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!
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.
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.
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.