Right now I have $700k that I need to invest, I plan on retiring in the next 5 years and will have another $5-700k by that time. I'm in my mid 40s, I'll also have about $20k a year in rental income and my family and I can live fairly well here in rural Ky off of $50-60k a year. Very seriously thinking about CDs, local bank has a 2.1 % cd. Your thoughts ?
What would you do with $700k ?
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RockyMtn
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so if inflation runs 3% you are losing money each year. I think you'll find that most people here would look at some sort of allocation of stocks/bonds before dumping that much into cd's.
UnrealizedPotential
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Others will come along shortly who know much more than I. But the one immediate thought I have is make sure you account for inflation.
aaronc879
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What I personally would do is retire and live off the dividends. However, since you "need" more money to live on, I would invest in an S&P 500 Index fund and let it grow until you have 25X expenses.
I'd also like to add, everything I have is paid for, we tend to drive our cars for a decade, we raise a lot of our own food and much of our annual expenses is spent on travel, which we can cut back on at any given time.
hesperus
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I am facing a similar situation, but with only $500K in cash or about 6-7% of my portfolio. I haven't been too worried about inflation, as I have it currently drawing 1% and inflation has been minimal. But that is changing. So I have been averaging into the market through additions to my total market index funds. My plan is to continue to add this in until I get it down to about 3% cash.
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Birdie Num Nums
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Sure, having a bunch of assets in cash equivalents "loses" some $ over (how much?) time, if you factor in inflation. You can lose as much, if not more, $ over the same time-frame investing in stocks/bonds. It's all legalized gambling.
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W2R
Moderator Emeritus
I am already retired and in the distribution phase.
If I suddenly came into $700K in cash, first I'd give 2/3 to two loved ones (in some tax efficient way) because I already have a full sized retirement nestegg for myself.
Although I'd love to invest my third in only VWIAX (Wellesley), instead I would invest it according to my asset allocation in my written financial/investment plan. That includes 45% equities and 55% fixed income. Specifically this involves specific percentages of both US and international equity index funds, total bond market index fund, Wellesley, and cash.
If I was the OP, I'd spend some time working on a detailed, written investment plan for retirement. I'd invest the money according to my planned asset allocation.
If I suddenly came into $700K in cash, first I'd give 2/3 to two loved ones (in some tax efficient way) because I already have a full sized retirement nestegg for myself.
Although I'd love to invest my third in only VWIAX (Wellesley), instead I would invest it according to my asset allocation in my written financial/investment plan. That includes 45% equities and 55% fixed income. Specifically this involves specific percentages of both US and international equity index funds, total bond market index fund, Wellesley, and cash.
If I was the OP, I'd spend some time working on a detailed, written investment plan for retirement. I'd invest the money according to my planned asset allocation.
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Sunset
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I have to wonder, did you find this is the woods, or is this money something you have had stuck under the mattress ?
If it was under the mattress, how much have you already lost for the years it was under the mattress ?
The reason I ask that, is it will help you to realize what you need to do.
If you found it in the woods, you should put 1/2 of it into CD's and the other 1/2 into VTI or SDY and be done. IF the stockmarket drops 15% rebalance (sell some CD's and buy more stock as its is on sale).
If I was in your shoes, I personally would put it all in VTI or SDY since you have years until retirement and will have another 500K ->700K by then to buy CDs when hopefully interest rates are higher.
If it was under the mattress, how much have you already lost for the years it was under the mattress ?
The reason I ask that, is it will help you to realize what you need to do.
If you found it in the woods, you should put 1/2 of it into CD's and the other 1/2 into VTI or SDY and be done. IF the stockmarket drops 15% rebalance (sell some CD's and buy more stock as its is on sale).
If I was in your shoes, I personally would put it all in VTI or SDY since you have years until retirement and will have another 500K ->700K by then to buy CDs when hopefully interest rates are higher.
ESRwannabe
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I'd probably spread it out among a dozen or so ETFs and CEFs.
If you want something safe, I'd put it into either short term or intermediate term vanguard municipal bond fund.
eta2020
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I would invest it in some very simple investment vehicle 
(CDs are not investment)
Like put 100% into VTI
(CDs are not investment)Like put 100% into VTI
Car-Guy
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Plug your numbers and assumptions into one of the free on-line retirement calculators. (e.g. FIRECalc on this site) Most are easy to use and they should give you a good idea of how long your money will last based on your starting numbers, rates of returns, estimated inflation and spend rates.
Lot's of folks here buy CD's (some exclusively) but most that do, won't typically comment to much.
Lot's of folks here buy CD's (some exclusively) but most that do, won't typically comment to much.
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Thanks everyone.
Thanks everyone. I should have also noted I'll have $250k in mutual funds and value stocks in the next 5 years and the sell of a business will give me another $500k or so, that I'll most likely put in VTI, VTV and VTEB. So in the end I'll have about half in CDs and half in the market. I'm not looking for big returns, I'm looking for stability, if I can average 3-4%, I think I'll be just fine and as far as inflation, I won't give away my location in Ky, but l'll say this, we haven't noticed any inflation, lol, and remember too I said before, everything I have is paid for and we raise a lot of our own food and tend to take care of things we buy " cars, lawn equipment, Etc "and keep them forever. Again thanks very much for the input.
Thanks everyone. I should have also noted I'll have $250k in mutual funds and value stocks in the next 5 years and the sell of a business will give me another $500k or so, that I'll most likely put in VTI, VTV and VTEB. So in the end I'll have about half in CDs and half in the market. I'm not looking for big returns, I'm looking for stability, if I can average 3-4%, I think I'll be just fine and as far as inflation, I won't give away my location in Ky, but l'll say this, we haven't noticed any inflation, lol, and remember too I said before, everything I have is paid for and we raise a lot of our own food and tend to take care of things we buy " cars, lawn equipment, Etc "and keep them forever. Again thanks very much for the input.
You haven't noticed any inflation because right now inflation is pretty low, hence the low rates on cd's and savings accounts. You are in your mid 40's so I'll say 45, you want to retire in 5 years that puts you at 50.
So you have at least 35 to 40 years. stability is all well and good but losing money is never a good idea. just my take.
cars, once again you're only 50. the reality is even with taking care of the car you will need at least one more ESPECIALLY in rural America where driving is a must.
remember retirement planning is for the future. i too use to grow my own food until I got severe arthritis in my knees, lol and I'm only in my mid 50's, I can assure you at 65, no way, no how will I be able to do it (unless I get two knee replacements).
my point being that sure NOW you feel you can afford to get lousy returns 10,15, 20 years it maybe a whole different ball of wax.
Heck this is an election year, this time next year it could look totally different.
I'm with the rest of the gang, no way would i put 700K in cd's that's a lot of money that could be seriously working for you.
you didn't mention health care, will you healthcare cost rise if you take Early retirement?
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Earl E Retyre
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If your plan is to have half in CDs and half in the market, why not put half in 5 year CDs and half in VTI?
Because the CDs are guaranteed and I'm very close to retirement and if I had to I could make it ok on my income from the CDs and my rental income, after I sell my business, that will just be bonus points, I'll feel more comfortable putting that money in the market.
So you're saying if inflation rises, Cd rates will rise, I'm ok with that.
Nope, I'm saying the object is to not LOSE money. You say you want the money in cd's because it's "safe". In reality it's not safe (if we are defining safety as no lose of money) If your cd is giving you 2.1% return and inflation is currently around 3% I guess I don't see that as safe.
I think cds are great for cash that i need soon. Now I don't have rental income so my strategy is different. I need my money to make money and for me lowering my standard of living is so not an option, lol the point of me saving was so I would not have to do that in retirement.
It sounds like you really don't have a tolerance for risk, which is fine, many people don't
Would u consider a split? Put some conservatively away and a bit invested for growth?
Hey just my 3 cent opinion. If i had 700k laying around that i didnt need for at least 6 or more years, no way would I be settling for 2% returns but my tolerance for risk seems to be a bit higher so I can sleep very comfortably at night with 350K in equities.
I have a targeted fund for my 401k ytd is 5.7%
I think cds are great for cash that i need soon. Now I don't have rental income so my strategy is different. I need my money to make money and for me lowering my standard of living is so not an option, lol the point of me saving was so I would not have to do that in retirement.
It sounds like you really don't have a tolerance for risk, which is fine, many people don't
Would u consider a split? Put some conservatively away and a bit invested for growth?
Hey just my 3 cent opinion. If i had 700k laying around that i didnt need for at least 6 or more years, no way would I be settling for 2% returns but my tolerance for risk seems to be a bit higher so I can sleep very comfortably at night with 350K in equities.
I have a targeted fund for my 401k ytd is 5.7%
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target2019
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I think if I had 700k coming in, I'd read a few books about asset allocation as I was being advised by folks who've been there.
W2R
Moderator Emeritus
+1
This is a good list of investment books, many of which discuss asset allocation:
https://www.bogleheads.org/readbooks.htm
