I received an inheritance from a relative's estate and I am wondering the best way to handle this.?

Question

My father passed away 30 years ago and I finally got some money 25,000. I am hoping to put it into an interest bearing account of some type, but want access to at least half as I am remodeling my house to hopefully sell it this summer.
I am a single head of household mother with 3 kids and live in AZ. My boyfriend and I bought an old house almost 2 years ago, which we can sell this summer without penalty.

Wondering what is the best way to do this. I could divide the money up into a savings and something else too. Do not want a tax hit, I am in education so I am in the lowest bracket.

I plan to get as much advice from different sources as I can before I decide what to do.
Any good suggestions would be appreciated!

Answer 1

You should invest in stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks, as individual stocks are too risky. For most folks this means buying mutual funds. I like Vanguard.com, other people like Fidelity, TIAA-CREF, and DFA. Buy no-load, low cost funds. If you are like most people you will invest part of your money conservatively, in money market funds and bond funds, and part aggressively in stock funds. Vanguard.com has an on-line questionnaire which will give you an idea how aggressive you want to be.

If your company offers a 401K plan at work, try to invest the most you can. The money grows tax free, and some companies will match your contribution. Investing in a mutual fund IRA is also a good idea.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest expenses. For stock funds, I would suggest putting ~70-80% of your money in the Vanguard Total Stock Market Index Fund. and ~20-30% in a foreign stock index fund. However, there are many different opinions out there on what the best mutual funds are.

However, if you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up in a emergency fund in a bank or money market fund before trying more risky investments.

Believing advice you get on Yahoo answers can be risky, so read these websites for further information. If you find it too confusing, contact a professional financial advisor. They will charge you significant commissions, however.

Sources:

http://www.vanguard.com/VGApp/hnw/planningeducation
http://finance.yahoo.com/funds
http://www.dallasnews.com/sharedcontent/dws/bus/scottburns/columns/2007/vitindex.html
http://www.fool.com/school.htm
http://sec.gov/investor/pubs/assetallocation.htm
https://flagship.vanguard.com/VGApp/hnw/FundsInvQuestionnaire?cbdInitTransUrl=https%3A//flagship.vanguard.com/VGApp/hnw/planningeducation/education

Answer 2

I don't know what your specific goals are or how far along you are in achieving them. So I will tell you what I think your goals should be, and then you can add this money wherever along the list you are.

Goals:
1. Have an emergency fund with 3 months expenses. If you are single with 3 kids, you need to have funds set aside if you get sick or lose your job or can't work. You don't want to live off credit cards or raid your retirement funds if you don't have to. Plus, you should have cash stashed away for irregular expenses and indulgences that may arise in the next year or so (including vacation, new car, remodel, etc.) so you don't have to use credit.

2. Provide for your own retirement. This is more important than saving for your kids education or anything else--you can get cheap loans for college, but you can't get a loan for retirement. Besides, you don't want them to have to shoulder you as a financial burden when they are adults. Max out your 401k, 403b, and/or Roth IRA (no matter your age, I believe tax rates will go up in the future and so you should pay taxes now and contribute to a Roth, not a traditional IRA if you can).

3. Then you can plan for other goals. Set up education funds, pay down your mortgage, whatever.

Answer 3

well it is money you didnt have before.. I would take like $5,000. pay off any credit cards you have and drop the rest into a No-load fund and leave it alone...

over time this will amount to something nice