If you have 750K cash in your hand, what would you do with it?

Question

FRIEND'S COMPANY IS BEING BOUGHT AND HER STOCKS ARE WORTH $750K- SHE'S PLANNING TO PAY OFF HER HOUSE( AROUND 100K MORE TO GO), SHE GOT 401K & OTHER INVESTMENTS.NO CAR, STUDENT LOAN OR CARD DEBTS.SHE'S TOTALLY CONFUSED AND SCARED!

Answer 1

I have $750K, and I can tell you that the thing to do with it is to pay down outstanding debts first, because interest rates on debt almost always exceeds the rates on investment returns. So, in the long run, you will actually be making yourself money. There is a case to be made for paying off one's mortgage also. If one saves $100K in interest by paying off a mortgage, that almost certainly would offset any gain to be realized by tax savings on interest paid out. After all, one gets back only a portion of the interest when one pays their taxes, but pays the full amount when making installments on the mortgage. Instead of paying off the house in one lump sum, your friend could consider making accelerated payments, like an extra $5000 per year on the house until it is paid off. That will shut off the interest on that much extra money per year, which will then go toward paying more of the remaining principal. After paying off her other outstanding debts, the bulk (85 - 90%) should be reinvested to generate more income for retirement or whatever she wants to use it for. My vehicle of choice is a CD because it only appreciates in value and is guaranteed by the FDIC, although returns are lower than stocks and bonds in general. She could set up one CD which is made a "slave" to the mortgage by having the interest dumped into an account which is used only to make extra payments on the mortgage. Then she could use on-line banking to set up a recurring payment arrangement which she schedules to end by a certain date, and wouldn't have to worry about consciously making the payment every month. Tell her to make sure she considers the fact that she will have to pay taxes on the interest. $150,000 invested at 5.13% APY (5% Nominal) should generate enough income to pay $5,000 per year extra on her mortgage, and taxes incurred ($150,000 x 0.0513 x 0.70 = $5386 after witholding 30% for taxes).

Answer 2

Wow, what a "problem" to have. Anyhow, if she's that worried about it she should probably just find a good financial planner and have them advise her on how to invest it. The planner will probably advise her to invest it in a diversified way, probably by buying several types of mutual funds (some investing in bonds, some in foreign companies, some in domestic companies, etc). This way she'll hopefully get a pretty good return while staying very safe at the same time.

I would advise her againist paying off the mortgage loan. Its tax deductible and therefore she could probably make more money off the interest from a tax free bond, but then again its nice not to have any debt at all I guess.

Best luck to her.

Answer 3

Just dump it into the loan. the rest depends on how much of a risk taker she is. if you want safe then go with land or time deposits. If your risk taker then go to the casino or back the spurs to win the championship, buy some stocks, etc. What im saying is it really depends on you investment preference and how you feel about risk.

Dunno where you she is confused and scared.

O and take a holiday or spend some of it. Cuz the longer you keep the less its worth, unless you invest it :D

Answer 4

Paying the debt first is a good idea - most investments do not pay as much interest as a debt would cost. As to the type of investments, it would depend on how much risk your friend is willing to consider, and the length of time when the funds would be invested (growth vs. value maintenance). She could invest in businesses that are low maintenance, in stocks and bonds, in real estate, or in bank CDs. I would recommend she get a financial advisor who can assess her needs in more detail and suggest solutions. She might consider getting a car if she needs one for transportation, but this depends on her needs.
A vacation might also be nice, but again it depends how much income from investments is needed vs. how much might be left over.

Answer 5

Pretty simple.

1. Depending upon your age and your required rate of return, you would either invest or pay off existing loans.

2. Investments should be made in emerging markets economies (such as India, China, Pakistan) using indices. The returns are expected to outperform bonds and would be in real terms.


Regards Aneel

Answer 6

she could put up a little apartment/dormitory(or similar business), as it is in demand - students especially. rent it out. in this way, she'll be earning stable income.

then she could invest some in an endowment plan, with insurance companies and/or banks. after the paying period, 5 years at the least, is done, she'll be receiving money monthly (or however frequent she likes it). so again, she won't have to worry about subsidizing her daily needs.

and finally, there's the time deposit accounts with banks. you'll be earning interest with that, which you can withdraw or just leave it to accumulate..

Answer 7

Paying off the debts is a good idea, with the possible exception of paying off the mortgage -- the interest on that is tax deductible. Beyond that, I can't go; it would require knowing about age, income, other assets, financial demands, financial sophistication, tax situation, and who knows what else.

Answer 8

Economies move in cycles. The 1980's had huge REIT / LLC businesses and scams. In the mid 1990's however, tax laws changed taking away the benefits of REIT's / LLC's ... which is the tax benefits from gains and losses. Studying this era, we saw that interest rates were low and home prices were high, and as inflation hit, well, people lost equity, but made money through interest. The REIT's and LLC's then allowed people to deduct the losses. However, many cheated the system, and the Govt. decided to only allow losses to be taken from profits on other REIT's & LLC's. When a person uses "Tax Sheltered $$$" (Roth - or 401(k)) and puts it into "Tax - Sheltered" products like REIT's / LLC's well, they're defeating the purpose of the "Tax Shelter" (suckers). It sounds like you've only invested into your 401(k) and have no free spending money for what you see to be desirable. If you must do the silly thing of investing Tax-Sheltered money into a Tax-Sheltered Investment, then at least diversify and only use 30% of your 401(k) money into your desire. I worked at a company who had a department for Self-Directed IRA's (was Resources Trust Company - now First Trust / FISERV). From that departments institution clients (who our department stole 80% of their business) the only one I remember as being intelligent and not WASTING my time was a company named Investors Capital. I never invested my own money from them, but as a "Transfer Agent" I collected lots of money from them, and they had the least friction, and fuss on releasing the money ... most other REIT's / LLC's bookkeepers have goofy / impossible rules (like you can move the money on the third moon of the full tide - JOKING) ... and I remember this company was decent at least in record keeping. You should also talk to your accountant on how this changes your taxes ... 3/4 of a million ain't much, but still worth educating yourself for protection.

Answer 9

Put the maximum into a Roth IRA.

Maybe put $100,000 into Energy funds using dollar cost averaging, and $100,000 into real estate funds. I like UMESX and UMREX. They are no-load, no transaction fee funds available at Scottrade. Dollar cost average to minimize risk since energy is at record highs right now.

Maybe $400,000 into tax free municipal bonds for tax free income, at only 4.5% that would pay $18,000 per year tax free.

Answer 10

Get a financial adviser and buy some stocks.