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Windfall cash, what to invest in??

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JunFan777
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Windfall cash, what to invest in??  Reply with quote  

My wife and I (no children or plans for them) recently came into about a quarter million dollars. We hired an accountant and I have an appointment with a reputable financial adviser in about a week so nothing is set in stone yet I'm looking for ideas now.

The first thing we plan on doing is paying off the mortgage so we can stop throwing interest money out the window. That is about 160K remaining on a 250K home. Next we intend on paying off the car ( 7K) and purchasing another car ( used, less then 10K). We have NO credit cards and NO other outstanding debt. Out monthly expenses will be our utilities.

So all said and done we should have about 40K left to work with. We intend to invest about 25K, and leave 15 k for the honeymoon we never took, a new computer, and some upgrades to the home.

With the 25k i want to put about 20K into stocks, mixture of a couple different sectors as well as a good chunk of blue chips and maybe a small bit of penny stocks thrown in.

5K will go to bonds, pref corporate but really whatever has a nice yield.

We also intend to continue contributing to the investments with 5K a year from our paychecks.

Any cash left form our " play " money will go into a money market account. We will continue to pay bills from our existing checking account.

So I guess what I'm looking for are some specifics about what mixture of stocks you want, what are some of the better bonds to look into, and, I know this makes me sound like a total noob, but what are some good stocks to look into. I have done some research on my own already but again, am looking for other perspectives more educated then mine.

Finally, my goal here is to allow my wife and I to retire as soon as we can, with the equity from the house, the payoff from the stock and bond investments and our MMA.

One last thing, we have NO current investments or savings. My wife and I are both 30.
Post Sun Jan 17, 2010 3:16 pm
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oldguy
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Well, you are the classic reason why people who win the lottery are usually back in the trailer house within 7 years, LOL. You are going to take a $250k windfall and reduce it to $25k and then try to make money with $25k? And to make it even worse, you paln to gamble it on penny stocks rather than invest in real companies.

Personally, I would not prepay the $160k mortgage or the car loan (unless you have toxic loans that you need to get rid of). I would invest the $250k in an index fund (no high risk penny stocks and no low risk bonds, as is often the case, moderation is the key)

A $250,000 windfall is a major life opportunity if it is kept intact and you put it to work for you. Based on history, the $250k would grow to about $2,500,000 in 20 years, that is the nominal expected outcome, you might get only $1.5M or you might get $4M.

Disclosure: I have been doing this for 35yrs except that I generate my own 'windfalls' - when one of our rental houses has equity, I refi and take out the equity 'windfall' and invest it. Eg, a $50,000 lump sum added to a loan costs me an extra $300/m, ie $108,000 over 30 yrs. Invested at 12% the $50,000 grows to $1,500,000 over the same 30 years. I have done this with each of the rentals over the years, one house is on its fourth mortgage.
Post Sun Jan 17, 2010 5:05 pm
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coaster
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Agreed with the above. You want your money to work for you. The mortgage is already working for you, don't fire it.

Moderation is a good word. Patience is another. Don't dump the entire windfall into anything all at once.

~Tim~
Post Tue Jan 19, 2010 5:14 am
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splinter7
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agreed, you can't eat a house.
Post Wed Jan 20, 2010 8:55 pm
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corgee
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i agree  Reply with quote  

I agree that would be your best way to go
Post Wed Jan 20, 2010 11:27 pm
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jefffou
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Re: Windfall cash, what to invest in??  Reply with quote  

quote:
Originally posted by JunFan777
5K will go to bonds, pref corporate but really whatever has a nice yield.


I don't mean to pick, and we're not talking about huge money, but I would consider going non-corporate here.

Think about government or government-backed.

In the fall of 2008, corporate bonds began to correlate with stocks and they both tanked in unison. However, govt/govt.-backed rose because of the "safe-haven demand" (and the Fed's lowering of interest rates)

This portion is not huge, but I thought it worth mentioning.
Post Fri Jan 22, 2010 3:59 am
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coaster
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....and when rates go back up?

~Tim~
Post Fri Jan 22, 2010 5:43 am
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Raptor
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If you go the route of paying off your loans and end up with 25k, that is not enough to properly diversify. With that amount, as recommended by oldguy, an index fund would be great. To purchase individual stocks you have to be diversified across several companies within a sector and multiply that across several sectors. I normally hold 20 to 25 stocks. If you did that you already lost 2 percent on commissions. Doesn't sound like much, but solid long term investments will only generate 8 to 12 percent and yes while a few stock may go through the roof a few will become worthless. Let a fund manager handle it.
Post Fri Jan 22, 2010 9:31 pm
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Raptor
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quote:
Originally posted by coaster
....and when rates go back up?


I'll be able to purchase the bonds for nothing from those jumping from the wagon
Post Fri Jan 22, 2010 9:32 pm
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Jason122082
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I hope both your accountant and financial adviser steer you away from paying off the home as many have said here already. If you have as much equity as you do you should have a great rate, if not refinance and get one.
Post Sat Jan 23, 2010 12:50 am
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mems
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Let's say you strike it rich. Your lottery ticket is finally a winner; your eccentric aunt dies, leaving you 20 cats and a small fortune; maybe your tax refund is bigger than you expected; well, you could spend all that money on a wild weekend in Vegas, or you could invest it. And if you're a regular listener, you know what Michelle Singletary would advise. She writes the syndicated column, The Color of Money. She's our regular guest on matters of personal finance. Hi Michelle.

Ms. MICHELLE SINGLETARY (Columnist, The Washington Post): Hi.

BRAND: So what is the first thing people should do if they come into some cash?

Ms. SINGLETARY: You know, they're going to be surprised at this. You need to park the money. Don't do anything for at least three months, maybe six, so that you can kind of get your bearings. That's where people go wrong. They get a large sum of money and they go right out and spend it or invest it and they haven't really looked over their entire financial situation; so park it.

BRAND: Park it where?

Ms. SINGLETARY: Well, you can park it in a 30-day treasury bill or a money market mutual fund. And they're averaging about four percent; you might be able to get it a little higher. And that will give you a chance to really think about what you want to do with this money.

BRAND: And if you have a small amount of cash, what are the best investments?

Ms. SINGLETARY: Well, most of the time, when people get a small windfall, the first question I ask them is, do you have any credit card debt? Because the best investment that you can do is to pay off that credit card debt, particularly if your interest rate is high. If it's six, seven, eight, 10, that's an automatic return for you to pay off that bill first.

BRAND: And if you've listened to you - let's say we've listened to you and we don't have any credit card debt, what should we invest in?

Ms. SINGLETARY: You might look into your retirement fund. If you've not contributed to your retirement fund, you may want to add that to it, or get an IRA, Individual Retirement Account set up and invest in that. And you've got to take a step back. What are my financial goals immediately? If you want to buy a house, instead of investing that, you want to put that in a housing fund if you're going to buy that house in five years or less. So if it's a small amount, look at where you haven't been putting money that you would like to and put it there.

BRAND: You know, Michelle, also a lot of people probably should be aware that there are tax implications in receiving money and that perhaps there are some tax shelters that they could invest in to offset some of those tax implications.

Ms. SINGLETARY: That's right. If you receive a large amount of money, the first thing after you park it and don't shop, is get some advice if it's a huge amount of money. So you want to pay your taxes if they're due; lottery winnings, absolutely; if it's a life insurance policy, you generally do not owe taxes on that amount; but an inheritance, you have to look and see if you owe it. So, you know, consult a tax professional, because you do not want to get in trouble with the IRS.

BRAND: Well, Michelle, what if we do want to have a little fun with our mad money. What is a reasonable fraction do you think of this money we received in this windfall to spend on something frivolous, let's say shoes for instance?

Ms. SINGLETARY: You got enough shoes. Don't spend no money on no shoes.

(Soundbite of laughter)

Ms. SINGLETARY: I'm saying you need to look at your overall financial picture. And if after you've funded all of that, you've taken care of retirement, college fund, you have three to six months limited expenses, you have no student loan debt, no credit card debt, then sure, take that vacation that you've always dreamed of. Buy that car in cash that you want, hopefully used, because it's a better deal. So look at the things that you really want. Because if you've taken care of those other things first, then you can have fun.

BRAND: Michelle Singletary is our regular contributor on matters of personal finance. Her latest book is Your Money and Your Man: How you and Prince Charming Can Spend Well and Live Rich. Thank you, Michelle.

Ms. SINGLETARY: You're welcome.
Post Thu Jun 10, 2010 5:03 am
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