Where is the best place for my wife and I to place $200,000 if we are in our 70s and want no risk, but maybe some growth?
My wife and I are in our 70s. I still work because I want to. My wife is retired. We collect Social Security and have IRAs. We want to put $200,000 in a no-risk place that may offer some growth, but is still accessible when the day comes that we want it, whether that is a few months from now, or ten years from now. Where is the best place for it?
In order to stay within your "no-risk" criteria, you would want to stick with an FDIC or NCUA insured account. (The NCUA is the government insurance for credit unions, the same as the FDIC is for banks). You can get slightly higher interest rates by shopping around for high-interest savings accounts from online banks and credit unions. Currently (November 2018), rates on savings accounts are between 2% and 2.5% from the highest offers in the country.
Another option to explore is to open a Certificate of Deposit (CD) after shopping around for the best yields. 5-year CDs are approaching 4% and you should be able to get around 3.5% for a 3-year CD. You could by multiple CDs with different maturity dates so you have slightly more access to the money. If you must break the CD early, you don't lose any of your money, and the 'fee' is simply the bank keeping a few month's interest they paid you.
Money market accounts might also provide a little higher interest yield than a savings account, but with easier access to the money than a CD. When shopping around, make sure you differentiate between a money market account and a money market fund. A money market fund is a mutual fund which invests in very safe cash-equivalent investments. This makes them safe, but they can lose value. Funds are also not FDIC/NCUA insured, which may not fit your criteria. Also, realize that not all banks/credit unions are FDIC/NCUA insured, although nearly all are. Make sure to look for the logos of the FDIC or NCUA if you want the protection of the government backing.
INVESTING IN "SAFER" ASSETS MAY BE AN OPTION
You may also want to explore the possibility of investing in a fund which invests in very safe investments. An example to research and explore would be a Short-Term Treasury Bond Fund. Treasury bonds are backed by the full faith and credit of the United States Government, which means they are considered safe investments due to the extremely low chance of default, as the U.S. Government is unlikely to go bankrupt. When interest rates rise, however, these funds do lose value. Using short-term bonds means you will have less risk from interest rates potentially rising. As an example (not a recommendation), Vanguard's short-term treasury bond fund is currently yielding 2.9% (November 2018).
Another option would be a Treasury Inflation Protected Securities (TIPS) fund, which will have a lower yield but will give you protection against inflation. Inflation protection could be helpful considering inflation is one of the biggest risks during retirement. TIPS will increase both their value and their interest payments to you at the same rate as inflation.
Finally, consider talking with a fee-only and fiduciary financial planner to see if it would make sense to take on a little more risk in order to allow for greater growth. Considering the timeframe you gave was between a few months and ten years, it makes it hard to offer more specific thoughts on what a 'reasonable' level of risk might look like. A financial planner might be able to work with you to narrow down this window and provide more specific advice.
Your question is typical of ones we have gotten hundreds of times over the years. You have given some clues as to what you are looking for though.
“No-Risk” is a key term in our business. No-risk normally means no principal risk, no chance of losing any money.
“Accessible” is another key term. It normally means that you want to have daily access to the funds.
There are only a few investments that would give both no-risk and daily access. They would include savings accounts, checking and potentially some very short term bank CDs and money markets.
But then you add in a few more qualifiers.
“Some growth” usually means growth of principal. Buying a stock for $10 and it later grows to $11.00 is growth of principal. A CD that pays interest is not growth.
“Ten years from now” usually means you have a long term horizon.
No investment offers both growth and no risk. So we have to do a little more work.
First, you need to define clearly what you mean by no-risk. It has been our experience that when some people say no-risk, what they really mean is they don’t want to lose ALL of their money. Do you mean not a penny of principal risk, or you are willing to live with some volatility?
Taking a risk test would determine your personal risk score. It usually ranges from 1 – 100. Think of it like a speed limit, the higher numbers are riskier. A score of 30 would be conservative, but still might allow you to have some stocks for growth and bonds for income.
As for accessibility, does the whole $200,000 need to be fully liquid, or only part of it? For instance, a portfolio of stocks and bonds has liquidity, but not immediate. There is a delay of a few days between when you sell a stock and when the cash is available.
However, if you only really needed to have $5,000 available immediately at any time, you could leave that much or more in the money market in your investment portfolio. If you feel more comfortable leaving $15,000 in the money market, you can. So now you can have both immediate liquidity with some of the money and longer term investments like stocks and bonds with some of the money.
By asking the right questions, an advisor could put together a portfolio that satisfies everything you are looking for. Some safety, some growth, some liquidity and accessibility.
Please feel free to contact me if you have any questions.
John Riley is a registered Research Analyst and has been the Chief Investment Strategist at Cornerstone Investment Services since 1999. (In the business since 1986.)
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Sadly, there is not a no-risk-with-growth option I can think of. You have to decide which is more important - no risk or growth. Or, maybe you don't. Perhaps taking $100,000 and investing in a balanced mutual fund (one that has about 50% stocks and 50% bonds) for moderate risk and growth and then the remaining $100,000 can go into a combination of money markets (now yielding about 1.5% in some places) and a CD ladder for more interest.
If it is important to be readily accessible, how much of this or what percentage is the $200,000 of everything you have? That can impact where the appropriate place is to guide you. If being accessible is important and it was my own money, I would stay away from high surrender period charges. Are you ok with keeping the adviser regularly updated on any changes to your situation? Thank you for your question.
Since risk is related to return, the only place for a truly "no-risk" investment is in either a high yield savings account or a CD with a guaranteed rate of return. You'll get slightly higher rates on CDs because they are timed investments; you'll pay a slight penalty if you withdraw earlier than the period on the contract. Since the investment amount is below the FDIC insurance amount of $250,000 per depositor, the first two options are literally risk free.