Longtime lurker, and user of the search function to find other threads similar to this (ex: http://www.fatwallet.com/forums/arcmessageview.php?start=0&catid=52&threadid=439515)
I have somewhat recently come into a trust just over the one million dollar mark in total market value. It is managed by Vanguard, and has about 350,000 in gains over the past twenty odd years. With a pay in of 20k annually for the benefactor. Reviewing the estimated annual income and yield, it's only 22.3k and/or 2.11% according to the limited paperwork I have. This just seems like a ghastly low number for such a large sum of cash. Sadly to move it out of their various funds I'd have to pay the taxes on whatever non-exempt gains the trust has since its inception, no?
Anyone know how big a hit we are talking here if I cash this whole puppy out? More importantly, what investment strategies would be tempting or smart enough to warrant such a move? I was looking at the 4._% municipal bonds offered by my state for some healthy tax free interest possibly? Also not afraid to throw this whole puppy into a house for living and/or rental purposed.
This leads me to the ever important bio: Early 20s, about to graduate from a good college with prospects of going to law school or working in nonprofit management. No debt, a no-frills but reliable Honda, no ankle biters or s.o., total nutjob who loves adventure and going off the beaten path. Have accrued some good savings and sunk a lot of cash into domain name investments, tallying about 40k if I had to firesale right now.
Many thanks in advance for people's speculative, or realworld experiences. I realize this unexpected and generous fund makes me an extremely fortunate individual, and I want to make the most of my money so that I can explore life and society with concern for doing what is just, good, and altruistic rather than chasing a paycheck. Edit by Moderator: Thank you for your participation. Please note that there is also discussion about this topic Here.
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posted: Mar. 28, 2008 @ 4:15p
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bdoubt said: Reviewing the estimated annual income and yield, it's only 22.3k and/or 2.11% This just seems like a ghastly low number for such a large sum of cash. Sadly to move it out of their various funds I'd have to pay the taxes on whatever non-exempt gains the trust has since its inception, no?Those numbers are most likely yield (interest and dividends) which has little relation to actual investment performance.
diehards.org is a better place to discuss specific investment ideas and portfolios.
ellory said: See here Yes I did search and find this thread. It appeared brief, and I would have loved to pose my question in that thread, except it is archived and locked to new contributions. This thread also ignores capital gains implications from a long held trust, focusing more on hypothetical scenarios where a lump sum falls into one's lap. Thanks
theman2 said: bdoubt said: Reviewing the estimated annual income and yield, it's only 22.3k and/or 2.11% This just seems like a ghastly low number for such a large sum of cash. Sadly to move it out of their various funds I'd have to pay the taxes on whatever non-exempt gains the trust has since its inception, no?Those numbers are most likely yield (interest and dividends) which has little relation to actual investment performance.
diehards.org is a better place to discuss specific investment ideas and portfolios.
theman2, Thank you for the link! I assumed these were performance figures. Here is what my statement reads under REVIEW OF ASSETS: Investment Cost Basis: 702k Total Market Value: 1,060k Est. Annual Income: 22k Current Yield: 2.11
I'll make sure I'm understanding it right and explore that forum. Thanks again!
Read up on investing and finance, hopefully you thought ahead and took some finance classes in college to help you out, but it doesn't appear to be the case.
Read up on capital gain taxes and find out your cost basis. Then make an educated decision (*Hint* Just keep the money where it is, it's highly unlikely that you'll do better elsewhere)
Here is some standard advice: - separate your lump sum into emergency cash (e.g. 6 mos living expenses), portion for short term investments (if any), portion for long term investment - for the emergency cash, invest in money market fund - e.g. VMMXX, or an FDIC insured account - for the short term investments, consider certificate of deposits (CD) - google ladder CD strategy - for the long term investment, first choose your asset allocation (e.g. 60% domestic stock, 20% foreign, 20% bonds - see diehards.org for more specific suggestions) and then choose corresponding Vanguard index funds - make sure you don't incorporate this money into a lifestyle that has an overall burn rate - investing in your own education is almost always worth it - investigate the tax implications with an accountant - capital gains may be going up after 2010
People like Vanguard for being low cost - particularly for index ("passive") investing
If the funds do not seem wisely invested right now (as in not sufficiently diversified), then I personally would make changes now (or spread over next 2-3 years) rather than delay until more favorable capital gains rates, which likely won't ever materialize.
Wilco I really appreciate your response, as I had not even considered the possibility of IRS policies changing with regard to capital gains. Thank you for the perspective.
bdoubt said: It is managed by Vanguard, and has about 350,000 in gains over the past twenty odd years. Reviewing the estimated annual income and yield, it's only 22.3k and/or 2.11% More details please. What type of Vanguard trust/fund, what are annual expenses, and what's it invested in (bonds, stocks, etc.)? What was the contribution rate over the 20 years? If 700k was deposited into the trust 20 years ago, then it's a pitiful return. If $10k/year was deposited in earlier years and $50k/year in later years, then the return is more respectable. Clarity between dividend interest versus capital gains would be useful to evaluate the Vanguard management.
Tax status of the trust and your restrictions on withdrawls/liquidation would be useful to consider. Your current income also plays a part with the taxation issue. Finding a trustworthy financial advisor may be the most prudent thing to do, though Vanguard may be trying to play that part.
Anyone know how big a hit we are talking here if I cash this whole puppy out? There are several considerations: Long term capital gains are currently at a low of 15% (or less, see Capital gains taxes: There's more than one rate). The new administration may increase that. Income/interest/dividends are treated differently than capital gains, though that could change. Which is playing a bigger role?
More importantly, what investment strategies would be tempting or smart enough to warrant such a move? I was looking at the 4._% municipal bonds offered by my state for some healthy tax free interest possibly? Also not afraid to throw this whole puppy into a house for living and/or rental purposed. Again, tax-free may not be worth it if you're not in a high taxable income bracket. Housing equation is similar if you work out the numbers. If you're going to pay 6 or 7% morgage interest versus getting 4% muni, the morgage makes much more sense. However, if you're able to deduct the interest and have a tax benefit, the net interest rate may be more like 4%, so they're similar. Do you qualify for a morgage? If not, paying cash may be necessary. Which part of the country to do you life or how much is the median price of housing in your area? Are you staying put for 3-7 years? What's your outlook and expectation on housing prices in general and in your local area? While the future is difficult to predict, you can tailor your moves to best match your future expectations.
total nutjob who loves adventure and going off the beaten path. Have accrued some good savings and sunk a lot of cash into domain name investments, tallying about 40k if I had to firesale right now. Have you considered joining the Peace Corps? Retiring in Costa Rica? Interning in DC?
Since you have $1 million with Vanguard, you should take advantage of their "Flagship Services" Vanguard will offer you a free consultation with a Certified Financial Planner™ from Vanguard. You can also request an in-depth analysis of your investment and retirement strategy with a Vanguard Financial Plan—normally $1,000—at no cost. While you shouldn't rely on a single source for making your investment decisions, this information could be helpful to review the current setup of the portfolio and any suggested changes to fit your needs.
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