Need some advice from financially savvy DU-ers...

[youthere]

My husband and I will be receiving $40,000 (less withholding) in two months. This is a bonus from the owners of the company he works for as a "thank you". They are selling the company to an investment company out of Chicago that will be expanding the business to the "next level" (whatever that means). My husband (and a few others) were told by the current owners that they are getting this money because they are the ones who helped build the company to where it is today (a $20 million a month business). the sale will be finalized in two months.
Now I don't like to "count my chickens before they hatch" but we would like to have a plan. That's an awful lot of money (and honestly couldn't come at a better time). Now my husband and I have historically pissed our money away. We are in our mid- 30's and manage to pay our bills (mostly) on time, and when we have gotten the occasional windfall we tend to spend it pretty frivolously on stuff for the house or recreational things. We are remodeling our house ourselves, and we have been sinking almost all our cash into it.We have no savings other than 401K, and a small Roth that we don't make regular contributions to.We own our home (which will be paid off in six years), we owe nothing on our vehicles, and other than student loans, our debt consists of less than $9000 on our combined student loans and about $2000 of recently acquired credit card debt. We also have three kids with college looming closer all the time (our oldest child is twelve) and we've only managed to put about $1000 in CD's for each child.


Here is what we will DEFINITELY do:
1. replace the roof on the house (it needs it bad-that's probably going to cost us about $5000-the one repair we can't do ourselves.)
2. Pay off credit card debt (and cut up those damned things once and for all!)
3. Earmark an amount for each child, and find a higher yield investments (Probably $2000-3000 each).

As for the remaining portion, here are some things we have considered:
1. Use the money as a down payment on some rental property/ies. In our area housing goes cheap. We live in one of the lowest-taxed counties and we are considered a bedroom community. Rentals aren't empty long here.
2.Pay off student loans (although the interest we pay is ridiculously low)
3. Invest in some kind of mutual fund.


My husband and I are NOT very smart when it comes to investing (read: STOOOPID), in fact, it just confuses (and intimidates) the hell out of us. That's why we stuck the kids'money in CD's...we know we could get more money back on it, but at least we understand CD's. In fact, until we come up with a plan that we both understand and feel comfortable with that's what we will most likely do with the money. Stick it into CD's..it can earn some interest until we decide and we won''t be able to fritter it away.

Any advice you have would be greatly appreciated. We're just looking at different options now.

Edit to add: I should probably tell you too, that we are happy to live pretty frugally AND within our means. We don't go out often, or buy unnecessary items on a regular basis...that's probably why we have no control when we get a little extra cash to spend (tax returns and the like).

[wakemeupwhenitsover]

1. I am uber busy right now so can only give

one quick answer: for your children look at 529s. These are great investments. DH & I have started one for each of the grandchildren.

I just took a very quick look & this might give you some answers. http://www.savingforcollege.com/

There's another really good site, but I can't think of the name right now. If I remember it, I'll come back & post.

Sorry I can't be more help & congrats on your windfall! I bet you'll do great.

[youthere]

2. I just gave the site a quick glance and ...

that is a terrific website! The information is written in way that is really easy to understand. Thanks!

[A HERETIC I AM]

3. Max out your Roth contribution for the year

You can contribute $4,000 this year ($5000 if you older than 50) so doing it early allows the money to grow over a longer time frame. Remember that a Roth is contributed to with after-tax money, grows tax deferred and comes out tax free so you should try and max it out every year if you can.

Pay off the revolving debt, and do the things to your house you need to do. Further than that, see my PM

[youthere]

4. AN ADDENDUM TO MY ORIGINAL POST:

The editing time has expired, but I would like to add that I'm looking for pretty generic information and general leads (ie: like checking out the 529 and the Roth information) to research. I'm not looking for specific mutual funds to invest or stock tips. Any information or ideas that you post will give us a starting place for my husband and I to look into. We have no intention of investing in anything based on any single post or anything that we read online. We're just looking for some guidance on a place to begin and appreciate any nudges you can give us.
Again, thank you so much in advance for your advice.

[scruffy]

5. Before you do anything with this windfall . .. .

I would make an appointment with a financial advisor - someone who can take a look at all aspects of your lives and your finances and who can help you prioritize what to do with this money.

529 plans are a great way to save for college; Roth IRAs might be a good way to save for retirement (but you might be better off with a traditional IRA instead); having cash reserves on hand for emergencies is important as well. A good advisor can also look to see what you are doing for your retirement, may give you info about your mortgage, can make sure you have an appropriate amount of life and disability insurance, and can talk to you about estate planning.

Make this an educational experience first - if there are specific products to purchase to help you achieve your goals, they should be considered AFTER you have met with the advisor and have an actual plan in mind.

In the meantime, absolutely nothing wrong with putting the money in CDs until you know what you want to do with it.

[wakemeupwhenitsover]

6. Some additional thoughts.

I don't know where you've got your CDs in, but Credit Unions usually pay much better than banks. One drawback is that they're not FDIC insured (or at least I've never heard of one). That can be a little spooky. But, if you get in an established one like the teacher's union or something, I think they're perfectly fine. And if you've ever read the mice print about FDIC insured it aint such a great deal either.

Roth v traditional IRAs. Roth gives you no tax break & this windfall will definitely put you into a higher tax bracket. You might want the deduction an IRA gives you. Also, Roths were started when there were surpluses as far as the eye could see. I wouldn't put it past our congresscritters to renege on the deal when boomers start retiring in droves & to change the laws and start taxing Roths or at least a portion of them.


What interest are you paying on your student loans? Is it low enough that interest on CDs will pay for the loans without tapping into the principle? Also, instead of CDs you might want to consider a Money Market account. All the financial institutes have them, i.e. Vaanguard, T Rowe Price, Oppenheimer, etc. They're a little riskier because usually they're tied into the stock market, but when the market is good you'll make more than a conventional CD. Also, you can write checks on them & there's no maturity date like a CD so you have access to the funds 24/7.

Rental property. That sounds great with some major ifs: If you are planning to stay in the area, if you're planning to hold long term, if you don't get in too far over your head.

I can give several examples of friends/family who've invested in rental property & show where each one went wrong:

My grandfather bought commercial property. He also financed second & third loans to high risk borrowers. He made a killing, mostly by foreclosing. I don't think that's something you'd be interested in or able to do. It takes nerves of steal, a cold heart & buckets of cash to buy out the first (and second if necessary) lenders.

My aunt bought an apartment complex. As soon as she had equity - because the value increased, not because she had paid down on the mortgage - she borrowed against it & bought another complex. She did this several times. She was worth a million on paper & it's good that she had that paper because she couldn't afford to buy a roll of TP. The first gulf war started & since the complexes were all one bedrooms near a naval station a big chunk of her renters went to Iraq. She had no equity, no way to make the payments & not enough time to find new renters. She lost everything.

My youngest & his wife owned a couple of rentals. They did "okay".

Another family member bought & sold like mad. They made money on one, count 'em, one property. The rest they were lucky to break even.

My sister & BIL bought their first house on a 15 year loan. After they had been in it for about 5 years they bought a larger house & rented out the first one. They've since paid off the loan on the first house & now get 1700 a month rent. Maybe 300 a month goes to taxes, maintenance, etc. The rest is income.

So, I guess the story is if you're going to buy & hold then rentals are probably a good investment. There are tons of variables in there. Remember that if you sell a rental you'll have to pay taxes on the amount you deducted as depreciation, etc. Your accountant can give you clearer ideas.

Mutual funds: I think that study after study has shown that no-load mutual funds do just as well as fee based mutual funds. No-loads are tied to an index like S&P 500, or Russell, etc. so if the index goes up your mutual fund should go up.

Hope this gives you some ideas.

best

[scruffy]

7. Please don't forget to talk to a professional! :)

There is so much info and advice on what people should do with a large sum of money - some information is accurate and some not. Only someone who does this on a professional basis is going to be qualified to help you make your decisions.

[wakemeupwhenitsover]

8. True, & there are lots of 'professionals'

who aren't qualified either, don't you think?

[scruffy]

9. I think there are a good many "professionals" who

have an ulterior motive of trying to sell a product way before it is warranted. But I also think that there is so much financial info out there that most people have a very hard time with deciphering it and determining if it applies to them. Someone who is trained in the financial planning process - as opposed to just selling a product - can be very helpful in distinguishing helpful information from sales propaganda.

[wakemeupwhenitsover]

10. I wouldn't say that

"most" people have a very hard time. Certainly "some" people would. And ultimately it's the client who has to make the decision, don't you agree? I mean, I sure the hell wouldn't trust any "professional" who insisted that s/he knew what was best for me.

And how do you find one of these "professionals"? My sister & BIL went to one that was very highly recommended. I told them I didn't understand why, but it's their money & their time. Of course he told them they were fine. Great big Duh! from me.

[scruffy]

11. "Most" of the people I see (yes, I am in the business)

come in with some knowledge but with a lot of misconceptions . . . or they read enough to confuse themselves . .. . or they discover so many choices or variables that they can't make a concrete decision. While I would never pretend to make their choices for them, what I can point out are facts so they can make an informed decision - one that is made not just on emotion but in the context of trying to reach certain goals or objectives.

For example, the OP in this thread mentioned saving for college for their children. 529 plans are generally a good way to do this - but WHICH 529 plan do you use? Each state has its own and some states have more than one. If you use the plan offered by your state, you usually get some deductions on your state income taxes - but is that deduction worth using your own state's plan if the investment options are lousy? And how do you decide which investments to use in whichever state's plan you select?

So perhaps professionals who can take a broader perspective may have something more to offer than just reading something on-line.

Where do you find them? I agree, it's sometimes hard to find the right person/firm and too many firms have unrealistic minimum requirements before they will even talk to you. But there are real professionals out there who understand that not every client is coming to them with millions of dollars to work with.

[A HERETIC I AM]

13. I am curious about the experience your Sis & Bil had.....

so...they went to one that was highly recommended. For what purpose? A portfolio review? An allocation analysis? Did this person charge them for the consultation? (I doubt he did)

He told them they were fine. So, what does that tell you?

It tells me that if he indeed did a portfolio review that he was impressed by their holdings/allocations and didn't try and sell them anything - in other words, acted professionally, ethically and appropriately.

If nothing else, your Sis and her husband now have a bit more peace of mind that their holdings are in good shape.

Beware the Financial Professional who does a similar review, suggests changing EVERYTHING and doesn't back up his opinion with definitive data, research and performance histories. If a change is suggested, it better be for a bloody good reason. Of course, one very valid reason would be that the LAST guy they saw screwed them over and sold them stocks that were dogs, bonds about to default or Mutual Funds meant for little old ladies with 2 million in assets.

Deciding what is best for a client involves getting to KNOW the client. Many people think that 15% is a reasonable rate of return. It isn't, not for very long, anyway. Many people think the only way to invest money is in CD's. It isn't, especially for someone who needs returns that are more than 2 percentage points over inflation.

"I mean, I sure the hell wouldn't trust any "professional" who insisted that s/he knew what was best for me."

With all due respect, wakeme, you do that every time you see a doctor, a dentist, a lawyer or any professional whose services you require. A Financial Professional is no different. With the exception that what is truly good for you is arrived at by consensus, not by shoving it down your throat.

[wakemeupwhenitsover]

14. Sorry I'm so late getting back to you. DH & I were on vacation

the last three weeks.

First, this is my last post. We seem to have hijacked youthere's thread & I don't think it's fair to her.

My sister & BIL went to a flat fee adviser, which is what Liz Pulliam Weston, Eric Tyson & a bunch of others that I respect recommend. Barbara Roper who was the director of investor protection at the non-profit Consumer Federation of America wrote a report called Financial Planning Abuses, A Growing Problem.. Over 80% of financial planners get commissions on products/services they push. Conflict of interest much?

You are honestly going to compare a doctor a dentist or a lawyer to a 'financial planner'? With all due respect, I'm :rofl:

[A HERETIC I AM]

15. They went to an adviser that charged them a flat fee? Then they got what they paid for.

If the "Adviser" advised them to keep things as they were then your Sis & Bil got exactly what they paid for; Advice for a flat fee.

Why you feel this is somehow an issue is a mystery to me, but i digress.

They could have gone to a "Financial Consultant" and gotten the same advice for free. They could have gone to a Financial consultant and had an entire portfolio reworking pushed on them. They could have gone to a Financial "Planner" who wouldn't have taken the time to listen to them and suggested a completely inappropriate plan. They could have stayed home, gotten no advice at all and be right where they are.

Your various posts on this forum indicate that you seem to have an ax to grind in some way with people who are in the securities industry. That's fine, you are entitled to your opinion. But let me ask you this: My brother has been in the business for over 22 years, graduated Summa Cum Laude with a Masters in Economics and has a portfolio management track record that most in the business would envy. He's damned good at what he does, so much so that people seek him out and request his expertise. In your mind, is the opinion of someone with his experience and credentials deserving of your condescending smiley?

BTW, ALL of the people in the Securities business make money on commissions, whether they are paid a flat fee or not. Where do you think the income originates? What do you think generates the money to pay the office light bill? All securities trade on a commission bases. Even so-called "No-Load" funds have higher expense ratios because the Mutual Fund company incurs expenses (just like everybody else) when the fund manager makes trades. "Over 80% of financial planners get commissions on products/services they push. Conflict of interest much?" Well, surprise! That is the business they are in! Over 100% of tire dealers make commissions on the tires they sell! Do you see a conflict of interest there? What's your point?

That you think all those that pose questions on this board will be completely put at ease with an internet questionnaire is the thing truly worth a bit of a giggle.

[wakemeupwhenitsover]

12. If you decide that you want a financial planner

here is a quick pamphlet to look at. Most is sooo basic, but the last page has some great questions to ask.

http://www.consumerfed.org/pdfs/Cutting_through_the_Confusion_Brochure.pdf

[Sammy Pepys]

16. This is what I'd do...

Your mileage may vary.

1) Pay off all credit card debts.
2) Put some aside as a rainy day/emergency fund (two or three months worth)
2a) Do your kids have/need college savings accounts?
3) Max out your Roths for this year.
4) Invest the rest in mutual funds, or use as you see fit.

[B Calm]

17. If you are 6 years away from paying off your home I would put

it all on the house. Pay that sucker off early and save!

[lumberjack_jeff]

18. You're doing fine.

It doesn't sound like you've pissed anything away.

If you have credit card debt - pay it off. Guaranteed 16% return or more.

If you need a new roof - just do it.

Low interest debt? It may not make sense to pay it off early. I would open an account at Vanguard and invest in their money market fund (vmmx) until you decide what to do. No rush.

[silverlib]

19. Some very old fashioned thoughts...

Back in the "dark" ages, my father gave me some very good advice. Do not put anything in the stock market that you cannot afford to lose. You will never get this from an professional financial adviser, as they make a living through the market investments. If you can afford the gamble, a good professional adviser is worth the time and money and money has certainly been made in the market that cannot be made in other areas.

My personal example came when I was in my early thirties and had 2,000 to play with. This was prior to the time when the 401K's, etc, were available through employment. Rock Hudson had just passed away with AIDS and there was talk of public advertisement of condoms for the first time. I called a broker and told him I wanted to invest in condoms. He replied, "Condos?" I explained, "no, condoms." There was a silence and then, I assume after he composed himself, he asked "which brand?" I told him I wasn't sure, as I was not familiar with the brands. He asked if her could call me back. About thirty minutes later, he called back and asked if I was familiar with Carter Wallace and I said that I was not. He informed me that they manufactured Trojan condoms and although that was not a Merrill Lynch preferred stock, it was the largest manufacturer of this product. So, he got my measly $2,000. Three days later, Liberace died of AIDS. Within a period of a couple of months, the stock rose $700. But then, Black Monday hit and the stock took a dive. Within three years the stock recovered and went back into the black. My lesson was learned in the words of my father. Do not invest money that you cannot afford to lose (and fortunately, this was the case) and that market ups and downs are not necessarily related to the products in which one is investing. A little off color, but I joked that the only place rubbers weren't rising was the stock market. In other words, the market is a gamble, nothing more and nothing less. I take issue with the fact that many of us are forced, through pension plans, to invest in a gamble. But personally, we have a choice. We live in a society where many have thought that Social Security was more than just a safety net and now many think that the market is also a safe place to invest. I'm not a pessimist, by any means, just what I consider a realist. I do have some market and gold/silver investments, so I am certainly not trying to discourage you from whatever investment you decide.

I haven't posted on this forum in quite sometime. I'm glad to see it up and active.

Good luck!