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January 30, 2012 1:48 PM   Subscribe

I'm inheriting $100,000. My parents are inheriting a lot more (around $1mil, but we're not sure the exact amount). Please give us advice. We're in the US (New Mexico).

I want to put mine away and get as much interest as possible. I would also consider buying instead of renting (a house or condo or apartment or something) if that is a good idea. But I am guessing that it is not on account of me not needing much space and so apartments are good, and also if the house gets termites or plumbing things or falls apart in some other exciting way I have no ability whatsoever to fix it.

I may spend some of the yearly interest when I get it (probably on travel and possibly health insurance, since my job doesn't have it and I have to go off my parents' in a few years).

I'm totally willing to hire someone to help with it. Or go to a class or something. If you guys have any recommendations on that-- people/classes in New Mexico-- feel free to leave 'em.

My parents are way better at this sort of stuff than I am, but they still have never seen anywhere near this amount of money in their lives, so after paying off the house-- which they already did-- they have general ideas of what to do but are also happy to take any general advice.

Sockpuppeting because I don't really want everyone who knows me to know I got a big chunk of money. I live pretty frugally and want to stay that way.
posted by Harry Potter and the Puppet of Sock to Work & Money (26 answers total) 2 users marked this as a favorite
 
You should all absolutely hire someone. Maybe someone in NM can give you a recommendation.
posted by OnTheLastCastle at 1:51 PM on January 30, 2012 [5 favorites]


Dave Ramsey is a good place to start. I took his set of video classes and he has a set of steps that I would recommend to anyone.
posted by St. Alia of the Bunnies at 1:53 PM on January 30, 2012 [1 favorite]


And that includes tips on finding a financial advisor.
posted by St. Alia of the Bunnies at 1:54 PM on January 30, 2012


Bunnies has it.

Pay off any outstanding debt, prepare for the tax hit you will probably need to pay on it and then see how much you have left to worry about saving properly, Dave Ramsey is as good a place to start learning the terminology and mindset as anywhere.

Congrats on the dough.
posted by RolandOfEld at 1:58 PM on January 30, 2012


If it's an inheritance you may not need to pay any taxes on it.
posted by mareli at 2:00 PM on January 30, 2012 [3 favorites]


Definitely get a financial advisor to help. I'm wary of advisors that charge a commission--they often just run up trades.

I hate to break it to you, though--interest rates are at historic lows. I would be surprised if you found 2% somewhere--meaning you would get $2000 in yearly interest (before taxes at your regular tax rate), assuming you didn't spend any of the inheritance. Not a whole lot of money for travel/health insurance.

It's good to be rational about buying a home. Personally, I suspect too many get caught up in the emotional dimensions of owning a home (which are real, and significant) and don't give enough credence to the rational.

Good luck.
posted by Admiral Haddock at 2:04 PM on January 30, 2012 [3 favorites]


Get professional advice--your parents may want to set up a trust, especially if they have other heirs, besides yourself. You should ear mark a certain amount to spend like a sailor on shore leave and then invest the rest--but get professional advice. Socking it in a CD or savings account won't grow your money. And I know it sounds bad, but $100,000 isn't a huge amount. You won't retire early on that.
posted by Ideefixe at 2:05 PM on January 30, 2012 [2 favorites]


If it's an inheritance you may not need to pay any taxes on it.

However, you may need to invest it in a certain way -- Inheritance IRA for instance -- to take advantage of it being tax-free. Definitely speak to someone and find out before you try to do this yourself and accidentally ding yourself for a big percentage of the $100K.
posted by griphus at 2:06 PM on January 30, 2012


(okay it is not actually called an "Inhertiance IRA" but I am totally spacing on the type of IRA it is.)
posted by griphus at 2:07 PM on January 30, 2012 [2 favorites]


Look for an independent financial planner, not someone whose goal is to sell you investment products. Here's a place you can start, which is a search function on the Certified Financial Planner Board of Standards website.

See if you can see someone who will charge an hourly rate. Paying someone to manage your money is a HUGE drag on how much it will earn, and you'll pay a fraction of this for competent advice if you pay by the hour.

If I were doing this search myself (and did not have personal recommendations--which even those, I'd be careful of), I'd start by finding people in my area who charge "fee" only (no commissions), probably visit their websites, and then start calling up the ones who looked promising and asking if they'll work on an hourly rate basis. Then I'd ask that group of people for references.

Also, your folks will need a lawyer to help with likely estate issues for planning their own estates. At a minimum, they'll need wills now.

For general investing advice, John C. Bogle's Little Book of Common Sense Investing is excellent.
posted by MoonOrb at 2:10 PM on January 30, 2012 [3 favorites]


If I had 100k in savings, I would make sure that I had a will.

There is a rent/buy calculator that has been linked here before, but I can't find it. It doesn't always make sense to buy, even if if you can afford to do so - it depends on the market. Perhaps someone can find the link for you.
posted by insectosaurus at 2:27 PM on January 30, 2012


This is the buy/rent calculator that comes up.
posted by Admiral Haddock at 2:29 PM on January 30, 2012 [3 favorites]


Flat-fee advisor.

Remember that houses are, fundamentally, depreciating assets: it's just that the cost of upkeep is usually factored into the cost of living, and unlike most assets, you generally need a house, whether it's your own or someone else's.

The value of large lump sums is that they provide flexibility (the downside being that they're flexible enough to be frittered away), and property doesn't do that unless you put in the effort. So perhaps allocate a small percentage of "shore leave" money so that you get the feeling of spending it out of your system, then treat the rest a very decent emergency fund that can be tiered in liquidity to suit various situations.
posted by holgate at 3:02 PM on January 30, 2012


I would recommend familiarizing yourself with some investing basics at the American Association of Individual Investors.
posted by mattbucher at 3:02 PM on January 30, 2012


If you don't need the money for a very long time, put it in an S&P 500 index fund ETF and do your best to forget about it. Explanation:

1) Index funds have been shown to beat every other investment over the long term. They also require no particular knowledge of, well, anything. They just work.

2) If it's an ETF, you only pay taxes when you sell. Keeps the paperwork simple.

Be extremely careful about hiring a financial planner -- it's a shady business. Many of them are paid kickbacks (legally!) by the funds they sell, and others charge a percentage of your assets year after year whether they do any work or not. (Probably the sketchiest person I know is a professional financial planner.) A regular accountant might serve you better.
posted by miyabo at 3:16 PM on January 30, 2012 [1 favorite]


Interest rates in the US are wretched. I can't imagine you'll be able to do very much with the annual interest off of just 100k, unfortunately. You'll be lucky to end up with about 2.5k, which barely covers a quarter's worth of private health insurance.
posted by elizardbits at 4:00 PM on January 30, 2012


Yeah, interest these days is not going to flow like manna. But I, for one, would still consider it well worth it to spend some of the principal on health insurance if I had to buy my own! Being uninsured is a tremendous financial risk in this country.

That said, a competent financial advisor will be able to outline your other options for the money, from buying a home, to putting it into stocks or bonds. As a young person you can be considered to tolerate some level of risk, and over a period of decades stock returns would be worth it for some portion of the money. There's other stuff, too, like investment property, or combining the two needs by buying yourself a duplex or two-flat and living in half of it. Sit down with someone who can work out what will meet your needs best.
posted by dhartung at 5:50 PM on January 30, 2012 [1 favorite]


While it may not be The Only Investment Guide You'll Ever Need, it is a good place to start.
posted by Bron at 5:57 PM on January 30, 2012


Your folks will certainly want a Financial Planner, and if they are better at these things, they may get personal recommendations. If you like living frugally and you're pretty young, investing this money wisely could certainly pay off later. I started with my parents' financial planner when I was young and pretty broke, but had a <>
But seriously, a financial planner, a good one, will walk you through your current needs, your future needs and wants and crazy dreams, and help you come up with a Plan.
posted by ldthomps at 6:13 PM on January 30, 2012


I think everyone has covered the financial planning aspect fairly well (I nth listening to Dave Ramsey).

But yes, if you don't have insurance through your job by the time you have to get off your parents' insurance, then I would say you should absolutely use that money to buy it if you have to. Because a few really terrible medical problems without insurance and you'll run through that money fast. And if you're diagnosed with a chronic disease, it's going to be that much more difficult to get private insurance later (this is all with the caveat that the future of health care in the US is uncertain at best).
posted by McPuppington the Third at 6:35 PM on January 30, 2012


Flat fee advisor flat fee advisor flat fee advisor.

Dave Ramsey has many interesting things to say, but he doesn't know you and your situation. Don't use his books and videos as a substitute for working with a flat fee advisor who can analyze your specific situation in detail. It's an investment of a couple or few hundred dollars that can save you from making horrible mistakes.
posted by Sidhedevil at 6:41 PM on January 30, 2012


Do your parents have a trusted tax professional? I would start here. It is really hard to find a good financial adviser. But a good tax person that has lots of clients is able to see who is really making money and who is getting good financial advice. Ask them if their home is paid for. Notice what kind of car they drive. If I found a tax guy who owns his own home and drives an older car (that is also paid for) I would ask him or her if they know a good financial adviser or if they could give advice.

Everyone absolutely needs a trust.
posted by cda at 7:05 PM on January 30, 2012


I've been happy with the financial advisors at USAA, if that's an option for you or your parents, especially their year-long Comprehensive Plan.
posted by The corpse in the library at 8:03 PM on January 30, 2012


I am totally spacing on the type of IRA it is.

IRA BDA [beneficiary death somethingorother] and there are special rules that go with it. With the one I had from my dad, my sister and I had to take a distribution because he died when he was 71 and hadn't taken this year's distribution yet. It's all quite weird and complicated for people who deal with this sort of thing once in a lifetime, very straightforward for people who deal with it every month.

Agree with everyone else. I am someone who is managing an inheritance this year and if the money had not come with Calvin the money guy I would be lost. And doomed. With that amount of cash investing it prudently and in line with your goals [your folks will be different from yours not just because it's a different amount of money but also because they are older and have different goals] should be a priority.

While you will not owe federal taxes on an inheritance of that level there may be state taxes on it. Get the money, in full, after taxes and then make some plans at that point. A fee-based financial advisor [mine takes a small percentage of the total amount invested] is the way to go.
posted by jessamyn at 9:54 PM on January 30, 2012


Your health insurance can be made more affordable by getting a catastrophic coverage policy with a higher deductible and annual wellness visits. These are becoming very popular and are comparatively reasonable at under $200 a month. Keep a float in a money market account to cover the deductible amount.
posted by halfbuckaroo at 5:02 AM on January 31, 2012


Best advice I got when I also inherited a slightly lesser amount: don't do anything with the money for a full year. If it's cash, stick it in a CD or a money market account and live exactly the same way as you have been. Mine was a combo of stocks and cash, and in the amount of time that I left it fallow, I had stretches where I completely convinced the best thing to do was 1) pay off my student loans, or 2) buy a house, or 3) keep it available as liquid cash for some unforeseen opportunity, or 4) leave it invested for retirement forever, or 5) take off a year and go on a huge trip, or 6) buy a new car, or 7) have the means to pursue an adoption in a few years.

What I'm the happiest about is that I didn't act on my very first, panicked impulse of immediately paying off the student loans. I've got a very low interest rate on those loans and have no problem making the monthly payments plus extra on the principal, and if I wanted to get my hands on the equivalent amount of cash to do any of the other big ticket items above, it would take me a long time to save up the dough, or I'd have to use credit, which has a higher interest rate.

Also, sitting on the money meant it was earning interest while I was figuring out what I wanted to do with it, and it gave me plenty of time to find a good financial advisor who has given me great tips, like if I wanted to buy a new car, not to pay for it outright, but instead to use the inheritance for just enough of a down payment to make my regular monthly payments manageable on my regular income. I got a 1.99% interest rate on the new car, so it wouldn't have made sense to pay cash in that case.

Sit on the money and give yourself time to explore all the various options. And don't think you have to use it all in one chunk: you might end up giving yourself a monetarily small, but significant luxury, and then still have enough so that a few years from now when you have the opportunity to buy that incredible roller rink that just came on the market and turn it into a roller derby performance art space, you've got the means to do it.

(Do pay off high interest rate debt immediately, though)
posted by mmmcmmm at 7:57 AM on January 31, 2012


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