I'm Inheriting $100,000.00 - Now What??
April 2, 2006 9:05 PM Subscribe
I am Inheriting $100,000.00. I recently learned I have a CD with my name on it as the sole "POD" (Payable On Death) beneficiary. I have a basic understanding of personal finance and investing. I am married, 39 years old with one child. I'm really a little lost with this. I've been told a hundred grand is not enough to tweak the interest of a financial adviser. Do MeFites have any ideas on how to invest $100,000.00? Should it be Stocks? CDs? Mutual Funds? I would welcome any and all advice - including a sample portfolio if you so desire. Thank you!
pay your taxes, pay down your debt (starting with the highest-interest items) - and then invest the rest.
Ask your friends and family about a financial advisor that they trust, then do your homework. This is not a one-time meeting, financial advisors build a relationship with you over years, not as a one-time investment opportunity.
I advise you to steer away from financial advisors that receive commissions from the mutual funds that they sell (they must disclose this). Instead, look for more 'advice' than 'financial' at this stage.
posted by seawallrunner at 9:17 PM on April 2, 2006
Ask your friends and family about a financial advisor that they trust, then do your homework. This is not a one-time meeting, financial advisors build a relationship with you over years, not as a one-time investment opportunity.
I advise you to steer away from financial advisors that receive commissions from the mutual funds that they sell (they must disclose this). Instead, look for more 'advice' than 'financial' at this stage.
posted by seawallrunner at 9:17 PM on April 2, 2006
Response by poster: My understanding is that since it is an inheritance, it is tax-free except for the interest earned up until the point of my claiming the inheritance.
--------
posted by Gerard Sorme at 9:18 PM on April 2, 2006
--------
posted by Gerard Sorme at 9:18 PM on April 2, 2006
Response by poster: Concerning the tax comment above, I should have noted I am in the United States.
posted by Gerard Sorme at 9:20 PM on April 2, 2006
posted by Gerard Sorme at 9:20 PM on April 2, 2006
I think before you do anything you have to decide what you want the end result to be. Do you want to use this money for your own retirement? Fund your child's college career? Pay off your student loan or other debts?
Once you know that, figuring out exactly what to do with it should follow. For example, paying off your car, your home, might be a really helpful step, but if you don't have a lot of debt you might think about investing it in a way that will benefit your retirement. Ditto on getting a financial advisor, and honestly, they will talk to anyone - you pay them for their time, and they give you advice. They don't care about how much you have, and I would think walking in with that amount of money would make you stand out - that is a lot of money, and you aren't tweaking their interest, you are paying for their time - its like hiring a lawyer to draw up your will - they aren't going to say no because you don't have interesting enough assets. :)
posted by sperare at 9:25 PM on April 2, 2006
Once you know that, figuring out exactly what to do with it should follow. For example, paying off your car, your home, might be a really helpful step, but if you don't have a lot of debt you might think about investing it in a way that will benefit your retirement. Ditto on getting a financial advisor, and honestly, they will talk to anyone - you pay them for their time, and they give you advice. They don't care about how much you have, and I would think walking in with that amount of money would make you stand out - that is a lot of money, and you aren't tweaking their interest, you are paying for their time - its like hiring a lawyer to draw up your will - they aren't going to say no because you don't have interesting enough assets. :)
posted by sperare at 9:25 PM on April 2, 2006
In your lifetime, you will probably (unless you're already fairly affluent) always have debt. OTOH, saving 100K is ridiculously difficult. My advice? Pay off high interest cards. Pay taxes, if any. But do not use that money to pay off car loans or mortgages. Trust me.
It is far easier to pay back the loan and use the extra cash you have (since you're paying less on your mortage every month) on stupid shit than it is to save that money. But if you save that money now and promise yourself that you'll never touch it, in a few years you'll be amazed at how much wealthier you are. I don't have any specific investment advice, but just don't spend it paying large loans.
posted by SeizeTheDay at 9:29 PM on April 2, 2006
It is far easier to pay back the loan and use the extra cash you have (since you're paying less on your mortage every month) on stupid shit than it is to save that money. But if you save that money now and promise yourself that you'll never touch it, in a few years you'll be amazed at how much wealthier you are. I don't have any specific investment advice, but just don't spend it paying large loans.
posted by SeizeTheDay at 9:29 PM on April 2, 2006
I'd buy a nice 150-175K townhouse in a college community (or two) and get positive cash flow from rent on a low mortgage, plus significant appreciation in long term value.
posted by visual mechanic at 9:30 PM on April 2, 2006
posted by visual mechanic at 9:30 PM on April 2, 2006
if you want a CD, try PenFed.com for the best crates. (Government guaranteed, Credit Union)
posted by Izzmeister at 9:41 PM on April 2, 2006
posted by Izzmeister at 9:41 PM on April 2, 2006
Best answer: 1) Pay any taxes. (Consult a tax advisor or accountant NOW, don't wait until next April. Well, actually, you may want to wait until April 15, since they're going to be very very busy between now and then.)
2) Any debt you have that's costing you more than, say, 5-6%, apply it to the debt, highest rate(s) first.
3) If you don't have an emergency fund, open a savings account at Emigrant Direct, HSBC Direct, GMAC Bank, or ING Direct (anyplace with a relatively high rate) and stash 6-12 months' worth of living expenses there.
4) If you can avoid touching the rest for at least 10 years, I suggest index mutual funds. Diversify! Get a copy of the book "The Intelligent Asset Allocator" to help you figure out what proportion you should have in US stocks, foreign stocks, bonds, T-bills, REITs, etc. (depending on your risk tolerance). The closer you get to needing the money, the more you should be into low-risk investments and the less you should be in stocks. This applies whether you intend to use the money for retirement or your child's college tuition.
5) If you have been wanting to do some home improvement, that could be a good investment of the money, especially if it's a new kitchen -- I hear those can really help your resale value. But don't take my word for it, you'll want to look around at local property values, maybe talk to a friend who's a real estate agent if you have one.
6) You may also have enough left for a good down payment on a rental property. With a high enough down payment, you can easily set the rent to cover the mortgage payments. (And that just gets easier as time goes on, because rents will go up while your mortgage payment stays fixed.) After the rental property is paid for, of course, rents become pure profit, and if you sell the property, you get equity that someone else paid for! Depends on whether you want to be a landlord, of course -- it's definitely not for everyone -- but most of the truly financially secure people I know own at least one rental property.
A financial adviser will help you out with #4 easily, but I just wanted to throw out #5 and #6 in case you hadn't considered them.
posted by kindall at 9:42 PM on April 2, 2006 [1 favorite]
2) Any debt you have that's costing you more than, say, 5-6%, apply it to the debt, highest rate(s) first.
3) If you don't have an emergency fund, open a savings account at Emigrant Direct, HSBC Direct, GMAC Bank, or ING Direct (anyplace with a relatively high rate) and stash 6-12 months' worth of living expenses there.
4) If you can avoid touching the rest for at least 10 years, I suggest index mutual funds. Diversify! Get a copy of the book "The Intelligent Asset Allocator" to help you figure out what proportion you should have in US stocks, foreign stocks, bonds, T-bills, REITs, etc. (depending on your risk tolerance). The closer you get to needing the money, the more you should be into low-risk investments and the less you should be in stocks. This applies whether you intend to use the money for retirement or your child's college tuition.
5) If you have been wanting to do some home improvement, that could be a good investment of the money, especially if it's a new kitchen -- I hear those can really help your resale value. But don't take my word for it, you'll want to look around at local property values, maybe talk to a friend who's a real estate agent if you have one.
6) You may also have enough left for a good down payment on a rental property. With a high enough down payment, you can easily set the rent to cover the mortgage payments. (And that just gets easier as time goes on, because rents will go up while your mortgage payment stays fixed.) After the rental property is paid for, of course, rents become pure profit, and if you sell the property, you get equity that someone else paid for! Depends on whether you want to be a landlord, of course -- it's definitely not for everyone -- but most of the truly financially secure people I know own at least one rental property.
A financial adviser will help you out with #4 easily, but I just wanted to throw out #5 and #6 in case you hadn't considered them.
posted by kindall at 9:42 PM on April 2, 2006 [1 favorite]
Response by poster: Interesting thoughts from everyone. sperare, good points.
More info: Believe it or not - we are already debt-free. Both cars finally paid off. Credit cards used only in emergencies with zero balances. No mortgage. BUT, that may be important, because we rent. Maybe we should put it all into a home? Large down payment on a home and invest the rest? This is all so new.
posted by Gerard Sorme at 9:43 PM on April 2, 2006
More info: Believe it or not - we are already debt-free. Both cars finally paid off. Credit cards used only in emergencies with zero balances. No mortgage. BUT, that may be important, because we rent. Maybe we should put it all into a home? Large down payment on a home and invest the rest? This is all so new.
posted by Gerard Sorme at 9:43 PM on April 2, 2006
Any debt you have that's costing you more than, say, 5-6%, apply it to the debt, highest rate(s) first.
And I should add, since SeizeTheDay has an excellent point about how easy it is to spend money that used to go toward servicing debt -- set up a savings account at ING, HSBC, GMAC, Emigrant, etc. and set up an automatic monthly transfer into savings in the amount of your former payment on the paid-off debt. That way you won't be as tempted to raise your spending.
posted by kindall at 9:45 PM on April 2, 2006
And I should add, since SeizeTheDay has an excellent point about how easy it is to spend money that used to go toward servicing debt -- set up a savings account at ING, HSBC, GMAC, Emigrant, etc. and set up an automatic monthly transfer into savings in the amount of your former payment on the paid-off debt. That way you won't be as tempted to raise your spending.
posted by kindall at 9:45 PM on April 2, 2006
Response by poster: kindall, I posted without seeing your response. I like several of your ideas. Thanks for taking the time to share them.
posted by Gerard Sorme at 9:45 PM on April 2, 2006
posted by Gerard Sorme at 9:45 PM on April 2, 2006
About financial advisors: A hundred grand isn't enough to talk to wealth managers, who manage millions for clients, but it's more than enough to talk to a financial advisor. The other answers' caveats on financial advisors are good ones, but from the question it sounds like you'd confused them with the big players.
posted by mendel at 9:47 PM on April 2, 2006
posted by mendel at 9:47 PM on April 2, 2006
Yeah, if you have no debt and don't own a house -- well, the best time to buy a home would have been last year or the year before, but definitely consider buying a house. Since the money's a total windfall, you could sink most of it into the down payment (though I still advise the emergency fund). I bet you'll be able to get a way nicer place for less than you're paying each month in rent now.
posted by kindall at 9:48 PM on April 2, 2006
posted by kindall at 9:48 PM on April 2, 2006
Yes, buy a house. Don't spend it all on the downpayment. I don't know where you live, but hopefully you could find an agreeable property for no more than 350k - that means you can put 20% down and avoid PMI. After closing costs and moving expenses you should be left with about $20k, which you can then use to fix niggling house issues/buy furniture/buy appliances/get a lawnmower/BBQ/dog/whatever. Yeah, don't plan on "investing" the extra money left over when you purchase a house, as the expenses associated with first time home ownership will eat the capital.
posted by crazycanuck at 9:54 PM on April 2, 2006
posted by crazycanuck at 9:54 PM on April 2, 2006
I bet you'll be able to get a way nicer place for less than you're paying each month in rent now.
Yes! and then take the difference between your old rent payment and your new mortgage, and invest it -- set up an automatic transfer.
Making regular contributions is the most important thing you can do for your investments, regardless of where they go (as long as your target is the medium- to long-term). Start with an index fund as Kindall suggested above (also, reading "The Intelligent Asset Allocator", or his second book, "the 4 pillars of investing" (don't get bogged down in the slow early chapters) will help with asset allocation)
posted by misterbrandt at 10:01 PM on April 2, 2006
Yes! and then take the difference between your old rent payment and your new mortgage, and invest it -- set up an automatic transfer.
Making regular contributions is the most important thing you can do for your investments, regardless of where they go (as long as your target is the medium- to long-term). Start with an index fund as Kindall suggested above (also, reading "The Intelligent Asset Allocator", or his second book, "the 4 pillars of investing" (don't get bogged down in the slow early chapters) will help with asset allocation)
posted by misterbrandt at 10:01 PM on April 2, 2006
I'd echo spereare's comments: figure out the goal, first of all, bc that's what any financial adviser (and they won't turn you down; those bastards think long, long term) is going to ask you. Do you have debt, or don't you have debt. If you do, does it cost more to carry it or to pay it off. If the return you can expect from investing the 100K exceeds the interest on the debt, you might want to carry the debt a ways. If you don't have debt, the financial adviser guy/gal is going to ask what your risk tolerance is. They'll say, oh, you're thirtyish, so you can be moderately risky, and then they'll suggest a portfolio for you that gives you moderate exposure to risky sectors, while anchoring the portfolio in some solid blue chips. They'll take note when you tell them you have a kid, and point out that far on the horizon college tuition looms. They'll ask if you if you own a house, or ever intend on buying one. They'll ask if you own a horse, or ever intend on buying one. Or wait, that was 100 years ago. I get mixed up.
I'd just call one of the fuckers, get the lay of the land, let him drool on you for a while, then hang up and hit the *numerous* financial sites out there and get acquainted with the lingo. There's a lot of jazz on these sites bc they basically want you to *invest,* one way or the other, but basically the number one solid rule is: diversify. You want to grow your wad, and you don't want to get nailed. This is the height of maturity. If you do enough research, and commit to giving a fuck, you can figure out the best way to do this -- probably by stealing a portfolio model from someone online: usually they're simple little pie charts, variously labeled 'aggressive' 'less aggressive' 'even less aggressive' or 'wimpy.' the pie slices are usually divided into stuff like: large cap stocks; small cap stocks; overseas stocks; fixed income; cash; tech; politically righteous companies; and so on. this is where online research will help: getting you acquainted with these basic profiles and what they mean.
So, if you're soloing it, then drop the money into mutual funds from different sectors. This is uaually where the controversy crops up. For any mutual fund, there are usually expenses involved: fees of every variety, which you'll have to acquaint yourself with. The question is whether the layer of management you get in exchange for the fees is justified. Generally (and i welcome disagreement, here) the fees are justified if the sector the mutual fund focuses on (overseas, for instance) is one that really benefits from specialized knowledge. I.e., it doesn't take a genius to figure out what's going on with US-based large cap (ie big) companies (altho it may require a modest time commitment). But it really might be useful to have some specialists on board to tell you what the fuck is going on in Latin America. I mean, that's a few full time jobs right there.
So, uh, what was I saying? What to do with the money. I'd turn it over to somebody, I think. Depending on the amount you have, different investment houses will have different 'plans' to offer you, and each plan will offer different stuff and take a different % slice of the pie. this means everything from charging you on a per-transaction basis to simply charging you a yearly fee for everything, like, say, 2%. Remember what it was like deciding on a phone plan? Like that. So maybe call around and figure what all the plans are, and how they compare. I'm sure there's a site online somewhere or other that will break it down for you. Let me know what you find out.
Do you have a Roth? that's something else they'll ask. If not, then you can start building that at the same time. What's the advantage of a roth? ask your investment guy. Ican't always be ehre for you. I'm too drunk.
posted by It ain't over yet at 10:02 PM on April 2, 2006
I'd just call one of the fuckers, get the lay of the land, let him drool on you for a while, then hang up and hit the *numerous* financial sites out there and get acquainted with the lingo. There's a lot of jazz on these sites bc they basically want you to *invest,* one way or the other, but basically the number one solid rule is: diversify. You want to grow your wad, and you don't want to get nailed. This is the height of maturity. If you do enough research, and commit to giving a fuck, you can figure out the best way to do this -- probably by stealing a portfolio model from someone online: usually they're simple little pie charts, variously labeled 'aggressive' 'less aggressive' 'even less aggressive' or 'wimpy.' the pie slices are usually divided into stuff like: large cap stocks; small cap stocks; overseas stocks; fixed income; cash; tech; politically righteous companies; and so on. this is where online research will help: getting you acquainted with these basic profiles and what they mean.
So, if you're soloing it, then drop the money into mutual funds from different sectors. This is uaually where the controversy crops up. For any mutual fund, there are usually expenses involved: fees of every variety, which you'll have to acquaint yourself with. The question is whether the layer of management you get in exchange for the fees is justified. Generally (and i welcome disagreement, here) the fees are justified if the sector the mutual fund focuses on (overseas, for instance) is one that really benefits from specialized knowledge. I.e., it doesn't take a genius to figure out what's going on with US-based large cap (ie big) companies (altho it may require a modest time commitment). But it really might be useful to have some specialists on board to tell you what the fuck is going on in Latin America. I mean, that's a few full time jobs right there.
So, uh, what was I saying? What to do with the money. I'd turn it over to somebody, I think. Depending on the amount you have, different investment houses will have different 'plans' to offer you, and each plan will offer different stuff and take a different % slice of the pie. this means everything from charging you on a per-transaction basis to simply charging you a yearly fee for everything, like, say, 2%. Remember what it was like deciding on a phone plan? Like that. So maybe call around and figure what all the plans are, and how they compare. I'm sure there's a site online somewhere or other that will break it down for you. Let me know what you find out.
Do you have a Roth? that's something else they'll ask. If not, then you can start building that at the same time. What's the advantage of a roth? ask your investment guy. Ican't always be ehre for you. I'm too drunk.
posted by It ain't over yet at 10:02 PM on April 2, 2006
Best answer: Renting vs. owning is tricky, given that we don't know where you live. If you're in a rent controlled apartment in Manhattan, for instance, it's probably better to stay there than bestow a million dollar mortgage on yourself.
However, if you're somewhere where you can buy a decent house for a few hundred grand, then buying is probably smart. Putting 30-50K down on the house with a 20-year mortgage will have your house free and clear by the time you're ready to retire. I'm a Canadian so I'm not sure about the US, but there are significant tax breaks and financial incentives available for first time buyers in Canada, and I'm sure it's the same there.
I agree with the above about the rental property, too. That, and diversity in a stocks/mutual fund portfolio.
While I'm no financial wizard, personally I'd
1. Buy a house with a 30K down payment (assuming a ~200k house).
2. Put 10K down on a condo or cheap house and rent it.
3. Put 40K into two or three mutual funds.
4. Put 10K into lower risk blue-chip stocks.
5. Put 10K into med/high risk stocks.
Whenever possible, shelter the mutual fund investment in a retirement savings plan. In Canada our retirement savings plan contributions are income tax free - I'm assuming there's something similar in the US.
posted by jimmythefish at 10:02 PM on April 2, 2006
However, if you're somewhere where you can buy a decent house for a few hundred grand, then buying is probably smart. Putting 30-50K down on the house with a 20-year mortgage will have your house free and clear by the time you're ready to retire. I'm a Canadian so I'm not sure about the US, but there are significant tax breaks and financial incentives available for first time buyers in Canada, and I'm sure it's the same there.
I agree with the above about the rental property, too. That, and diversity in a stocks/mutual fund portfolio.
While I'm no financial wizard, personally I'd
1. Buy a house with a 30K down payment (assuming a ~200k house).
2. Put 10K down on a condo or cheap house and rent it.
3. Put 40K into two or three mutual funds.
4. Put 10K into lower risk blue-chip stocks.
5. Put 10K into med/high risk stocks.
Whenever possible, shelter the mutual fund investment in a retirement savings plan. In Canada our retirement savings plan contributions are income tax free - I'm assuming there's something similar in the US.
posted by jimmythefish at 10:02 PM on April 2, 2006
Regarding the home-buying thing: I think this decision (fill'er up, bartender) falls under the diversification heading. You want to spread your shit out, so if you can make a downpayment that leaves enough $ free to invest in other sectors to keep you well-balanced, well, then, okay, so long as the cost of carrying the mortgage is cheaper than the rent (right guys?).
But as someone said above, it also depends where you live. I'm in NYC and this issue is, uh, poignant for me bc I just bought a joint. I asked my guy about it and my guy sez, 'Well, everyone's cognizant of the fact that things are chilling in the real estate sector, meaning money is moving into equities, meaning equity might mean a better investment right now.'
All of which is to say, this is more about learning what questions to ask, than figuring out the answers. Learn the questions, ask them til you're heart's content, then get out the oujia board. (did i spell that rite?)
posted by It ain't over yet at 10:12 PM on April 2, 2006
But as someone said above, it also depends where you live. I'm in NYC and this issue is, uh, poignant for me bc I just bought a joint. I asked my guy about it and my guy sez, 'Well, everyone's cognizant of the fact that things are chilling in the real estate sector, meaning money is moving into equities, meaning equity might mean a better investment right now.'
All of which is to say, this is more about learning what questions to ask, than figuring out the answers. Learn the questions, ask them til you're heart's content, then get out the oujia board. (did i spell that rite?)
posted by It ain't over yet at 10:12 PM on April 2, 2006
so long as the cost of carrying the mortgage is cheaper than the rent (right guys?).
Well...this is also tricky. If you never buy, figure that you're paying rent until the day you die - with no house. If you buy, you're of course owning the house outright when the mortgage is up.
However, there are more issues. Maintenance on your owned property is your responsibility. There are property taxes and (perhaps) strata fees.
Basically, buying is betting that you can make more money on the house than you could with the difference in owning vs. renting in other equity investments. There's also the benefit of having your own place. Typically, for the average non-Warren Buffet, buying is safer and easier on the nerves.
posted by jimmythefish at 10:21 PM on April 2, 2006
Well...this is also tricky. If you never buy, figure that you're paying rent until the day you die - with no house. If you buy, you're of course owning the house outright when the mortgage is up.
However, there are more issues. Maintenance on your owned property is your responsibility. There are property taxes and (perhaps) strata fees.
Basically, buying is betting that you can make more money on the house than you could with the difference in owning vs. renting in other equity investments. There's also the benefit of having your own place. Typically, for the average non-Warren Buffet, buying is safer and easier on the nerves.
posted by jimmythefish at 10:21 PM on April 2, 2006
If you have significant non-mortgage debt, consider this option BEFORE paying it off:
1) Invest the $100,000 entirely in a short-term vehicle that can be liquidated on demand. The return will be negligible but that is not your first concern.
2) Ask your bank for a line of credit secured against this $100,000. Insist on an interest rate at or below prime.
3) Consolidate your non-mortage debt with this line of credit.
4) Consistently pay down the debt from your regular income, without touching the $100,000.
5) Once you've demonstrated to the bank over six months or a year that you can service your debt reliably, ask for them to provide the line of credit on unsecured terms, still at or below the prime interest rate.
You can now free up the $100,000 to invest elsewhere for higher returns AND you'll pay off your debt much more easily too since the interest on it is negligible.
posted by randomstriker at 10:28 PM on April 2, 2006
1) Invest the $100,000 entirely in a short-term vehicle that can be liquidated on demand. The return will be negligible but that is not your first concern.
2) Ask your bank for a line of credit secured against this $100,000. Insist on an interest rate at or below prime.
3) Consolidate your non-mortage debt with this line of credit.
4) Consistently pay down the debt from your regular income, without touching the $100,000.
5) Once you've demonstrated to the bank over six months or a year that you can service your debt reliably, ask for them to provide the line of credit on unsecured terms, still at or below the prime interest rate.
You can now free up the $100,000 to invest elsewhere for higher returns AND you'll pay off your debt much more easily too since the interest on it is negligible.
posted by randomstriker at 10:28 PM on April 2, 2006
The "right" answer varies greatly depending on your personal financial situation.
Do you have an emergency fund? Set aside six months of your core unavoidable expenses, and keep it in an accessible interest bearing account.
Will you need money for your child's education? For your own?
Specific suggestion on where to park the money until you sort this out: put it in a GMAC money market account. This earns 4.65%, which would mean around $400 per month to you for your $100k. This is an account you can write checks with and it comes with a check card, and the minimum is only $500.00. The really smart way to use it would be to pay for everything on your credit card and your credit card's bill-pay service, so all of that rolls up into one monthly bill which you electronically pay from your money market account, (You can even do this with mortgage payments, which gets you a month or more of free float if you pay of the credit card bill in full each month).
That's what I suggest for the "right now" answer, until you sort through all the rest of the factors that come into play. And that money market account is great place to leave whatever portion you eventually dedicate to your emergency fund. The money market fund is much more liquid than a CD, and GMAC's rates beat PenFed's short term CDs anyway. I'm a long-time member of PenFed, and I just shifted everything but the last $5.00 out to a high-interest money market account just like the GMAC one I'm suggesting (Corus bank in my case. They're neck-in-neck on rates, but more restrictive on account balances and so forth. Go with GMAC.)
Now is probably a good time to learn about the housing market in your area. Due to current craziness, in some places including my area (DC), renting can actually get you more space at lower cost, despite what kindall said. Home ownership has been a great investment in those areas, but the price frenzy on sales has made renting a bargain in the very short term. Find out if that's true in your area.
Even when handled well, this money may not have much impact on your day-to-day material lifestyle. With care, what it can do is make you and your family secure now, and even more so in the future.
posted by NortonDC at 10:30 PM on April 2, 2006
Do you have an emergency fund? Set aside six months of your core unavoidable expenses, and keep it in an accessible interest bearing account.
Will you need money for your child's education? For your own?
Specific suggestion on where to park the money until you sort this out: put it in a GMAC money market account. This earns 4.65%, which would mean around $400 per month to you for your $100k. This is an account you can write checks with and it comes with a check card, and the minimum is only $500.00. The really smart way to use it would be to pay for everything on your credit card and your credit card's bill-pay service, so all of that rolls up into one monthly bill which you electronically pay from your money market account, (You can even do this with mortgage payments, which gets you a month or more of free float if you pay of the credit card bill in full each month).
That's what I suggest for the "right now" answer, until you sort through all the rest of the factors that come into play. And that money market account is great place to leave whatever portion you eventually dedicate to your emergency fund. The money market fund is much more liquid than a CD, and GMAC's rates beat PenFed's short term CDs anyway. I'm a long-time member of PenFed, and I just shifted everything but the last $5.00 out to a high-interest money market account just like the GMAC one I'm suggesting (Corus bank in my case. They're neck-in-neck on rates, but more restrictive on account balances and so forth. Go with GMAC.)
Now is probably a good time to learn about the housing market in your area. Due to current craziness, in some places including my area (DC), renting can actually get you more space at lower cost, despite what kindall said. Home ownership has been a great investment in those areas, but the price frenzy on sales has made renting a bargain in the very short term. Find out if that's true in your area.
Even when handled well, this money may not have much impact on your day-to-day material lifestyle. With care, what it can do is make you and your family secure now, and even more so in the future.
posted by NortonDC at 10:30 PM on April 2, 2006
There are many financial planners who are willing to teach you how to handle your own money. They charge by the hour. You can go in once a year for a touch up and you can call them if you have occasional questions.
Money managers are for people who either can't or won't manage their own money- maybe they aren't mentally or emotionally up for it, or maybe they aren't interested in spending the kind of time and energy it takes. It's not rocket science. If you have the time and inclination, managing your own money with an annual-or-so check-in is the way to go.
If this will be your only savings, I recommend against putting the whole kit and caboodle in a house. Living as I do in the San Fran Bay Area, I'm against putting any of it in a house, if the house is around here. But again- it's something to discuss with a financial planner.
posted by small_ruminant at 11:03 PM on April 2, 2006
Money managers are for people who either can't or won't manage their own money- maybe they aren't mentally or emotionally up for it, or maybe they aren't interested in spending the kind of time and energy it takes. It's not rocket science. If you have the time and inclination, managing your own money with an annual-or-so check-in is the way to go.
If this will be your only savings, I recommend against putting the whole kit and caboodle in a house. Living as I do in the San Fran Bay Area, I'm against putting any of it in a house, if the house is around here. But again- it's something to discuss with a financial planner.
posted by small_ruminant at 11:03 PM on April 2, 2006
Echoing mendel and small_ruminant, I want to reemphasize that there are plenty of (fee-only) financial planners that handle clients with your assets--indeed, they handle all sizes. No, you won't get a portfolio manager for that sum, but you don't need one, either.
No matter what you do, please be careful. :)
posted by RikiTikiTavi at 1:14 AM on April 3, 2006
No matter what you do, please be careful. :)
posted by RikiTikiTavi at 1:14 AM on April 3, 2006
I would venture that this is precisely the wrong time to buy a home. There may or may not be a real estate 'bubble', but we're not far off the tipping point I don't think, and once the tipping point is reached, hard landing or soft, there are going to be a lot of properties that people bought with the madcap 100% financing mortgages that have been flying around, properties that people will be forced to cough up as interest rates ratchet up.
Depending on location, of course.
Were I you, I'd wait for 18 months or so before I started thinking about real estate, and invest the windfall elsewhere in the meantime. Me, I'm probably waiting until 2010 to step into the market unless there's a hard crash (of which there've been two in the last 22 years in Vancouver), but I'll be looking at Vancouver/Whistler, post-Olympics, probably.
posted by stavrosthewonderchicken at 1:54 AM on April 3, 2006
Depending on location, of course.
Were I you, I'd wait for 18 months or so before I started thinking about real estate, and invest the windfall elsewhere in the meantime. Me, I'm probably waiting until 2010 to step into the market unless there's a hard crash (of which there've been two in the last 22 years in Vancouver), but I'll be looking at Vancouver/Whistler, post-Olympics, probably.
posted by stavrosthewonderchicken at 1:54 AM on April 3, 2006
I'll echo some of what's been said already. A financial advisor will be very happy to talk to you. If you have a sharp tax guy, talk to him too, because he will come at the problem from a different angle (wait until after April 15, though, 'cuz he's really busy right now).
If you choose to buy a new home (and depending on your situation, this is probably a good idea), do not sink too much into the downpayment. What are mortgage rates right now, ~6.5%? A financial advisor will probably tell you that you can earn more than that on your investments (depending on how aggressively you are investing), so if you can put 5% or 10% down and still have monthly obligations that you can cover with your regular income, you are better off earning that difference.
posted by adamrice at 7:03 AM on April 3, 2006
If you choose to buy a new home (and depending on your situation, this is probably a good idea), do not sink too much into the downpayment. What are mortgage rates right now, ~6.5%? A financial advisor will probably tell you that you can earn more than that on your investments (depending on how aggressively you are investing), so if you can put 5% or 10% down and still have monthly obligations that you can cover with your regular income, you are better off earning that difference.
posted by adamrice at 7:03 AM on April 3, 2006
OK two things. $100k is not a lot of money for an investment consultant to get excited about. He/She'd probably tell you...
1. Open a 529 plan for the kid. Try to max it out now (I think you can put 50k into it and take the gift deduction to minors over four or five years. Check with a tax consultant. The rule of compound interest is a modern miracle. by College age you may be able to cover 1 year's tuition (grin)
2. Buy a house. Besides becoming a homeowner (eventually), the interest deduction on your taxes will essentially give you a discount equal to your income tax bracket. e.g. if you pay 25% tax and your interest is $800/month then you are really only paying $600.00
posted by Gungho at 7:14 AM on April 3, 2006
1. Open a 529 plan for the kid. Try to max it out now (I think you can put 50k into it and take the gift deduction to minors over four or five years. Check with a tax consultant. The rule of compound interest is a modern miracle. by College age you may be able to cover 1 year's tuition (grin)
2. Buy a house. Besides becoming a homeowner (eventually), the interest deduction on your taxes will essentially give you a discount equal to your income tax bracket. e.g. if you pay 25% tax and your interest is $800/month then you are really only paying $600.00
posted by Gungho at 7:14 AM on April 3, 2006
I'd say purchasing real estate would be your best bet. In addition, I'm a believer in not having any debt if possible, so I'd say put the whole thing down on a new house.
Tax-wise, I am not a tax guy but I don't believe you will have to pay federal taxes on your inheritance. You might owe state taxes, depending on where you live.
posted by SteveInMaine at 7:18 AM on April 3, 2006
Tax-wise, I am not a tax guy but I don't believe you will have to pay federal taxes on your inheritance. You might owe state taxes, depending on where you live.
posted by SteveInMaine at 7:18 AM on April 3, 2006
If you have an idea of when you'd like to retire, you can consider a lifecycle fund. You buy for a target retirement year, and they manage the fund so that it becomes more conservative as you approach retirement age.
posted by subtle-t at 7:35 AM on April 3, 2006
posted by subtle-t at 7:35 AM on April 3, 2006
Best answer: I've been told a hundred grand is not enough to tweak the interest of a financial adviser. - Gerard Sorme
Don't assume this is correct.
There are financial advisors that wouldn't be interested in working with you, but there's others who would. You don't have to be rich to get help from a planner! This is a common misconception. My husband is financial advisor, and has several clients worth this amount or less, and he is happy to serve them as a part of his business. Because there aren't as many qualified planners available in the US market vs the Canadian one, it may take a little while to find one that will work with you, but don't give up without even trying.
Ask friends / family / co-workers who they're working with, and call up some businesses you find in the phoenbook etc. Make pre-screening appointments with a couple of them, and go in to interview them. Ask them some questions to see how seriously they'll take your business.
Some sample questions to ask:
How do you get paid?
(You want to know if they are getting commissions directly from the companies - most are, which can be okay, but you want to be sure they're being upfront with you.)
How many different product ranges from different companies do you have access to?
(More is better. If they are from Bank A, and they're only able to sell you Bank A mutual funds, loans, etc then they're more likely to be worried about selling a product vs finding what will really meet your needs)
How long have you been in the business, what accreditatations do you have?
(Look for people that are Certified Financial Planners. They're more in demand, but they're less like salespeople.)
How many other clients do you have at a given time?
(The answer to this will have more meaning when you hear several advisors' answers. It will give you an idea of how much time they'll have for you.)
How much money would someone need to have invested through you to warrant your attention?
(Again you're looking for honesty and if this amount is less than the amount you've got.)
If I work with you, what is the minimum service I can expect? What sort of guarantees can you give me?
(Not guarantees about the performance of your portfolio - no one can gaurantee that if any of it is going into stocks, and if they say they can, don't use them! Rather, you're asking about guarantees about how often they'll meet with you, how proactive they'll be in searching for new opportunities for you, etc)
Do you have other experts you can access to assisst with planning? Will they cost me extra money?
(Here you're looking for if they've got a team accountant/lawyer/tax expert that they regularly work with. A good company will have some of that available to their planners without extra charge to the clients.)
And ask for references, especially if they're fee-for-service.
Everyone deserves to get planning assisstance from the professionals, and the smart planners know that while you may only have $100,000 today, you may be worth more in the future, or you may be the satisfied client that refers a bigger deal down the road. Don't sell yourself short just because you aren't a millionairre.
posted by raedyn at 7:49 AM on April 3, 2006
Don't assume this is correct.
There are financial advisors that wouldn't be interested in working with you, but there's others who would. You don't have to be rich to get help from a planner! This is a common misconception. My husband is financial advisor, and has several clients worth this amount or less, and he is happy to serve them as a part of his business. Because there aren't as many qualified planners available in the US market vs the Canadian one, it may take a little while to find one that will work with you, but don't give up without even trying.
Ask friends / family / co-workers who they're working with, and call up some businesses you find in the phoenbook etc. Make pre-screening appointments with a couple of them, and go in to interview them. Ask them some questions to see how seriously they'll take your business.
Some sample questions to ask:
How do you get paid?
(You want to know if they are getting commissions directly from the companies - most are, which can be okay, but you want to be sure they're being upfront with you.)
How many different product ranges from different companies do you have access to?
(More is better. If they are from Bank A, and they're only able to sell you Bank A mutual funds, loans, etc then they're more likely to be worried about selling a product vs finding what will really meet your needs)
How long have you been in the business, what accreditatations do you have?
(Look for people that are Certified Financial Planners. They're more in demand, but they're less like salespeople.)
How many other clients do you have at a given time?
(The answer to this will have more meaning when you hear several advisors' answers. It will give you an idea of how much time they'll have for you.)
How much money would someone need to have invested through you to warrant your attention?
(Again you're looking for honesty and if this amount is less than the amount you've got.)
If I work with you, what is the minimum service I can expect? What sort of guarantees can you give me?
(Not guarantees about the performance of your portfolio - no one can gaurantee that if any of it is going into stocks, and if they say they can, don't use them! Rather, you're asking about guarantees about how often they'll meet with you, how proactive they'll be in searching for new opportunities for you, etc)
Do you have other experts you can access to assisst with planning? Will they cost me extra money?
(Here you're looking for if they've got a team accountant/lawyer/tax expert that they regularly work with. A good company will have some of that available to their planners without extra charge to the clients.)
And ask for references, especially if they're fee-for-service.
Everyone deserves to get planning assisstance from the professionals, and the smart planners know that while you may only have $100,000 today, you may be worth more in the future, or you may be the satisfied client that refers a bigger deal down the road. Don't sell yourself short just because you aren't a millionairre.
posted by raedyn at 7:49 AM on April 3, 2006
I highly recommend reading A Random Walk Down Wall Street. It's a fantastic book on investing that will not only help you understand some basics, but lay out where you should put how much of your money based on your age. Very understandable and very useful.
posted by rachelv at 8:04 AM on April 3, 2006
posted by rachelv at 8:04 AM on April 3, 2006
Be careful when selecting a financial advisor. I made the mistake of using American Express and all the guy did was try to sell me amex's serices (insurance, mutual funds, etc.) Make sure yours is fee-based and unaffiliated with an institution such as amex.
posted by jewzilla at 8:29 AM on April 3, 2006
posted by jewzilla at 8:29 AM on April 3, 2006
Buying a house might not be a bad idea, but do this math first before you buy one if you don't care about renting:
Is... House taxes + Property/Home Maintenance + House Insurance + Average Mortgage Interest (not principal) + House Utilities + Condo fees ...more than... Rent + Apartment Utilities?
In many areas this equation is coming out in favour of rent as house prices have skyrocketed WAY past inflation. Remember: The only part of a house that is "investment" is its value, which is paid not by your entire mortgage, but just the principal. The rest of the money you spend on a house is just as dead as the money spent on an apartment.
This, of course, assumes you will save the principal on a mortgage no matter what, and invest it in something at least as valuable as real estate (which, I think, in a year or two, would be just about anything... maybe even old Nortel stock? :-)
posted by shepd at 9:10 AM on April 3, 2006
Is... House taxes + Property/Home Maintenance + House Insurance + Average Mortgage Interest (not principal) + House Utilities + Condo fees ...more than... Rent + Apartment Utilities?
In many areas this equation is coming out in favour of rent as house prices have skyrocketed WAY past inflation. Remember: The only part of a house that is "investment" is its value, which is paid not by your entire mortgage, but just the principal. The rest of the money you spend on a house is just as dead as the money spent on an apartment.
This, of course, assumes you will save the principal on a mortgage no matter what, and invest it in something at least as valuable as real estate (which, I think, in a year or two, would be just about anything... maybe even old Nortel stock? :-)
posted by shepd at 9:10 AM on April 3, 2006
Full disclosure - I'm a big bear on the residential real estate market.
I think now is precisely the wrong time to buy residential real estate for investment/income purposes.
Look at the trend in inventory of housing for sale in the US:
Housing Tracker
In many urban areas the inventory of homes for sale is increasing (phoenix AZ up 120% in the last 6 months!), and the median price appreciation is slow to stagnant to falling.
You will simply be unable to rent a property and come out cash-flow positive after mortgage interest, taxes and upkeep in those areas, and you may take a significant hit on the resale price if you don't keep the property for over 10 years.
If you want to investigate further, you might take a stroll through the
The Housing Bubble Blog.
Although it mainly acts as a negative real estate news filter, they do link a lot of articles explaining the forces behind the downturn in real estate.
posted by de void at 9:17 AM on April 3, 2006
I think now is precisely the wrong time to buy residential real estate for investment/income purposes.
Look at the trend in inventory of housing for sale in the US:
Housing Tracker
In many urban areas the inventory of homes for sale is increasing (phoenix AZ up 120% in the last 6 months!), and the median price appreciation is slow to stagnant to falling.
You will simply be unable to rent a property and come out cash-flow positive after mortgage interest, taxes and upkeep in those areas, and you may take a significant hit on the resale price if you don't keep the property for over 10 years.
If you want to investigate further, you might take a stroll through the
The Housing Bubble Blog.
Although it mainly acts as a negative real estate news filter, they do link a lot of articles explaining the forces behind the downturn in real estate.
posted by de void at 9:17 AM on April 3, 2006
Buying a house might not be a bad idea, but do this math first.
Well said shepd. Buying a house is not always the no-brainer that people think. There are areas such as San Francisco and San Diego where rents are a bargain compared to buying. In those situations buying a house is a lifestyle choice not an investment, like paying for a fine dinner.
And speaking of Nortel stock, there was a story going around a few years back about how you would be better off investing in beer than Nortel. If you drank all of the beer and cashed in the empty cans you would have come out ahead. In fact, if you then bought more beer with that money and then cashed in those empties you would still be ahead.
posted by JackFlash at 10:41 AM on April 3, 2006
Well said shepd. Buying a house is not always the no-brainer that people think. There are areas such as San Francisco and San Diego where rents are a bargain compared to buying. In those situations buying a house is a lifestyle choice not an investment, like paying for a fine dinner.
And speaking of Nortel stock, there was a story going around a few years back about how you would be better off investing in beer than Nortel. If you drank all of the beer and cashed in the empty cans you would have come out ahead. In fact, if you then bought more beer with that money and then cashed in those empties you would still be ahead.
posted by JackFlash at 10:41 AM on April 3, 2006
Rule number 1 of investing is to diversify - split the money between shares, stocks, property etc.
Ignore any advice that you put the whole lot into one trust/account.
I'm also a bear on the property market, but if you want to dip a toe into real estate you could buy shares in a house builder.
posted by Lanark at 11:26 AM on April 3, 2006
Ignore any advice that you put the whole lot into one trust/account.
I'm also a bear on the property market, but if you want to dip a toe into real estate you could buy shares in a house builder.
posted by Lanark at 11:26 AM on April 3, 2006
Best answer: the interest deduction on your taxes will essentially give you a discount equal to your income tax bracket. e.g. if you pay 25% tax and your interest is $800/month then you are really only paying $600.00
This is true only to the extent that the interest and your other deductions exceeds the standard deduction. Assuming you file as head of household, your standard deduction is $7300 this year. So if your interest is $800 a month, or $9600 a year, and you don't have any other deductions, you "save" 25% of the difference between $9600 and $7300, or $2300 * 0.25, or a whopping $575. Not chicken feed, but not quite the $2400 savings Gungho would lead you to expect.
Of course, as you pay off the mortgage the amount of interest you pay will go down, and the standard deduction will go up, so you will get less and less tax benefit each year of your mortgage until you are getting no benefit as well.
I wouldn't worry too much about buying real estate in most markets at this time as long as you plan to own it for a while. Over the long term it almost doesn't matter when you buy. Market timing is hard -- if you wait for housing prices to level off, they're sure to confound you by going higher for the next several years.
posted by kindall at 12:12 PM on April 3, 2006
This is true only to the extent that the interest and your other deductions exceeds the standard deduction. Assuming you file as head of household, your standard deduction is $7300 this year. So if your interest is $800 a month, or $9600 a year, and you don't have any other deductions, you "save" 25% of the difference between $9600 and $7300, or $2300 * 0.25, or a whopping $575. Not chicken feed, but not quite the $2400 savings Gungho would lead you to expect.
Of course, as you pay off the mortgage the amount of interest you pay will go down, and the standard deduction will go up, so you will get less and less tax benefit each year of your mortgage until you are getting no benefit as well.
I wouldn't worry too much about buying real estate in most markets at this time as long as you plan to own it for a while. Over the long term it almost doesn't matter when you buy. Market timing is hard -- if you wait for housing prices to level off, they're sure to confound you by going higher for the next several years.
posted by kindall at 12:12 PM on April 3, 2006
Whoops, $7300 was the 2005 head-of-household standard deduction. It's $7550 this year. Doesn't change my point, of course.
posted by kindall at 5:09 PM on April 3, 2006
posted by kindall at 5:09 PM on April 3, 2006
This thread is closed to new comments.
posted by librarina at 9:09 PM on April 2, 2006