I have $170,000 cash to be used for all my expenses during 5 years of school and am looking for a safe, hands-free place to invest it. I have worked out my budget for the next 5 years and this money should be enough to cover my expenses if it grows above inflation. I am not interested in purchasing real estate, owning a business, or managing a large stock portfolio, so I would be grateful for any ideas regarding the best way to invest this money for the next 5 years. I will need to be able to withdraw 20% of the money each year to cover my expenses. Money-market savings accounts and certificates of deposit do not appear to have high enough interest rates to be viable options. The only option that I have found so far are Treasury Inflation-Protected Securities (TIPS) and Vanguard Inflation-Protected Securities (VIPSX) looks to be the best TIPS, but I don’t know enough about inflation, diversification or investing to know if putting the entire $170,000 in a TIPS for 5 years is the best option. I would greatly appreciate any financial planning advice regarding my situation. If you could map out the specific investment vehicles or sketch a composite portfolio for the $170,000 I would be very thankful. This would be easier for me if I was investing for the long term, but my 5 year window, expense requirements, and the current inflation outlook and bear market make my situation very confusing. Thanks for your help.
Get a checking account if you don’t have one. Put 20% ($34000) into it and thats your first year "budget". I’d put another 20% in a 1 year cd, and when it matures, add it to your checking account for your second year budget. Another 20% in a two year cd and another 20% in a three year cd and the final 20% in a four year cd. The return will be a little more with each year and cd’s are generally pretty safe investments, so your risk is very low. I wouldn’t suggest investing anything in a risky venture–your education will be your most valuable asset and you don’t want to risk that. Good luck.
HELP! Need $170,000 Financial Planning Advice?
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I have some oceanfront property here in Ohio…
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Look around in your area, ask bankers and large investors, not on the inet. Locally only! They will help you find a legit broker. You can’t afford to lose this money so…… I think the best thing to do (if it were me– I am 81 and set for life) I would keep it in an interest bearing acct at a bank or other such. Talk to a good broker but make sure he is honest and reliable. The state can verify that. God Bless
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You have already answered your own question. Due to all the exclusions you have given the only investment vehicle left to us is Mutual funds or EFT’s . Due to the current problems with today’s markets anything you invest in has the potential to drop in the near future. Since your time line is 5 years (short term). Then TIPS or RRB’s are really your ONLY options if you want to protect the capital for the next 5 years.
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Buying TIPs directly requires a 5-yr investment. I’d go with the Vanguard fund since you’ll have to pull out money throughout those 5 years.
AAA rated corporate bonds could also be an option. They should return a little more and still be very safe, though taking on a (very small) amount of risk. Rates are better the longer you invest with them.
If you’re willing to assume a little more risk, you could put 20% into an Index Fund. Vanguard & Fidelity both have low-cost funds that track the S&P 500. Or you could buy SPY (an exchange-traded fund that does the same thing).
Over the long-term the S&P has historically beat inflation. And 5 years should be a long enough time frame. Plus it’s oversold, IMO, right now.
So maybe plan to fund your first 2 years through the Vanguard fund, the next 2 years through Corporate bonds and the final year through a fund that tracks the S&P 500.
This isn’t meant as investment advice, but to provide you some "food for thought".
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RULE #1 OF INVESTING: NEVER PUT YOUR MONEY INTO ANYTHING THAT YOU DON’T UNDERSTAND 100%
You need a professional for something this big.
But, if you’re asking for free advice on Y!A, then here it goes:
You are saving money, not investing it.
An investment is when you leave the money alone for 7-10 years.
Therefore, stocks are out.
Real estate is also out, because the only way to pull 20% each year is to get a home equity loan.
Finance 101 – ALL investments pay the same amount, once you adjust for risk.
Low risk = Low return.
High risk = High return.
You might make 10%-20%, but you might lose that much too.
Or, you can take the safe route and get your 2-3% in a CD.
IndyMac made a lot of headlines when it closed last Friday.
But there weren’t nearly as many headlines written about the people who went to the bank the Monday after that and withdrew their money as if nothing happened.
That’s FDIC insurance at work.
If you have less than $100,000 in an account, your account is 100% insured.
Here’s what I would do:
1) If you have any debts, use the $170,000 to pay them off.
No sense having a pile of cash laying around while you have debts accumulating interest.
2) Assuming you don’t have any debts, the $170,000 should be divided up in laddered CDs.
The first 10% goes into a savings account.
The next 10% goes into a 6 month CD.
The next 10% goes into a 12 month CD
The next 10% goes into a 18 month CD.
Etc.
Now, the last 10-20% could go into something a little riskier.
But this is the money to pay for the last year of school.
You don’t want an investment to go bad, and find yourself with no money and 6 credits short of your degree.
————–
BTW, do you have any plans to get a part time job while in school?
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Get a checking account if you don’t have one. Put 20% ($34000) into it and thats your first year "budget". I’d put another 20% in a 1 year cd, and when it matures, add it to your checking account for your second year budget. Another 20% in a two year cd and another 20% in a three year cd and the final 20% in a four year cd. The return will be a little more with each year and cd’s are generally pretty safe investments, so your risk is very low. I wouldn’t suggest investing anything in a risky venture–your education will be your most valuable asset and you don’t want to risk that. Good luck.
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