NEW YORK (CNN/Money) -
I expect to receive a windfall of about $500,000. Buying a house is first on my list, but I'm not sure how to invest the rest. I'm open to real estate ventures or just about anything else, but I'm wary of the people passing themselves off as financial advisers. What do you suggest?
--Tammy, Statesville, N.C.
It's not often that I invoke the lyrics of rapper Eminem in this column. In fact, I think I can safely say that I've never done it before. But in this case, the opening line from his Oscar-winning song, Lose Yourself, is relevant: "If you had one shot, one opportunity, to seize everything you ever wanted, one moment, would you capture it, or just let it slip?"
That largely sums up the situation you're in. Of course, your half-million-dollar windfall probably isn't a chance to get "everything you ever wanted." Money, after all, can't buy everything. But a sum like this definitely can represent a one-time shot to improve your life, now and in the future -- if you capture it rather than let it slip.
And let me assure you, the odds of letting it slip are high. You read all the time about lottery winners who essentially squandered their winnings either through profligate spending or by getting hooked up with advisers whose primary job seemed to be transferring money from their client's pocket to their own. You're right to be wary about financial advisers.
So how should you proceed? I've got three suggestions.
Curb your enthusiasm. When people receive a big windfall, one of the first things many of them do is go on a buying spree -- flashy new cars, an expensive home, lavish gifts for friends and relatives. In short, they switch to a lifestyle they couldn't previously afford and that, even given the windfall, they probably can't sustain for long.
Five hundred large is a lot of money, but it doesn't propel you into Robin Leach Lifestyles of the Rich and Famous territory. If you want this money to sustain you for many years ahead, I suggest you temper any urge to spend now.
You mention you want to buy a home. That's fine, but I'd say keep your new digs roughly in line with your current life style, perhaps a bit above. You certainly don't want to buy a house that will be so expensive to maintain that it will represent a real drag on your windfall years and years ahead.
As to the issue of whether to pay cash or finance your home, I can see good reasons to go either way. Paying cash will give you an asset you will own outright. But you may want to consider putting down only a large enough down payment to allow you to cover the mortgage and other carrying costs out of your salary income.
Not only would this approach give you a mortgage deduction and make more of your windfall available for investing in financial assets, it could help you maintain some financial discipline. Having a mortgage payment to make each month would be a reality check of sorts that may make you less apt to overspend in other areas of your life.
Keep it simple. While I admire your willingness to consider a broad range of investment options for your newfound stash, I'm also a bit troubled by it.
The combination of open mindedness and inexperience in the investing world can often lead people to plow their money into a series of cockamamie investments -- jojoba bean plantations, cattle futures, overpriced real estate limited partnerships -- that may seem sound on paper but have no place in a serious portfolio.
The best thing you can do for yourself and anyone else depending on your windfall is to invest as much of it as you can in a diversified portfolio of stocks and bonds (or, more likely in your case, stock funds and bond funds).
To keep things even simpler, I suggest you consider making broad-based index funds the core of your portfolio. More important than the individual investments themselves (especially if you use index funds) is your asset allocation mix -- that is, the proportion in which you hold them. For more on this crucial but often overlooked concept, click here and here.
Be realistic. I believe that most reasonably intelligent people are capable of handling the amount of money you're talking about on their own without the help of an adviser. But if you go the DIY route, you've got to be willing to put in the time and effort to assess how much of your windfall should go into a house versus financial assets.
And you've also got to be willing do the reading and thinking and research necessary to create an asset mix and a diversified portfolio as recommended above.
If you're not willing or able to do this -- and this is where being realistic in assessing both your willingness and your abilities comes in -- then you should seek professional help. If you go the adviser route, you still face a challenge to find someone with the expertise required to provide competent advice and the integrity to assure that you're getting good value for that advice.
There are certainly plenty of competent and honest pros out there. But I'll warn you that there are also lots of nincompoops and self-serving charlatans as well. For advice on how to find the former and avoid the latter, click here.
Ultimately, of course, whether you go it alone or seek the help of an adviser, the responsibility is yours to seize this opportunity and make the most of it. Good luck.
Walter Updegrave is a senior editor at MONEY Magazine and is the author of "Investing for the Financially Challenged." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Mondays.
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