Where to invest 30k for aging novice?


Early-Retirement.org Founder, Developer of FIRECal
Jun 23, 2002
Someone with zero experience in the market asked me where to invest $30k for "growth, not income". He is 76, and says he has all his investments in CDs now (no idea how much). A friend of his sells load funds and rightly said not to buy from him unless it was for 5 years or more.


If it is for less than 5 years, it doesn't belong in the stock market. I assume he doesn't want to invest it longer than that or he'd have given it to his friend. If it is longer, I'd have to parrot the party line and go for a S&P 500 index. Less than 5, split it into 5 pieces and by 1 each 1 year, 2 year 3 year 4 year and 5 year CDs. At each years end, buy another CD for either the term that got cashed in (buy another 1yr if it was a 1 year cd, 2 yr if it was a 2 yr, etc) or buy a CD that matures at the end of the 5th year if the maturity of the cashed in CD would put the maturity of the new bond later than the 5 year term.

Or spend it when it matures.
Hey Dory
The first question is why? Is this 'hobby' money, for educational purposes, what does he consider 'growth' 5%, 10%, higher? Is he contrarian - willing to bet on a real estate fund, foreign fund, gold fund, etc. - are you comfortable with 20% or higher NAV swings?

I go round and round with my sister on this over the years - I've given her the 'read these books' mantra to no avail.
The second question is - what percent of your total portfolio is this 'mad money' ? Suppose you are successful. To paraphrase Peter Lynch (One Up On Wall Street) is it a big enough percentage to be meaningful if you hit a ten bagger.
I periodically get the same twinge with my 'hobby' money - until I calculate how big a bet is required - then I usually buy another utility or REIT.
It's pretty unusual for an older person to suddenly express an interest in "growth" investing, unless they are desperate for money. If that is the case, they are apt to make their financial predicament worse by investing most or all of their assets in a single high risk investment -- the financial equivalent of the "drowning man grasping for a straw."

If he really needs the $30k, he had better not invest it in anything riskier than a short term bond fund and perhaps a TIPs fund.

On the other hand, if he really doesn't need the money and is looking for some investment excitement, he could try putting it into one or more no load small cap stock funds that have good track records and moderate expenses , such as CGM Focus or Heartland Value.
I finally got face-to-face with him instead of trying to do it via email. He had a long CD just mature, and wasn't excited about the current CD rates. He's never invested in the market, and felt like he should, probably due to the load fund salesman's advice. But he wants a very high probability of a good return - whatever that is - and very limited risk.

I found that he could pay off his mortgage in full with the money coming out of the CDs. I suggested he pay off the 6.5% mortgage, and also arrange for a home equity line of credit (at an even lower rate), should he later find an urgent need for the cash.

Don't know if he will be doing that, but he certainly seemed more comfortable with that solution than any market investment.

Thanks for the comments.


Your advice is excellent. This illustrates why it is important to understand a person's complete financial status before recommending investments.

The man is fortunate that his friend was honest and did not try to sell him a mutual fund with a big load (or something like an annuity that would have been even more profitable for the salesman at the man's expense).
Another alternative would be to invest in an equity indexed annuity or CD. These things have interest rates tied to what the indexes do, subject to certain minimums and maximums, and the principal is secure.
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