, especially if it's also well marketed.
• Marketing: Something like 75% of home buyers find their home online so getting professional photos is a must.  If it's vacant and in need of some light prep work, paint and light staging can go a LONG way.

When you're interviewing Realtors, ask them specifically about the points above and ask for a marketing plan.  Given you are selling from out-of-state, they should be able to take the reins and handle everything.. prep work, staging, photography, etc.  Insist on professional photography. 

Do NOT just hire a Realtor off Redfin/Zillow/Trulia - they often pay thousands of dollars a month for those coveted 'premier' spots and it doesn't necessarily mean they are good.  In your situation I also would NOT do FSBO (for sale by owner) especially as your first property and not living close by.  If you are not familiar with real estate terminology, contracts, construction (for understanding buyer repair requests) etc it will be VERY easy for someone to take advantage of  you.

Realtor commissions are negotiable, so that's another benefit of it being a sellers market for you... ask what their rates are and don't be scared to negotiate on commission.  I'm licensed in NC, not VA, but if you have any questions about the process or if you want to run anything by me feel free.  I can tell you if they are being genuine or giving you a load of BS.

[Imma]

(4) Relationship --> I do have a gf of 3 years and plan on proposing next year. She works as a PA, makes about $105k per year but only been working 2 years - she has $110k in student loans outstanding but otherwise seems to be a good budgeter and has been paying it down. Two questions - how have you brought up prenups before? She knowns my income and that I inherited money but haven't really discussed how much. Also, I was debating paying off her student loans as about 80% of it is >7% interest rate - thoughts on this?

Get an iron clad prenup. Start negotiating with two separate attorneys well before the wedding. And if it were me, I'd pay off her student loans as a wedding present.

We have no real wealth and we certainly didn't when we wrote our pre-nup. And I'm in a different country so different laws apply
But we do have a pre-nup.

What we did is when we got serious, we sat down and basically opened the books to each other. We went through pensions, student loans, income, savings, past income, future earning opportunities, life goals. And we talked and talked and talked until we agreed upon what felt fair to both of us. And then we made an appointment with an attorney, told her what we had agreed upon and whether this was legally possible. She also went through a big list of her own questions and advised us about certain things we hadn't thought of. Then she drafted it, we thought about it for a few weeks, then we signed. In a situation where serious wealth is involved, I think it is advisable that you each hire your own attorneys. But I think it's important to discuss this together first, and find a common ground that feels fair to both of you. I am strongly pro-pre nup, I initiated it even though at that point I earned only half of what my partner did, but if someone put a 'take it or leave it' deal in front of me I'd refuse to sign as a matter of principle. I strongly believe that a pre-nup is a blueprint for your relationship and your life plan. It's basically the Constitution of your marriage. It's important that you two are equal authors of it. In our pre-nup, we described in short what our intention was when writing it. We were advised to do that so if we should ever end up in court, a judge will know why you agreed upon X or Y. But basically our pre-nup was written in a way that makes it nearly impossible for us to ever end up in court (my parents fought each other for years and I wanted to avoid that).

I agree with the student loan wedding present. For you it's a fairly small amount of money, maybe 1% of your wealth, the same kind of percentage of your wealth that people would spend on a fancy trinket as a wedding present. But for her it's a life changer. It's a burden that will be lifted off her back.