22-year-old inherited 30k from 529 payout - what is the best way to invest?

Question

I recently received the payout of my college 529, about 30k amount. It's been in a mutual fund with a private investor for about six months. It's the same investor my parents use. I recently got my income report back and I made $12 total. I'm spending way more on the wealth manager. I am wondering if hiring someone else to manage my money is putting it to its best use. I am wondering if I should learn to invest it myself, and if so, how?

I'm 22 years old, no debt, and employed full time as a software engineer.

I know there are other similar inheritance and investing questions on here. For the inheritance questions, my amount is significantly less and for the investing question, I am generally younger than the other. I am wondering what my attitude should be.

Also, my wealth manager doesn't like to discuss my money with me. To some extent, I understand this because finances are not my forte. If anyone could provide sources with their advice so I can have some ammunition in my conversations, I would truly appreciate it.

Answer 1

Also, my wealth manager doesn't like to discuss my money with me. To some extent, I understand this because finances are not my forte

This is akin to porn surfing all day at your job instead of writing code, fire him ASAP.

For now I would stick it in a bank account until you are comfortable and understand the investments you are purchasing.

Here are some options to consider:

• If you are considering buying a home, keep it in the savings account and use it as a down payment.
• If you are looking to advance your education, such as a master's degree, keep the estimated amount you will have to pay for such a degree in a bank account.
• You can learn about investing yourself. Any of the books by Jack Bogle should get you off on the right start.
• If you want to hire someone else, you need to find a financial adviser with the heart of a teacher. Have them make you understand about investing, don't do something because they told you to do it.

The last one is tricky. You might have to interview several in order to find that one gem. With you being so young it is unlikely any of your friends have a need for such a service. I would concentrate on asking older work colleagues or friends of your parents for recommendations. Ask if they are educated by their adviser.

In the end it would really pay for you to educate yourself about finances. No one can quite do as good as a job as you can in this area. You recognize that there was a problem with your current guy, that shows wisdom. If you have an interest in this area, I would recommend attending a Financial Peace University class. All my kids (about your age and older) are required to take it. It will help you navigate debt, mortgages, insurance, and investing and will cost you about $100. If you don't learn enough the first time, and you won't, you can repeat the course as many times as you wish for no additional cost.

Answer 2

Look through the related questions. Make sure you fund the max your tax advantaged retirement funds will take this year. Use the 30k to backstop any shortfalls. Invest the rest in a brokerage account.

In and out of your tax advantaged accounts, try to invest in index funds. Your feeling that paying someone to manage your investments might not be the best use is shared by many. jlcollinsnh is a financial independence blogger. He, and many others, recommend the Vanguard Total Stock Market Index Admiral Shares. I have not heard of a lower expense ratio (0.05%).

Search for financial independence and FIRE (Financial Independence Retire Early). Use your windfall to set yourself on that road, and you will be less likely to sit where I am 25 years from now wishing you had done things differently.

Edit: Your attitude should be that the earliest money in your portfolio is in there the longest, and earns the most. Starting with a big windfall puts you years ahead of where you'd normally be. If you set your goal to retire at 40, that money will be worth significantly more in 20 years. (4x what you start with, assuming 7% average yearly return).

Answer 3

First, I applaud you for caring. Most people don't! In fact, I was in that category.

You bring up several issues and I'll try to address them separately.

(1) Getting a financial planner to talk with you.

I had the same experience! My belief is that they don't want to admit that they don't know how things work.

I even asked if I could pay them an hourly fee to ask questions and review stocks with them. Most declined. You'll find that very few people actually take the time to get trained to evaluate stocks and the stock market as a whole. (See later Investools.com).

After looking, however, I did find people who would spend an hour or two with me when we met once a quarter to review my "portfolio"/investments. I later found training that companies offered. I would attend any free training I could get because they actually wanted to spend time and talk and teach investors.

Bottom line is: Talking to their clients is the job of a financial planner. If he (or she) is not willing to take this time, it is in your best interest to find someone who will spend that time.

(2) Learning about investing!

I'm not affiliated with anyone. I'm a software developer and I do my own trading/investments. The opinions I share are my own.

When I was 20 years away from retirement, I started learning about the stock market so that I would know how it worked before I retired so that (a) I could influence a change if one was needed, and (b) so I wouldn't have to blindly accept the advice of the "experts" even when the stock market is crashing.

I have used Investools.com, and TDAmeritrade's Think-or-Swim platform. I've learned a tremendous amount from the Investools training. I recommend them. But don't expect to learn how to get rich from them or any training you take.

The TDA Think-or-swim platform I highly recommend BECAUSE it has a feature called "Paper Money". It lets you trade using the real market but with play money. I highly recommend ANY platform that you can use to trade IN PAPER money!

The think-or-swim platform would allow you to invest $30,000 in paper money (you can have as much as you want) into any stock. This would let you see if you can make more money than your current investment advisor. You could invest $10K in one SPY, $10K in DIA and $10K in IWM (these are symbols for the S&P 500, Dow 30, and Small Cap stocks). This is just an example, I'm not suggesting any investment advise!

It's important that you actually do this not just write down on a piece of paper or Excel spreadsheet what you were going to do because it's common to "cheat" and change the dates to meet your needs. I have found it incredibly helpful to understand how the market works by trying to do my own paper and now real money investing.

I was and you will be surprised to find that many trades lose money during the initial start part of the trade because it's very difficult to buy at the exact right time.

An important part of managing your own investments is learning to trade with rules and not get "emotionally involved" in your trades.

(3) Return on investment.

You were not happy with $12 return. Low returns are a byproduct of the way most investment firms (financial planners) take (diversification). They diversify to take a "hands off" approach toward investment because that approach has been the only approach that they have found that works relatively well in all market conditions. It's not (necessarily) a bad approach. It avoids large losses in down markets (most riskier approaches lose more than the market). The downside is it also avoids the high returns. If the market goes up 15% the investment might only go up 5%.

30K is enough to give to multiple investment firms a try. I gave two different firms $25K each to see how they would invest. The direction was to accept LOTS of risk (with the potential for large losses or large gains). In a year that the market did very well, one lost money, and one made a small gain. It was a learning experience. I, now, have taken the money back and invest it myself.

NOTE: I would be happy with a guy who made me 10-15% year over year (in good times and bad) and didn't talk with me, but I haven't found someone who can do that. :-)

NOTE 2: Don't believe what you hear from the news about the stock market being up 5% year to date. Do your own analysis.

NOTE 3: Investing in "the market" (S&P 500 for example) is a great way to go if you're just starting. Few investment firms can beat "the market" although many try to do so. I too have found it's easier to do that than other approaches I've learned. So, it might be a good long term approach as well.

Best wishes to you in your learning about the market and desires to make money with your money. That is what is all about.

Answer 4

Many people have provided very good answers to this question and all the answers provide sound advice and justification. Below are some of my thoughts on the questions that you have put forward.

1) The investment manager question: The returns on your capital for a half year has been quite low; having said that, some investments do take more than half year to show some growth. You could try talking to your investment manager and ask where your money has been deployed and why the returns are low. If there are no real explanation given forth (which would be more likely as you have mentioned your investment manager does not like to discuss your money with you) you should conside Xolorus & Pete's advice and forthwith take all your money from investment manager and park it in the bank till you figure out what to do next with it.

2) Finances are not my forte: At 22 finance is nobodies forte, it takes longer than that; however having said that, how do you know finance is actually not your forte? Being a computer science graduate you would be more than comfortable with the mathematics required for finance. You may not have looked seriously at finance till now (I assume by your statement). Once way to be certain about this would be self learning, some good books have been refered above and there are online information, courses and articles on the Internet, for example here. You could give some spare time and explore if finance interests you or not.

3) If finance interests you: Then consider the 30K as your seed fund and take a small portion of it say 2K and try out your hand at investing on your own in the instruments that you feel most comfortable and see how you fare, you are young enough to take the risk. Rest of the money you could put in other low risk instruments (that you have identified through self study)

4) If finance does not interest you: The probably you are better off with an investment manager, as observed above, it will take some time for you to identify him/her

5) On returns: As mentioned above different instruments produce returns differently, however, one question that is universally asked is how much return on an invetment shoule one expect (you were expecting more than $12 on your investment). It is a difficult question to answer as invetment returns and investment needs depend on a persons financial goals and risk taking profile. One way to have some measure is to take 15-20 years CAGR of the stock index return and reduce it by 2-3%, that is (in many cases, not all) a reasonable return expectation in medium-long term.