Investing $50k + Real Estate
I would say that, for the most part, money should not be invested in the stock market or real estate.  Mostly this money should be kept in savings: I feel like your emergency fund is light.  You do not indicate what your expenses are per month, but unless you can live off of 1K/month, that is pretty low.  I would bump that to about 15K, but that really depends upon your expenses. You may want to go higher when you consider your real estate investments.  What happens if a water heater needs replacement?  (41K left) EDIT:  As stated you could reduce your expenses, in an emergency, to 2K.  At the bare minimum your emergency fund should be 12K.  I'd still be likely to have more as you don't have any money in sinking funds or designated savings and the real estate leaves you a bit exposed.  In your shoes, I'd have 12K as a general emergency fund.  Another 5K in a car fund (I don't mind driving a 5,000 car), 5k in a real estate/home repair fund, and save about 400 per month for yearly insurance and tax costs.  Your first point is incorrect, you do have debt in the form of a car lease.  That car needs to be replaced, and you might want to upgrade the other car.  How much?  Perhaps spend 12K on each and sell the existing car for 2K?  (19K left). Congratulations on attempting to bootstrap a software company.  What kind of cash do you anticipate needing?  How about keeping 10K designated for that?  (9K left) Assuming that medical school will run you about 50K per year for 4 years how do you propose to pay for it?  Assuming that you put away 4K per month for 24 months and have 9K, you will come up about 95K short assuming some interests in your favor.  The time frame is too short to invest it, so you are stuck with crappy bank rates. "My spouse will only be entering medical school within 2 years at the earliest, and will likely be there for about 4-5 years. If she get's into the school she wants we would not have to move This is probably the biggest return on investment that you can get.  Sure, you could invest what you have in the market and take out tens or hundreds of thousands of dollars on ""cheap"" medical school loans, but consider this: Figure out how much you need for all 4-5 years, and develop a plan to make sure you can cash-flow the entire education.   Bootstrapping a software company has potential for high rewards, but a much greater risk.  you could get 10X back or you could lose it all.  With your income, you've got plenty of time to save for college, so I don't see that as a huge win now.  I would also dump the lease - you can probably get a much better car for $16k that the five-year old one you have when the lease is up. (or get a similar car for less money).  With no debt and a good income you do not need a credit score. The lease probably didn't help it that much anyways - you're paying more for the lease than any benefit you would get by a higher score." I have been on the same boat as you are right now. So basically, it depends on your goals, risk tolerance, upcoming life events! You want a plan not just for this particular 50K, but for your household assets and future earnings to come! My suggestion: Get a flat fee, online financial advisor to do the work for you. You don’t have to figure this out by yourself. Personally, I would invest in a portfolio that: Offers dynamic asset allocation plans that evolves over time based on changing market conditions. Offers a healthy mix of beta and alpha strategies along with the liquidity and ability to monitor activity online. Has structural risk management in place. Risk management is as much about increasing risk as it is about cutting risk. Therefore, you want a plan for de-allocating and re-allocating risk Hope this helps. Get rid of the lease and buy a used car. A good buy is an Audi because they are popular, high-quality cars. A 2007 Audi A4 costs about $7000. You will save a lot of money by dumping the lease and owning. Go for quality. Stay away from fad cars and SUVs which are overpriced for their value. Full sized sedans are the safest cars. The maintenance on a high-quality old car is way cheaper than the costs of a newer car. Sell the overseas property. It is a strong real estate market now, good time to sell. It is never good to have property far away from where you are. You need to have a timeline to plan investments. Are you going to medical school in one year, three years, five years? You need to make a plan. Every investment is a BUY and a SELL and you should plan for both. If your business is software, look for a revenue-generating asset in that area. An example of a revenue-generating asset is a license. For example, some software like ANSYS has license costs in the region of $30,000 annually. If you broker the license, or buy and re-sell the license you can make a good profit. This is just one example. Use your expertise to find the right vehicle. Make sure it is a REVENUE-GENERATING ASSET.
Hmm, if your financially savvy enough to have saved up half a million dollars, I'd think you would be savvy enough to spend it wisely. :-) I think I'd spend the cash before running down stocks and bonds, as cash almost surely has a lower rate of return.  I'd look into what rate of return you're getting on the rental property versus what you're getting from other investments. If the rental property has a lower return, I'd sell that before selling off stocks. (I own a rental property on which I am losing money every month. I'm still paying a mortgage on it, but even without that, the ROI would be about 4% under current market conditions.) Besides that, your plan looks good to me. Might need to add, 8. Beg on the streets, and 9. Burglary. Investing it in what? Unless you're putting it into an account that lets you avoid taxes on the income, your $100k becomes about $74k after federal income taxes. If you take $50k of that and invest it, you're now at $24k. You're living a very barebones life at that point. "So, you have $100k to invest, want a low-maintenance investment, and personal finance bores you to death. Oooohhh, investment companies are gonna love you.  You'll hand them a wad of cash, and more or less say ""do what you want.""  You're making someone's day.  (Just probably not yours.) Mutual fund companies make money off of you regardless of whether you make money or not.  They don't care one bit how carefully you look at your investments.  As long as the money is in their hands, they get their fee. If I had that much cash, I'd be looking around for a couple of distressed homes in good neighborhoods to buy as rentals.  I could put down payments on two of them, lock in fixed 30-year mortgages at 4% (do you realize how stupid low that is?) and plop tenants in there.  Lots of tax write-offs, cash flow, the works.  It's a 10% return if you learn about it and do it correctly. Or, there have been a number of really great websites that were sold on Flippa.com that ran into five figures.  You could probably pay those back in a year.  But that requires some knowledge, too. Anything worthwhile requires learning, maintenance and effort. You'll have to research stocks, mutual funds, bonds, anything, if you want a better than average chance of getting worthwhile returns (that is, something that beats inflation, which savings accounts and CDs are unlikely to do).  There is no magic bullet.  If someone does manage to find a magic bullet, what happens?  Everyone piles on, drives the price up, and the return goes down. Your thing might not be real estate, but what is your thing?  What excites you (i.e., doesn't bore you to death)? There are lots of investments out there, but you'll get out of it what you put into it." It's in your interest to pay down these loans (just like any debt) at an accelerated rate, so long as you prioritize it appropriately and don't jeopardize your financial situation. What are your plans for the $50k? Is it a downpayment on a house? Are you already saving for retirement? At what rate are you saving each year? These are all important questions. There is nothing wrong with using some of the $50k to make a dent in your loans, but overpaying a debt at 6% should not be your first priority. Save for retirement, pay off credit cards, make sure you have an emergency fund of between 6-12 months living expenses (depending on your comfort level as well as how stable you think your job is, and how much you could downsize if need be). Then, tackle extra loan payments. Unfortunately 6% is about what you would expect to get in the market these days, so you can't necessarily make more money investing your remaining cash on hand as compared to putting it towards your loans. And you could always make less. Personally, I would divide the $50k as follows. Insert your own numbers/circumstances :) Of the ~$30k that remains... Like @littleadv, I don't consider a mortgage on a primary residence to be a low-risk investment.  It is an asset, but one that can be rather illiquid, depending on the nature of the real estate market in your area.  There are enough additional costs associated with home-ownership (down-payment, insurance, repairs) relative to more traditional investments to argue against a primary residence being an investment. Your question didn't indicate when and where you bought your home, the type of home (single-family, townhouse, or condo) the nature of your mortgage (fixed-rate or adjustable rate), or your interest rate, but since you're in your mid-20s, I'm guessing you bought after the crash.  If that's the case, your odds of making a profit if/when you sell your home are higher than they would be if you bought in the 2006/2007 time-frame.  This is no guarantee of course.  Given the amount of housing stock still available, housing prices could still fall further.  While it is possible to lose money in all sorts of investments, the illiquid nature of real estate makes it a lot more difficult to limit your losses by selling. If preserving principal is your objective, money market funds and treasury inflation protected securities are better choices than your home.  The diversification your financial advisor is suggesting is a way to manage risk.  Not all investments perform the same way in a given economic climate.  When stocks increase in value, bonds tend to decrease (and vice versa).  Too much money in a single investment means you could be wiped out in a downturn. You're off to a great start. Here are the steps I would take: 1.) Pay off any high-interest debt. 2.) Keep six to twelve months in a highly liquid emergency fund. If the banks aren't safe, also consider having one or two months of cash or cash-equivalents on the premises. 3.) Rent a larger apartment, if possible, until you've saved more. The cost of the land and construction will consume a very large portion of your net worth. Given the historical political instability in that region, mentioned by the previous comments,  I would hesitate to put such a large percentage of your wealth in to real estate.  4.) Get a brokerage account that's insured and well known. If you're willing to take the five percent hit to move assets offshore, then consider Vanguard. I'm not sure if they'll give you an account but they're generally acknowledged as an amazing broker in the US with low fees and amazing funds. Five percent (12,500) is worth it in my opinion. As you accumulate more wealth, you can stop moving cash overseas and keep a larger mix domestically.  5.) Invest in your business and yourself even more.  As far as finding new investment opportunities, I would go through the list of all the typical major asset classes and consider the pros and cons: fixed-income, stocks, currencies, real estate / REITs, own a small business, commodities etc., It is a decent time to purchase real estate despite dsquid's opinion.  I feel dsquid is falling for the old economic psychology of what ever direction its going it will continuing in that direction, which is a bad mentality for any investing (up or down).     This may not be the bottom, and there is some sign that another dip is coming with in a year or two.  But if you purchase now, and focus on a few key factors you may end up on the upside of the swing.  First and foremost location matters more then value of the property.  When the pent up demand is eventually released (after we get employment moving in the right direction) you will see a land grab.  The first and highest valued places are those with nice neighborhoods and good schools as the young families (economically unburdened) start making homes.    Second pay attention to valuation in so much as your burden.  This means consider taxes and mortgage and terms of mortgage (stay away from variable or balloon rates).  When thing go up the interest rates will lead the way.  In this time of uncertainty you should make sure you can cover your mortgage payment with ease.  Put plenty down (20% being the recommended to avoid mortgage insurance and long term costs) and shoot low on  price.  If you're handy you may even consider buying something that needs minor work (outdated kitchen or the like).   If you shoot lower then your limit, then you'll be comfortable even if things turn sour for you.  Ultimately all this hinges on what you want to do with the property.  Its a wise time to buy homes today where you will be able to rent them out tomorrow.  But the important thing is aim in the middle instead of at your limit (450 is definitely your limit).  Remember banks will always tell you that you're able to afford twice as much as you actually should.  And keep in mind, no matter how new or nice the home, it will need work at some point and that costs.  So you should have that in mind when you consider savings.  Based on your information I wouldnt shoot higher then 250-300k.  I have friends who make your salary in dividends plus two incomes and they are comfortable in their home at its 250 price.  They are able to afford repairs and upgrade regularly and arent threatened by potential tax hikes (though they gripe of course).   The one good piece of advice from dsquid IMHO is that you should be ready for the environment to change.  Higher interests rates will weigh on your comfort as much as CPI and increased taxes will so plan for them to be much higher and you'll be ahead of the game. No one knows if the market is high right now.  To know that you would need to compare it to the future, not the past. If you put all your money in right now, you run the risk of putting it in at what turns out to be a bad time.  If you spread it out, you will for sure put some of it in at a bad time (either the stuff you put in now, or the stuff you put in later).  The strategy that, on average, will make you the most money is to put everything in now.  If your risk tolerance allows that (it sounds like it does) then I think going all in makes sense. There really aren't significant downsides to buying a ton at once.  You aren't going to move the needle on a big Vanguard fund with that amount and there isn't a tax consequence or anything to buying.  Of course, when you sell, you will need to pay capital gains tax on any gains, but that's a later chapter. The bigger consideration is to be smart right now about avoiding taxes.  If your income is low, max out your Roth IRAs.  If you need to you can later use that money for a house or you can pull the contribution part out at any time if you want without a penalty. Is a $50K buffer too much?  Normally I would say yes, it's excessive.  I have 5 rather expensive kids and I keep $20K in cash, which seems high, if anything.  However, if you are unemployed or your income isn't covering your expenses, then keeping a larger pot in cash makes good sense until your cash flow firms up.  Setting $50K or something close to that aside sounds a lot like something I would do in your shoes. BTW where are you finding a savings account that pays 2%? "If you're looking for a well-rounded view into what it's like to actually own/manage real-estate investments, plus how you can scale things up & keep the management workload relatively low, have a look at the Bigger Pockets community.  There are blogs, podcasts, & interviews there from both full-time & part-time real estate investors. It's been a great resource for me in my investments. More generally, your goal of ""retiring"" within 20 years is very attainable even without getting extravagant investment returns.  A very underrated determinant in how quickly you build wealth is how much of your income you are contributing to investments. Have a look at this article: The Shockingly Simple Math Behind Early Retirement" "To be completely honest, I think that a target of 10-15% is very high and if there were an easy way to attain it, everyone would do it. If you want to have such a high return, you'll always have the risk of losing the same amount of money. Option 1 I personally think that you can make the highest return if you invest in real estate, and actively manage your property(s). If you do this well with short term rental and/or Airbnb I think you can make healthy returns BUT it will cost a lot of time and effort which may diminish its appeal. Think about talking to your estate agent to find renters, or always ensuring your AirBnB place is in good nick so you get a high rating and keep getting good customers. If you're looking for ""passive"" income, I don't think this is a good choice. Also make sure you take note of karancan's point of costs. No matter what you plan for, your costs will always be higher than you think. Think about water damage, a tenant that breaks things/doesn't take care of stuff etc. Option 2 I think taking a loan is unnecessarily risky if you're in good financial shape (as it seems), unless you're gonna buy a house with a mortgage and live in it. Option 3 I think your best option is to buy bonds and shares. You can follow karancan's 100 minus your age rule, which seems very reasonable (personally I invest all my money in shares because that's how my father brought me up, but it's really a matter of taste. Both can be risky though bonds are usually safer). I think I should note that you cannot expect a return of 10% or more because, as everyone always says, if there were a way to guarantee it, everyone would do it. You say you don't have any idea how this works so I'd go to my bank and ask them. You probably have access to private banking so that should mean someone will be able to sit you down and talk you through. Also look at other banks that have better rates and/or pretend you're leaving your bank to negotiate a better deal. If I were you I'd invest in blue chips (big international companies listed on the main indeces (DAX, FTSE 100, Dow Jones)), or (passively managed) mutual funds/ETFs that track these indeces. Just remember to diversify by country and industry a bit. Note: i would not buy the vehicles/plans that my bank (no matter what they promise, and they promise a lot) suggest because if you do that then the bank always takes a cut off your money. TlDr, dont expect to make 10-15% on a passive investment and do what a lot of others do: shares and bonds. Also make sure you get a lot of peoples opinions :)" For a young person with good income, 50k sitting in a savings account earning nothing is really bad. You're losing money because of inflation, and losing on the growth potential of investing. Please rethink your aversion to retirement accounts. You will make more money in the long run through lower taxes by taking advantage of these accounts. At a minimum, make a Roth IRA contribution every year and max it out ($5500/yr right now). Time is of the essence! You have until April 15th to make your 2014 contribution! Equities (stocks) do very well in the long run. If you don't want to actively manage your portfolio, there is nothing wrong (and you could do a lot worse) than simply investing in a low-fee S&P 500 index fund. Real Estate potentially has two components of profit, the increase in value, and the ongoing returns, similar to a stock appreciating and its dividends.   It's possible to buy both badly, and in the case of stocks, there are studies that show the typical investor lags the market by many percent.  Real estate is not a homogeneous asset class. A $200K house renting for $1,000 is a far different investment than a $100K 3 family renting for $2,000 total rents. Both exist depending on the part of the country you are in.  If you simply divide the price to the rent you get either 16.7X or 4.2X. This is an oversimplification, and of course, interest rates will push these numbers in one direction or another. It's safe to say that at any given time, the ratio can help determine if home prices are too high, a bargain, or somewhere in between.  As one article suggests, the median price tracks inflation pretty closely. And I'd add, that median home prices would track median income long term.  To circle back, yes, real estate can be a good investment if you buy right, find good tenants, and are willing to put in the time.  Note: Buying to rent and buying to live in are not always the same economic decision. The home buyer will very often buy a larger house than they should, and turn their own 'profit' into a loss. e.g. A buyer who would otherwise be advised to buy the $150K house instead of renting is talked into a bigger house by the real estate agent, the bank, the spouse. The extra cost of the $225K house is the 1/3 more cost of repair, utilities, interest, etc. It's identical to needing a 1000 sq ft apartment, but grabbing one that's 1500 sq ft for the view. I would just like to point out that the actual return should be compared to your down payment, not the property price. After all, you didn't pay $400K for that property, right? You probably paid only 20%, so you're collecting $20K/year on a $80K investment, which works out to 25%.  Even if you're only breaking even, your equity is still growing, thanks to your tenants. If you're also living in one of the units, then you're saving rent, which frees up cash flow. Your increased savings, combined with the contributions of your tenants will put you on a very fast track. In a few years you should have enough to buy a second property. :) If your employer is matching 50 cents on the dollar then your 401(k) is a better place to put your money than paying off credit cards This.  Assuming you can also get the credit cards paid off reasonably soon too (say, by next year).  Otherwise, you have to look at how long before you can withdraw that money, to see if the compounded credit card debt isn't growing faster than your retirement.  But a guaranteed 50% gain, your first year is a pretty hard deal to beat. And if you currently have no savings, unless all of your surplus income has been reducing your debt, you're living beyond your means. You should be earning more than you're (going to be) spending, when you start paying rent/car bills.  If you don't know what this is going to be, you need to be budgeting.   Get this under control, by any means necessary.  New job/career?  Change priorities/expectations?  Cut expenses?  Live to your budget?  Whatever it takes. I don't think you should be in any investment that includes bonds until you're 40, and maybe not even then - equities and cash-equivalents all the way (cash is for emergency funds, and for waiting for buying opportunities).  Otherwise Michael has some good ideas. I would caveat that I think you should not buy any investments in one chunk, but dollar average it over some period of time, in case the market is unnaturally high right when you decide to invest. You should also gauge possible returns and potential tax liabilities. Debt is good to get rid of, unless it is good debt (very low interest rates - ie: lower than you could borrow the money for).  Good debt should still get paid off - who knows how long your job could last for - but maybe not dump all of your $50K on it. Roth is amazing.  You should be maxing that contribution out every year. Your capital gain is about $40K, which (assuming your total income is under $250K) is taxed at 15% long term capital gains rate. Additional depreciation recapture of approximately $5K is taxed at 25%. So this gives us rough estimate of $7250 tax. This is Federal tax, AZ rates are somewhere between 2% and 4%, so you'll be looking at some $1.6K additional tax to AZ. If you have accumulated rental losses or other expenses, it will lower the total amount of your gain (and, accordingly, the taxes). This is all very rough estimates, and you shouldn't rely on this but verify on your own or with a professional. I suggest using professional services because while being costly, they will probably save you more in taxes than you'll have to pay them because of the knowledge of what exactly of your expenses can be deducted and how to calculate the cost basis correctly. (edit from JoeT - the home exclusion requires occupancy for 2 of prior 5 years. For the OP, the prorated $125k exclusion 'might' cover the gain, it depends when the increase in value occurred, if the gain was during the time rented, it's taxable, I believe.)