Author Topic: Inheritance Advice  (Read 1529 times)

alyx

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Inheritance Advice
« on: November 17, 2018, 12:47:27 PM »
hello fellow mustachians,

I have been a reader on this site for years. It's helped me shape how I think about finances and retirement. Thanks to the blogs on this site, I was motivated a few years back to pay off all my CC debt and save as much as I could each paycheck I received. I've also created a small stock portfolio and put the maximum into an IRA each year. I am 32 years old and I just started to get a handle on things recently. Then, out of the blue, a family friend with no children passed away and I got news that I would be receiving an inheritance. Took a year to get the paperwork straightened out, but I just heard from her lawyer that I will be receiving between 250 and 350K.

Before I receive the checks from the lawyer (in the coming months), I currently only have a federal loan out for college (15K) and no other debt. I have about 22K in the stock market (mostly Apple, Disney, Spotify, and FB--I really need to diversify). And the rest is in my IRA ( 11K). Oh, I have about 9K in a checkings account right now and some 20K more coming from freelance gigs I already completed. So I have a nest egg in case of an emergency.

I reached out to a friend/mentor of mine who is smart with finances. He used to be VP at a big financial institution, and after he retired he got a graduate degree and created a curriculum in order to give people in the community free financial advice. I spoke with him, and he told me that I should put most of it in a money market (I believe that's what it's called) type situation. When I get the check, he said I can set up a meeting with him and we can go over the money market in person. To prepare I've created an account with Schwab.

I also have a dream of purchasing a 2-flat (I live in Chicago). I've worked hard to get my credit score up and it's around 752 right now (according to mint.com). As a freelancer with income from various streams that are not all from related fields of work, I've found that it might be a bit difficult to get a mortgage for anything more than say 75 - 100K. I've spoken with Chase bank and also a smaller mortgage company. The smaller company looked at my taxes and said she could work with me and get me a decent mortgage, but then she ghosted on me lol. I need to stop back in after I file taxes next year.

Any and all advice is welcome on what to do with this inheritance is welcome. If you have advice about money markets/mutual funds, real estate, down payment on homes/apartment buildings, or anything else--please let me know.  Thank you so much.

-alyx

secondchance

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: Inheritance Advice
« Reply #1 on: November 20, 2018, 08:38:28 AM »
my condolences for the loss of your friend.  may this enrich your life in a way that honors theirs.

i'm not familiar with inheritances -- do you pay tax on it?

a money market account sounds right while you decide what to do.  as I understand it, it's a slightly better savings account that's slightly more annoying to use.

how much does the sort of house you want to buy (2-flat = 2 bedroom condo?) cost?

or ... what are your retirement goals, in time and numbers? worth pointing out that this is the beginning of your investment career (I'm in the same situation at 33) and our saved money goes the farthest now that it ever will.  If you chuck $250k in a Vanguard index fund and assume 7% returns, in ~20 years you'll have a million dollars, even if you never save another penny.

congratulations on your bright future!

leavesofgrass

  • 5 O'Clock Shadow
  • *
  • Posts: 53
Re: Inheritance Advice
« Reply #2 on: November 20, 2018, 09:12:34 AM »
The first thing I would do is pay off that student debt. No sense in keeping it around even if it's at a low interest rate.

Put the rest in a high yield savings account until you decide how to use the funds. No need to rush any decisions. Look at your entire financial portfolio and try to make a plan for your future.

This inheritance won't be taxable to you -- but any future income it kicks off will be taxable.

I don't know what the housing market is like in Chicago, but if that's where you see yourself long-term and your goal has always been to purchase a home there, that may be a good use of those funds. I live in Los Angeles, and I also inherited money, but personally I don't feel comfortable buying a home in this market. The rent vs. buy calculation easily favors rent for me.

Like secondchance suggested, for long-term upside potential, invest in Index Funds. But remember, try to avoid bond index funds in your taxable space. $250-350K may feel like a lot to invest in the market at once, so consider DCA over a period of time to make it feel like less of an emotional "plunge".

GreenEggs

  • Handlebar Stache
  • *****
  • Posts: 1056
  • Location: Here & There
Re: Inheritance Advice
« Reply #3 on: November 20, 2018, 10:10:30 AM »
Congrats.  You're at a good site for advice.  There's no federal tax on inheritances, but there may be a tax in your state.


I'm a beginner at finances & investing, so the only advice I'll give is "don't spend it".  ;)


The general advice around here is the market is the best place for it, and low fee index funds are the best way to be in the market.  VTSAX is very popular.  Long term the market always goes up, is the logic.


I'm in a similar position as you, but different age & amounts, and have been nervous with the current political environment.  The market is jittery right now and that makes it tough to enter, especially for us newbies.  Good luck to both of us on the decisions we make.  ;)

nereo

  • Senior Mustachian
  • ********
  • Posts: 12950
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Inheritance Advice
« Reply #4 on: November 20, 2018, 05:33:15 PM »
Money obtained through an inheritance should be used the same way you would use earned income, big contract or a bonus.  In other words, do not deviate from your financial plan just because it was unexpected.

First, the investment order is the standard around here when asking "where do I put my money"
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153


Regarding your "i need to diversify" comment - low-cost index funds are a great way of doing this.  As GreenEggs said, Vanguard's VTSAX is a popular choice, though not the only broker or broad-index fund out there.
You also may want to read JL Collin's stock series to understand more about investing in low-cost index funds, personal investing in general and the journey to becoming FI
https://jlcollinsnh.com/stock-series/

mschaus

  • Stubble
  • **
  • Posts: 153
  • Location: Chicago
    • blog
Re: Inheritance Advice
« Reply #5 on: November 21, 2018, 02:09:58 PM »
Hey guys, a critical piece of info here you all should know is that a 2-flat is a 2-unit building. So it effectively sounds like Alyx is interested in house hacking. Cool!

Alyx, if you're up for being a landlord that can be a great move! Parking your money in a savings (or money market) account until the dust settles, like the other posters have suggested, is a good move to start. No need to be rash. This is the time for you to learn about personal finance, different investment types, and also landlording/house hacking. Then you can make an informed decision that fits with your values. For figuring what to do with a quarter million dollars, it's worth your time to read a book.

Start by reading through a beginner personal finance book (there are other threads with suggestions, and the Boggleheads book is good too) and be sure to peruse the articles on this very blog!

https://www.mrmoneymustache.com/2011/04/10/post-4-what-am-i-supposed-to-do-with-all-this-money/
https://www.mrmoneymustache.com/2011/05/23/get-rich-with-owning-rental-houses/

jpdx

  • Pencil Stache
  • ****
  • Posts: 514
Re: Inheritance Advice
« Reply #6 on: November 23, 2018, 02:13:27 AM »

First, the investment order is the standard around here when asking "where do I put my money"
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Regarding your "i need to diversify" comment - low-cost index funds are a great way of doing this.

What he said.

Stop stock picking, start using index funds. Vanguard is your friend.

Do you know if you are inheriting cash or an IRA? This makes a big difference in how you proceed.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 13078
  • Age: 62
  • Location: NorCal
Re: Inheritance Advice
« Reply #7 on: November 23, 2018, 02:32:58 AM »

First, the investment order is the standard around here when asking "where do I put my money"
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Regarding your "i need to diversify" comment - low-cost index funds are a great way of doing this.

What he said.

Stop stock picking, start using index funds. Vanguard is your friend.

Do you know if you are inheriting cash or an IRA? This makes a big difference in how you proceed.
All of the above.