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Managing A Bunch Of Money

milehighmilehigh Registered User regular
edited August 2012 in Help / Advice Forum
So I'm out of my comfort zone at the moment. I've always saved money into my 401k, and thrown some money into basic mutual funds to save money. However back in February my father passed away and left me several IRAs totaling a fair amount of money (around 150k). Up until now I've been focusing on getting all the paperwork done to get everything in my name and under the same umbrella. It's now all settled, and sitting at TDAmeritrade in money market.

Basically I want to educate myself on the financial world and all potential investing options, such that I eventually feel confident managing this money. Right now the guy I met with has a basic spread of investments they recommend based on whatever category of risk you're comfortable with, and for the time at least I'll probably leave it in that, as it's fairly conservative and I'm not going to be able to screw it up too much.

It's kind of ironic that it took me coming into a lot of money to care about financial stuff when it was probably more beneficial to look at this stuff when I was broke. In either case it seems to be a great idea to pick this skillset up, so I'm wondering what tips and methods any of the financial savvy PA'ers may have for learning and becoming competent in this realm. Thanks!

Posts

  • VeritasVRVeritasVR Registered User regular
    Your age has a lot to do with it.

    A lot of companies have "targeted retirement" funds that target a year you want to retire. Over the years, the fund will gradually decrease the level of risk by altering the % of your money in stocks, bonds, etc. The stocks they pick are usually part of other mutual funds that you can pick outside the targeted retirement fund too. It's a great idea to put your money there for now if you eventually want to pick your own funds, or if you really would rather let them handle it forever (or some combination thereof). Most people who pick their own portfolio of funds follow the same guidelines as the targeted retirement funds.

    The number of zeroes you have isn't as crucial as it seems. It's not a bad thing if you put it somewhere long-term and nearly forget about it; that's how you avoid making rash decisions. What I would not do it take that money out of the IRA.

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  • DhalphirDhalphir don't you open that trapdoor you're a fool if you dareRegistered User regular
    For me, I would always put my money in property over investment, and work on building a property portfolio that can provide me with a stable rental income for retirement.

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  • Blake TBlake T Registered User regular
    You're young and being able to invest this money now will be such a boon to you if you do it right you can easily knock a few years off your retirement age. Consolidating the entire lot was a smart thing to do.

    Honestly get a financial planner. It'll give you a bunch of free time to do other thing and not worry that your money is in the "right" spot. Since you are young, high risk is good, as you'll have the time to ride out the losses and make money when it swings up.

  • ThanatosThanatos Registered User regular
    Dhalphir wrote: »
    For me, I would always put my money in property over investment, and work on building a property portfolio that can provide me with a stable rental income for retirement.
    This involves having a lot more than $150,000, knowing how to manage property, knowing what property to buy, and lucking out in not having anything awful happen to any of them.

    To the OP: you really should talk to a financial planner, but do you have some idea of what you want to do with this money? You could roll it into a Roth IRA, or use it to live off of while putting the money you're making now towards your 401(k) or regular IRA. You could also make a healthy down payment on a house or condo if your living/working situation is stable. However, in your position, you're probably going to want to either put the money in a retirement account (which are generally managed by someone else), or buy a house/condo.

  • milehighmilehigh Registered User regular
    I thought about the house option, but right now I'm 27, and while I'm fairly secure in my employment, it's a pretty volatile industry and I'm finishing school to boot, so I'm not quite ready to put down roots.

    I did talk to several financial planners, and the general advice was to consolidate the IRA's and only take the required minimum distributions so the money can continue to grow over the course of my lifetime (since if I pull money out now it'd be taxed as income and I'd take a huge hit). Past that they all had recommendations for mixes of stocks/bonds/ETF's for the money based on my age. I guess I'm safe sticking to something like that for now.

    I guess I just don't like being this unfamiliar with the whole process and wanted to learn more about how everything works. I want to know how to invest, even if I do only end up handing over the reigns to a professional, I feel like I should be somewhat educated on how the whole system works. Thanks all again for the replies.

  • SolventSolvent Registered User regular
    Not financial advice etc. etc...

    That’s a significant amount of coin, and a financial advisor will definitely be able to give you a better steer than most people on this here web forum. That's not to say that you won’t benefit by hearing a few people’s 2c worth.

    With that sort of windfall I’d probably see it as my ticket to buying a home, as well as making a substantial contribution to my retirement savings account. Duly noted, though, that you’re not at that stage of wanting to tie yourself to a house yet. If you will want access to the all of the money in the nearish future then retirement savings accounts are probably out, but if not then it’d surely be sensible to put a whack of that cash into whatever fund you’ve got going (assuming you have one, they’re a requirement for all workers over here in Oz). I’m not entirely sure how taxation and retirement savings work in the US so I shouldn’t offer suggestions there anyway.

    A couple of suggestions, though, which you can take with a largish grain of salt-
    An exchange-traded fund (ETF) is likely to give you access to a diversified portfolio with good liquidity and flexibility. An ETF is bought and sold like a stock on the market, but what it represents is basically a stock in an investment company. So their business is taking capital and investing it in other stocks, and they employ professional managers etc. to do this. This means with limited investment you can hold, by proxy, a portfolio of stocks across the market, which is managed by people with the expertise to do so. This comes with stock-like benefits of capital growth and dividends/distributions (if the fund does well). Different ETFs will have different approaches so have a look for one that sounds like a match for you. Some will be more aggressive (picking stocks they think are undervalued, in an effort to get the most value but while also taking on the risk that they choose poorly and underperform), while some will just try to mirror the market (they will just hold a broad selection of stocks reflecting the makeup of the market, in an effort to get fairly stable returns in line with how the economy is doing).

    Something else you may consider is directly investing in stocks.
    Spoiler:
    That path is not the 'safe' path. If I were in your position I would certainly not entertain doing such a thing with even half of the money you've come into. It is, however, an option that is open to you and one that will get you to learn about finance and investing.

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  • bowenbowen Registered User regular
    I've always heard you want a financial adviser that works on a fixed fee rather than commission or anything like that. Not sure if everyone else agrees or if that's the proper thing to do.

  • a5ehrena5ehren AtlantaRegistered User regular
    Yeah, if you use a professional adviser, fixed-fee is the way to go. Also remember that very few pros beat the S&P 500 over the long term.

    If you want to learn about investing in general, morningstar.com and investopedia.com have lots of resources for learning.

  • DjeetDjeet Registered User regular
    "consolidate the IRA's"

    The only reason to do this is to reduce your management overhead (you only have to deal with one account instead of 4). I wouldn't do this unless I didn't have to pay any fees to do so.

    "only take the required minimum distributions"

    definitely do that for now, at least until you've figured out how you want to manage things; if you don't know what to buy, stick the distributions in the bank until you've figured it out. Most likely your father's portfolio is optimized more towards income and capital preservation (I'm assuming he was on fixed income or heading towards retirement) than is ideal for your retirement. You'll probably want more risk. But you should look at the asset allocation, the fund choice, and management fees of the existing portfolio.


    What are you looking to get here? Have you consulted the doc from your 401K administrator? The stuff on asset allocation w/r/to time left to retire is not bad for giving you an idea of conservative portfolio management. You can apply your own risk tolerance to that and then look for comparable investments outside your 401K.

  • Idx86Idx86 A man chooses A slave obeysRegistered User regular
    bowen wrote: »
    I've always heard you want a financial adviser that works on a fixed fee rather than commission or anything like that. Not sure if everyone else agrees or if that's the proper thing to do.

    We have a financial adviser who works on a fixed fee. There are certain transactions we get charged an 'administrative' fee for as well, which I think is pretty standard.

    I am very happy we have a financial adviser. Not because I am undisciplined and need help with budgets, but for the investment side that I don't know much about.

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  • Edith_Bagot-DixEdith_Bagot-Dix Registered User regular
    Hi milehigh,

    I work in finance (risk analysis though, nothing to do with financial planning) but I have taken many of the same courses as most financial planners. I would echo the point about fixed fee financial advisers. The financial advisers who work on commission have a conflict of interest, in that, depending on who they work with, they have an interest in getting you to buy particular mutual funds or simply in increasing the volume of transactions you make (known as churning). In either case, for an investment of over $100 000, you will probably wind up paying more in commission fees than the cost of hiring a fixed fee adviser. In particular, since you are young, you're an attractive client fore commission based advisers because you'll likely continue to to pay somewhere between 1% and 2.5% of your portfolio in fees every year for decades to come.

    Similarly, over your investment horizon, it is unlikely that any mutual fund you are sold will consistently outperform the index. On top of this, you'll be paying fees (based on the size or your holdings) every year, regardless of how the fund performs. There are, of course, funds that do outperform, but in order to make an informed choice about a fund's likelihood of doing so, you would need to have the same sort of skills as an analyst that you would need to design a similar portfolio on your own. ETFs have significantly lower fees, and realistically, most funds are very close to ETFs anyway (a fund manager is risking his livelihood by adopting positions significantly different from the consensus, although there are, of course, contrarian managers).

    I, personally, do invest directly in stocks and have done pretty well (enough to pay the down payment on my house and a chunk of my MBA), but this path is not for everyone and requires some knowledge of what you're doing. I would advise against investing in real estate as a source of income without a good grounding in how to operate a portfolio of properties. Buying your own place to live is not a bad idea if you're at a stage in your life where it's right for you, but there's no need to invest everything you've inherited on that (and this is a decision a financial planner can help you with).

    Depending on your circumstances and your interests, you may consider investing some of that money in yourself and taking an entry level course on personal finance - your local university or community college probably offers something, perhaps even a course linked to the Certified Financial Planner curriculum. The fact that you've decided to invest this money rather than spend it sets you apart from many people, and so you will likely be managing this money (as well as your own future earnings) for the rest of your life. Having a grounding in the principles and practices of personal finance could prove very rewarding, if it is something you are interested in.

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  • devCharlesdevCharles Registered User regular
    edited August 2012
    My finance professor recommended this to us when we first entered her class:

    http://www.fool.com/how-to-invest/thirteen-steps/index.aspx?source=ifltnvsnv0000001

    I'd suggest checking those out. They give you a decent baseline for safe investing and then a bit more if you want to try some other stuff (within reason.)

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  • JohnnyCacheJohnnyCache Starting Defense Registered User regular
    If you need to.park your minimum payouts, putting them in a higher interest, lower overhead bank like ing isn't a bad thought. If you're worried about planning overhead, index funds are balanced by computer and have low fees.

  • milehighmilehigh Registered User regular
    Wow, lots and lots of good info here. Thank you all! I'm meeting with a financial adviser this afternoon to determine how best to allocate all these funds, and I'll probably go with whatever they recommend for now (after thoroughly scrutinizing their fee structure that is). This whole thing has really sparked my interest in investment though, and in addition to retirement savings and emergency savings, I'm saving some money to put in the market.

    I've also enrolled in a basic personal investment class with one of the community colleges here (since my university requires students to be business majors to take a similar class :( ) I feel much better just having some grasp of what's going on now, and frankly feel stupid waiting this long to educate myself in these matters.

  • Casually HardcoreCasually Hardcore Registered User regular
    Don't forget that if you do take out the money (and not transfer it into another IRA or anything like that), you'll have to pay taxes on what you withdraw.

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  • milehighmilehigh Registered User regular
    Yeah, that's why I'm leaving it in the IRA (I still need to manage the funds in the IRA). Seems like a terrible move to pull the money out when I'll get a tax hit in the range of 40-50%. Unless my life goes horribly wrong and I absolutely need the money, the plan is to just leave it invested for my own retirement, stretching it out as long as possible, only taking required distributions and rolling those into another investment.

  • ThanatosThanatos Registered User regular
    milehigh wrote: »
    Wow, lots and lots of good info here. Thank you all! I'm meeting with a financial adviser this afternoon to determine how best to allocate all these funds, and I'll probably go with whatever they recommend for now (after thoroughly scrutinizing their fee structure that is). This whole thing has really sparked my interest in investment though, and in addition to retirement savings and emergency savings, I'm saving some money to put in the market.

    I've also enrolled in a basic personal investment class with one of the community colleges here (since my university requires students to be business majors to take a similar class :( ) I feel much better just having some grasp of what's going on now, and frankly feel stupid waiting this long to educate myself in these matters.
    You can probably audit that class without being a business major.

    No credit, but you get the lectures and such.

  • GrifterGrifter TorontoModerator mod
    I have a friend who follows this website's advice and apparently he regularly out performs the market.

    http://www.decisionmoose.com/

    It may be something for you to have a look.

  • milehighmilehigh Registered User regular
    I'm going to have to look into auditing that course, that's a great idea....I've been reading through everything I can get my hands on these days, so all these links are appreciated as well.

    Met with the financial adviser this evening. He basically recommended I put the majority of the money into a managed ETF fund (annual fees about $900 on $100,000). Still have another adviser to meet with before I decide. I'm trying to find a fixed-fee based adviser as well, but these are surprisingly (or maybe not) hard to find.

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