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Author Topic: What to do with large sum of money?  (Read 3873 times)
hegemony
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« Reply #15 on: December 05, 2012, 1:50:38 AM »

I personally wouldn't risk those funds on the stock market, even in mutual funds.  In my book, the stock market is a longterm investment for money that you're not going to need at any specific time.  So you won't be forced to sell at some point when prices have plummeted. 

Note that you can sell your rented house even if it has a tenant -- you sell it to someone who also wants to rent it. The tenant just stays put.  In fact a sitting reliable tenant may well make the house a more attractive investment for someone. 

I would set aside some of the money as an emergency fund and use the rest to pay down the student loans.  That's equivalent to a guaranteed 3.625% interest rate tax free.  Now, maybe you were planning to renege on the student loans.  You don't say how much they are.  If you were truly going to go for the "forgiveness" option, maybe paying them off is a bad idea.  How big are they exactly?  Assuming we're not talking about $100,000, I'd go for just getting rid of them.

If you were to pay down the mortgage, I wouldn't increase the loan payments -- just put a lump sum toward the principal.  You might as well get the biggest bang for your buck, and you'd save more interest in paying down a big chunk up front.
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pedanterast
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« Reply #16 on: December 05, 2012, 2:59:54 AM »


I would set aside some of the money as an emergency fund and use the rest to pay down the student loans.  That's equivalent to a guaranteed 3.625% interest rate tax free

Not if the OP has modified adjust gross income of less than 60,000-75,000 if single and 120,000 to 150,000 if married (those are 2011 numbers so slightly higher going forward.  Then the interest is fully or partially tax deductible and you are back to 3.625% taxable equivalent.  I don't like paying off student loans because they are very flexible due to the deferment provisions and of the two, would pay down the mortgage.  You can't skip 36 months of mortgage payments if you lose your job.
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aristotelian
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« Reply #17 on: December 05, 2012, 4:32:23 PM »

Listen to your wife. There is no investment that will return 4% guaranteed. Your mortgage has the higher interest rate, so pay it down first over student loans. The only other thing to consider would be to keep it in a regular savings account for emergency use.
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pedanterast
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« Reply #18 on: December 06, 2012, 12:45:05 PM »

The Vanguard high-yield corporate bond fund is currently closed to new investors.

You are right and there is no corresponding ETF for this one.  I stand corrected.
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ruralguy
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« Reply #19 on: December 06, 2012, 5:40:58 PM »

I vote for paying off the loan, for reasons stated above regarding relative interest. If you have low or no emergency fund, then
maybe save some of it for that, but the majority should go to the loan.
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pigou
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« Reply #20 on: December 06, 2012, 8:33:08 PM »

I am against paying down the mortgage more than necessary (even if it has the higher interest rate), especially when we may still take a loss on it.  But my spouse says I shouldn't bring emotions into finances.
Your spouse is right. Unless selling the house at a loss would lead to you filing for bankruptcy, you'd just end up owing less money after the sale. So you should throw the money at the highest interest debt, which currently is your house. (Assuming no credit card debt - otherwise the money should go toward that.)
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spork
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« Reply #21 on: December 06, 2012, 8:58:45 PM »

You haven't said how much you are upside down on the house or how much your student loans are.

If you have zero savings, and no credit card debt, I would set aside the whole $15K as an emergency fund. If your car and the furnace in your rental property die at the same time, that's $15K.

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pedanterast
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« Reply #22 on: December 07, 2012, 12:28:38 PM »

Spork makes a good point.  My responses assumed the OP had an emergency fund, no credit card debt, etc.  That certainly violates the "never assume anything" rule I ordinarily try to follow.
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