Suggestions for investing....

[Pilot2013]

Unfortunately, it looks like retirement is another 6 years or so for me (53 now). Just recently, DW and I inherited about $80k, although could go up to $100k once a house and belongings settle. DW is very risk averse, so this is just sitting in bank and losing value every day.

I am thinking of different investment options to try and get at least some earnings, but not sure what yet. 2 options come to mind:

Laddering some CD's (rates are so low that still lose to inflation, but not as bad as .15% bank account)

Convince DW of some risk and purchase some 4-5% Div Yield stocks to hold for next 5 years. A cross section of industries (DUK, GE, etc).

Thoughts?

 

[hnzw_rui]

Instead of individual stocks, how about a diversified balanced fund with 30-40% stocks and 60-70% bonds (e.g. Target Retirement Income VTINX, Wellesley Income VWIAX)?

 

[braumeister]

Laddering some CD's (rates are so low that still lose to inflation, but not as bas as .15% bank account)

For flexibility while you decide, you can easily get a completely safe 1% in an online savings account at Ally, Discover, and the like.

 

[YVRRocketSurgery]

I suggest caution in purchasing dividend stocks in a potentially rising interest rate environment, particularly if your wife is risk adverse. Not saying it's a bad idea, only that there are risks to consider as different dividend stocks have individual characteristics that may be impacted differently by rising rates and hopefully a correspondingly improving economy.
But no one has a crystal ball so who knows if rates will continue to rise and if so, how fast?

 

[Pilot2013]

I suggest caution in purchasing dividend stocks in a potentially rising interest rate environment, particularly if your wife is risk adverse. Not saying it's a bad idea, only that there are risks to consider as different dividend stocks have individual characteristics that may be impacted differently by rising rates and hopefully a correspondingly improving economy.
But no one has a crystal ball so who knows if rates will continue to rise and if so, how fast?

Really? Do business really adjust their Dividend payouts base on interest rate changes? I mean, I could see if it was major changes in interest, maybe...

 

[YVRRocketSurgery]

If you are just looking at dividend yield, that shouldn't be a concern but the share price is susceptible to negative sentiment even if the yield stays constant or grows.

Interest in certain dividend yielding stocks may waiver if interest rates rise and alternate investments start becoming more attractive from risk/return perspective. People might start piling out from dividend stocks and that might get reflecting in the share price. Granted, we're not there yet but you don't want to get caught with your pants down if rates start rising quickly. Some dividend stocks with a lot of debt might be negatively impacted by rates trending upward.

I love dividend stocks and they are part of my strategy but I just want to state they are not risk free.

 

[Pilot2013]

OK, that make sense. Although, I am thinking that I will get into the dividend game, and TRY not to worry too much about the principal or share price, within reason of course. It does seem, though, looking at most Dividend funds, like they have climbed in share value a lot recently. Might be buying at a high...

Jim

 

[CabinLifeAt50]

While your situation is different than mine, I have a pretty decent % of my portfolio in high quality dividend growth stocks to build up a great and growing income source for ER. I quite enjoy stock investing so the time researching and keeping up on the investments is fun for me. If you are willing to put in a bit of time to maintain a portfolio of these types of stocks and stick with it for the long run, you can be quite successful. It is possible to beat the dividend yield on many of the index funds and dividend growth funds with a custom portfolio but do have to watch your risk profile- think high quality stocks. If you search here and google for Dividend Growth Investing you'll find all kinds of articles to get started. Worth researching if interested. There are a few paid subscriptions out there as well through some of the big names to get newsletters in this area, just depends on your knowledge level and how much time you want to spend. If you want a less involved strategy, the etf/mutual fund route may be better. Just depends on you.

 

[Sunset]

Perhaps you could split it 50/50 between cds and VTI (pays 2% dividend).

You could buy 5 yr cd's at Ally instead of laddering, just buy them in 5 or 10K blocks.
then if you cash out any before the 5 years you lose 6 months interest, BUT after 1 year you end up gettting more than 1%, and after 2 yrs, its close to 1.5% and rises to the 2% for the full 5 yrs.

So assume interest rates stay the same or decrease, you get 2%/yr for 5 yrs.
Assume interest rates go up 1% every yr for 5 yrs, you sell the cds after 1 or 2 years, collect your 1.5% and re-invest at the higher rate.

 

[CaliforniaMan]

Really? Do business really adjust their Dividend payouts base on interest rate changes? I mean, I could see if it was major changes in interest, maybe...

No, businesses don't adjust their dividends, but rather the market adjusts the stock price to account for the risk adjusted return. For example if a dividend stock pays 3% with treasuries are at 2%, and the treasury rate rose to 3%, all other things being equal you would expect the stock price to fall so the rate paid by the stock would rise to account for the risk over treasuries.

 

[DrRoy]

No, businesses don't adjust their dividends, but rather the market adjusts the stock price to account for the risk adjusted return. For example if a dividend stock pays 3% with treasuries are at 2%, and the treasury rate rose to 3%, all other things being equal you would expect the stock price to fall so the rate paid by the stock would rise to account for the risk over treasuries.

+1 I wouldn't buy individual stocks if you are risk adverse. Another option is to hold some intermediate maturity, investment grade bonds. You can get 2-3% there. Possibly municipals depending on your tax situation.

 

[pb4uski]

....Thoughts?

Online savings account (DiscoverBank is 0.95%, Goldman Sachs is 1.05% and others are around those rates)

Wellesley has a good track record and is conservative.

 

[cyber888]

Most of my dividend portfolio are in muni bond funds. My dividend portfolio earns about 7%, some are a bit more risky than others. But less risky than individual dividend stocks.

My NMZ for example is earning 6.75%. And on the risk meter of 0 to 500, it scores a very low 41. DVY has a higher risk at 70. S&P 500 is at 82. DUK, which I was looking at as a div stock rated 94 on the risk meter.

I'm sticking with my low risk bond funds mostly. Here's the link to the Risk Metrics.

Risk Metrics - Risk Assessment Tool for Stocks

 

[calmloki]

We stuck money in a secure high dividend paying bank stock - BofA I believe. It had a long history of steady and increasing dividends. Bought on a big dip at $32, bought more as it dropped some more, bought more when it dipped further. Stock got down to $4, but we had sold by then. Stock still hasn't recovered to the point at which we bought in. Now we mostly have funds.

We also have money camping out at Discover earning 0.95% and loaned out on property. We like being able to go out and see and touch our investment. Earnings vary - 4 /2015 the combined savings and loan accounts were making 3.93%, today they are at 6.34%.

 

[target2019]

Unfortunately, it looks like retirement is another 6 years or so for me (53 now). Just recently, DW and I inherited about $80k, although could go up to $100k once a house and belongings settle. DW is very risk averse, so this is just sitting in bank and losing value every day.

I am thinking of different investment options to try and get at least some earnings, but not sure what yet. 2 options come to mind:

Laddering some CD's (rates are so low that still lose to inflation, but not as bad as .15% bank account)

Convince DW of some risk and purchase some 4-5% Div Yield stocks to hold for next 5 years. A cross section of industries (DUK, GE, etc).

Thoughts?

Think even longer than 5 years. Buy and hold.
There is another thread that mentions tools you could use to give yourself a better chance with div growth picks. You could follow 1 or 2 sectors at a time, and buy one or two major div payers when they are out of favor. XOM is a very good example. It is nearly back to a 1-year high. Not too far in the past it was 25-30% cheaper. The yield hit 4%, and was time to buy.

 

[ownyourfuture]

No, businesses don't adjust their dividends, but rather the market adjusts the stock price to account for the risk adjusted return. For example if a dividend stock pays 3% with treasuries are at 2%, and the treasury rate rose to 3%, all other things being equal you would expect the stock price to fall so the rate paid by the stock would rise to account for the risk over treasuries.

Well done California

 

[Senator]

Here is a great article by Warren Buffet about investing. It may help you in your decision.

The Berkshire chairman has long argued that most investors are better off sticking their money in a low-fee S&P 500 index fund instead of trying to beat the market by employing professional stockpickers. He used the annual meeting to update the tens of thousands in attendance—and others watching via a webcast–about his multi-year bet with hedge fund Protege Partners. The bet, initiated by the New York fund back in 2006, was that over a decade, the cumulative returns of five fund-of-funds picked by Protege would outperform a Vanguard S&P 500 index fund, even when including fees.

Mr. Buffett showed a chart comparing the cumulative returns of the two sides of the bet since 2008. As of the end of 2015, the S&P 500 index fund had a cumulative return of 65.7%, outdoing the hedge fund teams’s 21.9% return. The S&P has outperformed in six of the eight individual years of the bet too.

Warren Buffett’s Epic Rant Against Wall Street - MoneyBeat - WSJ

 

[Totoro]

A rising equity path might be useful. It does not give the best return, it does give some emotional peace of mind for your wife.

It is best to start with some equities in some way (preferably broadly diversified like SPY, VT or VTI), and gradually increase the exposure over the next 5 to 10 years. If the market drops, go cheerleading because there is a sale going on and keep up the gliding path.

It worked for my mother. She is now 30% in equities roughly. Since we're up quite a bit vs. 1% savings accounts since the beginning (more than 5 years ago), we now have a significant buffer of 'house money' she can afford to lose. We have gone through a cycle of down 20% as well, so she has seen that's what happens, and the world will be fine.

All this paves the way for a future increase in equities. In the end I want to get her up to 50%, not in any rush.

 

[Islandtraveler]

I’ve got my low risk money in Vanguard Short Term Investment-Grade Fund. VFSUX The admiral shares require a 50k minimum but have a super low expense ratio of 10 bp. It invests in short term treasuries and investment grade corporate bonds. It pays just north of 2% and has been a reliable safe haven. I call it my Money Market on steroids. Combine that with an Ally Savings account paying 1% and you’ll sleep like a baby. You won’t get rich, but you won’t get hurt.

 

[Sunset]

I’ve got my low risk money in Vanguard Short Term Investment-Grade Fund. VFSUX The admiral shares require a 50k minimum but have a super low expense ratio of 10 bp. It invests in short term treasuries and investment grade corporate bonds. It pays just north of 2% and has been a reliable safe haven. I call it my Money Market on steroids. Combine that with an Ally Savings account paying 1% and you’ll sleep like a baby. You won’t get rich, but you won’t get hurt.

You can get 2% cd at Ally for a 5 yr term and it's FDIC insured.
Should rates rise quickly, it can be cashed with a 6 month interest penalty.
Which makes the rate if you cash it:
Bank Name

ALLY 5 YR
Term (months) 60 mo APY2.00% Penalty (months) 6 mo
1 Year 1.01%
2 Years 1.52%
3 Years 1.68%
4 Years 1.77%
5 Years 2.00%

 

[aida2003]

I've heard good things about SCHD, but like you said in one of your comments the price is on a higher end now, hence the yield would be lower. This would be an option if you prefer an easier way than picking separate questions.
But first you'd need to convince your wife as it's her inheritance you're talking about. I don't think it's worth arguing about it though. If planning to retire early this money could be your funding for 2-3 years which would allow you to make bigger 401k to TIRA to Roth IRA conversions.

 

[petershk]

You can get 2% cd at Ally for a 5 yr term and it's FDIC insured.
Should rates rise quickly, it can be cashed with a 6 month interest penalty.
Which makes the rate if you cash it:
Bank Name

ALLY 5 YR
Term (months) 60 mo APY2.00% Penalty (months) 6 mo
1 Year 1.01%
2 Years 1.52%
3 Years 1.68%
4 Years 1.77%
5 Years 2.00%

I basically "moved" half of my bond allocation to an ally CD ladder for similar reasons. I'm not a fan of municipal or corporate bond funds and federal bonds pay so little. I don't like buying individual bonds and even with the super low expense rations bond etfs are so low on the return side it just doesn't make sense to me.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[Running_Man]

Since the market is in the midst of trying to make it’s mind up as to whether it wants another leg of a bull market or has had enough, to put money into stocks with a spouse who has clearly stated they do not want to lose money indicates that if the market were to fall, the plug would be pulled on investments so that would be a non starter for me.

I would suggest taking $15K and adding rungs to 5 year CD’s and putting 5K into a stock index funds as that would protect 75K of the investments and most likely the spouse could tolerate that type of loss if the CD income could make up the difference. As the income continues to come in perhaps you could invest that into more funds as time goes by.