How to invest a $75,000 inheritance
August 8, 2011 1:09 PM   Subscribe

I am about to inherit a significant, but not enormous, amount of money. How do I manage this process without making myself insane or losing it all? Help me set up a basic investment plan.

These questions get asked a lot on AskMe, but here are my special snowflake details:

I am about to receive a mid-to-high five figure check (exact number TBD, but let's call it $75,000) following the sale of a property that I inherited a share of after my father's and grandfather's deaths in 2003. I am totally and completely clueless about money and a little bit freaked out about this.

I am a renter in a very pricey east coast city and I earn about $50,000 a year. I'm single and in my late 20s and I don't intend to stay in this city longer than the next couple years. I have no debt of any kind and a five year old car that's paid off and in good condition.

My current savings are around $12,000 in a TSP account (the federal government version of a 401k) invested in a lifecycle fund, $3,000 invested in index funds in an etrade account and a couple grand in a "high interest" savings account for emergencies. I have maxed out the matching contribution to my TSP and I feel like I am in decent, but not spectacular, financial shape.

My question is what the heck do I do with all this money? I know literally nothing about investing. Should I pay to talk to a financial planner? A tax accountant? Bonus points if you have recommendations for good people in the DC metro area.

Start me at the very simple basics. I don't even know whether I will owe taxes on this money.

I'd like to peel off a few thousand dollars from this windfall for fun (new laptop etc) and for some charitable and political contributions. After that I'm really at a total loss. I'd like to put some away for retirement and some for an eventual home purchase. What's the best way to do this?

Watching the ride the market has been on for the past week has not filled me with a zeal for investing. Ideally, I'd like to dump the money somewhere and not really mess with it much. Given the current economic volatility is there anything in particular I should be aware of or watch out for?

Finally, when the check actually arrives, what do I do with it? I've never dealt with anywhere near this sum of money. Do I put it in my checking account? My high interest (ha!) savings account? Go to the bank and open some kind of new account with it? I mean it when I say that I am totally clueless about this stuff.

TL;DR Version of My Saga: I somehow made it to nearly 30 without knowing anything about money. I need the MeFi Investment Squadron to help me turn an unexpected windfall into a manageable portfolio.
posted by fancypants to Work & Money (18 answers total) 5 users marked this as a favorite
At the moment, put the money in an insured bank account, until the market settles. In the meantime get recommendations from people who you respect and have a history of sound investments as to financial advisors.
posted by tomswift at 1:13 PM on August 8, 2011

You would be wise, as a first step, to put it ALL in a six-month CD or a few six-month CDs, and do your financial planning with the money "untouchable." That will stop you from making any unwise rash decisions while you further determine the best way to steward the money.
posted by juniperesque at 1:31 PM on August 8, 2011 [3 favorites]

Yes, take the check to a teller at your bank and deposit it. It will take a while to clear, maybe several weeks. CDs/ term deposits are an easy and safe thing you can put the money into, just by requesting it from the teller at the bank. You choose the time period.
posted by Paquda at 1:33 PM on August 8, 2011

I had something similar happen, but a few years ago and about half the money you threw out as a figure.

I took out $3,000 as a 'fun fund', and I bought a laptop. Charitible and political contributions also came out of this fund.

I then took $10,000 and maxed out my ROTH IRA contributions for the next two years.

I then took the rest and put it in CDs. I did have some people who wanted me to invest in the market, but I didn't do that. I'm risk averse, and I don't understand the market enough to invest in it.
posted by spinifex23 at 1:44 PM on August 8, 2011

What's your time-frame of what you'd like to do something with this money? If it's all going to your retirement fund, you may as well throw it all into an broad mix of index funds and move on with life, but if you hope to use it in 5 years as say a down payment, then it should be in insured term deposits. If you need only say $10K now and the rest in 20 years, then $10K should be in insured deposits and the rest can be higher risk. I second what juniperesque said and to stash the money locked in for now while you clear your head and decide what's the best use with this money. It may also be worth thinking about topping up your ROTH if you can.

If it were me, I'd take 5% of it to play with and the rest would end up in my retirement funds.

You'll probably get the money from your lawyer in a money order or cheque (if it's really big they may ask to wire it), which you can initially deposit into any bank account. You may have to go through a manager with that much money, so don't just try and deposit it via an ATM.

IANA accountant/lawyer, but you should be well within the exemption limits with respect to inheritance taxes.
posted by hylaride at 1:45 PM on August 8, 2011

- Don't invest in the stock market if you want the money for something in the next 3 years.
- Don't invest in anything that you don't understand
- Don't invest in something because someone tells you to.

Park the money for 6 months, figure out when you are going to spend it (today, 5 years from now, 40 years from now) then start learning about your options. When you know what you want, and have a plan for achieving it, then you should do something with it.
posted by blue_beetle at 2:06 PM on August 8, 2011

Calculate how much you need to live on for at least 6 months (preferably a year), and have that much stashed away as an emergency fund in something easily liquidated (check various CDs for how long it will take to get your money out, and what penalties apply). A few K is not enough, think of the worst case scenario -- you get in a costly car accident with medical costs, and lose your job in the same week.

I'd plan on maxing out my ROTH and 401k for the next few years. This doesn't really absolve you from making investment decisions though, since you'll have to invest your 401k and ROTH money in something. Try to take a local community college class on investing and money management, preferably from someone who does not have a conflict of interest in trying to get your funds.
posted by benzenedream at 2:09 PM on August 8, 2011

Response by poster: I see lots of folks recommending CDs. Why are those preferable to money market or other accounts at this point? I don't see an appreciable difference in the interest rate being paid.
posted by fancypants at 2:16 PM on August 8, 2011

If you're not in a rush, you can always bond the money and double it guaranteed.
posted by stormpooper at 2:26 PM on August 8, 2011

I see lots of folks recommending CDs. Why are those preferable to money market or other accounts at this point? I don't see an appreciable difference in the interest rate being paid.

CDs should have a higher interest rate than money market accounts. The difference might be slight for the shortest-term CDs. But the longer the term, the higher the rate. Aside from rate, people are recommending them for a psychological reason: the money is locked-in for the term, so you put it out of reach of yourself. It makes sense to put away a good chunk in that way: for a rainy day or until you know better what you want to do with it.
posted by Paquda at 2:31 PM on August 8, 2011 [1 favorite]

After that I'm really at a total loss. I'd like to put some away for retirement and some for an eventual home purchase. What's the best way to do this?

I agree with the comments to put your money in a very low risk savings account, money market fund, or CD since you are nervous about the money. The money will be safe and provide you a chance to focus on what your goals are with it.

It appears you are already saving for retirement. Should your next life goal be the purchase of a home and that purchase is less than 5 years away these low risk investments is the best place for this money.
posted by BuffaloChickenWing at 2:35 PM on August 8, 2011

Ally's got a 2.3% APY 5-year CD, which is a good bet if you don't expect interest rates to go that high at any point during the next 5 years, or to be able to invest your money for a better return (and at essentially zero risk).
posted by schmod at 2:37 PM on August 8, 2011 [1 favorite]

Ally also has a very generous penalty policy (60 days of interest) if you do need to pull the money out early.
posted by letitrain at 3:06 PM on August 8, 2011

Talk to a financial planner! Yes! This is exactly what they're for, and they'll be able to ask you questions about timeframes, goals, and risk. Seriously, if you don't know what you're doing with money, talk to a financial planner. They've helped So Many of the people I know!
posted by ldthomps at 5:48 PM on August 8, 2011

You might check out The Only investment Guide You'll Ever Need, by Andrew Tobias. It's a fairly easy read, and I like his general attitude about money and finances. And he offers specific advice about what to do with a windfall. First step: treat yourself to a nice dinner out.
posted by Bron at 6:10 PM on August 8, 2011

1. Do not get a financial planner. 99% of the time they will not be all that helpful and will charge you significant fees.

2. If you ignore number one, be certain that you have a fee-based financial planner that does not receive any compensation from selling funds.

3. If I were you I would put a majority (if not all) of your money into the fund TRRMX. It is a target date fund with a very low expense ratio (less than 1%). It allocates investments differently over the course of your life so that you have very conservative investments when you're old and more aggressive now.

4. Do not buy individual stocks.

5. Buy term life insurance if you have a family that depends on you.

6. If you invest in the fund, don't buy it all in one swoop. Buy it in small portions over a period of time. (e.g. 5,000 a month every other month) that way you will get the average return on the market and not buy high.

7. Good luck! Go out and buy some stuff to spur the economy while you're at it:)
posted by gibbsjd77 at 9:47 PM on August 8, 2011 [1 favorite]

Also, consider looking into a Roth IRA. I'm not sure if you would be eligible, but you can apply online with your brokerage. If you are eligible, you should max out the contribution (5,000 yearly) and invest it in a target date fund. That will be very helpful when retirement rolls around.
posted by gibbsjd77 at 9:49 PM on August 8, 2011

Someone once told me that it's more significant if you can do a lot with a little. That being said, I would focus on being frugal as possible and looking at everything, as far as your nest egg goes, as ROI (return on investment).

Like what's the return on my investment from purchasing this vehicle?


What's the ROI for renting vs buying a place?

posted by BobbyDee at 10:40 AM on August 12, 2011

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