Yesterday, I published part 2 of What Would You Do With a Windfall. If you missed that, it might be worth clicking on that link back there to catch up. What did I ask the bloggers? Simply this:
Where is the single best place to invest a $50K after-tax windfall now? Assume the following: you don’t need the money for at least 10 years, you’ve already max out 401k and Roth IRAs. Pretend that the windfall came under a couple conditions (like Brewster’s Millions)… 1) You can only invest it in one area. 2) If your investment doesn’t make 6% a year you lose it all.
Sun from The Sun’s Financial Diary responded with the following two possibilities:
Right now, I don’t have any big plan (like owning my own business) in my mind, but if I could get a windfall of $50,000 or even $100,000, then I will use the money as part of the down payment to get a bigger house. Now that we have two children, our three-bedroom townhouse is kind of small. Though they can still share a room for a while (we have two daughters), we will have to buy a bigger one at some point and the extra money can definitely help. We’d love to get a single house with basement so the children can have space to play. Also, both my wife and I like to play table tennis a lot. We could setup a table in the basement for ourselves and that’s like dreams come true.
If there’s any money left after we buy the house, I plan to invest it for the future. Actually, I already have a target and that’s Vanguard Total Stock Market Fund (VTI). I don’t mind to invest in a lump sum as it’s almost impossible that the market will be down in the next 20 or 30 years. Thus, if the money is available, making a lump sum investment is the best choice for the long term. Also, since the fund covers the entire US stock market, I will get the maximum diversification with a single fund, which is also very cheap.
Sun, I think you might lose your home, due to the Brewster’s Million’s clause. However, if you can sell it off at the end of 10 years for the 6% a year gain, it could work out – leverage is an amazing thing. As for VTI, I own it and can’t recommend it highly enough. The only problem I have right now, is that I think the stock market (on a whole at least) is over-valued.
Golbguru of Money, Matter, and More Musings has a couple of ideas of his own.
Here are some of a few not-so-concrete thoughts I had since I started working on the question:
Option 1: I would love to use that money to start a *good* restaurant on campus (or very near to campus). A few semesters ago, we (me and some of my classmates) did some ground work (for a class) on what would be required to open a restaurant in our town ~ I would like to see some realization of those ideas. With the kind of numbers we played at the time, we estimated that we would break-even (with respect to the initial capital) in about 3 years ~ and the earning rate will increase more with increasing popularity (and increasing enrollment of new students). Plus, it’s a university town – students are busy – they tend to eat out a lot and that works in our favor.
Option 2: Invest it in energy in a sort of “hedging” manner – gasoline, sun, wind, hydrogen, and nuclear. Like Henry (from Binary Dollar mentions in his answer – the demand for energy is never going to head down – gasoline may be replaced by hydrogen in the time to come – but you will need something to keep those millions of cars running. I don’t know what kind of a returns this will give me…but since it’s an unexpected windfall, I would be willing to take risks with it.
Going from 50K to 100K would definitely make me think more – although I don’t think it will affect my choice much (if it were $1 million, that would certainly make me change my choices). The time factor will also matter a lot – technologies become old and new ones attract more attention – accordingly, I wouldn’t want to stay rigid on the energy investment options. I would stay in the broad “energy” field, but my options would depend on what’s hot at the time. With the restaurant, it doesn’t matter if the time frame is 10 years or 50 years – if it’s a good restaurant, it will be etched on people stomachs for ever. :)
The restaurant idea is pretty interesting. There are a lot of restaurants out there, so I’ve always discounted the idea. I figured the competition is too high and the audience is limited (by geography). The other side of the coin is that there are so many restaurants, they must be doing something right – right? As for the energy, I like the idea overall, but I’m glad you are willing to take some risks with it. That was the spirit of the exercise. I should have probably asked for more than 6%, but I didn’t want to limit too much and I wanted to eliminate the high interest savings accounts.
Let me know in the comments, what would you invest in? Can you guess what I would invest in? I’ll give a hint, it’s not Prosper (at least under these restrictions). Expect my answer later today… or Saturday.