$2million to invest. What would you do?

[Brutus1]

I recently inherited roughly $2 million dollars. I currently have about $400k in retirement accounts including my workplace 401k, backdoor roth, HSA, and taxable account. I have allocated 75% in stocks(small, large cap, bit of a value tilt, international funds) 5% REITS, 20% in bonds (intermediate treasuries, TIPS, and municipal funds). All of this money is going into a taxable account as I max out my retirement accounts through work income alone each year. I would like to keep this allocation however in order to do so I would likely have to put some of the least tax advantage funds like small cap, REITS, and treasuries into the tax account. My taxable account through Vangaurd now is made up of Total stock fund, total international stock fund, intermediate term tax exempt municipal fund, and Value index fund.
I've considered loading up these 4 funds vs ignoring the tax disadvantages of some funds but keeping my allocation the way I like.
I'm 34 so plan on working for quite some time, paid off my student loans, and working on paying down a mortgage. And I have no kids yet. I know this is a good problem to have! Curious as to what others would do.

[Hatton]

I would keep your reasonable 4 fund allocation.  Just add the money and decide if you want to FIRE at some point or go part time at a young age.

[Lithium]

https://www.bogleheads.org/wiki/Managing_a_windfall

 

I would have the same urges to invest it all, but as this wiki says, take your time before deciding what to do with this money.  Your net worth has gone up by a factor of six, so you want to see how that affects you psychologically and changes your priorities before investing it.  If you manage $2.5 million well, you'll never have to worry about living comfortably.

I'm 34 with no kids as well.  I'm glad to hear you plan on continuing to work, but I'd make sure you have your ideal job and/or cut your hours if you prefer.  Make sure you have enough time to enjoy your 30s and work on your personal goals.  Time is a far more valuable commodity than money.

[MPMD]

take a year off, take out $100k, and travel.

 

[ReFinDoc]

You have just "won the game." Your job is now a hobby, so make it into something you enjoy. Your asset allocation seems to be somewhat Stock heavy for someone who is financially set. Taxes are gonna kill you, so learn the tax code and think "total return", not yield.  Your RMDs are going to be very high, but that is a long time off.

Wealth is meant to be spent, not hoarded. Buy experiences,not things. You have been handed a rare gift.

You are really a professional investor now. Start a side hustle that you really enjoy.

Consider asset protection. A single lawsuit could threaten the entire stash.

If you double your assets, will this significantly change your lifestyle?

Google the "Larry Portfolio" by Larry Swedroe for pointers. This guy is wicked smart.

Read Phil DeMuth, Sandy Botkin, William Bernstein MD

[Zaphod]

If you want to keep your same portfolio, I would compensate for the lump sum with time and changing the allocation in the work accounts a bit if you want it to be exact right now.

You could do the time version by just adding bonds with your 54k/year into your work accounts, etc...or if you want to do it faster you could also convert some of the 400k in your in your 401k into bonds and one/two years you'd be set. I wouldnt put stuff into a less advantaged space just because. Time and/or a couple moves will easily sort out your allocation.

Oh my goodness, you can of course simply just use muni bond funds in the taxable...I need my coffee. Problem solved.

[StarTrekDoc]

If in Cali, I would do TE Muni - $60,000/year tax free.   As simple as it gets  -  set and forget.    And then do what you will on your own salary and savings.

[ajm184]

A DAF for a portion of the money towards cause/interest from those from whom you inherited the money.

[Kamban]

Brutus1 wrote:

I recently inherited roughly $2 million dollars. I currently have about $400k in retirement accounts including my workplace 401k, backdoor roth, HSA, and taxable account. I have allocated 75% in stocks(small, large cap, bit of a value tilt, international funds) 5% REITS, 20% in bonds (intermediate treasuries, TIPS, and municipal funds).

Click to expand...

Brutus1 wrote:

I’m 34 so plan on working for quite some time, paid off my student loans, and working on paying down a mortgage. And I have no kids yet. I know this is a good problem to have! Curious as to what others would do.

Click to expand...

Wonderful that at 34 you are worth $2.5M. But hypothetically if you quit now and live on that money you can get $100K per year and also have to make sure the money keeps up with inflation. So the best thing is to continue working and enjoy your life.

I agree that investing with the majority being stocks is the best goal. Any diversified index fund will do since you will have quite some time before you withdraw from it. You can use the money that you are earning now to live  a good lifestyle. If you have kids you will have additional expenses including 529 plans. You should enjoy your hobbies and travel now ( should that be one of your life's goals) rather than put off till you retire.

[FIREshrink]

Brutus1 wrote:

I recently inherited roughly $2 million dollars. I currently have about $400k in retirement accounts including my workplace 401k, backdoor roth, HSA, and taxable account. I have allocated 75% in stocks(small, large cap, bit of a value tilt, international funds) 5% REITS, 20% in bonds (intermediate treasuries, TIPS, and municipal funds). All of this money is going into a taxable account as I max out my retirement accounts through work income alone each year. I would like to keep this allocation however in order to do so I would likely have to put some of the least tax advantage funds like small cap, REITS, and treasuries into the tax account. My taxable account through Vangaurd now is made up of Total stock fund, total international stock fund, intermediate term tax exempt municipal fund, and Value index fund.
I’ve considered loading up these 4 funds vs ignoring the tax disadvantages of some funds but keeping my allocation the way I like.
I’m 34 so plan on working for quite some time, paid off my student loans, and working on paying down a mortgage. And I have no kids yet. I know this is a good problem to have! Curious as to what others would do.

Click to expand...

Your portfolio should grow 5-8% annually depending on market performance and asset allocation. A taxable account will have tax drag and fees of perhaps 0.75-1% per year, assuming tax-efficient, passive investments. So your actual returns will be 4-7%. Say 2% of that is inflation, leaving you with real returns of 2-5%. Assuming 4% for a 60/40 portfolio, your portfolio will double every 18 years. So in 36 years, when you turn 70, the portfolio will have a real value of $8 million. Presumably that is enough for you to live on - allowing 4% annually in sustainable withdrawals and you'd be taking home $320,000 per year in real income. You have to pay taxes on it - but I suppose you'll squeak by. Your $400k will be worth another $1.6M at age 70, throwing off another $64,000 per year (ignoring details like RMDs, taxation on withdrawals, etc). The point is, you'll have a lot of money - likely more than you need. The corollary is that you don't need to save any more for retirement.

The good news is that you can basically spend everything you make now. The bad news is your burn rate will be so high that you will actually need to work til 70!

So some middle ground is in order. In particular assuming you don't want to work til 70, you need to save some money every year - not because you need to save money, but because you need to not spend it.

Let's say you want to retire at 52. Your money will double once between now and then, in real terms. That's $4m of inherited assets and $800k of personal assets. We'll knock the sustainable withdrawal rate down to 3% because you'll be relying on those assets to generate an income stream for 40 or more years. Now your assets will throw off just under $150k per year. You'll have to pay taxes on that. That may or may not meet your spending needs. It won't if you've spent 100% of your income from 34 to 52. Again - sounds like you should keep saving some money.

I'll throw out a figure. 20%. You should save and donate 20% of your income annually. I wouldn't go lower than that - you don't need to go higher but if you do you'll retire even earlier.

And yes, you can save more; retire earlier; do both. My plan is simply what I'd do in your situation.

(This is not entirely academic to me. I'm ten years older than you and have a much higher net worth, but also just received a very large inheritance which more than doubled my net worth. I'm really having to think about the implications of this, financially and psychologically).

 

[StarTrekDoc]

@FIREShrink - if you're 45 and just doubled your Net worth from say $3m to $6m - even at 4% rate, if you're FI already you're pretty much set for -RE unless your spend is a bit heavy.   (x30 vs x50 expenses modeling).

--It all depends on what one would like to do with their time and love of their career.  Or, take a year off sabbatical as some have mentioned to knock down that bucket list.

[FIREshrink]

It looks like our spend is about $135k per year, which boggles my mind, but it does include a mortgage on a rental which turns a pretty good profit. And this year was a weird year, with tons of travel as my parents declined and ultimately passed away and we had to deal with property, estates, burials, etc all over the country.

I'm also enjoying my work too much to quit, that's for sure. Sometimes I wouldn't mind working less but even that is not pressing right now. Also I'm stocking up on a few 'toys' that should last me 10-20 years, and it's nice to have the income to cover them.

I may luck out and fall naturally into a different work schedule next year. It's possible I'll drop down to half time clinical and pick up some additional admin duties, net lower salary and not really less work but I see it being a short term change. After 1-2 years of that I expect to drop most of the admin duties and just have the lower clinical schedule. At that point I'd hope to be working only 3 days per week or the equivalent (would really prefer 6 on 8 off but not sure I can swing that - certainly not with the admin duties).

My biggest challenge is ironic. I have been motivated by money for a long time. Not to have a lot or buy a lot, I'm not very materialistic. But the game of money. Since I was a child I liked being a good earner, a good saver, a successful investor. I've worked since I was 13, newspaper routes and landscaping businesses, dishwasher and cafeteria worker, tutor, referee, and coach. I've seen financial success as a measure of psychological stability and honor - the ability to show up at work, do a good job, be reliable, be respected and well-liked in a community. I've seen financial success as an indication of executive functioning. The ability to plan and execute. The ability to defer gratification. The ability to see the forest for the trees. To avoid scams and hot trends. To sometimes be smarter than the market. To understand investor psychology and my own. To spot mass delusions. I loved the feeling of confidence - command of a subject matter - and of being in control; of being safe.

And as success grew some once ludicrous milestones became possible or at least conceivable. Could I reach $1 million? $3 million? $5 million? $10 million? Ten million dollars?!? Crazy! They're just figures on paper but still, numbers I never dreamed of.

When my parents died our net worth more than doubled overnight (not quite that simple but details don't matter). Weird feeling. Beyond the grief and chaos of managing 2 deaths/burials/estates at once, I realized that we just blew through milestones that would have otherwise taken me years if not decades to reach. Not only that, but now my savings rate, as healthy as it is - over 50% most years - will now fail to make a dent in our portfolio. Our portfolio will now grow based almost entirely on the market's performance and my asset allocation. If I save half as much as I'm used to it will not make a material difference in our lives. That's a loss of control that I don't like. Paradoxically it's made me want to save more money. The thinking seems to be, "Maybe if we save 70% I can still move the needle..." This isn't cool. This is wrong.

Then there are the old psychodynamic burdens. Not wanting to disappoint your father. Making sure you are working 'as hard as he did, as long as he did.' (Except he died two years after retiring, so you don't really want to do that.) Are you not only protecting but growing the family legacy - his and yours - for the next generation?

The problem boils down to this: if you've 'won the game', you're supposed to stop playing. But what if the game is your love? Your passion? How can you just quit?

[Hatton]

Sorry for your losses.  It is great to have the need to save off your back.  It takes some time to adjust to this.  You have won the financial game and luckily for you you are in a field that allows you to decide to quit or go part time fairly easily.  You have little call and litigious risk.  If you love it keep going.  Yes investing is a goal and you have hit your target.  You just need time to decide on the next goal.

[justlearning]

FIREshrink wrote:

It looks like our spend is about $135k per year, which boggles my mind, but it does include a mortgage on a rental which turns a pretty good profit. And this year was a weird year, with tons of travel as my parents declined and ultimately passed away and we had to deal with property, estates, burials, etc all over the country.

I’m also enjoying my work too much to quit, that’s for sure. Sometimes I wouldn’t mind working less but even that is not pressing right now. Also I’m stocking up on a few ‘toys’ that should last me 10-20 years, and it’s nice to have the income to cover them.

I may luck out and fall naturally into a different work schedule next year. It’s possible I’ll drop down to half time clinical and pick up some additional admin duties, net lower salary and not really less work but I see it being a short term change. After 1-2 years of that I expect to drop most of the admin duties and just have the lower clinical schedule. At that point I’d hope to be working only 3 days per week or the equivalent (would really prefer 6 on 8 off but not sure I can swing that – certainly not with the admin duties).

My biggest challenge is ironic. I have been motivated by money for a long time. Not to have a lot or buy a lot, I’m not very materialistic. But the game of money. Since I was a child I liked being a good earner, a good saver, a successful investor. I’ve worked since I was 13, newspaper routes and landscaping businesses, dishwasher and cafeteria worker, tutor, referee, and coach. I’ve seen financial success as a measure of psychological stability and honor – the ability to show up at work, do a good job, be reliable, be respected and well-liked in a community. I’ve seen financial success as an indication of executive functioning. The ability to plan and execute. The ability to defer gratification. The ability to see the forest for the trees. To avoid scams and hot trends. To sometimes be smarter than the market. To understand investor psychology and my own. To spot mass delusions. I loved the feeling of confidence – command of a subject matter – and of being in control; of being safe.

And as success grew some once ludicrous milestones became possible or at least conceivable. Could I reach $1 million? $3 million? $5 million? $10 million? Ten million dollars?!? Crazy! They’re just figures on paper but still, numbers I never dreamed of.

When my parents died our net worth more than doubled overnight (not quite that simple but details don’t matter). Weird feeling. Beyond the grief and chaos of managing 2 deaths/burials/estates at once, I realized that we just blew through milestones that would have otherwise taken me years if not decades to reach. Not only that, but now my savings rate, as healthy as it is – over 50% most years – will now fail to make a dent in our portfolio. Our portfolio will now grow based almost entirely on the market’s performance and my asset allocation. If I save half as much as I’m used to it will not make a material difference in our lives. That’s a loss of control that I don’t like. Paradoxically it’s made me want to save more money. The thinking seems to be, “Maybe if we save 70% I can still move the needle…” This isn’t cool. This is wrong.

Then there are the old psychodynamic burdens. Not wanting to disappoint your father. Making sure you are working ‘as hard as he did, as long as he did.’ (Except he died two years after retiring, so you don’t really want to do that.) Are you not only protecting but growing the family legacy – his and yours – for the next generation?

The problem boils down to this: if you’ve ‘won the game’, you’re supposed to stop playing. But what if the game is your love? Your passion? How can you just quit?

Click to expand...

Sorry about your "loss"

"The problem boils down to this: if you’ve ‘won the game’, you’re supposed to stop playing. But what if the game is your love? Your passion? How can you just quit?"

Wow!!! don`t know what to say. Maybe "Teach and help others"

[StarTrekDoc]

We still coupon clip and have the Entertainment guide and hit happy hour specials

Dollar is a dollar.  -- that hasn't changed and won't change.

What will though is the need to accumulate wealth at a working clip -- slow down and take more vacations.   We did that this year and burned all our accumulated leave over the past 3 years -- was out nearly 50% of the time over 6 months.

You'll never stop playing the game if you love it.  just the intensity changes.  same for work; won't retire though at FI -- love it too much.