<p>Lots of great advice here thanks to everyone for responding. Swimcatsmom and DonnaL you gave me a great laugh to start my day. </p>
<p>Our friend was in her 90s and the money is being given directly to our daughter (she probably wasnt thinking clearly when she did this Seriously, though, luckily my daughter is nothing like I was at her age and, whereas I would have blown through it in no time flat, my daughter is talking about donating a little to various charities that she is interested in. </p>
<p>My daughter lives at home and is still attending school; since her income is about $400-$500 per month working part-time, theres no way she can afford to buy a house, even with the current decline in housing prices. Its like gbesq said its an enormous amount of money for someone my daughters age and its time she has on her side that makes all the difference. Ill definitely have her look at the Suze Orman website and get her thinking along those lines you mentioned, LongPrime. I think she really does need to talk to someone regarding the percentages of the total amount that should go into short-term, long-term, etc.</p>
<p>If you lost 50% of your money, whether its one year or 50 years is irrelevant. The advice was wrong and if you look over the last 40 years which is the typical investment period for most people, what has happened recently has happened in the 70’s, 80’s, 90’s and twice since 2000. The point is if people had been more knowledgable about markets etc rather than relying on others, they would have saved themselves a lot of grief. Nobody has your best interests at heart more than you.</p>
<p>Whatever has happened can happen again and even things that haven’t happened can happen. I don’t expect with the deleveraging going on and boomers retiring and nailed so many times that the mantras: buy and hold, invest for the long term, diversify are going to be particularly valid in the future - just my opinion.</p>
<p>^I understand your point, but you seem to be saying that the OP and her daughter will do just as well by figuring everything out as they go along. I disagree and think that’s an enormous risk. I’m not saying that they shouldn’t understand the investment decisions that are being made or have ultimate decision making authority (quite the contrary). I am saying that it’s not prudent to learn how to invest by taking $50,000 - $70,000 and subjecting it to a “trial and error” philosophy on the premise that the OP and her daughter can’t do any worse than the professionals. That’s just plain wrong. There are plenty of professionals who have beaten the markets over the long term and, again, it doesn’t appear to me that the OP and her daughter have the requisite knowledge or experience to make prudent investment decisions, perform sophisticated tax planning, etc. One thing that I do agree with DocT about, however, is to be careful about following Orman’s advice – in my view, she’s all about promoting herself for a profit, and not about giving sound investment advice. After all, she has been a huge advocate of investing in real estate – which has turned out to be a disaster for lots of folks these days.</p>
<p>"There are plenty of professionals who have beaten the markets over the long term and, again, it doesn’t appear to me that the OP and her daughter have the requisite knowledge to do prudent investement tax planning, etc. "</p>
<p>Like who?? And I don’t mean those who are investing and have advantages that most don’t have ie Buffet. How well have the gurus like Bill Miller been faring. A lot of successful pros have been traders who have taken huge risks, had huge drawdowns but over a period of time have been extremely successful. Is this the type of investing the OP should be involved with?</p>
<p>Well, for starters, how about most small and microcap value funds with a long term horizon? Take, for example, the Wasatch Micro Cap fund, which is showing an annualized return of 14.44 percent since its inception in June of 1995. That annualized return takes into account all investment losses incurred by the fund since inception, including last year. I think you would have to agree that this is an impressive performance by any measure – no?</p>
<p>I’m glad it wasn’t in a trust fund. $50-70K isn’t a large corpus when you consider the attorney and accountant fees that will be required for trust upkeep, even if the trustee provided services for free.</p>
<p>I think that your D has to decide how much of the money would go to present vs. future spending. Perhaps the money would give her the freedom to forego the current part time job and be able to spend more time on her schoolwork. You can’t put a pricetag on that.</p>
<p>Perhaps the money would make it possible to go to school without debt or now consider graduate school. </p>
<p>I think the money spent on education would be a good investment in her human capital.</p>
<p>I have several money managers that are considered quite knowledgable and have an excellent reputation. Not one suggested selling to raise cash in this recent debacle. I asked at DOW 12,000, they said no. I asked at DOW 10,500 still no… we’re almost to the bottom was the call. At DOW 10,000, I made up my own mind and raised 30% cash. Not a good idea, they said. We’re bottoming out. At 8500 I sold more to get to 50% cash. Really bad idea they said, now you’re selling at the bottom. </p>
<p>I’m just writing this to confirm what DocT wrote. Most professional managers and brokers gave very bad advice in this downturn. I don’t know anyone who got a call from their broker saying time to get out. They all missed the boat.</p>
<p>And “beating the market” just means beating the S&P. It’s absurd. It allows these professional managers to say I only lost 34% of your money but the S&P was down 45% so I did well. In what other area could someone say that losing 34% of your money is a good result?</p>
<p>Most people make the big mistake of giving their money to a financial professional and thinking that it’s out of their hands. You still have to do your homework, you have to make sure that they are not taking too much risk, and sometimes you have to pull the plug if you disagree with what they are saying. </p>
<p>It is a fantasy to think you can just hand your money over to someone, have them make all the decisions, and then forget about it. That’s a pretty sure recipe for losing money over the long haul. </p>
<p>So my recommendation is to talk to some professionals, but be careful, and if you do give them the money, stay involved and do your homework.</p>
<p>^That’s what I’ve been saying, haven’t I? I suggested that the OP and her daughter get professional advice with respect to investment and tax planning, but that they also make sure that they understand that advice and retain final authority over investment decisions. I simply don’t agree with DocT that the OP and her daughter should proceed to invest without professional advice.</p>
<p>It’s very noble of your daughter to want to gift some charities…but she must consider her own future needs very carefully. If you have any friends who are doing well financially, you might talk to them about what arrangements they’ve made for their children. She will be taxed on the money unless there was some kind of protection outlined in the will (and it doesn’t sound like there was.) It’s not enough to live on the interest from but it might make a monthly car payment or a house payment if carefully invested. Certainly thinking long-term (the only way to think in the stock market), the money could make her retirement easier 40 yrs down the road. </p>
<p>I’m one to be careful with money. However, if there’s something she’s always wanted to do (travel in Europe or the Far East, take a martial arts class, whatever), she should take a percentage of the money and go have some fun with it. Maybe an equal percentage to what she gives away? A recent study showed that people who <em>do</em>things are happier in the long run than people who <em>have</em> things. I’m sure the dear lady who left it to her would want her to enjoy it.</p>
<p>^DocT, no one here is suggesting that the OP and her daughter remain ignorant about financial matters. Quite to the contrary, they are being encouraged not only to consult professionals, but to understand the advice given, the investment options available, and to retain control over the final investment decisions. I’m not sure why you find the idea of consulting professionals so objectionable. You seem to give the impression that no one other than individuals like Warren Buffett has ever made real money in the markets, which is ridiculous. What is it that you would advise the OP and her daughter to do – bury the money in a mason jar in their back yard?</p>
<p>If you use a financial planner make certain to use a “fee only” planner. Don’t go to someone who will try to sell you products - annuities, insurance, etc. from which they will receive a commission. This is how many financial planners make their money. Remember “fee only!”</p>
<p>Since your D is working part time fund a Roth IRA as several posters have suggested. This means the money grows and is available for her future retirement. </p>
<p>If your D is now eligible for financial aid the inheritance will now be considered an asset for her and decrease financial aid she will receive in the future.</p>
<p>I would not put these funds in a trust. To be honest with you - trusts are not worth it. The trust will pay income taxes at a higher rate on any interest earned than your D would pay as an individual. Plus there are cost for the trust documents, the trust account and the trust management. It would be better to invest the funds yourself - or rather herself in a no load fund like the Fidelity Funds.</p>
<p>If she had inherited millions rather than less than $100,000 some of my advice would be different and some would be the same. How very generous of your friend to leave money to your D.</p>
<p>Also, if your D has student loans she might consider using some of the money to pay off the student loans - but only after she is out of school and before interest payments are added to the principal.</p>
<p>Thanks so much to all who responded…I have printed out the information to give to my daughter to think about. The woman who left her the money was her “California Grandmother” (her real one lives out of state) and my daughter had known her since she was 6 years old. This has all been kind of traumatic for my daughter and the inheritance is bittersweet. Novelisto is right in that the woman would want her to enjoy some of the money by perhaps taking a trip or something. She was a very independent lady right up until the end and we miss her dearly. </p>
<p>My daughter and I have talked a little about the advice given here and she has said that the Roth IRA is a definite as well as that it makes sense to use a fee-based planner. Otherwise, she’s more interested in laying out in the sun today…as she should be at her age :)</p>
<p>Consulting with professionals is one thing, investing at the advice of “professional” financial planners is another. Most truly know very little about investing and throw out the standard “holy grails” which in actuality are valid only over short periods of time - certainly not over the 40 year or longer time frame that most people invest in.</p>
<p>Wow, we’ve certainly made a complexity of this simple gift. This isn’t $700 Billion in TARP funds (which apparently involves no oversight whatsoever) or the $400 Million retirement gift Exxon’s CEO got last year, or even the $1 Million tonight’s Connecticut Lottery winner will get. Talk to the girl. It’s OK to let her spend a little of the inheritance on whatever she wants. But it’s also important that the remainder of the money is available when she’s ready to take responsibility for it.</p>
Seriously, though, luckily my daughter is nothing like I was at her age and, whereas I would have blown through it in no time flat, my daughter is talking about donating a little to various charities that she is interested in. </p>