Investing Advice?

[kib]

Ok, CD came due, I have some cash to invest, and I'm scratching my head. I want a low risk return of at least 4%. Yes yes I know, inflation risk and all that. I can mitigate inflation risk, it's built into my lifestyle. Just work with me, because as far as I'm concerned, reliable, pathetically low return of 4% is still a unicorn. I have real estate I haven't been able to sell, it's in a location that hasn't yet bounced back from the bubble bursting, so I don't think I'd want more real estate / REITs. The stock market seems overpriced. I have a history of jumping in at a peak and watching my investment crash (then panicking and selling low. I know, I know, but my heart can't take it!) Treasuries and CDs are, for cripes sake, still in the toilet, Fed, come on already. Not going for something esoteric like Bitcoin, which I have warm fuzzy feelings about but honestly don't understand. I would consider some p2p lending, but I can't do Prosper or Lending Club in AZ, have to buy notes on a secondary market, which I'm not quite so excited about.

I've been reading some investment newsletters and suggestions and feeling sort of overwhelmed. Should I just drop this in an index fund and close my eyes? Anyone have an opinion, ETF vs. Mutual Fund? Anyone have a strong opinion on higher risk, higher reward you feel is poised for the "reward" part? Should I park this in a 1% mma and wait? I'm lamenting Joe Dominguez and the days of the 8% treasury bond at present.

WWYD / what Are you doing?

[ApatheticNoMore]

Municipal bonds might get you some return (as in actual interest not just stock price appreciation), it would be more like 2-3% probably (you avoid some taxes though). I guess if you can buy bonds themselves and hold until maturity it's safer, bond funds have all the risk of bond funds (interest rate risk mostly, if interest rates went up a lot they'd go down a lot). Bonds themselves as with bond funds have the risk of default.

A financial advisor is managing a relatives money and doesn't recommend risk beyond 4% ideally or 6% at the absolute most (some of the rest of the money that they aren't managing is in munis which they think are mostly an ok investment in
California at least). But mostly they advise take the 4% and spend less, they plead, please it's much better to just learn to spend less. Because yes they can take more risk and get more if more than 4% is needed to live on, but it's really better to spend less if at all possible. And even then to get 4%, they've managed to find some good less risky investments, but they HAVE TO be in some stocks, and the investment goes down whenever the stock market gyrates. Retired and elderly as well people have to gamble their money in the stock market in this rate environment. >8)

[ApatheticNoMore]

And there seems to be a lot of move to safer investments now. A low risk 4% rate of return. Good luck with that.

I don't consider myself an investor and to really know. I do know what is almost certainly ill advised, that's listening to the back and forth chatter in investment newsletters and the like and to try to make sense of it that way. A sure path to driving oneself crazy.

The powers that be are prepared for a crash if it happens, the government is backing derivatives again, making even bank accounts less safe.

[rodeosweetheart]

I guess it depends on how much, for how long, do you need the money to live on, questions like that. Are you investing for yourself? For a child or grandchild? Do you want to do a charitable trust, and get tax advantages? Is it live-on money or money you can do something else with? Are you fully funded in your emergency funds, would you better spend it on solar panels for your house, tuition for offspring? (Just trying to think creatively here.)

One thing you could do is go speak to Schwab, Fidelity, Vanguard, about what they might suggest. Your local bank may have someone to talk to. Mine did, and some were good and some not so good.

I guess there are more cd's out there, short term. while you start to do your research. Looks like you have done some thinking but more education might be good? How about some good basic investing books--anybody have any good suggestions?

A lot of people are really happy with Vanguard index funds as a low-cost alternative. I don't do that, but a lot of people do. I would definitely make educating yourself your first priority, so that you understand what advice you are going to be getting.

If you just want to hold the instrument and get regular interest, then what about a very long term cd? You won't get 4, but again, it depends on what you are trying to accomplish.

There are a lot of different approaches and they usually relate to what you are trying to accomplish and your time frame, and whether you need the money, etc. etc.

I know it's a lifelong educational process, to try to figure out the best thing to do, unless you want to hand over the reins to someone else. But that has some real pitfalls, too. And if you do it yourself, you have to keep learning anyway, as a strategy that is successful 10 years ago may not be now.

But that's an impossible question to answer unless you have a clearer handle on what you are trying to accomplish. And ultimately, you have to think it through, whatever advice you get.

[LDAHL]

Here’s my philosophy of investing, for what little it may be worth:

1) I have no confidence in my (or anyone else’s) ability to consistently time the stock market.

2) I have no confidence in my (or anyone else’s) ability to consistently predict interest rates.

3) I have (some) control over investment expenses.

4) I have (some) control over the levels of risk I assume over the various categories of investment related risk.

5) If the Doomers and Conspiracy-mongers are right, it doesn’t matter what we do. Therefore, I’ll make a kind of Pascal’s Wager with the markets and assume a reasonable level of risk for a reasonable level of return on the assumption the sky is not going to fall.

6) There are certain things that I need and certain other things that I really like.

7) I am lazy now, and may become cognitively challenged later, so simple strategies are best.

8) I will fund the things I need with some (relatively) safe and stable sources like pensions, Social Security and a TIPS (Treasury Inflation Protected Securities) ladder. This will cover all those needs necessary to keep from losing sleep over where my next cheeseburger is coming from.

9) I will fund the things I like with a (somewhat) riskier portfolio consisting of a 50/50 allocation of the (fairly cheap) Vanguard Total Market Index Fund and the Vanguard Intermediate Bond Index Fund. Once a year on my birthday I will withdraw 4% and rebalance back to the 50/50 allocation. There will be good years and bad years, but that will only affect the quality of the scotch I drink and my attendance at Chicago Cubs home games.

10) I will refrain from following the markets to minimize the temptation to “do something”.

[Rogar]

KIB, maybe you have done this already, but I have a target fixed income type investments to equities ratio. I'm very generally using the old rule of thumb one hundred minus age equals the percent I am willing to risk in the stock market as equity holdings. For some that might be more and others less depending on their willingness to accept risk. If I were in your position and was at my target ratio, I wouldn't change things by switching from fixed income to equities, but try to stay on track with a long term plan. I like the idea of municipal bonds, held individually and not in a fund. Other than that I'd probably swallow the bitter pill of low interest and go with a CD or set up a CD ladder.

[sweetana3]

Rodeosweetheart is right on point. No one can give you great answers until you have figured out what you want over what timeframe (not with investments but with life). We always believed in diversification, simplicity, and dollar cost averaging. Never tried to hit the high and tried to miss the lows. Eliminate emotion and have a consistent move towards your goals.

If you cannot handle moves up and down on a portfolio, consider cash. Nothing is worse than putting it in at the high and pulling it out at the lows due soley to emotional reaction to news stories. Best to get yourself to a low cost manager like Vanguard or Fidelity (who have excellent research materials online) and start investing in index funds. Have a diversified set of funds and build towards your goals.

We did exactly this. Over time the name of one of our funds was for us the RV purchase fund. We decided we did not want an RV but kept investing. We have tax deferred and taxable. The taxable is invested in a variety of index funds and international. The tax deferred is managed by the 401K manager. We also have 40% cash due to our age. Every time we got any extra money, we talked over our goals and current income/debt to determine what to do with these funds. Often we used the 30% spending, 30% savings and 30% reduction in debt(or so) but this depended on interest rates and what our investments were doing.

Note that everything depends on your goals. These can change over time but it is far easier to make decisions and to help you with plans when you know your own plans for the future.

[kib]

:)

First off, thank you. I know this has never been a site that's as forthcoming about financial information as some, so for those of you who put it out there, I appreciate it.

So.

1. No debt.
2. Emergency fund enough to cover 2 years of bare bones living. Houses paid for, cars paid for, no kids, no grandkids, no grand education plans for anyone. Life just sort of plods along and it's all good.
3. laddered long term cds and treasuries of yore currently yielding about $35K per year, which comfortably covers my share of our expenses / dedicated savings with 5-10K left over for playing. It's not mansions and yachts, but the scotch isn't bad.

Therein is the problem. Unfortunately I have a lot of pretty stuff, guaranteed in the 6-7% range, coming due at once. So ... I'm not exactly worried. Investing in 3% 10 year cds would, theoretically, cover at least my living expenses, if not the quality scotch. But I've always liked a large margin of safety and halving my investment returns doesn't feel like a large margin of safety, it feels depressingly stupid.

The money I live off of isn't being drawn directly from the investments, but it was calculated based on the returns. So ... on one hand I still don't need a dividend that pays out monthly, but on the other, I can't go on drawing from the reserve at a rate that doesn't reflect what I'm earning.

Did that clarify anything? :~)

ETA: I understand what you're asking, but I've never been in a position to say "when" I'm going to need this money. Maybe never, maybe next year, depending on family stuff and now, husband stuff.

[rosarugosa]

I do a mix of index and bond funds in my 401K, and we have DH's IRA in Vanguard index funds.
I've been surprised at my ability to remain strong in the face of market downturns, although I suspect that may diminish as I get closer to retirement age. My special strategy is that of the ostrich, and I just avoid looking at my accounts if I know I won't like what I see. It may sound silly, but it's worked for me through a few recessions. I also highly recommend the Bogleheads site. In fact, I need to spend more time there, so much to learn!
http://www.bogleheads.org/forum/index.php?sid=3c52f16bcfade2731d4c45611330f5e9

ETA: I am fortunate to be vested in a DB pension in addition to a 401K. While living on the pension alone would probably reduce me to swilling rotgut, I suspect the pension eligibility makes me a little more risk tolerant with the 401K and IRA accounts.

[sweetana3]

I just want to ask where you get no risk 10 year cds at 3%?

10 year Treasuries are 2% and our credit union is 1.51%. I, as most do, hope for increased interest rates but this hope has existed for a long time.

[kib]

https://www.midfirstdirect.com/Products/Internet-Banking-CD-Rates.aspx

[kib]

Should I be jumping on that? Sigh.

[iris lilies]

If you don't have anything in the stock market and it looks like you don't, I would get in. I wouldn't throw the whole wad in it right now, but would throw equal portions each month over the next year or two, depending on how much it is. This is your long term investment. And buy index index funds, of course. Sure, it's going to go down, it's crazy high right now, but you are young enough that it will go back up again. And you are young enough that it will go back down agian, But then--up!

[kib]

And then, down! :-)

Actually, that sounds sensible, IL, I've been stressing out over throwing the whole chunk into the market but I can probably put in $5K a month without having a stroke when it tanks. Maybe. Lol. Good advice from everyone (especially the "not looking" part!) Thank you again.

[sweetana3]

We have been heavily investing for over 30 years. Our portfolio has gone up annually as much as 37% and our biggest drop was -25% (but it went up 23% the next year). Now it can move as much as we had in net worth the first year in just one day.

We keep all this info in a "Life Book" we created to gather our plans, financial goals and data, purchase info and all kinds of things we discuss about our life. This book is updated at least annually now. When we started and were working on budgets, we would do it monthly or no less than quarterly. Now we are mostly on auto pilot.

[SteveinMN]

If you don't have anything in the stock market and it looks like you don't, I would get in. I wouldn't throw the whole wad in it right now, but would throw equal portions each month over the next year or two, depending on how much it is.
It isn't often I agree completely with iris lilies :) but I believe her advice is spot on. You're not going to find a risk-free real 4% right now. By investing the money as il suggests, you're dollar-cost-averaging, which helps avoid the utter highs and lows. If you have any length of time available for that money, the U.S. market right now is the place you have to be, at least for some of your money.

[rodeosweetheart]

KIB, check out this vanguard website, at https://investor.vanguard.com/info/account-upgrade:
What's new

Our new account structure offers a simple way to organize all your investments. You'll no longer need an account for Vanguard mutual funds and a separate one for brokerage products, such as exchange-traded funds (ETFs) and stocks. Each of your accounts can hold any investment you choose.

So you might want to consider something like this, where you can hold all the money in one place, in a combination of cd's, index funds, ETF's, and stocks. I'd rather do something like that if you wanted to buy some cd's, then to put them in the online bank you linked, because you have flexibility to create a big picture portfolio, meaning linking your actions to your own big picture, once you have identified what that is, and how you want to get there.

It sounds like you are in a wonderful place right now, financially speaking, and just need to do some more thinking and learning and reevaluation of long term strategy, to meet your long term goals. I'd also consider talking to a fee based financial planner to help you identify your needs/wishes for the long term and figure out how to protect yourself, as it sounds like this is basically nest egg investing, which is different than just getting a sum in that you can play with/afford to lose.

[Yossarian]

without having a stroke when it tanks.

I went lump sum on my last conversion but psychology is a factor. From Bogleheads:


When you are ready to invest money, a common question is whether you should invest it as a lump sum or Dollar Cost Average (DCA) by splitting your investment across several payments. The answer depends on your psychology. In most cases, you are moving your money from cash (or the equivalent, a low-yielding money market) to some mix of stocks and bonds. The expected value of both stocks and bonds are higher than cash. However, their volatility is higher as well. The risk is that just after making your investment, the market could crash, causing you to feel bad that you invested when you did. Of course, according to Bogleheads Investment Philosophy, you should only be investing in the first place into a diversified asset allocation. Also, you should only be holding volatile funds like stocks and bonds if your investing horizon is long enough to ride out their volatility.

For a completely rational investor, lump sum investing will always produce a higher expected return, because it immediately moves your funds from asset classes with lower expected returns to ones with higher expected returns. Note that higher expected returns do not guarantee that your actual returns will be higher. According to an investopedia article, [6] studies indicate that lump sum investing has produced higher returns 66% of the time.

Some investors have the goal, not of maximizing their expected returns, but of minimizing their potential regret. For those investors, dollar cost averaging is superior because it reduces the chances of investing just prior to a market drop. If you instead decide to invest 1/6th of the money each month for 6 months, you will reduce the chance of buying just before a crash. Instead, as the price fluctuates each month, you will buy more shares when the price is low and less when it is high.

Many new investors are more interested in minimizing their potential regret, and it's important that an ill-timed market drop not scare them off from investing in the future. Many experienced investors are more interested in maximizing their expected returns. You can also decide to split the difference, where you invest half immediately and the other half over 6 or so months.

[frugal-one]

Sweetana.....We also have 40% cash due to our age.

What is this about?

[sweetana3]

It lets me sleep at night. Part of being balanced and being able to ignore the sometimes wild swings of the market.
The 40% varies due to the value of other investments but that is ok.

someone mentioned taking 100 minus age to get the percentage. I dont think that is where we got the 40%, maybe I just did not want to say 50% was in cash?

[iris lilies]

It lets me sleep at night. Part of being balanced and being able to ignore the sometimes wild swings of the market.
The 40% varies due to the value of other investments but that is ok.

someone mentioned taking 100 minus age to get the percentage. I don't think that is where we got the 40%, maybe I just did not want to say 50% was in cash?

I'm glad you said this.

My DH gets cranky when I want to just keep cash, and here we are, he thinking "we've got too much in cash" yet in his estimate, it's only about 15 - 20%. I personally haven't run the numbers. But I did pull out 2/3 of my own 501k-type investment and put it into cash in fall 2013. And yes, I missed some of the stock market run up, but I am ok with that. The high stock market numbers right now make me nervous.

After hearing this I think I'll look to see where else we can cash in some investments.

[Bartleby]

FWIW, some Vanguard bond funds, moderate risk, with SEC yields near or above 4%:

Long-term Investment Grade (VWETX) 3.72%
Emerging Markets Govt Bond Index (VGAVX) 5.08%(0.75% purchase fee)
High-Yield Corp (VWEAX) 5.07%
Long-Term CorporateBond Index (VLTCX) 4.1% (1% purchase charge)

Could consider ETF versions to avoid the purchase charges, if you have a Vang brokerage account.
B