What to do with this money, right now?
May 22, 2016 1:17 AM   Subscribe

Because Reasons, I suddenly will be receiving $450K from a family inheritence. I'm in California. I have, like, a normal-sized bank account like normal people who don't usually receive $450K suddenly. I am going to have to find a financial planner who can advise me how to deal with this money long-term, but where am I going to put it, like, next week when they want to give this to me?

I am a financial ignoramus. Can I just deposit this in my credit union and let it sit there for a few weeks or months while I figure out the long-term plan? Is it going to disappear when Trump wins and the New World Order arrives? I only mean that half in jest -- could that money just go away in some fashion? Like, if my credit union failed?

If I need to spread it around for safety, can I have the whole amount wired to my credit union and then have a portion or portions wired to other banks? (I'm thinking I might have to open multiple accounts to deal with FDIC limits?) Is that safe, for that large amount to be in my account for a few days?

I'm really only worried about this holding period. I don't intend to leave this all as cash in the bank for long-term.

Help?
posted by anonymous to Work & Money (24 answers total) 11 users marked this as a favorite
 
In Canada credit union holdings up to any amount and some bank holdings up to 200,000 are insured against bank failures. I would check into this in order to decide how to spread it out (if need be). Here is some info I found about credit union insurance in your area. I would put it in a separate account until you know exactly how much will stay yours in case of legal fees and taxes, and you can get some advice, etc.
posted by chapps at 1:31 AM on May 22, 2016


FDIC limits don't mean you can't have more moment than that in your account. It means that in the unlikely event that your credit union goes under, you will only be insured up to the limit. Your credit union should have someone on staff to help you structure your accounts to get fairly close to covering the whole amount. If they cannot, I urge you to open an account at another financial institution. (Deposits cost money, so you can even throw this in a BofA account without many ethical concerns. They have entire departments dedicated to helping people with this kind of cash. If you call, they'll hook you up with the right person.)
posted by stoneweaver at 1:32 AM on May 22, 2016 [6 favorites]


there's some information here (scroll down to What About Credit Union Accounts?) and then get a report here.

assuming that is correct, you could split the money half and half across two credit unions and have it all protected. but personally, for a short period, i would be ok with putting it all in one place. afaik credit unions (and banks) are not having serious problems right now.
posted by andrewcooke at 4:08 AM on May 22, 2016 [1 favorite]


You seem to be doing the right thing - park the money in a savings account while you take your time and educate yourself. Start with Managing a Windfall on Bogleheads. Consider that most advisors will want a not-insignificant amount of your cash year after year to advise you.
posted by david1230 at 4:22 AM on May 22, 2016 [13 favorites]


Seconding david1230. Don't rush to find a financial advisor when it comes to investing your money. All they will do is slowly drain you with fees.

Even Warren Buffet advises putting your money in a simple index fund and letting it sit. He made a ten year bet that an index fund could outperform one of the most elite hedge funds on the planet...and he's on the verge of winning.
posted by JoeZydeco at 4:32 AM on May 22, 2016 [17 favorites]


open five accounts in five different banks and deposit $100k in each for now. That way you'll be FDIC insured until you decide what to do.

Don't go to a financial advisor, go to a tax accountant. If ANYONE mentions an annuity or a life insurance policy...run.
posted by Ruthless Bunny at 5:21 AM on May 22, 2016 [8 favorites]


The FDIC insurance limit was raised to $250,000 after the last crash so you only need two accounts. That's what I would do. Keep it in cash while you sort out what to do. I would look into auto-loading a portion of that amount into a mix of index funds, bonds, and other investments over the next year. If you have children or nieces/nephews, you might look into putting your money into a 529 for them.
posted by deathpanels at 5:29 AM on May 22, 2016 [5 favorites]


This situation is surprisingly common. It's also something people fuck up most of the time. What's the issue? Well, people come into sudden wealth and then either (a) spend it all at once (or close to "at once") so there's nothing left, or (b) boost their lifestyle and fund it with the new-found cash -- then, after the wealth is drained, they're in a situation where they can no longer fund the enhanced lifestyle and have to sell everything...

I've been writing about money for more than a decade now. In that time, I've experienced a big windfall of my own. Here's what I've learned to advocate, both for myself and for others who encounter an unexpected windfall:
  • First up, you don't need a financial adviser. As others have mentioned, they're simply going to drain the funds. You are an adult. You are a smart person. You can find reasonable advice by reading books and blogs, and can use this info to make your own informed decisions.
  • For some windfalls, the second step is to set aside whatever you need to pay taxes. Don't think this applies in your case, but it might.
  • Your inclination, if you're like most people, will be to splurge. You'll want to buy yourself a treat. This is okay, but be smart about what a "treat" is. Don't buy a fancy car or a new house. Instead, give yourself a budget. I recommend taking somewhere between one percent and five percent of a windfall to use for something fun. (In your case, that's between $4500 and $27,000.) Don't exceed this.
  • Next, commit to simply sitting on this money for a while (as in several months or several years). Take time to get mentally accustomed to having the money before you do anything with it other than stick it in a savings account.
  • After you've had time to cool off, your best bet is to pay off any debt that you have. For some folks, this means they'll use their windfall only for debt. This can make them sad -- "I should use the money for fun!" -- but it's by far the best course of action.
  • The final step -- after you've set aside cash for taxes, rewarded yourself, and paid off debt -- is to apply the windfall to whatever purpose you've chosen after thinking about it for months or years. In most cases, this will involve investing the cash for the long term. If this is the case, simply pick a stock index fund (again, this is an easy thing to learn about) and funnel the money into it.
Again, you do not need a financial adviser to help you with this. The biggest challenge by far will be to handle the psychological issues that come with receiving a windfall. The actual financial details are easy and you can take care of them yourself. If you want more help, message me. I'll point you to some good blog posts...
posted by jdroth at 5:34 AM on May 22, 2016 [77 favorites]


Yes the money will 99.999% likely be fine in your account for a few days, it will probably be fine for years or decades but based on comments above its only insured up to $250k.

I would pay off debts with an interest rate > than the interest you're getting from a savings account - so probably all of them (except maybe student loans). IMO there's no reason not to do that straight away (unless any of your debts have massive early repayment fees, and even then, it still probably works out better to pay them off). If after you've done that, you're still over the 250k limit, then you need to open another account to spread it around while you figure out your long term plan. (again, it will probably be fine all in the same account but better safe than sorry)
posted by missmagenta at 6:02 AM on May 22, 2016 [1 favorite]


I'd throw my money in a vanguard money market account for the short short short term. I'd visit an accountant to help determine what taxes you need to pay.

I use family members with mbas as my investment helpers (or at least I did because grad school/divorce/medical bills/antiwindfall). If you have people in your life who invest, they're often willing to give free advice.

Honestly, doing well with vanguard funds is not hard. You need to pick a bond fund and stock fund. A smallish percent of money could go to an inflation security fund. You can read on the Internet if you want to venture an oil or precious metal based fund. Spread it around in like eight chunks and forget about it for 6 months.

If it were me, I'd pay down any debt besides home/low interest college debt immediately. I may consider buying a house with the principal. But then I'd let that money work! I'd only spend like 75% of the interest and reinvest the other 25%. 75 % will still be A LOT. You can set up regular deductions to go to charity of the 75%, save to pay for a new car in cash, and going to Disney world, whatever. And you'll still have all the principal.
posted by Kalmya at 6:18 AM on May 22, 2016 [1 favorite]


If you have a will, review it; if you do not have a will, now's the time to make one.
posted by mal de coucou at 7:02 AM on May 22, 2016 [5 favorites]


It is a big enought chunk of cash that you might want to see if you can qualify for the white glove attention of a private banker at a big commercial bank. I know citibank has a private banking setup, and I think Chase does too. You might not get personalized investment advice from them, but you won't ever have to sit on hold or pay an ATM fee ever again.
posted by slateyness at 7:12 AM on May 22, 2016


Here's the Windfall page at r/personalfinance.
posted by salvia at 7:41 AM on May 22, 2016 [5 favorites]


The FDIC insurance limit was raised to $250,000 after the last crash so you only need two accounts.

Exactly I was in a similar situation a few years ago and this is what I did to start with. The money will stay there and while you may not make a lot of interest you won't lose money either which you could do if you put it in ill-considered investments and the market took a nasty turn. This is fine. It's not the best long term strategy but it's a perfectly AOK short term one.

It may be worth noting that the money may be invested already in which case there may be options to simply transfer the investments into your name. The executor of the estate which you are inheriting from should have details about that. Your bank may also have someone you can talk with about how to manage this immediately. This may be free or it may be very low cost. They may try to sell you on the bank's investment packages, but you can ignore that. It might be worth talking to someone only to get an idea of the tax implications of whatever windfall you are getting. You might want to get an accountant to do your taxes this year.

Agree with others, think about very boring things like

- making a will (with healthcare proxy and power of attorney)
- paying down debt
- sensible investments
- max out your IRA
- maybe donate to charity

This is a lot of money but it's not "fuck you" money where you can quit your job and be reckless. The Bogleheads and Reddit pages are very good but your particular circumstances (age, financial situation, family status, life goals) will affect the choices you make.
posted by jessamyn at 7:42 AM on May 22, 2016 [3 favorites]


First, don't tell anyone until you have a plan for the money. The risk that you'll do something stupid is far greater than any default risk from a financial institution! Some family and friends can get very persuasive once they smell $$$.

Ok, next step. Any chance it's a joint account? The insurance is per account owner. If it makes you feel better, you can put it in two credit unions just to be super safe. But realistically, there are 7,000 credit unions in the U.S. and only 10 of them were ordered closed last year. So the risk is roughly the same as the risk you'll die in a motor vehicle accident this year.

Then take a deep breath. You'll have plenty of time. Don't pay off the mortgage or do anything drastic. Realistically, 500K is about what a person in California with a white collar job who is halfway through their working life should have accumulated in retirement accounts by now. If that's your situation, paying off a 3.5% mortgage is a poor, poor financial choice compared to investing the money. So the idea that you should go to Barclay's and try to get a private wealth banker to "help" you is, respectfully, absurd. The kind of financial advisor you're looking for is just a regular, fee-only advisor. Unless you have very unusual needs, it's not going to be a long conversation, either. Park the money in a Vanguard target date index fund and forget about it. You're going to need it in retirement! And by the way, only checking/savings accounts and CDs are insured. Most investments, including stocks, almost all bonds, and money market accounts are not insured in the least. Getting yourself out of the mindset that you're suddenly "rich" is going to be hard. There's a very good reason why so many lottery winners go bankrupt!
posted by wnissen at 8:43 AM on May 22, 2016 [4 favorites]


I agree with what everyone else has said here about credit union account limits and how to think about this medium to long term.

For the immediate term though, know that your CU is going to be extremely motivated to treat you well with a deposit of this size. I would have no qualms whatsoever about going in and talking to a banker there and asking for them what the best, fully insured, completely liquid account options they have are. You will probably qualify for the types of savings accounts that they only offer to their "preferred" members that may pay a decent (for today's rates, so we 're still only talking about like 2-3%) amount of interest. But hey, that's better than the less than 1% that you'd get from just sticking it in your normal person account.

Your banker should also help you work out exactly what steps you should take to get the money transferred where you want it safely, and may actually be able to perform all of the necessary processing right there for you, including calling the other financial institutions involved to coordinate the transfer(s) in real time. Anecdata: I have an anemic chequing account with a BIGBANK that isn't known for amazing customer service and I walked into a random branch at 15 minutes to closing and the random banker who picked me in the queue stayed for an hour past closing with me to make sure that my dinky less than$5000 wire transfer went through.
posted by sparklemotion at 9:51 AM on May 22, 2016


and he's on the verge of winning.

In a two horse race, the verge of winning can also mean "losing." ;) But yes, he's winning, and it seems unlikely his opponent will catch up. I figure the chief reason to go to an advisor is taxation, because that's a hell of a lot more complicated than "buy as much SPY as you can, and maybe a bit of AGG."

Can I just deposit this in my credit union and let it sit there for a few weeks or months while I figure out the long-term plan? Is it going to disappear when Trump wins and the New World Order arrives? I only mean that half in jest -- could that money just go away in some fashion? Like, if my credit union failed?

The uninsured portion could go away. But at least for banks, you're insured for 250k per ownership category. I'm told NCUA works in a similar manner for credit unions. I'm sure they'll help you figure this out.

So park your money in a bank or two, then do a bunch of research to figure out your new reality. It's typically not enough money to retire on if that's all you have, but enough that you should really be paying attention to taxes and fees long term.
posted by pwnguin at 11:43 AM on May 22, 2016


A nice thing about a high interest account, like a money market, is that it might take some of the pressure off you to DO SOMETHING RIGHT NOW so you won't be "losing money to inflation". I believe that bank money market accounts are insured, but brokerage ones (like Vanguard) are not. Also that banks actually pay better interest rates, though definitely check both of those because I'm just learning all this myself.

As people said above, many banks have someone who will sit down with you and help you with some basics. Fidelity does as well, if you live near one of their offices. Opening an account and with a $250,000 deposit is a good way to get some advice.

And the internet and library have a lot of information. Investopedia and Bogleheads are decent places to start.
posted by still_wears_a_hat at 12:45 PM on May 22, 2016


You will probably qualify for the types of savings accounts that they only offer to their "preferred" members that may pay a decent (for today's rates, so we 're still only talking about like 2-3%) amount of interest.

There are no "preferred member" savings accounts that pay 2% to 3%. That is a myth. The best you might find right now is 1% to 1.1% at an online bank. If you are offered something that promises 2% or 3%, then it is not a riskless investment which means there is some risk in losing some of your principal. You may be able to get 2% if you are willing to commit to a CD for at least 5 years.

Rates for riskless, liquid deposits are 1% or less no matter how much money you have to invest.
posted by JackFlash at 2:58 PM on May 22, 2016 [3 favorites]


Two bank accounts. Don't touch the money for awhile till you figure out what the next steps are for you. NO financial advisors, you don't need them, they need your money. No bank advisors, they will find multitude ways to drain you of your cash.
Continue with life as it is for a short while with the money in the bank. Don't make impulsive investments or decisions. And don't go around telling folks you suddenly have come into some money, not a good idea.
posted by metajim at 3:17 PM on May 22, 2016


I have a relative who came into a large amount of money and while he was deciding what to do with regards to investments, he just plunked it into his credit union savings account for a month or two until he decided. As said above, there's no FDIC limit to how much money you can have in an account, that's just the limit of how much they'll insure your funds for in the unlikely event that your credit union goes out of business.
posted by bedhead at 8:24 PM on May 22, 2016


Yes, park the money for a bit in a savings account, but use this time to educate yourself. I found andrew Tobias's "Only Investment Guide" helpful when I got something of a windfall. I second the notion of making it simple. Find a low-fee or no-fee mutual fund family (Vanguard is the best-known). With your level of money, you will probably be given a personal representative (free), who can run a bunch of scenarios and provide you with different options (like if you would want to take $2K out a month and still have some to retire on later, or if you want to minimize tax,-- they have scenarios for anything).
If you do use a private financial advisor, get a "fee only" one who charges by the hour. Later when you feel more confident, you can change. But this is enough money you don't want to waste it, and not enough that you can be reckless. Get it into a safe portfolio of funds, and over time it will grow enough that you can withdraw some for vacations and to help with tuition and so.
Take your time. The market is pretty high now anyway, so it might not be the greatest time to get into equities anyway.Put it in something safe, and start investigating. But don't leave it in non-interest accounts for long. You can get it into a nice safe money fund or municipal bond fund soon and start earning. (And take out a thousand or so now and treat yourself to a nice weekend!)
posted by my-sharona at 8:50 PM on May 22, 2016


Don't know if anyone has mentioned this upthread but don't forget about possible tax implications of inheriting this money. I don't know what form this money is in but I got hit pretty hard with some money I inherited after my dad died in 2014.
posted by nubianinthedesert at 10:32 AM on May 24, 2016


Contrary to other posters' opinions, I think an hour or two with a financial planner could be very helpful.
posted by small_ruminant at 8:57 PM on May 25, 2016


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