Comments on: Money Question: What Would you do with a Windfall?

By: What To Do With A $50,000 Windfall?

What To Do With A $50,000 Windfall? — Fri, 14 Nov 2008 05:16:58 +0000

[...] last week Lazy Man at Lazy Man and Money brought it to a group of bloggers as the question for the weekly Money Question series (here are Part II, Part III, and Part IV). The exact question look like this: Where is the single [...]

By: sJ

sJ — Mon, 04 Jun 2007 21:41:33 +0000

Depends on the level of risk you are willing to take.

Private equity investment will give you high rewards. Or say being a venture capitalist/angel investor on a smaller scale. There are alot of excellent business ideas that need private funding.

Real estate is your next bet. International REITs are hot hot !!

If all of these dont look attractive, buy GOLD. You will be more than happy in 10 yrs for sure.

By: Steve Austin

Steve Austin — Sun, 03 Jun 2007 20:19:35 +0000

6% per year, presumably every year. That’s quite a hurdle. Is that a compounding requirement, or if in an investment that throws off cash dividends or payments can the cash be pocketed without being subject itself to the 6% requirement going forward?

Most of the plays (starting a business, currencies, ETFs, etc.) given would most certainly be losers, i.e. fail to meet the 6% annual ROI, at some point within the next 10 or so years.

I’d be looking for something with very low volatility, like the rental property play already mentioned. Not sure where I’d look, but probably outside the housing bubble world (UK, US, Australia, et. al.)

How exactly would the 6% be adjudicated? Once a year, on the year? Presumably the original money is USD 50k. Would the measurement be in USD each year as well, which would affect extra-US investments? How would real estate be measured, just on net rental income, or would assessed or appraised value matter? E.g. if I bought a $50k residential rental property in the non-coastal US and housing values fell (but I didn’t sell), would I lose the windfall even if the property still returned at least net $3000 that year (6% on original money)? I think something stable like residential rent is the way to go with these kinds of conditions on the money. Metals, currencies, stocks, even bonds are too volatile to risk the windfall. Even then, I’d want to build in a margin of safety, probably 8% net rental ROI, to account for rental risk (vacancies, falling neighborhood rents, destructive tenant(s), etc.)

So anyone have any $50k properties that yield $4k net in rental annually? ;-)

I’d also like to note that higher inflation would make the 6% a bit easier, lower inflation would make it a lot harder.

By: Lazy Man

Lazy Man — Sun, 03 Jun 2007 06:14:44 +0000

Sorry Stock Rake, the Brewster’s Millions’ clause would prevent you from trading it. Just one investment is allowed… buy and hold.

By: Stock Rake

Stock Rake — Sun, 03 Jun 2007 05:32:08 +0000

I would let me trade it.

By: Lazy Man

Lazy Man — Fri, 01 Jun 2007 20:06:10 +0000

Touche, but I judge it to be worth $45 and now selling at $50 and $51, etc…

It’s not just the Dow, it’s the S&P 500. With it getting more expensive and the dollar getting less valuable, I’m not sure I’d make the 6% per year gain required for this exercise.

By: Wylie

Wylie — Fri, 01 Jun 2007 18:18:53 +0000

Just because the DOW is hitting new highs does not mean it is expensive. If a thing is worth $100 but costs $50 and then costs $51 the next day and $52 the next, etc, it is not really ‘expensive’ until it costs $100 or more.

By: Corvidae

Corvidae — Fri, 01 Jun 2007 16:21:03 +0000

Assuming it arrived in US dollars and I don’t need it for 10 years, I’d throw it into Euro bonds. Between interest on the bonds and the currency exchange you should hit about 12-15% interest in the first year, probably slowing down to 7-8% within 3 years. After that the dollar should (hopefully) start returning along with the US real-estate market. Start cleaning up the foreclosed house market.

By: daniel

daniel — Fri, 01 Jun 2007 01:47:13 +0000

In real life, I’d invest the whole 50k in tax efficient, broad market index ETFs.

Then I would adjust my holdings in my tax deferred accounts to maintain my overall asset allocation targets. However, when you throw in the unreal stipulations 1 and 2, I have to think twice about putting it all in stocks as I am not as confident about the future of equities as most people.

Given those stipulations, I would go with either the Powershares currency harvest fund (DBV) or the Central Fund of Canada (CEF) gold/silver fund. I believe there is high probability that both those funds, which I currently hold in tax deferred accounts, will do well over the next decade.

By: RateLadder.com

RateLadder.com — Fri, 01 Jun 2007 00:22:54 +0000

If you don’t earn 6% you lose it all… Or you can take the wimp clause.

The wimp clause pays you 1% annually and you can NEVER have a dime of the principal. (sticking to the movie would mean the investment broker got to keep the rest of the rate of return.)

By: broknowrchlatr

broknowrchlatr — Thu, 31 May 2007 17:29:35 +0000

I’d go boring and put it all in an index fund wiht a low turnover. My T.RowePrice 2040 fund (TRRDX) is great, but the high turnover would hurt my taxes. I don’t know enought about rentals, real estate, or foreign marckets to do those. I would not be a good businessman. Indexes are safe and easy.

By: RateLadder.com

RateLadder.com — Thu, 31 May 2007 16:50:09 +0000

Dare I say Prosper? Over what time frame is the 6% requirement?
IE is short term capital preservation the main goal? Not if you are allowing the answer “starting a business”.
So I think Prosper makes 6%.

By: Foobarista

Foobarista — Thu, 31 May 2007 16:09:18 +0000

I’d probably invest in real estate, but in the middle of the country where prices aren’t quite as out of control as they are on the coasts. A good rule-of-thumb: start with cities in the Midwest that have solid immigration, a low average age in the population, and are fairly well built-out so your holding isn’t competing with a lot of new construction. “Bread and Butter” working-class properties tend to be better cash-producers than new construction, although they may require more maintenance and be somewhat harder to sell.

If not that, I’d put another $50K into a commercial loan fund partnership we’re in that has paid 10-11%/year for the seven years we’ve been in it.

By: Kevin

Kevin — Thu, 31 May 2007 14:56:39 +0000

Currently, I’m pretty bullish on Europe. The market is bigger than the US (around 500 million people in the European Union), the Euro is (I think) a better currency than the dollar due to the high levels of US debt, and European infrastructure makes it more resilient in the face of mounting oil costs. It’s not growing like some Pac Rim areas, but I don’t think it has the potential of a bubble burst either.

So — I’d go with an EFT tracking the European markets. It gets you out of dollars, but lets you stay in equities.

By: Joseph Sangl

Joseph Sangl — Thu, 31 May 2007 14:43:07 +0000

I would invest in real estate – particularly rentals – and hold them for the long term.

With $50K, I might consider buying a small apartment complex.