Help w/Inheritance

[DebER]

Hi,
I recently inherited a little over $200K from my parents. I am still working and don't plan to retire for another 12 years unless I hit the lottery, which is not likely. I have approx. $100K in retirement accounts (one I am still contributing to) and about $70K in other stocks/mutual funds.
I would like to invest my inheritance for income and growth. I do not want to assume a lot of risk as my parents worked hard for their money and I want to be deligent in preserving it for use with such things as inhancing my retirement or helping with assisted living (if necessary) and just having a little fun. It's just me and my husband...no children. We both work, and get by. I am thinking of investing it with Vanguard in their Index Target Retirement Fund (VTINX), and having the quarterly distributions sent to me for some additional income.
Do any of you have an opinion or advice for me? I've been contemplating what to do for several months now, and this seems to be the most logical, safe (if there is such a word) to go.
Thanks for your advice!
Debbie

 

[REWahoo]

Deb, I suppose there is no reason you can't spend the income distributions from the Target Retirement Fund, but that seems a bit unusual. That fund was designed to grow your investment over time and reinvest the income so you'd have a nice nest egg once the target date is reached.

Perhaps another Vanguard fund would be more appropriate for your goal, such as Wellington (VWELX) or the even more conservative Wellesley (VWINX).

 

[pb4uski]

Deb, I suppose there is no reason you can't spend the income distributions from the Target Retirement Fund, but that seems a bit unusual. That fund was designed to grow your investment over time and reinvest the income so you'd have a nice nest egg once the target date is reached.

Perhaps another Vanguard fund would be more appropriate for your goal, such as Wellington (VWELX) or the even more conservative Wellesley (VWINX).

+1 or Vanguard Star fund is a good balanced fund that I have used in the past.

 

[racy]

... I am still working and don't plan to retire for another 12 years... I have approx. $100K in retirement accounts (one I am still contributing to) and about $70K in other stocks/mutual funds.
Do any of you have an opinion or advice for me? Debbie

With only 12 years to retirement, don't take out the quarterly distributions. Invest in balanced funds as others have suggested. Don't be too conservative. You'll need to grow it to fund retirement.

 

[easysurfer]

First, I would park the inheritance in a money market fund, then from there decide what to do with that taking into account the overall asset allocation. An extra $200K should raise a flag to say evaluate the allocation as to not can be risky in itself.

 

[Nords]

I would like to invest my inheritance for income and growth. I do not want to assume a lot of risk as my parents worked hard for their money and I want to be deligent in preserving it for use with such things as inhancing my retirement or helping with assisted living (if necessary) and just having a little fun. It's just me and my husband...no children. We both work, and get by. I am thinking of investing it with Vanguard in their Index Target Retirement Fund (VTINX), and having the quarterly distributions sent to me for some additional income.
Do any of you have an opinion or advice for me? I've been contemplating what to do for several months now, and this seems to be the most logical, safe (if there is such a word) to go.
Thanks for your advice!
Debbie

First, did your parents leave any guidance or drop any hints about how to handle the money? I'm pretty sure they did not intend for it to be an onerous fiduciary burden. You probably don't want to buy yourself a Porsche, but I think you could invest it for your own retirement, even in assets that are expected to grow faster than inflation. You're probably not going to invest it all in an alpaca farm or inverse triple leveraged beever-cheese futures, but a Vanguard equity index fund seems reasonable.

However you're asking a trick question. We'd all like to invest our assets for income & growth-- as much of both as possible, right? The answer to the trick question is that you invest the lump sum in accordance with your asset allocation. Perhaps instead of thinking of that as "Mom and Dad money" and "my money", you could think of it as one big retirement portfolio and figure out your asset allocation. Then go buy it.

I've also seen advice such as "pay off all your debts and invest the rest" or "spend 10% frivolously, pay down your debts, and invest the rest".

If I had $10K dumped on my head tomorrow I have no idea what I'd do with it. The biggest thing I have on my "To Buy" list is a heartrate monitor, and I've been avoiding that purchase for years because I can't seem to find exactly what I want at a reasonable price. So $10K would sit in a money market for months, although perhaps we'd eventually put it toward an extra trip. If I inherited $200K then I'd just buy more of a small-cap value index and more of a dividend-paying index.

Rick Ferri has some ideas on how to invest a lump sum:
4 Rules for Investing a Lump Sum

 

[Alan]

Deb,

FWIW, I have a chunk of money in Wellesley with the dividends going to a Money Market fund that get spent on living costs because I am retired and want the income.

When I ER'ed I rolled my 401k into a VG Target retirement fund in an IRA with the aim of it providing an income stream at age 60. Until then the dividends are reinvested.

You need to evaluate your situation and needs. Something like Wellesley or Wellington has a target allocation that is maintained for the life of the fund. A Target retirement fund will adjust the allocation over time as you approach the target year at which you want an income stream.

You have done well so far to hold the inheritance while you consider what to do with it.

 

[Sarah in SC]

However you're asking a trick question. We'd all like to invest our assets for income & growth-- as much of both as possible, right? The answer to the trick question is that you invest the lump sum in accordance with your asset allocation. Perhaps instead of thinking of that as "Mom and Dad money" and "my money", you could think of it as one big retirement portfolio and figure out your asset allocation. Then go buy it.
http://www.rickferri.com/blog/investments/4-rules-for-investing-a-lump-sum/

Please pay attention to what Nords said--don't mentally account for this money separately, it is part of your entire asset allocation. You need to review it within the parameters of the rest of your investments, and make adjustments accordingly. Unless this money is well and truly intended to be separate, and never touched, leaving it for a future generation, it should not be treated any differently than the money you are already saving for retirement/whatever.

 

[DebER]

First, did your parents leave any guidance or drop any hints about how to handle the money? I'm pretty sure they did not intend for it to be an onerous fiduciary burden. You probably don't want to buy yourself a Porsche, but I think you could invest it for your own retirement, even in assets that are expected to grow faster than inflation. You're probably not going to invest it all in an alpaca farm or inverse triple leveraged beever-cheese futures, but a Vanguard equity index fund seems reasonable.

However you're asking a trick question. We'd all like to invest our assets for income & growth-- as much of both as possible, right? The answer to the trick question is that you invest the lump sum in accordance with your asset allocation. Perhaps instead of thinking of that as "Mom and Dad money" and "my money", you could think of it as one big retirement portfolio and figure out your asset allocation. Then go buy it.

I've also seen advice such as "pay off all your debts and invest the rest" or "spend 10% frivolously, pay down your debts, and invest the rest".

If I had $10K dumped on my head tomorrow I have no idea what I'd do with it. The biggest thing I have on my "To Buy" list is a heartrate monitor, and I've been avoiding that purchase for years because I can't seem to find exactly what I want at a reasonable price. So $10K would sit in a money market for months, although perhaps we'd eventually put it toward an extra trip. If I inherited $200K then I'd just buy more of a small-cap value index and more of a dividend-paying index.

Rick Ferri has some ideas on how to invest a lump sum:
4 Rules for Investing a Lump Sum

My Dad was not a fan of the stock market. He invested in fixed annuities. I know he would be dissapointed if I lost it in the "market" as I know he would want me to use this money to make life easier. Before he died he told me several times that he wanted me to enjoy my life. So, I'm seriously considering investing in both VTINX and VWIAX. Yes, I may see some flutation, but not enough that I couldn't sleep at night. Thanks so much for your reply. Much appreciated!

 

[FIREd]

Hi Deb,

If retiring early is you number one priority in life, then I say invest the money in stocks and bonds and let the dividends compound over time by reinvesting them.

If, however, a little extra income would make your life a lot funner and you don't mind working a bit longer, I would invest that money in stocks and bonds and spend the dividends. You could buy yourself a nice yearly vacation with the dividends generated by that kind of money while it continues to grow, albeit at a lower rate than if you reinvested the dividends.

 

[DebER]

Hi Deb,

If retiring early is you number one priority in life, then I say invest the money in stocks and bonds and let the dividends compound over time by reinvesting them.

If, however, a little extra income would make your life a lot funner and you don't mind working a bit longer, I would invest that money in stocks and bonds and spend the dividends. You could buy yourself a nice yearly vacation with the dividends generated by that kind of money while it continues to grow, albeit at a lower rate than if you reinvested the dividends.

I don't mind working a little longer as frankly I don't know what I'd do with myself if I didn't. It's what I know. Also, I'd like to do the fun things in life (within reason, of course) while I'm still able to do so and have the desire to do so. Besides, I have no one to leave anything to anyway, besides charity. So, I pretty much decided to invest in VTINX and VWINX and take the dividends, at least for a little while.

 

[Berkshire_Bull]

If you have a mortgage or any debt pay it off with your inheritance before you start thinking about accumulation.

 

[mh]

If you have a mortgage or any debt pay it off with your inheritance before you start thinking about accumulation.

I feel another "should I pay off my mortgage" thread hijack dropping from the sky..

 

[GRambler]

If you have a mortgage or any debt pay it off with your inheritance before you start thinking about accumulation.

We paid off all our debt as soon as we could. Mortgage, cars, everything. Now we're able to spend what we make if we choose to any given month, the next month or so we might not spend anything and transfer a lump sum into our MM account, when we get a decent amount built in the MM we transfer it to an investment account that's diversified.

Our plan may not work for everyone but it keeps us on a budget by still only spending what's coming in, and not touching any savings.

 

[Texas Proud]

/snip/ invest it all in an alpaca farm or inverse triple leveraged beever-cheese futures /snip/

The first sound like work... but what is the ticker on the second... I have to get in on the ground floor on that investment

 

[Nords]

The first sound like work... but what is the ticker on the second... I have to get in on the ground floor on that investment

I'm afraid that Brewer has the franchise on the beever farms, so you're going to have to let him manage that investment (for a reasonable expense ratio) or pay him a one-time fee to learn how to roll your own...

 

[DebER]

What I decided

Hi,
I recently inherited a little over $200K from my parents. I am still working and don't plan to retire for another 12 years unless I hit the lottery, which is not likely. I have approx. $100K in retirement accounts (one I am still contributing to) and about $70K in other stocks/mutual funds.
I would like to invest my inheritance for income and growth. I do not want to assume a lot of risk as my parents worked hard for their money and I want to be deligent in preserving it for use with such things as inhancing my retirement or helping with assisted living (if necessary) and just having a little fun. It's just me and my husband...no children. We both work, and get by. I am thinking of investing it with Vanguard in their Index Target Retirement Fund (VTINX), and having the quarterly distributions sent to me for some additional income.
Do any of you have an opinion or advice for me? I've been contemplating what to do for several months now, and this seems to be the most logical, safe (if there is such a word) to go.
Thanks for your advice!
Debbie

Hi,
Just thought I'd let you know what I've done so far and get your opinion.
So far I have invested a little over $50K in VTINX, a little over $50K in VWINX and around $36K in VWEHX. The rest is safe in a Money Market. I decided to take the dividends (for now) but reinvest any capital gains. I still have around $50K to invest. So, how do you seasoned investors think I am doing, or will do and do you have any suggestions on the $50K I still have to invest. I also have another $100K that I am keeping safe and sound-I will not invest it. Thanks!!

 

[JPatrick]

I didn't see VEXAX on your list, so I would probably put about 1/3 of your remaining investable funds there right now, after which I'd watch the market over the next month or so for an ideal point to drop another 1/3 or so. Hopefully higher than we are at present.

 

[DebER]

Hi,
I recently inherited a little over $200K from my parents. I am still working and don't plan to retire for another 12 years unless I hit the lottery, which is not likely. I have approx. $100K in retirement accounts (one I am still contributing to) and about $70K in other stocks/mutual funds.
I would like to invest my inheritance for income and growth. I do not want to assume a lot of risk as my parents worked hard for their money and I want to be deligent in preserving it for use with such things as inhancing my retirement or helping with assisted living (if necessary) and just having a little fun. It's just me and my husband...no children. We both work, and get by. I am thinking of investing it with Vanguard in their Index Target Retirement Fund (VTINX), and having the quarterly distributions sent to me for some additional income.
Do any of you have an opinion or advice for me? I've been contemplating what to do for several months now, and this seems to be the most logical, safe (if there is such a word) to go.
Thanks for your advice!
Debbie

I didn't see VEXAX on your list, so I would probably put about 1/3 of your remaining investable funds there right now, after which I'd watch the market over the next month or so for an ideal point to drop another 1/3 or so. Hopefully higher than we are at present.

Thanks! I'll check it out!

 

[MichaelB]

Hi Debbie, thanks for updating us.

In your initial post you said you wanted growth and income. The way your assets are invested now you're probably going to get more income , which you are drawing off, and not so much growth. There is nothing wrong with that but after tax the real value of the total inheritance isn't likely to grow much. If you want the total value to be worth more after inflation 10 or 12 years from now a bit more in equities will help. JPatrick suggested Vanguard Emerging Markets. Vanguard has two funds that focus on mostly US "Blue Chip" stocks, VDAIX (Vanguard Dividend Appreciation) and VDIGX (Vanguard Dividend Growth). One is passive, the other active, but both are very good. Vanguard Wellington VWELX is also a top notch fund.

 

[LOL!]

If one is not contributing the maximum to retirement accounts at the moment, then one can use this inheritance to do so. The way to do that is bump up your 401(k)/403(b) contributions to the maximum and contribute the max to Roth IRAs as well. If that doesn't leave enough in your paychecks to pay the bills, then withdraw money from the inheritance to pay the bills.

Of course, this presumes that the inheritance is not in the form of an inherited IRA or other vehicle where withdrawal would cause extra taxes.

 

[jclarksnakes]

That 100 thousand you are not investing to keep it safe and sound is totally not safe from inflation. Inflation is relatively low here recently but it still is eroding the value of anything we keep in cash. That erosion over time will seriously decrease the real value of that money.

 

[John Galt III]

DebER, How was the tax hit on that inheritance? Did you have to pay personal income taxes on it for the year you received it? Thanks

 

[DebER]

DebER, How was the tax hit on that inheritance? Did you have to pay personal income taxes on it for the year you received it? Thanks

Yes I did, John.