Sudden Wealth May Require Reflection On Alternatives
by Joe Bowen
December 20th, 2010 01:00 PM
Lottery, inheritance, sizing down, sold a company?
How do most people handle large, immediate sums of money? The knee-jerk reaction by most is to put the money in the bank. Some might go so far as to invest the money into some stocks, bonds or mutual funds. Many will squander the money on toys and excessive living. New spending habits usually outlast the money needed to afford those habits.
If you pause a moment to reflect on your situation you might find there are more equitable maneuvers. Here is an example:
A client came to me once after his mother had passed away. He had an inheritance of about $450,000. He wanted me to invest the money for him. His only concern was how much risk he should take. This gentleman had an open mortgage of about $400,000 on his newly acquired home. He had renovations to do and a car that needed replacing.
He really wanted to invest the money but I suggested we play out a scenario on paper. We first listed his assets and liabilities. We then took the new found wealth and paid off his mortgage, on paper. Now he was debt free with $50,000 cash on hand to buy his car and complete his renovations. I then asked him if he would now be prepared to borrow $450,000 to buy some Mutual Funds. Of course I knew the answer before he even responded with a resounding “No Way.”
What I had done is allowed him to see his situation from a different angle. Investing money when you already owe money can sometimes be counterproductive. If he insisted on investing the money in spite of my advice I would recommend he use the best strategy. Pay off the bad debt and replace it with good debt. Pay off the mortgage that was used to buy his home and borrow the money back to buy the investments. Now he could write off his interest on the loan. This could easily amount to $20-$24,000 per year.
Some have little or no debt and the biggest questions are: How do I invest the money? What about taxes? What about risk? How do I make the money last?
Get your answers from a qualified professional.
This article was prepared by Joe Bowen who is a registered Mutual Fund Representative with Dundee Private Investors Inc. (“Dundee Private Investors”), a Dundee Wealth Management company. This is not an official publication of Dundee Private Investors and the views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessarily those of, Dundee Private Investors.
Listen to Joe on CFUN AM1410 Sundays 5:00 – 5:30pm www.joebowen.org 604-603-2336
Copyright North Shore Magazine Issue Feb - Mar 08
How do most people handle large, immediate sums of money? The knee-jerk reaction by most is to put the money in the bank. Some might go so far as to invest the money into some stocks, bonds or mutual funds. Many will squander the money on toys and excessive living. New spending habits usually outlast the money needed to afford those habits.
If you pause a moment to reflect on your situation you might find there are more equitable maneuvers. Here is an example:
A client came to me once after his mother had passed away. He had an inheritance of about $450,000. He wanted me to invest the money for him. His only concern was how much risk he should take. This gentleman had an open mortgage of about $400,000 on his newly acquired home. He had renovations to do and a car that needed replacing.
He really wanted to invest the money but I suggested we play out a scenario on paper. We first listed his assets and liabilities. We then took the new found wealth and paid off his mortgage, on paper. Now he was debt free with $50,000 cash on hand to buy his car and complete his renovations. I then asked him if he would now be prepared to borrow $450,000 to buy some Mutual Funds. Of course I knew the answer before he even responded with a resounding “No Way.”
What I had done is allowed him to see his situation from a different angle. Investing money when you already owe money can sometimes be counterproductive. If he insisted on investing the money in spite of my advice I would recommend he use the best strategy. Pay off the bad debt and replace it with good debt. Pay off the mortgage that was used to buy his home and borrow the money back to buy the investments. Now he could write off his interest on the loan. This could easily amount to $20-$24,000 per year.
Some have little or no debt and the biggest questions are: How do I invest the money? What about taxes? What about risk? How do I make the money last?
Get your answers from a qualified professional.
This article was prepared by Joe Bowen who is a registered Mutual Fund Representative with Dundee Private Investors Inc. (“Dundee Private Investors”), a Dundee Wealth Management company. This is not an official publication of Dundee Private Investors and the views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessarily those of, Dundee Private Investors.
Listen to Joe on CFUN AM1410 Sundays 5:00 – 5:30pm www.joebowen.org 604-603-2336
Copyright North Shore Magazine Issue Feb - Mar 08
