Suddenly, money! What do we do?

[daveelton]

Hello all, I'm pretty new to the investment and money management game as my salary is only modest and can't really do much more than dump what I can into a 401k. My girlfriend of 1.5 years (and probable wife given our age of 29) just got a rather sizeable payment from a trust fund, far more than we both expected. And so, I don't know what in the world to advise her to do with it. She is really bad with money management and has asked for some guidance. I've come here in hope of finding some sort of starting point. My initial reaction was to take her to a financial advisor at Edward Jones, but after looking at their service fees, I'm not so thrilled with that option. So I thought I'd try laying out my situation to you all as even though this isn't exactly an early retirement situation, I feel like there is a lot of knowledge here and there are possibly some parallels in our situations.

So, here's some info.
- My girlfriend came from a wealthy family. She has never had a real full time job, and honestly, I have a hard time seeing her ever having one. She's always busy and finding things to do, but is a bit flighty and see her more as a bounce around part timer or even stay at home mom in the near future. I wish I could change this about her, but I don't think I can. Her income will be minimal in any scenario.
- She would like to pay cash for a house. Partly because we are not married, and so if things don't work out, our names are not together on a mortgage. Also, not paying a mortgage is nice. I am ok with this. She currently lives with me, and I would sell my house and move in with her.
- That leaves about 800k available for investment after house purchase, fees, and a year of taxes and insurance. We are both 29.
- She has about $6 million (currently) in trust becoming available at age 55. I believe it is currently earning roughly 5% per year. So, she's set once she gets that.
- She would not be able to provide for herself on work income should I leave or get kicked out, even without a mortgage. I can provide for us on my salary alone easily, but maybe not "comfortably". If we have a child, we probably aren't living very comfortably. Both situations play out in such a way that it would be nice if she had more income than she can provide.
- I am putting about $630/month in a Roth 401k, which has a current value of 24k. In my field (software development), I expect my salary to rise quite a bit over the next 10 years, and thus my contributions should also rise fairly significantly.

So... what the heck to do? What it boils down to is with her trust and my 401k, we will be more than fine in retirement, and so I see this ~800k as available to assist us in living comfortably until then. I don't like the thought of paying ~1.5 percent per year for a management fee plus whatever fees are associated with the funds themselves, which was my impression of what I'd get from Edward Jones. I DO like the idea of investing in a dividend paying mutual fund that would provide us with some additional income we could use, while hopefully also growing the principal more quickly than inflation. The amount of additional income wouldn't have to be much to make things rather comfortable, let's say ~10k yearly ballpark. Although the dividends could pay more, we could reinvest as needed.

Any advice or suggestions of any form would be greatly appreciated, whether that be who to talk to or what to invest in (though I shy away from individual funds and prefer mutual funds, due to lack of investment knowledge). I loved the concept of Vanguard's Managed Payout Growth Focus Fund, but read some questionable things about it. Sorry if you guys get this sort of thing a lot, but I've been reading for weeks and all the facts in the world are great but it's not as easy to find situation-tailored advice. Thanks!

 

[steelyman]

You may get some sound comments from up there in the Pacific Northwest around here, but I'd think you might consider planning for things just in case the lady is not in the picture. The 401k investments will not get flighty on you!

 

[mpeirce]

The best thing you and your GF can do is educate yourselves. This takes time, so consider taking the money and simply buying a 6 or 12 month CD to park the money.

This takes the pressure off "doing something" with it right away. The worst thing you can do is rush into some investments that you don't understand and will later regret.

With that 6 or 12 months, spend some time reading books about investing. And reading this (and other) forum(s).

 

[Keim]

I'll add this forum has an excellent reading list. I particularly enjoyed The 4 Pillars of Investing by Bernstein AND The Bogleheads Guide To Investing.

 

[travelover]

Good advice to take a deep breath, put it in a CD or MM account and educate yourself.

Great start here: Investment Books

I'd also post at the Boglehead's site.

 

[RunningBum]

How about Vanguard Wellington? 2/3 stock, mostly dividend paying stocks, and 1/3 bonds. 0.17% expense ratio for admiral shares, currently getting a 2.17% yield. I'd probably also put some in the VG Total International to diversify internationally.

 

[Texas Proud]

Here is my thinking....

This money is not needed for retirement.... if she is getting $6 mill (in todays dollars... probably much more then) when she turns 55, then this is money you can use now to bridge any gaps you might have in current earnings...

I would put it in a fund that would generate current income... (target retirement fund 2010)... you can get at least $1,000 per month income without touching principal... if you went with a managed payout fund, it looks like you could get as high as $4K per month... this probably would be eating into principal, but who cares Her future looks pretty set, so might as well spend a bit of that cash over the next few decades...


This does not mean going overboard like a lotto winner and being broke in a few years... but, if done right you can have more today and still be sitting pretty later in life...

 

[daveelton]

Thanks guys. Good call on being patient with a CD or MM. From what I've gathered it would be smart to wait on a mutual fund until at least next year to avoid this years taxes anyway. Texas, that was kind of my thinking. Good to hear it from someone else though. RunningBum, that Vanguard Wellington looks perfect. It pays far more than we need and so we'd probably diversify some of it elsewhere or reinvest, but that seems like a great core fund.

 

[pixelville]

Bogleheads wiki is a great place to get started. As someone suggested, also post on Bogleheads forum.I would slowly Dollar Cost Average into the market in low-cost Vanguard Funds based on your desired growth vs income needs. Take into account tax implications of dividends when deciding on income source.
You probably want to continue putting money into your 401k for your retirement. What if things go south in your relationship at some point and you have been taking care of all expenses with no savings, but may not be able to touch her inheritance in a settlement? I know nothing in this space. Doesnt hurt to be cautious and understand the implications.

 

[daveelton]

Thanks, I'll give it a look. Bogleheads seems to be pretty popular. And I'll definitely be putting money into my 401k until retirement. I may even save some safety money each month. I wouldn't go after her inheritance should things go south, so I'll make sure I've got enough saved up should that happen.

 

[Bestwifeever]

Someone has been managing the trust up until now. Perhaps that would be a good place for her to start in deciding how to proceed. Schwab and Fidelity seem to have good reputations for guidance and handholding for someone like your girlfriend (we do not have any $$ with either).

Since this is a girlfriend of 1.5 years, perhaps that is a better way to go than to become very involved with her finances at this point, or to comingle them. And remember no good deed goes unpunished .

 

[daveelton]

Perfect, I was wondering what alternatives to Edward Jones would be good options for her (referring to the Schwab and Fidelity suggestions). I definitely agree that I may be getting into more than I should seeing as how it's not my money, and is was why I originally steered her towards an advisor. It was really just the seemingly obnoxious fees that turned me off. I have absolutely no problem paying an advisor money, I just want to make sure its fair.

 

[RunningBum]

I wouldn't tie money up in CDs. Even if you bought a mutual fund and decided it was wrong, you can sell with no real implication as long as there was no front load fee. Sounds like you have a keen eye already for unnecessary fund expenses, like you were seeing from EJ.

There's also no real tax implication in investing money this year. Taxes will be due on any interest or dividends earned, which you'll have whether you invest in MMs, CDs, or mutual funds; and on capital gains, which will only come when you sell, not buy (though the mutual fund may throw some capital gains too).

 

[pb4uski]

I would keep the amount needed for the house in an online savings account (Discover Bank, ING or whoever) so it will be there when she needs it but at least you'll earn something and set up a Vanguard account and put the rest there. For that amount of $ she would be eligible for a Vanguard financial planning session and Vanguard would recommend funds based on her needs. That also gets you off the hook should there be a downturn in the funds that Vanguard recommends.

Vanguard is unique in their space in that the management company is owned by the funds - sort of like a big honking cooperative. Most others are investor-owned for-profit enterprises.

 

[daveelton]

Thanks pb4uski! This sounds perfect! I love the funds Vanguard offers, but don't know how we should blend them. It's great we can get that service from them for free, or pay them 0.7% for constant hand holding should she prefer to start with that. Free or low cost advice directing the money to low expense, high quality funds is exactly what I was hoping to find... and getting me off the hook for a market downturn is an added bonus Thanks everyone, I'll continue to watch any responses and do my research, but this has already been hugely helpful.

 

[Animorph]

Here is my thinking....

This money is not needed for retirement.... if she is getting $6 mill (in todays dollars... probably much more then) when she turns 55, then this is money you can use now to bridge any gaps you might have in current earnings...

I would put it in a fund that would generate current income... (target retirement fund 2010)... you can get at least $1,000 per month income without touching principal... if you went with a managed payout fund, it looks like you could get as high as $4K per month... this probably would be eating into principal, but who cares Her future looks pretty set, so might as well spend a bit of that cash over the next few decades...


This does not mean going overboard like a lotto winner and being broke in a few years... but, if done right you can have more today and still be sitting pretty later in life...

+1

You can take the money to Vanguard and they will give her a recommendation of what to do with it (keeping you at a distance). Target Retirement 2010 - 2020, Wellington, Wellesley, or a simple total U.S./total international/total bond combo are all good options for modest current income. Fidelity should be able to do the same. Either would be free to get you started, and no advisor fees though they won't be holding your hand all the time either.

Beyond that, I'd try to make sure that you keep things separate at least until you get married. That would include her drawing from the $800k to share expenses equally or you getting some equity in the house in exchange for providing the monthly income. You still need to maintain your retirement saving, and may always need to do so since that $5M is never going to be in your name.

 

[haha]

Hello all, I'm pretty new to the investment and money management game as my salary is only modest and can't really do much more than dump what I can into a 401k. My girlfriend of 1.5 years (and probable wife given our age of 29) just got a rather sizeable payment from a trust fund, far more than we both expected.

If I had 1)a trust fund and 2)a girlfriend, those two facts would never meet up in her head. She has a trust officer, why doesn't she talk to him about what she should do? Massive resentments can come out of these situations. Presumably she has family and friends, many of whom are at least middling acquainted with money. I imagine you can likely guess how many would feel if she were their daughter or sister, and they learned of your interest in her money.

Also, I don't think I would lose much sleep worrying about her long term support. If anyone should be OK, she should. Not for no reason are these are called poor little rich girls.

Ha

 

[daveelton]

If I had 1)a trust fund and 2)a girlfriend, those two facts would never meet up in her head. She has a trust officer, why doesn't she talk to him about what she (not "we") should do? Massive resentments can come out of these situations. Presumably she has family and friends, many of whom are at least middling acquainted with money. I imagine you can likely guess how I would feel if she were my daughter or sister, and I learned of your interest in her money.

Also, I don't think I would lose much sleep worrying about her long term support. If anyone should be OK, she should. Not for no reason are these are called poor little rich girls.

Ha

This isn't the first sum she has received. She got a payment at an earlier date many years back, and has absolutely nothing to show for it. She knows she has made mistakes in the past and has asked my advice. My advise will likely to be to talk to an adviser at Vanguard or Fidelity, and to share what I've learned. It's her money, but assuming we get married, our financial stability is a shared interest. I don't think I'm too far out of line here, am I? Would it be better for me to be hands off and watch her blow it all? I think not

 

[haha]

This isn't the first sum she has received. She got a payment at an earlier date many years back, and has absolutely nothing to show for it. She knows she has made mistakes in the past and has asked my advice. My advise will likely to be to talk to an adviser at Vanguard or Fidelity, and to share what I've learned. It's her money, but assuming we get married, our financial stability is a shared interest. I don't think I'm too far out of line here, am I? Would it be better for me to be hands off and watch her blow it all? I think not

So it's clear where you stand. Not many people are going to find it easy to align with you on this. Just imagine it in a movie.

But if she has no family or girl friends, maybe she won't find out how others may see this. After all, she is 29, not 9.
You can hope anyway.

Ha

 

[steelyman]

Would it be better for me to be hands off and watch her blow it all?

That would be one approach. It's her (their) money. In the meantime, you can invest, you have gotten advice.

 

[pb4uski]

Thanks pb4uski! This sounds perfect! I love the funds Vanguard offers, but don't know how we should blend them. It's great we can get that service from them for free, or pay them 0.7% for constant hand holding should she prefer to start with that. Free or low cost advice directing the money to low expense, high quality funds is exactly what I was hoping to find... and getting me off the hook for a market downturn is an added bonus Thanks everyone, I'll continue to watch any responses and do my research, but this has already been hugely helpful.

Given the amount involved she could probably get a free annual fp session if she wants and avoid any fp fees at all. Once she decides what to put it in an annual checkup should be sufficient.

 

[daveelton]

So it's clear where you stand. Not many people are going to find it easy to align with you on this. Just imagine it in a movie.

But if she has no family or girl friends, maybe she won't find out how others see this.

You can hope anyway.

Ha

Your point certainly isn't lost on me. I try to remind myself constantly it's not my money, and that I have to be careful here. Her family is a difficult situation, and she doesn't talk to them much. I am quite sure she will get advice from her trust officer, and he has already expressed his happiness in her willingness to invest this time around. To be quite honest, I would be ok with her not drawing a dime of money for 10 years from an investment, but she has already made it clear she wants to use some of this money to ease our living situation. I really do understand and appreciate where you're coming from. She's expressed how, generally, she wants to use the investment, and I'm just trying to give her the tools to make the right decision. That's why I suggested EJ, and will now probably track back to advisers at Vanguard/Fidelity. I have definitely suggested she talk to her officer about this too, but will be reiterating that one now. Appreciate the input.

 

[bizlady]

Your point certainly isn't lost on me. I try to remind myself constantly it's not my money, and that I have to be careful here. Her family is a difficult situation, and she doesn't talk to them much. I am quite sure she will get advice from her trust officer, and he has already expressed his happiness in her willingness to invest this time around. To be quite honest, I would be ok with her not drawing a dime of money for 10 years from an investment, but she has already made it clear she wants to use some of this money to ease our living situation. I really do understand and appreciate where you're coming from. She's expressed how, generally, she wants to use the investment, and I'm just trying to give her the tools to make the right decision. That's why I suggested EJ, and will now probably track back to advisers at Vanguard/Fidelity. I have definitely suggested she talk to her officer about this too, but will be reiterating that one now. Appreciate the input.

It's great that you want to assist her. You mentioned that she wants to pay cash for the house "just in case". I think too that "just in case" you need to protect yourself as well. Se can afford to share expenses, and that is what you should consider so that you can maximize your retirement savings. You really do not know if your job will be 10 months or 10 years in duration. And if she were to die before marriage, unless she has a will, where does at leave you? Prenup is another matter that may come up down the road.

The advice to go slow, and use vanguard is well advised.

 

[Texas Proud]

Your point certainly isn't lost on me. I try to remind myself constantly it's not my money, and that I have to be careful here. Her family is a difficult situation, and she doesn't talk to them much. I am quite sure she will get advice from her trust officer, and he has already expressed his happiness in her willingness to invest this time around. To be quite honest, I would be ok with her not drawing a dime of money for 10 years from an investment, but she has already made it clear she wants to use some of this money to ease our living situation. I really do understand and appreciate where you're coming from. She's expressed how, generally, she wants to use the investment, and I'm just trying to give her the tools to make the right decision. That's why I suggested EJ, and will now probably track back to advisers at Vanguard/Fidelity. I have definitely suggested she talk to her officer about this too, but will be reiterating that one now. Appreciate the input.

I would be careful with the trust officer.... they are employees of a bank and their job is to get new money... and they CAN be more expensive and worse investors than Edward Jones.....



I do not see where you helping out is bad... heck, are you not supposed to help out people you love Now, if you come across as money grubbing, that is another story....


The suggestions of a Vanguard rep or Fidelity rep is good... but they might not make a decision based on the facts given... this is not money that is needed for retirement... so it should be used to make current living conditions better... I would invest it differently today knowing that another big chunk is coming years from now....


As for your retirement account... yes, I should have said that in my earlier post... you always have to plan for a bad outcome.... if you two split for any reason, you need to have something set aside for your retirement... with her money there to support current spending, it should not be a big issue...

 

[chris2008]

With her money managing skills I would think at house + 5 digit emergency fund + immediate annuity. It would provide app. 3K/month and cannot be spent in a whirlwind.
That + mortgage free living space + small salary is not too bad to have.