Investment advice--2 fold question

[Librarian]

We are VERY late to this investment game, but better late than never.
I intend to retire in May (56). DH retired last May (58)
We are/were both public school librarians.
Excellent state pension plan. Our actual take home pay is remarkably similar to pre-retirement income. (a lot of deductions no longer taken out!)
We have streamlined our budget in anticipation of this---debt free, downsized.
The only additional cost will be health insurance for around $1100/mo.
We can easily pay monthly expenses plus have several thousand/month to put into savings. We love to travel so we expect that to be our key added expense.

We will be coming into an "inheritance" next month. In-laws are dismantling some assets & distributing them now.
Our 3 YA children will each get around $250K and we will get around $500K.

We have recommended our children invest in a home, but only one of them might actually be in a position (job-wise) to do that at this time.

What recommendations do you have for them to invest if not in real estate (as the daughter of public servants that was the only real "investing" I was introduced to!)

DH & I simply want ours for emergencies...possibly to fund more travel in the future. (i.e. bucket list trip is a world cruise; our regular budget covers "normal" travel expenses)

How would you recommend we invest our "inheritance"?

(PS Someday there will be more "inheritance" but since that is completely unknown as to when, I don't even consider it!)

[OldShooter]

I recommend you first invest some time learning about investing. Don't be in any rush to make decisions. If you hurry and make a mistake you will remember it for life. If you wait six months and make good decisions you will not even remember the 6 month learning period.

"If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download)


"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bills first book; read it before reading his second one.)


"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Gu.../dp/0470067365

Real estate other than an owner-occupied home is not a good idea for beginners. It is illiquid, hard to diversify, future price appreciation is impossible to predict, and transaction costs are high. Owner management is a hassle and hired management will suck up most or all of the current income. Have them get 10 years of basic investing under their belts, then explore RE if they like.

[Librarian]

Quote:

Originally Posted by OldShooter I recommend you first invest some time learning about investing. Don't be in any rush to make decisions. If you hurry and make a mistake you will remember it for life. If you wait six months and make good decisions you will not even remember the 6 month learning period. "If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download) "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bills first book; read it before reading his second one.) "The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Gu.../dp/0470067365 Real estate other than an owner-occupied home is not a good idea for beginners. It is illiquid, hard to diversify, future price appreciation is impossible to predict, and transaction costs are high. Owner management is a hassle and hired management will suck up most or all of the current income. Have them get 10 years of basic investing under their belts, then explore RE if they like.

Yes, we are in NO hurry.

I had just ordered the Coffee House Investor!

Yes, owner-occupied was our suggestion--that way they cannot fritter it away. $250K seems like I alot but I could see it easily being frittered away.

DD is the only one out of college with a secure position but she isn't sure how long she wants to stay where she is now...she has done a lot of investment research already so I worry about her the least.

[mrfeh]

Quote:

Originally Posted by Librarian Yes, we are in NO hurry. I had just ordered the Coffee House Investor! Yes, owner-occupied was our suggestion--that way they cannot fritter it away. $250K seems like I alot but I could see it easily being frittered away. DD is the only one out of college with a secure position but she isn't sure how long she wants to stay where she is now...she has done a lot of investment research already so I worry about her the least.

+1 to the "do some reading" suggestion.

Here's another resource: https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

[Montecfo]

Librarian,

Morningstar has some excellent articles on investing and retirement. It is also an excellent source to research specific stocks or especially mutual funds. Much of the info is free but you can subscribe to get more analysis-but not necessary for most folks in my view.

www.morningstar.com

[kevink]

Quote:

Originally Posted by OldShooter I recommend you first invest some time learning about investing. Don't be in any rush to make decisions. If you hurry and make a mistake you will remember it for life. If you wait six months and make good decisions you will not even remember the 6 month learning period. "If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download) "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bills first book; read it before reading his second one.) "The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Gu.../dp/0470067365 Real estate other than an owner-occupied home is not a good idea for beginners. It is illiquid, hard to diversify, future price appreciation is impossible to predict, and transaction costs are high. Owner management is a hassle and hired management will suck up most or all of the current income. Have them get 10 years of basic investing under their belts, then explore RE if they like.

These recommendations - in the particular order in which you list them - are so excellent OldShooter that I wish they could somehow be pinned or posted as a Wiki on this site. Thank you for offering them!

[38Chevy454]

I think you and children are very fortunate for this inheritance. For the kids the question is what purpose and time frame for the money . If to be used towards house purchase, then the investment suggestions are different than if being used for retirement savings. No matter what, the money is after tax, so any investments will be wise to consider the tax implications.

For OP Librarian, given your nice pensions and having all your basic expenses covered, it becomes a nice "blow the dough" fund. Assuming your plan is to use some of this now and in near future, just a regular brokerage account, and an asset allocation that works for you seems a good option. Since you can withstand some volatility, you can get by with a more aggressive AA. Something like 70% equities or more could work. Just beware that you might have some downturn, but let it ride out the lows and it will recover. Use the fixed income side for the cash during this period. Have fun traveling or whatever else you decide to spend it on. From your numbers indicated this could be a lifetime travel fund.

For the kids, it might be wise to put a bunch in Roth IRA, up to what limits they run into. It would still allow for the initial amount to be withdrawn in 5 years to be used for house purchase, but the benefit is no yearly tax issues compared to a regular after tax brokerage type account. The drawback of course is the 5 year holding period. So if there is a chance of needing that money in less than 5 years, don't put into Roth. Advantage to Roth of course is the early contribution and the power of compounding over their adult working life; then tax free withdrawals on all that total. Consider their timeframe for the money, maybe a split where some is put into Roth savings and some into a brokerage savings. Provides some blow the dough money for them, maybe newer car or pay off college expenses. But still having some Roth savings for retirement. Potential hiccup is that Roth needs to be offset by having income, and limit of $7K/year. If they have any pre tax 401k type account they can do Roth conversion and make the bigger contribution, using the inheritance to pay for the tax on the conversion amount.

[OldShooter]

Quote:

Originally Posted by kevink These recommendations - in the particular order in which you list them - are so excellent OldShooter that I wish they could somehow be pinned or posted as a Wiki on this site. Thank you for offering them!

Well, thanks for the flowers.

If you like this sort of thing, here are a couple of good reads from a little farther down the bookshelf:

Charles Ellis has a recently updated edition (May 2021) of "Winning the Loser's Game," that IMO is well worth a read even if you have read a previous edition. https://www.amazon.com/Winning-Loser.../dp/1264258461

David Swensen's "Unconventional Success" is a little older, but a good read with a lot of "insider" information for retail investors. Having discovered it, I am surprised that it does not get mentioned more. Swensen is famous as the exceptionally successful manager of Yale's endowment. Unfortunately, he died a few months ago (May 2021). https://www.amazon.com/Unconventiona.../dp/0743228383

[Badger]

Quote:

Originally Posted by Librarian We will be coming into an "inheritance" next month. In-laws are dismantling some assets & distributing them now. Our 3 YA children will each get around $250K and we will get around $500K.

Would this "inheritance" not be subject to a taxable situation (gift tax) since it is more than $15k/person/yr (or $30k/yr if both in-laws make a gift)? It sounds like the in-laws will be facing a tax on $1million+ as a gift tax. What am I missing?


Cheers!

[RunningBum]

Quote:

Originally Posted by Badger Would this "inheritance" not be subject to a taxable situation (gift tax) since it is more than $15k/person/yr (or $30k/yr if both in-laws make a gift)? It sounds like the in-laws will be facing a tax on $1million+ as a gift tax. What am I missing?

First, remember that the $15K figure applies individual to individual. If the inlaws are a couple (as it sounds like) making a gift to a couple (OP and spouse), this can be 4x$15K gifts, or $60K they do not need to report.

There is a lifetime estate exemption that is currently $11.7M. If any gift to an individual exceeds $15K, they can pay the gift tax on the excess now, or apply it to that $11.7M exemption.

I think the exemption is scheduled to be halved next year, and I've heard discussion of even further reductions in the future. However, if you've already make excess gifts they can be applied to the old level. I'm hazy on the details, but the simplest case would be if they made $11.7M in excess gifts and used up that entire exemption. If the exemption is cut, the $11.7M already gifted is still safe.

I'm less clear about what happens if they make a lower amount, say, $2M gifts in excess of the exemption limit. I think that $2M would just be applied to whatever the limit is at the time of their death, so it may not help.

If you are looking at exceeding the estate exemption limit, you would want to discuss options with an estate attorney to understand this better than I do. If this is just a curiosity question, my explanation might be good enough, to know that there are advantages of gifting in excess early to apply the current high exemption.

[OldShooter]

Quote:

Originally Posted by Badger Would this "inheritance" not be subject to a taxable situation (gift tax) since it is more than $15k/person/yr (or $30k/yr if both in-laws make a gift)? It sounds like the in-laws will be facing a tax on $1million+ as a gift tax. What am I missing? ...

As I understand it, amounts over $15K given by an individual must simply be reported, no taxes, and the cumulative amount of those over-threshold gifts is considered part of the estate for determination of estate taxes. So if the net estate doesn't hit the federal threshold, (roughly $10 or 20M) there aren't any taxes paid on anything. Where state estate tax threshold exist I think they can be quite a bit lower, but the principle is still the same. IANAL and IANACPA, though.

We're never going to hit the Federal threshold unless it is lowered (which has been threatened), so I have not bothered to get more than this shallow understanding of the issue. Maybe someone with more expertise will come along and comment.