It’s a nice feeling to discover you have a trust fund your parents may have set up to help give you a nice boost later in life. This fortunate individual who recently took to the r/personalfinance subreddit wonders if they should take the money from their $300,000 investment trust or let it stay invested in stocks. Indeed, stocks are among the best wealth-creating assets out there.
But if one has a need for the funds (think a down payment on a home, education expenses, or something else that’s urgent), it can make sense to cash out the portfolio while the stock market is still close to all-time highs. Indeed, valuations may be stretched, with limited potential returns over the next decade, at least according to some of the more bearish skeptics out there.
However, the reality is that we really do not know what type of returns we can expect from stocks in the next 10 years. It’s impossible to know, given a wide range of positives (tailwinds), negatives (headwinds or crises), and everything in between will move markets in ways we won’t be able to foresee.
In any case, I think if one doesn’t need the money now, not touching an investment trust is the best move. That said, I still believe it’s a good move to get more involved.
So, you’ve got a six-figure trust! It’s time to take a peek behind the curtain.
That means finding out who exactly is running the trust, what they’re buying, and the types of fees they’re charging. The last thing you want is for a fund to be run by someone who’s taking too much or too little risk while charging you a small fortune in fees (think 3% or more of assets managed in any given year) for their services.
Additionally, it can be a smart idea to take a step back and determine how one’s trust fits into the overall portfolio. If one already has a sizeable chunk of their net worth in stocks, it can make sense to cash out some or even all of a trust. Of course, do know that “cashing out” could entail significant tax burdens. That’s why it’s vital to contact a tax pro on the matter to ensure you’re making the right move.
Also, some trusts can have rather complicated structures. That’s why it’s also worth reaching out to a financial advisor who can better understand and explain your options in common terms.
Ask who set up the trust for their advice!
If you don’t need immediate access to the funds but are wondering about your options, asking the intent of whoever set up the trust is a wise move. Undoubtedly, the parents of many children have likely set up a trust fund structure to ensure a prosperous financial future.
That said, having a trust with limited access may also entail that it may not have the financial literacy or responsibility required to manage the funds. Undoubtedly, it’s always a good idea to educate and inform children so that they know how to manage money coming their way rather than setting up a structure that’s limiting.
In any case, running some ideas (taking the cash, investing in alternatives, investing in oneself) by one’s parents (assuming they started the trust fund) seems like a wise first step for those who aren’t quite sure what to do with the windfall they’re about to fall upon!
The bottom line
It’s exciting news to learn you’ve got big money in a trust fund that’s growing while you sleep. That said, one should improve upon their financial literacy and contact financial pros before committing to making a move, especially if one isn’t all too familiar with how money (budgeting, saving, investing) works.
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