I received an inheritance. Now what?
February 11, 2009 10:37 AM Subscribe
I just received an inheritance. I want to figure out how to invest it, but I'm new to investing - and can't make sense out of this economy.
One of my family members passed away last month and left me a fairly substantial inheritance of around ~$25k. I've been spending the past few weeks mourning and now am trying to figure out where I go from here.
I'm 29 and left the corporate world last year to return to graduate school. I was making a decent salary before I left the workplace and have some savings to fall back on... What I want to figure out now is how to make as much return as possible so that I'll have a cushion when I graduate next year.
Everywhere I look, I see interest rates on CDs declining, stock prices plummeting and similar nonsense all around. While I have found plenty of advice around the internet on how to invest, all of it was written before the market went to hell.
So, MeFites... suggestions for short-term investment during a recession?
One of my family members passed away last month and left me a fairly substantial inheritance of around ~$25k. I've been spending the past few weeks mourning and now am trying to figure out where I go from here.
I'm 29 and left the corporate world last year to return to graduate school. I was making a decent salary before I left the workplace and have some savings to fall back on... What I want to figure out now is how to make as much return as possible so that I'll have a cushion when I graduate next year.
Everywhere I look, I see interest rates on CDs declining, stock prices plummeting and similar nonsense all around. While I have found plenty of advice around the internet on how to invest, all of it was written before the market went to hell.
So, MeFites... suggestions for short-term investment during a recession?
You didn't mention your level of risk tolerance, but the standard rule for short-term investing is that you probably want to put it in something boring and safe--online savings account, 1 year CD, that kind of thing. Recession notwithstanding, it's still decent advice. You won't get the kind of interest rate you would have a few years ago, but that's the economy for you.
posted by phoenixy at 10:54 AM on February 11, 2009
posted by phoenixy at 10:54 AM on February 11, 2009
While I have found plenty of advice around the internet on how to invest, all of it was written before the market went to hell.
Most of it still applies. Although obviously the current environment is unique on a very detailed level, on a broader level it shares many of the same qualities as previous economic downturns, so this isn't completely uncharted territory.
What I want to figure out now is how to make as much return as possible so that I'll have a cushion when I graduate next year.
One year is not a very long time to invest at all. The stock market doesn't usually average more than a 10% yearly gain most of the time, and stock market returns are volatile enough that counting on any kind of return in any one year would be foolish. You're going to have a hard time finding a better safe investment than a CD or a high interest savings account.
He figures land and gold will maintain or outpace T-Bills bonds or stocks for the near term.
I would suggest not doing this. Gold prices are difficult to predict, and buying land has a lot of costs that make it a poor short-term investment. Buying either would be speculation, rather than investment, and as a novice investor you don't have any particular insight that would allow you to outsmart the market. Buying a CD might be a boring way to make $500, but buying gold could be an exciting way to lose $5000.
posted by burnmp3s at 11:04 AM on February 11, 2009 [1 favorite]
Most of it still applies. Although obviously the current environment is unique on a very detailed level, on a broader level it shares many of the same qualities as previous economic downturns, so this isn't completely uncharted territory.
What I want to figure out now is how to make as much return as possible so that I'll have a cushion when I graduate next year.
One year is not a very long time to invest at all. The stock market doesn't usually average more than a 10% yearly gain most of the time, and stock market returns are volatile enough that counting on any kind of return in any one year would be foolish. You're going to have a hard time finding a better safe investment than a CD or a high interest savings account.
He figures land and gold will maintain or outpace T-Bills bonds or stocks for the near term.
I would suggest not doing this. Gold prices are difficult to predict, and buying land has a lot of costs that make it a poor short-term investment. Buying either would be speculation, rather than investment, and as a novice investor you don't have any particular insight that would allow you to outsmart the market. Buying a CD might be a boring way to make $500, but buying gold could be an exciting way to lose $5000.
posted by burnmp3s at 11:04 AM on February 11, 2009 [1 favorite]
When I got an inheritance, the first thing I did was make the maximum Roth IRA contributions for both the current year and the next. The second thing I did was going to the Apple Store, and buying a new Mac :) Then, I put the rest in a year long CD.
posted by spinifex23 at 11:08 AM on February 11, 2009 [1 favorite]
posted by spinifex23 at 11:08 AM on February 11, 2009 [1 favorite]
My mom recently helped me put a chunk of money into an IRA and the rest into the best CD she could find, which was an 11-month CD at a lesser-known bank. Her advice would be to shop around a little for better rates.
posted by dreamyshade at 11:14 AM on February 11, 2009
posted by dreamyshade at 11:14 AM on February 11, 2009
Her advice would be to shop around a little for better rates.
The Bank Deals blog is very useful for doing this.
posted by burnmp3s at 11:17 AM on February 11, 2009
The Bank Deals blog is very useful for doing this.
posted by burnmp3s at 11:17 AM on February 11, 2009
1. You have a lot of leverage because you have what everyone wants right now: cash. Get a real good price for a real good car, and anything else you'll need in the next few years. Push hard for prices that are absurdly good, and if you don't get it, go somewhere else. Someone will be desperate enough to make it work. And if they aren't this month, then they will be next month, or the one after that.
(Seriously--absurdly good.)
2. I'm sympathetic to the POV in Kensational's post. If you had more money, I'd recommend getting a home you can rent out to cover the mortgage. That means a good location--near a college that you know won't fold, for example. If you can swing it, be selective, take care of the property, and long-term, you'll be golden. I think prices will decline A LOT in real estate, so next year might be a better time to buy than now. But I'm also an idiot who lost half his 401k.
3. Gold and silver, etc., are volatile. If you invest part in precious metals, be sure you're comfortable with not getting a good return (or ultimately losing some), and don't put all your eggs in one basket. But it's totally awesome to have gold or silver coins laying around, and I couldn't see it being a bad thing to put a thousand there just in case.
4. Perhaps because I'm bitter and jaded, the only safe place to put your money with a real return would be a high-interest savings account, and not any stock or bond. Be mentally prepared for the US to turn into Argentina and your bank account to evaporate in spite of all guarantees otherwise. Then when things don't turn that bad, you'll be pleasantly surprised and still have all of your principal when you graduate next year.
5. Listen to what other people say, because they probably know better than I do.
posted by Number Used Once at 11:20 AM on February 11, 2009 [2 favorites]
(Seriously--absurdly good.)
2. I'm sympathetic to the POV in Kensational's post. If you had more money, I'd recommend getting a home you can rent out to cover the mortgage. That means a good location--near a college that you know won't fold, for example. If you can swing it, be selective, take care of the property, and long-term, you'll be golden. I think prices will decline A LOT in real estate, so next year might be a better time to buy than now. But I'm also an idiot who lost half his 401k.
3. Gold and silver, etc., are volatile. If you invest part in precious metals, be sure you're comfortable with not getting a good return (or ultimately losing some), and don't put all your eggs in one basket. But it's totally awesome to have gold or silver coins laying around, and I couldn't see it being a bad thing to put a thousand there just in case.
4. Perhaps because I'm bitter and jaded, the only safe place to put your money with a real return would be a high-interest savings account, and not any stock or bond. Be mentally prepared for the US to turn into Argentina and your bank account to evaporate in spite of all guarantees otherwise. Then when things don't turn that bad, you'll be pleasantly surprised and still have all of your principal when you graduate next year.
5. Listen to what other people say, because they probably know better than I do.
posted by Number Used Once at 11:20 AM on February 11, 2009 [2 favorites]
1) Pay off all debt.
2) Maximize Roth contribution (and make sure the Roth $$ in invested in something sensible. My credit union automatically puts Roth $$ into a 2% account, which is garbage).
3) Put the rest in a good CD for a year or 2, until you decide exactly what you want. You may decide to go to school or something, and that money will be useful.
Personally, I'm all about dumping $$ in an S&P index fund right now, while the market is ridiculously low. Others will disagree.
And you should take this opportunity to educate yourself on economic matters so that you won't ever have to ask a bunch of online schmucks for money advice again :-)
posted by coolguymichael at 11:28 AM on February 11, 2009 [1 favorite]
2) Maximize Roth contribution (and make sure the Roth $$ in invested in something sensible. My credit union automatically puts Roth $$ into a 2% account, which is garbage).
3) Put the rest in a good CD for a year or 2, until you decide exactly what you want. You may decide to go to school or something, and that money will be useful.
Personally, I'm all about dumping $$ in an S&P index fund right now, while the market is ridiculously low. Others will disagree.
And you should take this opportunity to educate yourself on economic matters so that you won't ever have to ask a bunch of online schmucks for money advice again :-)
posted by coolguymichael at 11:28 AM on February 11, 2009 [1 favorite]
Good advices above!
I'm all about dumping $$ in an S&P index fund right now, while the market is ridiculously low. Others will disagree.
If you're that bullish, there's always the leveraged bull ETFs like SSO.
Somewhat confusingly, the deadline for IRA contributions for the 2008 tax year is April 15th.
So that could be $10000 off the top, depending on your income this year (contributions are limited to wage income).
fwiw, I recently put my 2008 IRA contribution into BAC preferred L which is currently yielding 18%.
But this is hella risky since this preferred is non-cumulative, meaning BofA can skip an dividend payment should it so choose or be required to (the common dividends just got wiped out to 0.01/qtr by government demand). Plus there's a non-zero chance BAC will be following FRE and FNM into the growing circle of fail that is the global financial system.
posted by troy at 12:01 PM on February 11, 2009
I'm all about dumping $$ in an S&P index fund right now, while the market is ridiculously low. Others will disagree.
If you're that bullish, there's always the leveraged bull ETFs like SSO.
Somewhat confusingly, the deadline for IRA contributions for the 2008 tax year is April 15th.
So that could be $10000 off the top, depending on your income this year (contributions are limited to wage income).
fwiw, I recently put my 2008 IRA contribution into BAC preferred L which is currently yielding 18%.
But this is hella risky since this preferred is non-cumulative, meaning BofA can skip an dividend payment should it so choose or be required to (the common dividends just got wiped out to 0.01/qtr by government demand). Plus there's a non-zero chance BAC will be following FRE and FNM into the growing circle of fail that is the global financial system.
posted by troy at 12:01 PM on February 11, 2009
I agree with the advice that you should by any durable goods that you'll be wanting within the next few years, used, for a song. Take stuff off the hands of people who bought a car or laptop they can no longer afford. Pay off debts, obviously, if you've got them. Then, if it were me, I'd dump what I could into an IRA, take about 1/4 of what's left and put it into an index fund, and lock the rest up in something safe and boring like a CD or money market savings account at ING or the like.
posted by craven_morhead at 1:33 PM on February 11, 2009
posted by craven_morhead at 1:33 PM on February 11, 2009
Most of the advice above is garbage. Don't buy gold.
The safest thing is to put your money in an insured interest paying savings account at your local bank. Or if you want to make a bit more money, in a well established safe money market fund like the Vanguard Federal Money Market fund. You'll only make about 2%. But you've specified a short term for investment and low risk tolerance which, unfortunately, means you're not in a good position to earn a high return.
posted by Nelson at 1:47 PM on February 11, 2009
The safest thing is to put your money in an insured interest paying savings account at your local bank. Or if you want to make a bit more money, in a well established safe money market fund like the Vanguard Federal Money Market fund. You'll only make about 2%. But you've specified a short term for investment and low risk tolerance which, unfortunately, means you're not in a good position to earn a high return.
posted by Nelson at 1:47 PM on February 11, 2009
For short term cash needs (less than 1 year or so) the traditional advice still holds: be conservative with it. High yield money market account (if you think you may need to dip into it) or CD.
posted by jcmilton at 1:56 PM on February 11, 2009
posted by jcmilton at 1:56 PM on February 11, 2009
nthing the "Pay off Debt" if you have any. Keep 6 months of cash on hand for an emergency (which it sounds like you already have).
Do you own a house? Put it there.
If you plan on making any major purchases in the next five years (house? down payment?), put the money in a safe place.
Otherwise, spread it across some mutual funds, including international, growth, agressive growth, growth and income. Pick funds with long history of good performance. Talk to a financial advisor about which ones are right for you. Pick a financial advisor that isn't an insurance salesman.
Most of the above info comes from Dave Ramsey, who's principles and no-BS have helped me through a lot of crap.
http://www.daveramsey.com/etc/cms/index.cfm?intContentID=4635
posted by bensherman at 2:12 PM on February 11, 2009
Do you own a house? Put it there.
If you plan on making any major purchases in the next five years (house? down payment?), put the money in a safe place.
Otherwise, spread it across some mutual funds, including international, growth, agressive growth, growth and income. Pick funds with long history of good performance. Talk to a financial advisor about which ones are right for you. Pick a financial advisor that isn't an insurance salesman.
Most of the above info comes from Dave Ramsey, who's principles and no-BS have helped me through a lot of crap.
http://www.daveramsey.com/etc/cms/index.cfm?intContentID=4635
posted by bensherman at 2:12 PM on February 11, 2009
The single most important factor, which I think some folks above may have missed, is your time frame.
Do you want access to ALL of this money in a year? If so, I don't think you have many choices other than a CD.
If part of that is money you won't need for 10 or 20 years, then fine - an index fund could be an excellent choice, or good real estate if you feel like putting in the time and money to be a landlord, or even gold (not my thing, but whatever).
But anything you want access to in less than two years shouldn't go into anything that risky. If you'd like to be able to live off that money next year, keep it relatively liquid, and put it in something with guaranteed short-term return, like a CD.
posted by kristi at 1:14 PM on February 14, 2009
Do you want access to ALL of this money in a year? If so, I don't think you have many choices other than a CD.
If part of that is money you won't need for 10 or 20 years, then fine - an index fund could be an excellent choice, or good real estate if you feel like putting in the time and money to be a landlord, or even gold (not my thing, but whatever).
But anything you want access to in less than two years shouldn't go into anything that risky. If you'd like to be able to live off that money next year, keep it relatively liquid, and put it in something with guaranteed short-term return, like a CD.
posted by kristi at 1:14 PM on February 14, 2009
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posted by Kensational at 10:50 AM on February 11, 2009