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Inheritance poses investment possibilities and puzzles

The arrival of inheritance money created lots of options and even more questions. Danny Marcus, 60, wasn’t sure whether to pay down debt, save for retirement, or buy property in Florida.Barry Chin/Globe Staff

When his father died last summer, editor and tax preparer Danny Marcus found himself faced with an unexpected problem: figuring out what to do with his inheritance.

Marcus, 60, was both thrilled and overwhelmed by the possibilities. Should he pay off the mortgage? Buy a condo in Florida? Save more for his retirement? And if he decided to invest it, where should the money go?

Rather than try to puzzle out answers on his own, the Marblehead resident decided he needed professional help. So he applied for a Boston Globe money makeover, saying the $76,000 inheritance “is more money than I’ve ever gotten at one time in my whole life.’’


Sitting down with fee-only financial planner Bob Ryan of Resolute Financial in Wakefield, Marcus proposed using some of his inheritance to pay down debt. Marcus is 50 percent owner of a Marblehead condo, purchased in 1995. He and his real-estate partner have an $89,000 mortgage on the condo and have borrowed an additional $75,000 on a home equity line of credit. Marcus figured that he could pay off the amount he had borrowed on that home equity line - about $7,000-and have one less thing to worry about.

But Ryan said paying off that loan would provide little benefit since both borrowers are responsible for any outstanding loan balance. “Your co-owner could start writing checks again,’’ he said, noting that Marcus might then find himself responsible for that debt as well.

Ryan was nearly as skeptical of Marcus’s idea to buy a condo in Florida and rent it until ready to move there in the future. With the Florida real estate market deeply depressed, Ryan agreed that “buying now could be the investment opportunity of a lifetime.’’ But he said current market conditions carry significant risks that Marcus needs to research.


“Who are you going to rent to? What are the utility costs? What about real estate taxes? Who are the other folks who are living there? Are any of them close to foreclosure?’’ Ryan asked, noting that the overall financial health of neighbors could affect property values.

Until Marcus has good answers, Ryan suggested he consider renting in Florida before committing to any particular property. Indeed, Ryan said, Marcus should take his time before making any significant decisions. “Don’t be in a hurry,’’ Ryan said, noting that cash remains a good option in today’s volatile financial markets.

Instead, he recommended starting with some financial-planning basics, such as creating an emergency fund to cover unexpected expenses such as home repairs, auto problems, or increases in medical insurance. He recommended that Marcus keep between $10,000 and $15,000 in laddered certificates of deposit. The simplest approach: splitting the funds between three-month and six-month CDs and then buying more six-month CDs as the investments mature.

Ryan suggested investing the remaining money conservatively, putting 30 percent into stocks and 70 percent into fixed income investments such as bonds. “That may not be aggressive enough, but it seems to be where you are comfortable,’’ he told Marcus.

In addition, he recommended that Marcus use his windfall to diversify his portfolio, which was split between two fixed-income deferred annuities with a guaranteed annual return of 4.5 percent and mutual funds concentrated in large US company stock. When Marcus decides to tap his annuities, he can take out some or all of the money or convert them to a guaranteed stream of income.


“While smaller companies and international equities have fared poorly recently, they would add an additional dimension to your expected returns over time,’’ Ryan said. He recommended that Marcus put some of his remaining inheritance into short-term bonds and a fund that invests in mortgaged-backed securities guaranteed by the Government National Mortgage Association, known as Ginnie Mae.

The rest, he said, should be divided among four low-cost mutual funds that invest in international, small company, and emerging market stocks.

The makeover left Marcus with a lot to consider. In his professional life as an editor and proofreader, Marcus is asked to proofread financial profiles provided by investment companies to clients. “Now I am seeing it, and it is a picture of me,’’ he said of the pie charts and bar graphs used to depict his portfolio.

Marcus was surprised by his net worth, which totals nearly $220,000 in non-real estate assets. “I had no idea,’’ he said. “I don’t think I have ever added up the numbers.’’ When it comes time to start moving money, added Marcus, he’d appreciate some guidance on exactly how much to put into each fund.

Marcus said he planned to review the details with his brother before making any decisions. Once he does, Ryan and his fellow planner Chuck Johnson said they would be happy to help him invest his inheritance.

To be considered for a Money Makeover, fill out the application at the “Your Money’’ section of boston.com/business, or call 617-929-2916.