I was always told that you don’t go to grad school where they don’t pay you. You may want to look into that before making any rash decisions.
I’m not sure how “immediately accessible” you’re thinking of, but one can take their “seed money” (that is, the already-taxed money put into the fund) out at any point with no penalties. I’m sure there’s some float time, but as long as you don’t touch any profit, you won’t pay a penalty.
Also, recall that many mutual funds have a minimum period of time that the money must remain within the fund. For some of the Vanguard Index funds, this can be five years.
Finally, I believe one has to pay taxes on inheritance. I’d read up on the tax laws before deciding what to do: you may end up with significantly less than you expected (although I have no idea how it would be taxed, wether as income, or paid for by the bequeather, etc.). Anyone else know?
An estate valued at more that $1,500,000 will be subject to estate tax (oversimplifying - there are some other variables and qualifiers in there). The tax is paid by the estate, before any inheritances are doled out. The person receiving the inheritance does not have to pay any tax on it, regardless of whether any estate tax was paid or not (so, for example, if you inherit $100,000 from an estate, you don’t pay any taxes on it, no matter how large or small the estate was, in total).
You can read about it here.
You say you’re young (I’m guessing early 20s). Presumambly you are still in education. If you aren’t the best long term investment you can make is in getting letters after your name - that will pay off over your entire working life, and quite well too.
The second best possible thing to do is put it somewhere safe (Govt bonds perhaps) until you can use it contrctively - perhaps as part of the deposit on a flat? Again that will save you thousands over the course of a mortgage.
Thirdly - what do you want to do when you’re big? Is it something that requires an investment in tools or operating costs? If so save it for that. It is debt that kills businesses, if you can reduce your debt then your business will have a GREATLY enhanced chance of making it.
I am not an American - so I can’t tell you what savings products may be of use to you. However in general avoid anything that has a salesman - the commission on most sold savings plan is the first years payments on a 25 year plan.
Best of luck.
Pretty good advice all around.
Here is some more:
Keep 6 months living expenses as cash. By cash, I mean bank savings and/or CDs. CDs should be staggered so that one matures each month for 6 months, and you can then roll it over for another 6 months. That way, you always have one month’s cash within close reach.
Max out your 2004 IRA contribution, and forget about it. This is a long-term investment. Fidelity or Vanguard will bend over backwards to help you do this, as will your own bank. It is NOT a problem if you cannot contribute annually (though the earlier you start and the more you contribute while young greatly increases your chances for substantial retirement savings).
Examine your future needs. The longer the horizon until you touch the money, the more risk you should be willing to accept. If you are looking at an (less than 2 years) need for graduate school, business start-up or home downpayment, then Money Market Funds are your best bet. Fidelity and Vanguard are two very low cost, high service providers who emerged from the recent mutual fund imbroglio unscathed. Be aware that at the end of the year, you WILL be taxed on those earnings, though.
Lastly, take a grand and treat yourself. Take a vacation, fix or buy a car, buy some furniture, something. You’ll be less likely, then, to look at all the money on your statements and feel that you could be enjoying it, because you already have.
Good luck!
You might do a little reading at www.fool.com. THere’s an overwhelming amount of information there, but you’ll find some helpful articles, and you can get a 30-day free trial membership to check out their message boards (like here at SDMB) so you can ask your question there too. Worth a look.
(Their book ain’t bad either, but it’s focused more on long-term investments…)
I’m not an expert, but I disagree with this, at least as a hard rule. When my wife had student loans, only a few years back, the rates were very low – in the 2% to 3% range for the lowest. If sven’s loans are in this range, I’d think it might be easy to find an investment for the full $20K that gives a better return than the rate of the loan. Of course, there might be some risk involved, but sven stated that was acceptable. And, since a) not paying off the loans keeps more cash available, and b) payment of the loans would be deferred if sven goes to grad school, I’d think that it might very well be smart not to pay off the loans. Depending on just how low “low interest” is, of course.
With the inheritance I received this past year I:
- Paid off debt (just a car loan)
- Bought a lot of stuff
- Banked the rest of it in a money market account.
The Money Market account works out perfectly for me. The buying a lot of stuff was the stupidest thing I’ve done.
We just bought $20,000 face value municipal utility bonds, that mature in ten years at 4.35%. Cash outlay ~ $12,000. Risk = nearly zero. Cost to cash them in early = $50. Other penalties = $0. Not a bad deal, given mutual fund returns today and the plummeting stock market.
Oh, forgot to mention that these types of bonds are tax-free, so you can tack another 1% on top of the 4.35%.
That’s a pretty significant discount. While the coupon is paying 4.35% on a face value of $20,000, the rate of interest you are earning (called the yield-to-maturity) is significantly higher. (I don’t have my HP calculator handy or I’d figure it out for you). Given that these are tax-free vehicles, which generally have lower interest rates than similarly rated corporate debt, I think these might be riskier than you’ve been led to believe. The people who invested in Orange Co., CA municipals were probably sold on their safety, too. The California Wipeout
I actually came in here to make that very point.
I know when you don’t make a lot of money, $20k sounds like a lot. But it isn’t. It will spend really fast. The best investment you can make is the discipline not to spend it. From there, where you put it is easy. (Although D_Odds point of blowing just a little bit is fine, just make it a little bit, on one thing.)
Personally, I wouldn’t pay off the low interest student loan debt, unless the interest is higher than I suspect it is. I would put it in a bond mutual fund - I think you’d get a better rate of return than a money market, with less risk than just buying bonds. Motley Fool will have some recommendations, you want something pretty standard and safe (I’ve had a couple grand in Harbor Bond Fund for years - does nothing spectacular, but it hasn’t lost me money).
What you don’t want is to be down 30% when you need the money. That rules out the stock market.
They were very up front about these not being insured, so there is some risk. However, it’s the only water utility in the city, and they only sold $2M worth of the bonds, so it’s not like they’re broke.
Not meaning to pick on you, Chefguy, just trying to live up to the board’s motto, but that’s not entirely true.
A municipality will do everything within it’s power to avoid defaulting on debt, so that is in your favor. BUT, municipalities have been known to default on their debt. Despite all the taxes you pay, and the water bill, and any other forms of revenue, the water utility may find itself in a poor cash flow position.
Municipals can be great investments. Given the interest rate you are yielding (my quick calculation has it at over 11%), this could be an excellent investment - better than many equity funds. But this reminds me of a conversation I continually have with Ms. D_Odds whenever one of her coworkers bring up the next great investment:
There is ALWAYS a risk/return tradeoff.
If a rational investor has two choices of investments at 11%, he will always pick the one with the least risk. In order to attract investors, the riskier investment will have to offer a higher return.
Now I’m going to go and do something I never do…pray…for a BoSox bottom of the ninth meltdown.
So much for the power of prayer. 
Pay off all your debt.
Put as much as you can into an IRA (likely $2000) this year and next.
That’s $16K.
For the rest? Find some super high risk MF or stock. Throw $3K there. High chance of losing it all, sure- but a small chance of striking it rich.
Put the rest into the bank for a rainy day.
It’s what I get as a non-believer…a non-response.
Is it too early to campaign to keep Martinez out of pinstripes. even sven, want to donate…oh, I don’t know…say $20,000 to the cause? 
In fact, that’s why they issued the bonds.
Possibly, but not probable. Usually, utilities use debt financing for expansion projects and upgrades, rather than covering normal operating expenses or short-term cashflow issues. Usually.
I received a large settlement and knowing nothing about finances or investing I went to Fidelity and talked to a financial planning guy (for free!). He was very patient, non-pushy and chock full of advice. He asked about my short and long term plans, if I had any debt, etc.
I ended up with three different investment accounts, one for liquid cash if I want to take an extravagant vacation, one solid investment account for buying a house someday and a retirement account that I can’t touch until I’m in my 60’s.
I didn’t have any debt, though. If I had, I probably would have paid some of it off with the liquid assets, though.
Bottom line, I recommend talking to someone at Fidelity. I had a good experience and am very pleased with the service I’ve received.