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24 year old with a $300k Inheritance

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EseerErad
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24 year old with a $300k Inheritance  Reply with quote  

My situation:

Recently received $300k

I'm in graduate school, but on a scholarship so everything is paid for and I'm being paid around $30k/yr.
My wife is also in graduate school, it costs around $10k/yr, she works part-time and makes around $25k/yr.

We have two reliable paid off vehicles, no credit card or student loan debt.
We own a condo in a college town, and owe around $105k on it.

The nature of my job post graduate school will be very lucrative financially while my wife's will not. We don't have kids at the present but would like to in the next few years.

We had $15k in the bank before we got the inheritance and around $3k in a retirement account.

What should I do to maximize this "gift" I've been given? Thanks
Post Fri Feb 27, 2015 9:11 pm
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oldguy
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That is an amazing start, a major opportunity! I would invest the $300k in a SP500 Index Fund at a no-load company such as Fidelity or Vanguard. The SP500 is diversified across the entire US Market, it has a longterm (almost forever) average return of 11%/yr. And have the patience to allow the power of compounding work. In 30 years (age 54) that will be about $7,000,000.

Lottery winners, on average, are broke in 7 years. They win a miilion, pay the$300k taxes, payoff their house, payoff their mom's house, make sure everyone has a new reliable car - 2 for them, for mom, 3 for the kids, yada. And then they save the last $50,000 for "their future" - and lose it on some 'sure winner' stock. So that gives you an idea about what NOT to do.

I place our money for it's highest and best use. Eg, I don't prepay <5% mortgages on my rental houses, instead I place money in an 11%/yr index. When we get a new car I don't take $30k out of my Index Fund (and use $3000 to pay the cap gains tax). Instead I fully finance the $27k car for 5 yrs. And I sell the old car privately for $4000 and add that to the Index Fund. So I have +$34k in the Index Fund. Using the Rule of 72, I expect that to double to $68k in about 7 years.

There are 3 types of tax-status accounts available to you - pretax (401), posttax (roth), and taxable. The two of you can move $36k/yr into the 401's, $10k/yr into Roths, and store the rest in a taxable account. But the main thing is to grow the $7M, no matter how you split the tax-status accounts. And don't count on any one tax-status, the Tax Code is a work-in-progress, it cannot be predicted. I got my engineering degree in 1963, I've been in more tax brackets than I have fingers.
Post Fri Feb 27, 2015 11:00 pm
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EseerErad
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Wow,

Thanks oldguy, that's a lot to process. Good information for sure and seeing those big numbers down the road looks real nice too.

You've given me a lot to consider.
Post Fri Feb 27, 2015 11:10 pm
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oldguy
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quote:
You've given me a lot to consider.


Good.
Here's a site that you might like -
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.VPD-Qy7meUl
Look at a few30-year blocks, see if the average return is close to 11%/yr. I use 30 years cuz that is approx the typical career life cycle, eg you can work on wealth-building for about 30 yrs, then, if you're successful, it is time to star shifting to wealth-preservation. If you have the $7M at age 54, you'll want to back down from the 11%/yr risk level and go to about 7% or 8%, you don't want to risk a big loss on $7M when you're too old to recover it.
I dial in whatever risk I want by doing a top-down change to my stock/bond mix. Eg, 100/0 = 11%/yr, 50/50 = 8%/yr, 0/100 = 5%/yr.
The Law of investing - "risk and return are directly proportional".

What's the significance of your name - green architecture ?
Post Fri Feb 27, 2015 11:46 pm
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Wino
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The S&P500 is a good place, but you should probably try to include some international mutual funds and total stock market mutual funds. In any case, you would be best off to invest the money 100%, and cash-flow all your other options, including a new house. If you also invest 15% of your income into a Roth, 401K, standard IRA, or even taxable mutual funds, you will be able to retire early and comfortably.

I would invest the money and then pretend I didn't have it until retirement.
Post Sat Feb 28, 2015 6:25 am
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