Your Grandmother Just Won The Lottery

[MediumTex]

She has $1 million in after-tax winnings.

She asks you what to do with it.

What do you tell her?

Assume she has no debts.

***

I would tell her to set up a traditional PP with 90% of the money, put the other 10% into PRPFX and scale into the whole allocation over a six month period.

I would not tell her to scale in as a market timing exercise, but rather as a way of getting acclimated to the portfolio.

So long as ibond fixed rates were greater than 0% I would have her max out those purchases for the cash piece each year.

On the gold front, I would have her buy bullion, along with some GTU shares, and have her do the paperwork to get capital gains treatment on any gains down the road.

[Wonk]

She has $1 million in after-tax winnings.

She asks you what to do with it.

What do you tell her?

Assume she has no debts.

***

I would tell her to set up a traditional PP with 90% of the money, put the other 10% into PRPFX and scale into the whole allocation over a six month period.

I would not tell her to scale in as a market timing exercise, but rather as a way of getting acclimated to the portfolio.

So long as ibond fixed rates were greater than 0% I would have her max out those purchases for the cash piece each year.

On the gold front, I would have her buy bullion, along with some GTU shares, and have her do the paperwork to get capital gains treatment on any gains down the road.

I tell her that I'm the grandchild that loved her the most and that all the other grandchildren say mean things about her when she's not around.  I tell her she needs to update her will while I hand her a nice bouquet of fresh flowers...

[MarySB]

I think Wonk has the right idea 

[smurff]

I'm assuming that the $1 million just fell into her lap from the lottery sky and that Grandma has enough to live on from work, pensions, retirement savings, 401ks, IRAs, etc. and she has fulfilled any immediate needs that the lottery funds can pay for--like a complete remodel of the kitchen or a new car.  I'm also assuming that she does not have to provide any major support to disabled children, grandchildren, parents, siblings.

I'm also assuming that she does not have the kind of personality where she has impulses to blow thousands of dollars at a time on trivia.  I'm also assuming that she has asked for the advice, and tends to seriously consider advice she has asked for if it is reasonable.  If she is married to Grandpa and he is still alive, the advice and future plans will take him into consideration, if the lottery winnings are marital property.  (If she's been shacking with Grandpa without being legally married, and he suddenly wants to get hitched, I would recommend that she take her time and follow all the advice before making a decision about whether to get married.)

After sweet talking her about our (her grandkids') love for her, and telling her to put the $ into the Permanent Portfolio (HB PP and PRPFX), I'd have her set up a trust and put most, if not all, of the PP within the trust.  (I don't know whether it should be revocable or irrevocable, but she should get an competent expert to advise her and set it up correctly the first time.) 

She should then let the PP grow and manage it from within the trust, where it will be relatively safe from the relatives and friends who may wear her out and whittle the money down by begging a little bit here, a little bit there.  Or who might manage to figure out a way to declare her incompetent just to get their greedy hands on the moolah.  It can even be a special purpose trust (medical needs trust, spendthrift trust, charitable remainder trust, education trust, etc.) depending on Grandma's situation, hopes, and dreams.  But she (and Grandpa, if he's still alive) should give some thought to who she wants the trustees and beneficiaries to be, now and after she is gone.

Large sums of money have a way of bringing out the craziness, insanity, and subterranean dysfunction in families, especially windfalls where the term "million" is used to describe the amount.

[Lone Wolf]

I'd start by explaining to her what I do.  (Spoiler alert: I use the Harry Browne Permanent Portfolio.)  I'd go over the concept with her and if she was interested, give her a copy of Fail-Safe Investing.

If she was interested and convinced, I'd see whether she was comfortable with some slight management or whether she would prefer a turn-key solution.  If she wasn't afraid of an annual rebalance (or a rebalance via bands), I'd walk her through setting up a traditional PP and offer my assistance for when rebalance times rolled around.  If she wanted it to just take care of itself, I'd probably just recommend PRPFX as a decent substitute (a likely outcome.)

If she was at all unsure about the PP concept, I would simply suggest something very safe that she believed in.  It would probably be some combination of a CD ladder (staying under FDIC limit), savings bonds, and treasury bonds.  Basically, something that we both believed would at least preserve purchasing power and free her from worrying about money.

I would tell her to set up a traditional PP with 90% of the money, put the other 10% into PRPFX and scale into the whole allocation over a six month period.

I was curious what the idea would be behind going with 10% PRPFX in this situation.  I like PRPFX for the simplicity but other than that I'm not sure what it gives you that the traditional allocation does not.

Also, the fact that you have your grandma filling out the tax paperwork for GTU makes me feel like a big weenie for not considering this option for my own gold holdings.