Portfolio management for heirs

[SharperDingaan]

 

The reality is that the heirs interest is in spending the money, not making it.

 

For most people the practical solution for each heir is a deferred life time annuity. The money essentially comes to them as an old-age pension, & it does not corrupt how they choose to live until their old age. Because of the deferral, you also need materially fewer $ to reach a given level of payout.

 

The philosophical questions are how much is too much, & what to do with any excess.

There's a lot to be said for simply investing it entirely in the shares of a microbank (ie:Garmin), & placing the shares in a pepetual trust in the expectation of an eventual total loss. The $ do a lot of good, & the trust eventually dies a natural death.

 

SD 

[ericd1]

OEC - For me the money represented an opportunity to improve my life-long financial situation and I wanted to take advantage of it. I was motivated enough to earn an engineering degree and MBA, which helped my business career. I learned to appreciate the benefits of the income and knew the down-side to spending the principal. Unfortunately my sister didn't have the same appreciation.

 

I don't believe the money will deter my heirs from employment, or ambition. Hopefully I have been successful in passing along the value of not invading principal. They have seem real life examples of both strategies and I hope they understand. However, things can always change.

 

Sharp - You are right about the philosophical questions...I also hope I've passed along the concept of helping others.

 

I didn't think perpetual trusts were legal...but it's an interesting idea.

 

 

 

 

 

 

 

[mvalue]

That isn't the problem, our heirs (kids) do a good job of managing their money.  They just aren't interested in reading 10-K's etc.  They have other interests and do well in their chosen fields.

I had hoped Fairholme was the one and purchased some in October 2007 and even with reinvested dividends it is down about 7%.

Any suggestions.

 

Without addressing whether Fairholme in particular is a good fit here or a good choice in general going forward, this kind of performance (-7% since Oct 07) relative to the S&P is far and away better than you can possibly expect from a relatively static plan for heirs. A minimal-effort absolute performance strategy is not so realistic, unless you happen to go all-in with one of the best investors of the coming decades, before the fact. If you pick out one or several good managers (be it via mutual funds or otherwise), the best you should really hope or plan for is net relative performance a few percentage points better than the S&P - and that's with the right picks for managers. That may not bring the same riches it has over the past several decades, but it should produce results that are just fine, all the same.

[ericd1]

I had an discussion with my Fidelity contact today. Their trust services are limited to management and co-management of assets through Fidelity funds. They won't hold individual stocks in a trust account. I haven't called Vanguard yet, but I would presume it would be the same (using their funds).

 

I have more research to do!

[bargainman]

I like Bruce B. a lot.. I have money in his fund.  But here's the thing.  He's got 15.21 Billion in FAIRX (according to yahoo).  You said this fund is for your heirs.  Bruce is also in his 50s.  Say he does 10% a year, that's a double every 7 years (rule of 72).  Based on that performance alone he'll be up at 30 billion in 7 years, and 60 billion in 14 years, and 120 billion in 21 years.  Now in 21 years 120 billion won't be as much as it is today, but still...  Plus.. He hasn't closed his fund yet!  Plus he'll be in his mid 70s by then, and then what's his succession plan?  If this money is for your heirs, this fund is definitely not the only place I'd put the money..  I think you'd have to diversify it in several places.  You basically have the problem Warren Buffett has of wanting to watch over the money posthumously.  :-)