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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: of 74759  
Subject: Re: Help for mom... Date: 3/8/2001 3:41 PM
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<<<She wants to invest 78,000 in something that will give her a relatively stable income. I just starting to learn about investing & do not want to make a mistake with my mom's money. I only know one person who is knowledgeable about investing, but I do not want to rely only on him for information & opinions.>>>

Here would be my take on the situation, and it's alot different than investing in bonds/bond funds. It carries some risk but would allow for inflation in the long run, a very real risk in your mom's situation.

I would take 5 years worth of expenses or $31,500 (525/month x 12 months x 5 years) and place them in CDs. Or for simplicity's sake a money market fund. If you want to give yourself some more breathing room, take half, $36,000, and this would give you $600/month. Currently they return about 5%. Lower than the bonds quoted but can get the cash by writing a check and NO threat of potential loss as with bonds. If interest rates go down, bonds will loose value if you try to sell them before maturity.

The rest of the money I'd simply by SPY, the stock symbol for the S&P 500, or a S&P 500 index fund, say Vanguard 500. This will historically outpace inflation. Each year, take another years worth of money from the index fund and place it into the money market fund. While in any given year or two or three years, and S&P fund can loose money, it's rare over 5 years or longer, so this strategy is for the long haul. And in the future, when $525 or $600 doesn't buy as much as it used to, the S&P should've grown enough to be able to give yourself a payraise.

JLC
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