FinancialPlanning #GraduationGift #InvestingInYourFuture
🎓 23 y/o About to Finish Uni, Grandparents Giving $400k Upon Graduation: What to Do?
Congratulations! As you prepare to graduate, receiving a generous $400k from your grandparents is a game-changer. Given your background of hard work and financial responsibility, you have an exciting opportunity ahead. Let’s explore the best options for your unique situation.
💰 Understanding Your Financial Position
- No Student Loan Debt: You’ve worked through school, avoiding debt.
- Estimated Credit Score: Around 800 – stellar! 🎉
- No Credit Card Debt: Amazing start.
🏡 Investing in Real Estate
Living in a low-cost-of-living (LCOL) area means that good houses range between $400k-$500k. Here’s why buying a house might be a great option:
- Build Equity: Your own property instead of renting.
- Savings on Mortgage Interest: Potentially save thousands.
- Stability: A place to call home.
🌱 Diversifying Investments
Consider balancing your investment between real estate and other financial instruments:
- Stock Market: Part of your $400k could be invested in blue-chip stocks or index funds.
- Mutual Funds: Professional management for a diversified portfolio.
- Retirement Accounts: Start or contribute to your 401(k) or IRA.
📈 Creating a Long-Term Investment Plan
If you’re leaning towards investing the full $400k, here are some strategies:
- Compound Growth: Invest now for significant growth by age 40.
- Diversify: Spread across various asset classes to manage risk.
- Financial Advisor: Consult an expert to tailor your investments.
🚀 Immediate Steps to Take
- Set Financial Goals: Short-term and long-term.
- Emergency Fund: Set aside 3-6 months of expenses.
- Consult a Professional: Financial planner or advisor.
📊 Crunching the Numbers
- Home Purchase:
- Cost: $400k-$500k
- Mortgage Savings: Potential monthly savings reinvested.
- Stock Market:
- Historical Average Return: ~7-10% annually.
- Retirement:
- IRA/401(k): Tax advantages and growth.
🛡️ Considerations for Risk Management
- Insurance: Homeowners and personal liability.
- Emergency Fund: Unexpected life events.
- Financial Safety Net: Always be prepared for the unexpected.
💡 Final Thoughts
You’re in a solid position with immense potential. Whether you choose to invest in real estate, the stock market, or a mix, ensure you align with your goals and risk tolerance. Remember, combining savvy investments with professional advice will pave the way for your financial success. 🌟
Share your thoughts or questions below! 👇🚀
Just do an index fund would be my general advice and forget about it, at 23 your retirement would be set. I know I waited to buy since I moved along for work opportunities.
Keep $10k in a High Yield Savings Account getting 4%-5% as an **emergency fund.** Your bank might have one, but I know Capital One has a 360 Performance Savings Account making 4.25%.
Create an account at Fidelity, Vanguard, or Schwab, and open a Roth IRA. Deposit $7k, which is the limit for 2024, and invest in a Total Market Mutual Fund (FZROX at Fidelity, VTSAX at Vanguard, SWTSX at Schwab). It’s one fund with a little slice of every company, very set-it-and-forget-it, a good starting place for a new, young investor. That’s a start on **retirement**.
If you trust yourself, park the rest of the money in a High Yield Savings Account for a year and just get used to having it. This is the standard advice for a windfall. Spend the year investigating home ownership. My city had a First-Time Homebuyer’s class which talked all about mortgages, inspections, closing costs, taxes, Home Owner’s Associations… it was very informative.
That’s my advice.
You’re so young, don’t buy a house. You’ll want the freedom to move where you want and take opportunities. Buying a house staples you there.
What’s wrong with half and half? Half on a house, and half invested. This is assuming you can afford the mortgage payment, of course. However, I wouldn’t buy a house right away, so keep that money in an HYSA. Figure out your career path, where you will work, etc before buying.,..
Don’t get stuck with a house at this point in your life. Go to Vanguard and open a brokerage account and invest most of it. They also have a HYSA called Cash Plus, but you have to be a customer already. Find out how long it would take you to qualify. Interest rate is currently 4.6%. You have enough to invest that you would be wise to use their advisor option. The cost is very reasonable. Fidelity and Schwab have similar plans, although I don’t know about their HYSA options. Hopefully the housing market will cool down a bit by the time you know where you want to live for 10+ years. That’s the time to buy a house.
Very happy for you! I also grew up working and scrimping. This is so cool for you! With a bit of security in the bank, you’ll have an opportunity to make freer choices. Chrissy gave great advice. Do that and learn about money management.
That would buy a beautiful home in my city with some change to spare. After purchasing and having a mortgage for the past 17 years, not having that looming over my head would be a such a sigh of relief.
Would you rather have a house, or $10-15M in retirement when you’re 60? It’s all up to you
At least 300k in index fund. I would like to echo not purchasing a house at this age. You’re young and want the option to be mobile.
Dude, you pretty much just won the lottery and seeing that much money that early on won’t happen again unless you are extremely lucky. Live your life like you don’t have it. Live below your means and don’t touch that money until retirement. If you do it right, you could retire before you’re 50.
My $0.02. You are about to graduate, you have no idea where you’re going to live, what your job is going to be, etc…. Once you get a job in your given profession you may decide you hate it, or hate your employer. There’s a real chance the housing market could tank when you want to relocate. As someone who sold one house at break even and another at a modest loss to buy a house for $250k less than it cost to build this is a real possibility. When you are in a place that you’re happy with your situation and you know the area well and what you want in a house then it’s time to buy. Another thing you’ll never know until you live in enough places is what you are looking for in a house. There are so many different floor plans and features that you may have took for granted and didn’t realize were important to you until you live in a place without them. Don’t rush into home ownership.
What career path are you looking towards? Any idea where you would live? Are you geographically flexible or are you willing and excited to move around to start a career?
Unpopular opinion, but ask them who manages their money. If they have a finance person just open an account with them and park the money there.
Yeah, there will be advisor fees but being separated from your money like that can be a blessing when things get tough so you don’t blow it all.
You could absolutely manage the money yourself but I think it’s wiser to let someone else manage it until you at least understand money, investments, and more.
First of all, congrats on seemingly being a level headed 23 year old, who is not going to blow the money on pointless things like fancy cars, designer clothes, consumer electronics etc. Investing is a very personal thing that you have to work out yourself. You will get a ton of ideas here but none may work for you, or a combination will.
First thing to do is start educating yourself on finance and investing. There is a lot of information out there, you just have to find what suits you, your personality and your belief system. Take 6 months or even a year and educate yourself as much as you can. Then decide what to do…
put it all in an index fund until you are ready to buy a house, it will appreciate in value considerably
honestly just put it in a 1 year gic to think about everything, dont up your lifestyle, maybe buy one grad gift (paid off car maybe). you already know how to live and work for what you have so this should be somthing that can enhance your life in the future
Use some money to max out your retirement accounts. Extra should go either into stocks or HYSA if you don’t have an emergency fund (18 months). You can roll over the money into your retirement accounts later.
You can buy a house but it’ll stick you there and you’d need to rent out if you want the ROI.
If you are sure you want to stay, you could get a house but you will need stable income and you’d be paying property taxes as well… I’d probably look at something cheaper that you can renovate, and then use the rest towards retirement, stocks and a larger emergency fund.
300k in index funds. 100k towards down payment real estate if you live in a state where real state moves fast and easy so you can sell if you have to and not lose. Otherwise I would just invest all of it.
Retire early and enjoy life. Thats what I would do.
300k of it invested for 30 years at 6% annually nets you 1,700,000. That’s without adding another penny over that duration. That’s at 53. It would be worth 3 million if you waited until you’re 63.
The large transfer from your grandparents to you is taxable. It’s a wonderful idea but you and they will lose a big chunk to Uncle Sam (assuming you are in the US). Get your grandparents to speak with an attorney to set up a trust that names you as the trustee. In the US, in 2024, each grandparent may give up to $18,000 to a grandchild this year without tax implications for anyone. So they can give you $36K this year. The money in the trust should be invested and it can continue growing. The trust can gift you the maximum each year. Upon their passing, you can inherit the remaining money in the trust without worrying about federal taxes.
If you put it into the S&P 500 until retirement (42yrs from now for you) at an average of 10% per year it will be worth around $21 million. Even if you get a shitty 6% return it’s $4.6 million. Just put it all in and don’t worry about it. You’ll never have to invest again either which gives you more money to spend each month on whatever you want until then.
Don’t buy a car – hold off as long as possible.
If you must have one – buy a second hand Corolla or Civic.
as someone who deeply regrets not investing younger. i highly recommend investing at least half of it in index funds.
Wait for a while. It’s super easy to waste money when you get it (e.g., there are lots of broke lottery winners). Here’s what you should do:
1. Put the money in two different high-yield savings accounts (FDIC insurance covers up to 250K per account).
2. Open a traditional IRA at one of the big 3 (Fidelity, Vanguard, Schwab) and deposit $7,000.
3. Wait for a while before making any other decisions.
4. Teach yourself about investing, taxes, and retirement planning.
5. Wait a bit longer. There’s no need to rush.
6. Now start doing stuff. Most likely best conservative strategy will be: max out your IRA every year and invest in index funds or T-bills with the rest. You have enough to be conservative, no need to try anything risky.
Congratulations, as long as you stay conservative your life is set. If you try to make more, then you’re risking the amazing position you’re in. As others have said, buying a house right away is probably not a great idea (especially in this weird market) until you know for sure where you want to live for decades.
I’m also 23. If I was in your shoes…
$100K in a HYSA. Overkill? Probably.
$275K index fund
$25K individual stocks, only if you’re somewhat educated on the market and are willing to “gamble” a little bit. This can go to index funds if you don’t wanna do individual stocks
When you’re settled down in a few years, you’ll have more than enough for a down payment on a house (keep adding to that HYSA from your regular income) and you’ll have a head start on investing.
Max out your Roth IRA, I’d also max out 401K depending on your income but you have plenty of money to spare. Keep taking money from your checks and saving/investing
You’re coming out with a huge cushion
Invest the money, further your education, buy a vacation trip, just use it or lose it, invest it or spend it
Wish I had this persons problems
Don’t buy a super expensive house right now.
Before you get the money, you need a plan for what to do with it.
This amount of money should quickly grow into an amount that would be enough to live modesty on for the rest of your life.
Wow absolutely wild. 23 and living life on EASY mode. 20k in a HYSA and the rest in an index
Buy a house outright. Get a job, invest your earnings. You will always have a place to live that’s yours whatever life throws at you. Source: late 40’s no house, 3 kids, renting due to not taking multiple opportunities to buy a house.
Son please listen to me.
Take the money they’re going to give you and put it into a CD at 5.5%.
427 a week in interest keep it spend the interest you will have this money for life.
Don’t spend the principal ever.
Passive income is victory.
I’d encourage you to look at a revocable trust, and to use that as your investment/ asset purchasing money. Having it as a family trust makes it easier to keep it separate when you look at marriage. You can write the prenup to exclude the trust from marital assets,including any house that you want to purchase with the money in the trust. Keep working, $400k isn’t enough to retire on, but if you invest it and protect it legally, you might be able to retire by 45 or so.
Keep it as a liquid assets mostly. Looming correction coming soon in next year or so.
Just park it in high yields now. Waiting for the next crash and then phase in
So you want to determine your priorities. My guess is House, Retirement, and lifestyle are your key ones.
Knowing you likely want a house, I’d be sure to put some money aside for at least a down payment, but I wouldn’t suggest you make your house buying decisions around the money. Realistically, you’re better off renting until you are ready for home ownership. If you are moving, not married, or can’t afford to maintain a house yet, you’re better off to rent. Fees and taxes on house sales can eat away at that nest egg substantially. Additionally, you may prefer a starter home which could be substantially cheaper.
So with that in mind, you’ll want to focus on wealth preservation as part of your approach. Don’t do single stocks or even exclusively growth ETF’s . But since you are waiting for what could be a number of years, you do still want growth. You can get that with some mutual funds, GIC’s, bonds, HISA’s, and a moderate portion of stocks. Anything un-needed for the house can be converted into retirement fund savings down the road.
Income funds and dividends are also useful. Often fresh out of graduation, you may be wishing you earned a bit more or wanting of vacations. You may want to take some of the earnings each year and use those to supplement your lifestyle as a way to enjoy this gift without using it up. 4% on 400k is 16k per year. Enough to make a major difference.
In general, I’d suggest keeping it around, using as much as needed, and growing that money so that you always have options and can benefit from it for many years. I’d strongly suggest not blowing it all or using it to pay for things like rent or depreciating assets like cars. Use your earned income for those things.
Cheers and good luck
Congrats on the big news! First off, that’s amazing that you managed to get through uni without any debt. Since you live in a LCOL area, buying a house could be a solid move, especially since it sounds like you have a stable financial foundation already. Owning a home would eliminate rent payments and give you equity but it also locks you down into the area. Maybe putting a downpayment on something you can afford the monthly on can help build equity into a tangible asset. And the rest can be invested into a roboadvisor stock portfolio with a little bit of the remainder being used to celebrate!
Before or after inheritance tax???