After reading some threads, I figured it would be a good idea to start my own as well. So, for the past, oh I don't know, 4+ years, my dad has put the money he has saved for me (through stocks, inheritance, etc) with Morgan Stanley, as he has his own account with them as well. Now that I'm over 21, he has no say in my money, and so it's all mine to do whatever the hell I want with it. Well, over time, it has accumulated to roughly $110k. The last time I met with MS, I told them I wanted to go a bit more on the aggressive side (all my money is mainly in mutual funds). So, this is where things come into play...

What would be the best things to do w/ my money at my age? I hear starting up an IRA wouldn't be such a bad thing, although I know nothing about it. I just want to know what would be some different ways to invest my money. Perhaps leave a majority of it w/ MS into mutual funds, and take out maybe $10k or so to start learning and playing the stock market? Throw some in CDs? Completely get out of Morgan Stanley (I have no idea how much this is costing me since my dad has handled it)? I just want to get some different opinions out there. I really don't know what I want to do w/ my money. I always figured I would just use it on a house when I plan on getting one, but it seems like $150k or whatever really wouldn't be much? I have no idea. Help meee

`John

 

110K is a nice chunk to work with. I would max out my ROTH IRA. I'm new school so I wouldn't suggest CD's or any low risk options or even 5-10K set aside as an emergency fund. Unless your getting raped at MS, I would keep the money there. But I would also check to see what investments I am holding w/ them. If you want to play the market, go ahead.

 

1. Pay off any high interest debt
2. Max Roth IRA while you can
3. Work full time? Contribute to your 401K
4. Emergency fund of at least 3-6 months
5. Invest in funds, ETFs, etc.

 

He's only 21, no real reason for an emergency fund.

 

I disagree. There are situations -- medical emergency, needs to bail family member out of jail on short notice, natural disaster hits housing -- where $10K-15K in a money market can be helpful while insurance and paperwork are being sorted.

I admit that a credit card can suffice in certain situations, either to place the charges or to get a cash advance.

 

Damn I thought I was lucky getting almost 30k, but Tennisjon got 60k, and you got 110k.. Crazy shit!

And I do still consider myself very lucky to be receiving this money from my parents.

 

well...my dad has invested probably 30-50k throughout my life that has grown in time, while the rest I inherited from my grandmother when she passed. I am extremely fortunate for what I have set up for me, and want to make sure I make the most of it, rather than spoiling it.

As for my current situation, I just graduated from UCSB (well I have 1 more class that I'm taking over the summer which will be done mid Sept). I have zero debt whatsoever. I most likely have a job lined up once I'm done w/ classes which will probably start in October. I figured I would wait until then to see what I could do w/ my 401k, and THEN look into a Roth IRA. After that, I didn't know what to do? I just got my montly statement from MS, and it looks like ever since I told them to go a bit more aggressive, they have invested in numerous other stocks and mutual funds. Do I just let them do their thing? Do I open up a Roth IRA with MS? Thanks guys.

 

Negative, an emergency fund is important for everyone, regardless of age.

I would contribute to your IRA before your 401K. There's a time limit as well as income limit, and who know how much you'll make are your new job. Open up a roth with your existing investor/brokerage, or you can make a jump to someone else (Vanguard's funds are excellent). Your young, there is no reason your portfolio shouldn't be aggressive. 20/80% stock/mutual fund is a good ballpark.

Don't forget to rebalance your portfolio every 6 months/1 year. You maximize your returns and keep a diversified portfolio in check.

 

I knew I would catch flack for saying it. Do you also think retirees should invest super conservatively? Like I said, i'm new school. He's 21 and his dad has managed to give him in 110k in investments. Do you think if he does not have an emergency fund and needs 10K in emergency cash he won't get it? If he puts 10K aside in an emergency fund that is just wasted potential for greater returns.

 

Yes, retirees should invest conservatively (I don't know what you mean by "super") if they plan to live comfortably until AFTER death. (What I mean by that statement is, retirement funds are for planning well after death, not until death. Living within means is important too.)

So what if his dad gave him 110K? That's a privilege 99.9% of people never get. With privilege comes responsibility. Financial responsibility entails planning for YOURSELF. If he "expects" his father to give him 10K in an emergency, that's wrong. If his father dies? Falls ill? Goes "broke?" There is no reason to expect anyone to help you in an emergency, as no one can predict the future, an emergency fund enables you to have exactly that: a safety net.

Chasing greater returns is not the purpose of financial responsibility. Budgeting, lifestyle changes, and debt managing far outweighs any single percentage return the market will ever offer.

That's my

 

I disagree with this. Given the fact that he was handed 100k, my guess is his parents aren't struggling; And given that, if he ever runs into hard times (eg has no job), he can probably use this parents as a safety net.

Assuming all of the above is true, there's no reason to put money at a young age in a conservative investment vehicle (eg bonds, cds, money market). In the long run (10 years +) stocks are virtually guaranteed to beat bonds (you can look this up historically).

Now personally, if I was going to have an emergency fund (which I dont), I would probably put it in an s&p index fund; as that is a relatively safe place (you're not going to lose 20% overnight) & if hard times came, then I would transfer it out into money market; but if hard times never came I'd let the emergency fund grow at a nice rate in the stock market.

BTW, I'm also going to guess that he isnt married & has no kids. In which case, if 'hard times' did come, he could always get a minimum wage job & cut all expenses.

 

first off, you made a few assumptions which makes this debate go in 7 different directions, so we'll let OP clarify on those details.

I agree with NiteQwill on this. An emergency fund is exactly that, an emergency fund for those unforeseeable "hard times". Every balanced financial plan consists of a diversified portfolio and always an emergency fund. If anything that should be the initial concern before we go gallavanting in the market no matter how much we're sitting on. ask any financial planner out there: emergency fund + diversified portfolio based on each own risk tolerance + systematic rebalancing.

I'd abide by NiteQwill's advice about the Roth before you start bringing in your own money, and max out your 401(k). The only thing I'd change would be to go 100% equity, you're 21, go for it. *on another note, he could withdraw his Roth contributions only if an emergency arises*


The quoted text above in my opinion is an example of market timing, which we all know never works out. you can lose 20% overnight, anything can happen.

Retirees should invest in money market funds, ladder CDs, and in some cases a var annuity can prove to be a great vehicle (rarely). It's all relative, I have a few clients who are 68-70 and pushing portfolios that even make me uneasy.

 

I never assumed struggling, which they are not, it seems. Hard times is illness, death, accidents, etc. Emergency funding comes into play 99% of the time during these occasions.

Well, I'm sorry. But the market is not a "safe place." And losing 20% is surely possible. I see you're 27, there should be no reason you don't have an emergency fund. A prime age bracket where most injuries occur.

That's not the point. No one should have to succumb to this with proper planning. If he had to come to this in the future, the 100K+ he received was pretty damn worthless, and if I was his father, I would be pissed off for my son's lack of financial and economic planning.

As noshow_nogo said, I have never, ever talked to a CFA that says "no" to an emergency fund. Every person should have a nearly bulletproof cash vehicle for those unforeseen moments, and if a person can go a whole lifetime without ever dipping into it, they planned perfect and accordingly.

 

I cant believe people are suggesting that he doesn't need an emergency fund because his parents can just bail him out.

Having at least 3 months of very accessible cash is always a good idea for anyone of any age or any situation. This is not "super" conservative either ... its just good sense.

 

Live and learn my friend. You can certainly lose 20% overnight, or even more certainly over a few short weeks. Before you know it you are caught with your pants down in a financial crisis. Is it likely? No...but its possible.

Eg:

S&P 500 drops (from previous days close)

Oct 16, 1987 -5.08%
Oct 19, 1987 -20.47%
Oct 26, 1987 -8.28%
Oct 27, 1987 -6.87%

 

A lot of interesting ideas tossed around here, not sure how I feel about any of them. With out a greater understanding of what the OP wants its impossible to make a suggestion for him, you are just sharing what you would do if you were in his shoes - which if fair given the information presented to us.

Dem1k - what are you doing, school? working? what do you want to do? what dreams/goals do you have? have you saved anything personally? There literally are infinite things you could do, be invest it or spend it. The only thing I will STRONGLY urge you to do before you do anything with this is to put some serious thought into the decision, talk with a few financial advisors, talk with your father, see what he thinks would be best for you, in short gather as much information you can before you make a decision. The money is not in a bad place right now, but it may not be the best place for you, this decision may take almost a year to make, and don't worry about that, taking time to make sure you do the right thing for you and your dreams will pay off in time, just do your homework before you commit.

If it were me, the first thing I would do is payoff any debt(with that said I don't have any debt), if that's the situation I would reward myself, with a single item, something large but not huge, if you want a new car maybe take $10k and trade your car in to get something new, I would aim to keep your gift to under $10k. There is no point in having money if your not going to enjoy it, but smart saving/spending is the key to financial stability. Now comes the tricky part, it really depends what type of account its in, if your lucky a bulk will be in an IRA type of account and I would hold off until 2010 and do a ROTH roll over(it will not be available until 2010), you will have to pay a little tax but it will be fairly insignifcant and save you a FORTUNE in the long run. If the money is an IRA type of account(I assume there is no way the inheritance could be) I would keep it there, do the roll over in 2010 and invest in a half dozen solid performing mutual funds and consider retirement planning complete - if you could put 90k into this type of account you would have north of $7m by the time you are 60. If your in a conventional account, start planning but don't do anything until it has been 1 year from the last deposit - this will reduce your taxes. I am not familiar with creating IRA's from this type of account, but I don't believe there is any good way to reduce taxes, you'd have to talk to a pro to verify. I will stop here, if it is a conventional account your choices are just about limitless and it could be mindfucked all day, but with out knowing your goals its impossible to help.

 

I briefly looked through this and will answer quickly since I'm on vacation in Miami right now, so I'll be able to answer better when I get back on Wed.

Anyways, I really appreciate all the help that is coming my way. As I said, my dad started investing with maybe 30k or so when I was younger, and over time it has grown to what it is now with the inheritance. He hasn't put any more money into it besides that. As far as his wealth goes, he isn't overly wealthy by any means. If I ever came in any financial bind, he would be there for me if needed, but I want to try to avoid that by taking my own precautions, as mentioned above. So, that being said, I think an emergency fund is a fantastic idea.

Moving on, basically, I want to make the most of this money. Meaning, I want to put away a decent amount for retirement (long-term), while investing a much smaller portion to short-term. As I said, I just graduated from UCSB and will be starting a job pretty shortly (most likely October). I guess the only thing I really thought about using this money for was maybe towards a house in the future, but I dunno. I haven't saved anything on my own, except for whatever is in my checking account right now, which is maybe $1,500 or so. Again, I also have zero debt (I pay off my credit card every month, always have). Basically, I never really want to dip into this money for my own personal spending, because once I do, the possibility of it becoming a habit is more likely. So I'm here to see what my best options are. I'm sorry for not having much knowledge in this area and I probably sound stupid, but what can you do?

`John