What to Do With $100,000

But what happens when the fantasy comes true? Is "found money" easy to spend well or wisely? How difficult is it to manage a windfall?

It may be hard to remember in a time of shaky stock markets and subprime jitters, but it's still the age of affluence in America — which means more of us than ever will soon face these sorts of questions. Almost one in 12 American families, or more than nine million households, reported having collected an inheritance of $100,000 or more in recent years, according to the Federal Reserve's Survey of Consumer Finances. That trend should accelerate soon, as baby boomers find themselves on the receiving end of an unprecedented transfer of wealth. And inheritance is just the beginning. Despite the impact of the credit crisis, for example, the average year-end bonus on Wall Street in 2007 was just north of two hundred grand, while law firms dropped similar-size bonus checks on their overworked associates. And never mind those grim housing numbers; nationwide almost six million people sold their homes last year, often netting sizable profits.

Timing is everything, of course, and the arrival of a windfall isn't always a signal to treat yourself to something nice. To begin with not everyone is in a spending mood. The cloudy economic climate drove consumer confidence to a two-year low in November, with many consumers inclined to sit on their money and wait for more-stable times. In addition not everyone should treat a bodacious bequest strictly as fun money. Anyone with significant consumer debt or a barren retirement account — common problems in good times or bad — should address those first.

But even for people whose financial houses are already in order, there's little that's easy about easy money. According to the Holmes-Rahe scale, used by psychologists to measure stress, a sudden change in net worth is more stressful than changing jobs or getting married. "It creates a cascade of decisions that need to be made," explains Eileen Gallo, a psychotherapist who specializes in financial issues. "You don't want to look back in five years and say, 'Well, I blew that.'"

That's where we come in. We want to help you make the right choices, whether you're investing or splurging. Because windfalls are getting larger all the time, we settled on $100,000 as a convenient round number. Then we consulted experts in fields ranging from fine arts to farmland to philanthropy, looking for ways to get the maximum return. Our insights balance financial benefits with emotional ones. Your inner child, for example, can rejoice in the fact that comic art is sizzling, with sought-after pieces tripling in value within two years. Your inner accountant, on the other hand, will be glad to hear that a hundred large can bring you lower investing fees, higher returns on your stock portfolio, and greater access than ever to Warren Buffett. All the ideas gathered below share a common goal: leveraging a windfall to reap long-term gains — and a little fun along the way.

Clarke's coup shows just how fruitful it can be to put money into real estate — yes, even now. With all the Sturm und Drang over the housing market, it's easy to forget that real estate still presents the opportunity to purchase a valuable asset for what amounts to pennies on the dollar, greatly magnifying the return on investment. Say you put $100,000 down on a $1 million home. If the home increases just 10% in value in two years, to $1.1 million, the return on your down payment is a sweet 100%, minus financing costs. Real estate is historically a stable investment — averaging 7.25% annually since 1978, according to a recent study by economists Jack Clark Francis and Roger Ibbotson — and it will be again, once the subprime mess is sorted out.

Even after a windfall you'll probably still need to borrow, but that's where an extra $100,000 comes in handy: Ample cash reserves make you more attractive to lenders. The tightening in the credit markets means lenders these days expect at least 10% down. Go beyond that threshold — to, say, 25% — and a lender may discount the interest rate by an eighth of a point, says Keith Gumbinger, vice president with HSH Associates, a mortgage research firm.

Paying more than 20% also lets you avoid private mortgage insurance, currently about $250 per month for a $400,000 loan. Potentially best of all, a larger down payment could help you avoid a jumbo mortgage — one of those loans above $417,000 that Freddie Mac and Fannie Mae won't buy. The spread between conforming and jumbo loans has grown during the subprime crisis and stood at almost three-quarters of a point at the end of 2007, a difference that results in additional expenses of nearly $100,000 on a 30-year $450,000 mortgage.

There's another way to sidestep the volatility of the housing market: Forget about a house, and buy land. As the old saying goes, they aren't making any more of it. Land on average accounted for only 10% of a home's value in 1950. Today it's more than 40%. "The house is like a Honda Accord — it deteriorates over time. It's the land that appreciates," says Morris Davis, a real estate professor at the University of Wisconsin who has studied land values. During the boom home builders and speculators spent lavishly to accumulate land. When the party stopped, they abandoned those positions, which contributed to plummeting prices. The cost of suburban land is more than 6% below its 2006 high, according to research firm Real Capital Analytics. In Denver, where builders gobbled up every available parcel, some lots are being unloaded for 50 cents on the dollar. "When your biggest buyer isn't buying, prices are going to go down," says Mike Kboudi, a land broker in the area.

Davis is among those who believe the slide presents an opportunity for savvy buyers. Of course, land can come with its own set of headaches — think planning boards and neighbors wanting to restrict development. A less hands-on way to speculate on land is to invest in a company that owns it. Many investing pros are bullish these days on Plum Creek Timber (PCL). This real estate investment trust (REIT) owns forest land in more than a dozen states, which has helped it buck the housing slump. The stock rose 16% last year, while the U.S. REIT index fell 22%. The reason: As land values fell, the trust's trees were able to literally grow more valuable.