I’m concerned about keeping my retirement money in stocks, is there a more secure investment, such as CD’s
Question by gary s: I’m concerned about keeping my retirement money in stocks, is there a more secure investment, such as CD’s
I put my retirement investment in a money market last week and feel very fortunate to have missed the latest market free fall. I’m close to retirement, maybe 5 yrs. I would rather keep what have and hope for 5 to 7% return in something secure.
Best answer:
Answer by newjerseyguy
Insured bank accounts are the safest, of course, but also have the lowest yield. Financial experts say the risk of outliving your retirement savings is as great as the risk of losing in investments.
Perhaps you should diversify a bit: put some in CDs, some in money-market accounts and some in a conservative asset-allocation mutual fund.
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Keep in mind that just because you are retiring in 5 years doesn’t mean that you’ll be taking all of your money out at once upon retirement. You will still need long term growth to help grow your income to keep up with inflation. I would suggest an allocation consisting of 60% stocks 40% bonds with a mix of US/Non-US stocks with a focus on dividend paying companies. Your bonds should be diversified as well–Long and short term, corporate and government, US and Non-US.
I would definitely suggest cutting back from 100% stocks, but be careful not to go too far in the other direction–you could find yourself at the mercy of current interest rates and subject yourself to risk of outliving your income or not keeping up with rising costs of living during retirement.
They say dont keep all your eggs in one basket…
same goes for investment of your funds. If you put all your investments in one security…whether euity or debt, you may lose all of your funds on one bad day….
So you should go for investing in different horizons, a mix of various equity securities, some CDs and some banks’ saving accounts…
But managing this will be a head ache and will require specialised knowledge…therefore..the best solution for you will be to invest in an Asset Management Company like Merrill Lynch or Citigroup. I dont know wht are the other big names in US.
Happy Investing
Cheers
Syed Fasih Ur Rehman
Karachi, Pakistan
This is a real concern for everyone, not only those close to retirement. Unfortunately, there is no real good answer, I do not think. The experts will advise that as you approach retirement you should begin reallocation your investments towards fixed income investments. Many of the target retirement funds are exactly set up this way. Fixed income investments in the past have been much more stable than equity investments except during the period of the Regan administration when they lost about 50%++ of their value as interest rates approached 15%.
It is my belief that one in you age bracket should have about 50% fixed income consisting of 1/4 foreign debt instruments. An example being the closed end fund GIM. 1/2 t-bills maybe depending on interest rates and 1/4 in a closed end fixed income fund that returns about 6-8% and sells at a discount. The equity portion should consist of about 1/2 U S equities perhaps in the form of a mutual funds with good track records. The other 1/2 in foreign equities with a healthy portion in China, India, and other developing countries. There are many mutual funds that can also provide that allocation.
With only 5 years to go, you should be largely in bonds, cash (money market) and “safe” investment vehicles. This is especially true if you think the brief sell-off was a “free-fall”! The market is still up 1000 points in the last 12 months.
You might consider buying a series of “laddered” bonds, that way you don’t lock yourself into a low yield and miss out on any upward trend.
And you need to adjust your notion of “secure”: the most secure place for your money is in a shoe-box in a safe at the bank….earning nothing!
Consider the Vanguard Prime Money Market Fund with a current compound yield of ~5% APR.
https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0030&FundIntExt=INT
If you are in a high tax bracket you may prefer their tax exempt money market funds:
https://flagship.vanguard.com/VGApp/hnw/FundsByType
Sometimes other institutions will have a higher teaser rate, but Vanguard tends to have the highest yields I’ve found over the long run. (Vanguard money markets are not FDIC insured, however.)
Article on teaser rates:
http://www.marketwatch.com/news/story/banks-advertised-rates-dont-always/story.aspx?guid=%7B0A13B6E2-FFB2-4E2B-BD42-E2D1E01C52E5%7D
ING and HSBC often have rates close to Vanguard, and most of their products are FDIC insured. Bankrate.com provides links to CD’s with high interest rates. You can check these at the following links:
http://home.ingdirect.com/
http://www.us.hsbc.com/1/2/3/personal/savings?code=husa
http://www.bankrate.com/
If you want a greater than 5% return, you are going to have to put a portion of your money in a diversified portfolio of stocks or mutual funds.
You should consider bonds, which are much less risky than stocks (although somewhat riskier than CD’s and money markets) and better yielding than money markets (on average, but not every year).
keep in mind that an investment professional is barred from answering this question online as it is violation of the SEC’s “know your customer rule”. A very punishable deed. I am an investment professional and as such cannot answer your question, and I want you to take heed of this fact. Do not place much into these answers as they do not match your specific needs. This is paramount. Not only from a legal standpoint, but from a correct needs point. I am not lying you can search the “know your customer rule” and find what I am saying to be true. If anyone holds a license from the FINRA(formally NASD) they cannot answer your question.!!!
Gary, all of the answers so far have merit. I’m sure you are looking for perspective here and given the replys, are finding it. I’ll add my two cents.
You’ve probably noticed that everything in life is cyclical. This includes the stock market. You made a very good decision last week in going to cash. This bull market is over extended and many signs are signaling the end. My advice, (it’s OK I’m an unpaid professional) in the short term is to stay out of stocks entirely, and that includes mutual funds. It is possible to time the broad market and there is no reason to be watching as your fund follows the trend of a bear market losing you money every step of the way. Operating profitably in the stock market is as much about avoiding losses as it is scoring gains. Your instincts are sound, trust them.