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Author: ammorris Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76384  
Subject: How To Invest A LARGE Sum Of Money Date: 11/7/2000 12:45 AM
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Hey, My Name's Andrew. (really new to this)
I was fortunate enough to be blessed with parents who were well off financially, and since birth they have put the maximum allowable amount under the Gift Act into a trust fund for me.(I believe its $10,000 per parent per year).(I believe there is one other trust in my name, earmarked that should I somehow lose this money (not an option from my point of view) I am to receive this other trust fund when I turn 40 or so years old, interest is to accrue in this other fund for the next 20 years or so until it comes due) Now I'm twenty years old, and the first trust fund is worth upwards of $600,000. (yes i realize that i'm extremely lucky.) I have had control of this money since I was 18, but have been afraid to try to do anything with it for fear of losing it. I have no debt, no real expenses, seeing as my parents would rather pay themselves for any of my costs, and I spend my time studying and staying in college. This money up until now has been with Prudential Securities. How does one go about investing large sums of money? (never put all your money in one place yada yada yada) I dont have enough time on my hands to manage this money myself, so I know I need a broker, but what should I ask for, (I hate to ask my broker this because I know deep down that he may make me money or lose me money, but he gets his share either way.) What Should I ask for or do with it? I know right now that this money isnt doing very much for me, I don't need income, I just want to have it as a nest egg for when I retire later in life.

I'll take all the advice I can.

Thank You For Your Time.
- Andrew
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Author: rhecker One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25998 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/7/2000 9:33 AM
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Andrew said in part:

I dont have enough time on my hands to manage this money myself, so I know I need a broker, but what should I ask for, (I hate to ask my broker this because I know deep down that he may make me money or lose me money, but he gets his share either way.) What Should I ask for or do with it? I know right now that this money isnt doing very much for me, I don't need income, I just want to have it as a nest egg for when I retire later in life.

Andrew, my advice is that you need to make just a little bit of time to learn some basics of how to invest. If you really feel like you don't have time, maybe you could take one less class next semester and think of your self-education of investing as a class. I don't think learning the basics will necessarily be an entire semester's worth of work, but the more you know the better. You should know what is happening with your money. I would start your education at the Fool's School: http://www.fool.com/school.htm?ref=G02A06

Try reading "Investing Basics" and "The 13 Steps to Investing Foolishly". Those two articles won't take long to read. You also might be interested in "Get a Broker" which includes a section on "What's wrong with Full-Service Brokers".

If I told you that you could make tens of thousands of dollars by working just 24 hours, what would you think of me? That I'm crazy? Or more likely, you would think that I have some kind of get-rich-quick scheme that is obviously not on the level. Well, I would like to submit to you that you could save tens of thousands of dollars in brokerage fees and losses resulting from bad management of your assets by a broker if you spend just a few hours educating yourself about what kinds of decisions YOU should make and can make about what to do with your own money.

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Author: mschorer One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25999 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/7/2000 10:07 AM
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How wonderful to be 20 and to be asking the right question! Rhecker is right about educating yourself to manage your own money. But, even if you feel you have not one minute free to manage it, you can park it in an S and P index fund and wait for 10 years. Historical data tells us you will be better off than if you hand it to a broker.

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Author: PapaDoc Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26006 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/7/2000 2:00 PM
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All good advice. Keep in mind that there are limits on the amount insured by the FDIC. $100,000 is the usual limit, but there are some ways to expand that thru multiple accounts. I would think a few hours with a good tax lawyer would be in order.

Pat

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26021 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/7/2000 10:13 PM
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Keep in mind that there are limits on the amount insured by the FDIC. $100,000 is the usual limit, but there are some ways to expand that thru multiple accounts.

All deposits by a person, together, is insured to $100,000. Splitting the money up into different accounts, different branches, or different subsidaries of the same institution will not do it. Nor will different styles of signature, nor even the use of multiple social security numbers by the same person.

The ways around this are: joint accounts (for insurance purposes if the joint owners have equal withdrawal rights, the deposits are considered split up among the owners of the account, so on a joint account having $200,000, it is as if $100,000 was deposited by him and covered for his $100,000 insurance allotment, and $100,000 was deposited by her and covered for her $100,000 insurance allotment--but coverage does not exceed an aggregate $100,000 per person), and retirement accounts for an aggregate of $100,000 in a retirement account for each person.

One can read up on this at the FDIC web site: http://www.fdic.gov

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26025 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/7/2000 10:47 PM
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Author: ammorris Date: 11/7/00 12:45 AM Number: 25995
I'm twenty years old, and the first trust fund is worth upwards of $600,000.
......and I spend my time studying and staying in college. This money up until now has been with Prudential Securities. How does one go about investing large sums of money?


Hi Andrew,

What a GREAT situation to be in!! I'm very glad to see that you are serious about this money and intend to invest it instead of blowing it. It's also great to hear you say you are studying and staying in college. With that attitude, you should be set for life financially and otherwise.

You mentioned that your $600K is with Prudential. There is nothing wrong with Prudential as a brokerage for now. However, just remember that they are in business to make money from you. One thing you need to watch out for is an overzealous account executive who wants to churn your account a little. Churning is buying and selling securities for no real reason, each time generating a commission for the broker. Just tell them that you don't want to do any trading right now. Then go do some studying!!

The advice that was given by the other replies you received was good. The Motley Fool is a great learning resource. Learn as much as possible before doing anything with your account.

Later, you may want to consider moving this money to a low cost online brokerage, or you may want to pay someone (a Fee-Only Financial Planner, perhaps) to manage it for you. There's nothing wrong with either approach; just understand where every cent is going and learn about all the tricky ways brokerages and mutual funds have to hide fees. Fees are one of your biggest enemies, long term. Every cent you pay in fees is one cent that won't be compounding for you through the years, and that really adds up if you put the calculator to it.

Russ

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Author: matttuttle Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26028 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/8/2000 9:14 AM
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Be careful. With that large amount of money and limited knowledge you are a sitting duck for a broker who makes money off commissions. My advice, take it or leave it, is to put your money directly with institutional money managers in an asset allocated portfolio. Work with a consultant to determine your risk tolerance and goals and come up with an asset allocation, then have your consultant higher institutional money managers to manage parts of the portfolio. The consultant will get a % of assets under management---if you do well they get a raise, if not they take a pay cut. Also there is no incentive for moving the money around. If you cannot trust your Pru broker he may not be the guy to do this for you.

Matt Tuttle

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Author: naugust Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26043 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/9/2000 12:02 AM
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Hi Andrew,

I'm 22 and had a fairly similar experience as you and I will share with you what I did. It turned out well for me, and I hope you find it helpful.

1) Moved the money entirely into Vanguard funds with the exception of about $100,000. I really like the Vanguard fund family because it has very low expense ratios and the shareholders are the owners of the company. I use the following funds, although you may not find them applicable:

S&P 500 Growth Indew (VRIGX)

Primecap (VPMCX) -- this fund is now closed, but there are some other good actively-managed growth funds out there in Vanguard's offerings.

International Growth (VWIGX)

I put the rest of the money into two piles, the money that I would invest and the money that I would keep for an emergency (such as if my parents could no longer pay my college costs, which run over $30,000 per year). With the emergency money, I placed it into three staggered CDs of $30,000 each set to expire after one year, two years, and three years. If necessary, each of these CDs could have paid my college costs. I found the highest rates at telebank, which is now part of E*Group, but you may find higher rates elsewhere.

I placed the remaining $10,000 in Fidelity to invest in stocks that I choose. I thought of this money as the money I would learn to invest with over the course of the year. Although I haven't beaten the Rule Breaker portfolio (yet), I have done fairly well, but I have also (and most importantly) learned a great deal about investing, the stock market, and what causes fluctuations in the market.

At the end of one-year, your first CD will come due and with any luck, you'll be ready to invest this money using insights and ideas that you've generated over the past year. This should repeat itself over the next two-years, and if you're feeling bold, you might want to move some money from mutual funds to your actively managed portfolio.

Good Luck!

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Author: mschorer One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26047 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/9/2000 10:23 AM
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Wow! naugust is a 22-year-old we can all be proud of!

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Author: LaJolla8 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26048 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/9/2000 11:31 AM
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he/she is but where does a 22 year old with no "real" job get all this money??

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Author: naugust Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26051 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/9/2000 2:20 PM
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As I said in my post, I was in a similar situation. This occurred because my parents had used the UGMA rules to gift me $10,000 per year for the first 21 years of my life. I was very fortunate to be in this situation, but I *don't* plan to mess it up by blowing the money or mismanaging it, and I would hate to see someone else (who was also very fortunate) make that mistake.


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Author: LaJolla8 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26052 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/9/2000 2:59 PM
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didnt see that in your earlier post



must be nice..............

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Author: LaJolla8 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26053 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/9/2000 3:04 PM
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actually, I just read through your 3 posts and you hadn't mentioned how you were " gifted" the money
until I asked

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Author: Zorkmid One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26070 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/10/2000 7:14 PM
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Hi Naugust,

I can identify with some of your feelings. I am a bit older than you and recently came into a windfall from a "dot-com" situation.

So far, I think you are asking the right questions. The first thing to know is that you CAN manage this investment -- it isn't going to be as difficult as it seems at first. The hard part is getting the confidence to trust your own conclusions, even if it goes against the advice of others. I will give you some suggestions based on the learning I have done.

* Be clear about your goals (sounds like you already are), and bounce all the advice you hear against those goals.

* Look into a total stock market index fund. Since your main goal is to grow the money responsibly over the long haul, I don't think you can expect any other stock investment to perform better, have less risk, or require less oversight from you.

* Keep an eye on tax consequences. Since this money is going to be in taxable accounts, I would assert that tax consequences are the biggest threat to the growth of your investment. Most large-cap index funds are very tax efficient, so are ETFs like SPY, and some mutual fund companies offer tax-managed funds of various kinds that try not to disperse any taxable dividends or capital gains to you.

* I also think that trying to actively rebalance your holdings are likely to lose you money over the long term in a taxable account. But financial advisors are likely to recommend you invest in actively-managed mutual funds, and annually consider rebalancing your holdings -- I think both will clearly lose you money compared to parking your money in a tax-effecient index fund.

Personally, I have spent several thousand dollars on professional financial advice over the last few years, but I ended up not following a lot of that advice.

-Zorkmid


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Author: Onfoot One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26153 of 76384
Subject: Re: How To Invest A LARGE Sum Of Money Date: 11/15/2000 10:11 AM
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If I were Andrew, I would begin by evaluating Prudential's performance so far. If his parents have been depositing $20,000 per year for 20 years at the beginning of each year, and the fund is now worth $600,000, that figures to a compound rate of return of about 4%. That's better than he would have done with the money under his mattress, but if it's right he's certainly wise to be looking for alternatives.

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