Wow, lots of great stuff, thanks.
I don't think you and your husband have the right mindset to invest in the stock market. It is very likely that your husband will want to sell everything when there is the next downturn.
You're right about my husband, but I understand investing enough to know that it's for the long-haul (at least the investing that I do is). I didn't pull anything out during the 2008 downturn, but instead maintained my investment strategy, which has since paid off. The trick is finding a way for him to not panic, which could mean that I have to take the reigns and keep things "out of sight, out of mind" for him.
If you can help him see the logical error here, that will do wonders for your situation. Seeing the stock market as a less-sure/safe bet than a startup...
That's a tough situation growing up, but your husband wants to make these decisions emotionally, not logically. Dumping thousands into the market (which will go up over time - even if you had invested just before the crash in 2008, you'd be up by now) vs dumping thousands into a business (which is a huge risk - you're essentially investing in ONE company and gambling on its success) is a no-brainer. Can you help him understand he's willing to bet on the successes of just ONE business vs all the businesses? The way I see it, it's like....if I had to make a bet that paid 2:1 that the house would win (casino would be profitable for the night) or a bet that paid 20:1 that this guy I know who usually wins at poker night would go out on top, I'd still pick the casino and would continue to do so over the course of the year. It's not a perfect analogy, but that's my perspective. Also, a great product does not mean a successful company. There is so much that goes into the management of the company, the marketing, and more that I wouldn't feel confident "investing" in it.
Since he is skittish of the market (was his bad experience by chance based on picking stocks?), paying off the mortgage is a great idea. To me, that's the ultimate in conservative approaches.
You pegged him as an emotional investor. I have a business degree, so I understand the risks involved with starting and running a business. He is more of a free spirit and a dreamer, so he thinks I'm just being negative when I point out obvious potential risks.
The casino analogy is one he might be able to relate to (what with all the gamblers in his family). Thanks.
His bad experience was with Janus mutual funds (I think, I wasn't involved at the time). He didn't choose or manage them himself, but the money ended up in the crapper pretty fast.
It should also be re-iterated that product development is THE MOST RISKY of all types of start-ups.
If you actually think you have the self-control to keep your cash in a bank account and not spend it until the "market crashes again", then by all means go that route. However, given your limited experience/knowledge of finance and economics, I would say that you have a small chance of timing this correctly and keeping a level head. I think it would be much better for you to invest in mutual funds and never look back.
If your husband wants to start a business, tell him to study up and get a real estate license. Then, he can buy multi-family properties using leverage from $100k of your cash. Using his license he can avoid fees and make a higher return. Also, he can broker deals for other people and also make money.
Honestly your husband doesn't sound like he understands economics 101 very well. I would recommend taking the safe bets. Also, please go see a professional financial advisor together.
I definitely do NOT want to the product development route, and I'm building my case against it.
I personally don't want to keep everything in the bank because I want that money working for us instead of losing value (it's already been idle for too long) or being a temptation; if it was just up to me, I would like to invest it in index funds and bonds (I have a Vanguard account).
You're right, he doesn't understand economics, and it's been a struggle to try to teach him. I understand economics pretty well (I have an Econ minor), and I wouldn't try to time the market. However, I am not the sole decision maker here, considering that it is his inheritance, so I'm trying to get advice from others who may have been in a similar position with someone like him. He is not a numbers person and is disinterested in investing and money in general (again, historically a major source of stress for him—he shuts down when we talk about it), so I'm having a tough time explaining things to him so that he can understand.
The real estate license idea is a good one, and I'm the one thinking of doing that myself. I'm not sure how much interest he has in being a landlord, though. I'm trying to cultivate his other interests that could be more like business endeavors with less risk. Again, the fast money mentality makes him think he's going to find the next Google or something (can you hear my eyes rolling in my head?).
Does anyone have any tips on finding a decent financial advisor? We had one that I'm really not that impressed with, plus my husband is not seeing the value past the expense. Hence why I'm trying to school up on some ideas.
It sounds like your risk tolerance is really low, so investing in long-term stock indices is not going to be a good fit. If the next market correction causes you to pull everything out and put it under your mattress, then long-term index investing is not for you. You might want to consider TIPS or treasury bills, which are very stable (but at the moment are not keeping up with inflation).
My risk tolerance is somewhat low, but I've learned to deal with it in a smart way and my portfolio is heavy on long-term indices, which I'm comfortable with. My husband's risk tolerance has become low since receiving the inheritance and watching the effects of market fluctuations on the inherited IRAs, which are more money than he's ever seen in his life. He used to have a high risk tolerance (too high) when he had less money to lose.
If you aren't already max out your TSP/IRA/401k. It's a good use of the RMDs on his inherited 401k/IRAs supplemented as necessary by withdrawals from cash/brokerage accounts.
Make sure you understand tax consequences of the inheritance on top of your regular income. Everything but the retirement accounts got a stepped up basis up on his father's death. Selling any of them now would have little, if any tax consequences. RMDs will be taxed as ordinary income as you take them. I think gold is taxed at an elevated cap gains rate 28%. I may be wrong about this since I'm not a gold investor. If I'm right then sell the gold sooner rather than later.
Maxing out our tax advantaged contributions is on the list. I've already got mine set up, now I have to work on him.
We're planning to talk to someone about the tax implications to make sure we have everything straight. Good thoughts on the gold, we really don't know much about it.
What would you guys do with an inheritance like this one, not considering our personal risk tolerances?
Also, if anyone has experience trying to explain the benefits of investing to a non-numbers person, I'd love to hear some different approaches. The concepts make sense to me, so it's hard to translate it to someone who is a dreamer with little interest in numbers!