So I sold a website I owned for a while for something in the mid $xx,xxx range.
What would you do with such cash if you got it this way? I currently have it in a high yield savings earning 5%.
Call up one of the big investment banks and set up an account with them, and get a financial advisor to help with any decisions.
I would pick a family of funds (ala Vanguard) and diversify between stocks, bonds, and cash. If you are not retired or closely approaching retirement age, probably around 60% stocks, 30% bonds, and 10% cash.
Within each of those categories I might also diversify among domestic, international and small-cap stocks, REITs, energy funds, and long- and short-term bonds.
And then I would reallocate every 6 months.
yeah, I just graduated college so I have time
Where do you live?
Low cost index fund. Every company will have their own name for it.
Wells Fargo S&P 500 index fund, Vangard Nasdaq 100 index fund, etc.
For the uneducated person wanting to invest in mutual funds, index funds are hard to beat. They typically yield around 8% annually.
For someone who wants to do their own research and wants to track fund ratings, fund managers, fund histories yeah, you can do better but it takes some footwork. Only about 10% of the literally thousands of available mutual funds out there do better (long term) than index funds.
I wouldn’t trust a financial advisors mutual fund recommendations. They get kick backs and commisions for directing you into certain funds.
New York
It really depends on when you think you might want the money back. If it’s less than, say, five years, I’d stick with the 5% savings account. You’re unlikely to get double digit yields out of the stock market in the next few years, in my opinion, and could easily get a negative return, so the risk is not worth the small potential reward.
Longer term savings, I’d stick it in one of the “hands-off” portfolios you see in articles from time to time, e.g. 20% S&P 500 (VFINX), 20% small-cap mutual fund (NAESX), 20% international fund (VGTSX) and 40% bond fund (VBMFX). Nothing actively managed, and don’t move it around too much.
What those "x"s represent has a huge impact on how I’d invest it. If it was $15,000, a CD would be a good way to go. If it was $50,000, I’d hire an investment counselor and go a completely different route.
Just wanna explain the reasons behind my recomendations (as well as acknowledge my conservative investment nature.)
As I understand it, the vast majority of investments can be classified as stocks, bonds, or cash. In every economic climate at least one of the three will do well, sometimes two, but rarely if ever all 3. The goal of a longterm investor is not only to make money, but also to retain your goals. Far too often people (myself included) make trememdous paper gains on one class of investment or another, only to give it back in a subsequent cycle. That is the reasoning behind periodic reallocation - getting back to your baseline percentages.
And I think the average investor can get plenty of diversification through the many available low-cost, no-load funds.
If that doesn’t appeal to you, I have one word for you - PLASTICS!
City or State? The reason I ask, is- can you buy a home for what you have (after taxes)? A home is one of the very best investments you can buy.
I’d go to Vanguard’s website and purchase one of their “Target Retirement” funds. They do the allocation for you, and re-weight as time goes by.
I wouldn’t give a penny to a financial advisor. He’s going to skim off some of it and is just as likely to put you in something that is outperformed by that Vanguard fund than he is to put you in something that outperforms it.
If you feel happier doing the allocation yourself, I’d purchase a low cost index fund, and a bond fund and reinvest the divvies. The allocation between the two depends on your tolerance for risk. At a young age, I’d lean heavily on the equities.
Alternatively. . .since you’re young, and it sounds like you have some skills, I’d also look for a chance to reinvest it other opportunities if something smells good to you. Not too many of us can say that we’ve made that kind of money off doing something like selling a web site. That is. . .if you’re going to assume some risk with the money, do it on something like that, not on penny stocks or other risky investments in equities.
No it isn’t.
Historically, homes have appreciated at a rate about 2% above inflation. Only very recently have they massively outperformed inflation, and that’s probably indicative that there’s a serious adjustment coming. Home prices are dropping almost everywhere right now.
Still better than renting.
Not necessarily.
But you don’t get to live in your stock portfolio. Let us say that our OP had $50000 after taxes to spend, rent was $500/mo, but he could buy a small condo (the size of his apt) for the same $50K. Investments could bring in $2500/year. But buying the condo would “bring in” $6000/year, and the condo would likely appreciate 2% a year (after inflation). Of course, in NYC the OP could be living in a rent controled unit for $500/mo but a real condo might cost 10X that supposed $50K.
So, it all depends on what the RE market is where the Op lives (and is willing to live.)
How well does you model work if home prices decline for the next 14 years?
Can’t happen here?
It’s already started.
Watch what happens next year when 1 trillion dollars of ARMs and Interest Only’s adjust on people who took those options as the only way to get into a house.
Yes, I said trillion.
It works fine, assuming he pays cash as my model was predicated. Until the *market rent * on the condo he has bought dips below $200 a month- which is doubtful to an extreme. :dubious: The model is not predicated on an increase in market value, it’s predicated on his getting a “return” of " free rent" instead. And, even though there may well be a dip in home prices, nothing other than a vast world-wide population decrease will stop RE prices from going back up again sometime.
I agree that investing in highly leveraged RE right now could be very risky as well as living in your own home mortgaged to 120% of market, and also “interest only” home loans as well as ARMs. But buying a home *to live in * **for cash ** isn’t a bad idea.
And the reason it fails in markets like New York and cough San Jose is that house prices have gone up so much faster than rents that the return on investing the cost of a condo is well over the average rents. Not to mention the fact that most people can’t afford to buy them outright, and so they also have to factor in interest on the mortgage.
If you use realistic numbers, you’ll find that these markets are completely off in la-la land when it comes to the usual rent-vs-buy cost benefit analysis.
And if you really want to get nit-picky, you can figure in home insurance, property taxes, and home owners association fees (if they apply). All of which have taken a ride on the price bubble.
This is an article from the NYT a year ago that compared renting versus buying. Using assumptions heavily skewed towards buyers, it still made sense to rent in some markets.
In his defense, DrDeth did say "
So, it all depends on what the RE market is where the Op lives (and is willing to live.)"
Which is certainly true. But, buying over renting is no slam dunk at all. I read an article recently that said in 10 markets, nationwide, the affordability index is worse now than it was in the early 80’s when interest rates were 18%.
http://www.realestateconsulting.com/strategic/strategic200608.html