What would you do with a half million?

[harley]

Yes, indeed, the smell of greed has an undeniable stench.

I'll loan you some of my personal favorites...

"It's all invested."
"It's all in my Roth IRA and I can't touch it til I'm 59 1/2."
"My brother is handling it for me." (making sure you aren't there that day, or have some fun if you are )
"I donated most of it to charity for tax purposes."
"I spent it to bail out my uncle's farm foreclosure."

"I'm paying child support to the whole darn college cheerleading squad."

 

[Kittle2020]

Once again, I appreciate everyone's advice. The monthly salary only occurs during the season. Thus, every year from October - February, he will need to live off of the bonus. For this offseason, he can just set aside what he needs during those 5 months. At the same time, he can set up a CD ladder, which should give him some cash flow in Oct 2010 - Feb 2011.

Can someone explain the difference between a CD Ladder and a partial ladder? Is it really just skipping certain rungs/maturities to customize when you would like cash flow?

given this pay scale maybe psssst wellsley is in order for income supplementation

Could you please elaborate on this and how it can provide income supplemenation? Not familiar with wellsley.

Lastly, he obviously won't qualify for a Roth IRA. I would assume it is still worth it for him to set up a regular IRA, correct? Not sure about if his employer offers any 401k plan.

 

[Gotadimple]

Yes, he can always set up a non-deductible IRA, and he is young enough that it should create quite a nest egg when he needs it.

Rita

 

[utrecht]

Why does he need to live off of the bonus from Oct - Feb? If I were him, I would do this....

1) Invest the signing bonus for the longterm. SP500 index fund would do nicely if he knows nothing about investing.

2) Pretend he didnt get a signing bonus and in the off season, do the same thing he would do if he didnt get a signing bonus. He shouldnt be living off of the bonus on the offseason. He should get a job in whatever field he is interested in and will want to work in when his baseball career is over. Unless hes in the top 1% of players, his career will be short and he wont make mega millions. If his career is over at age 29 , whats left of the $300K or so he can invest now isnt going to do much if he cant get a good job because he hasnt done anything but play ball up until now.

 

[Kittle2020]

Why does he need to live off of the bonus from Oct - Feb?

I should have clarified. He will most likely be a college student for the next 3 off-seasons.

When I say live off his bonus, draw enough to live off of (i.e $1,500 month). The remaining $300k+ remaining, he will be able to do a mix of investing, which could focus on CD laddering in the near term to supplemental income in the off-seasons.

 

[RunningBum]

The Wellsley comment was for the Vanguard Wellsley fund, which is a mixed stock/bond fund that provides a decent return for income, along with some growth possibilities. I think some people use this for income and diversity rather than a CD ladder plus stock and bond investments to get the fix they want.

I questioned the CD ladder before, but now I see why it work for the off-season income. I don't know the terms for laddering, but it seems like setting up ladders for the offseason only makes sense. I don't invest in CDs personally, but I don't know that it makes sense (or whether you can) get $1500 CDs for each month, so you might have a $7500 CD that matures each October to last the offseason.

Maybe I shouldn't have answered because I don't invest in either Wellsley or CDs so I'm not expert, but since I think I know the right answers, and it's a very interesting case, and I wasn't seeing answers, I thought I might as well.

 

[Dennis]

Well, opptimistically this is just the Begining and he will make alot more in the future..
If that is the case? I'd Spend 50%( After paing taxes of course) and Put the other 50% left in a simple Bal. Fund like a Vanguard VWELX or VWINX and forget about it, for now and focus on his skills and performance.. to Get Into The BIG leagues of Millions..( I have had Better Bal. Funds like FPACX, OAKBX and HSTRX for past several yrs) Investing in Bal. Funds is just like Hiring a Guy or Firm to do the work for you.. and you pay about the same extra 1/2-1% fees to own them vs having to play with a Bunch on your own ... And for most people, do alot better job of it and take you out of the Decision making process, which for most? Is a Good thing..

An $500k Really isn''t that much ( -36% taxes = $320 net? ) but A Hundred grand tied up for 30-40 yrs can be doubing every 8-12 yrs.. But, odds are he'll need that $ to buy a Place etc.. in the near future.. He ain't gonna want to stay at Mom & Dad's with all the Girls comming around...lol.. If your not married? You best hang out with him if you can also...LOL

And Best get himself a decent CPA to keep him out of trouble and Hide his Money in IRA's, ROTHs etc.. if he can..

and a Decent & Halfway Honest Agent can do wonders as well.. but they take 10% or more in return..

 

[Keim]

I'd invest most of it, leaving 20-30k to plaqy with. Unfortunately, this year that means I would have quickly turned that 500k into 300k.

 

[jdw_fire]

Once again, I appreciate everyone's advice. The monthly salary only occurs during the season. Thus, every year from October - February, he will need to live off of the bonus. For this offseason, he can just set aside what he needs during those 5 months. At the same time, he can set up a CD ladder, which should give him some cash flow in Oct 2010 - Feb 2011.

Can someone explain the difference between a CD Ladder and a partial ladder? Is it really just skipping certain rungs/maturities to customize when you would like cash flow?



Could you please elaborate on this and how it can provide income supplemenation? Not familiar with wellsley.

Lastly, he obviously won't qualify for a Roth IRA. I would assume it is still worth it for him to set up a regular IRA, correct? Not sure about if his employer offers any 401k plan.

the vanguard wellesley mutual fund is paying a dividend of about 4.7% which if taken over a year would produce about $14k (on a $300K investment), enough for his off season expenses

 

[Kittle2020]

the vanguard wellesley mutual fund is paying a dividend of about 4.7% which if taken over a year would produce about $14k (on a $300K investment), enough for his off season expenses

I understand now, thanks. After looking at other Vanguard fund options there seem to be ones paying higher dividend %'s (100% bonds), but I assume the Wellesley is preferred b/c it is a balanced fund paying the highest dividend %. This would get him exposed to stocks in a more conservative way.

 

[old woman]

Be aware even your own family might think they should get some of the money. Watching a family member lose a home or not have money for college is hard. It isn't his job to save them. Money is finite. Have him divide it into categories for his own use. How much each for a future home, living in college, saving for furniture, cars, retirement, helping family and friends, charity, insurance, motorcycle, other toys. He will see how quickly he can spend it all and if he spends here he can't spend there.

 

[Kroeran]

depending where he is, buy a triplex cash near a college, live in one unit.

learn landlording.

property manage it out when he moves to a different town, do small equity take out and buy another triplex there, live in one unit...keep going from town to town....keeping equity above 50% all along.

oh yeah, the best part, only rent to nursing students ; - )

ramp up standard of living assuming the well will run dry, tomorrow.

sure you are living maybe in borderline accomodations, but the chicks see a sports fun type guy who is ALSO a slum landlord, and they are then thinkin they can have their cake, and eat it too