I'm 20 and just received a settlement of $450 000 what do I do with it?
I live in Canada if that matters. I have an option of lump sum or annuity. I was thinking pay student loans and buy a house and car, but what about investments? I am thinking it is smart to buy a house and never have to make mortgage payments... help.....
2008-03-26T12:00:45Z
I have about $15 000 of my own money already saved, and about $17 000 student loans (dont have to start repaying for another year) Thinking of getting a volkswagen TDI probably used. I dont want to live the life of a rockstar, I want to make sure I secure my future.
Anonymous2008-03-26T11:48:41Z
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First thing to do: NOTHING!
Go to your bank and open a Certificate of Deposit with a 6 month maturity. Then, for the next 6 months, consider all of your options and ideas.
DO NOT buy a car, clothes, trips, dinners, shoes, a dog, a horse, a house, a boat, a plane, a new anything or give any of it to anyone who needs it. WAIT the 6 months and consider a long-term plan.
Consult people who have money and have been able to hang onto it. Talk to no one under 50 about this matter.
First of all take it in a lump sum. The sooner you have it the sooner you can pay off loans and/or invest and start earning interest on your investments as well as stop losing money on interest from your loans. If I were you I would pay off all of my debt, get a new car (if you need one), put about 1/2 down on a house invest about 90% of the rest and keep 10% for myself. This way you come out debt free, you have a car that is paid off and will last you along time, you have a nice house with payments you can afford, you have some good investments earning you money for retirement, and by keeping 10% for yourself you not only get some fun out of it but you also help make sure you don't go overboard on your other purchases because you know that the wiser decisions you make about the car and the house the more money you will have to spend freely. Good Luck!
Contact an investment adviser that is paid either a flat fee (say $400-$700 a year) or as a percentage of your portfolio. You don't want one that is paid by # of trades he/she executes. Be careful about friends who suddenly pop up.
As for lump sum or annuity, this depends on how good you are with money now. If you're bad, pick the annuity, it gives you a chance to grow up. If you're fairly good with money, pick the lump sum. If you don't need the money that badly, pick the annuity (I'm guessing it's either a 50% lump sum or an annuity paid out over X years)
What would I do if I got a windfall of $450,000? Probably pay off my mortgage and split the rest between asset classes (commodities, cash, bonds, stocks.) Be sure to account for taxes.
Buying a house may not be a good idea at 20 -- do you want kids, do you have a fiance(e), etc., etc.? Life might change for you somewhat by age 30.
Whether to take an annuity or lump sum depends on what numbers they are using to get the lump sum. It's really up to you on what you want to do. If you get a car don't get out of control, it's a depreciating asset. Im not sure what the tax laws are in Canada but all interest expenses up to a certain limit are tax deductible. If that is the case it may be beneficial for you to take out a mortgage. If you take the lump sum you will have to pay taxes on it (assuming tax laws are similar to the U.S.).
If I was in your shoes I would be investing most of this money. You have plenty of time right now and IMO I think that it is a great time to get into the market if you have a 5+ year time horizon. If you want to buy and sell investments on a short term basis (1 year or less) than I wouldn't be investing.
It may be beneficial for you to consult a financial planner.
First off, take the lump sum because with inflation money is more valuable now than in the future. I would look at the interest rates for your loans...anything over 6 % I'd pay off immediately. Anything less and you could put your money to work elsewhere. With 450k, treat yourself to a car...I'd personally buy one where I can get good mileage because gas is going to go up significantly. I would buy a house as the market is getting more buyer friendly, but don't pay it off. I'm not sure how taxes work in Canada, but mortgage interest is deductible in the States and most times it is more advantageous to pay the interest and get a tax deduction. Investing wise, you can put your money to work in most places immediately. I believe the DOW and NAS are at or close to their bottoms and would invest most of it. Sectorwise commodities are the best bet...aluminum, copper, gold oil. These will be good for awhile due to international demand. It wouldn't be a bad idea to put some money in US Banks and Retail as they have come down the most.... Be Careful in choosing though...do your research but for a choppy market like this a high dividend yield is always a plus. Also, start a Roth IRA and put the max contribution in per year.