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Invest $60000
August 23, 2012 7:14 PM   Subscribe

$60000. How to best invest my money? I recently purchased a home and am thinking about putting most of it towards the principal and using some to pay off my student loans. I'm also thinking about using the money towards investments but don't know much about the investment world. I would love to invest in something safe with a good return. I'm also somewhat young, 34, and feel like I should really be thinking about my family's future. Any suggestions on how to best use/invest my money would be much appreciated. Thanks for your time!
posted by Direwolf to Work & Money (14 answers total) 4 users marked this as a favorite
 
Total non-expert here, but looking back over 50+ years, I'd say priority #1 is eliminate debt. Start with highest percentage rate debt first.

If you don't have much in safety net savings, put some aside for that. Maybe 3-6 months expenses worth.

No point in investing if you are paying more in debt interest than you could make on the investment (which is likely the case these days).
posted by ecorrocio at 7:25 PM on August 23, 2012 [3 favorites]


I would pay off as much of the student debt as possible, even if it has a lower interest rate than your other outstanding debt. The reason is that, even if you declare bankruptcy at some future point, you are still on the hook for your student loans.
posted by dfriedman at 7:29 PM on August 23, 2012


Well, the Dave Ramsey advice on this from what I can remember would be to have a thousand dollar emergency fund, then pay off debt then put aside enough money to cover basic living expenses for 3 or so months, then think about investing. Point being to make sure you can handle the basic bumps in life without having to generate debt, and to make compound interest work for you instead of against you.

I'm thinking that before you do anything else it's good to have a cushion against unexpected expense, then take care of the rest.
posted by St. Alia of the Bunnies at 7:39 PM on August 23, 2012 [2 favorites]


The problem is that everyone wishes they had something safe with a good return to invest in, but in reality, the better the potential return, the more risk you're taking. So you have to balance the return with your risk tolerance.

Most people are happy with the risk:reward ratio for no-load, low cost index funds such as the Vanguard 500 Index Fund.

I would recommend doing some reading before you decide anything about your money. Here is a good article from a money blog I like, Get Rich Slowly, about managing a windfall. You can link to other thoughts about the same subject from there.
posted by treehorn+bunny at 7:53 PM on August 23, 2012 [4 favorites]


Default advice in this situation is, above all else, don't make any immediate decisions if you're not sure what you want to do. Take the time to learn. Beyond that, this is standard:

1. Set aside enough cash to use as an emergency fund. Rule of thumb is six months worth of cash outlays. Your need for an emergency fund can vary based on things like whether you and your partner can meet expenses on just one income, whether you have other liquid investments sufficient for emergencies even if they lose value, perceived job security of both you and your partner, and so on.

2. Pay into 401(k) type plans (if you're American) up to employer's matching amount, if any.

3. Consider paying down debt that has a high interest rate, or, max out your Roth IRA and then 401(k). It's a huge advantage to get the tax deferral on these forms of investments. Standard advice here is to put your Roth IRA/401(k) contributions into a stock index fund.

There are no investments that are both safe and have a high return. High returns are the benefit of accepting risk. Low returns are the consequence of avoiding risk. So, it's hard to know what you mean by a "good" return.

The merits of paying down mortgage principal vs investing have been debated many times on the green. My take is that the diversity and liquidity of putting the money into an index fund is a better choice than paying down mortgage principal. There are good reasons for this, which I could expound on if it's really important to you.

If I were in this position I'd set aside several months worth of expenditures and not touch it, then I'd make sure I'd max out my 401(k) and Roth IRA each year for the next several years instead of paying down my mortgage. Max 401(k) contribution is $17k and max Roth IRA contribution is $5k (assuming no other limitations apply in your case), so if you put aside $20k for an emergency fund and both you and your partner maxed out your tax advantaged investments this year, you'd use the whole $60k.
posted by MoonOrb at 8:09 PM on August 23, 2012 [1 favorite]


I'm your age and I have a goodly chunk of student debt and I have mortgaged a house and I have a Masters Degree in Finance. That said, I am not your financial professional, but this is what I would do:

Without even thinking about it I would pay off every penny of the student loans before paying extra against your mortgage, no matter the rate differences. You can always sell the house but the mortgage on your brain can't be sold or discharged. People may argue against this mathematically, but, as drfriedman pointed out above, you can't bankrupt out of student loans. So I believe the freedom you receive from ridding yourself of them is worth more utils than paying against a higher mortgage rate (but that is said without actually seeing your numbers).

Then I would put a few grand in a savings account or short term certificate of deposit (CD) for a rainy day. (You've paid off your credit cards, right?)

Here is where you decide how much to pay against your house and how much to put in the market.

If you are going to invest in the market, buy an index fund which tracks the market as a whole. A stock index fund will be a bit more aggressive (read as 'risky') while a bond index fund will generally yield less return but with less risk.
posted by iurodivii at 8:10 PM on August 23, 2012


If you just bought a house, do you have a reserve fund set aside for the inevitable round of surprise repairs/replacements in the first year?
posted by LobsterMitten at 8:25 PM on August 23, 2012


Can you make any investment that has a higher rate of return than the interest rate on your debt? If not, you ought to pay off your debt first.
posted by samofidelis at 9:53 PM on August 23, 2012


I'm in exactly the same numbers as you, but in Canada.

I'm 34, and because of my academic career thus far I'm far behind the savings that my peers theoretically have been able to do.

I probably made out better than they since I did. Investements by "normal people" haven't been doing great. I'm actually not all that behind if I make a decent salary.

$60k isn't enough to do anything fantastic unless you're an entrepreneur and have a plan and know exactly how to leverage that liquidity.

Fully pay off debts; they're charging vastly more interest than you can make in any interest bearing account. You'll feel a lot better for it, too! This is only advisable if you have a continued income; pay of debts with liquid money that isn't earning nearly as much as your debts are losing you unless you expect the investments to double in 3 or 4 years, like stock options from your work.

But that's another crap shoot already.
posted by porpoise at 10:00 PM on August 23, 2012


As much as we'd love to be coldly clinical about financial decisions, there's a strong emotional component too. Paying down debt may not be the decision that gets you the best "return" for your cash, but you have to weigh that against the stress the debt causes, the possibility that you'll be in a tough financial stretch and be stuck with it, and the warm fuzzy feelings you'd have from being debt free (or having it reduced, anyway).

On the other hand: you stand to make a lot more than that in the market (Dave Ramsey claims 12% long term, although that's pretty dependent on how you count things), but "long term" is important there... nobody knows what the market is going to do in the short term, so the "good safe" investment you want can be elusive. Of course nobody really knows what the market is going to do in the long term either - you could invest money now and be dead broke in 30 years - but at least time and history are on your side there. We use Vanguard's index funds, and you don't have to know much about investing to make those work.

And (as mentioned upthread) it's a good idea to have an emergency fund, and some money set aside for the inevitable repairs you'll need to make on your house. Whatever your financial goals are, you'll end up derailing them if the water heater explodes and you can't afford to replace it, so you end up putting it all on a credit card and paying exorbitant interest rates. Don't expect to make anything off that money though... with interest rates what they are now, my "high interest" savings account is paying out < 1%.

tl;dr - it's a personal decision, and you'll have to decide what's important to you. If it were me, I'd set aside some emergency cash, and then use the rest on loans.
posted by captainawesome at 11:06 PM on August 23, 2012


The best thing you can do right now is go visit a fee-based financial advisor. Fee-based are much better at giving you smart advice as opposed to selling you products they like/are compensated for.

The "safe investment with good return" doesn't exist (bond rates are crap right now) and your particular financial situation is such that depending on the cost of servicing debt/your income and RRSP contributions/other factors, a number of different possibilities might be the right answer. With $60k in your pocket, an expert giving you advice is better than a bunch of folks on the internet.
posted by Rodrigo Lamaitre at 3:48 AM on August 24, 2012 [2 favorites]


Remember that paying off debt that incurs interest at the rate of x% is the equivalent of earning that x% on investing that money. That almost always makes debt payoff a high priority.

The home loan is probably at a low rate, though. Instead of plunking down a part of the windfall toward principal, consider starting a program of paying an extra $200-400 per month on the payment. Once you get used to it, it's habitual.
posted by yclipse at 4:56 AM on August 24, 2012


I would recommend setting aside a certain amount ($10k?) in a savings/emergency/oh-god-where-did-my-roof-go fund. Pay off your student loans entirely if possible with the rest. Then take the student loan payments that you're no longer making and put that money into your mortgage each month. Debt snowball method. You'll be living the same way you were before this windfall, but will have a substantial savings fund, no student debt, and by paying extra on the mortgage you'll be saving somewhere between thousands and tens-of-thousands over its lifetime.
posted by specialagentwebb at 5:54 AM on August 24, 2012


If you decide to invest it, I'd highly recommend looking into DRIPs.

Here is a calculator to run some numbers.
posted by jmmpangaea at 8:21 AM on August 24, 2012


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