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What's the best place to put $200K in lifetime savings, given that my retirement plan is already in mutual funds? An advisor suggested a USAA mutual fund based in short-term bonds, but having lost plenty in the crash (with both stock and bond mutual funds tanking, though I thought the bond funds would OFFSET the stock losses), how do I know the bond mutual fund won't drop in value if interest rates eventually change?
What's the best place to put $200K in lifetime savings, given that my retirement plan is already in mutual funds? An advisor suggested a USAA mutual fund based in short-term bonds, but having lost plenty in the crash (with both stock and bond mutual funds tanking, though I thought the bond funds would OFFSET the stock losses), how do I know the bond mutual fund won't drop in value if interest rates eventually change?
I don't like conventional bond funds. A lot of people confuse them with bonds (not that you did), and this is not the case. Bond funds buy and sell bonds; they do not generally buy them at par and hold them to maturity. I used to work for a company that managed mutual funds, including a bond fund, and I saw it all the time. Since the bonds may rise or fall in value, you have a portion of the principal risk normally associated with equity mutual funds. And some years the fall can be pretty bad, and every time, a bunch of people who think they "bought bonds because ya always get your money back" take a look at their statements and wonder how it is that their bonds declined in value.
You describe these as savings rather than a retirement plan, which you mention as separate. If these are truly savings, I would treat them as such. I would split them between two credit unions and buy CDs. As large CDs they would qualify for better rates. Sure, the rates right now are lousy all over, but if they are savings then the job of the money is to be a reserve, not to gain major appreciation in value. One of the goals should be to preserve the full value of dollars invested, and CDs will do that.
Thanks; it looks like the bulk will go in CDs for the immediate future, but we suspect massive inflation will occur when the stimulus & other federal money actually gets into the economy. I'm tempted to put a small amount a bunch of general revenue muni bonds (not funds) in various places we think have a very low default. Also Airport revenue bonds; airports seem to be very solid financially. I'm looking tax-free since we're in the top tax bracket now. Does anyone know a statistic on how many municipalities have defaulted on general revenue bonds; I heard it was negligible.
Agree with CDs if wealth preservation is the main goal.
Ok, so you dump them in CD's and get what 1.5% on a good day--that will actually COST you money in the long run. For a preservation strategy you need something that will at LEAST keep up with inflation. CD's are NOT a good long term plan for preservation, sorry about that.
I say an 80/20 blend of bonds to stocks is probably the best way to go. You have preservation with the bonds and the stock funds to keep pace with inflation.
Also, how long is a lifetime? 20 years, 80 years, without knowing your age and how long you expect this money to last, none of the given information is really valid.
Married couple, age 50, with no kids/debts, $500K+ in 401(K). Hoping to finance a 2nd career business in the near future after 30 years of 80-hour work weeks and stagnant/declining quality of life due to TAXES.
Ok, so you dump them in CD's and get what 1.5% on a good day--that will actually COST you money in the long run. For a preservation strategy you need something that will at LEAST keep up with inflation. CD's are NOT a good long term plan for preservation, sorry about that.
I think everyone understands that inflation erodes the purchasing power of money. That said, these are savings reserves. If they are in bonds, they may not be liquid to serve their purpose as a savings reserve; if they are in stocks, they may decline in value. If they are in a bond fund they have the downsides of a stock fund without the upside potential. In short, suggesting that they be kept 80/20 in bonds/stocks is completely ignoring the stated purpose of the money, which is to serve as a savings reserve. Savings reserves are not investments, though they should be used to make whatever meager money they can consistent with the absolute goal of principal preservation. Sorry about that, but you're completely off the mark here.
If they are in a bond fund they have the downsides of a stock fund without the upside potential.
Well, bond funds definitely do have some downside, but not nearly as much downside as a stock fund, particularly short-term bond funds. I do agree that now is not the best time to invest in bond funds considering interest rates have hit bottom and will be rising at some point.
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Originally Posted by golfgal
Ok, so you dump them in CD's and get what 1.5% on a good day--that will actually COST you money in the long run.
The average national rate for 5-year CDs right now is about 3%, and the average historical rate looks to be around 6% or more. A CD ladder can have you rotating into new 5-year CDs each year so that you're always getting a relatively good rate.
Married couple, age 50, with no kids/debts, $500K+ in 401(K). Hoping to finance a 2nd career business in the near future after 30 years of 80-hour work weeks and stagnant/declining quality of life due to TAXES.
At 50 you want to roll your 401K into "something" if I am understanding you correctly. You still have about 30-40 years to need this money as well as that much time to have this money grow. I think going 100% bonds is way too conservative for someone in your situation. If you take the money out of your 401K now you pay a 10% penalty along with state and federal taxes so plan on losing 1/2 of that money right off the bat. Now there is a provision in the tax code that allows you to take equal distributions from your 401K/IRA money if you take it for 5 years or until you are 59 1/2, which ever is longer. Problem being you get to be 60 and have little or no money.
The problem with getting advice on a message board like this is that without knowing all the details it is difficult to give you good information.
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