How can I best invest 100k to give me an income to supplement my pension and protect my Capital
Unfortunately, you asked a very open question without any real specifics. You did not specify how much money you want to get, nor did you exactly explain how you want to "protect your Capital".For example, do you want to protect it only from investment risk? If so, then CDs, T-notes & T-bills are your best bet. As long as you hold them to maturity, you will get your interest and principal. Don't invest in anything more than 2-3 years out. Don't forget to ladder the maturities so you can roll them at new interest rates every few months. This will allow you to enjoy higher rates when they go up, and ease into lower rates when they go down. Don't get greedy.If you want your Capital protected from inflation risk, you have to invest some of your money in stocks, so the Capital has a fighting chance of growing. Unfortunately, you will have some volatility in your principal and income.Assuming that you don't need the income, except to give you an extra kick, and you want your Capital to grow, split the money. Put half into CDs/Ts, and half into FF4. This should give you about $3-4000/year income and your principal should grow about 8%/year, in the long-term.If you want a higher income, look into REITs and utility stocks.Zev
The best way to produce a pension supplement with NO chance of losing your capital is to buy a 30-year TIP (inflation-protected treasury). It will pay you 3.5% of the value, and adjust that payment every year upwards for inflation, and your capital will be upward-adjusted for inflation as well.Any investment in stock gives a significant chance of losing a significant part of your capital. Of course, it also gives what is usually a better return over a long period of time (but not always). The AVERAGE annualized return from stocks (such as the Foolish Four) can reasonably be expected to be around 7% more than inflation (with great fluctuations).Bill
<<< Subject: Re: Investing for income Author: BillEuclid Date: 11/21/98 2:40 AM Number: 6695 The best way to produce a pension supplement with NO chance of losing your capital is to buy a 30-year TIP (inflation-protected treasury). It will pay you 3.5% of the value, and adjust that payment every year upwards for inflation, and your capital will be upward-adjusted for inflation as well. >>>If you think you might be at all happy with 3.5%, just think how VERY HAPPY the government must be.This has to be one of the worst investments going!
Different people have different needs. TIPs are the very best investment for a certain group of people, and a very bad investment for certain others.TIPs give a guaranteed 3.5% inflation-adjusted forever. If you are willing to draw on your principal in mildly-increasing amounts, you can draw 4% inflation-adjusted for about 60 years, or 4.5% inflation-adjusted for over 40 years, guaranteed. No other investment can do that, even with a 98% probability of success, let alone 100%.Example: If you retire at age 57 with no resources or income other than a million dollars in IRAs, you can draw $45,000 the first year, and increase your draw for inflation every year thereafter, with the guarantee that you will not run out of money before age 100.If you invested in stocks instead and drew $45,000 the first year and adjusted for inflation thereafter (i.e., a 4.5% initial draw), you run a small but significant risk that you will be broke in 25 to 35 years.For some people, TIPs are the very best investment.Bill
<<For some people, TIPs are the very best investment.>>What are TIPs?
Thoughtleader asks:<<What are TIPs?>>I don't know what that particular acronym stands for, but I do know Bill Stanley is referring to the new Series I treasury bond that has built-in inflation protection. They came into being on September 1, 1998, and are offered as an alternative to Series EE Bonds, which will continue to be issued under existing rules. Series I bonds offer some measure of protection against inflation by having the monthly increase in value pegged in part to the Consumer Price Index for all Urban consumers. If inflation rises, eroding the value of fixed investments, the bonds will be increased in value to compensate. The bonds provide a combination of two rates. One is a fixed rate of return (3.30%) that applies to all Series I Bonds issued for the next six months. This rate remains the same for the life of those bonds. (Series I bonds will usually be assigned a lifetime fixed rate in six-month cycles beginning on November 1 and May 1.) The second rate is the inflation component (currently 1.72%), which will be changed each May 1 and November 1 based on the average CPI-U (urban consumer price index) from the prior October through March or April through September. That component is applied to the bond's face value so the principal doesn't erode. Regards….Pixy
TIPs are U.S. Treasury bonds that pay a fixed interest rate(currently over 3.5%) IN ADDITION TO adjusting the principalfor inflation. You can buy them in 10-year or 30-yearissues, and they pay interest each 6 months. They arenegotiable, and they are just like the regular 10-yearand 30-year treasuries except the nominal interest rateis lower to compensate for the fact that the principalincreases each year with inflation. They are betterthan the savings bond form that recently came out.Bill
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |