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Author Topic: financial advice?
Sunil Carspecken
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(frequent lurker and infrequent poster)

I'm a college student and due to receive a large chunk of money in the near future (probably around 200,000 dollars). I know very little about finance. So if anyone has any advice or opinions I would appreciate it. I will of course take everything with a pinch of salt.

My apologies if this sort of post is innapropriate to this forum.

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Gaoics79
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Buy low, sell high [Smile]
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Gaoics79
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Seriously though, it all depends on your desired level of risk. If you want a high return, and don't mind a higher level of risk, then go with stocks. If you need this money for your grandmother's heart surgery, maybe something safer, like a GIC. Or perhaps if you want a happy medium, a Mutual Fund.
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WarrsawPact
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Pay off your highest interest loans first, and work your way down. If the 200k gets rid of all your debts, start an IRA. It's best to start this when you're young.

*Don't* go out and spend the money on conspicuous consumption. There's a reason so may lottery winners wind up in bankruptcy court.

*Do* create a pad of money you can fall back on in case of some catastrophe (have enough to cover your insurance premiums, at least)

That's about as far as my limited knowledge of finance can help you, because I don't know your particular situation.

Although, now may be the time to shop for a nice, gas efficient car. Will probably be a good investment, if you avoid the markups.

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Digger
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Congratulations, you just became one of the richest 1% of Americans - as that term is usually applied. [Smile]

For starters, before receiving that money, I'd spend a couple hundred dollars consulting with a tax attorney, or at least a CPA, to see what can be done, if anything, to minimize your tax burden.

After that is settled, you may want to talk to a financial planner about how to best manage the money for your particular situation. If it were me, I'd stick with a 'fee only' planner - someone to whom you pay a flat or hourly fee for their advice and where they do not receive compensation from selling you any sort of finacial products.

There are a myriad resources on the web to help as well. Do your best to get educated in short order, lest the Law of Found Money makes you it's next victim.

Sites I like:
http://clarkhoward.com/ (General advice - look in the Personal Finance section)
http://www.fool.com/ (Investing focused)
http://www.napfa.org/index2.htm (Fee only planner education site)

I'll add others as I think of them.

Books I like:
Everyone's Money Book, Jordan Goodman (Long, but incredibly comprehensive - an excellent resource)

The Millionaire Next Door, Thomas Stanley and William Danko (not so much a 'money' book, but an insight into the pshychology and lifestyle associated with acquiring and maintaining wealth - it's been indispensable to me)

[ September 05, 2005, 01:20 PM: Message edited by: Digger ]

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philnotfil
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Definitely pay off any debts.

I would say buy a house, but the housing market is doing weird things right now. Assuming you are in a college town you might want to do that anyway and keep it as a rental property, it will keep its value just because the college will always have students.

IRA is always a good choice.

If you are going for a mutual fund put your money in an index fund that is set to the S&P 500. They do less work and you get more money. (but it isn't very sexy)

You could also send $100 of it to me [Smile]

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Zyne
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I think you should begin interviewing accountants who are also professional financial advisors. Interview several before you find one you're comfortable with. You could also ask for (and check) references. If your goal is to eventually make your own investing decisions, make sure your prospective advisor understands that and does not try to steer you into a situation where you'd be paying them forever. You're going to want a good accountant to do your taxes, probably forever.

Very generally, I think you should put as much into a tax deferred retirement account each year as is legal. You should also purchase a residence for yourself using a combination of your cash and a mortgage.

There is bad debt and there is good debt. Don't be afraid of having some good debt. A mortgage can be good debt--real estate taxes and interest on a residence you live in are deductible against federal income tax, which means that you may earn money by having a mortgage on your home and putting the money you would have spent to buy the home outright to work for you elsewhere. This is something you should discuss with your accountant, taking into account the details of your situation.

Don't pay off subsidized educational debt until the subsidy ends--they are good debt since you don't pay any interest. As for other educational debt, whether to pay it or not depends on the interest rate. For example, if you've got student loans you owe at 4% interest, that would be a debt you should probably not pay, because you should be able to earn a better return, all things considered.

Consumer debt is usually bad debt and should be paid off if at all possible unless you can get a very low interest rate. There are still companies out there doing 2% or 3% on balance transfers until they are paid off entirely. If you do something like this, be careful not to charge anything else on the card--the creditor will allocate the entire balance between the low itnerest rate and the interest rate on new charges, until all the balance is paid.

I agree that you should pick a good car now that you think you will be happy to drive for years. Car debt is generally not good debt--you can't use it against taxes and it tends to carry a fairly high interest rate. If you purchase a car in cash you are in a powerful position. Don't be afraid to bargain, shop around, and let everyone know you have cash in hand and want the best bargain you can get.

I also think you should be circumspect about the money when you're dating, considering a roommate, etc. It's alot of money, and it could make you a target.

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Gaoics79
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Oh, I forgot: here's a really good book that you may find helpful. My father gave it to me, and it provides a very simple, down to earth, common sense approach to financial planning:

The Wealthy Barber

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TomDavidson
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Pay off any debt with an APR of more than 4%. Long-term loans at less than this rate do not need to be paid off immediately, unless you intend to be very conservative with the remainder of this money; if you're going to sink this money into investments with a rate of return lower than 3%, pay off your debts first. (Do not pay off subsidized school loans; they don't actually cost you any money.)

Once that is done, look seriously at hard assets. If you do not already own a dependable car or a starter home, this money would go a LONG way towards purchasing either. (Personally, I would recommend buying a car -- cash -- and putting a sizable downpayment on a house, being sure not to buy more house than you need; buying a house with enough cash down that your monthly mortgage payment would be roughly half what you're currently paying in rent would be ideal for your situation.)

If you have money left over, invest it aggressively.

This is a fairly conservative strategy. The one risky element, of course, is the housing recommendation, which depends largely on where you live. Many areas are currently seriously inflated, and it would be a bad idea to buy any house now in any of those areas; a better strategy, in that case, would be to put the money you'd like to apply to a down-payment into conservative investments for a few years, until the bubble bursts, and then buy.

Keep in mind that taxes are going to be a problem for you this year, possibly for the first time in your life. You could conceivably lose up to half of this money, depending on how your assets are arranged. Spending a few hundred dollars in consultation with a CPA would almost certainly pay for itself; I highly recommend it.

[ September 05, 2005, 01:34 PM: Message edited by: TomDavidson ]

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David Ricardo
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It depends on your situation. We know you're a college student, but where do you currently live? (apartment in Manhattan, or a condominum in Ohio?) What kind of job, if any, do you have now? What kind of job/career are you likely to have after graduation? What are your major financial responsibilities, if any? (Do you have any fiancee/relatives/family who depend and/or will depend on you financially?) What are your major financial goals? (Do you want to own your own home at age 25? Do you want to retire at age 50?)

Once you've got that answered, then a financial advisor can give you precise and well-tailored advice.

Without that information, however, here are a few general tips:

1) Consolidate your highest after-tax interest loans into your lowest after-tax interest rate loans (For example: your lowest interest college loan). Just by consolidating your most expensive loans into your least expensive loans, you can free up more money for higher-return investments. DO NOT pay off your low-interest/no-interest college loans FIRST because you should take advantage to those nonexistent/low interests rates to leverage much higher-returning investments.

2) Open up tax-advantaged retirement plans like a traditional IRA or Roth IRA.

3) Position as much of your money as reasonably possible into growth-oriented wealth creation. DO NOT invest in mutual funds. DO NOT invest in mutual funds (yes, I'm repeating myself). If you do not want to micromanage your own portfolio, it is better for you to invest your money in a low-fee no-worry index fund simply because the majority of mutual funds fail to beat the S&P 500 index (8-10% historical return) even though they charge you atrocious fees for "managing" your money. Since you are so young, you will be able to outlast any short-term volatility in the S&P 500 easily, so please do not rathole your money into a saving account or CD (Certificate of Deposit) unless you are planning on using that sum of money to purchase a new home (or provide heart surgery for your mom) in the next few months.

If, on the other hand, you want to micromanage your portfolio to achieve even higher returns, I highly recommend a long-term value investing "buy and hold forever" (think Warren Buffett) strategy of identifying a few great companies at good bargain prices and then buying their stock for the long haul (minimum of 10year horizon). You can easily attain consistent double-digit returns on your money this way (20+% is not unrealistic) as long as you are willing to do the comprehensive research into the background of the business in which you plan to invest.

4) Buy a reasonably priced house once you start your career AND you have a need for a house to live in. The tax advantages of a mortgage are so significant that it is a big advantage to become a homeowner once you have a significant income stream coming in (you want to give as little of your hard-earned money as possible to Big Brother). On top of that, real estate has a reasonable 5-7% historical return, but be careful if you are living in one of the overheated housing markets in the coastal United States.

Those are my general tips without knowing your speicfic situation. We can probably give you a lot more help

[ September 05, 2005, 01:38 PM: Message edited by: David Ricardo ]

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TomDavidson
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IIRC, David here claims to be independently wealthy based on his sound investment strategies. I'd listen to him. [Smile]
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philnotfil
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quote:
Originally posted by David Ricardo:

3) Position as much of your money as reasonably possible into growth-oriented wealth creation. DO NOT invest in mutual funds. DO NOT invest in mutual funds (yes, I'm repeating myself). If you do not want to micromanage your own portfolio, it is better for you to invest your money in a low-fee no-worry index fund simply because the majority of mutual funds fail to beat the S&P 500 index (8-10% historical return) even though they charge you atrocious fees for "managing" your money. Since you are so young, you will be able to outlast any short-term volatility in the S&P 500 easily, so please do not rathole your money into a saving account or CD (Certificate of Deposit) unless you are planning on using that sum of money to purchase a new home (or provide heart surgery for your mom) in the next few months.

I was under the impression that index funds were a subset of mutual funds. Are they completely different things?
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David Ricardo
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You're right phil. Technically, an index fund is defined as a mutual fund or exchange traded fund (ETF) with a clearly defined rules of ownership, that are constant regardless of market conditions.

When I say stay away from "mutual funds" -- what i mean to say is to stay away from actively-managed mutual funds, hedge funds, and ETFs. The modern actively-managed mutual fund industury more of a marketing machine, asset accumulation monstrosity -- and that's coming from myself, who has worked and continues to work in the financial services industry.

For their "services," these mutual fund "managers" end up taking 3% over the top in: management fees, hidden portfolio transaction costs, sales commissions, and other expenses. On top of that, you even pay significantly higher taxes (usually twice as much or more) with an actively-managed mutual fund simply because of the extremely high turnover in the portfolio versus the typical index fund.

The sad thing is that the majority of these mutual fund "managers" also fail to beat the S&P 500. So, you are literally paying your mutual fund thousands of dollars a year to give you subpar perfomrance.

[ September 05, 2005, 02:20 PM: Message edited by: David Ricardo ]

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Dagonee
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Index funds are a form of mutual fund. I'm assuming what was meant was "actively managed funds." David's advice is sound, though, even with that confusion. (Edit: posted before I saw David's response).

For the average investor, the cost savings of an index fund will significantly enhance returns.

Just be sure it's not an index fund with a 1% expense ratio. 0.2% is plenty.

In general, priority should be: pay down debt as described in several posts here, put 6 months' expenses in a liquid account (savings or money market), set aside money to be spent in the next 2 years in short term bond funds or something similar, and put the rest in long term investments. Target retirement accounts are good, as are automatic asset balancing funds. If you're young enough, something like Vanguard Total Stock Index fund is good. Assign as much of that money as possible to IRA (Roth if you are eligible), the rest in standard accounts. Index funds typically have less tax impact than actively managed funds.

[ September 05, 2005, 02:16 PM: Message edited by: Dagonee ]

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Digger
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My final thought on your (delightful) predicament is that everyone here has given you some good free advice. Most of the thoughts jibe well with each other and no one has told you anything that sounds like heresy to the rest of us. That said, it's a lot to digest and there's an old saying about free advice: It's often worth what you paid for it.

Which is why my advice centered around finding some professionals to help guide you through the decision-making process. It can be intimidating to start looking for accountants, financial planners, and possibly even attorneys to help you plan a course of action, especially if you're in college and (I'm assuming) pretty young.

But the quantity of money you're talking about, while not truly earth-shattering, is definitely substantial. Handled and invested properly, this one windfall could make a substantial difference in your life. It's worth investing some time, energy, and even some money to get yourself properly educated about your situation.

Good luck. [Smile]

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Sunil Carspecken
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Thanks all! That IS a lot to take in and it will take me awhile to really understand this stuff.

David, I'm 23, live in a small apartment, should graduate in about 20 months (psychology major, don't despise me) and have no definitive plans about what to do after that. Maybe travel the country playing my didgeridoo on the streets? =) I don't really like the idea of a job that ties me down, but I'll probably end up with one anyway. I have no debt. And no job at the moment.

Again, I appreciate everyone's thoughts and advice.

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towellman
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Hey Sunil,
The same thing happened to me when I was a sophomore in college. I spent a lot of time learning about investing both through books, talking to people and practiving on my own first with pretend money, then small amounts and now I "play" with about 1/2 of the original amount. My advice:
1)Don't let it change you. Keep executing your life plan, the money will just smooth your road some.

2) IF you get a kick out of personally managing your money and have the stomach to handle the ups and downs go for it. Once you get a handle on thing you'll probably do better than you would letting others do it for you.
IF you don't want to manage your money follow the good advice provided above about index funds and finding a good advisor.

3) Either way, get fund your Roth IRA fully, once the taxes are paid that money can grow tax free and be withdrawn tax free. A traditional IRA probably isn't the best thing for you since it's tax deferred (you pay taxes when you pull it out at your then tax rate) and as a college student your current income tax bracket is low so it's not that great a savings. A fully funded Roth IRA for 20 years growing at 8% gives you over a million tax free when you retire.

4) There's lots of good books out there. Read them, compare them, decide what bits you want to accept and reject. For example, The Millionaire Next Door will motivate you to be stingy and save well, which is great. On the other hand, are you going to enjoy spending some of that money more now or when you're 60? What if you don't make it to 60?

5) If invested well you can reasonably earn $10,000-$40,000 a year off of that capital. It's worth you time learning about how to handle money.

6) I wouldn't rely on it for daily living until you are close to getting a real job. A trip to Europe here or there doesn't hurt. Don't blow much on a car, though, terrible investment.

If you're interested, I'd be happy to share my experience since then, just email me.

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Richard Dey
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SC:

Ask anybody who is retired. Spend it now while you can enjoy it. All the money in the world won't make you happy at 65.

If I had it to do over again, I would have spent my 20s running up as high a debt with as many charge cards in as many expensive places as I could. As the IRS forced their way onto my yacht, I'd have hopped into my stilletto, rushed to the court house, and changed my name.

Only then would I have taken any of the advice given here. Otherwise, except for the missing key word 'diversify', it sounds pretty good. (I would also invest in a summer house, however simple.)

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Richard Dey
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Marguerite adds: Never use your own money. Use his.

Or hers or its, as the case may be.

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David Ricardo
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Richard Dey, I understand that you were being a little facetious, but the vast majority of soon-to-be-retired Baby Boomers and current retirees that I meet (as part of my day job) -- their #1 worry and/or concern is having enough money for their retirement.

You know the reason why that is? The fact is that 95% of them took the "carpe diem" approach to money and SPENT all of it on "stuff" right up until their mid-50s. I mean, on a regular basis, I literally meet with a middle-aged, middle-class family that lives in a $500,000 house with a couple 2005 SUVs, a brand-new Hummer, and a shiny, "right out of the box" 70 in. plasma TV -- yet they have a measly $50,000-$100,000 in all of their retirement accounts.

That's hardly two years' worth of household income upon which to retire for the rest of your life -- especially since 99% of these same people still have a mortgage which they have to pay off.

SC, Social Security and Medicare will not be around when you reach the age of retirement, so my advice to you is to invest aggressively now. That way, you can exploit the single "greatest discovery of all time" to your advantage.

As Albert Einstein said:

quote:
It[compound interest] is the greatest mathematical discovery of all time
P.S. I do not mean to say that you should not spent a little of your windfall money on fun things. Nevertheless, if you just invested a sum of $100,000 at an interest rate of 8% per annum, it would compound to $200,000 by 2014, $400,000 by 2023, and over $1 million by 2035 -- all completely beside any household income stream. More to the point, if you invested that same sum of $100,000 at an interest rare of 12% per annum (not unrealistic at all if you micromanage your own portfolio), then it would compound to $200,000 in 2011, $400,000 in 2017, and over $1 million in 2025.

That's the opportunity cost of spending away a small sum of $100,000 over the course of a couple months (it's quite easy to spend away $100,000 in a couple months, BTW).

[ September 05, 2005, 09:12 PM: Message edited by: David Ricardo ]

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Dagonee
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I have a spreadsheet I use to help illustrate the power of compound interest.

Basically, your financial power over the next 10 years is worth as much as your ability to save over the next 30. It's that big a difference.

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IrishTD
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To make a book suggestion (and this is a nice easy read): The Total Money Makeover by Dave Ramsey.

Advice is sound and makes a ton of sense. Here are the basic steps:
1. Make minimum payments on all your bills. Squeeze your budget until you've accumulated $1,000 cash. This is your beginner emergency fund.
2. Pay off your debts, smallest to largest. "Snowball" the payments.
3. Create a full-fledged emergency fund containing 3 to 6 months' worth of expenses.
4. Fully fund 15% into pre-tax retirement plans and Roth IRA, if eligible.
5. College funding (for the kids)
6. Pay off your home early.
7. Build wealth! (Mutual funds / real estate)

Step 2 includes student loans. Basic philosophy is that debt is generally bad. Pay of the house if you get a chance...why pay a mortgage broker $10K in interest to save $3K in taxes? Pay the $3K in taxes, and invest the other $7K...you'll come out ahead.

As for investments, I'll echo the comments on index funds...just divide it up across a few categories (international, S&P500, etc.)

I'll also echo the comments on finding a good attorney/CPA/advisor. You *might* not be able to put money into a Roth this year due to income limits.

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The Drake
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If you haven't already, become very comfortable with basic microeconomics like opportunity cost. This will lead you to the right decisions with respect to debt.

Index funds are definitely the safe choice, but no-load, no-fee sector mutual funds are also an option with more risk and potentially more reward. Read "A Random Walk Down Wall Street" before you listen to any financial consultant.

Never invest in anything without having an exit strategy and considering the worst case scenarios. Think about strategies to limit your losses. Always consider how much of your money is liquid and on-hand for emergency use. You won't want to be pressed for cash while the market is down.

I'm personally just reaching the level where I feel comfortable enough to trade derivatives, and I started investing almost ten years ago. Stay away from the exotic stuff until you are steeped in the jargon.

Allow yourself to invest small amounts of money in a risky venture, it is all about balance.

Everything I've said could be completely wrong for you, depending on your goals. This advice represents the approach that I take based on my own ability to tolerate volatility and the level of involvement that I personally take with my investing. I have never worked with a financial consultant - and the advice I'm throwing out should not be construed as expert.

Oh, and consider whether you expect to live to retirement age. If you live really hard, the IRA won't do you any good - cuz you can't take it with you!

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Ivan
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quote:
Originally posted by David Ricardo:

3) Position as much of your money as reasonably possible into growth-oriented wealth creation. DO NOT invest in mutual funds. DO NOT invest in mutual funds (yes, I'm repeating myself). If you do not want to micromanage your own portfolio, it is better for you to invest your money in a low-fee no-worry index fund simply because the majority of mutual funds fail to beat the S&P 500 index (8-10% historical return) even though they charge you atrocious fees for "managing" your money. Since you are so young, you will be able to outlast any short-term volatility in the S&P 500 easily, so please do not rathole your money into a saving account or CD (Certificate of Deposit) unless you are planning on using that sum of money to purchase a new home (or provide heart surgery for your mom) in the next few months.

Yes, yes, YES!!!! Best advice EVER right here. (Well, maybe I'm exagerating a little bit... [Wink] )

But I can assure you that David is right: Unless you're going to micromange your funds and learn a LOT about invsting, the best thing to do with your money is buy S&P Index funds because, as David says, they're VERY low-fee and they BEAT the long-run returns you get from virtually ANY investment firm. DON'T get a CPA, DON'T get a "wealth manager", DON'T get anyone who wants to do a lot of fancy stuff with your money. I assume you're looking to have this money be your nest egg for the next 40-50 years up until retirement. (At least, that's how I would treat it....) The best return you'll get on this over that time period is to just buy S&P index funds. Just invest it and ignore it, and 30 years later, you'll have made a CRAZY amount of money.

I mean, you could probably get away with investing this now and then just not saving anything else but leaving it alone and be very comfortable come retirement.

But yeah. What an internship at Morgan Stanley, a job working as a transcriptionist for CPAs and investment bankers, and an undergraduate education in economics has taught me is this:

Index fund GOOD; CPA BAD

(I can go on and on about how the "Retail Financial Services Inustry" is horse manure if you guys want me to. These people are like used car salesmen, I swear it!)

EDIT: forgot to add- The bit about "finding someone to minimize tax impact" is good advice. If there's one thing CPAs can do, it's find loopholes for you. Just don't let them manage your money. Their fee alone will cost you millions in compounded intrest over 50 years.

[ September 06, 2005, 01:57 PM: Message edited by: Ivan ]

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Digger
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I'm going to pipe back in here, because you're starting to get some conflicting advice, and while well intentioned, some of it may not be good for your situation.

First and foremost - no one here knows (or can know) the full range of your financial needs. Some of the advice given here is very specific and while it is good advice for most people, your situation may require special handling.

For starters, many people giving advice have jumped right into investing without asking some other very pertinent questions. Their investment advice is good, but they have overlooked some more immediate and fundamental concerns.

1) This windfall will be considered income. You will pay taxes on it. If you could spread the income over 2 or more tax years, there will be substantial tax ramifications. Is this possible? There may be other considerations about calculating your tax obligations that are beyond the reach of a what a discussion board can provide - hence I advised you to spend an hour talking with a tax attorney or CPA. Many CPA's and attorney's will even donate an hour of their time to you as part of the interview process. You can potentially get some limited professional advice without paying for it. This tax question may have a significant impact on the money you receive. Don't underestimate it.

2) Do you have current or expected obligations that will require an income stream to be produced from this money? College education? Living expenses? Medical care? Anything else (like credit card debt)? If you need to tap some or all of this money for immediate expenses, it will dramatically affect your planning and investment strategy. Hence, my advice to talk to a (fee only) financial planner. I didn't intend for you to turn over total control of your money to someone else, but it is probably worth a few hundred dollars to make sure you are allocating your capital appropriately between various types of investments.

3) Once you've gotten past 1 and 2, you're ready to start planning an investment strategy. Will some or all of this money be used for a significant purchase, like a house? When? How much do you plan to put aside for the future? Will you leave this money untouched for 5 years, 10, 20, until retirement? Those answers will also affect your course of action.

Advice about index funds versus loaded mutual funds is all well and good (as is much of the other investment advice given here), but there's much to do before you're at that point. As for CPA's or other financial professionals and whether they are worth using for your planning needs, all I can say is, well, maybe, it depends on your circumstances. I know that isn't very helpful - sorry. In general, CPA's and tax attorneys are good for discussing tax issues, but poor at planning out a financial strategy. In general, fee only planners are good for mapping out a financial strategy, but may not be well versed in tax matters. Other types of financial planners are often wolves in sheeps clothing, and generally to be avoided.

I agree that with the proper education you can learn to do a lot of financial planning and investing yourself. But to expect a 23 year old college student to understand the nuances of effectively handling a sudden $200,000 influx of money is (no offense) a little unrealistic, unless you have some kind of history with handling large sums of money. From a personal standpoint, I've been investing for over 15 years, own my own business, and still consider myself only marginally knowledgable about financial matters. One truism about managing money is that the more you learn, the more you realize you don't really know.

Some have told you to watch out for the sharks - absolutely true. Financial professionals are often interested in lining their own pockets with your money. It can be hard to tell who is working in your best interests, but some general rules do apply. Most importantly, know how the person giving you advice is being paid. If you are paying an agreed upon fee or hourly rate, you can be more confident that the person does not have a hidden agenda. If the professional is being compensated based on a commission from products they are selling you, that's a danger sign. For this reason, price shopping your financial advice can be a mistake. If someone's operating on a cut rate, they may be getting compensated in ways you don't know about. Ask for, and diligently check out, references. Ask friends and family who they have used in the past. Recommendations are very valuable.

As an extreme example of how varied advice can be about unexpected windfalls; if $200,000 appeared in front of me tomorrow, I'd immediately calculate my projected tax burden on it (with the help of my CPA) and then use the balance to complete the purchase of a piece of property I have under contract. That's the single best thing I could do with the money at the moment, but to give that out as advice to someone else would be lunacy. Every situation is different. Understand yours before making a move. Know thyself, as they say.

[ September 06, 2005, 03:05 PM: Message edited by: Digger ]

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Zyne
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I have assumed that SC's good fortune would come as a gift, an inheritance or a lump sum when a trust ends. If any of these, it should not be taxable as income.

Of course, if it isn't, and it is taxable, then spreading it over two years is a great idea IMO. [Smile]

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Digger
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Zyne, you're right, I was a bit hasty in declaring flat out that the windfall would be taxable. There are cases where some or all of this money may not be taxable. Another good reason to go consult with an expert, IMHO. After all, reading through IRS publications like this one to try to determine if your income is taxable is a nightmare. Even if you find the relevant section, there will often be qualifiers like, "...generally will not be taxable..." And who decides what "generally" means? Not you, that's for sure. [Smile]
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Zyne
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It's difficult to generalize about federal taxes most of the time. There are, of course, a few exceptions to this. And exceptions to those exceptions. Ad nausea.

There are 9,000,000 words of statute and regulation (or something like that)! And a whole bunch more if you add in court decisions.

Anyway, IMO the IRS publications are very well written. No other agency is charged with putting so many rules into plain language.

To complete my geeky display, I leave you with this, which I assure you is absolutely accurate, as of the date it was compiled: http://nersp.nerdc.ufl.edu/~acadian , then click on "tax humor" on the left.

[ September 06, 2005, 09:33 PM: Message edited by: Zyne ]

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