My niece is a college student who got a settlement for $150,000 and wants to use it primarily to generate income to help pay for living expenses while she is in college. Should she use the typical “income” asset allocation model of 65% bonds, 15% stocks, 20% money market? And would it be more lucrative for her to refinance on her fully paid for $185,000 home and add that money to the investment portfolio? Or would the new mortgage not make it worth while?

Never take out a loan to invest. If you happen to lose the money in the investments, now you just have a loan. It’s way better just to have a paid-for house and no mortgage for the rest of your life.

I’d say a college student, first of all, needs this money in a trust where she can’t get at it until she’s 30. Even if she’s responsible and level-headed, she will be more so in 8-10 years.

Then I’d say invest the money primarily in government-backed securities like municipal bonds or treasury bonds. Invest some in stock funds, but not individual stocks (more likely to go under). I don’t think you really need any in cash (i.e., money market) if you go with my 10 year time-horizon suggestion.

Thanks and Good Luck!