NEW YORK (CNN/Money) -
I'm 37, married but no children yet and I've just sold a piece of property I inherited for $1.2 million.
Other than the sales proceeds, I have very little in the way of financial assets -- a tiny retirement account, a bit in savings and a stock portfolio worth about $20,000. How do you suggest I invest my windfall?
-- Arthur Palmer, Stamford, Conn.
Ah, the curve balls life throws at us. Sometimes it's a bill we can't handle, other times it's a "downsizing" notice from our employer, and for a lucky few, it's a million-dollar bonanza.
Before we get to advice about investing your tidy little windfall, I just want to remind you to take care of any tax liability you may face as a result of the sale of this property. The amount of taxes, if any, that you owe will depend, of course, on your basis in the property -- essentially, the value from which you'll calculate any gain or loss.
For more on that, you may want to check out the section on basis of inherited property in IRS Publication 559: Survivors, Executors and Administrators or consult a tax adviser.
One other thing before we talk about investing. You've got a nice little leg up financially with your windfall. But it's not enough money to guarantee a person your age a luxurious existence for the rest of your life. So I wouldn't let this inheritance interfere too much with the way you would normally live your life (assuming you would live it normally).
Which is to say you should probably go about your life as you typically would, working, saving for retirement, etc. and not jack up your lifestyle to a level that's not sustainable for the long run. You don't want to end up like one of those lottery winners who live large for the 20 years they receive payouts on their big score and then find themselves without resources.
Enough lectures. When it comes to investing your money, I see two ways to go.
First, you could make a case for investing your stash very conservatively. The theory here is that since you're not going to be dipping heavily into this stash to fund your current lifestyle, you don't need to take a whole lot of risk to make it grow over the next 30 years or so.
Even if you don't get maximum growth potential, you're still going to end up with a healthy sum of money, so why push things? I do think you'd want to be sure it outpaces inflation, certainly, but even a modest asset allocation of, say, 50 percent stocks and 50 percent bonds, ought to do that for you, although you could certainly go to 60 percent stocks/40 percent bonds, which is still considered a rather conservative stance for someone your age.
On the other hand...
But I think you could also make a good case for investing rather aggressively. Here, the reasoning goes like this: since you won't be dipping into this money very heavily to fund your current lifestyle, you don't really need to concern yourself with short-term fluctuations in its value. Thus, you can afford to load up more volatile assets like growth stocks and put less into bonds.
If you were to follow this line of thinking, you might consider an allocation on the order of 80 percent stocks and 20 percent bonds, although you could dial the stock percentage up or down by 10 percent, depending on your tolerance for risk, and still fall into the aggressive category.
So which approach is right? I see it largely as a matter of personal preference and your goal. If you're a cautious type or you're mainly concerned with having enough money for your family and your retirement, you should probably lean toward the conservative approach.
If you're more of a risk taker or you'd like to build a legacy that you can pass on to the next generation (your kids, if you eventually have some, or other heirs), then you might want to take the more aggressive approach.
Whichever way you go, think you ought to check out our Money 101 lesson on Asset Allocation so you have a better sense of the ramifications of choosing different mixes of stocks and bonds.
To manage or not to manage?
You've also got another choice: whether to invest in individual stocks and bonds, mutual funds or turn over your money to an individual money manager (an option known as investing in a managed account).
You've certainly got enough moolah to make buying specific stocks and bonds worthwhile, so I see it more as a question of whether you feel you have the time and expertise to research, choose and manage your own portfolio of stocks and bonds.
If there's any doubt about that -- and, since you're written to me for advice, I'd say there probably is -- then I'd be reluctant to go that route (although you could test the waters with a tiny portion of your money as a learning experience and to see how you do).
Assembling a portfolio of mutual funds is certainly something most reasonably intelligent people can do, so I'd say this option is certainly viable.
If you're thinking of doing so, I suggest you first check out our Money 101 lesson on Investing in Mutual Funds. I'm a big believer in making index funds at least a core holding in a fund portfolio, so I think you ought to consider that approach.
You can learn more about index funds by going to such sites as Morningstar and IndexFunds.com. To screen for individual funds, you can go to our Fund Screener.
The third option -- having a professional money manager choose and oversee a portfolio of funds or individual stocks and/or bonds in a managed account -- involves a certain paradox.
On the one hand, it frees you from having to worry about choosing specific investments. On the other, however, you've got to choose the manager who's going to free you from the worry of choosing specific investments. And that can be a bit of a daunting task.
There are lots of managers out there vying for wealthy investors' money, but the fees can get steep, as much as 1 percent a year or more. And you want to be sure you've got someone looking out for your interests, not just his own.
To learn more about this option, click here. If you're a MONEY or AOL subscriber, you might also want to check out a story I did in the March issue of MONEY on managed accounts; if you're not a subscriber, get the magazine at your local library.
To sum up, I'll note that Winston Churchill once said that "the price of greatness is responsibility." Apparently, the same applies to wealth. Good luck in taking responsibility for your windfall.
Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Mondays.