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Have 450k - what's the best way to invest?

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zeek123
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Have 450k - what's the best way to invest?  Reply with quote  

Hello... I'm 33 years old and have about 450k worth of stock options in a company I used to work for. I have the option to sell all or it, or just some of it. I intend to hold onto some of it since the value seems to be going up year after year. However, at some point I'd like to cash some of it out and use it for investing.

Here's my situation
33 years old
92k/year salary
401k is worth about 110k currently
Have about 18k in mutual funds and money market accounts, savings acct
Have about 15k in debt between credit cards, car loan, school loan

My goal:
I need to pay off my debt immediately. So that's a given.
Beyond that, I'm not interested in purchasing any material goods or depreciating assets. I grew up not having a lot money, and I don't care about collecting "things". If I use the money, it must be for something that is going to give some kind of ROI. I've done some investing in stocks, but I don't know a lot about mutual funds, or having some kind of investment portfolio. I wouldn't mind putting a little bit of money in some good long term growth stocks.

However, at the end of the day, what I'd like to do is not have to work a 9-5 anymore. I don't mind the job I have now, however, I'd like to work less and be able to spend a little more time on volunteering and helping other people. In addition, my mother is aging and I'd like to be able to spend more time with her. So, time right now is more valuable than money. Someone had suggested opening a Subway since the franchise fees are relatively low (225-250k), and yearly revenue can result in profits of about 80k per year. 80k per year is more than I need for my lifestyle. However, I'm not sure if this is a good investment or not.

I also have various skills in home remodeling and construction. So, I have debated about going into real estate such as buying distressed properties, fixing them up, and renting to generate a small amount of cash flow and build equity for the long term.

Anyways, I'm looking for some general ideas on how people would actually invest this kind of money. Any thoughts or comments would be great.

Thanks!
-Zeek
Post Wed Sep 23, 2015 4:13 pm
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oldguy
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quote:
I need to pay off my debt immediately. So that's a given.


Why? I've always kept my loans full term - not revolving consumer loans, but the fixed rate, low rate, long term loans. Eg,I never pay cash for a car, I finance it 100%, no down, even the tax & license. My objective is to apply my resources to their highest and best use. And since the generic US stock market has an average longterm return of 11%/yr (tax deferred), that is normally a better choice than using my capital to prepay 4% or 5% loans.

I would consider moving most of the $560,000 into an SP500 Index Fund. That gives you a wide diversification across the generic US & world business/industry. Whenever you narrow that broad approach, you add risk. Ie, if you narrow down to a business segment - say a banking or auto ETF- your add the risk of that segment onto the generic market risk. And whenever you further narrow your focus to an individual company (your options) you add the risk of that company to the risk of that segment, to the risk of the generic market.

As always, risk and return are directly proportional. Eg, your options may be returning 18%/yr - but a single company failure, ie bk, could take the entire $450k in a heart-beat. So you need to factor that risk into your return management equation. Personally, over 30 & 40 year periods, I like the 11%/yr risk level, I just incrementally accumulate, never sell/trade, and let it grow. $10k/yr for 30 yrs = about $2.2M. Your $450k at 11%/yr for 30 yrs = $9.9M. In other words, you've already done the work, all you need to do is leave it alone for 30 yrs. Very Happy

Spending $250k on a Subway sounds like a terrible idea - you will be paying 12 to 15 minimum wage part time workers about $75,000 in wages, plus your half of their SS costs. This works for folks will do anything to get away from the "man", be their own boss, yada. And then they learn that being your own boss actually carries responsibility plus LOTS of min wage work (when one or more of your 12 min wage workers fails to show up, guess who handles the opening?)

Real estate. I was a full-time engineer plus I had my real estate license. I owned 4 SFH for most of a 40-yr period (sold one last week).
There are two categories - landlording and remodeling. I did the former - I bought near-new houses (the first owner had hung the drapes and planted the grass), rented them out for decades, continually refi'd them and invested the equity at 11%/yr. As it turned out, the houses appreciated well, the rental income was steady, but using the equity for seed money and investing it at 11%/yr for decades was where my big money came from. So take that for what it's worth.

I've never done 'flipping' - but I know someone who does. He owns about 15 houses at a time, pays $150k for a house, has crews do interior paint, exterior paint, landscaping, new floors, all new appliances and counters/cabinets. Costs about $25k, take 10 days, hands it off to a realtor, sells in 2 weeks, about $225k. The $50k cash pays $12k to the Realtor, about $15k income tax, and $12k net to him. He takes his $150k and repeats for month #2, and so on for about 10 'turns' per yr, ie, $120k net on that $150k chunk. And he has several of these happening in parallel. He doesn't do any of the labor himself (altho he can strap on the tool belt if needed). In general, that work is worth about $12/hr whether you do it for yourself, or hire it - and in his case (and probably yours) his time is worth way more than $12/hr elsewhere. (Kinda like the Subway - if you buy some min wage jobs you will probably find yourself working for min wage).
Post Wed Sep 23, 2015 6:52 pm
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Brian Smith 1964
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Sell it and invest money in a diversified portfolio  Reply with quote  

Even if that company you own stocks in is doing great at the moment, everything can change at a moment's notice. The golden rule of investing sounds like this "diversify". Of course, you may choose industries that you are familiar with, companies/businesses that are doing great, or countries that seem stable and promising. But you still have to expose yourself to a wide variety of stocks/bonds/shares. To minimize risks and be confident in tomorrow.
Post Tue Sep 29, 2015 12:50 pm
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