My wife just inherited some money from her mother and I have the responsibility of finding a good home for it. It's not a large amount of money but I'll be in trouble if I screw up and lose it all!I thought I could choose say half a dozen Vanguard ETFs and then I'd be reasonably safe and still get some growth.She likes the idea of being able to withdraw some occasionally to pay for things like a family vacation.Does that sound sensible? At least if it all goes horribly wrong I'll feel better knowing I asked...Thanks
How large is a "not large amount"? How far from "losing is all" could you (she) accept?Vanguard mutual funds have a minumum initial inveatment of $3000. Half a dozen funds would be $18,000.Losses of 30%-50% are not unusual. (We just went through a decline like that in 2008.) Is that too big of a risk?When this type of thing happened with my wife, I resolved it by putting half of her windfall into savings accounts at Alliant CU and Discover Bank, earning 1.3%-1.5%. Not a great dividend, but enough to let her buy whatever she wanted to without risking a loss in that portion.The rest, I invested as usual.
How large is a "not large amount"? How far from "losing is all" could you (she) accept?Vanguard mutual funds have a minumum initial inveatment of $3000. Half a dozen funds would be $18,000.advantage of ETFs, no? no minimum /low (possible zero) commissions from Vanguard(low fees)Losses of 30%-50% are not unusual. (We just went through a decline like that in 2008.) Is that too big of a risk?good point..( i'd go with something like your plan, a portion in something Safe, the rest in 2 or 4 ETFs
Losses of 30%-50% are not unusual. (We just went through a decline like that in 2008.) Is that too big of a risk?Fortunately losses of that size are not usual. Otherwise no one would be investing in the stock market. 2008 was a near collapse of US and world financial markets. The last one began in 1929. In such events neither stocks nor bonds are safe, although investors who kept their cool and didn't sell at the bottom have recovered much of their losses. But the advice to diverisfy and to keep some reserves in liquid assets like CDs and bank accounts is good. 20% corrections are common and you should be prepared to ride them out without having to sell at the lows.
Thanks for the comments. The amount is around $50K. We're currently in our 40s so we have some time for investments to recover from a few wobbles.
I hope you find a suitable solution.
My advice will be different. If you are in your 40s, encourage your wife to learn about investing. Statistically, she is likely to eventually be on her own and it can be difficult enough without ignorance. It's 2011 - not 1950.My risk assessment goes like this. If tomorrow, either of you checked the balance and it was down 20%, would you both be fine ? If you are honest, you have your assessment and if the answer if no, put it somewhere with almost not risk until the answer is yes and she has the knowledge to manage it herself.
Have you been to the Vanguard site yet? They have a section on getting a recommendation based on your input to some questions for establishing your risk profile. You can find it here:https://personal.vanguard.com/us/funds/etfAfter you answer the questions they come back with a recommendation of what Vanguard ETF would be appropriate.More than likely you'll get a recommendation of (3) ETF's: (click <Get A Recommendation>).Total Stock market: VTITotal International: VXUS (no US stocks)Total Bond Market: BNDThe %age to invest in each will depend on your answers. I agree you should put some in a CD or similar investment. Maybe $20K in a CD ladder. CD's of 1, 2, 3, 4 & 5 year duration with $4k each. Invest the rest.Disclosure: I have a Rollover IRA @ Vanguard and am very pleased with them.
I suggest you visit the Bogleheads.org site and post your question there. The site is named after John Bogle who is the founder of Vanguard. They run a very knowledgeable and welcoming site. Look around the site first and familiarize yourself with what is available.http://www.bogleheads.org/MKT
Thanks again everyone. Boggleheads looks interesting, I'd never seen that before.Good luck all!
I thought I could choose say half a dozen Vanguard ETFs and then I'd be reasonably safe and still get some growth.This doesn't sound like a well thought out plan, ;-) but is a start.The suggestion of checking out the Bogleheads is good. You will find many helpful folks there.I suggest that you do some self education by reading some basic investing books specifically dealing with asset allocation.I think you could come up with a pretty good using the ETFs for total stock market, total international stock market, and the total bond market or their mutual fund equivalents. It would be better to put bonds into a tax deferred or tax free account for tax efficiency. You might also want a portion in a money market account to be used for the "mad money" that you described.Bob
Thank you Bob
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