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Sometime in the next year, I will receive an inheritance of 1.2 to $1.4 million. I am concerned about the safety of money in a bank with threats to USD thanks to fiat vulnerability. I live in the United States and I am 75 years old. My goal is to protect purchasing power and grow this amount over the next 10-15 years to pass it to my children. I live modestly and have no debt. Where should I put this money on day one? What about over the next year? Comment on my plan to watch for crashing real estate prices and to invest in depressed prices on rental real estate.

Cherie
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    You're making quite a few statements which are at best "future looking" guesses. Fiat vulnerability? Crashing real estate? May be, may be not, what's for sure is that you sound like a crypto bro. – littleadv Feb 24 '23 at 19:23
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    Crypto bro? Stuck my toe in and Celsius sliced it off. Still interested in crypto and bitcoin but unsure. – Cherie Feb 24 '23 at 19:31
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    @littleadv It would probably be sensible if we would all realize all money (including fiat money) is vulnerable; in fact, all savings are vulnerable; crypto bros take it too far in that direction and they also pretend their money isn't vulnerable even though it is. – user253751 Feb 24 '23 at 19:48
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    If money isn't safe in banks, you don't need to worry about inflation.. Survival skills might be more relevant. – Bob Baerker Feb 24 '23 at 20:22
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    You want to help your children as much as possible, but also consider the burden on them if they inherit multiple real estate assets. – Mattman944 Feb 24 '23 at 23:18
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    Will the money be coming from a tax-deferred account (like an IRA or 401k account)? If so, there are special considerations with respect to required withdrawals and tax payments. – Brian Borchers Feb 25 '23 at 01:00
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    Ray Dalio (founder of the #1 hedge fund in the world) created the All Weather strategy so that money for his kids would be safe even if he weren't around to manage it. https://en.wikipedia.org/wiki/Bridgewater_Associates#All_Weather Tony Robbins interviewed top investors like Dalio and wrote great books like https://amzn.to/3kwidbW with their recommendations. You should at least skim some books like those before hiring an investment professional (so that you know which kinds to avoid). – Ryan Feb 25 '23 at 16:56
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    @Cherie Bitcoin hit a high of $67,598 last year, but is now worth $24,146. When was the last time the US dollar had 280% inflation in one year? – Graham Feb 25 '23 at 23:58
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    Why not just give it to your children now, if you aren't ever going to spend any of it? (caveat: I don't know anything about US taxation) – AakashM Feb 27 '23 at 09:54
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    @AakashM, also guessing from the OP's age, his children will most likely make the best use of that money now. 15 years later they will think about passing it to their children. – Trang Oul Feb 27 '23 at 14:19
  • Can you clarify '… upon first receiving it…'?

    Does that mean 'for a short time, while I make up my mind…' or what?

    If you trust your bank, then the best short-term investment giving both security and significant return is over-night interbank deposit, which means you let your bank lend your money to another bank…

    Of course that could go wrong if either of the banks failed but how likely is that?

    Compared to any other investment, what problem do you see?

     – Robbie Goodwin Feb 27 '23 at 23:15
  • @Cherie: Do you already have long term care insurance? It's almost certainly too late to get it now, but whether or not you already have it makes a difference on how aggressively you need to protect the money against the possibility of a medical condition causing you to spend the money before you can pass it on to your heirs. LTC insurance in the U.S. takes two forms: 1) (For the wealthy) Paying a ton of money each year ($5K+) from age 50 onwards to protect your wealth for your heirs, or 2) (Everyone else) If you need LTC, burn your money down until you're poor enough for Medicaid. – ShadowRanger Feb 28 '23 at 00:42

9 Answers9

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If you have that much new money to invest, you really should be investing some of it in getting professional advice rather than asking the internet.

A good advisor (of one of the flavors that has a clear fiduciary responsibility to their client rather than taking commissions for selling particular investments) will interview you to get an idea of your risk tolerances and intended timeframe and come up with a mixture that balances safety and growth appropriately for your specific needs. And won't be expensive, for that basic strategy advice.

US Savings Bonds are safe, but may not keep up with inflation and may not be easy to cash out early. Again, how much of a concern that is depends on timeframe, and possible returns tend to be correlated with risk.

keshlam
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    To elaborate on this, looking for a "fee-only" advisor is a good way to ensure that interests are aligned and that no commissions are being made by putting you in sub-optimal investments. Your advisor should be making money only from the charges they are directly billing to you (be it hourly, yearly, percentage, or flat). Be sure that they are not receiving any kickbacks from the investments, funds, or companies they are investing your money in/with. – Maximillian Laumeister Feb 26 '23 at 07:34
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    Day 1: put it in a savings account. Day 2: talk to a (fee-only) expert financial advisor. There is no way we can get a full picture of OP's risk tolerance, needs, and future goals. – Nosjack Feb 28 '23 at 15:04
  • Depending on how inherited, day 1 may be do nothing. Inherited retirement accounts, for example, are often best left where they are until other plans are made, and the plan may involve drawing them down over years. – keshlam Feb 28 '23 at 15:21
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Sometime in the next year, I will receive an inheritance of 1.2 to $1.4 million. I am concerned about the safety of money in a bank with threats to USD thanks to fiat vulnerability. I live in the United States and I am 75 years old.

That right there is the greatest threat to your money.

Like Mark Twain said... It's not what you don't know that gets you. It's what you 'know', that just ain't so!

If you're going to grab onto some baseless poppycock because it warms your political cockles... then you and your money will be soon parted.

So you need to get straight on what your ACTUAL risk is. Humans are spectacularly terrible at this. They drive footloose and fancy free to the airport, then have to take Xanax to get on an airplane. People react on emotion and don't do an honest and searching inventory of all risks.

The wrong guy appeals to your emotion and you're - well, that's your #1 risk right there.

Which is better, a "financial adviser" who charges $0, or a "financial advisor" who only charges $150/hour and that's the only way they work?

Lots of countries collapse all the time, but if YOURS collapses, the western world is pretty screwed and so are you. As such, it's not productive to hedge your bets against a failure of the USA government. As such, FDIC protection should be expected to be operable, so your next question is "How does FDIC work and how do I spread my risk there?" That's a question worth asking.

Also, betting against America is rarely a good bet.

Next, you should be looking at the planning horizon for use of that money, and determining how to invest it accordingly using gold-standard advice on how to do that. If it's for you, all due respect but you're too old to be heavily in the market (and frankly, me too).

For a long term investment, investing approximately the way your local small college invests their endowment is probably about right. Don't try to copy the behavior of huge endowments like Harvard or CalPERS - they do a lot of screwball investing that only works because of their sheer size.

Harper - Reinstate Monica
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    Dramamine is for motion sickness, not anxiety. I think alcohol is the substance most frequently used to fit the situation you describe, although I'm sure there are others. – user4556274 Feb 26 '23 at 17:26
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    @user4556274 Well that would explain why it doesn't calm me down! LOL! JK – Harper - Reinstate Monica Feb 26 '23 at 19:54
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    People think the US is volatile but that's because there are a lot of freedom of press and a lot of things get reported. Not to say there isn't shady stuff but the market is more or let reliable. At least you know when something collapses, and you have different bodies sort of keeping it in check, but at least it is reported. China's real estate collapse is a real disaster, and people that lost money are literally being swept under the rug. – Nelson Feb 27 '23 at 02:25
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    Indeed. The US dollar is the currency everyone else runs to when worried about the stability of their own currency. People worried about "fiat vulnerability" have been taken in by propaganda. I would add that the #1 investment risk for a 75 year old that any actuary would point at is .. dying. Or not dying and needing lots of expensive care first. – pjc50 Feb 27 '23 at 09:52
  • I agree with the sentiment of this answer but the point of 'currency' is for settling current payments. It loses value over time by design. It is as unwise to hold large amounts of it as it is to not hold enough to cover your near-term costs (e.g. 6mo to a year). While 'fiat risk' has some loony connotations, inflation risk is real. – JimmyJames Feb 27 '23 at 19:05
  • @JimmyJames True, but parking the cash in an index fund and then setting up some type of trust for when the kids hit 20 would have solved the problem in 99.99% of the time. That other 0.01%, your money is gone but you now have much bigger things to worry about. – Nelson Mar 02 '23 at 03:04
  • @Nelson Not sure I follow. Buying an index fund isn't holding cash. That's absolutely one of the things I think the OP should consider instead of holding cash. – JimmyJames Mar 02 '23 at 14:44
  • @JimmyJames the problem is that no "pat answer" for investment strategy is possible because we don't know OP's plans for the money. If they're buying rental properties within 6 months, an index fund would not be my advice. – Harper - Reinstate Monica Mar 02 '23 at 20:28
  • @Harper-ReinstateMonica Agreed. 6-months isn't really 'long-term' in my mind. If we were talking about this a few years ago, though, I'd say get a mortgage for the properties and put the money in some sort of investment vehicle that has enough liquity to pay that plus other expenses. Not sure it makes sense with mortgage rates now, though. – JimmyJames Mar 02 '23 at 20:58
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Where you should put it in day 1 is in the bank, in an instant access account. Because you have to put it somewhere.

Then take financial advice on a well diversified investment portfolio. Any predictions that something will crash have a high chance of being wrong. And if you believe all the doom-sayers, then there is nothing that's safe to invest that amount of money in.

So diversify. Cover everything - national and international shares, bonds, property (residential and/or commercial).

Simon B
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The most direct way to protect against inflation (or "fiat vulnerability" as you put it) is to buy inflation-tracking securities. Other securities that reduce your exposure to inflation are securities that track the prime rate (the prime rate tends to increase when inflation does) and stocks (over the long term, inflation increases the nominal price of stocks, although an increase in inflation that's unexpected and thus not priced in can decrease the price in the short run). If your children have mortgages, you can consider paying those off. This will decrease their exposure to interest rate changes, and thus is something to do with your money that decreases, rather that increases, risk.

Acccumulation
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    "inflation tracked securities" have gone down in value by 20% in the last year, jfyi – BlueRaja - Danny Pflughoeft Feb 25 '23 at 10:41
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    Your comment on paying off the mortgage assumes they don't have fixed rate mortgages which would be the most common. People that have mortgages benefit greatly from inflation as well so if their mortgage APR is say 3% and you can safely get 5% APY from things like treasury bonds and CDs right now, paying a mortgage would be counter productive. – jesse_b Feb 25 '23 at 12:55
  • @jesse_b: You have to wonder how big a discount you should get for offering to repay that 3% APR mortgage right now. – MSalters Feb 27 '23 at 10:25
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No one knows the forward inflation rate. The six-month Treasury Bill is 5.09% annual rate. The most recent monthly CPI was 0.5% which could possibly suggest annual inflation of 6%. The six-month Treasury Bill can be bought with a Treasury Direct account which connects to a bank account.

Well, a mild hedged-income example would be the STIP etf hedged with a sell of a 2-year Treasury future or with a buy of a two-year Treasury-rate future. Certainly drop the hedge when FRB interest rate increases are paused. Now, STIP pays the inflation rate but the bond pricing can drop with rising interest rates.

S Spring
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First things first: you need to figure out how much you need for yourself. You said 10-15 years but what if you are "unlucky" enough to live another 25? What about long-term care? Also, do you want to travel or buy something else for yourself? That money needs to be placed in a mix of cash and low-risk assets.

After that, whatever you wish to pass on should probably be put into something more growth-oriented. There are lots of low-cost investment options these days and diversification will help protect from principal loss. An advisor might be a good option. Just make sure whomever you are working with has a fiduciary responsibility to you.

The problem with buying rental properties is that you can't just buy a property and collect rent. There's a lot of work that goes into managing properties. So, unless you are planning to be swinging a hammer, fixing toilets, and interviewing tenants, you will need to pay someone to manage your properties. Roofs need periodic replacement. You need to buy insurance. As a landlord, you may be required to make upgrades to your properties on the government's schedule e.g.: fully rewiring a property. Also consider that you will pay all the property taxes. Ideally, all these costs will be covered by the rent you collect but that's not always guaranteed. How long does it take to evict a non-paying tenant? What if rents fall to below your costs? What if you can't fill a vacancy?

If your kids and their spouses are handy, good at business, and able to get along really, really, well (even under stress) then maybe you help them start a real-estate business. The risk here is that you end up destroying their relationships with each other over money. If that's a risk, just invest it and leave it to them in your will. You might want to look at REITs. These give you exposure to real-estate without all the hassles.

JimmyJames
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If it were me I would invest almost all of it in publicly traded companies/S&P 500 index funds.

If I were you I would:

  • Find an FDIC insured savings account with at least 3.5% APY (they are pretty easy to find right now) and put any money you might need for the immediate future into that.
  • Put the rest into either a CD or treasury bonds for 1-2 years while you study investing, accounting, and valuing businesses. You can get over 5% APY on either right now.

Now read "The Intelligent Investor" by Benjamin Graham and consume every resource you can on accounting. As well as most resources you can on valuing a business although in this subject be careful because there is an overwhelming amount of bad information out there. In my opinion you want to study Warren Buffett, Charlie Munger, and Peter Lynch first and if you find resources that wildly disagree with their principles they are probably not resources you should listen to.

Lynch has several books and they are currently available on youtube as audiobooks. Buffett wrote the preface for the current edition of "The Intelligent Investor" and there are several incredibly valuable hours of he and Munger's knowledge from Berkshire shareholder meetings available on youtube. Additionally Munger has a book called "Poor Charlie's Almanack".

Start dabbling with a brokerage account (small amounts of money you are okay with losing). The best thing for you at this point will be to lose money. If you gain money make sure you understand that doesn't mean you know what you're doing yet. Also don't take stock tips from anyone, you should never buy a business without knowing why you are buying it.

Whenever you buy a portion of a company you should pretend you are buying the whole thing for it's current market cap and you should be able to write a short story about why you are buying it. "I am buying coca cola for $259 billion because...". If you wouldn't buy the whole company at their current market cap you shouldn't buy any portion of it.

Now if all that seems overwhelming to you, you can just put the money into a managed mutual fund but I believe this to be a mistake as the fees will be high and they rarely outperform what a group of monkeys throwing darts at the wall street journal would be able to do. However either way I would recommend learning as much as you can about investments so you can make smarter decisions about the mutual fund.

jesse_b
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    100% stock market allocation for a 75 year old seems questionable to me – Hilmar Feb 25 '23 at 20:04
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    Industry rule-of-thumb is to have your age as a percentage of bond investments. Benjamin Graham recommends 25-75% in bonds. Warren Buffett set a trust for his wife with at least 10% bonds. – Daniel R. Collins Feb 25 '23 at 22:13
  • Younger folks (with less to lose and more time to recover) can afford to take more risks. As you get older, starting to use the savings, that balance usually shifts to a somewhat lower risk, at the cost of lower returns. I think Buffet and Lynch would tell you to diversify at their age, putting some portion (perhaps quite a lot) into bonds and income-profucing investments such as real estate. Sone risk is still appropriate, but 100% stock is not the right mix for most people, at any age. – keshlam Feb 25 '23 at 22:13
  • @keshlam: Agree to disagree. I am buying some bonds right now but when bond rates were sub 1% for example I would argue holding any percentage of your portfolio in bonds at all is more risky than carefully picked stocks, or ignorantly picked index funds. – jesse_b Feb 25 '23 at 22:19
  • I don't think my bond-index mutual fund has ever had that low a return except when the whole market was off -- and then bonds dipped less than some other investments. Your mileage will vary, but the counter-motion between bonds and stocks has been pretty solid in my experience. – keshlam Feb 25 '23 at 23:01
  • @keshlam: for sure when interest rates are up stocks go down but I don't think there has ever been a 10 year period where bonds outperformed stocks and I don't think there ever will be such a period. Also I'm realizing I misunderstood the original comment on this entire thread and thought "100%" was being used as slang to mean certainly, not an actual representation of the portfolio. Which I never actually advocated in my answer. – jesse_b Feb 25 '23 at 23:08
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    Bonds don't usually outperform stocks, true. But they're lower risk, without getting out of the market entirely.... and most folks' goal is to balance safety and return, not to optimize either completely away. – keshlam Feb 25 '23 at 23:11
  • Spend all that time to learn investing .... or just buy a mass-market ETF to piggyback on the people who spent that time. (Which includes corporate bonds ETFs) – MSalters Feb 27 '23 at 10:29
  • @keshlam Younger folks can afford more risks? I'm young and still need my money (and life). If I'm 5 years from the grave I can have very little left to lose. – gerrit Feb 27 '23 at 12:18
  • If you are 5 years from the grave, you generally have limited time to let the market recover before needing those funds. Maybe zero time. As a relative youngster, you can wait out market swings with no harm done, and can even consider buying into a dip so you profit from the expected recovery. If course if you have no need for the money at all, you can take gambles that ordinary folks can't. All part of the continuum where the rich get richer and the American poor are a permanent underclass. – keshlam Feb 27 '23 at 15:49
  • @keshlam: Sure but OP has said they want to prepare this money for their children and it doesn't seem like this money is any part of their retirement fund. I also never advocated for a 100% stock allocation which is the basis for this whole argument lol. – jesse_b Feb 27 '23 at 16:23
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    If they are completely set otherwise, sure. If they may need to tap these funds for a medical emergency or natural disaster, more caution is appropriate. Their own comfort level also plays into it. Which is why I recommended spending a tiny portion of the money on getting expert advice on handling the rest. – keshlam Feb 27 '23 at 16:40
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  • To protect principal against inflation, US treasuries. (TIPS, IBonds, TBills, etc.)
  • To protect against sovereign default, gold bullion.
  • To grow your money with minimal risk, VTI.
  • To grow your money with minimal risk and "hedge against US economy", VXUS.

Pick all four and allocate percentage you feel comfortable with.

paulj
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    aren't IBonds a maximum of about $10,000 per year per person? – user253751 Feb 24 '23 at 19:47
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    I definitely would not call equities, even if diversified and tracking the entire US or Global ex-US markets, "minimal risk". VTI and VXUS had 19.51% and 16.10% drawdowns in 2022, respectively. In 2018, the drawdowns were 5.21% and 14.43%, and in 2011 (VXUS' inception year), drawdowns of 1.06% and 15.38%. – Stan H Feb 24 '23 at 20:02
  • Yes, IBonds have a $10k max of electronic bonds per person per year but you can nab another $5k in paper IBonds with your tax return refund. – Bob Baerker Feb 24 '23 at 20:18
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    @StanH yeah, if you cherry pick only losses. But that is not honest. – Harper - Reinstate Monica Feb 26 '23 at 01:08
  • @Harper-ReinstateMonica that's not cherry-picking losses. It's highlighting the fact that the equity markets do NOT have "minimal risk". Ignoring volatility and loss potential is dishonest. – Stan H Feb 26 '23 at 02:19
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    Diversification minimizes that risk, reducing it to the risk that the market as a whole declines. Which can happen, as now. On the other hand, this is now correcting itself; I expect that it will return to the historical market rate of return. (My long-term average APR is already back in comfortably positive range.) Yes, volatility is always a short&term risk -- and potentially a short-term benefit, if you are buying on the low end of the swing -- but it isn't a loss unless you have to withdraw when low, and then it's only a loss of a percentage of the amount you withdraw. Mostly safe. – keshlam Feb 26 '23 at 14:14
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    @stanH No, you're just arguing a cheap scare tactic. If you want to talk about volatility and planning horizon, then do so honestly but that includes admitting the volatility goes up way more than it goes down. – Harper - Reinstate Monica Feb 26 '23 at 19:04
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There are 2 takes on this:

  1. Life is unique and you are already aged 75 (so immediately EOL). You will not get another next life so use some of these money to live your remaining life the way you dreamed about it. This is my choice at any age.

  2. If we ignore the above point, the best money protection (and growth) is in real estate properties. Lowest annual tax is for land, highest annual tax is for buildings. But at the age of 75 you should know these things.

Journeyman Geek
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obvious joe
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    Real estate is pretty risky. It tends to go up, but it can also go down. OP sounds like they want something really safe. – Valorum Feb 25 '23 at 07:56
  • The overwhelming majority of real estate is risky only in the extreme short term. Consider: the OP investment range is 10-15 yrs and over the last 15 years, US real estate value has doubled](https://www.zillow.com/research/us-housing-market-total-value-2021-30615/). If we look at a 20 year time frame and include the Great Recession (home value correction was -14%), that's a net return of 86%. Prior recessions, going back to the 1980, only slowed housing price growth: single digit instead of double. – bishop Feb 25 '23 at 14:43
  • So while past performance does not guarantee future success, the recent historical evidence over windows of 10-20 years shows real estate to be a lucrative investment strategy: excellent pay off with limited risk. – bishop Feb 25 '23 at 14:46
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    If you feel like that level of risk you’re better off parking it in index funds, which have had a cumulative 604% return (with dividend reinvestment) over the last 20 years. – Dugan Feb 25 '23 at 17:13
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    There are real-estate-focused index funds, if your tastes lie that way. I'm using one. – keshlam Feb 25 '23 at 23:04
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    I'd agree with @keshlam. Real estate index funds move fairly independently from other index funds, so they can be used to diversify a portfolio. And index funds typically have low costs, so this can bring down the total portfolio risk. But in this case, you'd be looking at 5% or so into real estate index funds. – MSalters Feb 27 '23 at 10:32