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So I'm new to this thread and was hoping I could obtain some sound financial advice on my situation. I'm currently a third year law student with an anticipated graduation date of May 2017 and recently found out last year that I will be receiving almost 500k from a lawsuit settlement in April. My mother was killed in a car accident my first year of law school and my father passed away when I was in college. The gentlemen who hit my mother had a massive umbrella policy and the insurance company recently settled. My mom also had mortgage insurance on her house, so when she passed, the mortgage was paid off and my sister and I received the proceeds which was about 200k. I also received a 70k rollover IRA and my sister and I split the life insurance policy which was about 100k. Upon graduation I'll be 27 with no student loan debt from undergrad and law school and my fiance will not have any student loan debt from undergrad or her masters. We both don't have car payments and our families have decided to pay for our wedding and honeymoon. She is going to be making around 55k after graduation and I'll probably be making about 65k. Our combined household income will be 120k with no debt and a massive nest egg which we're not sure what to do with. What I'd like to do is put all the money aside and pretend it doesn't exist and live off of our earnings and let that money grow or be used for an early retirement, start a business in the future, help pay for kids college expenses (when we have them), or maybe change careers later in life. If I was to not touch this for 10-15 years, what could all of this potentially be worth? 

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Only if you sell it immediately.  If you don't you would only logically feel slightly unlucky and not like an idiot.  On... (more)

Bend3r (Jan. 04, 2017 @ 10:20p) |

You have FU money now. So, the logical mutual fund is FUSEX. I laughed when I saw it, but a true fund. It tracks the S&P... (more)

mokiavelli (Jan. 05, 2017 @ 12:34a) |

Sounds like a decongestant.

BrianGa (Jan. 05, 2017 @ 10:34a) |

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wadeharris said:   If I was to not touch this for 10-15 years, what could all of this potentially be worth? 
 

  Really depends on what you put the money towards in the 10-15 years. If you stuff it under a mattress, it will still be worth what it is today but will buy you less goods because of inflation.
 

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If you want to retire early, dump it in index funds through dollar cost averaging. Break it out into equal portions and invest it all over the next 2-4 years, monthly.

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wadeharris said:   So I'm new to this thread and was hoping I could obtain some sound financial advice on my situation. I'm currently a third year law student with an anticipated graduation date of May 2017 and recently found out last year that I will be receiving almost 500k from a lawsuit settlement in April. My mother was killed in a car accident my first year of law school and my father passed away when I was in college. The gentlemen who hit my mother had a massive umbrella policy and the insurance company recently settled. My mom also had mortgage insurance on her house, so when she passed, the mortgage was paid off and my sister and I received the proceeds which was about 200k. I also received a 70k rollover IRA and my sister and I split the life insurance policy which was about 100k. Upon graduation I'll be 27 with no student loan debt from undergrad and law school and my fiance will not have any student loan debt from undergrad or her masters. We both don't have car payments and our families have decided to pay for our wedding and honeymoon. She is going to be making around 55k after graduation and I'll probably be making about 65k. Our combined household income will be 120k with no debt and a massive nest egg which we're not sure what to do with. What I'd like to do is put all the money aside and pretend it doesn't exist and live off of our earnings and let that money grow or be used for an early retirement, start a business in the future, help pay for kids college expenses (when we have them), or maybe change careers later in life. If I was to not touch this for 10-15 years, what could all of this potentially be worth? 
I would also pursue my career as if I didn't have this money, except that I wouldn't take a job that I hate. Some first year attorneys (the lucky ones?) take high-paying, high-demand associate jobs in order to pay off student loans. You won't have that problem, so I think you have the luxury of not needing to take a job that you think you won't like.

One exception is that I would maximize contributions to my retirement accounts every year, which I might not do / be able to do if I didn't have that windfall.

How much can you expect $500,000 to be worth? It depends what you do with it. And what you do with it depends on when you might need it. It sounds like you could benefit from a basic investment guide. Maybe start here ( https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy ) and/or with Andrew Tobias's Only Investment Guide You'll Ever Need.

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Also depends where you live. Around here, half mil won't even get you a 1br condo.

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I agree with Brian, act like the money does not exist, except if its needed to be able to help you maximize your retirement accounts each year. Like Tennis said, take the total sum you have, and divide it by 24, or 36, and then each month put that amount in an index fund, or ETF. Since you have zero debt and zero planned major expenses coming up, you and your wife might be able to get by with maxing out your retirement funds without using this money. If you are able to max out your retirement funds without using this money, and cost average it into an index fund/etf then in 15 years you should have a ton of options with what you can do. You will have learned over the next 15 years to live off of around 50-60k/year, and with your investments you should be able to retire early, and start up a business that you enjoy.

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wadeharris said:   The gentlemen who hit my mother had a massive umbrella policy and the insurance company recently settled. 
  I don't think I'd be calling the person that killed my mother a gentleman. Something about this thread has me wondering. Just can't put my fingers on it yet.

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I am sorry for the losses, I would INSIST on a prenup for all of those proceeds and roll the IRA to vanguard Target funds if you want it easy.  With the other proceeds possibly pay for a reasonable house in full in your name or rent if moving then max your roth and retirement once you start earning.  You could do the same for retirement accounts with the wife but then any of those funds will not really be protected with a prenup I don't think.   You have the right idea to forget you received the windfall, live like you were planning to and place it right to save for the long run.

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I'd also try not to make *any* decisions on this money right away, because it probably seems like a lot to you. Just put it in a 1% bank account or a perhaps a CD, and spend the next year studying investments before you deploy it. Start with Bogleheads.

One more thing. DO NOT TELL ANYONE YOU NOW HAVE 500K at a young age.

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Dividend Growth Investing.

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Unless future wife has similar or greater wealth, I second getting a prenup. Especially if she knows about your money. You won't be able to stop her from not working after you're married, especially when/if you have kids. Depending on where you live, it may be tough to live well on just your salary.

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scripta said:   Unless future wife has similar or greater wealth, I second getting a prenup.

Forget the prenup. Do NOT get married. I can't believe in this day and age people are still "paying" for love. Do a sample tax returns this year. You making 65K, her making 55K and you as a married couple making $120K. You'll find that as a married couple you pay more, probably a lot more at those income levels.

As time ticks by while married, you'll find that that windfall that is all yours right now, will start to look more and more like community property.

You have enough money to probably live your entire life without a single worry. Do you want to saddle yourself with the responsibility of taking care of some else, or worse, someone bleeding you dry?

When these people say, "wait" on making a decision with the money, they really mean in all aspects of your life.

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tennis8363 said:   If you want to retire early, dump it in index funds through dollar cost averaging. Break it out into equal portions and invest it all over the next 2-4 years, monthly.
  Or if you're not going to freak out by a small market drop (if "retire early" still means 10+ years), dump it all in at once.  Even if it means less than 10 years.... that really makes it even more significant that you're cutting off 4 years of returns and/or recovery from pullbacks.

Dollar cost averaging a lump sum just means reducing the time horizon (by 2-4 years) and thus decreasing returns and increasing risk.
http://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

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That inherited money is likely to be separate property, assuming you haven't already and won't in the future co-mingle it. Please don't take our word for it. The stakes are high enough that you should get individualized legal advice.

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Booger candy and women of the night

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tennis8363 said:   If you want to retire early, dump it in index funds through dollar cost averaging. Break it out into equal portions and invest it all over the next 2-4 years, monthly.
  Somewhat counter-intuitive, but one-time lump-sum contribution backtests better than dollar cost averaging

http://www.businessinsider.com/lump-sum-vs-dollar-cost-averaging...

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prostoalex said:   
tennis8363 said:   If you want to retire early, dump it in index funds through dollar cost averaging. Break it out into equal portions and invest it all over the next 2-4 years, monthly.
  Somewhat counter-intuitive, but one-time lump-sum contribution backtests better than dollar cost averaging

http://www.businessinsider.com/lump-sum-vs-dollar-cost-averaging...

It's not counter-intuitive, since markets have risen historically. But while it has more upward reward, it also carries more downward risk. It's sort of like betting your whole gambling budget on black as soon as you get to the casino - it's a decent bet (.95 expected value or so), but gosh are you going to have a boring time if you lose.

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With the 500k invested wisely you can actually have a really great financial life with a combined income of 120k:

Market/Equity Risk Approach (this will likely be best over a 20 year horizon):
1) Stick in a high-yield short-term fund like SJNK to start earning yield immediately. 500k in that will give you ~27.5k in taxable income, which leads me to:
2) Max out retirement accounts every year. 401k/403b/Roth IRA (if eligible you're going to be pushing the limit so backdoor that Roth IRA) then maybe Health Savings Accounts after those are maxed out.
3) Dollar cost average into a low cost broad market equity ETF like SCHB. I recommend 1-2% (5-10k)/month.
4) If you want to get a house but don't want to pay PMI might want to investigate getting a broker like Merrill Lynch which will allow you to have a pledged brokerage account. Basically means you can borrow up to 100% of the mortgage with no PMI so long as you have 40% in the pledged account.

Lower Risk Approach (this will likely not have the same returns as above but will be far less volatile): Do all of above except #3.

Even Less Risky Approach (this will likely have even lower returns but lower volatility): Do all of the above except #3 & #4--use cash for the 20% downpayment on the mortgage.

Boring Risk-Averse Approach: #2 from above & buy a house with cash. If the stock market tanks you're completely protected at all times you're only real worry is housing prices in the area you buy at least for a decade or so.

With all approaches keep in mind the opportunity cost of sitting on a half a million in cash: every month you wait on #1 you're losing $2,300 in taxable income so ~$1600 to you. The downside risk is minimal as it sounds like you don't need that principal immediately.

With both your incomes it sounds like you could really do #1 prudently and hit it out of the park. Its a heck of a lot harder to get to 500k than it is to 2MM over a 15 year timeframe if you're starting from 0 -> 500k vs. 500k -> $2MM. You have a great financial opportunity that few are afforded, of course few would want to trade places with you but just saying from the financial aspect.

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Three fund portfolio. Pick an allocation, save out enough for a house down payment then put the rest in the three fund portfolio and check on it every tax day to rebalance, otherwise forget about it.

https://www.bogleheads.org/wiki/Three-fund_portfolio

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Chyvan said:   scripta said:   Unless future wife has similar or greater wealth, I second getting a prenup.... Do a sample tax returns this year. You making 65K, her making 55K and you as a married couple making $120K. You'll find that as a married couple you pay more, probably a lot more at those income levels...Wrong -- the marriage penalty won't kick in for them, because they have very similar incomes and their individual AND joint top tax bracket is exactly the same. It'll kick in later when their income is much higher. But if they have kids and one of them stops working, they'll be better off married as far as income taxes go.

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scripta said:   the marriage penalty won't kick in for them, because they have very similar incomes

That is exactly when the marriage penalty used to kick in.

https://www.irs.gov/pub/irs-pdf/i1040tt.pdf Let's use 2015 rates as an example since the 2016 are published yet.

A single person at 65K gets a standard deduction of $6,300 for a taxable income of $58,700 with an approximate tax bill of $10,463.

For the wife at 55K and a taxable income of $48,700 and a tax bill of $7,963 for a total bill of $18,426

Now as marrieds $120,000 - 12,600 = $107,400 tax $18,437.50. Not much more just on straight taxes. I stand corrected. Improvements on the marriage penalty have been made

However, that married standard deduction really negates the interest on a mortgage and property taxes. There might be phases outs that cut them off from other things.

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BrianGa said:   prostoalex said:   
tennis8363 said:   If you want to retire early, dump it in index funds through dollar cost averaging. Break it out into equal portions and invest it all over the next 2-4 years, monthly.
  Somewhat counter-intuitive, but one-time lump-sum contribution backtests better than dollar cost averaging

http://www.businessinsider.com/lump-sum-vs-dollar-cost-averaging...

It's not counter-intuitive, since markets have risen historically. But while it has more upward reward, it also carries more downward risk. It's sort of like betting your whole gambling budget on black as soon as you get to the casino - it's a decent bet (.95 expected value or so), but gosh are you going to have a boring time if you lose.

You have more downward risk on the investments if they're artificially deferred to a later date. If market crashes right before you withdraw they will have no time to recover and the funds also missed the run up to that crash so will be less in that circumstance.

If it crashes immediately after a lump sum investment, that's fine because there's the max possible time remaining for recovery.
That's why the Risk-adjusted returns are higher with the lump sum, not just "50 percentile returns"

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With a name like Wade Harris - that just screams ambulance chasing tv advertising lawyer. I'd definitely be investing in starting my own Law Firm and some creative TV ads ASAP.

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Better than Mike Slocumb.

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atikovi said:   Better than Mike Slocumb.
  Or the Suk Law firm.

http://www.downtownrochestermn.com/go/suk-law-firm

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Chyvan said:   That is exactly when the marriage penalty used to kick in.I don't think so. The marriage penalty kicks in when either the two individual incomes are in different brackets or the joint income is in a different bracket.
Chyvan said:   Let's use 2015 rates as an example since the 2016 are published yet.The only reason you see any difference in tax liability is because you are using the tax tables. If you instead used the calculation method, the tax liability would be exactly the same for two individuals and joint.
Chyvan said:   However, that married standard deduction really negates the interest on a mortgage and property taxes. There might be phases outs that cut them off from other things.Yes, the married standard deduction may negate a portion or all of mortgage interest and property taxes (depending on where they live and how much they pay) if only one of them fully owns the property. But they are not near any other phase outs.

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For a marriage penalty with vastly different incomes to kick in, i think one must assume they are committing tax fraud on the individual returns. (Example Such as the low income parent claiming all children as dependents when it's really the high income paying >50% of their bills. This results in large subsidies for the fictitious low income individual supporting the dependents which go away when filling together). What happens here in all other cases is that when combined the deductions get applied to higher marginal income, resulting in marriage tax "bonuses".

The extra "free" standard deduction/mortgage is similar, if both are paying into the house it shouldn't really be 100% deducted by just one of them.

Other then that, there's mainly what amounts to rounding errors of a few $100 either way due to just barely paying ire missing a tax bracket or cutoff to qualify for a tax credit.

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TravelerMSY said:   I'd also try not to make *any* decisions on this money right away, because it probably seems like a lot to you. Just put it in a 1% bank account or a perhaps a CD, and spend the next year studying investments before you deploy it. Start with Bogleheads.

One more thing. DO NOT TELL ANYONE YOU NOW HAVE 500K at a young age.

  
Let's hope Wade Harris is a pseudonym

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Crazy idea? People are saying to act like you don't have the money... put it into a paid-up survivorship life insurance policy of wife-to-be's parents. Should generate 3-5mil tax-free when the second of them passes away, giving you plenty to retire on. Your returns will be 6-8% depending on age, but you'll never pay a dollar in taxes, and it's easy to mark it as yours on the pre-nup.

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Two chicks at the same time, man.

Wait, $500k?

One chick at the ... the same time. Man.

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DenverDiver said:   
TravelerMSY said:   I'd also try not to make *any* decisions on this money right away, because it probably seems like a lot to you. Just put it in a 1% bank account or a perhaps a CD, and spend the next year studying investments before you deploy it. Start with Bogleheads.

One more thing. DO NOT TELL ANYONE YOU NOW HAVE 500K at a young age.

  
Let's hope Wade Harris is a pseudonym

  Shh.. Don't say that.

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Strangely this settlement is stark reminder of the suddenness of end of life yet most suggestions are about life in 10 to 15 years. Trade money for happiness today

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I had a similarly sized windfall from a startup cash-out at a relatively young age.

I used a portion of it as a down payment for a condo.

I invested the rest in a diversified portfolio.

Fast forward 20 years and that has grown into a sizable portion of my nest egg that will give me the flexibility to retire early.

If I had to tell my twenty-something year-old self what to do, I'd probably say do exactly what I did.

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I suggest investing into a very nice Crown Vic. You should have just enough money left over for a nice set of rims.
I do however second the vote of not telling friends/girlfriends that you have money. It will only cause you pain.
If you ever decide to loan a friend/family member money assume it is a gift, and that you will never see it again.

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"Our families have decided to pay for our wedding and honeymoon"

I'd sure feel guilty accepting that. They worked hard for that money - you don't need that kick off at their expense. Take the entire wedding party to Fiji or at least Hawaii on your dime and celebrate your Mother's memory.

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Bogleheads.org Wiki Managing a Windfall
Then read their site, solicit their wonderful, sage advice, and follow it.

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So is this a troll about only making 55k and 65k after masters and law degrees, respectively?  Being 27 after what should have been 7 years of college?  Or maybe a troll about getting a bunch of boomer's money and blowing it on weddings and honeymoons? I can't tell yet.

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Bend3r said:   
tennis8363 said:   If you want to retire early, dump it in index funds through dollar cost averaging. Break it out into equal portions and invest it all over the next 2-4 years, monthly.
  Or if you're not going to freak out by a small market drop (if "retire early" still means 10+ years), dump it all in at once.  Even if it means less than 10 years.... that really makes it even more significant that you're cutting off 4 years of returns and/or recovery from pullbacks.

Dollar cost averaging a lump sum just means reducing the time horizon (by 2-4 years) and thus decreasing returns and increasing risk.
http://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

  
Vanguard said: Executive summary. If a foundation receives a $20 million cash gift,
what are the tradeoffs to consider between investing those funds
immediately versus dollar-cost averaging the investment over time?
How might an individual who receives a $1 million windfall approach
the same decision?

In this paper, we compare the historical performance of dollar-cost
averaging (DCA) with lump-sum investing (LSI) across three markets:
the United States, the United Kingdom, and Australia. On average, we
find that an LSI approach has outperformed a DCA approach approximately
two-thirds of the time
, even when results are adjusted for the higher
volatility of a stock/bond portfolio versus cash investments. This finding
is consistent with the fact that the returns of stocks and bonds exceeded
that of cash over our study period in each of these markets.
We conclude that if an investor expects such trends to continue, is
satisfied with his or her Target asset allocation, and is comfortable with
the risk/return characteristics of each strategy, the prudent action is
investing the lump sum immediately to gain exposure to the markets
as soon as possible. But if the investor is primarily concerned with
minimizing downside risk and potential feelings of regret (resulting from
lump-sum investing immediately before a market downturn), then DCA may
be of use.
Of course, any emotionally based concerns should be weighed
carefully against both (1) the lower expected long-run returns of cash
compared with stocks and bonds, and (2) the fact that delaying investment
is itself a form of market-timing, something few investors succeed at.

Mathematically, you are correct, but there is a tremendous amount of psychology (possibly irrational) involved. 

Imagine doing an LSI and the investment grows over time. Nobody thinks you're a genius; you're someone who got a windfall.
Now imagine doing an LSI and the market moves down 20%+ in the subsequent year(s). Everyone thinks you're an idiot (including yourself). You just blew an incredible gift. 

Skipping 4 Messages...
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mokiavelli said:   FUSEX
Sounds like a decongestant. 

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