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What to do with 30K

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workingmonkey
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What to do with 30K  Reply with quote  

Hi there,

My father is giving me 30K to invest. Where should I put it? I already have a 401K with my employer so I was thinking of other investment options.

Thanks.
Post Mon Jan 12, 2015 6:52 pm
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oldguy
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Hello - welcome.
Congratulations on the $30k.

quote:
401K with my employer so I was thinking of other investment options.


What is the 401k account invested in? stocks, bonds. CDs, cash?

In general, each of us is given about 30 years of wealth-building, followed by a long retirement of wealth-preservation.
If you are young, you should be 100% invested in stock, the generic US stock markets grows at an longterm average of 11%/yr. At age 55 to 65 you transition gradually to lower risk holdings - maybe 50%/50% stocks/bonds. The bonds provide a low steady income return in retirment, and the 50% stocks offset the inflation that happens after retirement (lots of retirees start at 60 and live to past 90, ie 30 years - that's a long time for inflation to diminish your funds, so you need some stocks.
Post Mon Jan 12, 2015 11:47 pm
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workingmonkey
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I'm 38. My 401K is all stocks or mostly stocks. It's in an aggressive growth fund for my age I believe.
Post Tue Jan 13, 2015 12:49 am
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oldguy
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quote:
My 401K is all stocks or mostly stocks.


Good, that's the correct vehicle for your age. I use the SP500 Index Fund, it's an unmanaged fund so the fees are low. (Since it is an index, the company is obligated to own the 500 stocks in the same ratio as the index, ie, no buying/selling. So the fund grows tax-deferred, no annual taxes. It has a longterm average return of 11%/yr. So if you leave the $30k there for 30 yrs it will be $660,000.

Your 401k, if you use the same 11%/yr index, and invest $7500/yr for 25 years, it will be $1.2M at age 65.

And your current 401k balance, at age 65, will be about 16X higher.

So - with a little planning, it appears that you can retire with a couple million. (My 401k was about a million when I retired 16 yrs ago - and I've added a lot to it since then - I use that SP500 Index Fund for all of my growth money.)
Post Tue Jan 13, 2015 3:55 am
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workingmonkey
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Awesome advice. I also have a 5 year old. Should I consider a 529 for college or maybe there's a better strategy? Thanks.
Post Tue Jan 13, 2015 9:52 pm
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oldguy
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quote:
Should I consider a 529 for college or maybe there's a better strategy? Thanks.


I would just draw from the $660,000 account, that way you won't be entangled with govt guidelines on how to spend it.
Post Tue Jan 13, 2015 10:28 pm
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MrNewEngland
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quote:
Originally posted by workingmonkey
Awesome advice. I also have a 5 year old. Should I consider a 529 for college or maybe there's a better strategy? Thanks.


Welcome aboard, working monkey. I am 38 as well and have found a lot of good advice on this board.

I wanted to comment option to start a 529 plan but first I want to tell you to research my comment and take it with a grain of salt. I have no kids so I am just repeating what I have heard people say... I have never done a check to see if it's true.

One of my friends who I respect a lot has a little girl. He has opted to NOT open a 529 plan. He told me that he's better off putting the money in a retirement account of his own. He claims that money in a sheltered retirement account (401K, IRA, etc) does not "hurt" you when you are applying for college aid. He claims that the 529 money is seen and makes you look like you need aid less than if it wasn't there, making grants and loans tougher to get.

He wants to pay for her college but is willing to take out student loans in her name and pay them off. This helps his retirement (or hurts it less I guess) and will help her credit out when he pays off her loans.


Just my $0.02 but I would do a check on how accurate my advice is before taking it.
Post Thu Jan 15, 2015 5:56 pm
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littleroc02us
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I have a 3 year old and most likely another coming sooner then later. We have a 529 for my son started. Everything I have read from colleges and through research is that if the 529 is in the name of your child then it will hurt for financial aid, but if it's in the parents name like ours is they don't count that. We will continue to invest in 529's because of the tax advantages.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Jan 15, 2015 9:26 pm
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workingmonkey
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It looks like I will be depositing a huge check into my bank account. I never thought about this but what's the best way to deposit such a check? Are there legal or tax issues I should consider? I need to deposit the money and then I will be transferring over to an investment fund such as Fidelity's FUSEX.

Thanks.
Post Tue Jan 20, 2015 2:31 am
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MrNewEngland
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If you're paying a PMI on your mortgage you might consider paying down enough of your principle until that PMI is removed.

Just a thought.

EDIT TO ADD: and then take that monthly savings and put it into either an IRA or bump up your 401k contributions.
Post Tue Jan 20, 2015 3:01 pm
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oldguy
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quote:
you might consider paying down enough of your principle until that PMI is removed.


OTOH, that is exactly the thinking that causes lottery winners (& other lump sum recipients) to be broke in an average of 7 years. Ie, they are unable to manage the lump sum, they scatter it to "good ideas" - pay off the car, pay off the house, pay off mom's house, yada - and then invest that last $5k or $10k for "their future", lol.

If you want to grow $30k into $660k in 30 yrs, then you need the whole $30k.
Post Tue Jan 20, 2015 5:18 pm
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workingmonkey
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So what is the recommended process for depositing the 30K check? Is there a special form or procedure or as simple as depositing a $30 dollar check? Will this be a red flag? Sorry for the silly questions but as you can see, I don't get such a huge check very often. Smile
Post Tue Jan 20, 2015 6:49 pm
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Wino
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quote:
Originally posted by workingmonkey
So what is the recommended process for depositing the 30K check? Is there a special form or procedure or as simple as depositing a $30 dollar check? Will this be a red flag? Sorry for the silly questions but as you can see, I don't get such a huge check very often. Smile

There is nothing special you need to do. The bank will have to fill out a form to send to the government, but you won't actually be aware of it. It is quite likely they'll conversationally ask you where you got the check, but they may not. For example, if the check is from a life insurance company, they'll know it's a settlement. If it is from a lawyer, the same applies. If it is just a personal check, they'll probably ask.

The above is because the government wants to stop money laundering.

Anyway, from your point of view, it's like depositing a $30 check.
Post Wed Jan 21, 2015 1:42 am
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MrNewEngland
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quote:
Originally posted by oldguy
quote:
you might consider paying down enough of your principle until that PMI is removed.


OTOH, that is exactly the thinking that causes lottery winners (& other lump sum recipients) to be broke in an average of 7 years. Ie, they are unable to manage the lump sum, they scatter it to "good ideas" - pay off the car, pay off the house, pay off mom's house, yada - and then invest that last $5k or $10k for "their future", lol.

If you want to grow $30k into $660k in 30 yrs, then you need the whole $30k.


I hope you can see the difference between paying down your mortgage enough to eliminate PMI and winning the lottery.

I understand your point about the mentality. I understand that if you do the math you should always go with where you get the highest ROI on your money... but there is a human aspect.

Sometimes it's nice to have some financial flexibly and disposable income. A little breathing room is nice.

I don't know OP's situation but if I got a $30K windfall I would put a LOT of thought into doing that. I'm in debt out my arse and a little relief would eliminate a lot of stress from my life.
Post Wed Jan 21, 2015 2:58 pm
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workingmonkey
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I have a cashier's check made out to myself. Do I have to worry about taxes for myself or father? A gift tax possibly? Thanks.
Post Wed Jan 21, 2015 2:59 pm
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