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Author: StockGoddess Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Late in life investing Date: 5/13/2012 2:51 PM
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If one were, say, a 78 year old woman in good health and one had to invest half a million dollars in something SAFE but which returned better than bank interest, say, if possible, 5%, where would be a good place to do that?

Suppose this woman has an inherant distrust of the stock market in general.

Tax free munis? Those are fairly low risk, right? And fairly liquid?

Ma might be selling some real estate this year.
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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70651 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 3:25 PM
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If one were, say, a 78 year old woman in good health and one had to invest half a million dollars in something SAFE but which returned better than bank interest, say, if possible, 5%, where would be a good place to do that?

Suppose this woman has an inherant distrust of the stock market in general.

Tax free munis?


or highly rated corporate bonds ..
if this is her only income, thetas-free is mostly irrelevant



Those are fairly low risk, right?


yes ..'fairly' --
and they can be 'insured' --but quick look at my
broker says -- to get 5%, you have to buy 30yr bonds
and at lower ratings (A..AA-)


And fairly liquid?

dunno
value will vary with market,
and lots of munis are callable

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70652 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 3:42 PM
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Ma might be selling some real estate this year.

Does she need the income ? How much ?

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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70653 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 4:10 PM
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Life is full of trade offs -- and investing with the desires you posted means you must, make trade offs.

Here is the real rub -- the Fed is currently holding interest rates very low -- they are less than inflation and that is intentional to continue stimulating the economy. That is not going to end if you believe the statements by the Fed until 2014. I don't see interest rates rising significantly until we start to have some inflation - but I have guessed wrong in the past.

I am assuming this 78 year old woman does not need more of her $500K than say the mandatory IRA withdraw amount -- that being just under $25K. Assuming that is the case, I would say put $75K in checking account and the rest in Vanguard Wellington. This means worst case, she takes $25K a year out of the bank and leaves the reminder in the mutual fund to ride out any volatility. If these funds really are IRA and she is going to be forced to withdraw, than the $75 should be in a money market of whatever broker handles her investments. (I trust you know you can buy a Vanguard mutual fund without having your account at Vanguard.)

If the "distrust" of the stock market trumps all else, but the money in two different checking accounts -- that way it will all be insured by the FDIC.

Contrary to what a lot of people believe, bonds have risk -- and today that risk probably larger than mutual funds that invests in large, dividend paying stocks. The only reason I pointed to Wellington instead of some other mutual fund is stock do have inherent volatility. I hope you understand there is a difference in risk (loosing money) and volatility (value of investments going up and down).

Gordon
Atlanta

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70654 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 5:07 PM
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I think that currently this is just impossible. Tax-free bonds are fine, but some cities have recently gone bankrupt. Others may follow. Now is not the time to go into the stock market.

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Author: AndrewXnn Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70655 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 6:24 PM
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Tax free bonds might make sense, if there were a reason to avoid taxes.
However, tax free bonds generally yield less than taxable.

Also, to get any yield approaching 5%, one has to look at junk (more risk).

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70657 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 7:34 PM
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I think that currently this is just impossible. Tax-free bonds are fine, but some cities have recently gone bankrupt. Others may follow.


?? what is "just impossible"?

true that Munis aren't the dead-on certainty they used to be ..but still pretty safe (i seem to recall someone looking up defaults and not finding many)

and some are insured

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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70659 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 10:05 PM
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but still pretty safe

I think you should qualify that. i.e. they may be quite safe in terms of default risk, but any bond with a maturity more then 5 years out has interest rate risk.

Gordon
Atlanta

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70662 of 76237
Subject: Re: Late in life investing Date: 5/13/2012 11:06 PM
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I think you should qualify that. i.e. they may be quite safe in terms of default risk, but any bond with a maturity more then 5 years out has interest rate risk.


I think you are absolutely right

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70664 of 76237
Subject: Re: Late in life investing Date: 5/14/2012 9:09 AM
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If one were, say, a 78 year old woman in good health...

Two things to determine...

One, what is this money to be used for? Live off the interest? Keep safe to pass on to grandchildren? Create a scholarship at alma mater? Blow out kegger for 80th birthday party?

Two, life expectancy. Is she older than anyone has ever been in the family? Or do people routinely live to 100? Nothing is for certain but investing for 1 year is different than investing for 20.

...in something SAFE but which returned better than bank interest, say, if possible, 5%,...

Anything outside of treasuries (and I'm beginning to question them) and CDs has risk. You could build a ladder of CDs (FDIC insured) and get 3-4%. If you're wanting more than that, you'll have to take some risks, that means stock market exposure. Personally, I'd look at some MLPs and preferred stocks. That could easily get you in the 5-6+% range. And you wouldn't necessarily have to put it all in the market. Say 1/3 CD ladder 2/3 stocks.

JLC

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70667 of 76237
Subject: Re: Late in life investing Date: 5/14/2012 2:03 PM
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... something SAFE but which returned better than bank interest, say, if possible, 5% ... an inherant distrust of the stock market

Let me just reiterate. Right now, these three constraints are darn near impossible to meet at the same time.

This means she's going to have to compromise on one of her constraints: safety, 5% return, or no stocks.

She's going to have to decide which of these is least important, which is most important, and adjust the constraints accordingly.

All of the prior responses made some assumptions about which constraints to change and by how much. But it's really up to your hypothetical healthy 78 year old female to make that decision.

--Peter

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