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What should I do with a four million dollar inheritance?

I'm going to inherit approximately $4.1 million dollars. After all taxes are paid, what's the best way to invest or spend that money? I'm a 24-year-old single woman living in the tri-state area with limited financial knowledge, $10,000 in debt, and an interest in traveling the world. While I absolutely want to ensure that this money lasts for a long time, I'd also like to spend some of it now.

Debt, Estate Planning, Investing, Taxes, Women & Money
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March 2018

I would be wary of putting these specific facts - high dollar amount & the fact that you are so young and therefore likely inexperienced - up front on this forum before you can do some due diligence & vet the "advisor" giving you advice.   That said, the first thing I would do is retire the $10k debt especially if it has a high interest rate.  Then you need to formulate a solid strategy for how to invest the money, and with that kind of money, you also need an estate plan just in case of your unfortunate demise.  If you do not have a will or living will (also called a living trust) and you were to pass, then you assets would simply follow the intestate rules of your state.  So it may not go to the person(s) you really want the assets to go to.  So these things should be your primary focus.

As to investing, I have some strong views not shared by many advisors.  I believe in strategy, not products.  This is why I said to be careful putting the fact that you just inherited a large sum of money on this forum.  You will get annuity and insurance agents coming out of the woodwork to sell you these high commission, long surrender penalty products that are very clumsy.  But you will hear annuity salesman tell you that with an "indexed annuity" you can get "most of the upside but with none of the downside."  While it is true you will not have downside, you will not get much upside either for a plethora of reasons.

I would suggest interviewing a few different fee based only advisor who are active managers. Ask them about their experience, background, and track record. I would not go with someone who is also a broker meaning they have their Series 6 or Series 7.  This means there are conflicts of interest that you need to be aware of.  Doesn't mean they can't do a good job, just that you really need to be on your toes for conflicts that may arise.  In my opinion, life it too short.  So you want an "Advisor" who is fee based and only represent YOU who doesn't get paid from ANY outside sources period.  Then when negative outcomes occasionally occur, and they will, you don't have that lurking notion in the back of your mind whether the investment was an honest attempt at making money or whether there was incentive.  Make it all about strategy not products.

And with that amount of money you would be able to do individual stocks and exchange traded funds (ETFs) versus mutual funds.  This way you can better control your taxes on gains.  Then you could take distributions as needed within limits without cannibalizing the principal.  If you just make a net 5% after fees & taxes, you could take out $200k per year without touching the principal.  So again, I believe you need a solid strategy, not products.  One that has a defined sell discipline to protect and limit principal drawdown during bad markets.  Money will not be made evenly no matter what you do, so you need to understand that.  Some years, if done correctly, you will do much better than 5% or even single digit.  Then you can re-evaluate and modify your strategy as you go.  

But you also need to learn about money and investing because no one cares more about your money than you do.  You don't necessarily need to know everything, but enough to make sure the strategy makes sense and that the money manager is following that strategy.  Thus I believe you need a solid strategy & education.  Believe me, I understand this can be overwhelming and it won't be easy.  There is no easy button that you can put on auto-pilot.  If you get an advisor who tells you that, run.

I was very candid here and wanted to give you some ideas to make you think and give you the right questions to ask.  BTW, we have a short, daily market update and a weekly radio podcast to educate investors.  It is free and you can simply go to our website and sign up and it will be delivered directly to your inbox.  I promise we will not spam you, sell your email address, or even reach out to you in any way.  It is up to the individual to reach out to us if they are interested in our management services.  Personally, I think you will enjoy our podcast more as they are more much more entertaining and not quite as in depth as the daily market videos.

Hope this helps and best of luck, Dan Stewart CFA®


March 2018
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March 2018