22 years old and just inherited $20,000

[moneymaker]

A 22 year old (recent college graduate) comes up to you and tells you he just inherited $20,000 and asks you your advice on what to do with the money. He explains that he wants to invest it, but with the recent drops in the stock market, he is unsure if he should wait for a while to see what happens, put it in slowly (IE, $1,000/month) or just invest it all at once (ya know, since he is young). He doesn't want to mess with individual stocks and wants to only invest in either active or passive mutual funds.

What's your advice for him?

My advice is to put in $5k NOW into Vanguard S&P 500 index and DCA the rest in $1k increments monthly until it's gone.

Anyone else?

 

[Dash man]

I'd just say put 3/4 into the S&P500 fund all at once and put the rest into an online savings account for emergencies.


Sent from my iPhone using Early Retirement Forum

 

[travelover]

Put it in some front loaded funds I recommend and pay me 1.5% wrap fee, for life.

 

[pb4uski]

Put $3k in a global equity fund like Vanguard Global Equity. A month later, add whatever you need to increase the balance to $5k. A month later, add whatever you need to increase the balance to $7k. A month later, add whatever you need to increase the balance to $9k. Repeat until the $20k is totally invested.

 

[Big_Hitter]

buy a used 04/05 STI

 

[DrRoy]

First decide what the AA will be. If it is 100% equities, so be it. I like the Vanguard 500 Index. Put in $10K now and 2K/mo until its gone.

 

[kaudrey]

Does he have any other investments? Set the AA, then go from there.


I'd probably DCA over a few months into an 80/20 AA. And maybe spend a few thousand? I mean, really - at 22, you can have a LITTLE fun too!

 

[EvrClrx311]

He has a staggering 1.134% chance of being a millionaire if he sets it all on Black and lets it ride for 6 spins... getting to the point, I think the odds of a 22 year old not touching this money for the 40-ish years it'd take to grow to a million are far worse.

 

[Big_Hitter]

He has a staggering 1.134% chance of being a millionaire if he sets it all on Black and lets it ride for 6 spins... getting to the point, I think the odds of a 22 year old not touching this money for the 40-ish years it'd take to grow to a million are far worse.

that's why he should get the STI - live a little, the stock 04/05 models are actually quite collectible now

 

[haha]

buy a used 04/05 STI

An STI? He can get those easily enough for free. It's trying to deal with them afterward that might cost him.

Ha

 

[Totoro]

Depending on the temperament of the person in question either:

• Invest 100% in Vanguard VT right now, or ..
• Invest $1k per month in the next 20 months

If the person never invested before, definitely option #2. It's less optimal but emotionally more bearable.

 

[ziggy29]

I'm assuming he has no student loan debt?

 

[racy]

A 22 year old...just inherited $20,000...wants to invest it, but with the recent drops in the stock market, he is unsure if he should wait....
What's your advice for him?...

If he's worried about the short term in the stock market, then my advice is to stay out of the market. This college grad needs more education about volatility and the foolishness of trying to time the market. My advice: take some of the $20K and buy a book or two about how to invest for long term success.

 

[dallas27]

If it was me, i would have needed some good suits, a reliable car, apartment security deposit, moving costs for new job.

Poof.


Sent from my iPhone using Early Retirement Forum

 

[jetpack]

History tells us that DCA under performs lump sum investment 2/3 of the time.

 

[RetireAge50]

Same thing he should do with all money going forward, 25% retirement, 25% savings (for stuff like houses and cars), and spend the rest.

Or something like that. Retirement should go 100% stocks in a Roth IRA.

 

[harley]

An STI? He can get those easily enough for free. It's trying to deal with them afterward that might cost him.

Ha

I thought that was an STD.

 

[Walt34]

Set aside 1/3 for frivolous nonsense. He is, after all, 22. Put the rest in Vanguard S&P 500 or total U.S. stock market, some total global stock market (15%?) and maybe 10% total bond market.

Look at it once a year and rebalance. Done.

 

[ziggy29]

History tells us that DCA under performs lump sum investment 2/3 of the time.

I believe this, but that 1/3 of the time can be absolutely brutal. As in, lump sum in the summer of 2008. The odds say DCA underperforms, but it also protects you from an all-in investment at the worst possible time.

That DCA underperforms 2/3 of the time (I don't have the stats but for this purpose I'll take you at your word) doesn't say how badly it underperforms 2/3 of the time, or how much it overperforms the other 1/3 of the time.

 

[jim584672]

My advice, crap table - $20,000 on the Don't Pass line, and lay the odds.

 

[columbus]

Go travel the world on the cheap...invest what's left when you get back.

 

[old woman]

My advise would be to set up your life first. At 22 he probably doesn't own a home or have children and might have student loans and his car might be on it's last legs.

So put away $5K as an emergency fund and 10K as a house buying fund and 5K as his first ROTH in a S&P Index fund. Then he can start saving for a house and paying for another ROTH for the next year. Improve credit score and get ready to buy a first house or condo.

 

[dvalley]

He's only 22- as George Best said...I spent half my money on gambling, alcohol and women. The other half I wasted.

 

[Running_Man]

Take the 20K, but 5K of a 2 year treasury 5K of treasury with 3 years 5K of a treasury with 4years and a 5 year treasury. As each come due invest half and repurchase a 5 year treasury with the other half. Continue for the rest of your life, should avoid most of the coming damage that way...

 

[nun]

Pay of any debt. Once that is done put anything left in the a savings account and read the Bogleheads wiki on how to invest.