Advice on Inheritance

[RamsdenF]

Hello,

I am a 21 year old college student. I have just received an inheritance worth 27k. I currently am in 5k debt to my father for college tuition/fees. Thats the only debt i have. I work part time, and can pay my own living expenses. I would like some advice on how to make this lump sum grow. I am young and not married or with kids, so im currently not looking to save for retirement or kids college funds. I would like to maximize profit. I do not know anything about investments, stocks, mutual funds, etc. But am willing to learn/do research. Any advice is greatly appreciated. I plan on paying my father off with 5k, and taking a few grand for myself. Leaves me with about 18k

Thank You

[disneysteve]

Hello,

I am a 21 year old college student. I have just received an inheritance worth 27k. I currently am in 5k debt to my father for college tuition/fees. Thats the only debt i have. I work part time, and can pay my own living expenses. I would like some advice on how to make this lump sum grow. I am young and not married or with kids, so im currently not looking to save for retirement or kids college funds. I would like to maximize profit. I do not know anything about investments, stocks, mutual funds, etc. But am willing to learn/do research. Any advice is greatly appreciated. I plan on paying my father off with 5k, and taking a few grand for myself. Leaves me with about 18k

Thank You

As you said, I would start by repaying your father. That's $5,000.

Then set up an emergency fund in a high yield savings account representing at least 3 months worth of living expenses. That's probably a few more thousand.

You say you aren't looking to save for retirement. WHY NOT? The fact that you don't have a wife or children is irrelevant. The sooner you start saving the better and this would be a great way to take advantage of this money. Put $5,000 in a Roth IRA for 2012.

With the remainder, figure out what you want the money for. Will you be needing a car anytime soon? Do you want to buy a home? Take a vacation?

[snshijuptr]

Note that you can't put money into a Roth IRA if you don't have a job. If you do have a job, then put the money into retirement. It is the easiest way to avoid taxes and a lot of fees. This still doesn't answer the question of what to invest in. My recommendation is to put the money into either a target date retirement fund or a total market/S&P 500 index fund while you learn all you can about investing. One of my favorite websites is beginnersinvest.about.com. Once you understand investing a bit more you can move the money around easier.

[disneysteve]

Note that you can't put money into a Roth IRA if you don't have a job.

Sorry for not mentioning that. Yes, you can only contribute to a Roth if you have EARNED income.

[bjl584]

Sorry for not mentioning that. Yes, you can only contribute to a Roth if you have EARNED income.

OP stated that he works part time, so he should be able to contribute to a ROTH, as long as it isn't under the table.

[Like2Plan]

You mentioned you are a college student. Have you finished college? If not, will you be able to pay for the remaining tuition and fees from your part time job?

[snafu]

While you have likely had a loss, you are indeed fortunate to have an inheritance and smart to make a plan. the 1st rule of 'investing' is to understand that sums used can be switched around between investment specifics but NOT withdrawn for consumer purchases for a minimum of 5 years. 2nd is to know yourself and your tolerance for RISK; you must be able to sleep at night. We used to set goals seeking to have investments grow by 5%, 12% etc but the economy is so turbulent and global it can change when things go wrong around the world.

I agree with the others, check with your dad to see if he wishes to recover his initial loan; set up a Retirement account since the early years are the most advantageous given so many years to compound. An Emergency Fund savings account is truly wonderful to cushion you through financial challenges life throws and finally a few thousand dollars 'blow' money. If you're as smart as I think you are, you will continue to research scholarships, bursaries, grants and awards to lower school cots. it's shocking how many of these funds are never sought.

[RamsdenF]

Great Advice Guys. Ive been doing research for the last few days. I do work part time and taxes are not withheld. I just started so i still have to figure out how that works. I believe i have to pay taxes quarterly, but am not entirely sure. However on the topic of risk, i am not the type to get worry some. I play poker regularly at the casino and online so i am used to risk.

So far its looking like 5k to a MMA(possibly Ally Bank).

5k To father

5k Roth IRA(if possible, once i figure out the work pay issue)

5k to a mutual fund account.(Looking at Oppenheimer Developing Markets A or Vanguard Total Stock Mkt Idx Inv(VTSMX). Any suggestions on any accounts is greatly appreciated.)

Whatever is left over about 7k will go into checking account, i will spend some, but most will be there for living expenses, supplemented by my job.

As far as school goes i do get really good financial aid considering my family situation but i will continue to look at more options for assistance. I plan on having my father pay for school and i will just owe him the money back, interest free. Only 2 yrs of school Left.

Thanks Guys

[disneysteve]

5k to a mutual fund account.(Looking at Oppenheimer Developing Markets A or Vanguard Total Stock Mkt Idx Inv(VTSMX).

Absolutely under no circumstances should you invest in the Oppenheimer Fund. It is a load fund with a 5.75% front end load. That means for every $1,000 you put in the fund, $57.50 immediately gets taken off the top for commission and is gone. Only $942.50 actually gets invested. With Vanguard, if you send in $1,000 then $1,000 goes into the fund. There is no load or commission. Always stick with no load funds.

Whatever is left over about 7k will go into checking account, i will spend some, but most will be there for living expenses, supplemented by my job.

Your original post said that you can pay your living expenses already. Why do you need 7K or most of 7K for living expenses if that's the case?

I plan on having my father pay for school and i will just owe him the money back, interest free.

Why should your father loan you the money for school and lose out on the interest he could be earning if you are sitting on cash that you could use for that purpose?

[RamsdenF]

Its not like the 7k is just gonna sit there. I have car inspection coming up(around 1k last yr), and some other expenses that my part time job wont be able to afford. I guess i could pay for my own school. Its about 2k a semester after financial aid. Just thinking about fees that could pop up and cost me a good bit of money.

[disneysteve]

Its not like the 7k is just gonna sit there. I have car inspection coming up(around 1k last yr), and some other expenses that my part time job wont be able to afford.

That's different. If your job doesn't pay enough to cover expenses then definitely keep money on hand for that stuff.

I assume car inspection doesn't actually cost $1,000. That's only if they identify repairs that need to be made in order to pass inspection, right?

[RamsdenF]

Correct. And theres always repairs that need done. Lol or new tires, brakes,etc.

[disneysteve]

Correct. And theres always repairs that need done. Lol or new tires, brakes,etc.

True, but that's all really routine maintenance stuff that you would and should be doing anyway. And you need to budget for that stuff when you own a car. Being the owner of two older cars, I figure on spending $2,000/year for maintenance between the two of them.

[Like2Plan]

As far as school goes i do get really good financial aid considering my family situation but i will continue to look at more options for assistance. I plan on having my father pay for school and i will just owe him the money back, interest free. Only 2 yrs of school Left.

Thanks Guys

Do you know yet if your current financial aid package be impacted by your inheritance?

How does your father feel about loaning you money for college after you have received this inheritance? I think it is premature to think about long term investments until you have finished college.