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Student question about a "windfall"

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  • Student question about a "windfall"

    Hello all and thank you in advance for any advice/input. Although I've learned a lot over the past 2+ years from forums and voices like the WCI, MMM, and similar venues on the internet, I am somewhat apprehensive about sharing my financial details on the internet. Consequently, I'm going to be as vague as possible while still expressing the relevant details of my situation. I hope you'll excuse me for this.


    I have the good fortune of experiencing a "windfall," although I shudder to call it that since it involves the death of a loved one. I have inherited a little bit less than 100k in an investment account at merril. The family member was conservatively invested and relied on active investment advice, so it is mostly in fixed income of some kind - I do not understand the details since I have mostly read up on the boggle heads, MMM, and WCI for my learning, which generally discourages both paying for advice and fixed income type assets over the long term. Currently it is just hanging out in the asset allocation that was recommended prior to my family members passing although no longer paying for active management.
    About me: I am a 3d year at a US allopathic school, very middle of the road student, debating between several middle of the road to bottom of the road (compensation wise) specialties. I'd really like to achieve financial independence relatively early in my career, and plan to do that by living frugally and investing the excess money. I don't want to necessarily retire, but I'd like to be choosy about the kind of jobs I take, spend more time with family, spend more time doing charity work either here or abroad.

    Financials: I am lucky in that I have a full ride due to an academic scholarship to medical school, and take out loans for living expenses. I expect to graduate with around 60k in student loans. Before coming to medical school I started a Roth IRA at vanguard with a small amount of money (3.3k), mostly to get started and also with the thinking that I want to learn early on, so its nice to have some skin in the game. I’ve been happy to see this grow over the course of school, really makes me realize the value of investing over time!

    I need to figure out what to do with this windfall. All of my learning has been at the “basic” level and I don’t know what to do with this kind of money. It isn’t in any kind of tax advantaged account (not that I pay much in taxes now). Is there anything I can do to change that? I’d like to keep some portion of it (say 30-50k) accessible for the next couple of years as I enter residency for living expenses and random things that might come up. But what to do with the rest? And what to do with this 30 k that I keep accessible?

    Ideally I’d like to have the vast majority of it in some kind of index investing that mixes equities and bonds. Also with a tilt towards small cap or emerging markets since I am comfortable with volatility over the long term investing horizon. What is the ideal mix for someone in my position (young, no income, but presumed high income in the future)? I know it doesn’t work in the long term, but I’d like to keep some amount of it (~5k) for individual stock picking, on some level to make money and then on another level to continue to educate myself about the stock market as I enjoy learning about it.

    Regarding debt, my thinking was to leave the loans alone for now as they are federal loans at a relatively good rate. This way, if PSLF is still around I can take advantage of it. Otherwise, I know that sometimes private groups will offer some kind of loan repayment and it would be nice to take advantage of it. If this is misguided please redirect me.

    Where to keep the money? I know vanguard is popular here and I get the advantage of minimizing costs over the long term. But should I transfer it all from merril edge or just buy vanguard ETFs using the merril edge services. They seem to have really good customer support and I don’t know the tax consequences of moving the money over. Over the phone they described their “Merril Edge Guided investing” program with a management fee of .45 +.15 fee for something else. Also have a self directed platform with no management fee but I think still the .15 something else fee. If you buy ETFs within one of these platforms, do you pay for the management fee of the ETF on top of it? Seems like a nice hidden cost that I won’t get at vanguard if that’s the case. But, it seems like it would be easier to buy individual stocks over at merril edge than vanguard but maybe I’m mistaken.

    What about the tax situation? Do I pay taxes on this money if it increases in value, or only if cash out? How does this all work?

    Finally, what about the crazy ****************** state of the world? I know its unwise to try and time the market, but things do seem a little batsh$$ right now. Should I just hold off and wait for the correction that is to come at SOME point? Or is that naïve?

  • #2
    First, sorry for the loss of your loved one.  These kinds of windfalls are never wanted.  Second, I'd read the threads on Bogleheads about what to do in the event of a windfall.  I'd also find more about exactly where this is invested.  Did it get a step up in basis?  Are taxed owed if cashed out?  You may want to check with whoever managed the estate and the firm holding the assets.  After following the initial Bogeheads steps I'd want to know more about your student loans - interest rate, what kind they are, planned repayment plan.  I'd also want to know more about your specialty, which you'll know in another year or so.  I think making sure your foundation is firm is a good start.  Make sure insurance, emergency fund are taken care of, no big expenses on the horizon, etc.  I'd use those funds for residency interviews, not take out more loans.  All of this is WAY before deciding to invest anywhere specifically.  And yes, don't time the market.  That Merrill program sounds like a waste.  If you've been reading as you say you'll know where/how to invest in cheap index funds and determine your own asset allocation.  Best of luck.


    • #3
      Investing $100,000 is the same as investing $3,300.

      Like ENT Doc said above, you should inquire to Merrill about your basis.  If you can cash out with little tax consequence, that's what I'd do.

      I'd probably just pay off your loan balance but you could run the numbers regarding PSLF, and keep the rest available in cash for your last two years of living expense.  Then again you might want to continue to take more loans and pursue forgiveness.

      Otherwise, dump it into a new Vanguard account.  With a Vanguard account, there's very little in the way of fees, trading their ETFs and funds is commission free, and over $50k you get reduced commissions on non-Vanguard products as well. Merrill is a good company, but more setup for someone who needs his or her hand held to stay on course.  But that's not to say that Vanguard doesn't have their own personal advisors if you need them.


      • #4
        Sorry for your loss.

        Don't do anything quickly. There is no rush.

        Ignore the "crazy ****************** state of the world." It has always been "crazy ******************" and always will be. You don't invest for 50 years based on daily headlines.

        If I were a med student, most of that money would be going toward paying for med school. Right now you've got money sitting there earning maybe 1% and student loans compounding at 5-8%. Not exactly brilliant.

        More info on windfalls here:

        Helping those who wear the white coat get a fair shake on Wall Street since 2011


        • #5
          After you figure out what to do with this money during med school, I'd strongly consider converting as much of it as possible into a Roth account. Also, if you have a TIRA now, convert it to a Roth while you are at the 0% tax bracket.


          • #6
            I beg your pardon, but the student loan interest isn't actually *compounding*...while in school or otherwise deferred, interest accrues without adding to principal, hence no interest-on-interest. It would capitalize upon entering repayment, but if in an income-driven plan, wouldn't capitalize further.

            I still think paying the loan is a good idea. Starting out debt-free is a huge benefit, even if it's "only" $60k. I would keep about $10-20k in cash in an emergency fund, and invest the remainder, as much in Roth IRA as possible.


            • #7
              Agree with all the above about using the money to pay off loans and the rest of school. If you are looking at roughly 60K for the loans at end of school, that would leave you with 40K. I would keep that amount in a high interest checking/savings account. You'll have a lot of  big expenses coming up - Step 2 (with CK typically being something to travel for unless you are lucky and live in one of the locations), interviews, and moving. This is the last year that you'll be without earned income for a long time so I anticipate this will be the cheapest time to get out of the funds from a tax perspective. Obviously do not rush things since you have until the end of the year to get on this $0 earned income.


              • #8

                I still think paying the loan is a good idea. Starting out debt-free is a huge benefit, even if it’s “only” $60k. I would keep about $10-20k in cash in an emergency fund, and invest the remainder, as much in Roth IRA as possible.
                Click to expand...

                Agreed. Emergency fund first (10-20k), then loans with the rest. Paying back loans stinks. Nice never to have them!