You've taken care of your own retirement and then some. Now, what about your kids?
As a personal finance writer, I mainly focus on how people can save enough for retirement, and then safely spend down their nest egg after they've stopped working. That's the top priority for most seniors.
But a fair number of newly minted retirees have a different problem. They have more money sitting in their 401(k)s, 403(b)s, or other tax-deferred accounts than they'll ever spend in their lifetimes. Their goal is passing on as much they can to their heirs.
Barron's asked three longtime market observers this question: Suppose you are 65 old with $1 million sitting in a tax-free Roth account that won't be touched for 30 years -- no matter what. How would you invest it to maximize the amount that goes to your kids?
One recommended a blend of four U.S. and foreign funds. Another suggested putting all the money in a single fund that tracks the global stock market. And the third concentrated on low-liquidity investments, including infrastructure and real estate funds.
That we specified a Roth account really matters. Roths are funded with after-tax dollars, but any gains are tax-free. And they are one of the best ways to pass on wealth.
Brokerage accounts are almost as good. If you hold on to your investments, your heirs will get a huge tax break called a step-up basis when you die. It allows allow them to dodge the capital-gains tax on those investments during your lifetime.
Unless you are planning to leave your money to charity, which will owe no tax, you'll do your kids a solid by spending down your 401(k)s and other tax-deferred accounts yourself and passing on your brokerage and Roth accounts.
Money they inherit in tax-deferred accounts will eventually be taxed as ordinary income, which can result in monster tax bills if they are already high-earners.
Enough on taxes. Here's how to invest that $1 million so it will grow mightily:
Do It With a Single Fund
Financial author and money manager William Bernstein, author of The Four Pillars of Investing: Lessons for Building a Winning Portfolio, keeps it simple.
Put the entire $1 million in a global index fund like the Vanguard Total World exchanged-traded fund or the State Street SPDR Portfolio MSCI Global Stock Market ETF.
Consider the Vanguard ETF. It has 64.9% of its assets in North America, 10% in emerging markets, 13.7% in Europe, 11.1% in the Pacific region, and 0.3% in the Middle East. That makes it a comfortable holding for Americans who wants most of their money in U.S. assets but enough overseas holdings for balance. Its yearly expense fee is just 0.06%.
Would a more complex portfolio do better than the global stock fund over 30 years? Maybe. A portfolio with more of "a value tilt" could outperform a global fund, but the odds aren't much better than 50-50 that it actually will, Bernstein says. And it will take more work on your part. "It gets complicated fast," he says
For those who can deal with complexity, Bernstein suggests adding the following to your portfolio: Avantis U.S. Small Cap Value ETF or Dimensional US Small Cap Value ETF for U.S. value; Avantis International Small-Cap Value ETF for developed country value. And he suggests dividing your emerging market holdings between Avantis Emerging Markets Value ETF and Dimensional Emerging Markets Value ETF.
"How much tilt you add in is a matter of taste and risk tolerance -- up to perhaps one-third of the overall stock allocation," Bernstein says.
Do It With Four Funds
Harold Evensky, a retired financial advisor, pioneered the bucket approach to keep investors calm in turbulent markets.
Like Bernstein, he believes the best approach for the $1 million are global equity holdings. But he prefers to do it with four funds and regular rebalancing.
Bernstein would put 40% in domestic large-caps, specifically iShares Core S&P 500; 20% in domestic small-caps, iShares Core S&P Small-Cap ETF; 25% in foreign large-caps through the iShares MSCI EAFE ETF; and 15% in emerging markets with the iShares MSCI Emerging Markets ETF.
While this is the portfolio that should perform the best over time, Evensky, who made his reputation by understanding investor psychology, thinks most investors would sleep easier if they kept 10% in cash. They also could use that cash to buy stocks during market downturns.
Do It With a Blend
All the equity investments in this article so far are quite liquid. You can buy and sell them in seconds. Larry Swedroe, who helps wealth advisors with investment strategies and is a Substack writer, suggests a portfolio that blends equities and illiquid investments -- including funds where it may take years to get all your money out.
Swedroe says you can get equivalent performance to equities with less volatility through diversified illiquid investments that are either uncorrelated or have low correlations to each other.
"If you're owning an illiquid asset, you should get paid for it with higher expected returns," says Swedroe, who says a "slight majority" of his personal investments are in illiquid assets.
Swedroe would invest a sixth of the illiquid portion into each of the following: AQR Style Premia Alternative Fund; Hamilton Lane Private Infrastructure Fund Class I Shares; Stone Ridge Reinsurance Risk Premium Interval Fund; and Cascade Private Capital Fund.
He would invest a twelfth into each of the following: Cliffwater Corporate Lending Fund; Cliffwater Enhanced Lending Fund; J.P. Morgan Real Estate Income Trust; and the Blackstone Real Estate Income Trust.
How about the portion still being invested in equities? There, Swedroe recommends two value-focused funds that Bernstein also recommended: Avantis U.S. Small Cap Value ETF and Avantis International Small Cap Value ETF.
Put your feet up and tell the kids to start counting their money.
Write to Neal Templin at neal.templin@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 18, 2026 01:30 ET (05:30 GMT)
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