Where to invest during a financial meltdown?
October 10, 2008 2:30 PM   Subscribe

I recently inherited about $100k. I'm pretty dumbfounded. This is the largest amount of money I will probably ever have to figure out what do with, so I want to be safe and smart and invest in the long term. I have no debts. I'm 30 years old and single. I know no one has a crystal ball, but what are your best guesses for what I should do with this money in light of our current financial meltdown? (I haven't even deposited the check yet... my bank is Wamu and I wasn't sure if it would fold).
posted by anonymous to Work & Money (37 answers total) 11 users marked this as a favorite
The first thing you need to do is find out how much tax you'll owe. You may have to make immediate tax payments, or face a penalty when you file.
posted by Class Goat at 2:38 PM on October 10, 2008

In a lot of ways now is a great time to buy stocks, but there's still a lot of risk. I would suggest getting a brokerage account and putting it into a reliable money market account until you come up with a solid plan of attack. There are still plenty of very, very safe places to put your money while you think about what to do. If nothing else, the current FDIC limit for deposits is $250K through 2009 so your money is as safe in Wamu as anywhere else. If you still don't trust Wamu, open an account somewhere else. Lots of banks would be happy to get a $100K deposit from a new customer and they're all insured by the same insurer, FDIC. E-trade's bank accounts are FDIC insured and then you can move the money into something else with a few clicks once you're ready. This is not an endorsement of e-trade but just an example of a combined brokerage/banking account where you can store the money.
posted by GuyZero at 2:42 PM on October 10, 2008

CD. If that's too exciting for you, T-bills. Big down payment on a house (do your homework on your local market, first).

If you can stomach more risk, and can accept a long timeline - are you contributing to your Roth IRA? My co-workers think I'm nuts when I talk about putting money *in* to this market, but if I were you, I'd spread a significant portion of that amount to ETFs tracking the Dow, Nasdaq, etc. as they're on sale! sale! sale!

It's kind of vulture, but if you're cash rich when everyone else is cash poor, you've got some real opportunities with which to take advantage. You can probably negotiate a pretty crazy deal on a car, for example.
posted by NoRelationToLea at 2:45 PM on October 10, 2008 [1 favorite]

Pay off credit cards and student loans, make your Roth IRA contributions for the year, and apply the rest to the house if you have one (or considering buying one, since you should have a decent down payment, and now's a good time to buy).

Lack of interest payments is the best investment you can make in the current economy (or any economy).
posted by cjorgensen at 2:47 PM on October 10, 2008

Please be sure to budget some money -- maybe a thousand or so -- to buy an heirloom quality something (Clock, jewelry, painting) that will always remind you of the person who left you this windfall.
posted by anastasiav at 2:58 PM on October 10, 2008 [4 favorites]

Seriously. Look hard at the markets. This is one of those times when a lot of money changes hands, and there are giant steals to be had.
posted by o2b at 3:01 PM on October 10, 2008

how much tax you'll owe

You should not owe any, if this is US, at the federal level. It's a gift, not taxable income. Any estate tax is assessed against the estate, not the recipient. There are a few states with inheritance taxes on the recipient, but probably not at this level. Do check with an accountant, however.
posted by beagle at 3:05 PM on October 10, 2008

This may seem counter-intuitive but in at least one sense it's a good time to buy stocks now because stocks are cheap. Since they are undervalued they have a long way to grow. Because you have a long time until retirement and you want to invest over the long term, short-term volatility shouldn't scare you off. Here's an article from the New York Times about stocks being undervalued. Whatever you do, make sure you don't ripped off with high investment management fees. People don't pay enough attention to those fees. Look seriously at low cost index funds.
posted by bananafish at 3:14 PM on October 10, 2008

sorry for you loss.

you won't be able to lock it into a cd with a great rate at this point as interest rates are pretty much at inflationary levels. purchasing stocks (the buying low and selling high theory) is also not a good option for you as you made rather clear you don't usually deal with this kind of money.

you should talk to a financial planner. get the taxes out of the way and have him or her invest it conservatively into your 401k. this way you will have a very solid footing for your retirement to build on. you'd in fact be ahead of many of your age peers and actually in a pretty good position right now.
posted by krautland at 3:29 PM on October 10, 2008

Buy buy buy! US stocks are a bargin right now. As long as you won't need the money for awhile, you could do really well investing that amount. Though you should consult with an expert for proper diversification.
posted by jeffamaphone at 3:33 PM on October 10, 2008

If you live in a city with a lot of development, you could put a down payment on a nice condo before the developers break ground- then when the condo is built 3 years later, sell it immediately. A friend did this and after paying $150/square foot for a hypothetical condo, he sold it for $280/square foot- pretty big return.
posted by pseudostrabismus at 3:39 PM on October 10, 2008

There aren't any right answers to this, but something a financial planner will need to know is when you'll want to use it. For instance, if you want to use it next year, they'd likely recommend you keep it liquid. If it's 30 years from now they'd likely recommend something more aggressive.
posted by small_ruminant at 3:40 PM on October 10, 2008

Send a MetaMail to Mutant and ask him; give him three choices maybe -- super safe, bombproof, and also sortof safe but with higher risk, and then higher risk but huge potential. Be ready to read for a week, study up on all his terms and all, then make your decision(s).
posted by dancestoblue at 3:46 PM on October 10, 2008

Consider some under valued currency, like Brazil's Real.
posted by hortense at 3:51 PM on October 10, 2008

Sigh, my previous answer got eaten by Safari (thanks, Apple)

I strongly, strongly suggest you buy. There are huge bargains as several other folks have stated. If I were in your shoes, i'd keep 25% in cash and cash equivalents, probably 50% of the 25% in bonds etc (12,500), and put them in safe deposit boxes spread around. But as for the rest, i'd really be buying, and buying all the way down using dollar-cost averaging. We're not at the bottom yet because commercial real estate's problems haven't even been considered yet, but there are a ton of stocks out there that were attractively valued even pre this period, and now are even more attractively valued. They have been sold and dropped well below what you would expect to be reasonable prices due to our good friends Fear, Uncertainty, and Doubt, and you should take advantage of this opportunity while it lasts. I know if I had $75k USD right now I would be going crazy and keeping just a little money for myself to spend.

On preview, definitely concur with asking Mutant. I didn't realize the extent of that guy's absolute wizardry until I read through his posts and profile.
posted by arimathea at 3:58 PM on October 10, 2008

What to Do With Your Money Right Now (Motley Fool). Good luck.
posted by lukemeister at 4:03 PM on October 10, 2008

Mutant's profile
posted by lukemeister at 4:06 PM on October 10, 2008

You can get free financial planning advice (I think a couple meetings a year) at your local credit union. Or talk to a financial planner. I think whatever you pay, you'll more than make up for it, if not financially than in your peace of mind.
posted by salvia at 4:10 PM on October 10, 2008

And now for something completely different:

1) It appears that Bank Of America and Well Fargo may be surviving the current crisis. Open a safety deposit box with one of them and put the check in it.

2) In about a month when all of this has settled down, actually deposit the check in a bank that appears to be left standing.

3) At that point, take a look at which mutual funds still exist, and look at how well they've done over the last 20 years. The current downturn will shake out a lot of them that got lucky playing fast and loose. You're looking for a longstanding fund that did about as badly/well as the market did. Obviously, these are usually going to be index funds.

4) Invest money in said fund.

5) Forget about it.

By no means should you be gambling with your money in the current climate.
posted by tkolar at 4:16 PM on October 10, 2008

You know WaMu has been bought by Chase, right? See here.
posted by puffin at 4:22 PM on October 10, 2008

I got a piece of advice: Wait until there haven't been any front-page headlines about the stock market for at least two weeks if you want to buy in while it's cheap. That's when things are likely to have stabilized at the bottom.
posted by blueshammer at 4:23 PM on October 10, 2008 [1 favorite]

I disagree with any buy now sentiments. I agree that things are cheap right now, but only buy if you can afford to wait for years until they rise back to last month's levels. Things are bound to go up, but that doesn't mean they won't go down first.
posted by iurodivii at 4:53 PM on October 10, 2008

Lots of good advice to which I would add ... take ten percent (but only ten percent) and blow it in the most creative way possible (buy art, make art, travel, get crazy generous). It's a windfall. Treat it as such.
posted by philip-random at 4:56 PM on October 10, 2008

The problem with a buy now approach, as smart as it is, is that the OP may well see his $100K fall to 90, to 80, to 70, and I would bet he would be unhappy to see that happen.
posted by yclipse at 5:04 PM on October 10, 2008

Tkolar is a bit tin-foil hat. There are a lot of things broken right now, especially with the credit markets and everything, but intrinsic values of companies are NOT dropping with their stock prices; there might be some correction due and some speculation looking forward, but while Apple may not be "worth" $185 a share, it's also definitely not "worth" $84 a share.

This is by way of saying that Warren Buffet's line of "be greedy when other's are fearful" is a good one. You haven't lost anything in the past 2 weeks. You're at an advantage. You can put in to a bunch of places, but it's hard to tell if we've hit a bottom or not. Convention wisdom says that if you're looking at returns in the next 5 years, we're hitting bargain-basement prices for stocks here. This may be the best buying opportunity you see for the next decade, because the "crashes" we're seeing are caused by negative externalities, or other components not at all related to the companies whose stock values are plummeting.

The market will recognize this and correct back upwards once people realize it's not the entire end of the world. It's pretty bad and the credit issue has a chance to still fling us over the brink, but I think you should talk to someone knowledgable and financial advisory-ish and look at your timeline and analyze where you think the bottom really is. I'd love to say we can't get much lower than this, but man, the last two weeks have proven millions of people wrong on that account.

People are actually pulling their portfolios entirely in an effort to avoid riding the dip. When they do this, it just exacerbates the situation and prices drop dramatically because of the sudden glut of supply. So there CAN still be panic sell-offs like this, and you should be cautious and wait for a decent looking uptrend, or until a realistic support has been identified, or, better, wait until credit is actually flowing again.

In absence of these things, you have to be very careful to play the market when it's quite this volatile if you're looking for short-term... but some of these stocks are serious steals.
posted by disillusioned at 6:01 PM on October 10, 2008 [1 favorite]

Invest it in one of Vanguard's Target Retirements Funds, don't think about it again for 35 years, then check and realize that you have several million dollars.
posted by PueExMachina at 6:30 PM on October 10, 2008

oh for fuck's sake don't put a penny in this market in trying to get in "at the bottom".

That's sheer idiocy, just look at the Oct 2002 low and what the market did going into 2003.

Just put the bulk of the money in a 13 month CD. Keep enough out for any taxes and make sure you top off your Roth contributions for this year and next.

Watch this guy talking about the 20/50 signal to when to get into and out of the market.

I'm now 33% long in this market but it's in a single REIT that's paying me an averaged-down 30% dividend now (or goes BK in the next 3 months -- that's the risk ya gotta take to buy a company with a 50% dividend).

Keep your powder dry and be on the lookout for a nice place you can buy to live in. Now is not a horrible time to buy if you've got the cash for a 10% down payment, so if you can find a place, think about getting it.
posted by troy at 6:33 PM on October 10, 2008

don't think about it again for 35 years, then check and realize that you have several million dollars.

too bad the world of 2043 will be only taking Federal New Yuan Notes then ;)

$100K will increase to $1M given a 6.6% annual rate of appreciation, but IMO the stock market's past history does not predict the next 30 years, given that the baby boomers of the 1950s will be aging from their 50s and 60s to their 80s and 90s and need to SELL their equities.

You can't eat a stock certificate, but a good roof overhead, a nice garden, friendly neighbors, a safe neighborhood, etc. is something worth speculating/investing in IMO.
posted by troy at 6:43 PM on October 10, 2008

This may be the best buying opportunity you see for the next decade,

I'd say the next several decades. This is a once or twice in a lifetime opportunity.

However, I would like to say that what you should really do is sit down with a good introductory book on money mangement and investment, I think Barrons or Consumer Reports has one, and learn about what you can do and, more importantly, what you can do and still sleep well at night.

The Motley Fool has some good introductory material too.
posted by zippy at 7:09 PM on October 10, 2008

Watch this guy talking about the 20/50 signal to when to get into and out of the market.

Please, for the love of all that is hypothetically holy, don't get sucked into technical analysis if you are a novice investor. You don't have the filters to tell what is a bunch of statistical overfitted nonsense and what is only mostly statistically overfitted nonsense. You might as well ask the magic 8 ball when to get in and out.

You either need a flat-fee financial adviser or if you want to do it yourself you should pay down your debt and then invest in... actually, no, I think in this market you probably need a financial planner of some sort. If you don't know what you are doing you can and probably will lose your shirt. Just make sure you don't buy gold because you saw a cool ad on TV, or start doing technical analysis because it sounds all mathematical and sciencey and stuff, or buy GM because hey it's realy cheap and what could possibly go wrong?

Don't decide what to do with a 100k windfall based on the random opinions of people you don't know on a web forum. Find someone who has a vested interest in giving you appropriate financial advice and pay them to give some to you. Or find some resources and learn about investing and make sound decisions based on rational, educated thought. I advise paying someone to help you set something up. It's a heck of a lot less work and a lot quicker.
posted by Justinian at 9:34 PM on October 10, 2008

Wait until there haven't been any front-page headlines about the stock market for at least two weeks if you want to buy in while it's cheap. That's when things are likely to have stabilized at the bottom.

Then you miss the first 10 days of recovery, which is where you make most of your money, historically speaking. Also, if you think the market is close to the bottom, the old reliable dollar cost averaging doesn't do you all that many favors, either. Lump sum works best at the bottoms. Annoying but so far it's been the case.

While it's easy enough to time the top, there is no way to time the bottom. This is why there are no Warren Buffets of the market timing philosophy thus far, though maybe someone smarter than you or me will figure it out someday.
posted by small_ruminant at 9:58 PM on October 10, 2008

Have you considered that $100k might buy you a significant chunk of a house these days?
posted by Netzapper at 10:07 PM on October 10, 2008

Tkolar is a bit tin-foil hat.

Lehman Brothers, joined the NYSE in 1887, bankrupted 2008
Merrill Lynch, founded in 1914, forced sale to Bank of America 2008
Bear Stearns, founded in 1923, bankrupted 2008
Morgan Stanley, founded in 1935, sold to Mitsubishu 2008

Goldman Sachs, founded 1869, out of brokerage business, now "bank holding" as of 2008

These five companies all had one thing in common: they were all chock full of the finest market analysts in the world. (You'll also note that four out of five of these investment brokerages survived the great depression.)

When all five of those companies -- basically the major players on Wall Street for the last 70 years -- all go bankrupt or otherwise halt their trading activities in a single year, I hope you'll forgive me for being a bit conservative in my investment advice.

For the record, I've got all my non-401k money in State Of California municipal bonds that are insured by Berkshire-Hathaway. The 401k money stays in the index funds. I'd recommend muni bonds for the OP, but I suspect their tax situation is different from mine.
posted by tkolar at 10:37 PM on October 10, 2008 [1 favorite]

Whatever you do with the money, keep the word "diversification" in mind. Maybe you want 10% in the market, maybe a little more, maybe a lot less. Even with the expected long-term returns from buying now you are probably best off limiting your exposure to stocks as a novice. And I cannot say this strongly enough. It wouldn't be unwise to put anywhere from 50 to 100% in something guaranteed like FDIC-insured CDs. Or something you can actually use like a house. That's the safe way to handle a windfall like this.

But sure, you wouldn't do yourself wrong to expand your risk a dip a toe into something with higher returns like an index fund.

Do NOT start out trying to pick stocks unless you give yourself only a sandbox to play with, $1000 or so. Learn, but don't bet the (literal) bank.
posted by dhartung at 2:26 AM on October 11, 2008

The key is

1. If you talk to an advisor make sure they work on a flat fee basis. You don't want them influenced by commissions. If you go to Vanguard or Fidelity or Putnam Etc. You can use their research tools online. Morningstar charts, etc. Remember the past year will tilt things horribly, so you want good funds that have sound research fundamentals.
2. Be diversified with any investment strategy a variety of Mutual funds, bonds or bond funds, emergency cash, and set it up so that you are investing over time. This is called Dollar cost averaging. Also if you plan it well this can continue beyond your initial 100K.
3. Don't get smart. Don't try to time the market. see #2 above
posted by Gungho at 4:48 AM on October 11, 2008 [1 favorite]

I can’t tell you what to do with your money, but I can tell you what I did with mine.

In 1986, I inherited $72,000. I asked someone close to me, who was the smartest person I knew with money, what she did, and she recommended her broker at A.G Edwards. As I was a student and needed the income, R. recommended a high-income mutual fund that was heavily invested in Fannie Mae (bear with me.)

Three years later, I got married, discovered he had $10,000 in credit card debt, and paid it off for him (he was a student and the debt was completely understandable) . I went back to my broker and moved the money into a balanced mutual fund, with dividends reinvested, as between the two of us we had a reasonable income.

Two years after that, we bought a house, and I used about $2000 for the down payment (the rest, we had saved. )

In 1994, we started a business together. We initially invested $20,000, and later added another $10,000, by selling mutual fund shares. We subsequently smoked a fuckton of metaphorical crack, i.e. we lost the business and the money, but we eventually forgave each other, and the education was invaluable.

What was left of that mutual fund remains today. It has tripled in value, losing about 5% last quarter, which I can live with. I’m happy that I have a triple-digit net worth.

FWIW, I invested $10,000 in a S&P Index fund a couple of hours ago. This financial crisis will pass.

Your inheritance gives you security that most people do not have – enjoy it.
posted by found dog one eye at 10:41 PM on October 11, 2008

You are 30, single, no debts and no immediate need for a free 100K?! My friend, you don't need financial advice, you are better off than 90% of the banks out there; you could give self-help seminars to ibankers.
posted by roquetuen at 1:31 AM on October 12, 2008

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