Tuesday, June 16, 2015

My Inheritance

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My parents were financially successful.  They had some good luck and they made some good luck, and in the end were able to not only have a comfortable old age but were able to leave a substantial inheritance to their five children. While it is more money that I have ever gotten in one transaction, it will not be enough, in and of itself, to support us in our old age.  So, what did we do with all that money?

My 401(k): 
I got the first installment of my inheritance in June, and it was close to six months of take-home pay for me.  At the end of June we are allowed to change our 401(k) contributions and I changed mine to eliminate take-home pay, so in essence, that first installment of my inheritance went into my 401(k).  I was able to live off my non-taxable inheritance, and turn my paycheck into tax-deferred retirement money.

Marketplace Lending:
When the big check came in February, I put about 10% of it in marketplace or peer-to-peer lending, split between Lending Club and Prosper.  I have been investing with Lending Club for almost eight months now and I've been very happy with the returns.  Using XIRR, which is generally considered to be the most accurate way of computing returns with this investment, my returns are over eight percent.  One thing that can be an advantage or disadvantage to this investment is that it turns over a substantial amount of money ever month.  Looking at a random loan in my portfolio, I see that it has a monthly payment of $.62 on a $25 investment.  The first couple of months, $.36 is interest and $.26 is return of principle, so don't confuse payout with return, but the fact of the matter is that between my accounts at Lending Club and Prosper, if I choose not to reinvest my returns, I can withdraw close to my entire paycheck per month until some of the loans start to be paid off.  While it is not the instant liquidity of a bank account, it gives me access to some of my money without having to put assets up for sale--but if I do want to sell and cash out early, there is a secondary market for the loans. Depending on the costs of our other goals, we may add more money to this asset class.

Motif: 
I've always wanted to invest directly in the stock market, to pick my own stocks and to watch them (hopefully) grow and make me money.  My husband and I bought stock in Novellus quite a few years ago, watched it almost triple in price, and then we sold it when it had dropped to twice what we paid for it.  If only...  Honestly, I know mutual fund managers get paid big bucks to pick winners and few do better than the market as a whole.  That's why I can't justify the costs or risks of putting a lot of money into individual stocks.  However, there is a new player in the industry, Motif Investments.  Using a web interface, clients selected a basket of up to thirty stocks to purchase at one time.  You can pick a basket (Motif) that they designed, one that a fellow investor designed or one that you design yourself.  There is one $9.95 charge to purchase as much of the motif as you want. While this is an investment on which I hope to earn money, at this time I am only investing about $5,000 and I'm considering it to be a toy.  If I'm really successful, I may reconsider.  I haven't picked anything to buy yet.

Roth IRA:
Our Roth IRAs are with Vanguard and we maxed them out for 2014 and plan to use the inheritance to max them out in 2015 and 2016.  Right now, all the money is in their 500 Index Fund.   We are probably going to move future contributions to a dividend-centric index fund.

Home Renovations:
Our house is forty years old.  We've lived here for twenty and raised 2.5 kids (one is ten years old).  While we renovated the kitchen fifteen years ago, the rest of the house needs new floors, new paint and general freshening.  We plan to renovate both bathrooms with new tub surrounds, new vanities and new floors.  Hopefully the budget I have in mind will work; if not, we'll need to make some choices.

With Our Financial Advisor, In a Taxable Account:
As mentioned in other post, our financial advisor has us in a portfolio of many mutual funds.  We bought them all at one time, and since that time the market has gone down and not returned to that point.  We realize that part of the reason our 401(k)s look good next to these accounts is because funds are added regularly.  Therefore, we are going to invest about ten percent of the inheritance with our advisor, in two or three different chunks.  Hopefully it works for us.  

Bank Account:
We know we are looking at getting my daughter a car (used) when she graduates from college unless she does as she has said she wants to, and moves to New York City.  We know my husband is driving an old car.  We know my youngest will likely end up in a Catholic high school where tuition is approaching $10,000 per year.  We are going to keep the rest of my inheritance in the bank to help us  handle these expenses when they get here.

What did you do with your inheritance?


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