A friend came into some money...

[creekfreek24]

...and I'd like to give him some advice. I am not that qualified but I figured some of you guys are so here goes the story. I'll try to keep it short.

He's 23 years old and he just lost his father. He is the eldest of 3 kids, a brother and sister. His dad was divorced so from what I understand of the situation, the three siblings are splitting the life insurance payout and the proceeds from selling the home that the father owned. I haven't really gone into details with him about it, have gotten most of what I know from our mutual friend.

I'm pretty sure he has around 60k to 90k in his bank account right now. He's never really had a real full time job and I'm really afraid that he's gonna piss it all away in 2 years tops. He already has plans to tour Europe this summer and is spending money like it's going out of style.

So what advice should I give this young lad? I was thinking about starting up a Roth IRA with the max amount which I believe is 5k and then trying to tell him to get a job to keep throwing money into it. Any specifics on the Roth IRA would be great. Also advising him to put some of the money into CD's maybe do some CD laddering...or Emigrant Direct's account has a 2.75 apy right now. A money market account? Maybe some loaning on Prosper.com?

Basically, what would you do with the money if you were him?

Should he be hiring someone to help him invest this money? I'm just scared it's going to be all gone with nothing for him to show for it in several years.

Any advice is appreciated. Sorry for the loooong post!

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[mgdsh]

...and I'd like to give him some advice. I am not that qualified but I figured some of you guys are so here goes the story. I'll try to keep it short.

He's 23 years old and he just lost his father. He is the eldest of 3 kids, a brother and sister. His dad was divorced so from what I understand of the situation, the three siblings are splitting the life insurance payout and the proceeds from selling the home that the father owned. I haven't really gone into details with him about it, have gotten most of what I know from our mutual friend.

I'm pretty sure he has around 60k to 90k in his bank account right now. He's never really had a real full time job and I'm really afraid that he's gonna piss it all away in 2 years tops. He already has plans to tour Europe this summer and is spending money like it's going out of style.

So what advice should I give this young lad? I was thinking about starting up a Roth IRA with the max amount which I believe is 5k and then trying to tell him to get a job to keep throwing money into it. Any specifics on the Roth IRA would be great. Also advising him to put some of the money into CD's maybe do some CD laddering...or Emigrant Direct's account has a 2.75 apy right now. A money market account? Maybe some loaning on Prosper.com?

Basically, what would you do with the money if you were him?

Should he be hiring someone to help him invest this money? I'm just scared it's going to be all gone with nothing for him to show for it in several years.

Any advice is appreciated. Sorry for the loooong post!

I can't really tell him where to stick his money. I don't know what his personality is like and what kind of investments he'd stick with.

I can say though, that the best advice anyone can give him is to make a plan and a budget for the money that he's getting. He definitely should invest as much of it has he can, and even if that means maxing out a roth ira and throwing the rest into a taxable investment account or into some money management services.

I'd also have a serious talk with him if you really think he's just going to blow it all. Asking him what his father would have wanted him to with the money should get the point across. If that doesn't, you can always ask him why his father worked so hard his entire life to leave his kids some money behind.

Maybe even sit down with all 3 siblings at once, or have them all sit down with each other if you think they are up to the task.

 

[Terpskins99]

He's 23 years old and he just lost his father. He is the eldest of 3 kids, a brother and sister. His dad was divorced so from what I understand of the situation, the three siblings are splitting the life insurance payout and the proceeds from selling the home that the father owned. I haven't really gone into details with him about it, have gotten most of what I know from our mutual friend.

I'm pretty sure he has around 60k to 90k in his bank account right now. He's never really had a real full time job and I'm really afraid that he's gonna piss it all away in 2 years tops. He already has plans to tour Europe this summer and is spending money like it's going out of style.

So what advice should I give this young lad? I was thinking about starting up a Roth IRA with the max amount which I believe is 5k and then trying to tell him to get a job to keep throwing money into it. Any specifics on the Roth IRA would be great. Also advising him to put some of the money into CD's maybe do some CD laddering...or Emigrant Direct's account has a 2.75 apy right now. A money market account? Maybe some loaning on Prosper.com?

Basically, what would you do with the money if you were him?

Should he be hiring someone to help him invest this money? I'm just scared it's going to be all gone with nothing for him to show for it in several years.

Any advice is appreciated. Sorry for the loooong post!

I think its great that you're doing this for your friend. Hopefully, he'll be able to keep things together just enough so he can stabilize his financial situation. I can only imagine how vulnerable he is to potentially losing it all.

Does he have a job now? You can only contribute earned income into an IRA, so he needs to make sure that he's worked enough (or eventually will) to have made at least the $5,000 he intends to contribute for this year.

As for the rest, I personally recommend investing through no-load index funds (Vanguard, in particular). They're easy to monitor and have miniscule fee's/tax liability. The mymoneyblog.com guy has a pretty nice portfolio based around index funds.

Does your friend need to take care of his brother and sister as well?

 

[The White Coat Investor]

I know of two investment books with a chapters titled "How to manage a windfall." While $90K isn't a huge windfall, it probably is for him. Those books are:

The Boglehead's Guide to Investing and
The Only Investment Guide You'll Ever Need by Andrew Tobias

Maybe you could copy those chapters for him and give them to him. Neither of them would take longer than 5 minutes to read.

 

[creekfreek24]

Does your friend need to take care of his brother and sister as well?

No not really.

Thanks for those chapter references.

Thank you terp for the info on the roth. He really needs to get a job is the problem. I think a roth IRA is a good idea and i'm going to look into "no-load index funds" and try and hunt down those chapters.

Thanks again.

 

[Tenesma]

at his age it is probably best to sink the money into something that isn't very liquid

Roth IRA is a good start

he could also put it as a down-payment on a home... or a down-payment on a rental home/condo/apt for college students - that will hopefully generate income in the future.

 

[cdgee]

he's really lucky to have a friend like you. other people would be thinking of ways to get money off him!

 

[mmcnam]

charles schwab's rates on cd's are the highest i've seen. i have my roth ira with them too, but i haven't done anything with it because i have enough on my plate trying to start med school in two weeks.