What options do I have at 26 years old, with 1.2 million USD?

Question

I'm a 26 years old female who got into an accident that almost killed me; I sued and after attorneys fees and medical bills from hell... I will walk away with around 1.2 million dollars tax-free.

Here are the crucial details:

• I have no family (no one I can trust and I appear alone and vulnerable to people like attorneys, real estate agents, financial planners, etc.)
• Only 10k in credit card debt
• No assets
• University is not an option

I live in southern California but would like to move overseas after establishing stable investments.

I am not the type of person that would invest in McDonald's but would consider other less evil franchises (maybe?).

I understand I need to research many things including, but not limited to: stocks, bonds, trusts, real estate, taxes, and so on.. but where on earth does one start!

Are there other relatively safe investments anyone can suggest?

Answer 1

The amount of money you have should be enough for you to live a safe but somewhat restricted life if you never worked again - but it could set you up for just about any sort of financial goal (short of island buying) if you do just about any amount of work.

The basic math for some financial rules of thumb to keep in mind:

• If your money is invested in very low-risk ways, such as a money market fund, you might earn, say, 3% in interest every year. That's $36k. But, if you withdraw that $36k every year, then every year you have the same principal amount invested. And a dollar tomorrow can't buy as much as a dollar today, because of inflation. If we assume for simplicity that inflation is 1% every year, then you need to contribute an additional $12k to your principal balance every year, just so that it has the same buying power next year. This leaves you with a net $24k of interest income that you can freely spend every year, for the rest of your life, without ever touching your principal balance.

• If your money is invested more broadly, including equity investments [stocks], you might earn, say, 7% every year. Some years you might lose money on your investments, and would need to draw down your principal balance to pay your bills. Some years you might do quite well - but would need to remain conservative and not withdraw your 'excess' earnings every year, because you will need that 'excess' to make up for the bad years. This would leave you with about $74k of income every year before inflation, and about $62k after inflation. But, you would be taking on more risk by doing this.

• If you work enough to pay your daily bills, and leave your investments alone to earn 7% on average annually, then in just 10 years your money would have doubled to ~ $2.4 Million dollars. This assumes that you never save another penny, and spend everything you make. It's a level of financial security that means you could retire at a drop of the hat. And if don't start working for 20 years [which you might need to do if you spend in excess of your means and your money dries up], then the same will not be true - starting work at 45 with no savings would put you at a much greater disadvantage for financial security. Every year that you work enough to pay your bills before 'retirement' could increase your nest egg by 7% [though again, there is risk here], but only if you do it now, while you have a nest egg to invest.

Now in terms of what you should do with that money, you need to ask yourself: what are your financial goals? You should think about this long and hard (and renew that discussion with yourself periodically, as your goals will change over time). You say university isn't an option - but what other ways might you want to 'invest in yourself'? Would you want to go on 'sabbatical'-type learning trips? Take a trade or learn a skill? Start a business? Do you want to live in the same place for 30 years [and thus maybe you should lock-down your housing costs by buying a house] or do you want to travel around the world, never staying in the same place twice [in which case you will need to figure out how to live cheaply and flexibly, without signing unnecessary leases].

If you want to live in the middle of nowhere eating ramen noodles and watching tv, you could do that without lifting a finger ever again. But every other financial goal you might have should be factored into your budget and work plan. And because you do have such a large degree of financial security, you have a lot of options that could be very appealing - every low paying but desirable/hard-to-get job is open to you. You can pursue your interests, even if they barely pay minimum wage, and doing so may help you ease into your new life easier than simply retiring at such a young age [when most of your peers will be heavy into their careers].

So, that is my strongest piece of advice - work now, while you're young and have motivation, so that you can dial back later. This will be much easier than the other way around.

As for where you should invest your money in, look on this site for investing questions, and ultimately with that amount of money - I suggest you hire a paid advisor, who works based on an hourly consultation fee, rather than a % management fee. They can give you much more directed advice than the internet (though you should learn it yourself as well, because that will give you the best piece of mind that you aren't being taken advantage of).

Answer 2

Pay off the credit cards. From now on, pay off the credit cards monthly. Under no circumstances should you borrow money. You have a net worth but no external income. Borrowing is useless to you.

$200,000 in two bank accounts, because if one bank collapses, you want to have a spare while you wait for the government to pay off the guarantee. Keep $50,000 in checking and another $50k in savings. The remainder is put into CDs. Don't expect interest income beyond inflation. Real interest rates (after inflation) are often slightly negative.

People ask why you might keep money in the bank rather than stocks/bonds. The problem is that stocks/bonds don't always maintain their value, much less go up. The bank money won't gain, but it won't suddenly lose half its value either. It can easily take five years after a stock market crash for the market to recover. You don't want to be withdrawing from losses.

Some people have suggested more bonds and fewer stocks. But putting some of the money in the bank is better than bonds. Bonds sometimes lose money, like stocks. Instead, park some of the money in the bank and pick a more aggressive stock/bond mixture. That way you're never desperate for cash, and you can survive market dips. And the stock/bond part of the investment will return more at 70/30 than 60/40.

$700,000 in stock mutual funds. $300,000 in bond mutual funds. Look for broad indexes rather than high returns. You need this to grow by the inflation rate just to keep even. That's $20,000 to $30,000 a year. Keep the balance between 70/30 and 75/25. You can move half the excess beyond inflation to your bank accounts. That's the money you have to spend each year. Don't withdraw money if you aren't keeping up with inflation.

Don't try to time the market. Much better-informed people with better resources will be trying to do that and failing. Play the odds instead. Keep to a consistent strategy and let the market come back to you. If you chase it, you are likely to lose money.

If you don't spend money this year, you can save it for next year. Anything beyond $200,000 in the bank accounts is available for spending. In an emergency, you may have to draw down the $200,000. Be careful. It's not as big a cushion as it seems, because you don't have an external income to replace it.

I live in southern California but would like to move overseas after establishing stable investments.

I am not the type of person that would invest in McDonald's but would consider other less evil franchises (maybe?).

These are contradictory goals, as stated. A franchise (meaning a local business of a national brand) is not a "stable investment". A franchise is something that you actively manage. At a minimum, you have to hire someone to run the franchise. And as a general rule, they aren't as turnkey as they promise.

How do you pick a good manager? How will you tell if they know how the business works? Particularly if you don't know. How will you tell if they are honest and won't just embezzle your money? Or more honestly, give you too much of the business revenues such that the business is not sustainable? Or spend so much on the business that you can't recover it as revenue?

Some have suggested that you meant brand or stock rather than a franchise. If so, you can ignore the last few paragraphs. I would be careful about making moral judgments about companies. McDonald's pays its workers too little. Google invades privacy. Exxon is bad for the environment. Chase collects fees from people desperate for money. Tesla relies on government subsidies. Every successful company has some way in which it can be considered "evil". And unsuccessful companies are evil in that they go out of business, leaving workers, customers, and investors (i.e. you!) in the lurch.

Regardless, you should invest in broad index funds rather than individual stocks. If college is out of the question, then so should stock investing. It's at least as much work and needs to be maintained.

In terms of living overseas, dip your toe in first. Rent a small place for a few months. Find out how much it costs to live there. Remember to leave money for bigger expenses. You should be able to live on $20,000 or $25,000 a year now. Then you can plan on spending $35,000 a year to do it for real (including odd expenses that don't happen every month). Make sure that you have health insurance arranged.

Eventually, you may buy a place. If you can find one that you can afford for something like $100,000. Note that $100,000 would be low in California but sufficient even in many places in the US. Think rural, like the South or Midwest. And of course that would be more money in many countries in South America, Africa, or southern Asia. Even southern and eastern Europe might be possible. You might even pay a bit more and rent part of the property. In the US, this would be a duplex or a bed and breakfast. They may use different terms elsewhere.

Given your health, do you need a maid/cook? That would lean towards a bed and breakfast, where the same person can clean for you and the guests. Same with cooking, although that might be a second person (or more). Hire a bookkeeper/accountant first, as you'll want help to evaluate potential purchases. Keep the business small enough that you can actively monitor it.

Part of the problem here is that a million dollars sounds like a lot of money but isn't. You aren't rich. This is about the bare minimum for surviving a middle-class lifestyle in the United States and other first-world countries. You can't live like a tourist.

Many places overseas are indeed cheaper. But many aren't (including much of Europe, Japan, Australia, New Zealand, etc.). And the ones that aren't may surprise you. And you also may find that some of the things that you personally want or need to buy are expensive elsewhere. Dabble first and commit slowly; be sure first. Include rarer things like travel in your expenses.

Long term, there will be currency rate worries overseas. If you move permanently, you should certainly move your bank accounts there relatively soon (perhaps keep part of one in the US for emergencies that may bring you back). And move your investments as well. Your return may improve, although some of that is likely to be eaten up by inflation. A 10% return in a country with 12% inflation is a negative real return.

Try to balance your investments by where your money gets spent. If you are eating imported food, put some of the investment in the place from which you are importing. That way, if exchange rates push your food costs up, they will likely increase your investments at the same time. If you are buying stuff online from US vendors and having it shipped to you, keep some of your investments in the US for the same reason. Make currency fluctuations work with you rather than against you.

I don't know what your circumstances are in terms of health. If you can work, you probably should. Given twenty years, your million could grow to enough to live off securely. As is, you would be in trouble with another stock market crash. You'd have to live off the bank account money while you waited for your stocks and bonds to recover.

Answer 3

You need the services of a hard-nosed financial planner. A good one will defend your interests against the legions of creeps trying to separate you from your money.

How can you tell whether such a person is working in your best interest? Here are some ways.

1. Do they have an industry certification (like CFP, certified financial planner)?
2. Ask who they have a fiduciary responsibility to. There's only one right answer to that question. The planner you hire must have a fiduciary responsibility to you, and you alone, for your business.
3. How are they paid? They need to put bread on their tables, so they need to be paid. A planner paid by you is more likely to work in your interest than a planner paid commissions by investment or insurance companies.. Paying $500 for a decent ten-year plan is a much better use of your resources than paying 3% of your investment money in broker commissions.
4. What stock/bond investment suggestions do they make? There's only one right answer to this: diversified low fee unmanaged index funds. Vanguard and DFA are two companies offering these funds. If somebody says, "I have a great stock tip for you," walk away. Better yet, put your hands over your ears and say "la-la-la-la-la" loudly while you're walking away. Seriously. Beware.
5. Do they work for a not-for-profit investment company? Thrivent Financial and TIAA-CREF are two such companies. Either company will assign somebody to listen to your needs and offer suggestions. Both companies are well-known for serving customer needs before their own.
6. Do they listen carefully to your situation?
7. Do their references check out? (Also check the BBB).

You'll be able to tell pretty quickly whether the planner lets you get through the same story you told us. The ability to listen carefully without interrupting is a good way to tell whether the planner is going to honor your needs. You're looking for a human service professional, not an investment or business guru.

There are planners who specialize in helping people navigate big changes in their financial situation. Some of the best of those planners are women. (Many of their customers are people whose spouses recently died. But they also serve people in your situation. Ask if they work with other people like you.)

Of course, you need to take the planner's advice, especially about spending and saving levels.

Answer 4

Until you get some financial education, you will be vulnerable to people wanting your money. Once you are educated, you will be able to live a tidy life off this-- which is exactly why this amount was awarded to you, rather than some other amount. They gave you enough money. This is not a lottery win.

You will be flooded with bad people wanting your money

I mean "financial counselors" who will want to help you with strategies to invest your money. Every one will promise your money will grow.

• A few will straight-out rob you.
• A few will choose horrible investments (like fast food franchises) and you'll lose most of it.
• Some will choose the right classes of investment, and they will grow, but very poorly compared to the investments you should be in. That's because they are paying kickbacks to the "advisor" and his firm.

The latter case describes every full-service broker, e.g. what will happen if you walk into EdwardJones. This industry has a long tradition of charmingly selling investments which significantly underperform the market, and making their money by kickbacks (sales commissions) from those investments (which is why they significantly underperform.) They also offer products which are unnecessarily complex meant to confuse customers and hide fees. One mark of trouble is "early exit" fees, which they need to recoup the sales commission they already paid out.

Unfortunately, one of those people is you. You are treating this like a windfall, falling into old, often-repeated cliché of "lottery-win thinking". "Gosh, there's so much money there, what could go wrong?" This always ends in disaster and destitution, on top of your other woes.

It's not a windfall. They gave you just enough money to live on - barely. Because these lawyers and judges do this all day every day, and they know exactly how much capital will replace a lifelong salary, and if anything you got cheated a bit. Read on.

You don't want to feel like greedy Scrooge, hoarding every penny. I get that. But generous spending won't fix that. What will is financial education, and once you have real understanding and certainty about your financial situation, you will be able to both provide for yourself and be giving in a sensible manner.

This stuff isn't taught in school. If it was, there'd be a lot more millionaires, because wealth isn't about luck, it's about intelligent management of money.

Good advisers do exist. They're hard to find. Good advisors work only one way: for a flat rate or hourly fee. This is called a "Fee-only advisor". S/he never takes commissions. Beware of brokers who normally work on commission but will happily take an upfront fee. Even if they promise to hand you their commission check, they're still recommending you into the same sub-par investments because that's their training!

Money School

I get the world of finance is extremely confusing and it's hard to know where to start. Just make one leap of faith with me: You can learn this.

One place it's not confusing: University endowments. They get windfalls just like you, and they need to manage it to support them for a very long time, just like you. Endowments are very closely watched by the smartest people in finance -- no lottery fever here. It's agreed by all that there is one best way to invest an endowment. And it's mandatory by law.

An endowment is a chunk of money (say, $1.2 million) that must fund a purpose (say, a math professorship or "chair") in perpetuity. You're not planning to live quite that long, but when you're in your 20's, the investment strategy is the same. The endowment is designed to generate income of some amount, on average, over the long term. You can draw from the endowment even in "down years". The rule of thumb is 4-6% is a sustainable rate that won't overtax the endowment (usually, but you have to keep an eye on it). On $1.2M, that's $48,000 to $72,000 per year. Not half bad.

See, I told you it could work.

Read Jane Austen? Mister Darcy, referred to as a gentleman of 10,000 pounds -- meaning his assets were many times that, but they yield income of £10,000 a year. Same idea.

Keep in mind that you need to pay taxes. But if you plan your investments so you're holding them more than a year, you're in the much lower 0-10-15% capital gains tax bracket.

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So, here's where I'd like you to go.

• Ravenously consume either Suze Orman or Dave Ramsey, don't care which. This is just basic money 101 with a little bit in investing. You'll have to toss away a little of what they say about investing, because they would never be as aggressive as a university endowment. That's why we need to make you a Boglehead.
• John Bogle, Common Sense on Mutual Funds, because those (or actually ETFs) are a cornerstone of any investment strategy, and you need to know why they are important, and the most important thing: minimize your fees.
• Now off to your local universities. Disregard large ones like Harvard or Cal -- they are too big, and tend to be activist investors, and you can't keep up with all that. You want to see how the small/medium fish operate, who have $10M-100M of capitalization. They will certainly want to talk to you, hoping you'll give... and you'll be able to ask very pointed questions about how they invest. And they will tell you -- because they are public institutions.

I would say more, but this will give you quite an education by itself.

A hypothetical case

Say you gave all your money to me. And said "Your nonprofit needs an executive director. Fund it. In perpetuity." I'd say "Thank you", "you're right", and I'd create an endowment and invest it about like this.

 60% in domestic stocks (e.g. symbol VTI, an index fund of almost all stocks) 
 10% in foreign stocks
 5% in REIT (real estate) just because I don't like them that much 
 10% in bonds funds
 10% in Muni bonds 
 5% in money market (near-cash) as a hedge against market crash

That is fairly close to the standard mix you'll find in most endowments, because that is what's considered "prudent" under endowment law (UPMIFA). I'd carry all that in a Vanguard or Fidelity account and follow Bogle's advice on limiting fees. That said, dollar-cost-averaging is not a suicide pact, and bonds are ugly right now (for reason Suze Orman describes) and real estate seems really bubbly right now... so I'd back out of those for now.

I'd aim to draw about $60k/year out of it or 5%, and on average, in the very long term, the capital should grow. I would adjust it downward somewhat if the next few years are a hard recession, to avoid taking too much out of the capital... and resist the urge to take more out in boom years, because that is your hedge against the next recession. Over 7% is not prudent per the law (absent very reasonable reasons).

UPMIFA doesn't apply to you, but I'd act as if it did. A very reasonable reason to take more than 7% would be to shift investment into a house for living in. I would aim for a duplex/triplex to also have income from the property, if the numbers made sense, which they often don't in California, but that's another question.

Charitable giving

At your financial level -- never, never, never give cash to a charity. You will get marked as a "soft target" and every commercial fundraiser on earth will stalk you for the rest of your life.

At your level, you open a Donor Advised Fund, and let the Fund do your giving for you. Once you've funded it (which is tax deductible) you later tell them which charities to fund when. They screen out fake charities and protect your identity. I discuss DAFs at length here.

Now when "charities" harass you for an immediate handout, just tell them that's not how you support charities.

Answer 5

If you were the friend of my daughter or some other "trusted" relationship, I would tell you to head on over to Bogleheads.org, follow their advice and do research there. I would advise you to aim for about a 60/40 allocation. They would advise you to make a very simple, do it yourself portfolio that could last a lifetime. No need for financial planners or other vultures.

The other side of this curtailing your spending. Although the amount seems like a bunch, you probably need to keep your spending under 41K per year out of this money. If you have additional income such as from a job or social security payments then that could be on top of the 41k and never forget taxes. To help manage that, you may want to consult a CPA, but only for tax advice, not investment advice.

Certainly you should make the credit card debt disappear. You may want to reevaluate your current location if the costs are too high compared to your income.

Good luck to you and sorry about the wreck.

Answer 6

Others have given a lot of advice about how to invest, but as a former expat I wanted to throw this in:

US citizens living and investing overseas can VERY easily run afoul of the IRS.

Laws and regulations designed to prevent offshore tax havens can also make it very difficult for expats to do effective investing and estate planning. Among other things, watch out for:

• US citizens owe US income tax on world income regardless of where they live or earn money

• FBAR reporting requirements affect foreign accounts valued over $10k

• The IRS penalizes (often heavily) certain types of financial accounts. Tax-sheltered accounts (for education, retirement, etc.) are in the crosshairs, and anything the IRS deems a "foreign-controlled trust" is especially bad.

• Heavy taxes on investment not purchased from a US stock exchange

• Some US states will demand income taxes from former residents (including expats) who cannot prove residency in a different US state. I believe California is neutral in that regard, at least.

I am neither a lawyer nor an accountant nor a financial advisor, so please take the above only as a starting point so you know what sorts of questions to ask the relevant experts.

Answer 7

Since the question asked for options, rather than advice, I’ll offer a few. And you can ignore the gratuitous advice that may sneak in.

1. There are countries that will happily give you citizenship for a fee. And others where an investment of far less than your million will get you well on your way. Having citizenship and a passport from another country can be handy if your current one is or becomes unpopular or unstable.

2. From data at numbeo.com, I estimate that my lifestyle would cost me $3300 (US) in Geneva, Switzerland, and that everywhere else on the planet would be less. I haven’t been to Geneva, but I have spent only $2500 (average) per month in eleven countries over three years, and could have been comfortable on far less. $2500/month will go through 1.2 million in only forty years, but if you use it to generate income, and are less wasteful than me, ...

3. With the first few dollars you get, you might take steps to hedge the possibility of not actually getting it all. Appeals can take a long time, and if the defendant runs out of money or figures out how to hide, the size of the judgment is irrelevant.

4. Believe strongly enough in something to donate money for/to it?

I’ll leave the investment options to others.

Answer 8

Former financial analyst here, happy to help you.

First off, you are right to not be entirely trusting of advisors and attorneys. They are usually trustworthy, but not always. And when you are new to this, the untrustworthy ones have a habit of reaching you first - you're their target market. I'll give you a little breakdown of how to plan, and a starting investment.

First, figure out your future expenses. A LOT of that money may go to medical bills or associated care - don't forget the costs of modifications and customizations to items so you can have a better quality of life. Cars can be retrofit to assist you with a wheelchair, you can build a chair lift into a staircase, things like that which will be important for mobility - all depending on the lingering medical conditions. Mobility and independence will be critically important for you. Your past expenses are the best predictor of future expenses, so filter out the one-time legal and medical costs and use those to predict.

Second, for investing there is a simple route to get into the stock market, and hopefully you will hear it a lot: Exchange Traded Funds (ETFs). You'll hear "The S&P 500 increased by 80 points today..." on the news; the S&P is a combination of 500 different stocks and is used to gauge the market overall. You can buy an exchange traded fund as a stock, and it's an investment in all those components. There's an ETF for almost anything, but the most popular ones are for those big indexes. I would suggest putting a few hundred thousand into an S&P 500 indexed ETF (do it at maybe $10,000 per month, so you spread the money out and ensure you don't buy at a market peak), and then let it sit there for many years. You can buy stocks through online brokerages like Scottrade or ETrade, and they make it fairly easy - they even have local offices that you can visit for help. Stocks are the easiest way to invest. Once you've done this, you can also open a IRA (a type of retirement account with special tax benefits) and contribute several thousand dollars to it per year.

I'll be happy to give more advice if/when you need it, but there are a number of good books for beginning investors that can explain it better than I. I would suggest that you avoid real estate, especially if you expect to move overseas, as it is significantly more complicated and has maintenance costs and taxes.

Answer 9

You should invest your money.

To figure out what rate of return you need, use this equation:

(How Much Money You Want Per Year) / (Total Amount of Cash You Have) = (Annualized Interest Rate)

If we plug in the amount of annualized interest you can expect to safely get while not managing your money personally, 2% by my estimate, we get

X / 1.2m = 0.02%; X=24K/year

A measly $24,000 / year.

Many people say that you can get 10, 12, even 30% return on your investment. I won't speculate on if this is true, but I will guarantee that you cannot get those returns simply by handing your money over to a money manager.

So your options are,

1) Earn a guaranteed $24,000 and earn the rest you need to live by working

2) Learn to invest your money (and then do so intelligently) and earn enough to live off the interest

To learn how to invest your money, read Beating the Street, by Peter Lynch. https://www.amazon.ca/Beating-Street-Peter-Lynch/dp/0671891634

Good luck!

Answer 10

You need to find a fiduciary advisor pronto. Yes, you are getting a large amount of money, but you'll probably have to deal with higher than average health expenses and lower earning potential for years to come. You need to make sure the $1.2 million lasts you, and for that you need professional advice, not something you read on the Internet.

Finding a knowledgeable advisor who has your interests at heart at a reasonable rate is the key here. These articles are a good start on what to look for:

1. http://www.investopedia.com/articles/financialcareers/08/fiduciary-planner.asp

2. https://www.forbes.com/sites/janetnovack/2013/09/20/6-pointed-questions-to-ask-before-hiring-a-financial-advisor/#2e2b91c489fe

3. http://www.investopedia.com/articles/professionaleducation/11/suitability-fiduciary-standards.asp

You should also consider what your earning potential is. You rule out college but at 26, you can have a long productive career and earn way more money than the $1.2 million you are going to get.

Answer 11

Wow, everyone tells you different investment strategies.

You have all your life ahead of you. Your main focus should not be getting the best return rate, but ensuring your existence. Who cares if you get 7% if you'll lose all in the next market crash and stand on the street with no education, no job and nothing to fall back on?

I would go a completely different route in your place:

1. Buy some real estate. Ideally, one place for yourself to live in and one place to rent out for some monthly income.
2. Question the university condition. Having some kind of education will be a tremendous benefit in your life. You didn't specify why university is not an option, so I'll just leave it at that. But investment in education is possibly the one that will yield you the highest ROI.
3. Use what's left of the money after 1) to get into some business. You can use it to start a business or buy yourself into an existing one. Note that many businesses fail, so splitting your investment into multiple options is more safe. However, the main goal here is not so much to become rich, but to become a business woman. Make contacts, boost your CV, understand how things work in whatever business you picked. These things you can leverage into a career even if the original business fails.
4. Use some money as "door openers". Continuing the thought, money can bring you into places and make you meet people that otherwise you couldn't. Use it to build a network that you can use for business opportunities, jobs, friends etc. who can be useful to go up in life.
5. Keep some in reserve and for spending.

The best advise given above was to not consider this as an option to never work again. It's not enough money for that, unless you want to live poorly and always be afraid that the next financial crises wipes you out completely.

Answer 12

Something not in answers so far: define your goals. What is important to you?

My goals, if I were in your shoes, would include a debt-free home, passive (investment) income so I would not have to work, and have health insurance covered. I could think of many more details, and already have, but you get the idea.

To help determine which investment information to learn first, consider how much risk you can tolerate. I know that's vague at this point, but if you're looking for safe investments first, you could learn about mutual funds, and then index funds specifically. At the risky extreme, you could learn about stock options, but I would not recommend such risk.

Answer 13

When I was in a similar situation (due to my stocks going up), I quit my job and decided that if I live somewhat frugally, I wouldn't have to work again (I haven't). But I fell victim to some scams, didn't invest wisely, and tried to play as a (minor) philantropist. Bad move. I still have enough money to live on, and want to buy a home of my own, but with the rise in real estate costs in ALL the "good" major cities my options are very limited. There is a LOT of good advice being given here; I wish someone had given me that kind of advice years ago.

$1,200,000 sounds like a lot but it's not infinity.

Side comment: I've seen lots of articles that claim to help you figure out how much money you need in retirement but why do they all start out by asking you "how much money do you need in retirement?"

Answer 14

Firstly, sorry about the accident.

I am afraid you will need to do your own legwork, because you cannot trust other people with your money. It's a good thing you do not need to rush. Take your time to learn things. One thing is certain, you cannot let your money sit in a bank - inflation will digest them.

You need to learn about investing yourself, or you run a risk of someone taking advantage of you. And there are people who specialise in exploiting people who have money and no idea what to do with them. There is no other way, if you have money, you need to know how to deal with it, or you are likely to lose it all.

Since you need to have monthly income and also income that makes more money to make further investments, you need to look at two most common investments that are safe enough and also give good returns on investment: Property and index funds.

You might also have a look at National bonds as this is considered safest investment possible (country has to go bust for you to lose money), but you are too young for that. Young = you can take more risk so Property and shares (indexes).

You want to have your property investments in a country that is stable and has a good ROI (like Netherlands or Lithuania).

Listen to some audio lectures: https://www.audible.co.uk/pd/Health-Personal-Development/Investing-in-Real-Estate-6th-Edition-Audiobook/B008SEH1R0

https://www.audible.co.uk/pd/Business/The-Secrets-of-Buy-to-Let-Success-Audiobook/B00UVVM222

https://www.audible.co.uk/pd/Non-fiction/Economics-3rd-Edition-Audiobook/B00D8J7VUC

https://www.audible.co.uk/pd/Advanced-Investments-Part-1-Audiobook/B00HU81B80

After you sorted your investment strategy, you might want to move to a country that is Expat friendly and has lower living costs than US and you should be able to live like a king...

best of luck.

Answer 15

I'm surprised nobody else has suggested this yet: before you start investing in stocks or bonds, buy a house. Not just any house, but the house you want to live in 20 years from now, in a place where you want to live 20 years from now - but you also have to be savvy about which part of the country or world you buy in. I'm also assuming that you are in the USA, although my suggestion tends to apply equally anywhere in the world.

Why? Simple: as long as you own a house, you won't ever have to pay rent (you do have to pay taxes and maintenance, of course). You have a guaranteed return on investment, and the best part is: because it's not money you earn but money you don't have to spend, it's tax free. Even if the house loses value over time, you still come out ahead. And if you live abroad temporarily, you can rent out the house and add the rent to your savings (although that does make various things more complicated).

You only asked for options, so that is mine. I'll add some caveats.

OK, now here are the caveats:

• Pay attention to value. Some houses are overpriced for their market, and many wonderful houses will be overpriced for your situation even if they are priced appropriately for their market. Also, some cheap houses are a great deal, but other cheap houses are cheap for a reason.
• Depending on your finances and abilities, a run-down house may be a good idea; you can often (but not always) repair it to turn it into a dream home, for less money than outright buying a dream home.
• Stay away from the extremely hot markets, such as the major cities on the East or West Coast. It only makes, limited, sense to buy in those cities if you have a (well-paying) job there. The risk of houses losing value over 20 years are much greater than gaining value. I use a rule of thumb: find the median income in a city, and multiply it by 3 to 5. If median housing prices are more expensive than that, average people can't afford housing, and over the long run, something's gotta give. NEVER believe a real estate agent about expected future appreciation.
• If you like an expensive city, you can look in some of the more distant suburbs (but be aware of medical care if you go too remote). Of course, if you plan to rent out the house for a decade or two, then the rent may make up for the higher purchase price.
• Stay away from the very cheap parts of the country. They tend to be cheap for a reason: no jobs, and that means no renters, as well as that you'll miss many of the amenities of urban life.
• Watch out for property taxes. Some states with low housing prices have exorbitant property tax rates. It tends to be a better deal to buy in a state with high housing prices and low property taxes, because you only pay the price once.
• Stay away from homeowner's associations. They do have benefits, but also dramatic risks. Even if the HOA dues are affordable today, they can, and will, go up over the course of 20 years or so. I used to live in a condo complex where the dues ended up being almost as high as rent in the same city.
• Pay attention to natural disaster areas. Many of the nicest areas to live in are also particularly disaster-prone. Since my suggestion is to buy for the long term, you want to make sure you don't lose your value to a flood, hurricane, earthquake or wildfire. But also don't be terrified of those areas as long as you can buy good insurance. Just be mindful of the risks.

Answer 16

If you can still work, I think a very good course of action would be to invest the majority of the money in low-cost index funds for many years. The reason is that you are young and have plenty of time to build a sizable retirement fund.

How you go about this course of action depends on your comfort level with managing your money, taxes, retirement accounts, etc.

At a minimum, open an investment account at any of the major firms (Schwab, Fidelity, for example). They will provide you with a free financial advisor. Ideally s/he would recommend something like:

1. Open a retirement account and invest as much as you can tax-free or tax-deferred. Since you already received the money tax-free, a Roth IRA seems like a no-brainer.

2. Pick some low-fee equity funds, like an S&P 500 Index fund, for a large chunk of the money.

3. Avoid individual stocks if you aren't comfortable with them.

Alternatively, get a recommendation for a fixed-fee financial planner that can help you plan for your future.

Above all, don't spend beyond your means! You have an opportunity to fund a very nice future for yourself, especially if you are able to work while you are still so young!

Answer 17

I agree with Grade 'Eh' Bacon's answer, but there are a couple of ideas that are relevant to your particular situation:

How to invest

If I were you, I would invest at least half of the cash in growth ETFs because you're young enough that market variability doesn't affect you and long term growth is important.

The rest should be invested in safer investments (value and dividend ETFs, bonds, cash) so that you have something to live off in the near term.

You said you wanted to invest ethically. The keyword to search is "socially responsible ETFs". There are many, and if this is important to you, you'll have to read their prospectus to find one that matches your ethics.

Mitigating taxes

Since you're American, the way I understand it, you need to file taxes on income; selling stocks at a gain is income. You want to make sure that as your stocks appreciate, you sell some every year and immediately rebuy them so that you pay a small tax bill every year rather than one huge tax bill 20 years from now. Claiming about $20600 of capital gains every year would be tax free assuming you are not earning any other money. I would claim a bit more in years where you make a lot.

You can mitigate your long term capital gains tax exposure by opening a Roth IRA and maxing that out. Capital gains in the Roth IRA are not taxable. Even if you don't have income from working, you can have some income if you invest in stocks that pay dividends, which would allow you to contribute to a Roth IRA.

Mitigating currency risk

You should figure where you're going to be living because you will want to minimize the currency risk of having your money in USD while you're living abroad. If the exchange rate were to change by a lot, you might find yourself a lot poorer. There are various hedging strategies, but the easiest one is to invest some of your money in securities of the country you'll be living in.

Mitigating currency exchange costs

You should look into how you'll be converting money into the foreign currency. There are sometimes way of minimizing the spread when converting large amounts of money, e.g., Norbert's gambit. Shaving off 1.5% when exchanging $100k saves $1500.

Answer 18

This may be a great idea, or a very bad one, or it may simply not be applicable to you, depending on your personal circumstances and interests.

The general idea is to avoid passive investments such as stocks and bonds, because they tend to grow by "only" a few percent per year. Instead, invest in things where you will be actively involved in some form. With those, much higher investment returns are common (but also the risk is higher, and you may be tied down and have to limit the traveling you want to do).

So here are a few different ways to do that: Get a college degree, but only if you are interested in the field, and it ends up paying you well. If you aren't interested in the field, you won't land the $100k+ jobs later. And if you study early-childhood education, you may love the job, but it won't pay enough to make it a good investment. Of course, it also has to fit with your life plans, but that might be easier than it seems. You want to travel. Have you thought about anthropology, marine biology or archeology?

Pick a reputable, hard-to-get-into, academic school rather than a vocation-oriented oe, and make sure that they have at least some research program. That's one way to distinguish between the for-profit schools (who tend to be very expensive and land you in low-paying jobs), and schools that actually lead to a well-paying future.

Or if your interest runs more in a different direction: start a business. Your best bet might be to buy a franchise. Many of the fast-food chains, such as McDonalds, will let you buy as long as you have around $300k net worth. Most franchises also require that you are qualified. It may often make sense to buy not just one franchised store, but several in an area. You can increase your income (and your risk) by getting a loan - you can probably buy at least $5 million worth of franchises with your "seed money".

BTW, I'm only using McDonalds as an example. Well-known fast food franchises used to be money-making machines, but their popularity may well have peaked. There are franchises in all kinds of industries, though. Some tend to be very short-term (there is a franchise based on selling customer's stuff on ebay), while others can be very long-lived (many real-estate brokerages are actually franchises).

Do be careful which ones you buy. Some can be a "license to print money" while others may fail, and there are some fraudsters in the franchising market, out to separate you from your money.

Advantage over investing in stocks and bonds: if you choose well, your return on investment can be much higher. That's generally true for any business that you get personally involved in. If you do well, you may well end up retiring a multimillionaire.

Drawback: you will be exposed to considerable risk. The investment will be a major chunk of your net worth, and you may have to put all your eggs in none basket. If your business fails, you may lose everything.

A third option (but only if you have a real interest in it!): get a commercial driver's license and buy an 18-wheeler truck. I hear that owner-operators can easily make well over $100k, and that's with having to pay off a bank loan. But if you don't love trucker culture, it is likely not worth doing.

Overall, you probably get the idea: the principle is to use your funds as seed money to launch something profitable and secure, as well as enjoyable for you.

Answer 19

Windfalls can disappear in a heartbeat if you're not used to managing large amounts of money. That said, if you can read a bank statement and can exercise a modicum of self control over spending, you do not need a money manager. (See: Leonard Cohen)

• First, spend $15 on J.L. Collins' book The Simple Path to Wealth.

• https://www.goodreads.com/book/show/30646587-the-simple-path-to-wealth.

• Plan to spend about 4% of your wealth annually (4% of $1.2 million = $48,000)

• Bottom line: ALWAYS live within your means.

Own your own home free and clear. Don't buy an annuity unless you have absolutely no self control. If it feels like you're spending money too fast, you almost certainly are.

Answer 20

Lots of good advice so far. Here's some meta-advice.

Read through everything here twice, and distill out what the big picture ideas are. Learn about what you need to know about them. Pick a strategy and/or long term goals. Work toward them.

Get advice from many many places and distill it. This is currently known as crowd-sourcing but I've been doing it all my life. It's very effective.

No one will ever care as much about your money as you.

Some specific things I haven't seen mentioned (or not mentioned much):

• learn about dividend investing. It's pretty good if you can tolerate some risk. Might be difficult to find investment opportunities if you have very strict morals though. http://www.dripinvesting.org/boards/boards.asp
• rental properties are also an asset that produces income. If you got that route, be cautious about tenants and trust your instincts.
• I believe you can escape the IRS completely by renouncing citizenship. Not sure about this, but it might save you taxes long term. OR (and it's a big OR) if you never come back to the US you can ignore the IRS. BUT, the US is a lot of places you don't expect, embassies world wide, armed forces bases, stop overs in the US between foreign end points. Be very very cautious here.

Answer 21

Since you mentioned moving, you can buy real state very cheap here in Mexico that will give you income monthly. I will tell you some numbers in case you're interested.

• You can buy a very nice home for yourself for about $110k.
• A new car, something average let's say a Jetta Mk 2018 for $14k.
• You would spend about $500 monthly for everything else (food, services, gas, bills, clothing, all of that).

Now to investments: you can buy houses for rent, and prices are as follows:
Average house $25k which will give about $220 monthly of income. Let's say you buy 20 of these that would be $4400 USD monthly. Now you have a very high standard here and you will never have to work again, and each year the income will increase about 2% and you still have $576k left.

Answer 22

Buy a land and build a house. Then plant wine trees. Hire people after like 5 years and start to do and sell wine. A beautiful business :-) A second opation is to buy a houses in a city and rent rooms.

Answer 23

That's what I would do; 1.2 million dollars is a lot of money, but it doesn't make you retired for the rest of your life:

There is a big crisis coming soon (my personal prediction) in the next 10-15 years, and when this happens: government will hold your money if you leave them in the bank (allowing you to use just part of it; you will have to prove the reason you need it), government will pass bills to make it very hard to close your investment positions, and government will pass new laws to create new taxes for people with a lot of money (you).

To have SOME level of security I would separate my investment in the following:

20% I would buy gold certificates and the real thing (I would put the gold in a safe(s)).

20% I would put in bitcoin (you would have to really study this if you are new to crypto currency in order to be safe).

40% I would invest in regular finance products (bonds, stocks and options, FX).

20% I would keep in the bank for life expenses, specially if you don't want work for money any more.

20% I would invest in startup companies exchanging high risk hoping for a great return.

Those percentages might change a little depending how good/confident you become after investing, knowing about business, etc...