$1M Windfall

Hey everybody!

One of my parents passed away recently after battling cancer for a couple of years (god bless their soul) and left me roughly $1mm and I wanted to know your advice and recommendations.

To give you guys a bit of background I am a college finance student currently interning at a PE firm (Private Credit) and I have an investment banking internship for next summer as well. Frankly, I know no one cares, but I do have at least an above-average understanding of the investment landscape more or less. Still, it is very different working at a firm that deals with money, than actually having the money yourself. I am 19 years old, so even then it feels like a ton of responsibility and this money means a lot to me, so I want to invest almost all of it to build long term wealth and be successful.

I have an excel sheet breaking down how I am thinking about allocating the capital. I have around $225k in Robo-advisors (Wealthfront, Betterment, M1Finance), with their “aggressive”/90% stock allocation. I chose Robo-advisors after a recommendation from a hedge fund friend and after doing some research I found the auto-hedging and diversification (International bonds/stocks, US stocks, bonds, emerging markets, it’s, etc) attractive. Then around 200k for Fidelity Index funds/ market ETFs. Another 200k for Fidelity, single stock/sector ETF picking. Another 100k-200k for 1-2 investment properties (20% down). (725k-825k used). Another 30k for a business I am running (cutting and selling vinyl sheets and rolls online). I am paying down the only debt I have (college dorm) and I want to buy a used car for around 8k max. That still leaves with around $150k, which I could have in a high yields savings account as dry powder in case the speculative market pops (tech) [my opinion] and then scoop up some attractively priced blue-chip stocks.

I have not started working full-time yet, so until then I do not have a regular earned income stream, but I have been blessed and fortunate for this windfall, but I do not want to rely on it to be successful. However, it does give me the ability to build wealth, but I still feel a bit lost, honestly.

Thanks and sorry for all this information I want to hear different opinions before making a decision.

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Would you recommend investing automatically a certain amount a month into the same ETF/Index Fund? For example, automatic 5k monthly contributions to the account or a lump sump investment of 100k into the index fund?

Thanks.

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Hey Oscar,

I’m so sorry to hear about the loss of your parent. Especially at such a young age. I’m really sorry. And I’m thankful it sounds like your parent has lovingly passed on this financial gift to help you through the rest of your life.

If I had a few thoughts for you, I would say this:

  • Don’t rush: Losing a parent at a young age is traumatizing. Trying to work through your grief, be a college student, and everything else you have to deal with is plenty without trying to be a master investor of this windfall. When you’re 60 and you look back on this time, it’s not gonna matter if you invested it at 19, 20, 21 or 25. So it’s fine to throw it all in a savings account, and not touch it for six months or a year. Don’t feel the need to rush it.
  • Think long term: Remember this money is going to be around for many decades to come. What you do this week or this month or this year won’t matter much. Keep a very long term mentality when investing this. i.e. What if you throw it in a couple index funds and check back in 10 years when you’re 29? That’s a good strategy.
  • Simplify: The first thing that strikes me about your strategy is now unnecessarily complex it is. Let’s break it down:
    • Wealthfront: US and international index funds
    • Betterment: US and international index funds
    • M1Finance: US and international index funds
    • Fidelity index fund and ETFs: US and international index funds
      Those four are basically identical, and are going to perform basically identically. I think breaking it up adds unnecessary complexity without any expected increased returns. (Personally I have about 95% of my investments at Fidelity)
  • Keep stock/sector picking to a minimum: I get it. You want to hit it big. And I know as a 19 year old working on Wall Street it’s hard to have the experience and humility to realize this. But any sort of stock picking is much more likely to hurt you than help you. I have my 90/10 rule which says 90% should go to index funds, 10% go nuts. After your business, cash, debt, car is out of the equation, $200K for stock picking is way too high. Maybe start with 50K and give it 5 years. If at the tender age of 24 you find out you’re the 1 in a million who can consistently outperform the market, the your 50K will have well surpassed your index fund portion and you can tell me you told me so.
  • Don’t time the market: Regarding that $150K dry powder fund… what if the market goes up 30% and it seems like we’ll never see levels this low again? What then? Do you get in then and take the 30% hit on a missed opportunity? What if the market drops 5%? Is that a good enough drop to get it? Or do you wait for a 20% drop? What if that 20% drop never comes? Basically, timing the market isn’t possible, other than straight up luck. I’d probably dollar cost average that money into the market over the next 6 months.
  • Stay frugal: It’s great that you’re looking at this as something to be a good steward of to help the rest of your life. Stay humble and stay frugal. I love that you’re buying a modest car and paying off your debt. That kind of mentality will allow you to have this money grow into a huge blessing, rather than be squandered on spending.

So overall, I might suggest a strategy like this.

  1. Take your time. Maybe 6 months to a year. The money is fine in a savings account until then. Don’t spend it, don’t invest it, just heal yourself.
  2. Keep a cash buffer. Make sure you have enough cash to get you through college, job search, relocation, etc with no debt. Maybe that’s $100K you leave on the sidelines in a saving account. if you end up not needing it and invest that last $100K in two years, no big deal.
  3. Skip the rentals for now. Do you really want to be a landlord? You’re young, and have a lot of uncertainty upcoming in your life. Being a landlord is a pain in the ass, and owning rental properties is essentially starting a business you have to learn. Buying and selling properties is expensive and managing out of town rentals can be a nightmare. Wait until you’re settled and have a job before you decide if you want to get into the real estate business. It can wait. It doesn’t need to happen at all.
  4. Keep it simple. What about $50K debt/car/business cash, $100K emergency fund/college buffer, $850K dump in betterment and forget about it. That strategy is very likely to outperform what you have laid out and keep your taxes and sanity in way better shape.

Just some thoughts from a guy who has been around the block a few more times than you. I’m sorry again for your loss. If you haven’t read it yet, The Simple Path To Wealth is a really nice, calming book written from the perspective of a father to a daughter that might speak to you. At least the first half discussing market behavior and simple investing.

Best of luck and keep me updated with any questions or changes.

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Appreciate it Jeremy, I would bet on you being right and having more perspective. Thank you.

After hearing you break it down my plan definitely is way more complex than it needs to be. I could also agree that more experience and humility would definitely help out.

Thanks for giving me a more reasonable and analytical perspective to make a rational decision.

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I’ll go ahead and check that book out as well. Thanks again for everything definitely helps having someone to ask for advice.

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Hey @BeffJezos!

One thing I think I didn’t make clear enough is that you’re doing awesome. You’re like 98% of the way there, and the things I mentioned are “super fine-tuning” kind of feedback. If you ignore everything I said and stick exactly to the plan you outlined you would do great. Again, a ton of credit to you for deciding to live frugally, invest and grow that money. Your parent would be proud of you!

I think almost everyone who had a windfall like that at an early age would be buying trucks, trips, houses, etc. Then wake up at 25 with the money burned and wonder how they’re going to support the lifestyle. Stay frugal and living like a college kid. I probably wouldn’t mention the windfall to a lot of your fellow students either. It could make for a weird dynamic and won’t make college any more fun. Keep up the great work! :slight_smile:

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Thanks Jeremy, it means a lot. My father did his best teaching me how to frame my thoughts and how to handle money. He always tried to illustrate how money was simply a tool for freedom in life and not to get carried away with what I could do with it. I figured that if I can make smart decisions now I can live much better in the future while being able to help my family out.

Haha I would agree with that as well, but knowing my father left me with this after all his sacrifices it would hurt. I have not mention the money to anyone either for the reasons you stated and I see no need to.

I appreciate you taking the time out to give the kid some advice. It definitely help give me a clearer picture of where I stand and how I should be thinking. Looking forward to seeing this page grow.

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I agree with Jeremy on the above. The more you can set it and forget it for 10-20 years the happier you are going to become. You are a very smart guy who is going to do very well and your dad would be proud!

You have the ability and financial freedom to do whatever you want in life which is such a gift. The book “So Good They Can’g Ignore You” has helped me gain perspective on finding long-term career and I think are your age you would really enjoy it!

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