Windfall - Immediate Steps

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apple234
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Joined: Tue May 11, 2021 8:14 pm

Windfall - Immediate Steps

Post by apple234 »

Hi all,

A Long-time lurker but just made an account as I have a very serious situation coming up. I am 24 years old expected to receive a huge cash windfall ($5,000,000+) but don't exactly know the least-risky moves I can make after receiving this windfall.

I have read the wiki and they have said to keep the money in a low-risk investment vehicle until I know what I am doing which I do agree with. However, I do not know what can help de-risk the loss of this amount of money.

3 questions

1) Saving accounts: I have done my research and it has said that if I put money in a savings account, it can only insure up to $250k per person per bank. Does this mean I have to create 20+ bank accounts in 20+ different banks to fully insure this money? or Am I just overthinking as banks are considered "too big to fail"

2) Money markets - Are they safer than putting money in savings accounts?

3) Treasury Bills - I have researched that a lot of companies stockpile their cash in US treasury bills. Could someone explain to me why US treasury bills are more attractive to park cash than just putting in a bank account? Is it because US treasury bills are safer or am I just missing something?

Thanks a lot
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retired@50
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Re: Windfall - Immediate Steps

Post by retired@50 »

apple234 wrote: Tue May 11, 2021 8:23 pm Hi all,

A Long-time lurker but just made an account as I have a very serious situation coming up. I am 24 years old expected to receive a huge cash windfall ($5,000,000+) but don't exactly know the least-risky moves I can make after receiving this windfall.

I have read the wiki and they have said to keep the money in a low-risk investment vehicle until I know what I am doing which I do agree with. However, I do not know what can help de-risk the loss of this amount of money.

3 questions

1) Saving accounts: I have done my research and it has said that if I put money in a savings account, it can only insure up to $250k per person per bank. Does this mean I have to create 20+ bank accounts in 20+ different banks to fully insure this money? or Am I just overthinking as banks are considered "too big to fail"

2) Money markets - Are they safer than putting money in savings accounts?

3) Treasury Bills - I have researched that a lot of companies stockpile their cash in US treasury bills. Could someone explain to me why US treasury bills are more attractive to park cash than just putting in a bank account? Is it because US treasury bills are safer or am I just missing something?

Thanks a lot
Welcome to the forum. :happy

If you insist on the insurance of FDIC, then you will probably have to establish multiple bank accounts. Not fun, and probably not worth the hassle.

Money market accounts aren't insured, but you'll probably get hit by lightning before you'd lose money in one, especially from a big firm like Vanguard.
Consider this fund: https://investor.vanguard.com/mutual-fu ... file/VUSXX

If you want to get into US Treasuries, then you could use a short term bond index fund that will have a small amount of share price fluctuation and a small amount of risk.
Consider this fund: https://investor.vanguard.com/mutual-fu ... view/vsbsx

The benefit to US Treasury notes, bills, bonds is that the interest they pay isn't taxable at the state level, so, depending on which state you live in, that could be a consideration.

Finally, consider this Boglehead wiki page. https://www.bogleheads.org/wiki/Managing_a_windfall

Regards,
This is one person's opinion. Nothing more.
123
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Re: Windfall - Immediate Steps

Post by 123 »

I would open a regular brokerage account on-line with either Schwab or Fidelity (or both if you want to split the proceeds up). You can fund the account(s) when you receive the windfall. If you place the windfall proceeds in a bank account you can then request the bank to wire funds to the respective brokerage accounts you have opened. Depending on how you receive the windfall draft, check, cashier's check, wire there may be a hold on the funds until you can send outgoing wires. Once the funds are in the brokerage accounts you can then do online transactions to purchase treasury bills at the weekly auctions. I would just buy 13 and 26 week bills to get things started.

You should minimize the time you spend in banks and brokerage offices. They have personnel that will try and snare you into purchasing expensive products and account management services. Do as much as you can on-line and if you get "Welcome" calls simply respond that you prefer to handle things yourself but that you will call them if you have questions or need assistance (this polite "brush-off" usually works).

Minimize the number of people who know about the windfall. Tell absolutely no one if that is possible. You likely have friends who are financial advisers or have relatives that are financial advisers that are just looking for new money to manage. If they are not aware of the windfall it will save you a lot of grief. Silence is golden.

Post additional questions here as you have them.
The closest helping hand is at the end of your own arm.
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JonnyDVM
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Re: Windfall - Immediate Steps

Post by JonnyDVM »

I think I would suggest opening an account with Fidelity or Vanguard and park the cash there for now. Then seek the help of a well regarded, fairly priced financial advisor. There’s no shame in that. If you really are determined to be a do it your selfer, I would start reading financial books. Start with the wiki. I would not open 20 bank accounts for FDIC coverage. Banks would also then pester you about their investment products. It would get very annoying.
Last edited by JonnyDVM on Tue May 11, 2021 9:48 pm, edited 1 time in total.
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mikejuss
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Re: Windfall - Immediate Steps

Post by mikejuss »

Do you not feel comfortable investing in stocks and bonds?
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willthrill81
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Re: Windfall - Immediate Steps

Post by willthrill81 »

Put the money in a savings account with a major bank. The likelihood of you losing a penny is infinitesimal, essentially zero.

Then, take a breath and delve into the Wiki, beginning with the page that retired@50 linked to above. Going forward, educating yourself on finances will potentially help you to save/earn literal millions.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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abuss368
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Re: Windfall - Immediate Steps

Post by abuss368 »

apple234 wrote: Tue May 11, 2021 8:23 pm Hi all,

A Long-time lurker but just made an account as I have a very serious situation coming up. I am 24 years old expected to receive a huge cash windfall ($5,000,000+) but don't exactly know the least-risky moves I can make after receiving this windfall.

I have read the wiki and they have said to keep the money in a low-risk investment vehicle until I know what I am doing which I do agree with. However, I do not know what can help de-risk the loss of this amount of money.

3 questions

1) Saving accounts: I have done my research and it has said that if I put money in a savings account, it can only insure up to $250k per person per bank. Does this mean I have to create 20+ bank accounts in 20+ different banks to fully insure this money? or Am I just overthinking as banks are considered "too big to fail"

2) Money markets - Are they safer than putting money in savings accounts?

3) Treasury Bills - I have researched that a lot of companies stockpile their cash in US treasury bills. Could someone explain to me why US treasury bills are more attractive to park cash than just putting in a bank account? Is it because US treasury bills are safer or am I just missing something?

Thanks a lot
No chance $5 MILLION should remain in a bank well over FDIC insurance. I would move or spread around.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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mrspock
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Re: Windfall - Immediate Steps

Post by mrspock »

Short term treasuries for now. Goto Fidelity or Schwab buy $5m worth of VGSH ...done. Why are they more attractive? Because you are hitching your wagon to the full faith and credit of the US Treasury, not some two-bit bank outfit which could go belly up.

Don't wait too long to educate yourself, you'll be forgoing around $300-400k/yr or $33k per month or about $1k per day by sitting around with it in there. Inflation alone will eat up $50-75k/yr. Ka-ching! Ka-ching! Ka-ching!

Honestly, the next couple years are probably going to be the worst years for inflation in a very, very, very long time. So be careful in cash.
Last edited by mrspock on Tue May 11, 2021 10:26 pm, edited 1 time in total.
123
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Re: Windfall - Immediate Steps

Post by 123 »

abuss368 wrote: Tue May 11, 2021 10:12 pm ...No chance $5 MILLION should remain in a bank well over FDIC insurance...
The biggest risk of having the money in a bank is succumbing to the offers of the financial adviser at that desk in the bank lobby, or in an office along the wall, who wants to "help you" with it. Every time you deal with a teller they will ask if you've had a talk with the financial adviser when they see the balance in the account.
The closest helping hand is at the end of your own arm.
chicagoan23
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Re: Windfall - Immediate Steps

Post by chicagoan23 »

apple234 wrote: Tue May 11, 2021 8:23 pm I have read the wiki and they have said to keep the money in a low-risk investment vehicle until I know what I am doing which I do agree with.

3) Treasury Bills - I have researched that a lot of companies stockpile their cash in US treasury bills. Could someone explain to me why US treasury bills are more attractive to park cash than just putting in a bank account? Is it because US treasury bills are safer or am I just missing something?
You are not missing anything and have answered your own question. If you agree with the idea of parking the money, just buy Treasury Bills.

They are completely safe and will force you to make a decision once they mature in a few weeks time. That decision may be to roll them over, roll some of them over and DCA some into your investments, allocate them all, make a major purchase, etc. Don’t go through the process of opening multiple bank accounts and then closing those accounts. Keep it simple. When you are ready to act, that money is guaranteed to be there waiting for you.
"The Basic Choices for Investors and the One We Strongly Prefer" | | https://www.berkshirehathaway.com/letters/2011ltr.pdf
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Wiggums
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Re: Windfall - Immediate Steps

Post by Wiggums »

Vanguard has a large transaction policy. You should be under the limit for most funds.

https://advisors.vanguard.com/VGApp/iip ... ments/ltqt
eyemgh
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Re: Windfall - Immediate Steps

Post by eyemgh »

You don't have to put it into a US bank. In general the safest banks in the world are not domestic. Google the subject and you'll find that if you want to park it all in one place it'll be safer in Germany, Netherlands, Switzerland or SIngapore. The safest non-agriculture bank in the US is US Bank, ranked 50th in the world.

https://www.gfmag.com/magazine/november ... banks-2020
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Watty
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Re: Windfall - Immediate Steps

Post by Watty »

A couple of other non investing things to do.

Be very cautious and selective about who you tell about the windfall. People have posted about how it became awkward with some people when they found out that they had some money. Keep in mind that if you tell someone about your windfall they may tell other people who might not want to know about it. I retired just a bit early in my late 50s and even then that was awkward with some people since it was obvious that I had enough to retire, even though I am pretty middle class.

One thing to do is to make sure that you have high limits on your car insurance and an umbrella policy. Now that you have significant assets you are a lot more likely to be sued.

Something to also do soon is to get a will and all the related paperwork set up. Having a will is always a good idea but it is usually bundled with other paperwork like power of attorney documents and medical directives that will likely be more important to you. There is will software or online services like LegalZoom that are fine for some situations but you are at a point where it really makes sense to have a lawyer draw up the needed paperwork. Also talk to the lawyer about how to protect your money if your get married(I assume you are single now), it is a lot easier and less sensitive a topic to set that up before you are in a serious relationship.

It is just me but one of my pet peeves is when people post about having a lot of money but they drive a car that may not be very safe. Consider if your current car is pretty safe or if you should buy a safer car since car safety has improved a LOT especially in the last 10 year and in the last four years in particular. You want to be around to get to enjoy the money and you can afford a car with a lot of safety features. I'm not saying that you should go out and buy a real expensive car will all the latest bells and whistles but for $30K or so you can get a very nice car with a lot of safety features. I am not recommending it for you since I do not know what your needs are but I just bought a Subaru Forester and I was surprised that my insurance costs went down more than 10% even though it cost about twice what my prior car was worth. My insurance agent said that was because the Forester got a large safety discount.

https://www.iihs.org/ratings/top-safety-picks
mr_brightside
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Re: Windfall - Immediate Steps

Post by mr_brightside »

ask a bunch of random people on the internet with no way to verify the validity of anything they say??

not smart

i would sit down with a number of fee-based financial planners and see what they have to say

take a while to consider that. read a couple books about low-cost investing and money management.

then and only then begin to make moves you feel comfortable with.

good luck
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shess
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Re: Windfall - Immediate Steps

Post by shess »

IMHO, getting overly concerned about the relative safety of FDIC accounts, money-market funds, and Treasuries is short-sighted. In the long term, you are likely to invest these funds somewhere, right? And that somewhere is not going to be FDIC insured. Any of the choices on offer are likely going to be strictly safer than whatever you invest the funds in for the long term, so I wouldn't lose a ton of sleep over it.

I mean, I'd still probably open accounts at a couple banks (maybe Ally and Marcus) and place $250k there, just in case.
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ruralavalon
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Re: Windfall - Immediate Steps

Post by ruralavalon »

Welcome to the forum :)

apple234 wrote: Tue May 11, 2021 8:23 pm Hi all,

A Long-time lurker but just made an account as I have a very serious situation coming up. I am 24 years old expected to receive a huge cash windfall ($5,000,000+) but don't exactly know the least-risky moves I can make after receiving this windfall.

I have read the wiki and they have said to keep the money in a low-risk investment vehicle until I know what I am doing which I do agree with. However, I do not know what can help de-risk the loss of this amount of money.

3 questions

1) Saving accounts: I have done my research and it has said that if I put money in a savings account, it can only insure up to $250k per person per bank. Does this mean I have to create 20+ bank accounts in 20+ different banks to fully insure this money? or Am I just overthinking as banks are considered "too big to fail"

2) Money markets - Are they safer than putting money in savings accounts?

3) Treasury Bills - I have researched that a lot of companies stockpile their cash in US treasury bills. Could someone explain to me why US treasury bills are more attractive to park cash than just putting in a bank account? Is it because US treasury bills are safer or am I just missing something?

Thanks a lot
For a low risk temporary investment, while you figure things out, consider Vanguard Short-Term Treasury Fund Admiral Shares (VFIRX).

1) Don't tell anyone about your windfall. Beware of anyone (family, friend, neighbor, coworker, banker, broker, insurance agent, realtor, anyone at all) trying to sell you any investment product (stocks, bonds, mutual funds, ETFs, CDs, real estate, insurance, annuity, anything at all).

2) Take your time, there is no rush to decide on a long-term plan.

3) Educate yourself first. I suggest reading 2-3 good books on investing. Wiki article "Books: recommendations and reviews", link.

4) Invest for the long-term only after you have decided on a plan, don't hurry.

5) To decide if you want or need professional planning advice read this: "Chapter 10 – On Your Own or Hire an Advisor", link. "The great paradox of using an advisor is that you must know some basics in order to evaluate the advice, and once you do, you also know enough to consider doing your own management. If you have gotten this far through the primer, you are already a more knowledgeable investor."

6) Three links for finding an advisor:
http://www.napfa.org/consumer/index.asp
http://www.garrettplanningnetwork.com/fixed
https://adviceonlyfinancial.com/
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
JCH10400
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Re: Windfall - Immediate Steps

Post by JCH10400 »

Lots of good advice here, but wanted to say I agree with everyone who says don't tell anyone about your good fortune. I've always been a conservative spender, and saved enough to switch from full time to part time work in my late 40's and retire in my mid 50's (other than a one or two day a week job that I do for the fun of it). Since people figure out that you need money to retire early, over the last several years I've experienced:

A brother-in -law (who was not a registered investment advisor, but who did technical analysis trading seminars) that spent every holiday get together telling me all his latest investment theories and how much money he could make me if I let him manage my investments.

A sister who, after divorcing the above brother-in-law, wanted me to give her over $200,000 to pay off her house and bills.

A friend's daughter who lives out of state contacting me a few times about having me finance the purchase of the business her husband works for as the current owner was retiring and they couldn't qualify for a loan to buy it themselves.

A friend's habitually unemployed brother-in-law who wanted me to buy a used $80,000 food truck as he was sure it would make a lot of money but, since he didn't have a job, he also couldn't qualify for a loan.

And, my favorite, an acquaintance who very rarely has money when a group of us go out and who expects people to finance him. This guy actually went on a 3 day / 2 night trip to Vegas with $20 in cash and no credit or debit card, and was a little perturbed when I dropped him off on the strip so he could walk around while the rest of us went other places.

I didn't give money to any of them, but now tell people I retired early due to a medical condition.
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