100k fell in my lap; advisor says money market acct is best bet - Mothering Forums

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Old 08-04-2010, 10:16 PM - Thread Starter
 
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Last year I received an unexpected inheritence. It was more money than I could have made in 20 years (working part time LOL). Almost immediately, I quit my job. I have chronic health issues and was having a very difficult time getting to work, so it was really better for me to part on good terms, with the option of rehire in a year or two when I'm in better shape.

I paid off all of my debt, save about $8k in student loans, which I am paying off at $100/mo. I deliberately didn't pay if off. It was my only debt not in default, and I thought it would be good for repairing my credit to be making payments on something.

I bought myself a new car. I also gifted both of my sisters with cars, plus some cash and other household items they were needing.

I am single, with an 8yo and almost 16yo. I currently do not work. I was receiving about $700-800 in child support, but ds2's dad stopped paying in December, so now I'm only getting $300 from my 1st ex.

I am pulling $700/mo for rent and about another $600 for expenses on top of the $300 CS I am getting regularly. I can comfortably invest a portion of what I have left and still get by month to month for a while.

I want to start with $100,000. I have spoken with two advisors at my bank who suggested that I just put the money into CDs, or even leave it int he money market account where it currently is. This will yield almost nothing in profit each year after taxes.

If you were me, WWYD with the money?

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Old 08-04-2010, 11:42 PM
 
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If I were in your situation where I may not be able to work in the future I would be conservative with the money. Maybe GIC's (CD's in the US?) would be a good bet for the biggest portion of the money. Other than that, I would use a balanced portfolio in mutual funds. But my best advice is to talk to a financial advisor that you can trust to help YOU make the right decision for you.
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Old 08-05-2010, 12:22 AM
 
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My husband suggests you read "The Four Pillars of Investing."

http://www.amazon.com/Four-Pillars-I...0974871&sr=8-1

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Old 08-05-2010, 12:28 AM
 
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A high yield CD could turn over pretty good for you over the course of a year or two, while you make a decision. An IRA would probably also be a good choice. I'd just find a firm that you like and have someone help you. With low fees, of course.
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Old 08-05-2010, 01:42 AM
 
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I don't have enough info to give my opinion, but in general your situation seems to scream "keep it liquid!"

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Old 08-05-2010, 02:09 AM
 
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So, how do people actually make money off of money they currently have? This is a question that I have too. How are people who are retiring early living off of their money? If you put your money into something that doesn't earn a profit, won't it eventually dwindle away?

For example, I know of a man who got in on a business at its start-up, and then the business took off and did really well, and he was able to retire in his 30's. I mean, how does someone do that?? He had three young kids too! How could he have had enough money to know it would last him the rest of his life, take care of he and his wife's retirement, and send three kids to college and whatever else they might need. I mean, people in situations like that must be doing something with their money to make more money, right?

People who live off the interest of their investment, what are they investing in?

What about investing in real estate? I think that probably depends on where you live to know whether or not that's a good idea.
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Old 08-05-2010, 04:11 AM
 
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Old 08-05-2010, 05:48 AM
 
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Well the problem is to earn more interest or profit you have to take more risk. For non-risky investment right now there's just not much interest to be earned. The best I've found was like 2%. That's still better than negatives like most people got in the last couple years investing in stocks and mutual funds. I don't know a single person who actually made much money with the money they saved in the last couple years. Lots of people I know are converting their cash into gold or silver as the economy is still quite uncertain.

I'm not sure if the OP will eventually return to work or not. If she doesn't then I think her financial advisor was right and this money really should be put into very secure and conservative investments. It's not much interest but better than nothing or negative. There's really not much out there that earn decent profits right now. (If anybody knows anything that can even guarantee 3% please spill the beans.)

*OK, DH saw this and suggested 10% in stocks if you'd like to play a bit, 20% in precious metals, 30% CD and 40% cash.

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Old 08-05-2010, 03:44 PM - Thread Starter
 
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I will be going back to work in a year or so, but only part-time.

I am interested in gold and silver. I've been hearing so many arguments for and against precious metals. What should I know about this type of investment?

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Old 08-05-2010, 05:00 PM
 
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I like simplicity so I would put it in an all-in-one fund, like the Vanguard Retirement Income Fund. It is a target retirement fund, made up of stock index and bond funds. It is the most conservative fund as it is designed for those in retirement, but I would choose it in your situation as away to preserve my principal. It does pay income, but if you don't need the distributions you can re-invest them which would further grow your investment.

It would be a great way to keep a good nest egg, grow it for the future and also tap it if you need additional income. Plus it would be very simple and easy to manage yourself (no need to pay an advisor any commission!)

Mommy to DS Adrian 8/10/04 and DD Geneva 9/02/09
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Old 08-05-2010, 06:25 PM
 
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I will be going back to work in a year or so, but only part-time.

I am interested in gold and silver. I've been hearing so many arguments for and against precious metals. What should I know about this type of investment?
Based on the limited information you have provided (limited income, health problems), precious metals do not seem to be a good fit for you. What other savings do you have and in what types of investments? What are your long-term plans for this money? How financially stable are you otherwise?

Have you talked to a fee-based financial adviser?

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Old 08-05-2010, 06:50 PM
 
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So, how do people actually make money off of money they currently have? This is a question that I have too. How are people who are retiring early living off of their money? If you put your money into something that doesn't earn a profit, won't it eventually dwindle away?

For example, I know of a man who got in on a business at its start-up, and then the business took off and did really well, and he was able to retire in his 30's. I mean, how does someone do that?? He had three young kids too! How could he have had enough money to know it would last him the rest of his life, take care of he and his wife's retirement, and send three kids to college and whatever else they might need. I mean, people in situations like that must be doing something with their money to make more money, right?

People who live off the interest of their investment, what are they investing in?

What about investing in real estate? I think that probably depends on where you live to know whether or not that's a good idea.
Well, first they diversify. A certain amount of money is kept liquid. Money-market or whatever. Some in short term investments - CDs, short term bonds, mutual funds. Others in long term investments, bonds, stocks. That way some of the money is working harder for the long term while some is available.

Another factor is the sheer amount. If I had $1 million dollars and got a 6% return per year (pretty reasonable, not crazy) then I could take out $60,000 a year and live off of it no matter how long I lived. Why? Because the $1 million would stay there and I'd be living off interest only, never touching the $1M principal. (Obviously my hypothetical example is simplified; there'd be taxes and so on, but you get the point). If I were debt free and got $60,000 a year, my standard of living would at least DOUBLE. I'd have all my dental work done, we'd actually take a vacation once a year, and I could eat really high quality food. And I would never have to cry about how I screwed us up for the month by buying a pair of shorts and a bathing suit.

Your enterprising friend likely still draws money from his business as a principal (part owner) even if he doesn't work there anymore. And if he had $2 million socked away, and he lives reasonably within his means, debt-free, and if he continues to get dividends from the company, sure, he could be set for life and send 3 kids to college no problem.

Yup, real estate is a potential investment though like everything else it's never a sure thing. (Ask anyone who tried to sell a house in the recent housing bust). You can buy a house and rent it. You could make a lot or you could get awful tenants and lose. Some people make a lot of money though. You could flip real estate, also tricky. The idea is that you find a property that is going for a low price and you have some reason you could sell it for a lot more. Maybe the property isn't being marketed right and you know how to market it. Maybe there's something wrong with the property and you know you can fix it yourself cheaply. Or, even more complicated, you have reason to believe a business or industry might move in and you're ahead of the game. Well, that's not for everyday folks to play with, imho.

Another way real estate can be an investment - install a wood stove, buy an acre or two of forested land, and heat your house with it. If you manage the stand properly this could be a great investment. If peak oil hits this could be a HUGE investment.

Or, OP is renting, if she can buy a house she can stop just sending her money to a landlord. Yup, cost of homeowning is more (taxes, maintenance) but there's also the consideration of actually owning something at the end of the day. (Especially if you have the CASH).

Sorry, I'm in a rambling mood. I'll ramble on out.

Homeschooling mama to 6 year old DD.

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Old 08-05-2010, 07:47 PM
 
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I will be going back to work in a year or so, but only part-time.

I am interested in gold and silver. I've been hearing so many arguments for and against precious metals. What should I know about this type of investment?
If you have $1million, you could "reasonably" put 1-5% into gold and silver as an "investment". It is very similar to gambling in Las Vegas. If you have less than a mil, I would strongly advise you not to.

Banks can't be relied on to provide financial advice. They sell financial services. Notice they suggested money market/cds? Just happens to be what they sell.

I would suggest 3 things:
1) Read up on investment options. Check out Vanguard.com. Also look for books/online content by Jane Bryant Quinn and Michelle Singletary. http://www.michellesingletary.com/

2) Find a good fee-for-service financial adviser. Sit down with her/him and lay out all of your questions, needs, medical risk, etc. Research her/his advice closely. You need to look at at tax minimization, college funds for your kids, real estate (maybe), and life insurance/estate planning for yourself.

3) Make sure you have guardianship documents in place for your kids. You need to make sure that in the event of a tragedy, your exes do not end up controlling your children's inheritance.
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Old 08-06-2010, 04:15 PM
 
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I don't know how much it costs to buy a house in the area you live, but I'll be seriously looking into buying one.

precious metals? I wouldn't.

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Old 08-06-2010, 04:29 PM
 
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i would buy a home after putting away an emergency fund. Sounds like rent is going to eat away at that money each month and in the end you'll have nothing to show for it. If it were me, I would take $25K and put it into an emergency fund and take the other $75K to put down on a place to live.

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Old 08-06-2010, 05:27 PM
 
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Well we are in a similar situation though the $ is from our savings and selling our house a while back. Our $$$ is currently in the bank. We have a tiny amt in silver. Just because I bought some about a year ago when silver dipped. We are renting right now too (it's in our best interest to rent now because we move a lot due to dh's job). However, in the near future <6 years dh will be retiring and we'll be getting a small pension + health benefits + my disability benefits. With our $$ in the bank we are going to buy a home outright and heat w/wood hopefully (like a pp said) and live as simply and sufficiently as possible, in a small but tight community. We are looking into low COL areas that we would like to live and plan on buying within those 6 years. If we buy earlier than we can move there, we will rent it out. There is something nice to be said about the psychological benefits of owning your own home outright (as long as you can pay the taxes/insurance/maintenance comfortably). Housing is the single largest expense we will all have in our lifetimes, by cutting that out, you can live on much less.

If I were you I would read, read, and do more reading on the coming years and what you can do to protect you and yours. I am on the peak oil side. Did you buy a gas guzzler? Hopefully not, but you can change that still. So to answer your question, that's what I'd do. Or rather, will be doing shortly

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Old 08-06-2010, 06:45 PM
 
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I think no matter how you invest make sure you really, really, really understand how it works. I've know a handful of people who have lost a great deal of money by investing in things they didn't understand. There is no harm in letting the money sit in a money market account while you research and decide. Different people have different strategies. Go to the library, check out a ton of books and read up. My only real money advise would be to diversify and make sure a good chunk of it is liquid just in case. Oh, and beware of friends and family that suddenly need financial help. This money is for taking care of you and yours. Don't let someone guilt trip you into giving them a handout. It sounds like you have already been more than generous.

Oh, and congrats!

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Old 08-06-2010, 07:03 PM
 
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Just my opinions, as obviously nothing dealing with money is an absolute...

I wouldn't make any big moves with any sizable sum (IMO, over $10,000). Take it slowly, read as much as you can get your hands on, and listen to advisors, but don't necessarily do exactly as they say. Compare notes and don't make any sudden financial moves.

About living off of investments... every $1 million will realistically generate roughly $3000 living expenses. That will be less or more depending on ROI (return on investment). People who make an investment that make them rich overnight are LUCKY. It has nothing to do with somehow knowing something ahead of time. It's no different than placing a bet on a pony (and of course, someone has to win sometime).

Gold and Silver are at highs. This is my personal opinion, but I really think that it's not a prudent investment in any large sums. I do think it can be part of a well-diversified portfolio. Any money you *invest*, I would suggest you do it slowly, not any large sum all at once. You could hit it (it being any given investment) at a high and then your investment to drop off, slowly or precipitously and it's like throwing money away. Even when you have a lump sum, dollar cost averaging is the prudent way to go. What that does it is sometimes catches the market at a high and sometimes at a low and it averages out to be to your overall advantage.

If you're not familiar with investing, I would consult a few fee-based financial planners for a one-time look at what you ought to do. Then you can see what they are all saying and find the commonalities... these are probably the most solid pieces of advice.

At this point, I think your advisor is probably giving you safe advice. I would not do anything *at all* with the money for a year. It's not a lot of money, but depending on your previous circumstances, could feel like a lot. If you're not careful, it can be gone in the blink of an eye.

Best of luck!
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Old 08-07-2010, 02:46 PM
 
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With $100 grand you aren't going to become independently wealthy.

You could use it to improve your cash flow. Spending it on a primary residence could reduce your out of pocket expenses if $100k buys anything in your housing market (or you could look at relocating in some place that much money would buy a nice little house in a place with low taxes)

You could use it to retrain yourself to have some job skills that are marketable/well compensated. Obviously this would depend on the exact nature of your disabilities.

You can keep it in cash and earn a couple extra grand each year.

velo--Are you sure you meant to say $1 mill will earn $3000? Isn't a 3% return on a mil, $30K? We earn about $100 per month on our checking balance (granted it had been earning 4% and it currently has more money parked in it than most people would have or need to have)
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Old 08-07-2010, 03:19 PM
 
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velo--Are you sure you meant to say $1 mill will earn $3000? Isn't a 3% return on a mil, $30K? We earn about $100 per month on our checking balance (granted it had been earning 4% and it currently has more money parked in it than most people would have or need to have)
That's per month (living expenses) after taxes.
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Old 08-07-2010, 07:27 PM
 
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I was thinking per year when I read it. So pretty close to the same thing
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Old 08-08-2010, 11:41 AM
 
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I think you've been given some good advice. Read a number of sound financial investment books. Anybody promising get rich schemes ignore. Precious metals are very speculative, and I agree with a pp, they are probably at or near high prices now. My FIL has a penchant for investing in precious metals (he's reasonably wealthy and only invests a bit in this) and has lost more over the years on this than any of his other investments.

Given your health situation, personally I wouldn't be buying expensive presents like cars for anybody. Money goes away very quickly. The higher the rate of return, the riskier the investment.

People who live off their money generally have a very large amount of it to begin with and have a diversified portfolio, where some of it is in riskier (higher return) investments, but most of it is in more stable investments.
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Old 08-08-2010, 07:30 PM
 
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I hope OP can clarify this, but it sounds like she received way more than 100k, right? After spending some, she wanted to "start with" 100k to practice investment strategies. You can't live off the interest of 100k, but if it's 300k and you only need to supplement your very low living expenses, that's a different story.

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Old 08-11-2010, 10:33 PM - Thread Starter
 
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Oops, forgot about this thread.

I received this money after my father died. It was his retirement fund. I was the sole living named beneficiary, but my dad had other children. As the oldest, he left me in charge to help them because he knew they would blow their share. That's why I bought cars for my siblings.

I did get more than just $100k, but not in the realm of millions upon millions.

I have Chronic Fatigue Syndrome. I am able to function fairly normally. I just spent about 5 years working M-F, 24 hrs/wk. I was feeling a big flare coming on right when I got the money, so I went on sabbatical. LOL I can always go back, I left on good terms so that that bridge was not burned.

I want to spend the next year being more involved with volunteer projects at the kids' school and at my church. But I do know I will have to go back to work before too long.

I don't think buying a house would be a good idea right now. I hate where I live. It's actually bad for my illness to be here, but Ican't leave the state until ds1 is 18. I'm not sure it would be smart to buy now and then have to sell in 2-3 years. There's a good chance the house wouldn't sell anyway, and I don't want to have to deal with a renter while I live thousands of miles away.

Right now I pay about $700/mo for a decent 3/2/2. When something breaks, the owner fixes it. For example, we had a power surge last week and all the can lights in the kitchen blew at once. If I had had to pay for the electrician, it would have been bad.

Yes, I bought an SUV, but I want to be able to cart my kids' friends around and carry camping equipment, etc. It's a Honda and I can sell it back to the dealership anytime for a fair price. I have been told by more than one person, IRL and on line that I negotiated an incredible price. Right now, I could sell the car for about $1k less than I paid for it a year ago. It's very likely that when I finish my volunteer project and go back to work I will sell the truck and get a new small sedan.

I looked over the info on the Vanguard fund and I pretty much don't understand any of it. Is it saying that an investment of $10k gets you a return of $1k after one year? So I would make $10k in 12mos by putting in $100k? So confusing!

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Old 08-11-2010, 11:55 PM
 
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.

I looked over the info on the Vanguard fund and I pretty much don't understand any of it. Is it saying that an investment of $10k gets you a return of $1k after one year? So I would make $10k in 12mos by putting in $100k? So confusing!
Really, you need to spend some time reading some basic investment books. It will be more than worth the time and effort. Your public library will have a selection.

The Vanguard fund (I'm assuming you are talking about the mutual fund) can tell you about past performance but it cannot predict future performance. So, you could invest $100K in a mutual fund this year and have $140K next year (not likely, but possible) or you could find that it's plummeted in value and is worth $35K next year. In general, the higher the rate of return, the higher the risk.
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Old 08-12-2010, 07:27 PM
 
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CD is a good choice for your situation. Assuming the economy turns around soon, interest rates will rise. You are unemployed, have very little income, and have small children to support. I don't think you should accept the risk of the stock market until you return to work.
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