||Ask Dr. Don
Editor's note: In April 2006, FDIC deposit insurance
coverage on retirement accounts held at banking
institutions was raised from $100,000 to $250,000.
Non-retirement account FDIC deposit insurance coverage
remains at $100,000.
Managing a multimillion-dollar
Dear Dr. Don,
I'm going to inherit $8 million in the next few months. The attorneys
are getting things together. My questions are about how I should
manage this money. The money will be transferred into my bank account,
but my bank only insures $200,000 in deposits. I can't open 20 accounts!
How should I handle the money so that I can still have a comfortable
life style and invest in opening some businesses? (Like owning my
Is it easy to transfer money to foreign banks? How
do the millionaires do it?
I'm always at a loss for words when I hear about someone getting
an inheritance because I recognize that an inheritance usually comes
at a steep price, the loss of a loved one. If that's true for you,
I'm sorry for your loss.
You're right in thinking that you don't want to open
dozens of bank accounts to have all your deposits backed by FDIC
U.S. Treasury securities are backed by the full faith
and credit of the federal government as to the payment of principal
and interest. (You can, of course, lose money by investing in Treasury
securities if interest rates move against you and you sell your
position at a loss.) But a short-term portfolio of Treasury bills
held in a brokerage account can keep your wealth safe for a few
months while you sort things out.
Brokerage firms that carry SIPC insurance protect
eligible investors in failed brokerage firms for up to $500,000
in securities but not more than $100,000 in cash claims. It's important
to recognize that SIPC insurance doesn't protect investors against
fraud or poor investment choices. The SIPC
estimates that more than 99 percent of eligible investors have been
made whole in the failed brokerage firm cases that it has handled
Don't rush into business ventures or offshore investing.
Concentrate instead on finding people you trust to advise you. At
a minimum you want an accountant, a lawyer and an investment professional
paying attention to your financial needs.
Interview people from at least three different firms
for each post. Get comfortable with what they can do for you and
how they will be compensated for their work. There are plenty of
horror stories about how wealthy people have been talked into making
poor investments or have been fleeced by advisers. Do a little legwork
to improve the odds that your name doesn't make that list.
If you understand how your money is invested, where
your investments are held and the risk level of both the individual
investment and how it effects the risk level of your overall portfolio,
that's a great start.
Wealth can give you the luxury of having your money
work for you vs. you working for money, but don't make your money
work harder than it has to in achieving your financial goals. That
often means you're taking on unnecessary risk in your portfolio.
-- Posted: April 25, 2002