Investment advice needed

[Dawg52]

It's been a tough week. My brother, 56 years old, *lost his 3 year battle with cancer and was buried yesterday. He has a wife who is a nurse and has one daughter in college. Also has 2 sons but they are grown and earning a living.

Basically my sister in law is in good shape financially but all investments were handled by my brother. He asked me to help her with some planning. She will receive 500k from a life insurance policy and has approximately 1.5 mil in a brokerage account. *All of the 1.5 mil is currently in cash. They do not have any debt. College tuition will be her biggest expenditure over the next 3 years.

Would you advise her just to go to someone like Merrill Lynch or handled it herself? My thought is to get her started with a simple plan that she can monitor with my help from time to time. I like the idear of putting a good portion of the life insurance proceeds into an annuity to supplement her salary. She plans to work several years. I would then put half of her 1.5 mil in a balanced mutual fund (Vanguards Wellesley fund) for some growth. Then I would put 50-100k in a money market account for college expenses and emergencies, and the balance in a ladder of cd's maturing from 6 months to 5 years.

I hate the thought of paying high fees with someone like Merrill Lynch. I think a simple plan as above would work find as all she would have to do is just renew the cd's as they mature. What kind of advice would you give her?

[unclemick]

Wait

Let her get though enough of the greiving period - to find out what she has in mind and how much she wants to handle. Is she working and what are her plans.

I wouldn't rush off to anybody yet. There is a blizzard of information out there. It may turn out your brother's broker account is okay or not. Play it by ear - there are plenty of posters here that can offer up the information sources that they rely on.

Me - I'm a Boglehead leaning toward Vanguard's Target Retirement Series of late. And a past Wellesley owner - plus play the dividend stock game with 15% of my portfolio.

There are other ways to skin the cat. Don't rush.

I am sorry to hear of your loss.

My suggestion is to stay away from Merrill Lynch or any other brokers. You'll get better advice right here -- and it's free. Aside from the annuity, your preliminary plan sounds like a reasonable first step. Take your time, there's no need to rush into these decisions. She can probably be more aggressive than 50% in Wellesley and the remaider in CDs. Hwo old is she? Does she own a home?

[unclemick]

One more thing - it really pains me to say this - women who take an interest in their own finances - often do much better than men,

They don't have male hormones.

[BigMoneyJim]

I'm sorry for your loss.

Waiting is a great suggestion. With money it's usually much easier to make mistakes--or at least costly decisions--doing something than letting things stand.

From your brief post I'd say following your suggestions would be far far better than paying an advisor.

My pondering is whether you would continue managing money or whether she would manage it after you set it up and explained what's what. I can't possibly help with that one given I know neither of you.

I could contribute just as much by wiping this post and writing "what unclemick said".

[Dawg52]

She is 54 and a nurse. The money is currently with Fidelity. I'm not a hugh fan of annuities but I suggest that as it would be an easy means of taking care of her cash flow needs. You are all correct not to rush into anything.

I do not live in her town(only 2 hours away) but her 28 year old son lives close by. He is very conservative and works for a bank. I feel he will be able to help monitor things over the long haul.

Thanks again for the comments.

[brewer12345]

DOG50, you have gotten good advice so far. I think there are two ways to go here. One is to develop a plan on your own, maybe doing a bunch of reading and bouncing ideas off people here. Then just implement it and rebalance annually. The other approach would be to hire a fee-only planner with good references, credentials, etc. Such a planner would charge an hourly fee to set up a comprehensive financial plan, but that would be the extent of what it would cost (unlike a Merrill, etc. that would ding you year after year).

Personally, I don't think this stuff is that hard and you don't really need to hire a planner. However, some people like to get their plan "blessed" by an expert, so that might be worth a one-time outlay of a couple thousand bucks.

Either way, encourage her to lay off any considerations for 6 months or so. Let her see what her life is like as a widow, and then do some planning. Definately don't do anything irrevocable like a payout annuity until the settling/greiving period is past and a complete plan has been put together.

[Nords]

Only time can affect the loss, but these two books can make you (or her) feel productive in the meantime: "Sudden Money: Managing a Financial Windfall" and "Navigating the Dark Side of Wealth: A Life Guide for Inheritors".

Both address the mechanics of inheritances along with some of the attendant psychological issues that could definitely make one vulnerable to brokers & advisors. "Do nothing for six months" is some of the best financial advice you can ever get, especially at this price.

[LovesLife]

Please accept my condolences on the loss of your brother. It must be a very rough time for you and your family.

Speaking from experience, I have been down this road rather recently. Those FP's will be after her like sharks in the water but disguished as nice caring people. The best advise given is to have her wait on investing. Have her place her money in a safe place until she feels comfortable in her knowledge in what is in HER best interest.

I can't stress enough how fast a FP will slice and dice her funds until she has no idea what is what. Good luck.

LovesLife

[Eagle43]

I also send condolences and best wishes.

Also, read these replies from these guys on the forum. Don't do anything soon, probably 6 months or so. If and only if, you gotta move the cash soon, call Vanguard. Otherwise, just wait. Especially wait on the annuities, until all are thinking clearly .

I wish her and you well.

[haha]

DOG, I am very sorry to hear of your loss.

I am confused by one thing. Your sister in law is working woman with 2 adult sons, at least one of which is a banker and presumably educated and prudent.

It would seem that your own prudent posture doesn't have much to do with their money, which they should be able to handle on their own. Unless the family is very different from any I have ever seen, they will want to do just that.

All I see in it for you is trouble.

Mikey

[Dawg52]

Quote:

DOG, I am very sorry to hear of your loss. I am confused by one thing. Your sister in law is working woman with 2 adult sons, at least one of which is *a banker and presumably educated and prudent. It would seem that your own prudent posture doesn't have much to do with their money, which they should be able to handle on their own. Unless the family is very different from any I have ever seen, they will want to do just that. All I see in it for you is trouble. Mikey

We are all very close and as I said above, my brother asked me to help get her set up under a plan. She is intelligent but does need some hand holding when it comes to finances. All I want to do is get her started. I think Nord's book recommendations are a good idea. Thanks for all the good advice. I will definately recommend doing nothing for 6 months and will get her and myself some info to read.

[cute fuzzy bunny]

Everything everybody else said, plus at that income level I believe vanguard will provide an advisor to help you decide at no charge...You should be able to qualify for 'flagship' level service by investing $1M+

[peteyperson]

Quote:

It's been a tough week. My brother, 56 years old, *lost his 3 year battle with cancer and was buried yesterday. He has a wife who is a nurse and has one daughter in college. Also has 2 sons but they are grown and earning a living. Basically my sister in law is in good shape financially but all investments were handled by my brother. He asked me to help her with some planning. She will receive 500k from a life insurance policy and has approximately 1.5 mil in a brokerage account. *All of the 1.5 mil is currently in cash. They do not have any debt. College tuition will be her biggest expenditure over the next 3 years. Would you advise her just to go to someone like Merrill Lynch or handled it herself? My thought is to get her started with a simple plan that she can monitor with my help from time to time. I like the idear of putting a good portion of the life insurance proceeds into an annuity to supplement her salary. She plans to work several years. I would then put half of her 1.5 mil in a balanced mutual fund (Vanguards Wellesley fund) for some growth. Then I would put 50-100k in a money market account for college expenses and emergencies, and the balance in a ladder of cd's maturing from 6 months to 5 years. I hate the thought of paying high fees with someone like Merrill Lynch. I think a simple plan as above would work find as all she would have to do is just renew the cd's as they mature. What kind of advice would you give her?

Hi dog,

Some very good advice I've read from several good sources is to do nothing for at least six months. The reason is real simple. Everyone's emotions are not strong and any decisions made could be flawed. In fact, having the money presently in cash is the best thing as one can leave it there and not be concerned about whether to sell an investment one has but doesn't understand (is it right to sell or would that be a mistake?) One cannot undo a bad financial mistake once made, so avoiding making one is the best idea for a while.

So do nothing is my advice. Roll the CDs over. Advise your sister-in-law to take her time. Greave. Then look at it fresh. As you outlined the financial position is excellent.

In terms of finding investment managers, I would not go with someone like Merrill Lynch. The problem is that many managers will charge 1-1.5% e/r, plus the mutual fund fees on top of that. Long-run real returns (after inflation) from a balanced portfolio is only 4%, so these fees can take over half the return! This will leave your sister-in-law with too little to live off.

There are several US investment firms I would recommend judging by the way they seem to conduct themselves. The two things to know about them other than trust, integrity, etc., are access to DFA funds (http://www.dfaus.com/) which provide the highest index low-cost returns of anyone in the US and that the advisor is fee-based and not commission-based. This ensures with a $1.5-2m nest egg that the fees will be a modest percentage of the total. Typically 0.50-1% most likely, with index fund fees on top of that.

The writer William Bernstein runs a low cost investment business that follows the advice in his book, Four Pillars: http://www.efficientfrontier.com/efa.htm. IFA look excellent too. Setup by someone who got ripped off by the expensive fund managers and so setup something low cost for others. http://www.ifa.com/ Lots of good info there and there is a free eBook at the IFA site that will be invaluable to you (good to read in the time between now and later so you come to it well informed). Rick Ferri is respected and posts frequently on M* message boards: http://www.psinvest.com/.

I feel these would provide a considerate and low-cost investment service. Dimensional, IFA.com and Rick Ferri all have writing on their site which help people think about investing and give a better idea as to what is involved. It is designed to be easy to understand. Start with http://www.ifa.com/ which is very informative and interactive. Nice way to break in.

Petey

[peteyperson]

Quote:

She is 54 and a nurse. The money is currently with Fidelity. I'm not a hugh fan of annuities but I suggest that as it would be an easy means of taking care of her cash flow needs. You are all correct not to rush into anything. I do not live in her town(only 2 hours away) but her 28 year old son lives close by. He is very conservative and works for a bank. I feel he will be able to help monitor things over the long haul. Thanks again for the comments.

DOG,

Please, please, do not buy annuities.

I cannot stress this enough.

They are a high commission, high fee, low return investment sold on behalf of insurance companies who then take the money. The son will not recieve a penny later. They also have a terrible history of investing assets.

An independent financial advisor - not one associated with a Wall Street firm - will charge a simple hourly fee to listen to her concerns and talk her through her investment options. This is the smart way to go. Annuities represent the single worst thing she could do.

BTW, whilst I'm sure the son may have her best interests at heart and perhaps some knowledge, you will be best going to someone trained to offer investment advice and manage assets sensibly. Being a banker he does not have that kind of training. He may have broker training or be familar with the investment products sold by his bank, but nothing more. Go with someone independent who has studied for years to be able to knowledgably provide an investment service.

Petey

[lazyday]

My condolences as well.


Many people think that equity markets are highly priced today. If that's true, it reduces the risk of holding a lot of cash for awhile.

I'm not saying that holding cash is a good investment idea, but if there are already other reasons to do so for now, an expensive stock market might make it easier to let the cash sit for a bit.

One thing I might do relatively soon is switch to a higher yielding form of cash, depending on what the cash is in now. (Some brokerages only yield .5% or so on cash. In comparison, Vanguard's money market fund yields 2.38%.) Other options might include CDs or a short term bond fund like VFSTX, VSGBX, or SHY. Those should be available within the Fidelity account, other than perhaps CDs. Others here could give better advice than me on short term money, if you need it. (Short term bond funds do have a little risk, and will go down a little when interest rates rise.)

I second Petey's objection to the huge fees likely with Meryll. There are affordable planners out there who charge much less than .5% for accounts of that size, and might provide other important services besides investment choices. (Such as setting realistic financial goals and understanding risks.) There's plenty of time to find one who is competant, honest, and low priced.

[Spanky]

Sorry for your loss. CD is very attractive given the negative returns (YTD) of all other investments.

Penfed offers 5 yr CD at 5%:
https://www.penfed.org/rates/certrates.asp?app=CDA

Given the large amount of cash (>= $2 mil), a 5% return is enough.

If you think CD is too conservative, a couch protato portfolio may be more appropriate.
Scott Burns has a new article on building a couch potato portfolio.
http://www.dallasnews.com/sharedcont...153f93882.html


Spanky