I'm Facing a Layoff — Should I Invest Half My Severance Pay of $110,000 in an ETF?

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If you’re facing being laid off from your job and you’re wondering what to do, you’re far from alone. There have been lots of layoffs in the business, education, and government worlds this past year, at workplaces such as J.C. Penney, Walt Disney, and Stanford University. Even Microsoft has laid off thousands.

Here’s a look at a specific question posted on Reddit by a worker, along with a discussion of some issues you might consider if you’ve been laid off or might be soon. Think through them carefully so you can make smart decisions.

Asked on Reddit: I’m facing a layoff — what should I do?

Here’s the question from someone on Reddit:

I’m Getting Fired
byu/ReindeerTypical2538 individends

The question is very specific, offering details about this couple’s financial and personal situation. Below is a response that applies to a wider group of people, featuring a bunch of considerations.

Start with an emergency fund

It looks like the questioner received a severance payout of $220,000, which is a handy sum. (Most people get laid off with far less.) It’s good that the poster and spouse already have $570,000 in retirement accounts, and they should aim to leave those investments to keep growing.

Presumably, the spouse is still employed, so some money is still flowing into the household. That’s good — and is not always the case. It’s vital for most of us to have an emergency fund; it should be loaded with enough accessible money to support us for at least three months, if not longer. Unexpected job losses or even costly health setbacks can happen, and you don’t want to have to remove money from retirement savings to handle that.

Pay down any high-interest debt

If you’ve got some high-interest-rate debt, such as that from credit cards, you’d do well to spend some of your severance money paying it down (or, ideally, paying it all off). That’s because it’s hard to get ahead when you’re paying hefty interest installments. Consider that the average credit card interest rate was recently 25.37%, per Forbes Advisor. If you owe, say, $50,000 and you’re being charged 25%, you’re looking at interest payments of around $12,500 per year — without even shrinking the amount you owe!

Think of it this way, too: If you’re investing in stocks, and are hoping to earn the stock market’s long-term average annual return of close to 10% while paying 25%, you’ll lose ground instead of getting ahead. So get out of any high-interest-rate debt as soon as you can.

Set up a sensible, powerful growth portfolio

Once you have an emergency fund and are out of debt, you can think about your long-term portfolio. For most people, one or more simple, low-fee index funds, such as one that tracks the S&P 500, can be all you need to build long-term wealth. Check out how your money could grow at 8%:

Data source: Calculations by author.

Here are a few index ETFs to consider:

• Vanguard S&P 500 ETF (VOO 0.61%)
• Vanguard Total Stock Market ETF (VTI 0.51%)
• Vanguard Total World Stock ETF (VT 0.48%)

There are many other powerful ETFs to consider investing in.

Consider consulting a financial advisor

These questions and concerns, regarding how you’ll get by day to day after a possible job loss and how you can save for the future, are really important. So don’t just wing it, especially if you’re nervous and not confident in what you’re doing.

Consider consulting a financial advisor. You may find one or two who will offer a free initial consultation. That can help you determine whether you’re comfortable with them and think they can help you. Even if you end up paying for an advisor’s time, it can be well worth it if it helps you save money and sleep better at night.

The Motley Fool generally recommends fee-only advisors, and you may find some near you via the websites of the National Association of Personal Financial Advisors (NAPFA) or the Garrett Planning Network.

So if you’re facing a layoff and have some money to deploy, be thoughtful about where you deploy it so you can strengthen your financial condition.