Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

What would you do with a large inheritance?

edited August 2012 in Fund Discussions
To reintroduce myself, I occasionally posted on FundAlarm. I have tried to follow the MFO discussion board, however, being the eldest child and niece of many ‘senior’ seniors took much of my time. The last of that generation recently passed. I may soon have time for myself.

So herein lies my concern. I knew I would receive an eventual distribution and will within a few months. Since learning the hard way many years ago and ‘investing’ money with a financial ‘salesperson’, I learned to take care of my own financial investments. The majority of our assets are in IRA rollovers; I am pleased with them. My husband started collecting his RMD’s this year; I will in two years. Our emergency fund is covered. The inheritance isn’t money I need.

Herein is where I am asking for your thoughts as I make a decision on investing a large sum. The ‘salesman’ where most of the funds are coming from ‘told me’ years ago he wanted me to buy life insurance (from him) on myself for estate planning with my eventual distribution. Of course!

My Uncle was the eldest of 11 who grew up during the Great Depression. It was a very difficult time for him. He worked very hard and was very careful with his money, and I want to protect what he left me. I may give some to younger family members; I may take a very small amount each year for – at this time - unknowns. I am looking at tax free or tax friendly investments. I know nothing about purchasing individual bonds. I know how to research and purchase muni bond funds, but this area is new to me. I know there are tax friendly stock funds or individual stocks as well as ETF’s. Maybe even a balanced fund or two?

Should I not try to do this by myself? Should I be looking for an adviser who doesn’t sell a product but may give me direction on how to invest this distribution? I checked out local members of Napfa, and there are base fees of $5000, $10,000, 1% of 2m. I did have a conversation with a Vanguard rep and was going to visit the local Fidelity office as well as T. Rowe Price. My bank wants to talk with me, too – caution! I’m just looking for input on what others would do. I learned much in the past from FA posters. Now I’m hoping the MFO posters will assist me. Before releasing the funds, I will take my notes to a CFP that is provided to me at $150/hr as a member benefit thru where I have my 403b, T. IRA rollover, and Roth. Just trying to do my homework.

I remember awhile back Will came to FA when his Father passed, and Will was looking for investments to protect a 1m inheritance in memory of his Father. He would sometimes post his investments. I believe it was Catch who posted here when he was trying to help a relative who received a large inheritance, but I don’t know what the eventual decision was.

I look forward to learning from you. Thank you.

«1

Comments

  • edited August 2012
    If it was me (and keep in mind this comes from the perspective of someone younger trying to put themselves in the shoes of someone older)

    No particular order:

    1. Pay off debt (if any).

    2. This is going to depend probably on age (in terms of what approach), but make sure you are well set with insurance - whether it be long-term care insurance or otherwise. So many people these days run into a medical issue and then the costs spiral out of control. In other words, invest in yourself.

    3. I would not put it all in mutual funds or other such investments. A portion of the money should go towards tangible investments - land, art, prec metals, rental property, any number of things could be within this category.

    4. Do not put all the money to work - do leave some cash for unknowns or just the ability to be opportunistic if things come along.

    5. If you give to younger family members, maybe have a family gathering where you can discuss investing and get them started. There needs to be financial education in this country and there just isn't in schools, so helping someone understand at a younger age investing is definitely a good thing.

    6. What's something you've always wanted to do? A special trip? Again, some investment in yourself.

    7. Definitely look for a fee-based (family members work with a planner whose fees are partly performance-based, which has been a tremendous improvement over when they were at a broker) adviser if you go that route.

    Others will be able to discuss tax-free investments such as munis better than I, but I do like as a low-key, fairly low-tax fund Pimco Unconstrained, which is a bond fund that focuses on absolute returns rather than yield. Its yield is 1.97%, but the fund has done reasonably well in all environments, including 2008. Pimco Unconstrained can also bet on rising interest rates and remains an interesting alternative fixed income product. Many stock funds generally do not create large tax issues in terms of dividends/distributions, but there's no way to know that a particular fund won't have an unusual distribution at year-end one year. However, the choices when it comes to individual stocks and funds are so broad that it becomes a matter of what would be your risk tolerance and other such factors.
  • Thank you, Scott. You were there for me back on FA, and I still hold some of your recommendations in an IRA. My posted was getting long; I should have included no debt, LTC purchased long ago (excellent policy), have a second home - mostly escape for Midwestern winters.

    Yes, I have been doing my best to educate our two children and now our two grandchildren. I totally agree that education is lacking in this very important area. And, then, when so much time is spent with one's career and children, finances can take the back burner. I am doing my best educating our grandchildren. Lesson one was many years ago when in a restaurent I gave them the choice of a beverage - or water and money that the beverage would have cost. You know what they chose. LOL Last night my 8 year old asked me how much a stock costs as he's interested in buying stocks. We started talking Disney, Harley Davidson, McDonald's, etc. My g'kids finish the phrase when I begin it - "If you spend it - you can't save it." Doing my best!

    And, yes, Rono many years back also told me when I was saving toward retirement to be sure I thought of myself and used retirement funds on myself. Fortunately, even though I have been caring for relatives for more than 25 years, I am in excellent health. My goal now is to take care of myself and learn how to focus on myself.

    I have put 'fee based - based on performance' on the top of my priority list. Thank you for your efforts in assisting me - very much appreciated.
  • So happy to be of help!:-)

    A few minor notes/clarifications:

    The adviser's fee is partially performance based and partially a standard fee (it's definitely not "hedge-fund style" 2% and 20%, but it is similar in that there is a standard management fee and a very small % of performance fee)

    I forget the exact % of the fee, but it seemed reasonable. Given that the adviser has what I would call an "absolute return" approach (long/short flexibility, use of a fairly wide array of various funds), I thought the fee seemed reasonable. However, I think the performance fee works because the adviser is dealing almost entirely with people at or near retirement. So, while the adviser is very active in terms of moving and monitoring, the risk level is acceptable and the ability for them to go short is a nice added touch - in other words, just because there is a performance fee has not meant taking on oversized risk in order to try to boost fees.

    These family members had been previously working with someone who was sort of a broker and sort of a financial adviser, but it became very clear that the funds used were funds that were told to be used "from higher up" in the company and that this broker/adviser wasn't really paying much attention - it was get into some of the funds the company wanted to sell (although some of them weren't the worst funds ever), and then largely autopilot.

    Having some fee based on performance as well as a sort of "absolute return" approach with the new adviser almost seems to make the fees more reasonable because of the amount of work and monitoring the new adviser is doing, whereas the fees for the prior adviser/broker didn't seem to be really going towards much of anything. You had a broker whose view of a 2008-style situation was "it's a bad year, it'll come back" and the adviser who actively worked in 2008 to protect against downside significantly, then was able to find opportunities when things started to come back.

    I think it's tough to find someone good, but from my viewpoint (and not just the above scenario, but watching other family near retirement age), you definitely want a financial planner and not a broker. I think it's also good to get a sense of the client base - that's not a must, but I think getting someone geared towards people near retirement age and understanding of risk tolerance is not a bad idea.

    You may want to devote some money to an adviser and handle some money on your own.

    Poster Bob C is an adviser and can probably offer some great advice about how to best research an adviser/what questions to ask/etc.






  • edited August 2012
    Reply to @scott: Hi- you read my mind regarding Bob- I'm going to see if I can attract his attention to this one.
  • Thank you again, Scott, Old Joe, and hopefully Bob C. I've followed Bob C for years.
  • edited August 2012
    "3. I would not put it all in mutual funds or other such investments. A portion of the money should go towards tangible investments - land, art, prec metals, rental property, any number of things could be within this category."

    I agree with this above. For legal protection against tort claims ( slip and falls, etc ) I would buy rental property inside some form of LLC. Then have someone manage the property for you. The issue with me would be finding property with reasonable taxes and up keep cost.

    As for managing this money yourself:

    That would depend on the amount involved. I would only manage the amount that i felt comfortable with. And you must look at protecting this new money as well - I sure would not place twenty million in one single account. All issues should be looked at ( e.g.. legal, tax, protection against market loss, etc ) then you should decide how much responsibility you wish for yourself.

    Personally, I manage all our family assets. However, this may change if we ever won two hundred million in the lottery. Because at that point i believe my time would be better served drinking margaritas from my yacht.

    Edit:

    Do NOT invest with any so-called "bank." I would contact BobC from this forum in private ( since I agree with his investment philosophy ) and he doesn't invest in any second rate mutual funds. I would discuss any fees involved and go from there.

    Regards....

  • Reply to @perpetual_Bull: I like how you think. Your last sentance is spot on!
  • Thanks - Bull. I have always done the money management in this family, too. No, not enough $'s to be drinking margaritas from my yacht - drinking Miller Lite from my pontoon is more like it, and that is fine. I know $ amounts are sensitive on this forum, but in order for me to receive advice, I should state the amount is a bit over 1m. All investments (besides the two homes) are in rollover IRA's, 403b/TSA accounts. To date I have not had to be concerned about tax issues on these funds - that is until withdrawals/RMD's are made. I am forced to learn a lot more now that I can't tax shelter this money, and that's okay. One step at a time.
  • Greetings, Dian. I want to ask, how large is a "large" inheritance? Anyhow:

    1. Yes, pay off debt.
    2. PRESERVATION of capital must be a chief concern.
    -That means: lots of safe bonds or bond funds with regular dividends AND
    -investing is SOME equities to attempt to keep up with inflation.

    If you are well-enough-off, look into muni bonds, which would be tax free for you. If not so well-heeled, the no-tax feature will serve little purpose.

    3. Decide how much you don't want to touch, in order to leave it for the generation behind you. Segregate that in an IRA, Roth or Trad. (I don't know the fine points well enough to recommend one type of IRA over the other, given your particular situation.)

    Samples, to start the decision process:
    BONDS: DODIX, MWTRX, maybe a bit of high yield, MWHYX. And a bit of EM debt: PREMX, MAINX.

    Equity funds: MAPIX and/or MACSX. MAPOX (balanced fund with both stocks and bonds.) PRSVX, BERIX (the latter is also balanced.)

    BREAK A LEG!
  • Just received your edit, Bull, and Mark's response. I don't plan to invest these $'s with my bank, but they sure want to talk with me. I thought maybe I would just listen to their 'financial planner' and maybe FWIW just take his proposal to the CFP as stated above - another learning experience. Thank you for your trust and advice Re: Bob C.
  • Hello Max, and thank you - Been following your postings for quite some time. The $ amount is just over 1m; small to many - large to many. No debt here, preservation is the key. I do see muni-bonds as part of the package, and receiving dividends would be fine. This 'taxable investments' area is new to me. I do have DODIX, PRSVX, BERIX as part of IRA retirement $'s - very happy with them.
  • edited August 2012
    Reply to @Dian: To throw something out there, it's understandable the tax benefits of munis, but I think in terms of "preservation is the key", I think over the next decade, it's really going to be a matter of diversification globally, whether it be equities or fixed income. I'm a bit concerned that some of what are considered "safe havens" of today may be of higher risk a year or five years from now.

    AQR Risk Parity (AQRNX) is a fund that you definitely could consider; that is a fund of multiple buckets - fixed income, inflation (commodities/global TIPS), equities (indexes) and currency/credit ("The strategy will dynamically invest in over 60 markets based on the fund managers’ views while maintaining a diversified, risk-balanced portfolio. The Fund will incorporate drawdown control, stress testing, and volatility forecasting to help manage risk while implementing the strategy.")

    The fund has done well - a detailed paper on the risk parity strategy is available on the fund's website. It's a unique, global balanced multi-asset fund. I own the fund.
  • edited August 2012
    Dian,

    Yes... have some of that " learning experience " myself. We should do one of those silly lawyer type commercials " my broker lost me $$$. " Anyhow, it took me many moons of careful investing and investing during two bear markets to make my come back.

    I've worked very hard during my younger days. The days when you could make great money working from off shore drilling rigs. I was wise enough to invest most of my earnings. During the dot.com bust my former broker advised his clients ( me ) to buy tons of high tech. Many of these stocks went belly up. So, i learned the hard way. I now manage all my accounts and give my family & friends investment advice. I believe that someone must experience some market losses before they find their personal risk tolerance. These market losses were served real cold and without ketchup in my world. When you're down 250,000 ( real loss, not coming back ) it is a hard pill for sure.

    Today, my personal accounts are worth well over the million mark. We even paid our home off and started investing for our children. Our goal is living on the California beach somewhere - someday. We've really had enough of our cold winters and hot dry summers.

    Enough about me. Taxable money is more difficult because of taxes and lack of legal protections.

    I will reply in further detail this afternoon

  • Hello Scott RE: Munis - I do think about the cities heading for bankruptcy. But, that shows my ignorance in this area, because not all munis hold that debt. There are many high flyers out there, but for how long? Wells Fargo has an Advantage Muni fund that has done very well. Wells Fargo took over Strong Funds, and the WF Advantage funds are managed down the road from where I live. Risk Parity is a new fund classification for me - always changing - always learning. Very interesting fund. A quick google found AQRIX has 5m minimum for individual investor, 100,000 thru financial advisor. AQRNX has 1m minimum for individual w/1.48 gross expense ratio. I'll look into it further. Thank you.
  • edited August 2012
    AQRNX is available for less of a minimum at some brokerages - Ameritrade is one, and I believe another poster said another brokerage had it for less than $1m, but unfortunately I can't remember at the moment.

    You may be able to invest with hedge funds, as well - another option to consider, although not sure where to start with that.
  • Yup, Bull, hear you. In '87 after selling a rental property, a phone call comes from a 'financial advisor'. Obviously a public document showed this sale, and that is how he found us. We agreed to meet - very foolish of me - but then again, the positive out of the negative eventually arrived - I learned to be my own advisor. He had placed us in load funds - sorry but my ignorance didn't even allow me to ask what that meant - one was 8% and one was 5% - I'm embarrassed to admit. Yikes - shutter when I think of it. Of course, within a month the crash/correction of '87 came, and, of course, he sells us out at the bottom and just leaves us there. No attempt to get us back in while the slow climb upwards begins. He even had the nerve several years later to call us and ask us to do retirement planning with him - a new area he was entering into. Didn't happen. We all have our stories. I try to protect my adult children from this thru my experiences. Hope I'm making a difference. "Fool me once, shame on you; Fool me twice, shame on me," Leaving now for that Friday night fish fry - will return later.
  • Dian, hope you can kick back and enjoy life in your golden years. However, I would be real wary of being bombarded with advice from here and there because in many cases you will be receiving very biased advice that may not be suitable for your particular $1,000,000+.
  • Hiyield007 - thank you, and exactly my reason for reaching out so I can sort out the many options. I have experienced my share of very biased advice. There is plenty of that out there, I know from experience. My problem is finding someone who cares about my future and not theirs.:) I will be careful going forward.
  • If this was Facebook, I'd "LIKE" that latest posting.
  • Hi Diane
    sorry to 'bud in'. You may consider having different accounts at different firms [i.e. fidelity, schwab, vanguard], etc... Previous recessions taught me a lesson [although I am very new at this game] to have your eggs in different baskets so they all don't break. I think if you have accounts in schwab the fees are free [at least this is what they did for me]. Also at this stage of your game, capital presrevation maybe your ideal and ultimate goals. You may consider buying couple of funds that have these ideal goals. My mom asked me these questions just right before the crash, I was very new at this game and she was scare at that time; she ultimately got an annuity [only a few hundred thousands] and she is still pleased w/ the results.
    maybe you consider getting the best few funds that are posted in this board and put money in those baskets [funds that are owned by catch22 that he post weekly - I would consider these ultimately the safest]
    good luck
  • edited August 2012
    Howdy Dian,

    First, I salute your compassion and endurance for your longtime efforts with your family members. Second, you mentioned Will from a few years ago; and I have have wondered how his plan has worked with the monies. Thirdly, your note indicates a very good program in place for teaching the young'ins, that your house has maintained a working and productive budget over the years, which now finds you and yours in a very nice monetary position. Hats off to your house for this effort.
    Okay.....you mentioned being able to visit a Fidelity office; and this is my one and only notation regarding an annuity (any annuity), although a tax attorney and one's special circumstances could offer other thoughts regarding other types of annuities, too.
    Fidelity has a plain annuity, without any frills, and the primary function is to tax shelter current earnings, but gains will be subject to ordinary tax with withdrawals, as normal. No insurance benefits, etc. with this plan. This annuity could be for a circumstance such as you have encountered; being a spot to grow monies and defer current taxes. I too, as has been mentioned, will agree about possible muni bond funds. Fidelity has a few that have performed well, with multi-state exposure to lessen local impacts from a default; although you would not receive a full tax edge with such funds.

    Fido Muni Funds


    The goods:

    --- Fido Personal Retirement Annuity, Main page

    --- 55 Funds, Avg. Annual Returns, Quarterly Numbers

    --- Funds, short term performance, 1 year-YTD

    Before I forget, there is a limit as to how many times one may transfer (I recall 4) monies among the fund choices with this annuity and this would be a question for the Fido office; although I know the info is plugged somewhere into the web links above.

    Briefly, this annuity cost = the expense ratio of the underlying fund and a .25% annual fee on invested monies. My quick and dirty view indicates an average total of about 1% expense.

    One has 55 fund choices, including long time well managed funds as Growth Co. and Contra, as well as funds from Blackrock, Franklin-Templeton, Invesco, Lazard, Morgan Stanley and Pimco. There are 12 target date/retirement funds (Freedom and Funds Manager) that I personally would not use, so one has 43 remaining choices. If you chose such an investment, it is possible that some fund style overlap would exist for this measured against your other tax sheltered accts.

    The combined YTD return (if one had placed equal monies into all 55) is 10.3%.

    If our house came into a large sum of inherited monies, and we needed more time to consider other investment areas (rental house, etc) or a place for some of the money; I would not hesitate to place monies here for parking. Yes, when we developed a plan for some of the money, we would be taxed upon withdrawals; but I/we would rather pay tax on a gain, versus parking the money in CD's at the credit union during this low rate period.

    I recall Vanguard, and Jefferson Pilot Ins. Co having a similar annuity type, but I do not have any details.

    Lastly, a consideration of 529 accts or state pre-paid tuition programs, if not already in place; or that anyone may add monies to a 529 acct. for the grandchildren. We live in MI, but have our daughters 529 acct. with Utah. 529's may be opened and maintained with very low annual amounts; but the one snag is some lack of control of what funds the monies are invested, as only one transfer/shift of monies per calendar year is allowed from and into any investment style/funds.

    I will also agree with other's notations here, based upon most of your monetary bases having been covered; is for you and yours to treat yourself and indulge a bit.

    Okay, winding down a vacation and time for the head to hit the pillow.

    Take care,
    Catch
  • Regarding debt - generally a good priority, for financial reasons (reasonable certain rate of return), psychological reasons, and planning reasons. But if that debt is a mortgage, these days, it's hard to make a financial case for paying that off. A mortgage is effectively a way to leverage investments - you borrow at a low rate (the rate of your mortgage) and invest for a (hopefully) higher rate of return. Both the mortgage and the investments are long term, so they're well-matched. If we were not in such a low interest rate environment, I'd say one should pay off mortgages, but right now, it depends on your comfort level.

    Regarding annuities - these are effectively equivalent to nondeductible IRAs. You put in post tax money, and what you pull out is taxed as ordinary income, except for the amount you put in. (Because of a quirk in the tax laws, the first money you pull out of annuities, unlike IRAs, is fully taxable; it's only when you draw down to the initial investment that you get the post tax money out without more taxes. Unless you annuitize, and almost nobody does that.)

    I write all of this because nondeductible IRAs (unless you convert them to Roths) and annuities generally don't make sense (run the numbers) unless you have the money invested in them for decades. I think I'm one of the relatively few people here who will speak positively about deferred annuities, but only where there make sense.

    Regarding the ones Catch named - Fidelity's VIP Contra fund (3*) is managed by the same team that manages Fidelity All-Sector Equity (FSAEX), which I view as a clone. It is not managed by Danoff. Regarding Growth Co. (a retail fund FDGRX, managed by Steve Wymer since 2007), the annuity offers VIP Growth Opportunities, managed by Wymer since 2009. It is this fund that's the clone (or near clone) of Growth Co;, not VIP Growth, or VIP Growth Stock, two other funds offered in the annuity.

    Also to consider in the annuity space (if you're still so inclined) is TIAA-CREF. Their Intelligent Variable Annuity charges 35 baiss points in a $100K annuity (25 basis points over $500K), and this drops to 10 basis points after a decade. They offer a similar number of funds to Fidelity, and the funds in their annuity are usually institution class shares (cheaper). A wider variety of fund companies and managers, and generally better performance.

    Regarding muni bonds - despite all the horror stories, they're still some of the safest investments. The general rule of thumb is that individual bonds make sense only if you have a min of $100K to invest (taxable), or $50K (muni). With the slight increase in muni bonds these days, maybe $100K+ in munis might also be advisable. The problem with munis (as with all bonds) these days is that the rates are so ridiculously low, that it's hard to justify the risk. You're looking at 10 years just to get 2%. Remember that you're effectively locked in - individual bonds are expensive to trade, and if rates drop, you won't get 100c on the dollar for your bond (i.e. you'll only break even by swapping bonds, even if you ignore trading costs). I really like munis as a class - unlike taxables, you are more likely to get what you pay for (out to 20 years, yield seems fairly proportional to maturity), relatively low risk (still), and about a decade ago, they got more transparent and easier to buy. Still, I'm not sure what strategy to apply to them in this market. (See last paragraph below for short term muni fund.)

    Regarding insurance - Life insurance has two uses I'm aware of. One is for estate planning - a way to transfer assets and avoid estate taxes. Depending on your assets and plans (e.g. not needed for bequests to charities), this might make sense. A second is to replace income that others rely upon if you pass away while you're still bringing in income. If you're close to retirement, this might not make sense for you.

    What Consumer Reports says about long term care insurance is that it makes sense primarily for people with assets between $200K and $2M. So this is something that you may or may not want, depending on age and assets. If you are considering this, I suggest you look into policies that participate in Partnership for Long Term Care. This is a way of getting Medicaid to take over (wtihout spending down all assets) if the long term care policy runs out.

    I'm sorry that most of the comments above seem to be of the nature "don't do this, don't do that". It's relatively easy to point out the limitations of various products and services. It's much harder, especially with the limited information here (and you don't want to disclose more in a public forum), to say what would fit your particular needs. A good financial planner (possibly working in conjunction with a lawyer and/or accountant) , on a fee basis (not commission), who will look at your whole picture (not just investments), would seem like money well spent. You could drop the cash into something like Vanguard Limited Term Tax-Exempt Bond Fund (VMLUX), while figuring out what to do. Something like this doesn't seem to fluctuate by more than a percent over months, and pays about 2% federally tax-free. So at least you get something for your troubles.
  • Reply to @msf: Regarding VMLUX: Morningstar gives a yield of 2.06%, but Vanguard's site gives the SEC yield as 0.69%: https://personal.vanguard.com/us/funds/snapshot?FundId=0531&FundIntExt=INT

    Quite a difference, and I'm not really sure which one to go by.
  • Hi Dian,

    I came into an unexpectedly large inheritance a few years ago (the inheritance itself wasn't unexpected, but the size was), and the lessons I learned were to take my time figuring out how to integrate it into my life, and not to get married to advice on or ideas about specific investments early on. My situation was not as complex as it sounds like yours may be, and it still took a full year to figure out and integrate.

    There is one category of larger considerations that I don't see mentioned in the posts so far, which may or may not apply in any way to your situation: if there are charitable organization(s) or cause(s) you find compelling, you could consider a planned giving setup with a non-profit group for some portion of the assets. Larger organizations have planned giving specialists who work with potential donors on this kind of thing, and there are attorneys and accountants who specialize in the area ... again, if something along those lines is of interest or is applicable to your situation.

    Best o' luck,
    AJ
  • Dian, it would seem to me that you have a good background and grip on the situation. If I read your initial post correctly you feel that your financial house is in pretty good order and this gift is icing on the cake, a truly great position to be in.

    You have already received a number of useful checkoff items and suggestions (e.g. eliminating bad debt, avoid the banker, spread your assets around, avoid the bankers advice, watch out for the sharks, avoid the banker etc.) and did I mention avoiding the banker. You might also wish to include insurance sales folks in that avoid list when it comes to what you should do with the inheritance. You have also received some fund and annuity suggestions and information. You have not mentioned how the assets (inheritance) are currently allocated and maybe it's not important to this discussion except that your uncle was a saver and apparently did quite well in that regard. You mentioned looking for tax free or at least tax-friendly investments. I'm not sure if you are looking to put things on cruise control or if you might want to dabble in active management.

    Assuming I have everything correct so far, and in what might be considered blasphemy on a mutual fund discussion board, might I suggest that you give uncle Warren Buffett (Berkshire Hathaway A or B shares) your gift to invest. Here's why I would do this.

    1. Any mutual fund, annuity, rental property and so on is going to come with on-going fees, possibly taxes, maintenance costs, headaches and whatever else I'm forgetting until the day they are exhausted or disposed of. You may or may not wrestle with thoughts of "Gee, did I buy the right fund, plan, property" or wonder if X, Y or Z might be better suited or more appropriate.................. the list is endless.

    2. Berkshire Hathaway is notorious for not paying dividends or distributions (read: no taxes) and your gains will just keep accumulating until "you" decide to sell at a time and place convenient and tax-managed by you.

    3. If you buy the 'B' shares you will be able to "gift" them at possibly tax-friendly opportunities to family and charitable causes.

    You will of course pay stock trading commissions but you can minimize those depending on your choice of brokerage firms. I am also fully aware that the current managers of Berkshire (Warren Buffett and Charlie Munger) are getting up in years but I am not concerned with their succession plans. It is something that you will have to look into and decide for yourself.

    Just an alternative thought, quick and dirty. Congratulations and best wishes.
  • Thank you, johnN, catch, msf, claimui, AJ, and Mark. I really appreciate all your thoughts and advice. Yes, I have a lot to sort out. I have actively managed our IRA's - etc. for quite some time. These new taxable $'s become a new experience for me. Going forward I need to avoid those claws reaching out to me. I've already made the decision to not rush into a decision. My husband has always done our tax returns, but he is not an accountant or CPA. If I invest these $'s myself or have a fee based planner, I do see a tax advisor/attorney in my future. One step at a time. Again, I thank everyone for their efforts and input as I learn from you and move forward.
  • All good advice.

    And nothing wrong with investing 'some' of your money in Berkshire Hathaway 'B' shares. I would say about 2-5%. Berkshire Hathaway is basically a well run mutual fund itself. And who doesn't like sees candy??

    As you can see many of us come at this from different angles. Many here have gave specific mutual fund advice and that is fine. But.. building any portfolio is largely individual. Some have set rules ( no more than 5-10% in any one fund ) some build around core positions (couple of well managed balanced funds and several satellite funds ) The later has worked very well for me.

    Funds like VWINX make excellent core holdings. You could pair it with funds like VGSTX, FPACX, OAKBX, PRWCX, BERIX, etc.

    Satellite funds: MAPIX, AUXFX, ARTGX, FMIJX, etc

    Taxable Bond funds: BCOSX, FSICX, PUBDX, LSBRX, ect.

    Many people mix taxable bonds with municipal bonds for better diversification.

    As for the annuity: I own one from fidelity myself. They can be beneficial in certain circumstances - investors with large taxable accounts, self funded personal pension plans, legal protections, etc. I believe my annuity equals about 10% of my total account.

    Many States offer legal protection for such insurance products:
    http://www.assetprotectionbook.com/forum/viewtopic.php?f=142&t=1566

    More info:
    http://mosessinger.com/articles/files/creditprotec.htm

    Managing your assets can become your full time job. I know my uncle spends his whole day managing his commercial real estate holdings. What started out with just one multi-family rental - turned into his full time job managing his own success. Perhaps one day he will share his secret.

  • edited August 2012
    Seems what you're really asking is what should you do - quite different from what any one of us might do. Nothing wrong with waiting for six months or so while you formulate a plan. And, if considering exposure to equities, dollar averaging in over a few years not a bad idea anyway. Above all, do what's within your knowledge base and comfort level. Managing finances, whether a household budget, a million $$ inheritance, or money you've slowly stashed away, is an ongoing life-long process. So, simple answers not likely to solve much if anything.
    ---
    "Should I not try to do this by myself?" --- The fact you are asking suggests you probably don't possess the financial background, experience, and comfort level needed to deal with your issue. A fee-based planner is likely a good option.

    "Should I be looking for an adviser who doesn’t sell a product but may give me direction on how to invest this distribution?" - Yes. Those trying to sell you a product would likely have a conflict of interest that may not serve you well.

    "I checked out local members of Napfa, and there are base fees of $5000, $10,000, 1% of 2m." --- 1% of amount invested does not in itself sound outrageous. Consider that a commission-based advisor might well put you into "loaded" funds where up front commissions of 4-5% or higher are common. Additionally, such products often carry ongoing "12b-1" fees, insuring a future income stream to the selling agent.

    "I did have a conversation with a Vanguard rep and was going to visit the local Fidelity office as well as T. Rowe Price" --- High regard for Price based on 15-20 years with them. I find their integrity, resources and abilities managing a wide array of funds exceptional.

    "My bank wants to talk with me, too" --- I'd be leery of this except for the portion you wish to commit to fixed income instruments. Nothing against banks. Just think there are better options for diversification and growth, as many have mentioned.

  • edited August 2012
    Reply to @Mark: A couple of somewhat "Berkshire-like" vehicles (no particular order)

    1. Greenlight Re (GLRE). This is a reinsurance company where the float is invested with the same positioning as hedge fund manager David Einhorn's long/short Greenlight Capital. It has not done that great in the last year or two - it really follows peer companies at times - but is somewhat interesting. It is a Cayman company, and there are other hedge funds looking for permanent capital that are planning the same thing - Third Point and SAC. I don't own GLRE.

    2. Fairfax Financial (FRFHF.PK) Fairfax's float is invested by Prem Watsa, who has often been called the Canadian Buffett. Fairfax also actually generated a positive return in 2008 betting against subprime. From Morningstar: " In recent years, Fairfax produced stellar investment results as it capitalized on the financial crisis with prescient credit derivative bets. Fairfax's investment record over the long run is very impressive as its common stock portfolio has outperformed the S&P 500 by an average of 8.7 percentage points per year over the past 15 years. Similarly, its bond investments outperformed the Merrill Lynch U.S. Corporate Index by an average of 4.1 percentage points per year over the past 15 years. These outsized investment gains have translated into book value gains averaging nearly 25% per year since 1985." (http://quote.morningstar.com/stock/s.aspx?t=FRFHF&region=USA&culture=en-us) I don't own Fairfax.

    3. Leucadia (LUK) There is no insurance component, but Leucadia is otherwise often compared to Berkshire and, despite a poor last year and unpleasant 2008, the conglmerate otherwise has an excellent very long track record. The conglomerate is a mix of holdings in public (financial firm Jefferies) and private (including a joint venture with Berkshire Hathaway and even vineyards. I don't own LUK - it did not do well last year but for believers in the long-term record of the firm, it would be a value play.

    Other conglomerates that are less Berkshire-like that I like are Brookfield Asset Management (BAM) and Jardine Matheson (JHMLY.PK) Jardine is an Asian conglomerate that has been around since the 1800's and owns everything from grocery stores to Asian IKEAs to Manadrin Oriental hotels and more. Brookfield is an enormous Canadian conglomerate consisting of renewable energy assets, infrastructure assets and massive real estate assets around the world. The assets are largely in spin-offs (much of the real estate assets will be spun off in another limited partnership later this year - if that happens, shareholders in BAM will get a special dividend) and Brookfield is an asset manager. Both yield +/- 2% otherwise. I own both Jardine and subsidiary Dairy Farm, as well as Brookfield and Brookfield Infrastructure (BIP)

    Berkshire is Berkshire, one certainly can't argue with one of the most successful records of all time. I do have some issues with some of the subsidiaries, which I think .I think it will be interesting to see Berkshire's eventual transition.

    The issues with Fairfax is that it's nearly $400 a share and it does generate a dividend (about 2.5%)

    History of Jardine Matheson from the 1800's: http://en.wikipedia.org/wiki/Jardine_Matheson_Holdings

    DEFINITELY DO RESEARCH BEFORE INVESTING IN ANY OF THE ABOVE.
  • There is one particular fund which you may research: WARDX. It requires $1M if you do not want to pay large load, you can buy it at Scottrade, I believe. (One cannot buy it directly from Wells Fargo without an advisor...) It is essentially a copy (perhaps with an additional cost) of a very interesting fund from GMO, which is normally available only for $10M, GMO Benchmark-Free Allocation III, GBMFX. In essence it is a fund of funds from GMO (another fee layer), which are often available only for $250M minimum. The fund can invest without any pre-determined constraints. Please look at its performance figure at M*, it is pretty impressive, smooth and solid.

    The subtlety is that the data for GBMFX go back to the time when it was not a separate mutual fund but something internal for GMO, if I understand its prospectus correctly, and WARDX, which is very new, lags GBMFX a little. So what I am saying is not really a recommendation, one should carefully research it, but it is a very interesting one-stop shop which covers just about everything. Perhaps others in this group may give additional comments.
Sign In or Register to comment.