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Question By
Montana1980

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Should we buy an annuity
Due to an inheritance we have 234 thousand invested and 150 thousand outside the trust invested in a mutual which we can drawn on. The investment was 250 thousand dollars 20 months ago. We have found a new financial advisor and he says to put three months of expenses in a savings account and one month of expenses in checking (take from the fund outside the trust.) The rest put into 12 and 24 month CD's. The remaining money in the trust he feels should go in a 5 or 10 year annuity. My wife's brother doesn't think we should switch advisors or the investments and leave investments as they are. Any advice other than a marriage counselor?

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You might want to do some research...

Helpful to 2 out of 2 people

Congratulations on the windfall!

I agree with having the expenses set aside for emergency. Why take it from your inheritance or trust? Don't you have an emergency on your own already? The reason I ask is that why not invest the full amount rather than taking a little from it and pay taxes, since it counts as your income. But if you don't have any emergency fund set aside at all, then it is good to set about 3-6 months worth of expenses. If you have a decent income with lots of liabilities (kids, college, debt, mortgage, etc..) then you might want to put aside more. Also, if your household income is unstable then you would need MORE months since it is unpredictable. In general, the less stable your income is, the more you need to set aside.

I would not invest in CD's at all due to the very low mature rate and short mature time as indicated. If you want to invest the money, why would you keep it in a short term plan? You didn't mention your age or retirement goal, so I cannot be more specific. Might as well let it grow and think about long term. Therefore, CD's wouldn't make sense. 

Regarding annuities, I hope you understand the concept of it. But I don't recommend annuities since you are giving the insurance company a big chunk of your money ahead, then draw a certain set amount (in most cases) for the rest of your life during retirement. Worse is that it is less if you have it in set time frame like you mentioned. Think about it. You give them a large amount at first then only to gamble with time to collect minimal set amounts back monthly. Would you live long enough to get all your money back? Annuities are usually recommended due to the advantages for the ADVISORS, not the fund owners, because of high commission for them! They are in favor of the agent more than the fund holder. 

If I had that money, I would simply put the full amount into mutual funds and not cash out any. Taxes would reduce what you can get in your hand, so it's not that great of an incentive. Then I'll contribute a set amount into it monthly as well to help it grow, if you don't have some type of investment account already. Once it's invested, it's not gonna be touched until the retirement age. But if you have some heavy debt load, then I would recommend using your own money and as little as possible from your inheritance to wipe out your debt as soon as possible. Debt corrodes your ability to build wealth. 

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I had given a lengthy reply, but apparently this website didn't approve it. 

In a nutshell, I believe the advisor to be incorrect.  Do some research and read up on investments, keep looking.  The current advisor seems to be more on top of things.. 

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Reply by
mindjazz

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The accounts the new advisor wants you to invest in,  pay extremely little other than some annuities.  Diversification is the key. 

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