Author Topic: Investing an Inheritance  (Read 1542 times)

moneymamas

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Investing an Inheritance
« on: July 13, 2018, 02:15:14 AM »
DW and I are inheriting $225,000 from a deceased relative and I wanted some mustashian advice on how to best invest it. Some information about us: we are married with no kids at the moment, though Im 5 months pregnant with our first. Im 28 and DW is 33.
Debt:
149k mortgage (3.875% interest rate on 30 year fixed loan)
13k my student loans (high interest rate around 8%)
22k DW student loans (3.5% interest rate)

Retirement:
2.5k for me in a traditional IRA (no retirement plans at my job b/c small business)
1.5k for wife in a traditional IRA, plus she just got a new job and is investing 5% (matched by company) in her 401k as well as making payments to a savings retirement account with the military.

Savings:
25k savings account & 20k checking account (way too much but DW wants to feel more than prepared with baby on the way)
22k invested in various stocks

We both agreed to first pay off my student loans since the interest rate is so high.  Since our mortgage and DWs student loan rates are so low I thought it would make more sense to invest the rest as we could likely make more on the market. My first thought was to invest the remainder in 1 or a few index funds like VOO (which is currently doing well for me with my retirement account).  DW wants to get much more complex, mentioned CDs and Bonds and wanting some of it to be in much safer investments than the market. Curious to see what the other mustashians think.

EDIT: Incomes:
65k annual income for me
15k DW (starting new job in a month so will be making 60k annual income)
Savings rate is currently around 50% and we dont plan on spending more with new income.
« Last Edit: July 13, 2018, 03:18:19 AM by moneymamas »

marty998

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Re: Investing an Inheritance
« Reply #1 on: July 13, 2018, 02:28:40 AM »
You are both still young, which means a heavy exposure to equities is desirable.

However I would never advise anyone who is not comfortable with investing to throw $225,000 into it immediately.

You drip feed it in and slowly build up your mental tolerance to having assets and investments. You have to train yourself to not be worried about the daily fluctuations of $200, before you can be comfortable with daily fluctuations of $2,000 or $20,000.

It sounds like this is where your wife is at. She might come around eventually, but it will take a bit of time.

mjr

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Re: Investing an Inheritance
« Reply #2 on: July 13, 2018, 02:47:28 AM »
Student loans first , definitely.

You don't mention your incomes (and hence tax brackets), or your savings habits.  Because you can also consider just getting rid of the mortgage as well and invest the rest.  Yes, it's a low interest rate and mathematically marty is correct that you're probably better off to throw it into equities at a rate that makes you comfortable.

But you'll get a good return nonetheless by paying off the mortgage and then investing hard with your incomes after that if you have the discipline.  Plus you may be the type of person who just loves not having debt.

moneymamas

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Re: Investing an Inheritance
« Reply #3 on: July 13, 2018, 03:20:35 AM »
Updated with income & savings rate information. Were comfortable keeping the loans other than my student loan since the rates are so low.

Student loans first , definitely.

You don't mention your incomes (and hence tax brackets), or your savings habits.  Because you can also consider just getting rid of the mortgage as well and invest the rest.  Yes, it's a low interest rate and mathematically marty is correct that you're probably better off to throw it into equities at a rate that makes you comfortable.

But you'll get a good return nonetheless by paying off the mortgage and then investing hard with your incomes after that if you have the discipline.  Plus you may be the type of person who just loves not having debt.

terran

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Re: Investing an Inheritance
« Reply #4 on: July 13, 2018, 05:36:37 AM »
Something else to consider for the person who actually inherited the money (presumably you weren't both in the will): once this money hits a jointly owned account it will become marital assets and be split between you according to whatever agreement you reach if you get divorced. It may very by state law, but if it goes into accounts owned only by the person inheriting the money there's a better chance they keep it in a divorce.

This isn't advice to keep it separate, just advice that the person inheriting should consider what they want to do with their money based on the full information. My wife is likely to inherit some large amounts (larger than I have/will) and I suspect she'll choose to put them in our joint accounts, but I'll make sure she knows her options.

sokoloff

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Re: Investing an Inheritance
« Reply #5 on: July 13, 2018, 05:51:28 AM »
If it was me, I'd put it all in VTSAX on Monday. (You're young and just getting started on investing. Don't get creative or complicated. You don't need bonds, CDs, or an advisor nearly as much as you need 3 decades of growth.)

If you want to be a little more cautious, put it into a money market fund (blindly pick one at Vanguard), and put 1/4 of the into VTSAX every month for 4 months (or 1/6 every month for 6 months).

Dicey

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Re: Investing an Inheritance
« Reply #6 on: July 13, 2018, 07:20:52 AM »
Student loans first , definitely. Agree completely.

You don't mention your incomes (and hence tax brackets), or your savings habits.  Because you can also consider just getting rid of the mortgage as well and invest the rest.  Yes, it's a low interest rate and mathematically marty is correct that you're probably better off to throw it into equities at a rate that makes you comfortable.No, no, no! Keep the mortgage. Rates have already increased significantly.  Go devour the jlcollinsnh stock series and do what he says.

But you'll get a good return nonetheless by paying off the mortgage and then investing hard with your incomes after that if you have the discipline.  Plus you may be the type of person who just loves not having debt. I'm guessing OP is US based, while you are AUS. Huge difference in the way mortgages work. The OP's rate is locked in for the life of the loan. Imagine, thirty years at 3.875%. Wow! OP will come out much better to invest the entire inheritance (less the expensive, variable rate SLs) 
The other things I'll add are:
- Lump sum investing seems to offer an advantage over dollar cost averaging.
- Definitely increase your IRA/401k savings to reap the tax benefits. Max out if you can.
- You might want to do a full case study for more detailed advice.
- http://jlcollinsnh.com/stock-series/

RWD

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Re: Investing an Inheritance
« Reply #7 on: July 13, 2018, 07:31:07 AM »
Yep, pay off the student loans. Invest the rest in index funds.
Investment Order post

talltexan

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Re: Investing an Inheritance
« Reply #8 on: July 13, 2018, 07:34:29 AM »
For that baby that is on the way: https://paulmerriman.com/turn-3000-into-50-million/

You may plan to have one or more additional children, as well.

DFundsRLow

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Re: Investing an Inheritance
« Reply #9 on: July 13, 2018, 08:00:48 AM »
Since your baby will be born this year, think about setting up a 529 plan.  Depending on where you live you may be able to take a state tax deduction for the contributed amount.

Barring that, definitely pay off the student loans and I'd recommend investing as a lump sum if you can stomach the ups and downs. 

Blackeagle

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Re: Investing an Inheritance
« Reply #10 on: July 13, 2018, 11:22:12 AM »
Rather than just dumping the inheritance into taxable retirement savings, you should consider maxing out the wife's 401k and maxing IRA's for both of you this year.

PDXTabs

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Re: Investing an Inheritance
« Reply #11 on: July 13, 2018, 11:43:09 AM »
If it were me I would pay off all the student loans and then use it to max out all available retirement accounts for the foreseeable future. Now, what to do with the money in the mean time is a good question. That is, I would probably invest it in VTWSX, but sell some every year if need be to continue to max out those retirement accounts.