Help with investing large settlement balance!

[ejm1]

Hello! I've been lurking here for a few months and see there are many knowledgable people around here. I would like to ask some advice, if I may.

First, a little of background about me. I'm 36, DH is 39. We have 3 kids, 13, 11 and 9. We live in a relatively low COL area. Our combined gross income is about $72K. We also have a rental home that brings in $675/month. We now own both the rental home (value approx. $85k) and our primary residence (value $225k) free and clear. The only exception is a grant that we got many years ago to fix up the rental that we will need to pay back if and when we would sell that house. That grant is 27k. We have no other debt. We also own our 2 vehicles free and clear, and replaced both of those in the past year, so we should be OK in that department for a while.

Due to my DH's work injury in 2007, and subsequent personal injury settlement we received, we now have about $195k sitting in a savings account and we are trying to research the best ways to invest it. We do have a rolled over IRA at Edward Jones, $16k, and 2 of the kids have very small 529s (about $1500 each). DH currently has about $50k in his 401k, and has his 401k set max out for this year, 75% of his gross until year's end. Next year, he is planning on setting at 28% in order to max it out and still benefit from his company's 3% match. We also have a HSA plan with a $3k deductible, which his employer pays. We plan to contribute to the max of that also, which for 2012 would be an additional $3250.

Additionally, we do know that we want to take $10,000 ($5k for each of us) each year and put it in a Roth IRA from this year forward.

I know we are in a pretty good position. I am somewhat risk averse, but DH is a little more aggressive for growth. We would so appreciate any advice or direction. We don't want to screw this up, and it's making me crazy to have all of that money sitting out there earning .4%.

Thanks for any advice you can offer!

[snafu]

What is your level of knowledge about investing. If you felt you understood what you were buying would you feel more comfortable? There is a level of risk in leaving the sum in a savings a/c and giant risk in investing in a product that is unfamiliar. What is the ultimate goal ? When and how do you expect to use capital and its subsequent earnings?

You needn't invest it all at one time or all in one product. What is held in DH's 401K, what is held in $16K IRA? Are you comfortable with those choices?

[Wino]

A couple options come to mind:

The easiest course would be to find a good index fund and put the money in there. If you take this course, look in to the following fund groups: Vanguard, Fidelity, and T Rowe Price. Also look up the term Dollar Cost Averaging, which I suggest you do at least over a year or so ($15K per month).

The second course you might take is to invest in real estate as rental units. I don't know your area, but with housing prices the way they are right now, and interest rates at a minimum, you may want to purchase three $85K houses, two you might want to pay for outright at about $70K to $75K, and the third you will put $20K down payment. Along with realtor fees and closing costs, you're about to the end of the cash. Note that paying cash, you should be able to get the discounts I suggested, which is an immediate 10% return on your money. The real place to make your money in real estate is when you purchase it.

According to your initial figures, you should be able to rent these properties for about $2000 per month ($675 x 3); note that this is below the national average for houses priced at $85K ($900 to $1000 would be about right). This will pay your mortgage on the third property ($60K at 3.5% interest for 15 years, or about $425/month). I would assume three properties at $85K to be around $2500/year/house for insurance, taxes, and maintenance or $7500/year total. This leaves you with an income of approximately $12000 per year, or around 6% to 7% of your initial investment. Note also that this figure should increase with time, as well.

Now, when you factor in appreciation on the houses and tax deductions, along with the increasing equity from the third/mortgaged rental, you're making close to 10% per year.

If you take the income and invest it in the same funds from the first option, which will probably make you 10 to 12% over time, you should come out ahead with the second option.

Both of the options above are low risk. I prefer the second option, myself, but either should be conservative investments barring a complete economic crash. Good luck with whatever you choose to do.

[jpg7n16]

Well before we just the gun and start throwing out investing options, it'd help us to better understand what you're trying to do.

What are you ultimate plans for the money? What do you intend to use that money for? When?

What was the nature of his work injury? Does that require larger than normal ongoing medical treatment? Will it prevent him from being able to work as long as he otherwise would have?

What concerns do you have about investing the money?