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A place for Get Rich Slowly readers to ask questions
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 Post subject: Need advice on saving / investing
PostPosted: Mon Oct 22, 2012 10:08 am 

Joined: Mon Oct 22, 2012 10:03 am
Posts: 5
Hello all,

I recently inherited a good size chunk of money, over $400,000 with another $100,000 coming within the next month. My goal is to have over $1,000,000 at time of retirement. Im currently 24, looking to retire at 55-60. I own my own house, and have no debt. What would you suggest to me? I would still like to access some of the money as I plan to build onto my house later on, and enjoy life.


Thanks,
Justin


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 Post subject: Re: Need advice on saving / investing
PostPosted: Mon Oct 22, 2012 10:24 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5333
You want to retire in 31 years.

If you buy US government 30 year Treasury bonds you will earn a yield of about 2.95% annually through maturity in 30 years. That will give you about $1.2 million with no risk.

But by then inflation may have eroded the value of $1.2 million and it might not buy as much as you need it to. For that reason you might want to take a little more risk by investing in a balanced fund instead. I think personally I would put half in the total stock market index and half in a bond index fund. You don't need to take a lot of risk. But the bond fund might produce income that you don't need and must pay taxes on so that might argue for a little higher stock exposure.

If you call Vanguard they will help you set up an account and, for that much money, will probably offer you some financial planning advice. It would also be a good idea to talk with a CPA about your tax situation. You might have a simple tax situation now but the income from that kind of money could complicate things a bit.

Good luck to you.


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 Post subject: Re: Need advice on saving / investing
PostPosted: Mon Oct 22, 2012 10:25 am 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 959
That is amazing: I think you should wait about 6 months to a year before you make a decision.

I hope you didn't have to loose family to inherit and hopefully you are a lotto winner!


I think you should have way more than 1 million at retire if you invest this money for the next 30+ years.

I think where you should put it depends on your investment risk.

I would put 35% in some type of low risk bonds. 45% in ETFS/stocks and the rest liquid in a mix of laddered cds and an emergency savings account if you do not have one.

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 Post subject: Re: Need advice on saving / investing
PostPosted: Mon Oct 22, 2012 10:35 am 
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fantasma wrote:
That is amazing: I think you should wait about 6 months to a year before you make a decision.
...
I would put 35% in some type of low risk bonds. 45% in ETFS/stocks and the rest liquid in a mix of laddered cds and an emergency savings account if you do not have one.


Yes, I completely agree that waiting 6 months is a good idea. Use that time to educate yourself. And during that 6 months make sure to split that money among 3 banks so that it is fully FDIC insured.

I like Fantasma's suggested investments too.


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 Post subject: Re: Need advice on saving / investing
PostPosted: Mon Oct 22, 2012 12:07 pm 

Joined: Mon Oct 22, 2012 10:03 am
Posts: 5
Thanks for the replys!!

Saddly inorder to get this, I lost my uncle (6 yrs ago) whos money went to my grandmother who lost her LONG battle to cancer in July. If I could trade the money back in for them another day I would in a heart beat!!

My brother is already talking about how hes going to invest his, but hes a get rich kinda guy. I want a smart approach to this, so I like the waiting 6 months - a yr idea. I have some phone calls into some banks / financial places around where I live, but the problem is I live in a very small rural town so this is a totally different case then most are use to. I love having some information on my side.

I was looking into treasury bonds but was not sure what people thought as it seemed to tie your money up for years.


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 Post subject: Re: Need advice on saving / investing
PostPosted: Mon Oct 22, 2012 12:43 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
What's the rest of your financial picture look like? Do you max out 401k? IRA?

If unsure, I would put into 5 yr CD's at somewhere like Ally, perhaps $10k in ibonds before the end of the month if you need time to think. If 401k is stomachable, I would max, swapping some inheritance money if need be. Max IRA, doesn't have to be done until April 2013. then I would lay low. No gift/loans to friends/family.

I'd buy the Boglehead's investing book to see if it makes sense for you (and it should). Read and comeback to ask questions. Boglehead's wiki as well.

Finally, if there was ever anything you wanted to do, I'd take a small amount, perhaps $10k max and go do it. Saving is always good, but we have to remember why we do it. If you're a nervous nelly if you aren't saving, then disregard, but if you hope to travel to some exotic place in the world in retirement, perhaps now would be a good time go. You never know when your number will be called, so save, but enjoy somethings along the way. The trick is, finding the things that make you happy, not neighbors or family.

Sorry to hear about the loss of your family members.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Need advice on saving / investing
PostPosted: Mon Oct 22, 2012 12:58 pm 
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justinb wrote:
Thanks for the replys!!

Saddly inorder to get this, I lost my uncle (6 yrs ago) whos money went to my grandmother who lost her LONG battle to cancer in July. If I could trade the money back in for them another day I would in a heart beat!!

My brother is already talking about how hes going to invest his, but hes a get rich kinda guy. I want a smart approach to this, so I like the waiting 6 months - a yr idea. I have some phone calls into some banks / financial places around where I live, but the problem is I live in a very small rural town so this is a totally different case then most are use to. I love having some information on my side.

I was looking into treasury bonds but was not sure what people thought as it seemed to tie your money up for years.



I'm sorry to hear about your loss and I think all of us understand that you'd much rather have them back than have the money.

You might suggest that your brother go along with you when to visit banks and also read this forum. At your age half a million dollars is life changing. You can put it away in a safe investment and live your life as you normally would knowing that it is there when you retire. Your brother might have enough or he might blow it all trying to swing for the fences. If he (or you) have some lifelong dream to travel of 6 months or open a small business with ~$50k or so, I wouldn't have a big problem with that. But this is enough money to make it so you know you will always have that nest egg to support you if needed so in that sense it is life altering.

Since you live in a small town you might consider putting 1/3 of the money in 1 bank in the small town and split the rest between two banks in a larger city even if it is an hour or two drive. The key thing is that the money be FDIC insured. When you talk to the bank they might tell you that there are ways to deposit in one bank to have the full amount FDIC insured. If so, that is fine.

After thinking about this since this morning I'll just add another piece of advice. You have enough money to get preferential treatment and you should expect that. I'm not saying you should expect the bank to send a limo to pick you up but you certainly should get a private meeting with a bank officer for as long as you need to understand all the details that you are unsure about.

But be careful and just a little cynical/suspicious. The bank is also going to want to get its hands on your money just to get the fees. Because even low fees of 1% a year or so is $5000 a year! Don't even think about investing at a bank, except maybe CDs.

Call up Vanguard, T. Rowe Price, and maybe Fidelity and explain that you just inheritted half a million and your brother did as well. Ask them to send you information about their services and their fees. They might just refer you to their web page but I suspect any of those three will gladly send you information in the mail including a lot of educational material. Get some sent to your brother as well...you can always hope he comes to his senses.

The bottom line is that you should be very careful with this money, especially now. I have heard stories of "advisors" who watch the obituaries and probate records and cold call the beneficiaries to try to get their hands on the money. While scams doing the same thing also occur, it is not unheard of for legitimate advisors to do this just to get your money under management to generate the fees. Ultimately you might want to go that route, but don't let anyone rush you into anything. There is absolutely no reason not to put the money away safely and wait 6 months to a year or longer while you meet with people and educate yourself.


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 Post subject: Re: Need advice on saving / investing
PostPosted: Tue Oct 23, 2012 3:51 am 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 192
As far as equity goes, it´s a good idear to spread your entry to the stockmarket over time. Even if you are shure you want to invest $250.000 - divide it to five batches of $50.000 and invest one batch every 2-6 months.

In todays climate I would not recomend you buy bonds with >5 year maturity, since the inflation is likeley to outrun your yield. If you want it safe, go for accounts and CD:s with best possible interest rate - or really cheap bond funds with <5 year maturity. Personally, beeing 24 with payed off house and $500.000, I would dedicate 25% for fun stuff, 25% safe investments and 50% equity for the long term (retirement). I would pick cheap index funds, Vanguard is a good choise.


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 Post subject: Re: Need advice on saving / investing
PostPosted: Tue Oct 23, 2012 5:45 am 

Joined: Mon Oct 22, 2012 10:03 am
Posts: 5
Thanks guys!! I have researching and looking all night!!

One thing I was also thinking about was apartment buildings? Anyone have a take on them?


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 Post subject: Re: Need advice on saving / investing
PostPosted: Tue Oct 23, 2012 6:33 am 
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justinb wrote:
One thing I was also thinking about was apartment buildings? Anyone have a take on them?


They are good to live in but not very good investments.


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 Post subject: Re: Need advice on saving / investing
PostPosted: Tue Oct 23, 2012 6:42 am 

Joined: Mon Oct 22, 2012 10:03 am
Posts: 5
So rentals are out of the game plan huh?


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 Post subject: Re: Need advice on saving / investing
PostPosted: Tue Oct 23, 2012 6:46 am 
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justinb wrote:
So rentals are out of the game plan huh?


I'd stay away from rentals until you have considerably more money (over 1 million) and are far more knowledgeable about taxes.


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 Post subject: Re: Need advice on saving / investing
PostPosted: Tue Oct 23, 2012 7:29 am 

Joined: Mon Oct 22, 2012 10:03 am
Posts: 5
Thanks for the quick replies!!! your alot of help!! :)


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 Post subject: Re: Need advice on saving / investing
PostPosted: Tue Oct 23, 2012 8:49 pm 

Joined: Mon Sep 03, 2012 1:44 am
Posts: 1
Location: Chicago
You should also seriously consider opening a discount brokerage account. You'll want to focus on the account option that best serves your needs; some accounts require a minimum initial deposit, and some don't.

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 Post subject: Re: Need advice on saving / investing
PostPosted: Wed Nov 07, 2012 7:36 am 

Joined: Wed Nov 07, 2012 6:21 am
Posts: 141
Hi Justin,

Have you heard of value investing? If not, I highly recommend picking up the book "What Works on Wall Street" (Fourth Edition) by James P. O'Shaughnessy. This book shows conclusively that value investing beats regular investing in the stock market by a large margin. Whether you just want to learn more about investing or you want to make your own investment decisions, I *highly recommend* buying this book. You can get it off of amazon.com for less than $30.

If you are interested in using value investing while not doing the work yourself, I create portfolios for people and will create the first portfolio for you for free. You can check out the results of portfolios I have created previously over at prostockpicks.proboards.com . My portfolios, which use value investing, beat the market consistently and often by large margins.

Among discount brokers, I recommend Scottrade. They have $7 trades while still maintaining good customer service. You might find cheaper discount brokers out there, but I have heard that some of them at least have poor customer service.


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