How should I invest a large sum of my savings towards my kid's future expenses?
I have $100,000 sitting in the bank at 1.5%. I would like to invest the money so it starts earning for me. I have a pension and 457 for retirement. The money would be for my children to help with a house/wedding within a 10 year time frame. What investment would be good for this objective? I'm willing to sacrifice risk for higher returns.
Ten years is a good time frame to adopt a modest amount of risk in pursuit of returns. However, the definition of "modest" as it pertains to portfolios may change from one person to another. I think you're going to find that it's very hard for advisors on a site like this to give you definitive investment advice in a response (like this one).
Also, what's important is that you likely have a flexible time horizon on these funds, which can be tremendously important when investing.
Of course, this is for informational purposes only and I never give advice without having complete information. Feel free to shoot me a message if you'd like more definitive insight.
Adam Harding | Investments & Planning
You should always be looking to build a globally diversified portfolio of lower cost index funds that matches your risk capacity. Since we are looking at a 10-year time frame, you want to take a conservative to moderate amount of risk with 20-40% of your assets invested in riskier stocks and 60-80% of your assets in safer, short term, high quality bonds. Again, look to lower cost index funds and globally diversify to build your overall portfolio.
In my opinion, common stocks are the best vehicle for someone who wants to make their money grow significantly over a 10-year period. Over the 30 years through May 31, 2017 US stocks (as measured by the Standard & Poor's 500 Index) have returns 9.72% per year. Over the past ten years the average return has been 7.24%. This is far better than you would get in the bank, or from bonds. As your question rightly implies, the higher return reflects higher risk. But Americans of every generation have been hard working and innovative. I personally see no reason why the coming decades should differ greatly from the past three decades in terms of total returns from stocks. Yes, there are real problems out there, including terrorism, political strife, the probability of rising interest rates, and the fact that US stocks are not currently cheap. But there are always problems -- think back to Vietnam, the Cuban missile crisis, the AIDS crisis, and the World Trade Center bombing, among many others. Despite these problems, the stock market has provided solid returns to people willing to bear the risk.
I agree with Adam.
In order to make the best choice--do right by yourself and your child--you should seek the expertise of a financial advisor or planner. Although the equity markets are on fire right now, you want to create a plan to navigate what may happen in the next 12, 36, 60 or in your case 10 years!
It would be wise to seek counsel from an expert in this case because of what is at stake...your wishes and your child's welfare. Better to solidify your legacy gift with sound, prudent advice than to save a "buck" and get it wrong.
I hope that helps!
Historically, and while making the statement that past performance is not a guarantee against future returns, a 10 year time period has been long enough to regain the investments lost in market returns. This means that when a $100,000 investment lost value (to $60,000, for example) ten years after the initial investment was made it was worth at least the same as its original amount. Which is a bit underwhelming, right?
However, and again pointing to the historical returns, an investment in stocks is expected to outperform the same in bonds or cash.
For clients in a similar situation, we create a strategic portfolio that is diversified among asset classes (large, small, growth, value) and nations (international). Though we use low cost funds (such as Vanguard), we are particularly fond of Dimensional Funds, due to their investment philosophy, low fees and flexibility.