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Financial Advice (Inheritance)

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Financial Advice (Inheritance)  Reply with quote  

Need some personal financial advice. Currently a second year law student and getting married my third year. My fiance and I are very fortunate that our families have paid for all of our education, i.e. undergrad, grad school, law school, and both of our cars are paid off. Wedding has been paid for and honeymoon as well. All we need to do now is graduate and start our careers. I've inherited a lot of money due to unfortunate circumstances and wanted to know how we could best use this for our future. If we have 500k when we start our lives, how can we best utilize this amount? Roth IRA ? (and what can we expect in 40 years with an good interest rate)? Eventually we want kids (maybe a few years after we graduate). Any advice would be greatly appreciated. I'm considering reserving some for an emergency fund and for a down payment on a home in the future.
Post Fri Mar 11, 2016 3:49 am
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The $500k, invested in an SP500 Index Fund at 11%/yr will be $11,500,000 in 30 years, $32,500,000 in 40 yrs. Probably no need to stack up that much - but think of it as the upper limit - any money pulled out of that $500k cuts into the $32M.

Check this site, you'll see that for almost any 30 yr block of time, the SP500 converges on 11%/yr. Ie, with a >30 yr time horizon the up/down fluctuations statistically average and provide about an 11%/yr average return.

And since the investment is spread across the 500 major corporations, it provides broad diversity. And, because an index is unmanaged, the expenses/fees are very low - fund companies such as Vanguard and fidelity, charge about a tenth of a percent.

We use the SP500 as our core investment - and we leave as much of our capital there as possible - eg, we make minimal down payments on houses (home & rentals). That way we are borrowing on houses at 4% while leaving our own money invested at 11%/yr. Same with cars - we finance the entire amount for 5 yrs, taxes, license, everything. And sell our old car privately, say $5000. So we leave the price of the car in our SP500 plus we add the $5000 to the fund. On average, the price of the car + $5000 doubles in about 6.5 yrs (the Rule of 72).

And you will likely be high earners so your income stream will easily service mortgages, car payments - any major purchase that can be financed 'long & low" - long term, low rates.

As for account types - the roth is bought with posttax money, the 401k is bought with pretax money and taxed in retirement, and a taxable fund is bought with posttax money and grows tax deferred until you sell some (or it is never taxed if you leave it to your heirs. ) You will be using all 3 account types - you'll hit the max limits of the govt regulated , age 59 1/2 accounts, and put the rest in your taxable fund. And that can be your EF, that money is accessible within one business day. (Yes, the planners usually suggest 6 months of expenses in a 'dead money' EF - but we don't do that , we normally cap our EF at $5000 - the criticism is that you may be forced to sell some stock in a 'down' market, but in our case the 11%/yr return has FAR outweighed any forced stock sales.)

New careers, a new marriage, new babies to be raised, money to be made - wonderful! May you live in interesting times.
Post Fri Mar 11, 2016 4:34 am
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