Both of my parents were killed in an auto accident about 4 months ago. I am an only child and will be inheriting a lot of money (to me anyway) after both my parents and my own personal debt is cleared. The estate should be closed in another couple months. I have been gaining financial education by fool.com and have read a couple of books such as richdad poordads guide to investing. I am 26 and am still going to school and work fulltime. I would like to quit work and go to school fulltime. I will need to do this for about 3 years in order to get my degree in mechanical engineering. I could graduate sooner but want to spend more time wiht family. However my wife is a fulltime mom and I will need to have $3000 of liquid cash every month to meet my living needs/wants. My goal is that $4500 of interest accumulates a month leaving 1/3 for taxes. If I can do this there will be no rush to get a job and I could practically retire. Right now I have a little over half sitting in two MMA accounts at different banks, one gaining 4.5% and the other gaining 4.9%. I recently found out that there is another bank that I am also with that will go as high as 5.6%. That number is likely to go up as well, possibly up to 6%. This bank is supposedly guaranteed to have the highest rate on MMA's. However, the account is FDIC insured for only $100,000. I am looking for other low risk methods of investing. Is investing in an S&P500 index fund considered conservative. Does this seem practical? Should I pay off the house? Approximately how much money would I need to meet these goals?Anybodys response/suggestions would be greatly appreciated.Phoenix, Az
I can't answer the question in the subject, but...If you split up your money among multiple banks, you're insured at each bank for $100,000. If your wife establishes an account there then up to $100,000 of the money deposited under her name is insured.The website www.bankrate.com lists all the Money Market Deposit Accounts in the country and ranks them by APY. You want "Jumbo MMA" since you have substantial assets.Don't forget that due to inflation the purchasing power of your cash is continually dropping. Cash is not an effective long-term savings vehicle.The Federal Reserve is cutting interest rates and most banks are rushing to lower the rate they pay depositors. I doubt you'll be able to find any bank paying 6%.I'll defer answering your "considered", "practical", "should" questions.
Only you can answer the ultimate question or retirement, house, etc, but here's some helping info.Banks are limited to 100k on FDIC. However, brokerage houses with money market mutual funds (say Fidelity or Vanguard for example) are not. They are self insured and thus will guarantee a higher account limit. The risk you run is that the brokerage house or insurance company goes bankrupt.To through off 4.5k/month from interest alone, you'd need to have around $1.1 million invested with a return of 5%. That's a cold hard fact. The only way to change that number is adjust your living needs/wants. Since this is money needed over the next 3 years (i.e. less than 5) investing in stocks is very impractical. Imagine having started this scenario one year ago and having placed some in an S&P index (or any other stocks). That money is now at best cut by one third, good bye dream (or at least a serious portion).JLC
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