I'm wondering what to do with $100,000 in cash.
April 19, 2016 9:37 AM   Subscribe

I'll be getting a nice chunk of change fromt the passing of a family member. I'm looking for a little financial advice on what I should do with it.

My wife and I make about $120,000 combined. We are both in our early 40s. No children. We have no debt other than our home. We owe $114,000 on a 15 year fixed. We have about $225,000 in investments (IRAs, Taxable accounts) and about $50,000 cash ($10,000 in a normal checking account. $35,000 emergency fund in a higher interest rate savings account). We both contribute the maximum per year to our IRAs. My wife will have a pension of about $2400 per month in retirement.

My thought is put the whole amount of $100,000 into our taxable investment account. All of our accounts have a good mix of stocks and bonds. Currently, all investment accounts are at 90% stocks and 10% bonds. Additionally, I thought I would reduce our cash holdings to a more realistic $15,000 emergency fund, and invest the remaining $35,000 into our taxable investment account.
posted by Jackie_Treehorn to Work & Money (14 answers total) 2 users marked this as a favorite
Your plan seems very reasonable. No reason to treat this money any differently than the money you already have. If you have access to an employer-sponsored plan that you're not maxing out (401, 403, 457) then max that out for the year. But it sounds like you probably don't, and anyway that would only take a chunk of the money.

Hard to say how much you should have in your emergency fund without knowing your expenses, but $15K seems reasonable for two earners with your income and investment holdings.
posted by mskyle at 9:50 AM on April 19, 2016

My thought is put the whole amount of $100,000 into our taxable investment account.

As a married couple, together you make under the Roth IRA limits and could put the contribution limit ($5500) into a Roth IRA each year. You pay the tax up-front and withdraw tax-free. If you did that over several years, that would give you a nice adjunct to your taxable retirement funds.
posted by a lungful of dragon at 9:51 AM on April 19, 2016 [1 favorite]

Agree with mskyle, what's the state of your 401/403/457 contributions -- do you have those available? If so, you could max those out for a couple of years and use parts of the windfall for living expenses.

You might also want to think about something like Lending Club. I've been using it for overflow investment money for about the last year or so, and my interest rate hovers just above 8%.
posted by jabes at 9:55 AM on April 19, 2016

Sounds like a decent plan in general but you haven't said anything about what you'd like to use the money for.

I'd put this into something less volatile than 90% stocks (bond index or high-interest savings) while you try to figure out what you want to do with the money.

If you see this as helping to contribute toward your retirement, your plan sounds pretty good. But if you have the option to contribute to 401(k)s or similar, you might be better off starting/increasing your contribution toward that account, and using some of this to make up the difference in your take-home pay.

If you think this is something you'd want to use sooner than in 10+ years (e.g., buy a timeshare, boat, etc.) 90% stocks sounds a bit risky for the time horizon you'd be looking at.

If you think you might ultimately want to do something else with the money (fund a relative's college? donate some money?) there might be other tax-advantaged things you could do now (put some of the money in a 529/donor-advised fund).

But, again, your plan (invest it and figure it out later) basically sounds like a fine approach.
posted by _Silky_ at 9:56 AM on April 19, 2016 [1 favorite]

I hate debt, so personally I'd be tempted to just pay off the mortgage, even though I know that I could get a higher rate of return by investing it. I put a lot of value in the peace of mind that comes with not owing anyone a penny...
posted by primethyme at 10:00 AM on April 19, 2016 [5 favorites]

You might want to look at this question, asked just a few days ago. Not sure how it compares with regard to detail, but hey, there it is.
posted by whoiam at 10:11 AM on April 19, 2016

How would your life change if you didn't have to make a mortgage payment?

I vote for paying down the mortgage.
posted by Ruthless Bunny at 10:23 AM on April 19, 2016 [1 favorite]

Don't pay down the mortgage unless your rate is higher than yields on low-risk investments. It probably isn't. Possibly not even then; interest is tax-deductible. "What if you didn't have to pay a mortgage!" is a false equivalence. Your plan is much better.

Honestly, that's enough money (and your base income is high enough) that you should probably consult a financial planner.
posted by supercres at 10:31 AM on April 19, 2016 [4 favorites]

if you have the option to contribute to 401(k)s or similar, you might be better off starting/increasing your contribution toward that account, and using some of this to make up the difference in your take-home pay.

This is the right answer; put some of it in CD ladders to ensure that you can max your 401k (or 457 or 403b) contributions every year for the next 5-10 years. It also gives you some time to feel out what you really want to do with that amount.

It sounds like you're on top of it, generally speaking. I/we, in early 40s, are a bit more conservative than 90/10, but that's a choice on your part.

If your mortgage rate is above, say 4%, then refi (rates are quite low right now) and consider putting some cash in when you do that.

How are you doing on cars, will one need replaced soon?

And there's nothing wrong with a vacation, since you are doing fine otherwise.
posted by Dashy at 12:13 PM on April 19, 2016

Pay off the mortgage. Take money you used to put towards mortgage and put that each month in an index fund in your taxable investment account.
posted by LoveHam at 1:18 PM on April 19, 2016 [1 favorite]

Take a fraction of that and go on vacation. Pay off half your mortgage. Throw the rest into an index fund.

That would be my plan, but I'm no expert. Have you given thought to talking to a financial advisor?
posted by slateyness at 3:53 PM on April 19, 2016

Yes. Put more of your cash into your taxable investment account. With two household earners, you don't need such a large cushion and it could be earning money. Keep in mind that the interest your cash earns is taxed as regular income, not the lower investment rate. Also invest the 100,000 in your investment account. Refi your house if you can get a lower interest rate. Don't pay down your mortgage.
posted by nanook at 6:16 PM on April 19, 2016

There is something very pleasing about paying down the mortgage, but this does seem to call for some kind of three way split, mortgage, investment, splurge (which might included modest home upgrades/diy projects). I'd slice 5 grand off the top to my favorite cause, then spread it around with an eye towards lower monthly mortgage payments and retirement stuff.
posted by vrakatar at 7:02 PM on April 19, 2016

Don't pay off the mortgage.
posted by Pembquist at 7:14 PM on April 20, 2016

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