Seeking Advice -- What should I do with my Money?

[BobbyRujo]

Hey guys.

I'll start out by telling you my situation - which is fine, I just hate having so much money in Bank and having no clue how to invest it. I do construction for a living, I work a Project Manager for a smaller company mainly doing Linework or commercial work. I make anywhere from 90-150K a year, but I only see myself doing this job another 4-5 years before I move back home. I will be lucky to make 40K a year living in Colorado.

I currently have no debt, I own a small house worth about 60K that's paid off. It's rented out kind of -- to a family member who is struggling and has not paid rent for a couple years. None the less, they do keep it nicely and do a lot of work to improve the place. (new Siding, drywall, paint, Deck, Etc.. I just paid for the materials) I have a nice truck that is paid off but I hate driving it in bigger cities, my 1000 dollar car I always drive got totalled by some douche without insurance, so I'm looking into getting a newer used car, around the 20K mark. (This is a bad expense I know.. but I want to spoil myself a little with a 08 Infiniti M45x)

So Basically.. I have a cell phone bill, Insurance/Taxes on my house/truck. no housing expenses (All company paid..) and 60K in the bank, 28K in 401K. I think it's stupid to have this money in savings over a long period of time, what should I do with it so Inflation doesn't kill my worth in the future?

I'm very naive when it comes to investing my money and taking risks, I hate taking out loans and buying this car is a huge decision for me. I keep telling myself it's stupid but f**k it. Also, I won't be making this good of money my entire life, I will have a very average job in 4-5 years so I can't make to many mistakes. Ideally I would like to live around Evergreen, CO and be able to Snowboard or Mtn Bike 3-4 times a week.

Thanks.

TLR

I have a large sum of money in a savings account and would like to do something with it..

[Wino]

You have three choices:
1) Send the money to me.
2) Leave the money in the savings account.
3) Invest the money.

The savings account option is not bad, but it won't keep up with inflation, especially at today's rates. You can get slightly better in a money market account, and I recommend you keep at least some level there for little emergencies that come up. Research "emergency fund" here or anywhere online to determine how much you'd want in your emergency fund.

Option three is where you'll have to make some decisions. You didn't give enough information to answer, but as you believe $60K is a "large sum of money," I can assume you aren't over any regulatory maximums. I'd recommend you open an online Roth IRA account with Vanguard, Fidelity, or some other reputable firm, and look over their funds. There are several index funds that are fairly safe bets, but you have to realize that the major differences between "saving" and "investing" are 1) access to the money, and 2) the risk that an investment will lose value instead of maintaining principle.

All investments are a balance between risk and potential reward. The more risk you're willing to take, the more likely you are to get a reward. Opening a small business is a large risk, but Bill Gates started that way, and he got quite a huge reward. A lot of other people have started that way, and lost everything. Large risk = large potential reward.

So, what is your risk tolerance? Ask yourself a few questions, such as "If the market lost 20% over three days, would I be more likely to pull out my money and put it into a bank for safe keeping, or would I be more likely to buy more stock/fund shares since I'd see them as being at a bargain price?" That will give you an idea of your risk tolerance. Of course, you have to actually imagine this rather than "analyzing" what is "best." What would you do if your $60K turned in to $48K in a week? Buy more or store it?

Lastly, you should look in to dollar-cost-averaging. It's a gamble, either way, but using all the money at once might get you in at a peak, but most likely this won't happen. I've seen data that supports both views of DCA and immediate purchase. I definitely recommend you put something into some investment regularly, and - here's the trick - DO NOT TOUCH IT.

My advice: Do option #1.

[UnknownXV]

Just my quick two cents, no matter what you decide to invest in, DIVERSIFY. As all our folks told us, never put all your eggs in one basket.

But note that interest rates are quite terrible now. Honestly in a few years I see them going back up, even for same bets like a savings account. Although you'll want to keep an eye out if that happens as it's likely inflation would also rise (the government would need the federal reserve to create more money in order to pay the higher interest on their bonds and such.. which is laughable since the federal reserve is the largest holder of said bonds and t-bills).

My advice is to keep 10k on hand, or a bit more, whatever would cover you well for at least 6 months; and invest the rest. Maybe 25% in an index mutual fund (I would avoid actively managed funds as there are additional fees but they rarely perform better). I'd play around with maybe 5-10% in some stocks, but do research on a company before investing in it, and check their long-term records. See how much it fluctuates and how much the share value has increased since they went public.

You can look into bank bonds too, or guaranteed investment certificates. Locking your money away for a certain period of time, but guaranteeing the quoted interest rate as well as the principle. Probably the safest way to invest.

As for getting a new car, it's up to you. I understand the desire to splurge, and you obviously have enough cash to pay for it so we're not talking about going into debt. Your financial picture is healthier than a large majority of people in this country so make your choice. I will say though, from the view of an investment, it's a terrible idea. Cars depreciate in value so fast. Just keep that in mind. At the end of the day though, we're all human, it's not only about investment value but also practicality and fun. If you feel it will improve your life, go for it.

[joshuaking]

Wow! I wish I had your problem!

But if I did, the first thing I would do is give the relative an ultimatum-start paying rent. Two years is way too long to be helping someone out like that-you are basically subsidizing their lifestyle with what could be investment income for you. Even if you charged them something way below market rate, that would still help them and bring in more income for you.

Like a previous poster stated, I would also diversify. I would not put all my eggs in one basket. I would put part of my money in an investment fund that focused on dividend paying stocks.

Congratulations on your good income and on paying off a house. That is huge.

[GrimJack]

You are the one who knows the situation with your relatives in the house - so play that how it works best. I recommend mutual funds - specifically Vanguard funds, say one that is income producing focused on dividends (but reinvest them until you need the income), a small cap growth fund, and a fund that invests outside of the US. But that is just me.

[MakeAStash]

You might find the following link to have a decent overview of how to get started investing. http://www.fool.com/retirement/gener...-in-style.aspx

[violet80907]

You should really consider starting an IRA, if you do not have one, and make maximum contributions to it each year. (Also, if your employer has a 401K, use that as well.)

Note that you can make a contribution for 2012 through April 15th, 2013.

You will need to verify what your income is, and that the contribution is indeed tax deductible. (I cannot post links on this site, but check the IRA website.)

The main point I'd like to emphasize is that any gains made in the IRA stay in the account until you retire, there are no taxes each year on the investment income. Since you are young, this will have a huge effect by the time you retire, if you compare the performance to an account in which you pay capital gains. (You also get to fund the account with pre-tax money.)

In any case, learn about and use an IRA, Roth IRA, 401K, or a combination.

[lhkorn99]

I recommend that you be conservative with the money. Although bank rates are low, its better than losing money. Having said that I would first keep enough money in the bank for 12 months of living expenses, in case an emergency comes up, or you lose your job. Next I would not start with the entire leftover sum, I would move slowly. As others have said, diversify, and my recommendation would be to diversify among government bonds, (or vanguard bond mutual funds), high quality corporate bonds, and perhaps an S&P 500 mutual fund - although I wouldn't allocate more than 20% towards it, given your conservative nature. Whatever you do, make sure you understand completely what you invest in before you do so.