My father passed away last week. I am not yet sure how much his life insurance is, it will be anywhere between 100k and 250k, which I know is a big range. Either way, I am having a bit of anxiety as to what the best way to go about investing this money would be. What is the best thing to do when running into an unexpected windfall like this?

Summary of our finances:

  • 125k income + ~30k from wife
  • Mortgage 155k house worth 175k
  • Two cars, one paid for other brand new owe 40k on it
  • No credit card debt
  • Contributing 6% to 401k which is what my company matches. About 30k balance.
  • About 20k in savings
  • There is no other family or estate issues to consider here? Just the insurance check, really?
    – JB King
    Commented Aug 12, 2014 at 2:12
  • Not really it all seems to be pretty straight forward. If anything I'll be getting another 20k or so once that all gets sorted out.
    – John Smith
    Commented Aug 12, 2014 at 2:21
  • what rate is the car loan at? What are the expenses on your 401(k) options? Commented Aug 12, 2014 at 2:24
  • The car is at 2.99. I'm not sure about the 401k really, its with Fidelity and the options are pretty limited I just have it set to the 2055 retirement plan.
    – John Smith
    Commented Aug 12, 2014 at 2:28
  • 1
    The first thing to do is put it someplace where it's a bit hard to get at. Not in your regular checking account, not in a savings account if you can make online transfers to checking. If it's too easy to spend, some of it will slowly disappear while you're figuring out what to do. Then take your time; spending six months or a year to learn more about financial management is not at all unreasonable. Commented Apr 12, 2017 at 10:50

5 Answers 5


First, put the money someplace that is safe - a saving account is fine - while you figure out what you want to do with it. You will obviously want to think about it what to do for a while.

A financial advisor could help out, but note that many of them make their money on commission and therefore don't act in your best interest. The ones where you pay them directly are more aligned with your interests.

As for how to invest, you have a lot of different options depending on your timeline and your risk tolerance.

  • "A financial advisor could help out, but not that many of them make their money on commission and therefore don't act in your best interest." -- Could you clarify this part? How do financial advisors make money on commission? Do they act as brokers or something? Commented Aug 12, 2014 at 5:04
  • 4
    Agreed. Obviously you don't want your money sitting in a relatively low interest savings account forever, but better it sits there a few months than it gets invested unwisely due to haste. Commented Aug 12, 2014 at 6:55
  • 2
    @unknownprotocol: basically there are two kinds of financial advisors: those who are expensive because they are highly qualified professionals whom you pay a high hourly rate, like a lawyer - and those who are "free", who typically work either for a bank or a company specializing in such services, who in turn have kickback agreements with the providers of the actual financial products they're selling. These people either directly get commissions for what they sell, or have their bonuses and career advancement tied to sales targets. Commented Aug 12, 2014 at 14:02
  • @unknownprotocol: They'll sell you whatever gives the highest commissions, and that commission is ultimately paid by you via hidden fees that eat your investment returns. Commented Aug 12, 2014 at 14:04

The range is fine. It's ~ 1-2X your annual income.

First, and foremost - your comment on the 401(k), not knowing the fees, is a red flag to me. The difference between low cost options (say sub .25%) and the high fees (over .75%) has a huge impact to your long term savings, and on the advice I'd give regarding maximizing the deposits.

At 26, you and your wife have about 20% of your income as savings. This is on the low side, in my opinion, but others suggest a year's salary by age 35 which implies you're not too far behind.

Given your income, you are most likely in the 25% federal bracket. I'd like you to research your 401(k) expenses, and if they are reasonable, maximise the deposit. If your wife has no 401(k) at work, she can deposit to an IRA, pre-tax.

It's wise to keep 6 months of expenses as liquid cash (or short term CDs) as an emergency fund in case of such things as a job layoff. They say to expect a month of job hunting for each $10K you make, so having even a year to find a new job isn't unheard of.

One thing to consider is to simply kill the mortgage. Before suggesting this, I'd ask what your risk tolerance is? If you took $100K and put it right into the S&P, would you worry every time you heard the market was down today? Or would you happily leave it there for the next 40 years? If you prefer safety, or at least less risk, paying off the mortgage will free up the monthly payment, and let you dollar cost average into the new investments over time. You'll have the experience of seeing your money grow and learn to withstand the volatility.

The car loan is a low rate, if you prefer to keep the mortgage for now, paying the car loan is still a guaranteed 3%, vs the near 0% the bank will give you.

  • I guess since up until now I was only putting in what the company matches I wasn't too worried about the fees. Looking it up it says 0.12% under Fees for my plan... I guess that's good? As far as risk tolerance I guess I'm not very risk averse so I wouldn't mind putting it on the S&P but maybe not all of it? If it ends up being 250k I'm pretty sure I won't be able to resist killing the mortgage, it just seems like not doing a lot with the money.
    – John Smith
    Commented Aug 12, 2014 at 13:28
  • 1
    I am 50+, semiretired. S&P for the long term will beat 95% of investors over the next 40 years. To me, that's a lot. Success need not be complex. Commented Aug 12, 2014 at 14:20
  • 1
    I know it's a silly thing but looking at the S&P historical trend I can't help but feel it's going to take a beating soon, just adds to my anxiety
    – John Smith
    Commented Aug 12, 2014 at 15:13
  • 3
    Not silly at all. The observation helps quantify your risk level. It also helps guide you towards the safer choice, and investing smaller amounts over the long term. Commented Aug 12, 2014 at 15:44

First off, I'm very sorry for your loss. Depending on when the money comes in I would park it and give it some time. After that, one of the best investments is paying off debt. Right now your net worth is less than 30K and that is really not even accessible until retirement. If the money is there to pay off the house I would do that. If there isn't enough to pay off the house then I would pay off the automobile and put all or a sizable portion of the remainder into the house. Now you have very little risk in your life and most likely much more monthly income to invest in 401K, IRAs, college funds or any other investment.

Life insurance is mostly to replace your income if there are people counting on that income (spouse, kids, etc). Normally this would be invested to hopefully replace that income with the growth of the money. In your case it doesn't sound like you were relying on your father's income, so this can go to clean up current debt.

Finally, depending on your relationship, what kind of person your father was and how he was with financials, what do you think he would want you to do with it?


I was in a similar situation and my method was this: since I already had a fidelity 401k account it was pretty easy to open a individual account through the website. From there you can just put the money into a general market mutual fund or exchange traded fund. I prefer low expense ratio funds like passive indexed funds since studies show that there isn't much benefit to actively traded funds. So I just put my money into the popular, low fee fund SPY which tracks to the S&P 500. I plan on leaving the money there for at least a year, if not several years, so I can pay the lower capital gains tax rate on any gains and avoid paying the commissions too many times.

In your situation you might want to consider using the extra cash to max out you and your wife's 401k this year, since you aren't already taking full advantage of that. Often people recommend saving 10% or 15% of gross income throughout their career for retirement, so you're on the low side and maybe have a small bit of catch up to do. Finally you could also start a 529 education saving plan to save for kid's future college cost.


Consider consulting a fee-only Certified Financial Planner. It will be worth the money to have your game-plan looked at by somebody who is trained and experienced in such matters, helping you avoid big mistakes and making the right decision for your personal situation. It should cost only a relatively small percentage of the overall inheritance.

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