I have $100,000. What should I do with it?
April 14, 2007 10:19 AM Subscribe
I have $100,000. What the hell should I do with it?
I'm 24.
I have no credit card debt at all.
I never went to college, so I have no loans to pay.
I still live at home, so I have no rent/mortgage.
I drive a car that has already been paid for.
I'm self employed, but it isn't something that really needs money "put into it." Like, I don't need better equipment or a bigger office or advertising or anything like that.
What I'm wondering is, what should I do with this money?
I guess I should also mention that this is money that I've saved over the last year and a half. I didn't win the lottery or anything.
Up until yesterday, 90% of this money was in a liquid CD, with more money being gradually added to it as I earned it.
I actually wanted to ask this question a few days ago, but I didn't realize there was a 1 week waiting period for new MetaFilter members. The reason I wanted to ask a few days ago is that yesterday I met with a financial adviser at my bank (our second meeting in the last few days) to discuss some type IRA.
What he recommended and what I ended up doing is something called a "Single K Roth IRA." I put $30,000 into it, and the guy was super happy (for my benefit) that I did this. (For anyone wondering, this type of Roth IRA has a $45k max, rather than the $4k max of the typical Roth IRA)
About $50k-60k now remains in the liquid CD, with the rest in various checking accounts of mine. I will continue putting money into this CD.
I guess what I'm looking for are thoughts and opinions on what I did with this Single K Roth IRA and the amount I put into it. Seem good? Not so good? Is there something better/smarter I should be doing with it?
In case you haven't noticed, I really knew (and really still know) very little about any of this IRA stuff until this week, so it's all new to me. In fact, this whole "having money" thing is new to me as well.
I just want to make sure that I'm doing the best things I can do with it to ensure that best future for me, my current family (parents/siblings), and my future family (wife/kids).
Thanks in advance for any help.
I guess I should also mention that this is money that I've saved over the last year and a half. I didn't win the lottery or anything.
Up until yesterday, 90% of this money was in a liquid CD, with more money being gradually added to it as I earned it.
I actually wanted to ask this question a few days ago, but I didn't realize there was a 1 week waiting period for new MetaFilter members. The reason I wanted to ask a few days ago is that yesterday I met with a financial adviser at my bank (our second meeting in the last few days) to discuss some type IRA.
What he recommended and what I ended up doing is something called a "Single K Roth IRA." I put $30,000 into it, and the guy was super happy (for my benefit) that I did this. (For anyone wondering, this type of Roth IRA has a $45k max, rather than the $4k max of the typical Roth IRA)
About $50k-60k now remains in the liquid CD, with the rest in various checking accounts of mine. I will continue putting money into this CD.
I guess what I'm looking for are thoughts and opinions on what I did with this Single K Roth IRA and the amount I put into it. Seem good? Not so good? Is there something better/smarter I should be doing with it?
In case you haven't noticed, I really knew (and really still know) very little about any of this IRA stuff until this week, so it's all new to me. In fact, this whole "having money" thing is new to me as well.
I just want to make sure that I'm doing the best things I can do with it to ensure that best future for me, my current family (parents/siblings), and my future family (wife/kids).
Thanks in advance for any help.
This is easy-- move out of your parent's house. Or at least pay them rent. You clearly have enough money to be self-sufficient, and leaving the familial home will be a good growth experience.
Once you've spent whatever you need to get your own apartment, keep 3-6 months expenses liquid (in the CD or a high-yield savings account) and invest the rest. Index funds are an easy place to start. I don't know anything about Single K Roth IRAs, but investing in a retirement account is certainly a good call.
As you live on your own and have expenses to pay, figure out a budget that covers your rent and monthly expenses, then split the rest of the money into retirement savings, long-term goal savings (say, buying property or a big trip) and fun savings (video games, fancy dinners out, whatever).
posted by ch1x0r at 10:50 AM on April 14, 2007 [1 favorite]
Once you've spent whatever you need to get your own apartment, keep 3-6 months expenses liquid (in the CD or a high-yield savings account) and invest the rest. Index funds are an easy place to start. I don't know anything about Single K Roth IRAs, but investing in a retirement account is certainly a good call.
As you live on your own and have expenses to pay, figure out a budget that covers your rent and monthly expenses, then split the rest of the money into retirement savings, long-term goal savings (say, buying property or a big trip) and fun savings (video games, fancy dinners out, whatever).
posted by ch1x0r at 10:50 AM on April 14, 2007 [1 favorite]
One option would be to put it into some sort of retirement savings account. By the time you are ready to cash it in, it could make a big difference in when you are able to retire.
Speaking with a professional financial manager is definitely a good idea: particularly because you will need to consider the tax implications of this money.
posted by sindark at 10:54 AM on April 14, 2007
Speaking with a professional financial manager is definitely a good idea: particularly because you will need to consider the tax implications of this money.
posted by sindark at 10:54 AM on April 14, 2007
He says in his post that he's already met with his financial advisor.
This is what I would do:
This Single(K) thing is interesting. Apparently you can only do it if you are your own business (I've never heard of this before). It looks like it's basically a regular 401(k) plan, which you wouldn't have access to.
The first thing I would do would be to max this out. Go for the gusto and put 45k in it.
Now we're left with 55k.
You don't say what your income is. If it's between the Roth IRA contribution limits, open up a Roth IRA and contribute the 4k in there. Go buy the Vanguard 2040 retirement plan and don't worry about it until next year.
Now we're left with 51k.
Open up an HSBC account. The interest rate right now is 5.05% - probably comparable to the CD rate that you're getting. I would put 20k in here. We can call this your "emergency fund," for when you really need cash. This will insulate you from tapping into your stocks.
Now we're left with 31k
Open up a brokerage account (If you use TD Ameritrade, you can use it for both your Roth and your brokerage account). We're going to put 25k in an index fund. If you're feeling frisky, you can start researching stocks and put this 25k into whatever you feel like. You're pretty secure in your other areas, so you can afford to take some risks here.
Now we're left with 6k
Find an interest-bearing checking account. Your credit union will have one. Put 5k there. If you already have this set up, go put 5k of this 6k in your brokerage account.
Now we're left with 1k. Go spend it ;-)
My asset allocation differs from yours in that I would shy away from CDs. You're young. CDs are for old people. You're clearly able to generate a lot of cash in a short time period, so you shouldn't feel like you have to be ultra-conservative with your money. Take some risks, and you'll hit a home run. If you take a beating, so what? You have 41 more working years, you have no expenses, and you'll be back on your feet in no time.
As for all the posts about how to do this, it's not that hard.
1) Find income stream worth around 65-70k annually.
2) Live at home with parents, with no rent, no food, no laundry, and no expenses.
3) Over two years, you'd have made 140k, after taxes ~105-110k!
4) Profit!!
Potential drawbacks:
1) Having to come up with random excuses when you meet girls about why you live at thome.
2) Having said girl lose total interest with you once they realize you still have a curfew.
3) Spend an inordinate amount of time playing video games and doing your siblings homework.
I may have a little experience with this ;-).
Good luck creative, and let us know if you need anything else. And please let me know if you have any creative solutions to Potential Drawback #1
posted by unexpected at 10:55 AM on April 14, 2007 [4 favorites]
This is what I would do:
This Single(K) thing is interesting. Apparently you can only do it if you are your own business (I've never heard of this before). It looks like it's basically a regular 401(k) plan, which you wouldn't have access to.
The first thing I would do would be to max this out. Go for the gusto and put 45k in it.
Now we're left with 55k.
You don't say what your income is. If it's between the Roth IRA contribution limits, open up a Roth IRA and contribute the 4k in there. Go buy the Vanguard 2040 retirement plan and don't worry about it until next year.
Now we're left with 51k.
Open up an HSBC account. The interest rate right now is 5.05% - probably comparable to the CD rate that you're getting. I would put 20k in here. We can call this your "emergency fund," for when you really need cash. This will insulate you from tapping into your stocks.
Now we're left with 31k
Open up a brokerage account (If you use TD Ameritrade, you can use it for both your Roth and your brokerage account). We're going to put 25k in an index fund. If you're feeling frisky, you can start researching stocks and put this 25k into whatever you feel like. You're pretty secure in your other areas, so you can afford to take some risks here.
Now we're left with 6k
Find an interest-bearing checking account. Your credit union will have one. Put 5k there. If you already have this set up, go put 5k of this 6k in your brokerage account.
Now we're left with 1k. Go spend it ;-)
My asset allocation differs from yours in that I would shy away from CDs. You're young. CDs are for old people. You're clearly able to generate a lot of cash in a short time period, so you shouldn't feel like you have to be ultra-conservative with your money. Take some risks, and you'll hit a home run. If you take a beating, so what? You have 41 more working years, you have no expenses, and you'll be back on your feet in no time.
As for all the posts about how to do this, it's not that hard.
1) Find income stream worth around 65-70k annually.
2) Live at home with parents, with no rent, no food, no laundry, and no expenses.
3) Over two years, you'd have made 140k, after taxes ~105-110k!
4) Profit!!
Potential drawbacks:
1) Having to come up with random excuses when you meet girls about why you live at thome.
2) Having said girl lose total interest with you once they realize you still have a curfew.
3) Spend an inordinate amount of time playing video games and doing your siblings homework.
I may have a little experience with this ;-).
Good luck creative, and let us know if you need anything else. And please let me know if you have any creative solutions to Potential Drawback #1
posted by unexpected at 10:55 AM on April 14, 2007 [4 favorites]
Definitely drop at least $10K of it into an untouchable, long-term retirement account.
posted by davidmsc at 10:56 AM on April 14, 2007
posted by davidmsc at 10:56 AM on April 14, 2007
Go to the bookstore. Get a good book on managing your money long term. Borders or Barnes&Noble will have a whole section of them. Maybe somebody here will recommend some good ones. Read it. Study it. Get a subscription to Barron's or the Wall Street Journal. The point is, if you're generating this much extra cash, and you're interested in investing it to make it grow, you owe it to yourself to learn something about investing.
On the other hand, if you really don't need it, look around your community and think about making some really nice generous gifts to charities that interest you.
On the single K Roth, that's probably a fine idea, but the question is, how is that invested? At your age you probably should have 90-100% of it in fairly aggressive growth-oriented stocks or stock mutual funds. Income-oriented funds are for when you're closer to retirement. CDs are for old folks who can't afford any risk.
posted by beagle at 10:56 AM on April 14, 2007
On the other hand, if you really don't need it, look around your community and think about making some really nice generous gifts to charities that interest you.
On the single K Roth, that's probably a fine idea, but the question is, how is that invested? At your age you probably should have 90-100% of it in fairly aggressive growth-oriented stocks or stock mutual funds. Income-oriented funds are for when you're closer to retirement. CDs are for old folks who can't afford any risk.
posted by beagle at 10:56 AM on April 14, 2007
Congratulations on saving this much at such a young age!
Similar questions have been asked here in the past. Start here and here.
In general, the important thing to do here is first figure out what your goals are.
1) What is your time horizon? Are you willing to invest it and let it sit until you retire? Will you want it for the down payment on a house that you live in, or a child's education, or just plain spending money at some point?
2) How much risk can you tolerate? Are you willing to risk losing 25% of your investment if you might gain 25%? Your question seems to indicate that your priority is not losing any of your principal - if so, you might want to look into CDs, savings accounts, and conservative index funds.
3) How much time are you willing to devote to tracking and managing your investment? Are you willing to research and manage your investments for several hours a week, or do you just want a place to park your money and forget about it?
The IRA is a great place for long time horizons (with a regular Roth IRA, you can take money out without penalty for a child's education or a down payment on a first house, but otherwise incur a penalty for withdrawals; I'm not sure that this applies to the Single K as well). The remaining money can be distributed into different investments for shorter and medium time horizons. I would suggest a strategy (split into thirds) similar to the one I advocate in my first link above.
Also, there are lots of places to educate yourself before going back to a financial planner. Try the Motley Fool to start with.
And did you guys notice that creative explicitly says that s/he went to a financial planner already? Great googly moogly. RTFQ before throwing out a useless answer.
posted by googly at 10:57 AM on April 14, 2007
Similar questions have been asked here in the past. Start here and here.
In general, the important thing to do here is first figure out what your goals are.
1) What is your time horizon? Are you willing to invest it and let it sit until you retire? Will you want it for the down payment on a house that you live in, or a child's education, or just plain spending money at some point?
2) How much risk can you tolerate? Are you willing to risk losing 25% of your investment if you might gain 25%? Your question seems to indicate that your priority is not losing any of your principal - if so, you might want to look into CDs, savings accounts, and conservative index funds.
3) How much time are you willing to devote to tracking and managing your investment? Are you willing to research and manage your investments for several hours a week, or do you just want a place to park your money and forget about it?
The IRA is a great place for long time horizons (with a regular Roth IRA, you can take money out without penalty for a child's education or a down payment on a first house, but otherwise incur a penalty for withdrawals; I'm not sure that this applies to the Single K as well). The remaining money can be distributed into different investments for shorter and medium time horizons. I would suggest a strategy (split into thirds) similar to the one I advocate in my first link above.
Also, there are lots of places to educate yourself before going back to a financial planner. Try the Motley Fool to start with.
And did you guys notice that creative explicitly says that s/he went to a financial planner already? Great googly moogly. RTFQ before throwing out a useless answer.
posted by googly at 10:57 AM on April 14, 2007
First and foremost, stop sponging off your parents and move out. You really haven't accomplished anything impressive until you have to pay your own bills while saving up that kind of cash.
Anyway, definitely invest at least half to three-quarters of the 100k in some form of retirement product. I'd want to keep a good chunk liquid because you never know what might come up. I assume you are no longer covered by your parents health insurance?
posted by Thorzdad at 10:57 AM on April 14, 2007
Anyway, definitely invest at least half to three-quarters of the 100k in some form of retirement product. I'd want to keep a good chunk liquid because you never know what might come up. I assume you are no longer covered by your parents health insurance?
posted by Thorzdad at 10:57 AM on April 14, 2007
Move out and go to college (unless you really hate the idea, in which case invest most of it and get a job).
posted by languagehat at 10:59 AM on April 14, 2007
posted by languagehat at 10:59 AM on April 14, 2007
I'm not qualified to comment on the Roth situation, but what about purchasing a home or condo to use as an asset? Rent it out (rent will pay remaining mortgage and other expenses), hang on to it until the real estate market improves, and eventually sell it or use the equity to build out your real estate empire;) There is some risk, but wouldn't it also be a learning experience with the potential for tax advantages and long term capital gains?
I'm no expert on this stuff, but this is the type of advice I've heard from people with money. If you bought a place in a desirable vacation area, you could occasionally use it yourself. Take your dates there first, and they'd be less likely to dump you when they learned that you with the rents.
Good luck, you're in a good place financially for a 24 year old.
posted by man on the run at 11:09 AM on April 14, 2007
I'm no expert on this stuff, but this is the type of advice I've heard from people with money. If you bought a place in a desirable vacation area, you could occasionally use it yourself. Take your dates there first, and they'd be less likely to dump you when they learned that you with the rents.
Good luck, you're in a good place financially for a 24 year old.
posted by man on the run at 11:09 AM on April 14, 2007
Buy a place of your own and get into the real estate market. I did it at exactly your age with a similar amount of cash, and it was the best thing I could have done.
posted by meerkatty at 11:10 AM on April 14, 2007
posted by meerkatty at 11:10 AM on April 14, 2007
My two cents: The Roth was a GREAT idea. You will be so happy when you retire. Good job.
Congrats on saving all that money. To me, this signals that you should have 401K. Do you have a 401K? Are you investing any of your income pre-tax? You should really consider doing this for the future, as well as contributing to your Roth every year, since you can swing them both easily right now.
Say thanks to your parents for all the money they have invested in you this past year by buying them (or them and you as well) a nice vacation package!
If you like living with your parents and they like that you are around, don't feel pressure to move out just because you have money. BUT, you might want to try it for a couple months on a short term lease and see what you think.
posted by Eringatang at 11:14 AM on April 14, 2007
Congrats on saving all that money. To me, this signals that you should have 401K. Do you have a 401K? Are you investing any of your income pre-tax? You should really consider doing this for the future, as well as contributing to your Roth every year, since you can swing them both easily right now.
Say thanks to your parents for all the money they have invested in you this past year by buying them (or them and you as well) a nice vacation package!
If you like living with your parents and they like that you are around, don't feel pressure to move out just because you have money. BUT, you might want to try it for a couple months on a short term lease and see what you think.
posted by Eringatang at 11:14 AM on April 14, 2007
Reading the info on Single(k) here, it sounds like your financial advisor made a good suggestion for you.
I would hold off on doing anything else with the money until you have read some of the resources people have mentioned here and digested some of this information. (My personal favorite intro text to personal finances is Beth Kobliner's Get A Financial Life. I think this book will be a good starting point for you before you move on to some of the other web sites and books).
You didn't say what the interest was on your liquid CD's - while you're reading and researching you might consider moving some of this money into higher interest vehicles. The aforementioned HSBCDirect or ETrade Bank, or money market accounts are possibilities. You will also have to investigate getting an accountant as you diversify your investments.
posted by needled at 11:19 AM on April 14, 2007
I would hold off on doing anything else with the money until you have read some of the resources people have mentioned here and digested some of this information. (My personal favorite intro text to personal finances is Beth Kobliner's Get A Financial Life. I think this book will be a good starting point for you before you move on to some of the other web sites and books).
You didn't say what the interest was on your liquid CD's - while you're reading and researching you might consider moving some of this money into higher interest vehicles. The aforementioned HSBCDirect or ETrade Bank, or money market accounts are possibilities. You will also have to investigate getting an accountant as you diversify your investments.
posted by needled at 11:19 AM on April 14, 2007
I strongly recommend starting a relationship with a good financial planner. Apparently you are very good about saving money, so you will benefit by having someone to talk to about these things that will also be able to take care of them for you. There is much more that they should be able to do for you then recommend IRAs.
Some things to do with the money, off the top of my head:
* Find a favorite charity, donate.
* Start a college fund for future children, possibly with siblings as benefactors until the children arrive. Or even use the money for your own college education.
* Down payment on a house, for you to live in (Some people consider a house a good investment, but YMMV.)
* Down payment on a house, to rent to other people (Some people consider this as an investment strategy all by itself.)
* Is there anybody you know who is considering starting a business? You could provide some of the startup costs, if you're comfortable with it.
* Invest in stocks and bonds through indexed mutual funds. If you are looking for a website to peruse, Morningstar is very good with regards to info about mutual funds. They also have some more general information, including information about IRAs.
As IRAs withdrawals are restricted until you are of a certain age, there's fewer options on what you can do with that money. I would definitely consider investing the funds that are in it, over the long term, the market will provide a better return than the ~2-4% that a bank may be giving you. Also, as I understand them, Roth IRAs are best for people who are in a lower tax bracket now than when they expect to be withdrawing the funds. You might ask your financial planner if your money could be better used in a (regular) IRA. Be sure to ask him/her about tax planning too, there is some things that they can do to minimize your liability that will be much better for your long term returns.
posted by philomathoholic at 11:22 AM on April 14, 2007
Some things to do with the money, off the top of my head:
* Find a favorite charity, donate.
* Start a college fund for future children, possibly with siblings as benefactors until the children arrive. Or even use the money for your own college education.
* Down payment on a house, for you to live in (Some people consider a house a good investment, but YMMV.)
* Down payment on a house, to rent to other people (Some people consider this as an investment strategy all by itself.)
* Is there anybody you know who is considering starting a business? You could provide some of the startup costs, if you're comfortable with it.
* Invest in stocks and bonds through indexed mutual funds. If you are looking for a website to peruse, Morningstar is very good with regards to info about mutual funds. They also have some more general information, including information about IRAs.
As IRAs withdrawals are restricted until you are of a certain age, there's fewer options on what you can do with that money. I would definitely consider investing the funds that are in it, over the long term, the market will provide a better return than the ~2-4% that a bank may be giving you. Also, as I understand them, Roth IRAs are best for people who are in a lower tax bracket now than when they expect to be withdrawing the funds. You might ask your financial planner if your money could be better used in a (regular) IRA. Be sure to ask him/her about tax planning too, there is some things that they can do to minimize your liability that will be much better for your long term returns.
posted by philomathoholic at 11:22 AM on April 14, 2007
nth getting your own place and/or going to school. unless you just love your current living situation and want to continue it indefinitely, these are investments that will pay off now as well as in the future (saving some of it directly seems like a good idea, but i wonder why you are putting so much towards retirement now when you could be putting it toward the extensive phase of your life between now and retirement when you will also need resources). if you move out, i would definitely consider buying, as depending on your area you might be able to pay cash, which saves you tons of money and hassle, and the money is an investment rather than an ongoing expense.
posted by lgyre at 11:43 AM on April 14, 2007
posted by lgyre at 11:43 AM on April 14, 2007
Congrats, first take a step back and recognize that things are good for you now.
Good move on the SingleK. Just to be pedantic, it's not an IRA of any kind. Only reason I mention that is that you may confuse people when talking about it, and you might as well get it straight now. It's a 1 person 401k, singleK, soloK, or plain old 401k... You happen to have used the Roth 401k option within the plan, which I think is excellent.
Keep up the good work. You can take the time to do your own investing if you feel like it, or you can just keep making money the way you've been doing it and hire somebody else to run the money for you like you've already done. In any case, keep up the good work. Just make sure it's invested appropriately for your age/goals/needs.
I have certain biases, but I'd say invest some of the rest conservatively if you're not going to spend it (on the house/rent/biz/whatever). Cerntainly keep a chunk of emergency cash around as well.
posted by powpow at 12:00 PM on April 14, 2007
Good move on the SingleK. Just to be pedantic, it's not an IRA of any kind. Only reason I mention that is that you may confuse people when talking about it, and you might as well get it straight now. It's a 1 person 401k, singleK, soloK, or plain old 401k... You happen to have used the Roth 401k option within the plan, which I think is excellent.
Keep up the good work. You can take the time to do your own investing if you feel like it, or you can just keep making money the way you've been doing it and hire somebody else to run the money for you like you've already done. In any case, keep up the good work. Just make sure it's invested appropriately for your age/goals/needs.
I have certain biases, but I'd say invest some of the rest conservatively if you're not going to spend it (on the house/rent/biz/whatever). Cerntainly keep a chunk of emergency cash around as well.
posted by powpow at 12:00 PM on April 14, 2007
i am not a financial adviser but this is what i would do. gear up by borrowing 1-300,000 and buy a property with secure rental income that will cover the loan repayments. maybe a shop or other commercial property with a 10 year or longer lease and full tenant-maintains clauses. at least, in london that's what i'd do.
posted by londongeezer at 12:25 PM on April 14, 2007
posted by londongeezer at 12:25 PM on April 14, 2007
Dude? Little thing called a beer bash?!
posted by DenOfSizer at 12:59 PM on April 14, 2007
posted by DenOfSizer at 12:59 PM on April 14, 2007
19,999 sockpuppets.
Or maybe do something philanthropic with it. Help out that society that helped you. :)
posted by TheNewWazoo at 1:06 PM on April 14, 2007
Or maybe do something philanthropic with it. Help out that society that helped you. :)
posted by TheNewWazoo at 1:06 PM on April 14, 2007
Vegas, baby. Vegas.
posted by allkindsoftime at 1:19 PM on April 14, 2007 [1 favorite]
posted by allkindsoftime at 1:19 PM on April 14, 2007 [1 favorite]
Response by poster: Holy crap... thanks for the very helpful responses everyone!
Just to clarify some things that a few people mentioned:
- The whole 'still living at home' thing and how I don't pay any rent. I guess now would be a good time for me to mention that, for the last year and a half, I've actually been paying the full mortgage payments every month for my parents. For Christmas 2 years ago, I got my parents a shoe box with a check in it for that month's mortgage payment along with a note saying I plan to keep paying it. So... I guess I kind of do pay rent. (For the record, there is no toy I could have bought or trip I could have taken that would have made me any happier.)
- The whole 'move out' thing. I will, eventually. I'm just not in any kind of rush. I like my family. I like the house (it's not a basement, but I'm kind of on my own floor, separate entrance/separate bathroom.) Chicks dig it. =]
- The whole 'go to college' thing. I think I decided during my first week of Kindergarten that the second any form of schooling became "optional," I'm done. College gets a giant NO from me.
- The whole 'spend some of it on something that will make you happy' thing. I'm sure I'm in the minority here, but what makes me the happiest when it comes to money is not something I can spend it on. It's that I have it to spend in the first place. I've always been this way. When I need something, I'll buy it. When I REALLY want something (like the very pretty HDTV I bought a few months ago) I'll eventually buy it as well. But really, for me personally, the best thing I can get with money is the peace of mind of knowing I have it.
- I will definitely be looking into charities to donate to.
Thanks for all the suggestions, book/website recommendations, opinions and ideas. I definitely need to go back and read it all again.
posted by creative at 1:21 PM on April 14, 2007
Just to clarify some things that a few people mentioned:
- The whole 'still living at home' thing and how I don't pay any rent. I guess now would be a good time for me to mention that, for the last year and a half, I've actually been paying the full mortgage payments every month for my parents. For Christmas 2 years ago, I got my parents a shoe box with a check in it for that month's mortgage payment along with a note saying I plan to keep paying it. So... I guess I kind of do pay rent. (For the record, there is no toy I could have bought or trip I could have taken that would have made me any happier.)
- The whole 'move out' thing. I will, eventually. I'm just not in any kind of rush. I like my family. I like the house (it's not a basement, but I'm kind of on my own floor, separate entrance/separate bathroom.) Chicks dig it. =]
- The whole 'go to college' thing. I think I decided during my first week of Kindergarten that the second any form of schooling became "optional," I'm done. College gets a giant NO from me.
- The whole 'spend some of it on something that will make you happy' thing. I'm sure I'm in the minority here, but what makes me the happiest when it comes to money is not something I can spend it on. It's that I have it to spend in the first place. I've always been this way. When I need something, I'll buy it. When I REALLY want something (like the very pretty HDTV I bought a few months ago) I'll eventually buy it as well. But really, for me personally, the best thing I can get with money is the peace of mind of knowing I have it.
- I will definitely be looking into charities to donate to.
Thanks for all the suggestions, book/website recommendations, opinions and ideas. I definitely need to go back and read it all again.
posted by creative at 1:21 PM on April 14, 2007
If you've been able to become this financially successful without going to college, I fail to see what throwing all your money and four years of your life is going to accomplish.
Further, if you're happy living at home and it's not crimping your style (romantically), fuck the naysayers and live at home.
Put a big chunk away somewhere you won't be tempted to touch it. Keep the rest ready-to-access and don't sweat it. The only difference between you and someone without $100k is that you have $100k (/Yogi). In other words, just because you have it doesn't mean it makes any difference that you have it. At least, until you need it.
posted by Civil_Disobedient at 1:44 PM on April 14, 2007
Further, if you're happy living at home and it's not crimping your style (romantically), fuck the naysayers and live at home.
Put a big chunk away somewhere you won't be tempted to touch it. Keep the rest ready-to-access and don't sweat it. The only difference between you and someone without $100k is that you have $100k (/Yogi). In other words, just because you have it doesn't mean it makes any difference that you have it. At least, until you need it.
posted by Civil_Disobedient at 1:44 PM on April 14, 2007
Just to put this in perspective for you. If you do nothing else but take this money and put it into good mutual funds, and those funds average 10% a year (easily done, and you can find funds that have averaged a bit more, even over decades)...and don't touch it until retirement, my calculator says you'll have
4,525,925.56
in the bank.
4.5 Million dollars. And that's if you do absolutely no other saving in your life. At 24, it's very tempting to use the money. But you can change your family forever if you invest this and forget about it.
posted by griffey at 2:15 PM on April 14, 2007 [2 favorites]
4,525,925.56
in the bank.
4.5 Million dollars. And that's if you do absolutely no other saving in your life. At 24, it's very tempting to use the money. But you can change your family forever if you invest this and forget about it.
posted by griffey at 2:15 PM on April 14, 2007 [2 favorites]
Based on your response, it sounds like you would be most happy doing what Philo outlined @ 2:22.
posted by yclipse at 2:27 PM on April 14, 2007
posted by yclipse at 2:27 PM on April 14, 2007
First off, learn the rules for withdrawals and loans from your Roth 401(k), including the cases where you'll owe penalties and how those penalties will be computed. In general, you don't owe taxes (since you paid them already) or penalties on principal withdrawn early from Roth IRAs, but the rules are a little murkier for Roth 401(k)s. You may find that the money is accessible enough in absolute-last-resort-type emergencies that it makes sense to invest the full $45k/year. It's difficult to beat the advantages of tax-deferred growth, especially in your tax bracket.
Also, I think it's fantastic that you're paying your parents' mortgage, but check out the tax repercussions if you haven't already. I assume you've been treating your payments as a gift, in which case you may need to file a gift-tax return (but almost certainly not actually owe gift taxes). The problem would be if your parents were audited and the IRS claimed you were paying rent, in which case your parents would have not declared the rental income and, if they'd sold the house in the meantime, might have misused the home-equity exemption. It's a low-probability concern, but a little paperwork could save you a lot of trouble.
Otherwise...figure out how comfortable you are with risk and let that guide your decisions. In the long- and even medium-term, it's difficult to beat the risk-reward combo of globally diversified stock mutual funds, and I think it makes much more sense to park the money in stocks than to invest in things like real estate or a friend's business where you'll have no diversification. Obviously, though, some people prefer concrete investments over miniscule fractions of thousands of companies, and it's not worth losing sleep (as some people who buy stocks but aren't really comfortable owning stocks do) to get better returns.
posted by backupjesus at 2:57 PM on April 14, 2007
Also, I think it's fantastic that you're paying your parents' mortgage, but check out the tax repercussions if you haven't already. I assume you've been treating your payments as a gift, in which case you may need to file a gift-tax return (but almost certainly not actually owe gift taxes). The problem would be if your parents were audited and the IRS claimed you were paying rent, in which case your parents would have not declared the rental income and, if they'd sold the house in the meantime, might have misused the home-equity exemption. It's a low-probability concern, but a little paperwork could save you a lot of trouble.
Otherwise...figure out how comfortable you are with risk and let that guide your decisions. In the long- and even medium-term, it's difficult to beat the risk-reward combo of globally diversified stock mutual funds, and I think it makes much more sense to park the money in stocks than to invest in things like real estate or a friend's business where you'll have no diversification. Obviously, though, some people prefer concrete investments over miniscule fractions of thousands of companies, and it's not worth losing sleep (as some people who buy stocks but aren't really comfortable owning stocks do) to get better returns.
posted by backupjesus at 2:57 PM on April 14, 2007
Good golly, I am jealous of you.
I suggest this to everyone, but The Simple Dollar and Get Rich Slowly may be good starting points. A lot of that is about saving money and managing debt--clearly something you already do--but there are good posts in the archives about investing as well to give you some ideas.
The IRA is a fantastic idea. If you aren't going to save this much money in the next year, I would put some of it into a CD again (or some other year-long investment) and max out the IRA next year, too. Alternatively, you can create a CD ladder, or you can start an investment portfolio and try your hand at living off the proceeds. Or something.
posted by Anonymous at 3:00 PM on April 14, 2007
I suggest this to everyone, but The Simple Dollar and Get Rich Slowly may be good starting points. A lot of that is about saving money and managing debt--clearly something you already do--but there are good posts in the archives about investing as well to give you some ideas.
The IRA is a fantastic idea. If you aren't going to save this much money in the next year, I would put some of it into a CD again (or some other year-long investment) and max out the IRA next year, too. Alternatively, you can create a CD ladder, or you can start an investment portfolio and try your hand at living off the proceeds. Or something.
posted by Anonymous at 3:00 PM on April 14, 2007
I'd use it as a down payment on property and then start making mortgage payments with the money you would otherwise be putting in your CD. There's nothing like owning your own home. Won't it be a great feeling when you're older to know that by the time you retire -- and probably sooner -- you won't have to pay rent or make mortgage payments anymore? Then you will be able to use whatever income you will have on travel, healthcare, grandchildren, and unexpected expenses (i.e. a bitter divorce and alimony, dentures, a leaky roof).
Sure, you could keep living with your parents and saving more and more money, but living with your parents stunts your psychological and emotional growth. Once you're on your own, you'll be glad you moved out (this coming from a 25-year old who lives with his 90-year old grandfather, whom I refer to as "my roommate" to potential dates).
posted by HotPatatta at 3:10 PM on April 14, 2007
Sure, you could keep living with your parents and saving more and more money, but living with your parents stunts your psychological and emotional growth. Once you're on your own, you'll be glad you moved out (this coming from a 25-year old who lives with his 90-year old grandfather, whom I refer to as "my roommate" to potential dates).
posted by HotPatatta at 3:10 PM on April 14, 2007
So what made you so much money? On-line poker?
I ask because what you should do with the money depends a great deal on whether you can anticipate continuing to make that much money in the future.
If, for example, you were able to save $100k because you're a computer consultant, then if you continue to maintain your computer skills, you can anticipate continuing to make that sort of money, and saving is less important than improving your standard of living.
If, on the other hand, you were (say) a stripper, then your long-term earning is questionable, and you'd want to put that money towards finding a career.
On-line poker is somewhere in between the two because of the impending government crackdown that's going to eventually force you to move to Europe or Central America if you want to keep playing.
But the Roth is obviously a good start. Anything you do to protect the money from the taxman is good.
posted by commander_cool at 3:43 PM on April 14, 2007 [1 favorite]
I ask because what you should do with the money depends a great deal on whether you can anticipate continuing to make that much money in the future.
If, for example, you were able to save $100k because you're a computer consultant, then if you continue to maintain your computer skills, you can anticipate continuing to make that sort of money, and saving is less important than improving your standard of living.
If, on the other hand, you were (say) a stripper, then your long-term earning is questionable, and you'd want to put that money towards finding a career.
On-line poker is somewhere in between the two because of the impending government crackdown that's going to eventually force you to move to Europe or Central America if you want to keep playing.
But the Roth is obviously a good start. Anything you do to protect the money from the taxman is good.
posted by commander_cool at 3:43 PM on April 14, 2007 [1 favorite]
By the way, if you do decide to invest some of that in the stock market, the broker you want to use is Zecco and you want to buy exchange-traded funds (ETFs) and hold 'em for a long time. I'd put half in a US market index fund (e.g. VTI) and half in a "world" or emerging markets fund (e.g. VWO). If you want to get a little daring, one ETF that's done really well for me in the short term is CSD, a fund devoted to mergers and spinoffs (up 12% since I bought it on January 5), but I would keep most (90%) of your money in the two indexes.
posted by kindall at 6:35 PM on April 14, 2007 [2 favorites]
posted by kindall at 6:35 PM on April 14, 2007 [2 favorites]
I would put it into an income producing asset, likely real estate right now. Find a commercial building or 4-plex in the middle bracket of the rental market and put enough down that the rents will cover the mortgage with a little cushion. Repeat as money becomes available.
Although, I am not rich so what do I know!
posted by fshgrl at 6:36 PM on April 14, 2007
Although, I am not rich so what do I know!
posted by fshgrl at 6:36 PM on April 14, 2007
Buy a solar system for your parent's house, practical advantage in the short term, pays off over time,and many states offer tax write off for the purchase.
posted by hortense at 7:06 PM on April 14, 2007
posted by hortense at 7:06 PM on April 14, 2007
Produce and distribute interesting cultural works made by yourself or others. Take 8 years off of needing to do anything to make money.
posted by beerbajay at 10:23 PM on April 14, 2007
posted by beerbajay at 10:23 PM on April 14, 2007
Put half of it in a LOW-FEE index fund, like what you can get from Vanguard, in a retirement account where it can grow tax-deferred.
Then go to college. A college education is worth a lot of money in the long run.
posted by kdar at 7:28 AM on April 15, 2007
Then go to college. A college education is worth a lot of money in the long run.
posted by kdar at 7:28 AM on April 15, 2007
Buy a solar system
For $100,000? I don't think you could even get Pluto for that, even after its demotion from planet status.
posted by caddis at 8:12 AM on April 15, 2007 [3 favorites]
For $100,000? I don't think you could even get Pluto for that, even after its demotion from planet status.
posted by caddis at 8:12 AM on April 15, 2007 [3 favorites]
The advice here is good. There's an error here that's worth correcting, and there are a couple of things that haven't been mentioned.
So far, your question implies that you've thought about two issues: income and tax issues. There are two other issues worth addressing: capital growth and risk.
Let's talk about tax issues first. backupjesus in his otherwise insightful answer said that it's hard to beat "tax-deferred growth." Your Roth Single(K), however, along with any other vehicle called a Roth, offers tax-free growth. You cannot beat this short of someone handing you free money. If your goals include maximizing the growth of your money, you should maximize your Roth contributions, including the full $45000 to the Single(k) and the $4000 to the Roth IRA (if eligible.)
There are a few assumptions built into the above suggestion. First, it assumes that your tax bracket won't go down significantly in retirement. If you're already on your way to being wealthy, this is probably a safe assumption, especially since the future probably holds nothing but tax increases here in the USA. Secondly, it assumes that the Fed Gov won't switch the rules around. Growth in a Roth vehicle is forever exempt from income and capital gains taxes. However, if the gov't changes the rules and institutes a value-added tax (a consumption tax), you'll still be subject to it when you spend the money coming out of your Roth IRA. In that case it would have made more sense to spend the money now in purchasing a hard asset that will appreciate over time, like real estate.
Other ways to shelter your income from taxes include life insurance, annuities, and arcane things best addressed by tax attorneys.
OK, that's tax matters. But one question few have addressed is, once the tax issues are decided, what should the money be invested in? So let's talk about income, risk, and capital growth, which are all related topics. Your CD generates a known income, probably about 5% a year. It's probably also FDIC insured, which means your risk of loss of the principal is very low. It generates no capital growth at all: at the end of the year, the principal is the same as when you started.
Other investments behave differently. Some stocks (growth stocks) go up in value (capital growth) but pay no dividend (income). Others (value stocks) pay a hefty dividend but do not increase their trade value much over time. I agree that the Motley Fool is a good place to learn about stocks. Stocks, and mutual funds, which invest in stocks, get a lot of attention because historically their ability to provide capital growth has outperformed other kinds of investments. That's why they've been recommended in several places above.
Let's look at real estate for a moment. If you buy a home for yourself, it comes with fixed costs (mortgage interest, property taxes, broker's fees, repairs) and no income. But you get the use of the home; and home mortgage interest offers a small tax benefit. If you buy rental property, you get no mortgage tax benefit, and you get more-or-less the same fixed costs, but you also have to do the work of managing the property - basically renting to tenants and keeping them happy. This can be a full-time job. In return you get unearned income - rent. Rents may increase over time disproportionately to your fixed costs; it's not uncommon for a rental property to be paying all its fixed costs plus profit long before the mortgage on it is paid off. And your property may appreciate dramatically in resale value (capital growth) - or it may drop. Real estate is riskier than a CD in this way - no guarantees - but over the long term it's been a good investment for a lot of folks.
Let's make a list of some kinds of investments. USA stocks, foreign stocks, stock funds, US government bonds, bank-issued CDs, corporate investment quality debt, corporate low quality debt (junk bonds), bond funds, residential real estate, commercial real estate, REITs (real estate investment trusts), commodities, precious metals. Some folks invest in art or old coins or other rarities but this is a way of combining a hobby with an investment.
The fact that there are so many things to choose from brings up the idea of 'asset diversification'. This idea is about risk. It is the idea that if you invest in a bunch of different things, a catastrophic decline in one of them means you don't lose your shirt because the other things didn't all decline at the same time. When deciding what to do with the money in your Single(k), it is a good idea to think about diversifying assets.
If you want to hear the same principles explained and recommendations made, you can hire a financial planner. They often have conflict of interest so I don't recommend it. As for which investments you should pick, I don't think I care to offer an opinion. Much depends on your personality and your goals, which are not very clearly stated here.
posted by ikkyu2 at 9:19 AM on April 15, 2007
So far, your question implies that you've thought about two issues: income and tax issues. There are two other issues worth addressing: capital growth and risk.
Let's talk about tax issues first. backupjesus in his otherwise insightful answer said that it's hard to beat "tax-deferred growth." Your Roth Single(K), however, along with any other vehicle called a Roth, offers tax-free growth. You cannot beat this short of someone handing you free money. If your goals include maximizing the growth of your money, you should maximize your Roth contributions, including the full $45000 to the Single(k) and the $4000 to the Roth IRA (if eligible.)
There are a few assumptions built into the above suggestion. First, it assumes that your tax bracket won't go down significantly in retirement. If you're already on your way to being wealthy, this is probably a safe assumption, especially since the future probably holds nothing but tax increases here in the USA. Secondly, it assumes that the Fed Gov won't switch the rules around. Growth in a Roth vehicle is forever exempt from income and capital gains taxes. However, if the gov't changes the rules and institutes a value-added tax (a consumption tax), you'll still be subject to it when you spend the money coming out of your Roth IRA. In that case it would have made more sense to spend the money now in purchasing a hard asset that will appreciate over time, like real estate.
Other ways to shelter your income from taxes include life insurance, annuities, and arcane things best addressed by tax attorneys.
OK, that's tax matters. But one question few have addressed is, once the tax issues are decided, what should the money be invested in? So let's talk about income, risk, and capital growth, which are all related topics. Your CD generates a known income, probably about 5% a year. It's probably also FDIC insured, which means your risk of loss of the principal is very low. It generates no capital growth at all: at the end of the year, the principal is the same as when you started.
Other investments behave differently. Some stocks (growth stocks) go up in value (capital growth) but pay no dividend (income). Others (value stocks) pay a hefty dividend but do not increase their trade value much over time. I agree that the Motley Fool is a good place to learn about stocks. Stocks, and mutual funds, which invest in stocks, get a lot of attention because historically their ability to provide capital growth has outperformed other kinds of investments. That's why they've been recommended in several places above.
Let's look at real estate for a moment. If you buy a home for yourself, it comes with fixed costs (mortgage interest, property taxes, broker's fees, repairs) and no income. But you get the use of the home; and home mortgage interest offers a small tax benefit. If you buy rental property, you get no mortgage tax benefit, and you get more-or-less the same fixed costs, but you also have to do the work of managing the property - basically renting to tenants and keeping them happy. This can be a full-time job. In return you get unearned income - rent. Rents may increase over time disproportionately to your fixed costs; it's not uncommon for a rental property to be paying all its fixed costs plus profit long before the mortgage on it is paid off. And your property may appreciate dramatically in resale value (capital growth) - or it may drop. Real estate is riskier than a CD in this way - no guarantees - but over the long term it's been a good investment for a lot of folks.
Let's make a list of some kinds of investments. USA stocks, foreign stocks, stock funds, US government bonds, bank-issued CDs, corporate investment quality debt, corporate low quality debt (junk bonds), bond funds, residential real estate, commercial real estate, REITs (real estate investment trusts), commodities, precious metals. Some folks invest in art or old coins or other rarities but this is a way of combining a hobby with an investment.
The fact that there are so many things to choose from brings up the idea of 'asset diversification'. This idea is about risk. It is the idea that if you invest in a bunch of different things, a catastrophic decline in one of them means you don't lose your shirt because the other things didn't all decline at the same time. When deciding what to do with the money in your Single(k), it is a good idea to think about diversifying assets.
If you want to hear the same principles explained and recommendations made, you can hire a financial planner. They often have conflict of interest so I don't recommend it. As for which investments you should pick, I don't think I care to offer an opinion. Much depends on your personality and your goals, which are not very clearly stated here.
posted by ikkyu2 at 9:19 AM on April 15, 2007
ikkyu2, I have a tough-to-shake (even though Roths have been around for, what, a decade?) habit of calling every tax-advantaged retirement plan "tax-deferred." Thanks for catching it -- you're absolutely right.
One point on investment real estate: mortgage interest, along with any other bona fide business expense related to the building, is deductible. In addition, you can depreciate the improvements (i.e., the purchase price minus the land value) over 27.5 years, giving you a healthy deduction against the building's income every year and, in effect, converting ordinary income into long-term capital gains.
It can be a great shelter for high-income individuals, but ikkyu2 nailed the downsides. It's really a second job and success tends to be propotional to how much time you spend on it. It takes a lot of work to find a building that will bring in the returns that stocks have historically provided in the long term, and investment real estate tends to be an insider's game where those properties aren't available on the open market.
posted by backupjesus at 11:56 AM on April 15, 2007
One point on investment real estate: mortgage interest, along with any other bona fide business expense related to the building, is deductible. In addition, you can depreciate the improvements (i.e., the purchase price minus the land value) over 27.5 years, giving you a healthy deduction against the building's income every year and, in effect, converting ordinary income into long-term capital gains.
It can be a great shelter for high-income individuals, but ikkyu2 nailed the downsides. It's really a second job and success tends to be propotional to how much time you spend on it. It takes a lot of work to find a building that will bring in the returns that stocks have historically provided in the long term, and investment real estate tends to be an insider's game where those properties aren't available on the open market.
posted by backupjesus at 11:56 AM on April 15, 2007
If you're in a US State with high income tax, then forget about CDs and high-interest accounts for your cash holdings. Open an account in Treasury Direct (a US federal govt agency) and buy T Bills and T Notes, laddering them so as to provide timely access. When you buy a CD from a bank, what they are doing is basically buying a bunch of T Notes at the back end to cover the CD and skimming off a vig. Interest income from T Bills and T Notes is state tax free (you still owe federal tax on them). For CDs and bank accounts, you'll owe both state and federal.
Again assuming high state taxes, simpler options include buying T Bills through a broker such as Fidelity in a fund, which have very low skims, or buying muni bonds particular to your situation, which also offer tax savings.
Also, opening a bank/brokerage account in the Eurozone is an easy way to compensate for currency fluctuations. Personally, I recommend Ireland over the UK - English-speaking *and* fully Eurozoned.
posted by meehawl at 3:14 PM on April 15, 2007
Again assuming high state taxes, simpler options include buying T Bills through a broker such as Fidelity in a fund, which have very low skims, or buying muni bonds particular to your situation, which also offer tax savings.
Also, opening a bank/brokerage account in the Eurozone is an easy way to compensate for currency fluctuations. Personally, I recommend Ireland over the UK - English-speaking *and* fully Eurozoned.
posted by meehawl at 3:14 PM on April 15, 2007
Write a book on how you saved so much money. Get it published so I can go to the store and buy it=)
posted by onepapertiger at 8:42 AM on April 16, 2007
posted by onepapertiger at 8:42 AM on April 16, 2007
Response by poster: Thanks for all the replies everyone. They were extremely helpful and very much appreciated!
And, for the people who asked how I got to this point money-wise... I really don't have any secrets or tricks to let you in on. It was just:
good idea based around something you're passionate about
+
hard work
+
lots and lots of luck
+
the experience of what it's like to have no money and how it gives you an enhanced desire and goal to hold on to it when you finally have some
=
I'm on MetaFilter asking for advice on what to do with $100,000.
posted by creative at 9:58 AM on April 16, 2007
And, for the people who asked how I got to this point money-wise... I really don't have any secrets or tricks to let you in on. It was just:
good idea based around something you're passionate about
+
hard work
+
lots and lots of luck
+
the experience of what it's like to have no money and how it gives you an enhanced desire and goal to hold on to it when you finally have some
=
I'm on MetaFilter asking for advice on what to do with $100,000.
posted by creative at 9:58 AM on April 16, 2007
Another idea, then, would be to take that $100,000 and put it into doing more of what you have been doing, except on a larger scale, and turn it into, say, a million...
posted by kindall at 7:05 PM on April 17, 2007
posted by kindall at 7:05 PM on April 17, 2007
This thread is closed to new comments.
posted by judith at 10:41 AM on April 14, 2007