Windfall Investment Plan: Deploying a $116k Non-Taxable Settlement

Okay, this is a pretty common and relatable situation. Receiving a lump sum like a settlement can be overwhelming. The previous analysis offers a great framework, and we can tailor it to your specific numbers and concerns.

Here’s an investment recommendation and plan based on your $116,000 non-taxable settlement:

Investment Plan for $116,000 Settlement

This plan prioritizes security, addresses your immediate financial concerns (like debt and an emergency fund), and then focuses on long-term growth, all while aiming to reduce anxiety through a clear, step-by-step process.

Step 1: Secure the Funds & Create Breathing Room (Immediate Action)

• Action: Deposit the entire $116,000 into a high-yield savings account (HYSA) or a brokerage cash management account.
• Rationale: This keeps your money safe, liquid, and earning a competitive interest rate while you make further decisions. It immediately alleviates the pressure of having to invest everything at once.
• Options:
  • Brokerage Cash Management Account: Consider options like Fidelity's SPAXX (a money market fund often used as a core position, currently yielding around 5%) or a similar fund at another brokerage. Your financial planner friend suggested Fidelity, and SPAXX is a common, good choice for this purpose.
  • High-Yield Savings Account (HYSA): Many online banks offer HYSAs with competitive rates, often significantly higher than traditional brick-and-mortar banks. Since your Wells Fargo promo rate ended, this is a good time to find a new HYSA for both this settlement and potentially your existing emergency funds.
  • Vanguard Cash Plus Account: You noted this at 3.65%. While it’s an option, compare its current rate to SPAXX or top HYSAs, as they might offer better returns for parked cash.
• Key Benefit: Earn interest immediately while reducing decision-making stress.

Step 2: Fortify Your Emergency Fund

• Rationale: A robust emergency fund is the bedrock of financial security, protecting you from unexpected expenses without derailing long-term investments or forcing you into debt.
• Calculation: With a net income of $9,000/month, a 6-12 month emergency fund would be $54,000 - $108,000.
• Action: Assess your current emergency fund. Use a portion of the $116,000 settlement to bring your emergency fund to your desired level (e.g., 6-9 months, or $54,000 - $81,000) within an HYSA. If your current EF is in a low-interest account, move it to an HYSA as well.
• Goal: Have 6-12 months of essential living expenses in a liquid, safe, and interest-bearing account.

Step 3: Strategically Address High-Interest Debt (Husband's Student Loan)

• Details: Your husband has $50,000 in student debt at 5.125%.
• Analysis: Paying off this debt with a portion of the settlement provides a guaranteed, risk-free return of 5.125% by eliminating future interest payments. This is a very attractive return, especially in the context of after-tax investment gains. The uncertainty around the "SAVE plan litigation" might also make eliminating this debt more appealing for peace of mind.
• Recommendation: Strongly consider allocating $50,000 of the settlement to pay off this student loan in full.
  • Financial Impact: Frees up future cash flow that was going to debt payments and provides a solid, guaranteed return.

Step 4: Invest the Remainder for Long-Term Goals (e.g., Retirement)

• Calculate Remaining Capital:
  • $116,000 (Settlement)
  • MINUS Amount allocated to top up Emergency Fund (if any from settlement)
  • MINUS $50,000 (if you choose to pay off student debt)
  • EQUALS Amount available for long-term investment.
• Strategy (You're 38, long time horizon): Invest in a diversified, low-cost portfolio.
  • Asset Allocation: Given your age, a portfolio heavily weighted towards equities (stocks) is appropriate for long-term growth, balanced with some bonds if you prefer lower volatility, though at 38, a higher stock allocation is common.
  • Investment Vehicles:
    • Low-Cost Index Funds or ETFs: These are ideal. They track broad market indexes (e.g., S&P 500, Total US Stock Market, Total International Stock Market), providing instant diversification at a very low expense.
    • Providers like Vanguard, Fidelity, or Charles Schwab offer excellent options.
  • Account Types:
    • Maximize Tax-Advantaged Accounts: If you or your husband have available contribution room in 401(k)s, 403(b)s, or IRAs (Traditional or Roth), consider increasing contributions there and using the settlement cash to supplement your living expenses, effectively funding these accounts with the settlement money.
    • Taxable Brokerage Account: For funds beyond what can be contributed to tax-advantaged accounts, a standard taxable brokerage account holding low-cost index funds/ETFs is suitable.
• Avoid Speculation:
  • Resist the temptation to invest in individual stocks like Rivian. While some individual stocks can perform well, they carry significantly higher risk and require much more research. For the bulk of your long-term money, broad diversification is key. Subreddit sentiment is not a reliable indicator for investment decisions.
• Example Portfolio (Illustrative): A simple, effective portfolio could be a mix of:
  • Total US Stock Market Index Fund/ETF (e.g., VTI, FZROX)
  • Total International Stock Market Index Fund/ETF (e.g., VXUS, FZILX)

Step 5: Continue Learning & Stay the Course

• Financial Literacy: It’s great that you’re reading books like "I Will Teach You to Be Rich" and "The Psychology of Money." Continue to educate yourself; this will build confidence and reduce anxiety.
• Automation: Set up automatic investments if possible to maintain discipline.
• Review Periodically: Revisit your plan annually or if major life changes occur, but avoid making drastic changes based on short-term market fluctuations.
• Professional Advice (Optional): If you continue to feel anxious or overwhelmed, consider a consultation with a fee-only financial advisor who can provide personalized advice without conflicts of interest from selling products.

Summary of Allocation for the $116,000 (Example Scenario):

1. Parked Initially: All $116,000 into HYSA/SPAXX.
2. Emergency Fund Top-Up: Let’s assume you need an additional $20,000 to fully fund your EF to your target. ($20,000 remains in HYSA from the settlement).
3. Student Debt Payoff: $50,000 used to eliminate the 5.125% loan.
4. Long-Term Investment: $116,000 - $20,000 - $50,000 = $46,000 invested in a diversified, low-cost index fund portfolio for retirement.

This step-by-step approach should help you manage this settlement effectively and with reduced anxiety. The key is to make deliberate decisions, starting with securing the funds and addressing foundational financial needs before moving to long-term growth.