Dear John: My husband and I are in our 60s, and we presently have about $100,000 in cash and want to invest in something conservative.
We have a mortgage at 2.5 percent and we thought if we could earn at least 6 percent a year, then — after the mortgage interest — we [would still be] making 3.5 percent.
We do not know what to invest in, though a certain bank says we should put everything into Oppenheimer Funds (no fees) and another says invest in unit investment trusts with an upfront 2.5 percent fee.
We really need your help, as we really do not know what to do, though we believe a little risk is OK. G.K.
Dear G.K.:
The problem with this sort of question is that advisers know too little about you. Like, what’s your tolerance for risk and when do you want to retire? (Although $100,000 isn’t going to get you far in that regard.)
Nevertheless, I asked a couple of financial advisers to give you generic advice.
Harold Evensky, of Evensky & Katz in Miami, says something like the Vanguard Balanced Fund might be a good place to park your $100K.
“A somewhat more complex alternative, but one that would provide for a bit more control over risk exposure, would be to use either exchange-traded funds [ETFs] or index funds to construct a simple portfolio,” says Evensky.
You could divvy up your investments — say, 60 percent in medium-length bonds and 40 percent in Standard & Poor’s 500 stocks or indexes that are made up of these blue-chip shares.
I will send you the rest of Evensky’s suggestions separately because, quite frankly, there are too many of them to print here. But you’d need to look at these investments quarterly and make changes if you are out of balance.
Stephen Barnes of Barnes Investment Advisory in Phoenix warns that you shouldn’t take people’s word when it comes to claims about results. “Both the Oppenheimer funds and the unit investment trusts are — despite what the representative may have told you — relatively high-fee products that are unnecessary. Vanguard and Charles Schwab (among some others) offer very low-cost alternatives for mutual funds/ETFs.
“Second,” says Barnes, “I would suggest it is pretty much impossible to find a conservative investment that will provide anything close to the consumer’s desired return of 6 percent a year.”
And just to show you how great minds can disagree, Barnes says, “I would instead suggest using some or all of the $100,000 cash to pay off/pay down their mortgage.” Doing that, says Barnes, guarantees 2.5 percent (by way of the saved mortgage interest) and frees up monthly cash flow for other uses.
But, of course, you lose the mortgage tax deduction.
So let me make this even more confusing for you.
Right now there is most likely a bubble in both the stock and bond markets. If that turns out to be the case, everything — everything — is going to go down in value when the bubble pops.
So while all the fine professionals have suggestions, none can account for all the strange things that can happen to your money if 1) Congress gets into another hissy fit, 2) China stops buying US government bonds and sends interest rates up, 3) corporate earnings tank, 4) the US economy fails to recover or 5) any of a number of other things happen.
The only really safe thing suggested here is to pay down your mortgage. That’s no fun at all, but at least you’ll definitely have a roof over your head the day you do retire.
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