$200k - where to invest for safety

Discussion in 'Financial Planning' started by ps56k, Feb 17, 2010.

  1. ps56k

    ps56k Guest

    My wife last year received about $200k from her parents life insurance...
    It's been sitting in the checking account since then.

    What would be the best way to invest,
    with max safety of principle in mind,
    along with max growth or divs...

    ie - what kind of mutual fund from Fidelity/Vanguard
    would be appropriate - and all at once, or dollar avg...


    --
    ----------------------------------
    "If everything seems to be going well,
    you have obviously overlooked something." - Steven Wright
     
    ps56k, Feb 17, 2010
    #1
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  2. "ps56k" <> wrote:


    >What would be the best way to invest,
    >with max safety of principle in mind,
    >along with max growth or divs...


    You realize that max safety is in direct conflict with max growth or divs?

    >ie - what kind of mutual fund from Fidelity/Vanguard
    >would be appropriate - and all at once, or dollar avg...


    It depends. How long are you investing for? What other investments do you
    have? Do you have an emergency fund? What kind of risk are you willing to take
    for what kinds of rewards? I'll trot out my standard advice to go read
    "Investing for Dummies".

    Dollar cost averaging is a means of minimizing emotional pain at a cost of
    reduced returns. The assumption is that the stock market has a long term up
    trend with lots of unpredictable ups and downs along the way. If that's true,
    the way to maximize returns is to invest everything immediately.

    But that runs the emotional risk of investing just before one of those
    unpredictable downs. Ouch. DCA gives you two emotional crutches. If the
    market goes up as you are making the investment, you can tell yourself "I'm
    making money". If it goes down, you can tell yourself "I'm buying more".

    Nothing wrong with that, much of good investing is managing your emotions. But
    mathematically, the best thing to do with a lump sum is invest it all
    immediately.

    -- Doug
     
    Douglas Johnson, Feb 17, 2010
    #2
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  3. ps56k

    ps56k Guest

    "Douglas Johnson" <> wrote in message
    news:...
    > "ps56k" <> wrote:
    >
    >
    >>What would be the best way to invest,
    >>with max safety of principle in mind,
    >>along with max growth or divs...

    >
    > You realize that max safety is in direct conflict with max growth or divs?
    >
    >>ie - what kind of mutual fund from Fidelity/Vanguard
    >>would be appropriate - and all at once, or dollar avg...

    >
    > It depends. How long are you investing for? What other investments do
    > you
    > have? Do you have an emergency fund? What kind of risk are you willing
    > to take
    > for what kinds of rewards? I'll trot out my standard advice to go read
    > "Investing for Dummies".
    >
    > Dollar cost averaging is a means of minimizing emotional pain at a cost of
    > reduced returns. The assumption is that the stock market has a long term
    > up
    > trend with lots of unpredictable ups and downs along the way. If that's
    > true,
    > the way to maximize returns is to invest everything immediately.
    >
    > But that runs the emotional risk of investing just before one of those
    > unpredictable downs. Ouch. DCA gives you two emotional crutches. If the
    > market goes up as you are making the investment, you can tell yourself
    > "I'm
    > making money". If it goes down, you can tell yourself "I'm buying more".
    >
    > Nothing wrong with that, much of good investing is managing your emotions.
    > But
    > mathematically, the best thing to do with a lump sum is invest it all
    > immediately.
    >
    > -- Doug
    >


    sorry - forgot about the 20 questions....

    This is special gravy money - short term -
    let's say for college in the next couple of years.

    All our other portfolio investments are spread around in various funds
    that run the entire spectrum.... risk vs reward
    domestic, intl, emerging, growth, value, divs, small, med, large, etc -

    SO - don't really want to gamble with this $200k -
    that's why it's been sitting in the dumb checking account.
     
    ps56k, Feb 17, 2010
    #3
  4. "ps56k" <> wrote:

    >SO - don't really want to gamble with this $200k -
    >that's why it's been sitting in the dumb checking account.


    Then why move it?

    -- Doug
     
    Douglas Johnson, Feb 18, 2010
    #4
  5. ps56k

    dapperdobbs Guest

    On Feb 17, 6:02 pm, "ps56k" <> wrote:
    > [snip]


    > SO - don't really want to gamble with this $200k -
    > that's why it's been sitting in the dumb checking account.
    >


    As Douglas Johnson said, if the money is already earmarked, then what
    is so dumb about (200k in) a checking account?

    A savings account paying 1.x% would be an improvement, but maybe
    prepaying for college would be worth 7%. If it is indeed gravy money
    you wish to consume, these days cash can negotiate 10%, 20% - even 50%
    discounts. Sounds pretty safe to me. I've even heard of some people
    negotiating 50% off on a house!

    Money is a medium of exchange for product. Investment involves an
    exchange for inputs of production, then production, then an exchange
    for money.
     
    dapperdobbs, Feb 18, 2010
    #5
  6. ps56k

    Ron Peterson Guest

    On Feb 17, 1:31 pm, "ps56k" <> wrote:
    > My wife last year received about $200k from her parents life insurance...
    > It's been sitting in the checking account since then.


    > What would be the best way to invest,
    > with max safety of principle in mind,
    > along with max growth or divs...


    Pick a few of the larger diversified utilities to average your risk.
    You should get at least 4% in dividends plus some capital growth.

    --
    Ron
     
    Ron Peterson, Feb 18, 2010
    #6
  7. ps56k

    ps56k Guest

    "Ron Peterson" <> wrote in message
    news:...
    > On Feb 17, 1:31 pm, "ps56k" <> wrote:
    >> My wife last year received about $200k from her parents life insurance...
    >> It's been sitting in the checking account since then.

    >
    >> What would be the best way to invest,
    >> with max safety of principle in mind,
    >> along with max growth or divs...

    >
    > Pick a few of the larger diversified utilities to average your risk.
    > You should get at least 4% in dividends plus some capital growth.
    >
    > --

    Half of the money has been in some laddered 6mos CD's
    and I've been looking at div paying stocks & funds,
    but balanced with the factor of preserving the principle
    vs betting on cap growth in a shakey economy.
     
    ps56k, Feb 18, 2010
    #7
  8. ps56k

    Wallace Guest


    > sorry - forgot about the 20 questions....
    >
    > This is special gravy money - short term -
    > let's say for college in the next couple of years.
    >
    > All our other portfolio investments are spread around in various funds
    > that run the entire spectrum.... risk vs reward
    > domestic, intl, emerging, growth, value, divs, small, med, large, etc -
    >
    > SO - don't really want to gamble with this $200k -
    > that's why it's been sitting in the dumb checking account.
    >


    buy a CD
     
    Wallace, Feb 18, 2010
    #8
  9. ps56k

    Bill Guest

    ps56k wrote:

    > SO - don't really want to gamble with this $200k -
    > that's why it's been sitting in the dumb checking account.


    Then an FDIC insured CD is the answer.

    --
    .Bill.
     
    Bill, Feb 18, 2010
    #9
  10. ps56k

    Guest

    Ron Peterson <> writes:
    > On Feb 17, 1:31 pm, "ps56k" <> wrote:


    > > My wife last year received about $200k from her parents life insurance...
    > > It's been sitting in the checking account since then.

    >
    > > What would be the best way to invest,
    > > with max safety of principle in mind,
    > > along with max growth or divs...

    >
    > Pick a few of the larger diversified utilities to average your risk.
    > You should get at least 4% in dividends plus some capital growth.


    That's nowhere near consistent with "max safety of principal".

    For example, the two biggest utility ETFs, the SPDR (XLU)
    and the Vanguard one (VPU) both went down by approximately
    29% in 2008.

    Now, over longer periods, their average returns have been
    quite decent - trouncing the S&P 500 over, say, 5 and
    10 year periods. But these come with substantial volatility
    and sometimes with big lags (ie. both were trounced by
    the SP500 in 2009).

    These types of investments may have a place within a larger
    diversified portfolio, but if the OP is interested in
    stability of principal (note that the money is currently
    in *cash*) then at best utilities could be a very small
    part of that portfolio.

    They do both throw off current yields in the area of 4%,
    which is lovely. And in the long run, that certainly
    helps smooth things out -- but you must account for
    periodic huge losses with this kind of investment.



    --
    Plain Bread alone for e-mail, thanks. The rest gets trashed.
    Are you posting responses that are easy for others to follow?
    http://www.greenend.org.uk/rjk/2000/06/14/quoting
     
    , Feb 18, 2010
    #10
  11. ps56k

    PeterL Guest

    On Feb 17, 11:31 am, "ps56k" <>
    wrote:
    > My wife last year received about $200k from her parents life insurance...
    > It's been sitting in the checking account since then.
    >
    > What would be the best way to invest,
    > with max safety of principle in mind,
    > along with max growth or divs...
    >
    > ie - what kind of mutual fund from Fidelity/Vanguard
    > would be appropriate - and all at once, or dollar avg...
    >
    > --
    > ----------------------------------
    > "If everything seems to be going well,
    > you have obviously overlooked something." - Steven Wright



    Bank CD's or Treasuries for max protection of principle. Spread it
    out to 4 different banks if you want even more safety.
     
    PeterL, Feb 18, 2010
    #11
  12. "PeterL" <> wrote in message
    news:...
    > Bank CD's or Treasuries for max protection of principle. Spread it
    > out to 4 different banks if you want even more safety.


    Depends on what you're protecting against. If you need full liquidity, then
    by using multiple banks, you're increasing the odds that some of your money
    will be frozen for a day or so when a bank fails. On the other hand, if
    you're trying to ensure _some_ liquidity, then spreading the money across
    multiple banks decreases the probability that _all_ of the accounts will be
    frozen simultaneously. (For this purpose, the incremental benefit of using
    more than two banks is miniscule.)

    This is all predicated on the fact that with FDIC insurance, there is no
    risk of loss, just risk of being frozen.

    Mark Freeland





    --- news://freenews.netfront.net/ - complaints: ---
     
    Mark Freeland, Feb 22, 2010
    #12
  13. ps56k

    Don Guest

    On 2010-02-21 20:19:21 -0800, "Mark Freeland" <> said:

    > This is all predicated on the fact that with FDIC insurance, there is no
    > risk of loss, just risk of being frozen.


    But there is still the risk that FDIC will fail. That risk may be
    small, but then who would have believed that Lehman Brothers and all
    the rest would fail. Maybe next time there will not be any bail out.

    It is easy to list a lot of things NOT to do, but investments with high
    yield and no risk do not exist. For that matter, investments with
    pretty good yield and minimal risk do not exist either, despite what
    the sales people may tell you. (Actually, such investments may exist,
    but you probably have to be an insider or be willing to commit a crime
    in order to have access to them. Any who comes to you promising such an
    investment surely is a scammer.)

    All this was explained by Confucius, or somebody, who stated: "You
    can't have your cake and eat it too."
     
    Don, Feb 26, 2010
    #13
  14. ps56k

    Ron Peterson Guest

    On Feb 21, 10:19 pm, "Mark Freeland" <> wrote:

    > This is all predicated on the fact that with FDIC insurance, there is no
    > risk of loss, just risk of being frozen.


    Yes, and in addition, it's not likely that the funds would all be
    needed immediately.

    --
    Ron
     
    Ron Peterson, Feb 26, 2010
    #14
  15. ps56k

    Default User Guest

    Don wrote:

    > On 2010-02-21 20:19:21 -0800, "Mark Freeland" <>
    > said:
    >
    > > This is all predicated on the fact that with FDIC insurance, there
    > > is no risk of loss, just risk of being frozen.

    >
    > But there is still the risk that FDIC will fail.


    According to the FDIC:

    "FDIC insurance is backed by the full faith and credit of the United
    States government. Since the FDIC began operation in 1934, no depositor
    has ever lost a penny of FDIC-insured deposits."

    <http://www.fdic.gov/deposit/deposits/insured/basics.html>



    Brian

    --
    Day 391 of the "no grouchy usenet posts" project
     
    Default User, Feb 28, 2010
    #15
  16. ps56k

    Don Guest

    On 2010-02-28 12:21:54 -0800, "Default User" <> said:

    > According to the FDIC:
    >
    > "FDIC insurance is backed by the full faith and credit of the United
    > States government. Since the FDIC began operation in 1934, no depositor
    > has ever lost a penny of FDIC-insured deposits."


    Perhaps I am a pessimist, but I always look for the worst possible
    thing that can happen when considering investments. I suppose Lehman
    Brothers could have put a similar sentence in their advertisements, and
    a lot of people certainly would have believed it. The chances of major
    disasters may be small, but we know they do happen. Perhaps
    diversification is a good idea, even if you are a conservative investor
    wanting minimum risk. Personally I would not want all my eggs in one
    basket, even if that basket is backed by "the full faith and credit of
    the United States government."
     
    Don, Feb 28, 2010
    #16
  17. ps56k

    Default User Guest

    Don wrote:

    > On 2010-02-28 12:21:54 -0800, "Default User"
    > <> said:
    >
    > > According to the FDIC:
    > >
    > > "FDIC insurance is backed by the full faith and credit of the United
    > > States government. Since the FDIC began operation in 1934, no
    > > depositor has ever lost a penny of FDIC-insured deposits."

    >
    > Perhaps I am a pessimist, but I always look for the worst possible
    > thing that can happen when considering investments. I suppose Lehman
    > Brothers could have put a similar sentence in their advertisements,
    > and a lot of people certainly would have believed it.


    Do you think Lehman could have said that for very long before getting a
    call from the US Attorney General? It's not just the FDIC
    "advertisements" either. It's posted in every FDIC member institution.

    <http://www.fdic.gov/regulations/resources/signage/images/signFDICxl.gif
    >


    You'd think someone else in the government would have noticed and said,
    "HEY!" If it weren't true. Do you have some evidence that FDIC is not
    backed by FF&C? If you agree that it is, are you still concerned?
    Personally, if the case is a FF&C institution failing, I suspect we'd
    have bigger problems than insured CDs.



    Brian

    --
    Day 391 of the "no grouchy usenet posts" project
     
    Default User, Feb 28, 2010
    #17
  18. ps56k

    Bill Guest

    Don wrote:

    > Perhaps I am a pessimist, but I always look for the worst possible
    > thing that can happen when considering investments. I suppose Lehman
    > Brothers could have put a similar sentence in their advertisements,


    You seem to imply that the statement that the FDIC is backed by the
    full faith and credit of the U.S. government is an advertising claim.
    It is, in fact, black letter law. Read the Glass-Steagall Act of 1933.


    --
    .Bill.
     
    Bill, Mar 1, 2010
    #18
  19. ps56k

    Don Guest

    On 2010-02-28 17:54:06 -0800, "Bill" <> said:

    > You seem to imply that the statement that the FDIC is backed by the
    > full faith and credit of the U.S. government is an advertising claim.
    > It is, in fact, black letter law. Read the Glass-Steagall Act of 1933.


    Just poor wording on my part. I realize that FDIC protection is not
    "advertising." People did not expect Lehman Brothers to fail, but it
    did. Similarly, people do not expect FDIC to fail, but to my mind a
    prudent investor should never make the assumption that any particular
    event with economic and financial implications is impossible.
     
    Don, Mar 1, 2010
    #19
  20. ps56k

    Don Guest

    On 2010-02-28 14:01:18 -0800, "Default User" <> said:

    > You'd think someone else in the government would have noticed and said,
    > "HEY!" If it weren't true. Do you have some evidence that FDIC is not
    > backed by FF&C? If you agree that it is, are you still concerned?
    > Personally, if the case is a FF&C institution failing, I suspect we'd
    > have bigger problems than insured CDs.


    What I am saying is that not only would the banks fail, but that the
    full faith and credit of the government could turn out to be worthless.
    In that case, insured depositors still would not get any money back
    from either bank or government insurance. A lot of people evidently
    thought we were close to a large scale meltdown in this last crisis.
    Who knows what could happen in the next one. It is prudent to keep one
    eye on the "worst case scenario."
     
    Don, Mar 1, 2010
    #20
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