Investment Quandary

[JOHNNIE36]

Now that our house has sold and closed and the money is in our hands, I am in a quandary as where to park residual funds. After questioning this fine forum about paying off the mortgage vs not paying it off, we decided to pay it off and get that burden off our shoulders. So, we have about $40k left over and trying to decide the best place to "invest" that money.

We have an IRA in Vanguard Wellesley Admiral, have money in PenFed CD's only getting 3%, have have a slush fund at Ally Bank (money market getting .085) and now where to put this $40k from the house sale. I need something very safe but not willing to do the 1%-2% measly returns that are everywhere. I looked at Vanguard Life Strategy Income Fund (VASIX) which is about 30/70 stock to bond ratio. It is in the 5-7% return level which is fine with me but some hangups. With that fund you can add to it anytime but if you withdraw funds, you cannot reinvest again for 60 days. Shouldn't present any problem but you never know.

Any experience out there with these type funds? I understand the frequent trading issue but maybe there is a better option. Help!

[hnzw_rui]

The transaction restriction doesn't apply to automatic deposits so that's one workaround if you want to make additional deposits.

VASIX is 20/80 stock to bond. Another very similar portfolio is the Vanguard Target Retirement Income VTINX which is 30/70 stock to bond. Returns and ER are pretty similar and they're invested in pretty much the same underlying funds - just in different ratios. You can put part of your funds in VASIX and part in VTINX and then just alternate between the two for withdrawals and deposits.

Or, you can also invest in the underlying funds themselves:
VTSAX, VTIAX, VBTLX, VTABX (Admiral shares)
VTSMX, VGTSX, VBMFX, VTIBX (Investor shares)

[nun]

Quote:

Originally Posted by JOHNNIE36 I need something very safe but not willing to do the 1%-2% measly returns that are everywhere. I looked at Vanguard Life Strategy Income Fund (VASIX) which is about 30/70 stock to bond ratio.

What exactly do you mean by "very safe"? and how will the money be used?

Your suggestion of VASIX is definitely not very safe in my estimation.

[hnzw_rui]

Quote:

Originally Posted by nun What exactly do you mean by "very safe"? and how will the money be used? Your suggestion of VASIX is definitely not very safe in my estimation.

Missed that "very safe". VASIX and VTINX are fairly moderate risk but for very safe, just stick to FDIC insured savings or CDs.

[gcgang]

He wants very safe but not measly 1-2% returns.

I want to pitch for the New York Yankees but have no arm.

We can't always get what we want.

Your Vanguard suggestions are very appropriate.


Sent from my iPad using Early Retirement Forum

[LOL!]

What you should choose will depend on what else you've got and what your goals and timeframe are for the money. You mentioned CDs and "very safe", but nothing else except Wellesley. There may also be tax-efficiency to consider.

Anyways, there is nothing very safe and short-term paying more than about 2%.

If this money is going to be used for retirement, then presumably you already have an asset allocation plan for that and you can just follow your asset allocation plan. If it is going to be used for a new boat, then you might do something else.

[pb4uski]

Johnnie, as you well know risk and reward are linked. If you want something "very safe" then the Ally account is your best bet. The reality is that if you need "very safe" then you are only likely to get 1%. To get a higher yield you'll need to take some risk. There is no free lunch out there.

If you don't expect to need the money in the near term and are willing to take some risk, then Vanguard Wellesley would be a good choice for you. Most Vanguard funds have frequent trading restrictions, but there are workarounds but the restrictions are unlikely to be an issue for you. Another option might be Merger Fund.

[calmloki]

Lotta hoops to jump through, but for safety and indeterminate term and 3% you might try this:

https://www.lmcu.org/banking/checking/checking_max.aspx

I'm not doing this because I'm lazy and don't want the perceived hassle.

[Texas Proud]

Yep, the 'very safe' means you are wedded to the measly 1% or so...

Once you leave that world, you have divorced yourself from 'very safe'....

You cannot be 'slightly pregnant'....

[nun]

Quote:

Originally Posted by Texas Proud Yep, the 'very safe' means you are wedded to the measly 1% or so... Once you leave that world, you have divorced yourself from 'very safe'.... You cannot be 'slightly pregnant'....

If you are prepared to lock your money up in a 5 year CD you'll get 2%. If the OP has a stable value fund that would be a good safe option and might also generate 2%. All this makes me realize how good TIAA-Traditional is.....mine is paying 4.5% and I can get at the money with a 5 year payout annuity. Principal and a 3% minimum interest rate are guaranteed so it's a nice fixed income option.

[sengsational]

Quote:

Originally Posted by calmloki Lotta hoops to jump through, but for safety and indeterminate term and 3% you might try this: https://www.lmcu.org/banking/checking/checking_max.aspx I'm not doing this because I'm lazy and don't want the perceived hassle.

3% on the first $15K only. If it were on the first 50K, I'd be filling out the application!

[Surewhitey]

We just put a "bunch" of expired CD money into BIV (Vanguard Intermediate-Term Bond ETF)...very little risk based on my lookings. Don't know what rising interest rates will do to it...

[samclem]

"Safe" needs to be further defined, because the term is imprecise. Does it mean:
1) I want an investment with a market value that doesn't change much from day to day (because I might need the money at any time, and I need to be sure it isn't any lower, in nominal dollars, than what I invested).
2) I need to be able to count on the investment making reasonable real gains over the long haul (10 years or so--because I'll be using the money over the long haul, and I need to have the money grow in purchasing power--or at least not lose ground to inflation).

Both concepts involve safety.

If it is "1", then the investor should probably be in a CD, MM, or a short-term bond fund.

If it is "2", then the investor probably needs to have some equities in the mix. Wellesly, Wellington, or a low-cost balanced index fund would probably serve well.

In investing, "safety" and "risk" have pretty much lost their meaning unless more fully explained. A bit like in politics: "liberal" and "conservative" don't mean much until you peel back the onion a little.

[calmloki]

Quote:

Originally Posted by sengsational 3% on the first $15K only. If it were on the first 50K, I'd be filling out the application!

What - you don't feel like doing 10 monthly debit card transactions, 4 logins to the site/month, an automatic deposit... for $450? As said, I'm lazy - easier to get the credit cards bonus bucks for a similar amount - and the bonus money isn't taxed!

We just plugged some cash into the Vanguard California tax free intermediate bond fund. Hoping for about 3% state and federal tax free from that (in her name as she has declared residency here). We are way way too fat in just cash earning ~1% right now - it drags down the overall return from bank accounts, CDs, land sale contracts, and loans to an average 3.93%. That's spitting distance from just plunking all the money into the double tax free fund.

[calmloki]

Quote:

Originally Posted by sengsational 3% on the first $15K only. If it were on the first 50K, I'd be filling out the application!

OK, so $1500 gets your interest rather than $450. How about $1000 (5%) for a $20k investment?

Consumers Credit Union 3.09% APY Checking Account - RateBrain.com

looks like fewer onerous requirements than the 3% on $15k.

[sengsational]

Quote:

Originally Posted by calmloki OK, so $1500 gets your interest rather than $450. How about $1000 (5%) for a $20k investment? Consumers Credit Union 3.09% APY Checking Account - RateBrain.com looks like fewer onerous requirements than the 3% on $15k.

I'm sure some folks could do that, but to get the 5% on 20K you need 12 debit card transactions and $1000 on the Visa credit card. Maybe if I made my house payment with credit card and the groceries.

[JOHNNIE36]

Well, I guess I needed to be a little more clear in the beginning. First of all, I don't need the resulting interest payout for daily living expenses. I have a defined benefit pension from mega corp, we both get Social Security and we hold a mortgage on one of our earlier houses. That has another five years to run before it is paid out. The RMD from Vanguard IRA along with the aforementioned income covers all our annual expenses. Previously said we no longer have a mortgage. So, our investments are for unexpected expenses and what we do have would like to maintain with SOME growth. I'll be 79 in a couple months and DW is 77. Just trying to maintain and leave some money to the kids. I think we'll make it. Thanks for all the information. Some things to think about and then make a couple moves.

[Totoro]

You could also try and invest in the most boring dividend yielding stocks, tobacco.

BATS for example. Best for a 3 year time horizon though, there still is some volatility.

[pb4uski]

Wellesley

[JOHNNIE36]

Quote:

Originally Posted by pb4uski Wellesley

Had already mentioned that the bulk of our investment is in Vanguard Wellesley Admiral. Are you suggesting we put everything in Wellesley? I like the fund, but there shouldn't there be some diversification? Maybe Wellington?