Payoff any debts you have first.
Payoff any debts you have first.
having skimmed most of the posts, i don't think anyone has mentioned taxes yet.
however you choose to invest the money (aside from using it to purchase a personal residence), you should make use of tax-preferenced savings vehicles, which mostly means a Roth IRA in your case.
you are allowed to make your 2010 tax year contribution up until april 15 2011. so assuming you have not yet made a 2010 contribution, you can make both a 2010 and a 2011 contribution today, which means $10,000 ($5,000 for each year). you do need to be aware of income limitations for IRA contributions, especially if you will also participate in a 401(k) plan at work.
without getting into much detail, the bottom line is that investment earnings in a Roth IRA are taxed at a 0% tax rate (keeping in mind of course that Congress has the ability to change the rules in the future, or to add a VAT or something), while interest in a savings account is taxed at your marginal tax rate (likely 25% or 28%, plus state income tax), and dividends and long term capital gains are taxed at 15% (plus state income tax).
if you plan to invest more than $10,000 immediately, consider whether you can also max out your 401(k) at work, assuming you have one. this would allow up to $26,500 of tax-preferenced investment during this calendar year (although you may need to jump through some tax-law-related hoops to make it work). in order to do this, you could live off the inherited $50k while contributing 100% (or the maximum allowed by your employer's plan) of your wages to your 401(k) account.
potential downsides to investing via your 401(k) plan include more limited investment choices (this shouldn't be a problem for an IRA account), and restrictions on accessing the money before you reach retirement age (this does not apply, generally, to the amounts you contribute to a Roth account - the restrictions do apply, however, to investment gains on contributions to Roth accounts).
kaitainen wrote:
having skimmed most of the posts, i don't think anyone has mentioned taxes yet.
kaitainen is exactly right. You need to read and learn about investments and tax implications before you decide what to do with the money. That said, I am fairly confident from your tone that you will want to max out your 2010 and 2011 Roth IRA contributions. You have until April to do this for 2010.
I suggest you start here:
http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_PlacementThen read the rest of that site. Also realize that I am not an unbaised source and read more beyond Jack Bogle's investing philosophies.
Do NOT go out and buy some mutual fund because anyone on here recommends it. You must be careful when you pick funds. Someone recommended a Bond Fund. I'm not saying you shouldn't buy one, but do realize that distributions (your main source of income from a bond) on some bonds are taxed as ordinary income if you don't put them in a tax deferred account. You could end up with a large bill come tax time if you don't educate yourself on taxes. Another poster recommended a fund with an expense ratio of 1.8%. Some people buy these types of funds, whereas I would put money in a mattress instead of buying that fund.
Flagpole wrote:
Not bad advice really...you're right on about Vanguard. Man how do other firms even make it with Vanguard as a competitor?
Probably because all those other mutual fund companies are spending big bucks on marketing, and salesmen... um, I mean "financial advisors". (ahem) That's part of the reason they have huge fees, which makes them worse than Vanguard funds.
For the person just getting into investing who picks up a general investing magazine, or receives a sales pitch at the investing class they took at the library sponsored by their friendly neighborhood Merrill Lynch rep, they rarely stand a chance.
In my opinion, it's only the people who educate themselves, or who happen to be lucky and ask the right (unbiased) person for advice that ends up at Vanguard.
financial novice wrote:
SmartGuy wrote:How do I get to the admissions office?
Take those 2 bricks and drop them in a big pot of water. Add some baking soda and bring to a rapid boil while stirring. Then add COLD water and stir fast. Coke will solidify into a ball. Take it out of the water and let dry. Like magic, YOU WILL HAVE A BIG BRICK OF CRACK! Break it down to dime bags and sel, sell, sell. $300,000 in 2 weeks. No stock can beat that rate of return.
Thats what I do.
The wonderful things you can learn on LetsRun.
a journalist wrote:
financial novice wrote:Take those 2 bricks and drop them in a big pot of water. Add some baking soda and bring to a rapid boil while stirring. Then add COLD water and stir fast. Coke will solidify into a ball. Take it out of the water and let dry. Like magic, YOU WILL HAVE A BIG BRICK OF CRACK! Break it down to dime bags and sel, sell, sell. $300,000 in 2 weeks. No stock can beat that rate of return.
Thats what I do.
The wonderful things you can learn on LetsRun.
i love how this thread has two completely opposite ways of investing money. with this one, you won't have to worry about paying taxes
ricky-bobby wrote:
i love how this thread has two completely opposite ways of investing money. with this one, you won't have to worry about paying taxes
um, yes you will.
ever hear of al capone? (convicted of tax evasion)
http://en.wikipedia.org/wiki/Al_Capone