| What to do with an inheritance |
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Tattersail
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| What to do with an inheritance |
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As the estate of my deceased mother-in-law resolves it looks as though we will inherit about $350K in cash (liquidated assets, insurance and 401K) and another $1.1M spread out over 3 trusts.
This is more money than I have ever had before. I don't have any debt except for the mortgage and a 0.9% car loan. I have already saved enough for my kids to go to college.
Basically, I want to generate income from this money and leave the principle alone. Where should it be invested? (We are in our late 40's.)
Tattersail
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Mon Aug 08, 2011 1:17 pm |
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littleroc02us
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Why keep your debt around? If you had your house paid for and no debt would you borrow money to invest in the stock market and possibly take a risk at losing?
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon Aug 08, 2011 1:20 pm |
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Tattersail
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I owe about $160K on my mortgage, so after paying that off (which seems like a reasonable option) I will still have about $1.2M left.
Tattersail
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Mon Aug 08, 2011 2:03 pm |
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artwest
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Pay off your ALL of your debt, which means both house and car, and NEVER go into debt again.
Roll the 401k over into your 401k.
I would invest the rest into Mutual Funds.
The first step to becoming wealthy is to be debt free.
Please check out my articles at:
http://artwest.hubpages.com/
and
http://www.helium.com/users/442409/show_articles
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Mon Aug 08, 2011 2:20 pm |
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oldguy
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I disagree with the others, I would not prepay any of the loans (unless you have a toxic interest rate). Your high net worth eliminates the risk of carrying debt. (I became wealthy by using inexpensive capital, not by getting rid of it.)
A middle income consumer can lose everything by over-extending - ie, buying an oversize house and using it as an ATM, buying way too much car with borrowed money -- and then their house-of-cards falls with a job loss, a market blip, yada.
But in your case, if you are forced to sell the house for a move, and it was worth less than $160k - no matter, you have it easily covered with a million NW, no danger of a bk. Same with the car, why would anyone prepay 0.9% capital? Retain the use of that capital full term and put it to work for you. Same with the 160k house loan, retain that capital and put it to work.
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Mon Aug 08, 2011 6:13 pm |
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Tattersail
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I am likely to move within the next 12-18 months. Does that impact whether or not I should pay off the mortgage now? I have a 5.5% fixed rate.
I don't intend to pay off the 0.9% car loan. I could put that money into a 36-month CD and come out ahead.
What investment vehicles would you recommend for a conservative investment? Municipal Bonds? Stocks are too volatile at the moment.
Tattersail
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Mon Aug 08, 2011 8:51 pm |
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littleroc02us
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quote:
Originally posted by Tattersail
I am likely to move within the next 12-18 months. Does that impact whether or not I should pay off the mortgage now? I have a 5.5% fixed rate.
I don't intend to pay off the 0.9% car loan. I could put that money into a 36-month CD and come out ahead.
What investment vehicles would you recommend for a conservative investment? Municipal Bonds? Stocks are too volatile at the moment.
Sir with the money you have inherited it would be wise to do wise with it. If your moving on to another I would hold off and sell the house and pay cash for the next place. Since you'll have 1.1 million what's the point of keeping a car loan around? I'm personally having a hard time figuring out why people feel the need to keep debt around. You can spin any investment idea around to make it sound low risk, but when something is risky it's still risky. I guess it comes down to worse case scenarios. So, if you keep a $20,000 car around for example with a 160k mortgage and you have put all 1.1 million in risky investments that are leveraged and suddenly the market crashes and you now have 500k are you going to be able to stand your ground and you lose your job are you going to start selling off your stocks low because your in dire need of liquid cash. Plus you have 180k in debt still hanging over your head. Or are you the type of person that will pay everything off and put some cash aside for EF's, invest 500k and you lose your job and the market crashes and you now have 250k? Which situation would you rather be in?
Personally I would sleep better in scenario #2, 10 out of 10 times.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon Aug 08, 2011 9:19 pm |
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oldguy
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quote:
What investment vehicles would you recommend for a conservative investment? Municipal Bonds? Stocks are too volatile at the moment.
The type of bond - muni or taxable - depends on your marginal income tax rate. The tipping point is around 25% - so if you are in a higher bracket, use the tax free muni's. And if you are in a lower bracket, you will be ahead to buy the taxable version of the same quality bond and pay the tax, ie, your net will be higher.
As for "stocks are too volatile", that probably means that you shouldn't invest in them. The Law of Investing - risk and return are directly proportional.
In general, low risk items are for wealth preservation, not for wealth building. So, if you are in your wealth building years, avoid low risk products. Also avoid high risk products, you are more likely to lose your capital than you are to hit a home run. That leaves "moderate risk" - that is the vehicle to build wealth. After you have enough wealth (and are older), move into low risk wealth preservation. (You may be approaching that point - fairly high NW but still young). But only you can decide if you want low risk or moderate risk, it's a personal decision.
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Mon Aug 08, 2011 10:32 pm |
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Tattersail
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quote:
Originally posted by littleroc02us
Since you'll have 1.1 million what's the point of keeping a car loan around? I'm personally having a hard time figuring out why people feel the need to keep debt around.
Because debt with a very low interest rate is preferable to money not put to work earning more than the interest that is paid on guaranteed investments like a CD.
quote:
Originally posted by littleroc02us
...and you have put all 1.1 million in risky investments that are leveraged and suddenly the market crashes ...
I haven't mentioned risky or leveraged yet, and probably won't.
You seem to be suggesting that I pay off my loans and put the rest under my mattress. This is not the advice I was hoping for.
Tattersail
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Mon Aug 08, 2011 10:32 pm |
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Tattersail
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Gracias, Oldguy. 
Tattersail
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Mon Aug 08, 2011 10:36 pm |
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oldguy
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quote:
You seem to be suggesting that I pay off my loans and put the rest under my mattress. This is not the advice I was hoping for.
Just to give you some specifics to sink your teeth into - I'll tell you what I would be doing if I had a $1.5M NW and was in my mid 40's (actually, that about describes me a couple decades ago, I'm 72).
Like I said earlier, I would retain the loans, I'm in no hurry to prepay <5% capital. I would invest about 50%/50% (or 60/40) into an SP500 Index Fund and a Bond Fund (such as GNMA with <3 yr duration). The SP500 averages about 11%/yr and the bonds average about 5% - so the 50/50 mix gives about an 8%/yr return - that was my level at age 55 to 60.
And then adjust the mix to obtain the risk level that you want. Ie, if you want more risk, go toward 75/25, if you want less risk go toward 25/75. Now, age 72, I'm at about 20/80, that's about a 6 1/4% return (using 11% & 5% as the average returns).
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Mon Aug 08, 2011 11:26 pm |
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jfurnish
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If I had that I would go
25/25/25/25 and put it in PG, KO, JNJ, MCD.
All of those companies are paying good yields and will be around when you need them.
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Tue Aug 09, 2011 2:16 am |
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coaster
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Ya know, recession and all, MCD keeps doing pretty good business. I think there's one or two generations that thinks that's the only food there is to eat. They're not going out of business any time soon.
~Tim~
Eye Candy : Why Whimsy
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Tue Aug 09, 2011 7:03 am |
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artwest
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I agree with litleroc02us. I don't understand why you would want to still be in debt.
You could be completely debt free, have $25,000 in an emergency fund and still have $1,000,000 invested in Mutual Funds that average 10-12% growth.
Please check out my articles at:
http://artwest.hubpages.com/
and
http://www.helium.com/users/442409/show_articles
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Tue Aug 09, 2011 2:33 pm |
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littleroc02us
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quote:
Originally posted by Tattersail
quote:
Originally posted by littleroc02us
Since you'll have 1.1 million what's the point of keeping a car loan around? I'm personally having a hard time figuring out why people feel the need to keep debt around.
Because debt with a very low interest rate is preferable to money not put to work earning more than the interest that is paid on guaranteed investments like a CD.
We can agree to disagree on this because I personally want no debt at all to my name.
quote:
Originally posted by littleroc02us
...and you have put all 1.1 million in risky investments that are leveraged and suddenly the market crashes ...
I haven't mentioned risky or leveraged yet, and probably won't.
You seem to be suggesting that I pay off my loans and put the rest under my mattress. This is not the advice I was hoping for.
Not at all, I myself am in the market for the long haul no matter what happens, my post was to suggest that I would rather have absolutely no debt and a 500k in the stock market riding the waves any day then having all the debt and something bad happens. I not very risk orientated as others are.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue Aug 09, 2011 2:50 pm |
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