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Safely invest a $500 million inheritance

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Dear Dr. Don,
I was recently informed that I could inherit a large sum of money. I am not wealthy now and am inexperienced in such matters. The sum could be as much as $500 million.

Obviously, I’m feeling overwhelmed. I have done some research online and see Federal Deposit Insurance Corp. insurance covers amounts of up to $250,000. Being limited to this amount of coverage worries me. I realize I can open many accounts but this would be very burdensome. I’m seeking your advice as to where to park this money. I realize I will need more time to consider the long-term plan for the inheritance. Do you have any recommendations?

Thank you graciously,
— James Jump-start

Dear James,
I hope you actually see this inheritance and are able to manage your newfound wealth and to find a trusted adviser to help you manage such wealth. Your focus on FDIC-insured deposits is understandable. You don’t want to lose the money because of fraud or poor bank management.

The Dodd-Frank Act provided temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts, but that provision expired Dec. 31, 2012. Other options such as the Certificate of Deposit Account Registry Service and the Insured Cash Sweep can allow you to have FDIC insurance covering tens of millions of dollars with just one or two banking relationships. It wouldn’t cover all of this inheritance, but it’s a start. These services divide your money among banks in its network in amounts below the FDIC insurance limit. This provides you with insurance coverage on the deposit while you just deal with the one bank where you made the initial deposit.

If you want a full faith and credit guarantee on half a billion dollars, then I’d suggest a portfolio of marketable short-term U.S. Treasury securities. While the security prices will fluctuate over time, you’ll have the face value of the security when it matures. Noncompetitive bidding on these securities is limited to $5 million per auction, but there were 264 such public auctions of securities in 2012, for example. Competitive bidding through a bank or brokerage is limited to 35 percent of the total security offering.

The last two-year Treasury note auction was held April 23, and the Treasury sold more than $35 billion in just one auction. One potential problem involves where the account is held. The Securities Investor Protection Corp. provides limited coverage against a failed or bankrupt brokerage firm. But the coverage is not nearly enough for the $500 million you hope to invest. If I were in your shoes, I’d take a hard look at a Treasury Direct account as a short-term solution as a place to park the money.

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