The sister has become rich and everyone loves her!
Dear Dave,
My sister recently received a large sum of money through an inheritance. Everybody seems to have a different idea about how you should invest it. The last two or three people she talked to recommended municipal bonds. What do you think?
Rudy
Dear Rudi,
Boy, how many times have I heard this story? You get some money and the sharks start circling.
Municipal bonds are neither the best nor the worst investment you can make. It’s tax-free income, and its yield can be as good as, or better than, corporate bonds or Treasury bills. But municipal bonds can be volatile just like any other type of bond. If a city is in financial trouble, it can easily lose money on the deal.
I don’t believe in municipal bonds, and I don’t own any of them. I put my money in good growth stock mutual funds and growth and income mutual funds and just pay the taxes.
And guess what? I still get ahead.
-Dave
Single Male, Low Debt…Ready to Buy a House?
Dear Dave,
I am 24 years old and single, and my dad encourages me to buy a house with a 30 year note. I’m about $6,500 in debt, but I’m using your debt snowball method to pay it off as quickly as possible. I make about $45,000 a year and found that I can get a good interest rate on a mortgage. Do you think this is the right time for me to buy a house?
Jeff
Dear Jeff,
The fact that you can get a good interest rate OR that your dad is insisting on you are not the reasons to buy a house. You must first get out of debt.
We’re only talking about $6,500, so keep snowballing debt and you’ll have to pay off that sucker in no time. Also, I never recommend 30-year mortgages. If you can’t afford a 15-year note, then you can’t afford the house, period.
I know your dad loves you and wants good things for you, but you have to listen to me on this one. Once he eliminates the debt, he can save money like crazy and then make a big down payment on a 15-year mortgage.
If you follow this game plan, Jeff, you’ll have your mortgage paid off and you’ll own your home outright by the time you’re 40. Great things!
-Dave
What to do with the proceeds from selling a house?
Dear Dave,
I am currently debt free except for my house. If I sell my house and make a profit, what should I do with the money I make until I buy another house? It will be about a year before I buy another house. Would a mutual fund be a good place to invest the money?
Dee
Dear Customer,
If you’re talking about a place to park some short-term money, I’d go with a simple money market account. You won’t win much, but it will be safe and you won’t be running around all over the place. I never recommend investing money in growth stock mutual funds unless you are going to let the money sit there for at least 5 years.
The good news is that you probably won’t have any tax worries. You don’t have to pay capital gains tax on the sale of a personal residence unless you see a $250,000 gain on the home and have owned it for more than 2 years. If you are married filing jointly, this number increases to $500,000.
-Dave
