Need Help w/ $1.2 Mil

[NotWorthy]

Hi All,

i don't know how many of you guys browse OOT, since I rarely do, but I made a post there about a month and a half ago regarding my situation.

Link

There were many helpful replies, with a few directing me to this forum. So here I am, and I need your advice please.

My immediate concerns are:

1. I want to purchase a home with cash for ~$250k

2. I want to eliminate our credit card debt (~$30k), and pay off my wife's student loans (~$30k)

3. I want my "portfolio" to be more actively managed, whether it be by my father or an experienced financial planner/wealth manager.

I plan on putting this all down in writing and presenting it to my father for his review, but want some input from you guys. If you read my OOT post, you'll know where I stand with my father, so it's not like I can just do this stuff straight (although I could, I dunno, this whole sitch kinda sucks, but it doesn't).

Basically, I need to convince my father that the above are good investment decisions to make NOW, as opposed to grinding my way out of debt and saving for a down payment and getting a mortgage and whatnot.

Also, what reasons do you think my father would have to put the majority of my port in T-bills and the significant remainder in one stock? I plan on asking him, but wonder what your thoughts are.

Also, I wish I would have known about this when I was much younger, for I would have educated myself much more, and probably would have focused on it in college (I took one finance class for my business major).

I read "The Motley Fool" when my parents gave it to me as an X-mas present when I was 17. Any book suggestions? I checked this recent thread but was unsure if this stuff was over my n00b head.

edit - just noticed the Reading sticky, so I'll check that out

Thanks for your help guys.

[Ed Miller]

[ QUOTE ]
3. I want my "portfolio" to be more actively managed, whether it be by my father or an experienced financial planner/wealth manager.

[/ QUOTE ]

I think paying off debt and buying a house are great things to do with the money. It would be silly to maintain a 30k credit card balance while keeping hundreds of thousands sitting in T-bills.

But why are you sure you want your money to be actively managed?

[NotWorthy]

[ QUOTE ]
[ QUOTE ]
3. I want my "portfolio" to be more actively managed, whether it be by my father or an experienced financial planner/wealth manager.

[/ QUOTE ]

But why are you sure you want your money to be actively managed?

[/ QUOTE ]

Before I say anything, I want to make it clear that I really don't know anything about investing in the stock market. That said, it seems as though my Dad is being weak-tight after a few successful "gambles" in the 90s.

I don't think a 30-year-old should have pretty much all of his money in T-bills, with the remainder in a single stock (MI), which has been pretty much stagnant the past few years.

I want someone, at the very least myself, to be looking for new opportunities for profit, as opposed to just sitting there and trying to keep up with inflation. Again, I teh suck at this, so feel free to correct me where I'm wrong.

[johnd192]

Instead of wondering what you should do with the money perhaps you should figure out why by age 30 you have racked up 30k in debt. There is only one answer to this. Living above your means. Get your spending and debt in control. That is exactly why your dad is correct in not giving you money. I doubt seriously your sisters were in debt when he parceled out the money. Perhaps you should figure out a way to get out of the 30k of consumer debt before approaching him for the momney. Perhaps thanking your dad profusely and allowing him to continue to grow that money is the best idea. Try getting out of debt by 35 and learn from him how to invest. After proving you can keep your spending under your income level then you can show him you have the financial responsibility for that kind of cash.

[LondonBroil]

[ QUOTE ]
Instead of wondering what you should do with the money perhaps you should figure out why by age 30 you have racked up 30k in debt.

[/ QUOTE ]

This is excellent advice and a good reason why you might not be ready to handle this money.

[rockrock]

You could easily manage a portfolio that size on your own - I would strongly recommend it speaking from personal experience.

You need to be prepared though - we have talked about books by Swedroe, Ferri, Swensen and Bernstein here before.

The Swedroe book has a great chart on your pain threshold vis a vis what your bond allocation should be (i.e. how big of a yearly percentage loss you could expect with x% of bond/equity allocation).

I'd say handing this over to a professional is a huge mistake. You are probably going to get stuck buying high commission (front loaded) funds and paying a steep management fee.

If you are so weak-minded and convinced that this is some staggering sum of money no mere mortal could manage, I'd recommend looking for advisors with access to DFA funds.

Another alternative is to use Vanguard's asset management services. They are reasonably priced (1 time fee based I think) and will do a decent job for you.

[jively]

I think one of the most important issues is your feeling of not being worthy, and your feeling toward your Dad. You might want to have a session or 3 with a therapist... Don't feel like you're crazy or anything, but it's important to really feel right about the money.

Next, you definitely want to pay off the credit cards.

You could pay off the student loans and buy a house with cash as well. These interest rates are generally low, and you may end up with more wealth long term if you take a mortgage and invest the rest in a globally diversified, balanced portfolio. It really depends on how you feel about the debt, and again how you feel about the money - about being a millionaire.

[ QUOTE ]
If you are so weak-minded and convinced that this is some staggering sum of money no mere mortal could manage, I'd recommend looking for advisors with access to DFA funds.

[/ QUOTE ]
This is a great suggestion, as I agree 100% with rockrock about asset allocation and passive investing. DFA is the best mutual fund company and I highly recommend them. I am an investment advisor with access to DFA funds, so PM me if you want to speak in more detail. I would also recommend a company called Index Fund Advisors that uses DFA funds and helps people through the phone and internet - generally no local office. Vanguard is probably the 2nd best fund company and I recommend them as well.

Again, the most important thing is how you feel about the money. There really is no rush to get your money invested. T-bills will be just fine if it takes you a few months or a year to be comfortable with your situation.

Your estate planning is important as well. I know the attorney talked to you about it. Did they mention a Q-TIP trust? I don't want to get into details here, but it's something to consider.

Good luck to you. I'd be happy to assist you or answer any questions. Make sure you concentrate on your feelings first - don't rush into any financial decisions until your feelings are in control.

-Tom

[mwgr5]

I don't know the answer to this, but what are the tax consequences of selling the TBills and the stock.

Placing a large percentage in tbills and a large percentage in one stock seems unusual. I have never seen this recommended, but your dad has a good past performance record.

There are many good financial advisors, but there are also bad ones who are commission hungry. I think if you go to a bad advisor they will probably try to move your money into annuities because of your tax situation. Annuities generate huge commissions and have huge expenses so I would be skeptical of advice to invest in annuities.

If you want a financial advisor go to one that is paid on a percentage basis. For example, my father has a financial advisor at Ameriprise who manages his money. His fee is a 1% commission on the total value of the portfolio each year. This may seem high but it provides incentive for the advisor to grow your money and eliminates all of the work for you.

Another advisor option is to have a financial consolation where you would pay the advisor an hourly fee for advice.

Also, the advice other posters have given about Vanguard advisors and DFA funds is great.

If you don't go to a financial advisor I always recommend index funds. Specifically, the tax efficiency of an index fund would be beneficial for you. I would recommend an asset allocation of 70-80% stock and 20-30% bonds, although this could vary depending on your personal risk tolerance. For sample asset allocations using index funds see this web page.

I don't think you should keep your money with your father. Not to be cold but when your father dies or is not able to manage your money what are you going to do? You will be in the same situation but won't be able to consult with your father.

This may be an odd option but you could have your father manage a portion of the money, such as 50%. Then you would have 600K minus expenses (house and debts) = 290K. Manage that your self, have your father teach you his methods, or have an advisor manage the money. Then, have your father give a percentage of the half he is controlling to you each year. This way, your father still has control of a substantial amount of money and should feel conent that you cannot squander all of the money. You will have a smaller amount of money that you can manage and learn more about investing with. This amount you control will grow as your father gives a percentage of the money he is managing to you each year so that when your father cannont manage the money you will be in complete control. Also, you can have a little father son competition to see who can generate the better returns [img]/images/graemlins/smile.gif[/img], if your into that sort of thing.


You are in a great situation and have a great opportunity to continue growing the money that was passed down to you and simultaneously demonstrate your responsibility to your father. Remember that even though you may feel that your father is not treating you fairly you still have 1.2 MILLION dollars. People eat testicles for 50K on fear factor so I think you can put up with a little family conflict for 1.2 million.

Compound 900K (after house, student loans, and credit card expenses) for 30 years at a 7% after inflation, you would have 6,851,029.54 at age 60.

I would also suggest placing money in an college savings plan for your children. Always best to start that early. Their are many tax deffered options for college savings that you can look into.

I spewed out a lot of options here so I hope I helped you.

[jively]

[ QUOTE ]
I read "The Motley Fool" when my parents gave it to me as an X-mas present when I was 17. Any book suggestions? I checked this recent thread but was unsure if this stuff was over my n00b head.

edit - just noticed the Reading sticky, so I'll check that out

[/ QUOTE ]
I wouldn't be concerned with any of the books about trading. If you want an excellent long-term investing strategy where you don't have to actively monitor anything, you want to read an asset allocation book. My favorite is The Four Pillars of Investing by William Bernstein. I haven't read any Swedroe books but I'm sure they're good too. Don't be concerned about "looking for investment ideas." Just choose a diversified global asset allocation using passive mutual funds, and stick with the same allocation year after year. You will be very happy with the results.

As per emotions and money, I'd recommend The Seven Stages of Money Maturity: Understanding the Spirit and Value of Money in Your Life by George Kinder.

-Tom