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How to invest $35,000 if the investment period was 10 years
Old 09-22-2012, 07:38 PM   #1
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How to invest $35,000 if the investment period was 10 years

Please give your advice on how you would invest $35,000 that you can add $400 monthly to this investment with trying to make an average return of 5% or more for the total 10 year period. Then in 10 years you would need to cash in this investment and use the money.
If you started this investment before the end of 2012 then in 2013 onward you would have about $1,600 of tax free space left empty in a Roth IRA. You have a 7 month emergency fund, 0 debt, Taxes-married filing jointly, 15% Federal Tax, no state tax. I could also handle about a 15% risk.

Thanks for your help!
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Old 09-22-2012, 10:44 PM   #2
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I think we'd all like that.

Normally that's a time period for bonds, but 5% seems unlikely for moderate risk.
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Old 09-23-2012, 06:31 AM   #3
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Hi Garcia, welcome. One simple way wold be to invest the whole thing in Vanguard Wellington fund.
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Old 09-23-2012, 06:41 AM   #4
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Quote:
Originally Posted by garcia2012
Please give your advice on how you would invest $35,000 that you can add $400 monthly to this investment with trying to make an average return of 5% or more for the total 10 year period. Then in 10 years you would need to cash in this investment and use the money.
If you started this investment before the end of 2012 then in 2013 onward you would have about $1,600 of tax free space left empty in a Roth IRA. You have a 7 month emergency fund, 0 debt, Taxes-married filing jointly, 15% Federal Tax, no state tax. I could also handle about a 15% risk.

Thanks for your help!
Is the Roth comment related to the $35K question? Or is it a separate question?
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Old 09-23-2012, 09:31 AM   #5
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Hi Garcia, welcome. One simple way wold be to invest the whole thing in Vanguard Wellington fund.
+1

I would value average the $35,000 into Wellington over a year or so.

So the initial investment would be $3,400 (including the $400 per month). The next month's investment would be $6,800 minus the value of the investment at the end of the first month. The next month's investment would be $10,200 minus the value of the investment at the end of the second month. Repeat until the $35,000 is fully invested.
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Old 09-23-2012, 09:36 AM   #6
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30 year zero coupon treasuries would be my choice.

the 30 year bond beat equities in every time frame out to 30 years except the 15 year time frame if i remember correctly.

the zero would have done even better.

going forward the next couple of years i think the odds of the long bond falling a point is pretty good with all the grief and global slowing going on.

that gives you shorter term a floor of 2.5% if your wrong and a capital gain potential of about 40-50% on just a one point drop.

not bad odds when you look at the short term potential for stocks on the upside and the downside risk.
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Old 09-23-2012, 09:37 AM   #7
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+1

I would value average the $35,000 into Wellington over a year or so.
+2
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Old 09-23-2012, 09:41 AM   #8
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+1

I would value average the $35,000 into Wellington over a year or so.
Good point. Monthly or quarterly. The key is to set dates now and follow them no matter what.
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Old 09-23-2012, 04:15 PM   #9
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I think the place to start is to determine what is the minimum in real terms, that you absolutely need to have in 10 years.
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Old 09-23-2012, 04:28 PM   #10
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I don't get where the Roth part fits in, and I don't know what a 15% risk means. You're willing to lose 15% of your investment for a chance at a 5% return, or ??

A 5% return is a tricky goal too. If the market does well, that's a poor return. If it does bad, it may be unreasonable.

All that said, in a 10 year time frame I'd probably do a mix of equities and bonds, and over time shift more to bonds. So, maybe starting with Vanguard Wellington (2/3 stock, 1/3 bond), and then every year or two shift some of it to Wellesley (1/3 stock, 2/3 bond).

And I would drop it all in to Wellington at once, but if you feel better about value averaging, go ahead.
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Old 09-27-2012, 07:56 AM   #11
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Is the Roth comment related to the $35K question? Or is it a separate question?
yes the $1,600 tax fee Roth space is included for 2013 if the investment is made before this year ends.
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Old 09-27-2012, 08:00 AM   #12
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I think the place to start is to determine what is the minimum in real terms, that you absolutely need to have in 10 years.
Sorry I am new at all of this and what our goal would be if it is even possible is to try to take the 35,000 plus 400/month*10years=$83,000 and with the possibility of losing 15% of that then trying to get the $83,000 into around $113,000 to $120,000 range.
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Old 09-27-2012, 08:25 AM   #13
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Hi Garcia, welcome. One simple way wold be to invest the whole thing in Vanguard Wellington fund.
Would this be good idea to in a taxable account? because if I invested most of this before the end of this year then next year I would have about $1,600 for the year of free space in a Roth IRA account but the rest would have to be in a taxable account.

What our goal is if it is even possible is to try to take the 35,000 plus 400/month*10years=$83,000 and with the possibility of losing 15% of that then trying to get the $83,000 into around $113,000 to $120,000 range.
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Old 09-27-2012, 08:49 AM   #14
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Would this be good idea to in a taxable account? because if I invested most of this before the end of this year then next year I would have about $1,600 for the year of free space in a Roth IRA account but the rest would have to be in a taxable account.

What our goal is if it is even possible is to try to take the 35,000 plus 400/month*10years=$83,000 and with the possibility of losing 15% of that then trying to get the $83,000 into around $113,000 to $120,000 range.
I don't know your details, but you mention a 15% tax rate. Keep in mind that 15% is the MARGINAL rate, so depending on all the other details, you may not pay 15% on this money.

I did a cash flow FV analysis and came up with the following at 5% assumed rate.
FV1.jpg

Note this ignores taxes, but that could be added if you know Excel. Simple FV formula is FV = PV*(1+i)^n, where FV is future value, PV is present value, i = interest rate per period, and n = number of periods).
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