Author Topic: Helping parents invest money from sale of home.  (Read 1453 times)

MVal

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Helping parents invest money from sale of home.
« on: November 29, 2016, 09:46:49 AM »
My parents sold our childhood home of 30 years recently and have over 75K they've told me they don't know what to do with yet. Would investing this in Vanguard index funds be the best way to go? My dad is already getting social security and they also receive money from some annuities they set up with my Dad's retirement funds, so I think they're good on income. Does being over 70 make you ineligible to contribute to an IRA? My mom is still young at 58, so if Dad can't, I bet she can.

I'm hoping to help them come up with a good place to park these funds during their retirement years. I may wind up inheriting the funds if they don't wind up spending it on anything over the years. Or could there be some worthwhile purchase they could make to enjoy the money? Other than travel or paying off the house they are in now, I can't think of anything.

Interest Compound

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Re: Helping parents invest money from sale of home.
« Reply #1 on: November 29, 2016, 10:07:20 AM »
Here's my quick go-to response for anyone in your position. Short and sweet. You ready?

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I recommend going with Vanguard. Vanguard is like the Credit Union of investment firms. They are owned by us, the people who invest with them:



As a result, they have become the biggest investment firm in history. Seriously. They have over 3 trillion dollars in assets under management. Why haven't you heard of them? Look at the graphic above again. They operate with just enough profits to cover their costs. In other words, they aren't spending millions of dollars every quarter on fancy advertisements, they aren't buying big billboards in downtown manhattan, and they aren't paying for thousands of sales people in hundreds of offices across the country to create brand awareness. They are legally obligated to operate with our best interests in mind, which is why they are the only company I'd trust with my money.

From there I'd recommend one of two options:

1. "I want Vanguard's experts to do everything for me. I'll just tell them my age and they'll put it in the appropriate Target Retirement Fund"

2. "I want Vanguard's experts to do everything for me. I'll just tell them how much risk I want, and they'll put it in the appropriate LifeStrategy Fund"

Both of these options invest solely in "index funds". This means they aren't trying to bet on what the next "hot stock" will be, they're just buying everything. Here's what the experts have to say about that:

  • A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth. ~Warren Buffet
  • Most investors would be better off in an index fund. ~Peter Lynch
  • Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing. ~Charles Schwab
  • Most investors should simply invest in index funds. ~Robert Rubin, Former Secretary of the Treasury
  • Over the long-term the superiority of indexing is a mathematical certainty. ~Jason Zweig, senior writer for "Money"
  • Indexing virtually guarantees you superior performance. ~Bill Bernstein, author, financial adviser
  • The smartest thing people can do if they want money in the equities market is buy an index fund and forget about it. ~Elliot Spitzer, NY Attorney General

Vanguard's Target Retirement Fund is a perfect long-term investment, because it combines the blue line and the orange line, into one package. When you're younger, it adds more of the blue line when you want more risk, and as you get older it adds more of the orange line to keep you safe from crashes:



You can throw money at it for the rest of your life, and you'll be just fine. Why would you want to choose your risk with Vanguard's LifeStrategy fund? Maybe you're saving money for a house downpayment in a 5 years, or your job situation is unstable, and don't want to take on much risk.

You can't go wrong with either choice :)
« Last Edit: November 29, 2016, 11:50:35 AM by Interest Compound »

braje

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Re: Helping parents invest money from sale of home.
« Reply #2 on: November 29, 2016, 06:26:07 PM »
Does being over 70 make you ineligible to contribute to an IRA? My mom is still young at 58, so if Dad can't, I bet she can.

Do either of them have any Earned income eg wages?  If no then the can't do IRAs

Mighty-Dollar

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Re: Helping parents invest money from sale of home.
« Reply #3 on: December 01, 2016, 02:55:12 AM »
75K they've told me they don't know what to do with yet. Would investing this in Vanguard index funds be the best way to go? My dad is already getting social security and they also receive money from some annuities they set up with my Dad's retirement funds
Vanguard is good. So is E Trade, AmeriTrade and Scottrade. Either way they should be investing in bond and stock index funds. What type of annuity and how much?

ysette9

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Re: Helping parents invest money from sale of home.
« Reply #4 on: December 01, 2016, 04:32:56 PM »
The fundamental question you are not answering yet is what you hope to achieve with the money. If your latents might need it for later expenses in life then you need to take that time frame into account. If they won't need the money and want to leave an inheritance, then that is a potentially much longer timeframe and would support a riskier asset allocation. Vanguard is a great place to invest, it you still have to figure out goals, timeframe, and risk tolerance for whomever ultimately makes the financial decisions for the money. There are online tools on the vanguard website that can walk you through this or you can call them up to speak with an advisor for help.