Investing a large amount of money for the future?

Question

Say that you have inherited $250,000. You are 20 years old and about to graduate college with no loans to pay back. What would be the best path to take with this money? Real estate? Mutual funds?

Answer 1

Standard investment advice is that you should invest in a diversified mix of stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks as individual stocks are too risky. Most folks have a dificult time buying a properly balanced portfoilio of stocks on their own. They will misbalance their portfolio by buying all small stocks or all growth stocks, or some other misbalanced assortment of stocks. Unless you know what you are doing, it is best to buy 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 aggressively in stock funds, and part conservatively in money market funds and bond funds. Vanguard.com has an on-line questionnaire which will give you an idea of how to do "Asset Allocation," determining how much to put in each type of fund.

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. Read the links below and form your own opinion.

Buying a house instead of renting will save you a lot of money in the long run. You don't have to pay rent and you build equity in your house instead. Buying rental property can also be a good investment. However, being a landlord can be hard work, and many people are not good at it. If you don't know how to handle deadbeat renters, you can have trouble.

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 as an 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://www.fool.com/school.htm
http://sec.gov/investor/pubs/assetallocation.htm
http://www.diehards.org/readsites.htm
http://finance.yahoo.com/education/begin_investing
http://finance.yahoo.com/funds/basics

Asset Allocation Calculators
(Determining how much to put in stocks and how much into bonds and money markets is a personal decision depending on your financial status. These Asset Allocation questionaires give you a rough idea how to do this. I like Vanguard best, but try some of the other sites as well.)
https://personal.vanguard.com/VGApp/hnw/FundsInvQuestionnaire?cbdInitTransUrl=https%3A//flagship.vanguard.com/VGApp/hnw/planningeducation/education
https://ais2.tiaa-cref.org/cgi-bin/WebObjects.exe/DTAssetAlcEval
http://www.ifa.com/SurveyNET/index.aspx

Web forum: http://www.diehards.org/
(Many investment web forums are overrun by scam artists. This one seems the most legitimate site.)

Answer 2

The first thing I would invest in is my education. If you took the time out to learn a trade such as real estate even starting your own business, you could turn 250k into millions in a short period of time.

But I wouldn't invest in ANYTHING that I didnt know A LOT about. Dont go on a promise and hope for the best.

The more knowledge you have about an investment the less risk. Real estate is a good place to start. There are plenty of real estate courses online.

Make sure you bu7y one from a very trusted source. Also you will need a MENTOR (or a few).

You can find good mentors at forums. If your interested in real estate visit a few real estate forums. Only take advice from the ones who have been there a while.

BUT Dont spend any of this money until you are 10% sure you re taking an "educated" risk.

The best of luck to you.

Answer 3

It depends on how much time you want to spend educating yourself about investing and researching specific investments. If you have other things to do -- graduate school or a time-consuming career, for example -- you may prefer to invest in mutual funds. Index funds -- mutual funds that track a particular index -- are a low-cost way to invest in stocks, bonds, even real estate (through a fund that tracks an index of real estate investment trusts), without having to spend your time reading annual reports and SEC filings or researching the performance of an active fund manager. Vanguard, Fidelity, and T. Rowe Price all offer low-cost index funds that you can buy directly.

If you want to take the time to manage your own investments, I suggest reading Benjamin Graham's classic treatise on investing in stocks, The Intelligent Investor. It's a great starting point and will help you avoid getting sucked in by market bubbles, stock pumpers, or boiler-room scam artists.

Answer 4

Both
Buy a modest home with a modest mortgage paying 20% down. Invest the rest in mutual funds starting with a ROTH IRA. Then if you can make the mortgage payments like rent you will be living like your peer group. If you have say 200K invested making 8% a year you will have a profit of 16K growing for your future.
When your career is established and your mortgage is stable your investments would double due to compounding. Your peer group would be paying a higher rent or mortgage than you and you would be getting an extra 32K in income. So you could live better and have 400K invested. Wait another few years and your mortgage will be about paid off, your investments doubled again and you will be so much better off than your peer group you will be able to retire early, start a business, or live a even better lifestyle. Your lifestyle will have been better only a few years after you got your home since they will have higher mortgages or be saving for down payments. Also they will need to save 15% or more for retirement and yours is funded so you will live better and retire better from the start.

Answer 5

stocks are awfully cheap these days, i'd put a ton in the market and forget about it until you're ready to retire.