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.
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.
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.
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).
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.
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.
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.
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.
- 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.
There are 2 takes on this:
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.
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.