Big pay raise - what to do with it?

[Onwards]

Unfortunately these are not easy answers and there are as many opinions as there are people on this board. I would suggest reading William Bernstein's "The Four Pillars of Investing". He advocates low-cost index fund investing for retirement. Personally I use Vanguard index funds, with about 80% stocks and 20% bonds (I am 32). The stocks are split up 20% large US, 20% small US, 10% REIT, 10% emerging international, and 20% value international. However, you need to choose your own allocation based on your own risk tolerance, experience, and age.

For the DP monies, if you are comfortable with the risk that you could theoretically lose money, you could put it in taxable brokerage account, and invest in a balanced fund. A balanced fund is one that tries to straddle the line between income preservation and growth, so you will get some growth, but at less risk than an all-stock portfolio. Examples are the Vanguard Wellesley or Balanced Index. However, even with these moderate funds you still are taking some risk (albeit a managed amount). You have to decide if you feel comfortable with this.

If you are not, you should look for the highest yield savings or MM you can find.

Thanks for the book recommendation. I'll check it out.

I see what you're saying about the DP fund. I'll have to think about it. Thanks for laying out the options for me, I appreciate it!

[maat55]

That makes sense, and my first instinct is to pay off my balance on the car, but I've already made more than half the payments so--based on my own thinking and on everyone's advice--it seems better to continue making the payments and go for filling up the EF first.

In this economy, filling the EF funds is wise. Advoiding future debt would be good also.