I have a friend who is 61, she has about 30K to invest and will eventualy sell her primary residence and down size. That will free up about 150 to 200 thousand for her to invest. She will need these funds to generate income for living expenses. I am wondering what is the best option for her?
1. CDs
2. Mutual Funds
3. Bonds
4. Immediate Annuity
5. Dividend producing blue chips (WMT, GE, MSFT, BAC, et..)
Should it be a combination of the above. I am wondering if I should manage funds for her or should I perhaps point her toward a professional investment firm to manage her money such as Raymond James or Charles Swab?
Advice is appreciated, thank you. You can handle it... she can learn to handle it...and you can confer with " professionals" where you invest.Look into Fidelity's different approachs on their web-site... create about three different portfolios on yahoo or somewhere, using different allocations... compare as you go along ..see what pleases her or " does the job".
Look into: http://www.dividenddetective.com
Dividend producing stocks are a nice basis for an " income" portfolio...many have monthly dividends...and if you don't choose to automatically re-invest,the divs are deposited in your core account and can be withdrawn as needed...Canadian Royal Trusts are at a decent price right now, that puts some of their yields in the 13-15% range.
They are going to change some tax rates in 2011...but you're good 'til then.
When the house is sold...get her into about 50%..blue chip mutual funds... then look into some things that are " global" or " international" maybe even a balanced fund ( stocks and bonds) in that area.
A small portion of the assets can keep looking for " what's hot" ...not chasing hot individual stocks, but finding the sector(s) that funds are doing exceptionally well....currently that's international growth...energy...tech may be even coming back.
If you're going to be " hands-on" and vigilante, make the " what's hot" portion in ETF's rather than funds ( easier to get in and out...without "short-term fees, etc.)
Do something with a good portion of the $ 30,000. and see how you make out ( with her of course very involved)...and that will tell you if you can/ should handle the larger amounts down the road. Not that it鈥檚 a whole lot, but I THINK the very best answer myself and/or anyone else 鈥渨orth his/her salt鈥? would give you is:
6. Invest a little time and some money to sit down and consult an ***independent*** professional financial adviser and/or accountant - preferably a C.P.A. - who can provide professional advice to her - after she and the professional advisor determine what her expectations and goals are.
SUGGESTION: DO NOT go to a bank or a broker.
***independent***: She needs:
1] the advice of someone who doesn鈥檛 have a biased or slanted opinion.
2] Someone who doesn鈥檛 have anything to gain but the best interest of his/her clients.
3] THEN if she feels comfortable with that person and the advice he/she provided, your friend should make the decision to rely more heavily on that person鈥檚 advice.
Two last bits of advice:
1] Your friend SHOULD ALWAYS in a position to say, "No, thank you."
2] Your friend should always be in a position to change advisers or consult others and make-up or change her own mind.
Thank you for asking your question. I enjoyed taking the time to answer it. You did a great job - not only for your information, but for every other person interested in reading my answer. Thanks to everyone for reading my answer.
I wish you well!
VTY,
Ron Berue
Yes, that is my real last name. For the sake of keeping my advice generalized, your friend could invest in any combination of the 5 options you listed. The most liquid investment would be the money market. If you find a good quality money market account, she could generate about 4-5% per year in interest. It's low but it's safe.
An option that I like would be the bond fund and large cap stocks producing dividends. This would allow for capital appreciation to keep pace with inflation while producing income from both dividends and interest payments from the bonds.
The alternative to the above would be to purchase in immediate annuity with part of the money and invest the rest in large cap dividend producing stocks. This would allow a steady income stream while keeping some money in the market. A variable annuity would keep pace with inflation as well as the stocks.
These are merely suggestions and I strongly encourage your friend to consult with a financial advisor to get more individualized/personalized advice. They don't necessarily have to be "independent" or "fee-only". As long as she interviews them and she can trust them to do what is in her best interest, she found a good one. If the advisor strays too far away from my answer, find a different one.
Ron, ChFC
Financial Advisor First I would advise your friend to sit down (perhaps with a friend like you) and get her ducks in a row:
What are her plans and goals for the next 10 years? What role does money play in her life now? Does she feel comfortable handling money and financial/legal affairs for herself? What is her current budget? What does she expect to receive in income from other sources per month over the next 10-20 years? What does she expect to spend on housing/living expenses after she sells her house? How does she feel after walking through these questions just now?
If she is feeling overwhelmed or is having difficulty thinking through them, I would suggest that she probably needs professional assistance. Fee only financial planners with proper credentials are a good place to start -- but it is important to find someone who is both experienced and a good match for your friend. Plan on interviewing several. Personally, I would steer clear of brokers and insurance agents/brokers: as financial planners they tend to be one size fits all -- here鈥檚 what I'm selling today.
Second, keep in mind that while this money is the entire world to your friend, it isn't much in the mega-world of finance and investing. There is no need to get too deep, let alone panicky, right now.
If I were your advisor and your friend did not need the 30K for the next few years, I would advise her to put the 30K in an INGDirect Money Market Savings Account if she is internet/computer savvy or in an FDIC insured 6 month CDs in a bank or credit union convenient to her with competitive rates (You should be able to find several in the 4% - 5% range, depending on location).
Just think of this money as an emergency reserve (rolling the CD's over as they mature), until she has sold the house and has had enough time to feel comfortable with a big picture financial plan.
See links below for additional information online.
Cheers!
(Technical note: If you go with the CD option for now, I would actually recommend buying one $5,000 CD a month for the next 6 months, keeping the remaning balance in an FDIC insured money market account convenient to her. That way, if she ever needs a smaller amount of money in an emergency, she won't have to wait for the whole amount to come up for renewal) If you want to keep her as a friend, I would suggest not managing her money for her especially since you are here asking about the best income options.
Since she is 61, inflation is a big concern. That has to be ever present in the investment considerations. Therefore, investments in stocks with a record of increasing dividends should certainly be at the top of the list. There are two options available that allow this. 1. investments in mutual funds whose stated strategy is to invest in stocks with a history of increasing dividends. 2. investments directly in those stocks. One question that needs answering is whether she need monthly income. That will be of importance in selection the investment options.
Several bank stocks currently pay dividends in the 5% range and have raise their dividends every year for many years in a row.
Among these are BAC, USB, BBT, C. But as good as the dividends are and as consistant, it does not pay to put all of money in one stock or one industry. There are companies that pay much higher dividends also. Some of those might be good investments and some not.
Among such mutual funds that are equity based and pay relatively high yields are HCE at 9.5%. It accomplishes this by writing covered calls against its holdings.
BDJ pays monthly at 8.9%. |
