Inheritence money?

[Swanny625]

Hello everyone, my name is Josh.

My dad recently passed away, and I inherited about $40,000. Now I need some of it for college, so let's say I have $30,000 to work with. I am not entirely content with the potential 3% interest rate at my local credit union, and I am not yet ready to go hardcore into the stock market.

So my question is this: beside playing around on Marketocracy in preparation for stock market skills, what should I be doing with my money? I am looking to build some passive income, if at all possible.

[kork13]

Very sorry to hear about your father, I hope you and your family are doing well.

A few questions, just to clarify the situation...
1) You're planning to use $10k for college expenses -- does that cover your needs for 1 semester, 1 year, or how long?
2) Do you have complete control over this money and access to it at any time? Basically, is it in a trust account, or could you go withdraw $100 from it right now?
3) What type of account is the money currently in? A savings or money market account? A Certificate of Deposit (CD)?
4) What are your plans for the remaining $30k? Are you planning on tapping the rest of the money for future college expenses, buying a car, buying a home, or just saving it for use "as required"?
5) You're not happy with making 3% right now -- what would you like to make on it?

Those last 2 questions are the most important... Currently, 3% is relatively good compared to standard savings accounts, which are mostly averaging 1% or less. Stock mutual funds could realistically give you 5-8% gains (on average). Individual dividend stocks could be similar, or perhaps slightly less (5-7%). Bonds (whether as mutual funds, or individual bonds) would vary, but could return around 3-6%. All of those numbers are EXTREMELY approximate, just general averages to consider. Stocks will be most risky, bonds normally have moderate risk, and cash (savings) accounts have little-to-no risk involved.

Just based on what you said in your first post, I might lean toward recommending bonds, or a bond-heavy mix of bonds, some high-quality dividend stocks, and cash (say, 60% bonds, 20% stocks, 20% cash). However, it really depends alot on what you're looking for, and what your plans are for using the money down the road.

[Swanny625]

A few questions, just to clarify the situation...
1) You're planning to use $10k for college expenses -- does that cover your needs for 1 semester, 1 year, or how long?
2) Do you have complete control over this money and access to it at any time? Basically, is it in a trust account, or could you go withdraw $100 from it right now?
3) What type of account is the money currently in? A savings or money market account? A Certificate of Deposit (CD)?
4) What are your plans for the remaining $30k? Are you planning on tapping the rest of the money for future college expenses, buying a car, buying a home, or just saving it for use "as required"?
5) You're not happy with making 3% right now -- what would you like to make on it?

Thank you, I appreciate it. I am paying about $2,000 a semester out of pocket right now, so that will cover me (ideally) for my undergrad years.

I do have complete control of this money, it is currently in my Checking account (which offers higher interest than my Savings, assuming I have 10 transactions a month).

My plans on the $30k are to build it as much as possible and pay off my loans when I can (I think those come out to about $9,000 a Semester) after college.

I would like to make whatever is possible on it; I highly doubt my Credit Union is exactly doing whatever it can to help me make money right now.

Many thanks for your help and advice.

[snshijuptr]

If you will need the money to pay off loans, I would recommend finding a nice high interest savings account or CD to put the money aside until after college. I know after I graduated, I was glad for every penny I could get to help pay for lifestyle changes (moving costs, new car, new furniture, a wedding, etc, etc). Here is my advice:

1) DON'T take out any more student loans. Even "interest free" loans charge you a decently sized fee to open the loan.
2) Figure out your expenses for the next 4 years. This might use up all of your money.
3) Get a part time job after your first year (take the first year to focus on school) and put your earned income into a Roth IRA. You will get both retirement savings and job experience that will prepare you for life after college.
4) DON'T waste this gift from your father on expensive vacations, high class apartments, or a fifth year at college (unless it earns you your Masters).

[Swanny625]

Would it be a good idea just to use the money to pay off as much of my tuition as possible including loans? I could pay these back right now, store what I can temporarily, and then follow your advice of avoiding future loans.

Now the question is: where do I put my money in the meantime? The best CD rate I can find is only 3%, and I would rather have more if anyone has an idea. I will settle with it if I have to, though.

Many thanks for the help, guys, I appreciate it.

[JoshuaHeckathorn]

Would it be a good idea just to use the money to pay off as much of my tuition as possible including loans? I could pay these back right now, store what I can temporarily, and then follow your advice of avoiding future loans.

Now the question is: where do I put my money in the meantime? The best CD rate I can find is only 3%, and I would rather have more if anyone has an idea. I will settle with it if I have to, though.

Many thanks for the help, guys, I appreciate it.

My personal preference would be to avoid student loans if I could. You've got the cash, so why not use it to directly fund your education? In the meantime, I would sock it away in a high-interest online savings account or a CD. You're not going to find anything better than 3% these days, and most online savings accounts will only offer around 1%.

[snafu]

Why does it have to be an All or Nothing scenario? I'd use $5,000. to open a discount investment a/c, and buy an Exchange Traded Fund [ETF] like DLN that holds large capital, dividend paying stock on the understanding that this account will allow dividends to accumulate and be 'hands off' for a minimum of 5 years.

[jpg7n16]

Hello everyone, my name is Josh.

My dad recently passed away, and I inherited about $40,000. Now I need some of it for college, so let's say I have $30,000 to work with. I am not entirely content with the potential 3% interest rate at my local credit union, and I am not yet ready to go hardcore into the stock market.

So my question is this: beside playing around on Marketocracy in preparation for stock market skills, what should I be doing with my money? I am looking to build some passive income, if at all possible.

I think you're beginning this process at the end. You are evaluating short-term investments, before determining the best use of the money.

The process should start with:
-what are your goals in life?
-what does your current economic picture look like? (assets? debts? other investments? cash on hand?)
-what would you like your future economic picture to look like? (assets? debts? other investments? cash on hand?)
-how can I use this money to help me move towards my future picture?

Then start in on fixing the gaps between the two. This might look like:
-My main goal is to be debt free
-Currently, I have $5k CC debt, owe $7k on my car, and will incur school expenses of $8k/semester until I graduate
-I would like to have no CC, car, or student loan debt in the future.
-Therefore, I can use this $30k to accomplish my debt free goal by paying off my current debts, and using the remainder to pay for college expenses, thus avoiding SL debt

or

-My main goal is to invest in a way that maximizes my retirement savings
-Currently, I have no retirement savings, but some CC's that cost 18%, and SL's that cost 3%
-I can expect to earn 6-10% over a long timeframe with a portfolio that suits my risk tolerance
-A Roth IRA will allow me to invest a portion of my funds that will be tax free at retirement
-Therefore, I can use this $30k to help accomplish this goal by eliminating the CC debt that costs more than I can expect to earn, contributing the max to my Roth IRA, investing the Roth and the rest of the money in a manner consistent with my risk tolerance and time horizon, and postpone the debts that cost less than I can expect to earn over time


You are starting with the action step (evaluating investment options) before going through the whole process. Is a short term CD even appropriate for the goal you're trying to reach?

Certified Financial Planner Board of Standards Inc. - Financial Planning Process

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I would personally eliminate high interest debts, establish an EF, max out a Roth, and start investing for my future.

[chasingbread]

Check out my post on peer to peer lending. By all means, this is not for your whole 30k, but more to experience this new investment asset, and see if you like it.

[jteezie]

Like JPG said, what you should do is based on your goals. These goals will come with different risk tolerances and time horizons, which completely changes the way you should invest. You should thoroughly think about this. Use JPG's post as a guideline if needed.

That aside, my sense for your goal and thus my recommendation is that you invest the 30k for the long run. I would look at the money symbolically as your father's legacy. I assume that you are relatively young. If you can invest that 30k, it may grow to a comfortable $500k retirement net egg courtesy of your father. On the other (extreme) hand you father's legacy can go into a depreciating car that you throw away/trade in 4-5 years from now.

Unless your student loan rates/terms are horrendous, there isn't a problem with taking loans and paying them back over time (to some, this is just another form of an investment, so maximize it.) Stretch out the 30k into Roth IRA contributions (5k a year). In the meantime invest it in that 3% savings account so you can feel secure about your money.

[mcfroggin]

Here are some ideas:
RichAsChocolate.com: Passive Income Ideas for 2011