‘If I say the sky is blue, she’ll tell me it’s green’: My daughter, 19, will inherit $800,000 How can she invest in her own future?

I know she would like to have some money to live on for the next year or two, but other than that, I don’t have any concrete plans.

worried mom

Related: I asked my elderly father to give up his rights to the house so I could refinance. And she received a pension of 200,000 dollars for me and her sister. Is this a good idea?

Dear everyone who is worried,

This is a lot of money. It should and shouldn’t change her life. Let me explain.

If your daughter can buy a property for $300,000 and pay off a $100,000 mortgage when she gets her first job, or even live mortgage-free with just property taxes and maintenance costs, that would be a great first step toward finance. Independent.

She will be the envy of her peer group (more on that later). Most people work for years to escape the rental trap and get their foot on the property ladder. Her home will increase in value, allowing her to live financially freely.

With the help of an advisor who is also a trustee, she can plan her education and use this windfall as a way to make sure there’s a limit to even $800,000, rather than just spending it. Budgeting and planning can be a lot of fun and can even help you avoid going into debt.

Now is not the time to invest in cars, clothes or vacations. Not only will such purchases deplete her accounts faster than she can imagine, but they could also lead to lifelong bad habits for her. This is especially true when one month’s extravagant spending habits turn into a decade. .

It’s also not a good idea for her to use this money in a way that separates her from her peer group. Bragging about this heritage will only serve to sow resentment and jealousy among her friends and her acquaintances and will likely set off years of conversations starting with “It’s okay with you.”

Few people want to be friends with someone who flaunts their wealth, celebrates how well they have done, and assumes that others are following the lifestyle they have become accustomed to. Unchecked spending can deplete not only your bank account, but also your capacity for empathy.

That’s right. Leisure is important. After all, we are here to enjoy life. With expert advice, she can secure income for activities such as travel, tennis and ski lessons. These activities improve her quality of life and allow her to have moderate fun with her friends rather than living a five-star lifestyle.

She feels empowered by expert advice and should feel excited rather than scared. With so much money at her disposal, planning her future will be more exciting than planning her college graduation or her birthday party. compensation? Financial independence and peace of mind.

Stocks, CDs, and Roth IRAs

Yields on CDs have increased over the past few years, and rates for jumbo CDs between three and seven years, requiring a minimum deposit of $100,000, are now in the range of 4% or more. If she doesn’t touch it, that’s not a bad return.

A certificate of deposit is essentially a temporary savings account. Interest earned on CDs must be reported as taxable income to the Internal Revenue Service unless the money is stored in a tax-advantaged account, such as an IRA CD.

She could invest $50,000 in the stock market, preferably in stocks of companies with higher returns on equity, lower leverage, and more consistent return profiles. This can help her learn about compound interest, i.e. how to make money from her initial investments and the returns on those investments.

Avoid individual stocks and opt for mutual funds or exchange-traded funds. Studies show that young people become more risk-averse and less confident as the years go by. However, remember that investors tend to react more strongly to unfavorable events than to positive events.

Especially when you start working, it’s a perfect time to take advantage of your relatively low income and contribute to a Roth IRA, which is typically made with after-tax dollars. A gift of savings for retirement could be worth much more than this $800,000.

The sad truth is that there is no magic $800,000 strategy that will make your daughter happy or free her from a lifetime of worry. She will still have to study hard, work for her dream job, and fight for her place in the world like everyone else. But this money is a very good start.

And once she starts her career in earnest, she will have more options to choose a job she likes. The job will compensate her fairly and generously and allow her to contribute to her 401(k) through her employer match.

Considering that many young people grew up during the Great Depression and saw what their parents went through, they may naturally tend to be more cautious and risk-averse with their investments. But the earlier you start, the longer you’ll have to go through all those slingshots and arrows.

The slow and steady approach is a win-win. $800,000 + time = happy outcome.

If you have any financial or ethical questions, you can email The Moneyist at qfottrell@marketwatch.com and you can follow Quentin Fottrell on X, a platform previously known as Twitter.

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