Mental accounting with gifted money

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PA_Boglehead
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Mental accounting with gifted money

Post by PA_Boglehead »

My parents were just forced to deal with RMDs this year for the first time in their 401K accounts. Their retirements are secure and decided to gift the children the sum of these proceeds. Their preference was to start the giving now instead of waiting for later. DW and I definitely don't need these sums and have no intentions to spend any of it and instead plan to invest it into our own brokerage account.

Total sum received is slightly more than $40K vs our taxable brokerage account with $600K+ held in VTSAX. I could easily just buy more VTSAX and chill which is still a real option and avoid adding unnecessary complications to the portfolio. The sentimental and OCD side of me wants to invest the sum into a new fund altogether as opposed to just tracking the specific lot within VTSAX. I've tried to shrug off the urge of creating a mental bucket, but it's been hard for me to consider this new money as anything other than my parents money right now.

Our qualified retirement accounts include $1.6M in S&P500 funds so I would not want to put this new money into VFIAX and risk triggering a wash sale. Given the above, what would be other potentially good long term pairings within US equity? I want to be a good steward of these monies obviously; I could keep piling up more blue chip stocks or I could take a riskier swing so to speak. I've thought about Vanguard Small Cap Value (VSIAX) or Vanguard Value Index (VVIAX) but am non-committal thus far.
Last edited by PA_Boglehead on Sun Nov 28, 2021 2:50 pm, edited 1 time in total.
sailaway
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Re: Mental accounting with gifted money

Post by sailaway »

Personally, I would probably create a new account, and buy VTSAX in there if I had a reason to track (ie, if I thought the parents or one of their other kids would need money in the future, it might be easier to convince them to accept it if I could point out this was family money and I had tracked it as such).
Makefile
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Re: Mental accounting with gifted money

Post by Makefile »

Do you also hold Extended Market (or Mid Cap+Small Cap) in the 401(k)?
If not, Extended Market in taxable would help balance out the large S&P 500 position in there.
https://www.bogleheads.org/wiki/Approxi ... ock_market

Be aware that it's less tax efficient the S&P 500 or Total Stock, but more tax efficient than an active fund.
sport
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Re: Mental accounting with gifted money

Post by sport »

You seem to have 2.2M invested in stocks. What about some bonds?
livesoft
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Re: Mental accounting with gifted money

Post by livesoft »

This thread is one reason I have repeatedly told my kids to not attach any sentimental value to any inheritance nor gifts that they receive from us and just invest it their according to their asset allocation plan or spend it.

So I am wondering if your parents gave you any hints about what to do with the money they gave their children? And whether any of those hints were helpful?
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runner3081
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Re: Mental accounting with gifted money

Post by runner3081 »

Grandfather was divesting CD's, my dad sent us 1K checks for a few months. We took 100% and just put into the post-tax brokerage account, invested along with our own funds. No hassle, no thought process needed.
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Wiggums
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Re: Mental accounting with gifted money

Post by Wiggums »

There is no reason to track the gift money separately. I’d invest the money to your normal AA. You can also use this money to adjust your AA if it needs to be rebalanced.
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Topic Author
PA_Boglehead
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Re: Mental accounting with gifted money

Post by PA_Boglehead »

sailaway wrote: Sun Nov 28, 2021 12:24 pm Personally, I would probably create a new account, and buy VTSAX in there if I had a reason to track (ie, if I thought the parents or one of their other kids would need money in the future, it might be easier to convince them to accept it if I could point out this was family money and I had tracked it as such).
I omitted this as an option and it would definitely be preferred if I just stick with VTSAX; better than tracking a different lot within our primary account.
Makefile wrote: Sun Nov 28, 2021 12:25 pm Do you also hold Extended Market (or Mid Cap+Small Cap) in the 401(k)?
If not, Extended Market in taxable would help balance out the large S&P 500 position in there.
We have access to Vanguard Small-Cap institutional (VSCIX) and Mid-Cap Institutional (VMCIX) in my 401K, and Fidelity's Extended Market fund (FSMAX) in DW's 401K. We used to hold these funds but simplified to just S&P500 5 years ago.
sport wrote: Sun Nov 28, 2021 12:28 pm You seem to have 2.2M invested in stocks. What about some bonds?
10% AA in total bond plus a healthy war chest of cash to cover any change in employment.
livesoft wrote: Sun Nov 28, 2021 12:57 pm This thread is one reason I have repeatedly told my kids to not attach any sentimental value to any inheritance nor gifts that they receive from us and just invest it their according to their asset allocation plan or spend it.

So I am wondering if your parents gave you any hints about what to do with the money they gave their children? And whether any of those hints were helpful?
The sentimentality is of my own creation and inability to accept and face our human mortality. The gift comes with no strings attached and no future expectations. Taxable brokerage is earmarked to fund early retirement and supplement 529 college funds if necessary. My parents plan is to rinse and repeat this process in 2022, but will be targeting the grandchildren when that time comes.

If it helps to know, I will be investing another ~$50K+ into VTSAX from our own funds in December.
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ram
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Re: Mental accounting with gifted money

Post by ram »

I use VV ( large cap) as tax loss harvesting partner for total stock and 500 index.
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Impatience
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Re: Mental accounting with gifted money

Post by Impatience »

There are plenty of other massive, diversified, low cost index funds. Pick a different ticker and you’re good to go.
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cchrissyy
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Re: Mental accounting with gifted money

Post by cchrissyy »

if you want a separate bucket i suggest bonds or a balanced fund

if you want to use the same fund as your retirement account i don't think you need to hesitate because of the wash sale thing. do you actually think you will sell these to tax loss harvest? it sounds like with your mental accounting you would not be interested in selling. the wash sale rules only matter if you are selling at a loss and since you have no intention to do so there is no way it becomes a complication.
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TomatoTomahto
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Re: Mental accounting with gifted money

Post by TomatoTomahto »

I make gifts to my kids. I would rather that they treat the money as they would anything else in their portfolio. AFAIK, they do that.

I have no interest in knowing “how the gifts are doing.” Should they want to provide help to their siblings (which to date is unnecessary) I would expect the current balance of our gifts to not figure in the decision or amount, so there’s no need to track it.
I get the FI part but not the RE part of FIRE.
Topic Author
PA_Boglehead
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Re: Mental accounting with gifted money

Post by PA_Boglehead »

I knew I would receive many of the responses posted thus far, and they serve as a good counterbalance to my OCD tendencies. The gift was unexpected over the Thanksgiving holiday so I'm still dealing with that aspect of it and how I view my parents mortality more than anything. I just have to accept that this gift is unconditional and that my primary obligation is that I invest it responsibly for our family.

The default position is simply to buy more VTSAX and chill. The only other alternative that I need to consider is the utility of tilting the taxable brokerage account with something other than a total market fund using the proceeds of this gift and the additional amounts slated to be invested in December.
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anon_investor
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Re: Mental accounting with gifted money

Post by anon_investor »

PA_Boglehead wrote: Sun Nov 28, 2021 2:20 pm I knew I would receive many of the responses posted thus far, and they serve as a good counterbalance to my OCD tendencies. The gift was unexpected over the Thanksgiving holiday so I'm still dealing with that aspect of it and how I view my parents mortality more than anything. I just have to accept that this gift is unconditional and that my primary obligation is that I invest it responsibly for our family.

The default position is simply to buy more VTSAX and chill. The only other alternative that I need to consider is the utility of tilting the taxable brokerage account with something other than a total market fund using the proceeds of this gift and the additional amounts slated to be invested in December.
VTSAX and chill.
pizzy
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Re: Mental accounting with gifted money

Post by pizzy »

PA_Boglehead wrote: Sun Nov 28, 2021 2:20 pm I knew I would receive many of the responses posted thus far, and they serve as a good counterbalance to my OCD tendencies. The gift was unexpected over the Thanksgiving holiday so I'm still dealing with that aspect of it and how I view my parents mortality more than anything. I just have to accept that this gift is unconditional and that my primary obligation is that I invest it responsibly for our family.

The default position is simply to buy more VTSAX and chill. The only other alternative that I need to consider is the utility of tilting the taxable brokerage account with something other than a total market fund using the proceeds of this gift and the additional amounts slated to be invested in December.
It seems that you “get it” re: why treating it differently lacks sense, so now you just need to click a couple buttons and move on.
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jtdavid
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Re: Mental accounting with gifted money

Post by jtdavid »

buy VTWAX with the money instead.
123
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Re: Mental accounting with gifted money

Post by 123 »

PA_Boglehead wrote: Sun Nov 28, 2021 12:19 pm ...The sentimental and OCD side of me wants to invest the sum into a new fund altogether as opposed to just tracking the specific lot within VTSAX. I've tried to shrug off the urge of creating a mental bucket, but it's been hard for me to consider this new money as anything other than my parents money right now...
Start a separate taxable account at the same brokerage you already use for these gifts and invest them as you wish. After some years, it might be 5 or it might be 20 or more, you can consolidate the assets into your "regular" brokerage account when you become annoyed with all the accounts and want to simplify. One reason to keep the assets separate is to keep conscious of how the gifts, and their growth, is impacting your total assets.

Lots of people maintain multiple accounts initially because they initially want to "hang onto" some connection with the money. For example, a 401k from a former employer.

Eventually the desire for simplicity will overcome the feeling that the funds should live separately.

No reason to rush into consolidation, once its all scrambled together it can be very difficult to unscramble.
The closest helping hand is at the end of your own arm.
KlangFool
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Re: Mental accounting with gifted money

Post by KlangFool »

OP,

Give the money to your kids. Let them deal with the mental accounting problem.

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30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
sport
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Re: Mental accounting with gifted money

Post by sport »

In 1982, my mother gave $1000 to each of her grandchildren, so they would have something from her in case she spent all of her money on a nursing home, which she did many years later. For my two children, I opened custodial accounts at Vanguard and put $500 into Windsor Fund. A year later, I put in the remaining $500. One of my children has kept that investment all this time. He recently showed me his balance in that fund. It is almost $60,000.
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ApeAttack
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Re: Mental accounting with gifted money

Post by ApeAttack »

KlangFool wrote: Sun Nov 28, 2021 4:42 pm OP,

Give the money to your kids. Let them deal with the mental accounting problem.

KlangFool
But then OP would pass the mental accounting burden onto the next generation. That would be some irresponsible parenting.
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KlangFool
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Re: Mental accounting with gifted money

Post by KlangFool »

ApeAttack wrote: Sun Nov 28, 2021 5:15 pm
KlangFool wrote: Sun Nov 28, 2021 4:42 pm OP,

Give the money to your kids. Let them deal with the mental accounting problem.

KlangFool
But then OP would pass the mental accounting burden onto the next generation. That would be some irresponsible parenting.
And, the problem is.......

Aka, it goes in the family....

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jodhpur
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Re: Mental accounting with gifted money

Post by jodhpur »

A group of friends (40/50s) was having this discussion just this weekend. Most are financially independent, hard working people, who's parents are starting to gift. We pretty much all agreed that it should be invested conservatively and separately. Even if separate just meant a different family of funds that do the same thing (i.e. A Vanguard Target Retirement vs a Schwab Target Retirement). If having the gifted conservative money allows you take more risk with your personal money, that was ok. In essence, if the gifted money at 50/50, unlike your personal 80/20, you could bump up to personal to 85/15.
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