Hypothetical

xmacro

A few buddies were sitting around (drunk on Stone Ruination IPA, if you must know), and we got to talking and an interesting hypothetical was raised - what would you do if you had a $500,000 windfall?

Answers ranged from open a Denny's franchise (voted most lame), to invest it and grow it (plausible), to "wait 5 years, then blow it all on hookers and blow" (voted most exciting, but dumbest; was forced to smoke a White Owl as repentance). Would like to hear (serious) thoughts on this - what would you do with $500,000?

blurr

I have to ask the dumb question as I've had a few drinks. If you can't touch it for 5 years, how can you invest it and grow it? Can't touch it means it sits in a bank and stays at 500k, choice is what do you do with it when the 5 years ends and you have access to it? So its the same as saying what do you do with a windfall of 500 thousand dollars. Well I invest half, in stocks and I play my hand at that which I'm fairly good at. The other half I play with... Play hard.

[Deleted User]

I would pay off my house and buy a second house for rental income.

jgibv

EDIT:
I would first pay off all outstanding debts; which, would be both my wife's and my student loans, mortgage, and both of our car loans.

So let's say that takes up half of the 500k; then the question becomes what to do with 250k?

Invest it and grow it? (Probably)
Open a business? (Maybe, but not right away)
Donate it to charity or start a non-profit? (Maybe, but again not right away)
Spend it on something useful? (Hmm ... other than a couple "upgrades" to the house, I don't need much else)
Blow it on cigars, booze, and a sailboat? (Very tempting)


Now if all our debts are paid off then our cost of living immediately goes down.
And the only monthly bills then would be utilities, groceries, durable goods, etc. In that case let's ignore the 250k for a minute and the new question becomes:
What would I do if my monthly expenses got cut in half and I was debt free?

Answer: I'd cut back my work schedule significantly, and work my current job only 1 or 2 days a week at most.
And as much as I'd love to sit around and do nothing the rest of the week, I know I'd get bored so on the other 3 or 4 "work" days I'd either get a job at a cigar shop (to learn the business in anticipation of opening my own in the future) or I'd go back to school and continue my education.
I might even consider doing both.
But I still need to answer the original question, since I have 250k left over....

What to do, what to do?
Invest it.
I'd put part of it in a long-term, low-risk plan geared towards "retirement".
I'd take the rest and either invest it in a riskier but higher reward option (stocks? currencies?) ... or I'd look around for a good rental property and use the remaining money as a down payment; I'd try to find a sturdy residential home somewhere near a college campus for the almost guaranteed stream of renters.

xmacro

blurr:

I have to ask the dumb question as I've had a few drinks. If you can't touch it for 5 years, how can you invest it and grow it? Can't touch it means it sits in a bank and stays at 500k, choice is what do you do with it when the 5 years ends and you have access to it? So its the same as saying what do you do with a windfall of 500 thousand dollars. Well I invest half, in stocks and I play my hand at that which I'm fairly good at. The other half I play with... Play hard.

You're right, the precondition didn't make much sense (now that I'm a bit more sober, I think my buddies and me mostly ignored the 5 year wait limit as well), so I removed it - it's now a $500,000 windfall

beatnic

Don't start dreaming too big. After taxes (38% because of your new tax bracket), you start with approximately 310,000. And if you have a state income tax, count off another 5%-10%.

Pay off the house, invest some for retirement, and live well!.

Martel

No more student loans. That's 60k. Buy two new cars, maybe another 60-70k (I want a truck and a hybrid to make me feel better about the truck). Put some in a car repair and maintenance fund for those cars. Make a huge downpayment on a house or just buy one outright. After I find a job. The rest gets invested.

mfotis

I would invest all of it most likely. Paying off debt is important so don’t get me wrong but the money you save isn’t likely going to equal what your gains could be on a good investment or two. And we humans, well Americans anyway like to have and buy things so the odds are when you wipe out your debt you’re likely to have more within a few years.

They say making your first million is the hardest and hell now your half way there. There are still some legit and fairly safe funds / stocks out there that return 10% or higher. I’m not a math wiz but if you invest at 10% and don’t withdraw (means you may not have to pay taxes yet) within 5 years you’ll make $250k. Now this doesn’t account for adding the compounding interest on your returns so it’ll actually be higher and this also assumes you maintain at least a 10% return. And again, I suck at math but after a year or two more, adding in the compounding interest, you’ll have a million. 10% of that is 100k without having to lift a finger. Most ppl can live off 100k a year or you can just let it keep compounding for a few more years and go from there.

Roberto99

500K - TAXES = 280K - BENTLEY = 50K - HOOKERS = $10 - Big Mac Meal = $3 to e-trade

Martel

mfotis:

I would invest all of it most likely. Paying off debt is important so don’t get me wrong but the money you save isn’t likely going to equal what your gains could be on a good investment or two. And we humans, well Americans anyway like to have and buy things so the odds are when you wipe out your debt you’re likely to have more within a few years.

They say making your first million is the hardest and hell now your half way there. There are still some legit and fairly safe funds / stocks out there that return 10% or higher. I’m not a math wiz but if you invest at 10% and don’t withdraw (means you may not have to pay taxes yet) within 5 years you’ll make $250k. Now this doesn’t account for adding the compounding interest on your returns so it’ll actually be higher and this also assumes you maintain at least a 10% return. And again, I suck at math but after a year or two more, adding in the compounding interest, you’ll have a million. 10% of that is 100k without having to lift a finger. Most ppl can live off 100k a year or you can just let it keep compounding for a few more years and go from there.

I hear what you're saying, but...
I have found several jobs I can't accept because they don't pay me enough to work on my student loan debt. I would like to work those jobs, and would be able to if I didn't need to make a $600/month payment. I like working, but want to work at something I like doing and $500k isn't enough to let me retire early. It might be enough to give me flexibility in job selection.

illinoisgolf99

If the $500,000 is after taxes I would pay off our student loan debt, car loans, misc credit card debt etc., and max out our IRA's and 401ks. That leaves about $425,000... I'd take $200,000 and purchase a modest home, another $150,000 would be spent on 2-3 modest rental properties, and the rest would be invested in Agressive Growth mutual funds.

clearlysuspect

We're debt free except for the house. House gets paid off first. I'd go back to school for just a little bit to up my business knowledge but not neccessarily to obtain a degree, then I'd become self-employed. Would love a cigar shop, but I simply wouldn't invest in that because I'm not going to start a business marketing something that only 5% (and dropping) of the population uses, especially when cigar.com is out there already offering phenominal deals and customer service at way less than what I could afford to offer.

That said, I don't really know. But I do know I'd be completely debt free and self-employed!!!