What to do with inheritance

[JennC]

Our mortgage is paid off. Our 7 year old car is paid off. We do not have any debt. We have significant savings as is due to our pursuit of early retirement. We have one child and the hopes for another.

We are in Canada.

Any suggestions?

[StangStache]

How significant is the inheritance?  Are you interested in rental properties?  If so, and the inheritance can go to outright purchase a rental, perhaps that would be a good way to bolster your soon-to-be retirement income.

How about college savings for the kids?

[JennC]

The inheritance is over 100K.

We are maxing out the RESP contributions for our child and intend to do so for any future children.

We've maxed out our own RRSP and TFSA contributions.

We had discussed rental property but the ratio of rental income to cost for the property itself is not good enough to push to become a landord in our area.

I guess my question is really where to invest it? We are risk averse and so are hesitant to use investment vehicles outside our comfort zone, but I would like to know what canadian mustaches would do if they suddenly had a chunk of change to invest. Where would they park it?

[Thegoblinchief]

If you're already maxing your tax-advantaged accounts, plunk it all into an index fund (probably 70/30 stocks/bonds if you are risk-averse, but go as high as 100% stocks if you are 10+ years from FI). Not sure what specific products to recommend since I'm American.

Unless you'll be tripped up by your own psychology, do it all in a lump sum, NOT via dollar cost averaging. DCA limits your downside, but it also limits your upside. Over a sufficiently long period of time, lump sums always beat DCA.

Bonus: stocks (at least American ones) are on sale right now!

Canadian residential real estate is pretty pricey, though some blogs I have read suggested farm land is attractive, but that's way out of my knowledge zone. I'd stick with stocks and bonds myself.

[thedayisbrave]

Sorry to hear about your loss, but what to do with an inheritance is a good problem to have.  There are a ton of things you could do.  If you haven't already, the Boglehead's guide to Managing a Windfall is a decent place to start: http://www.bogleheads.org/wiki/Managing_a_windfall

Is there are a vacation destination you've always dreamed of going to but haven't? It's not wrong to take a small portion and do something that the family would enjoy, IMO. 

The rest of the money can go into index funds, as it doesn't sound like rental property is feasible in your area.  You don't say if you are FI... perhaps this will enable you to quit working sooner?

[GardenFun]

How would you treat a large bonus from work?  Treat this money the same way.  Inheritance money tends to have more emotional strings attached vs. a work bonus - but at the end of the day, it's still only money. 

[JennC]

I am currently on mat leave (yes it's been a rough year of ups and downs). I have a well-paid job (gross roughly 65-70K) and husband has a very well paid job (gross between 175-185K). We will now have over 1M in cash (excluding value of our home) with this windfall.

My husband feels that reaching 1.5M cash will be the right number for ER. We plan on having another child (hopefully) and we have talked about me staying home with our children which I am very much enjoying right now with our little one.

I wanted to put this money somewhere where it would give us the best returns. An investment property sounds great but RE costs are very high in our area. Our dream investment property would be a small office building, but that alone would cost close to 1M where we are. So it's out of the question.

We had thought about buying a small (very small) cottage in the area, but decided that would just tie us down to one place for vacationing and we would have to work on maintaining another property without any real returns which does not appeal to us.

We are planning a trip to europe next spring (ties in to hubs work) so maybe we will splurge more than anticipated on that. Hard to do, since we are both pretty frugal.

We thought about getting a new vehicle, but our current one is running fine and we planned on running it til the wheels fell off.

[GardenFun]

Are you thinking about the money as something you want to use yourself, or maybe use some or all of it for a potential non-self benefit?  I've been pondering this question for a while and come up with this list of ideas:

- Open a 529 account (or Canadian equivalent) for nieces/nephews/grandchildren.  If you plan on giving them a nice graduation gift, it could come from there.
- Open a target date fund as a future inheritance for your child.  Split it among any future children.  It's a great learning tool for them to see the magic of compounding. 
- Fund a scholarship at your high school / college / religious organization.

Your cottage thoughts are spot-on.  Unless you want to go to the same place over and over, don't get one.  Also, staying home with the kids is worth trying out.  With my first one, I liked going back to work but once the second one came along, it wasn't worth it anymore.