If you pulled 250k out of the stock market....where would you put it?
 

If you pulled 250k out of the stock market....where would you put it?

I know its tempting, but, please play nice with the question.

Consider:

Preservation of wealth in the short and long haul.

Safety of investiments?

Return on investments?

Well I did what they said and about 18 months before I retired I moved most of my money to a stable return fund. I am taking out enough now to pay off the the house in TV before we move there in May 2011.

I took all of mine out of Merrill Lynch and puit it in equity stock index funds. :eclipsee_gold_cup: I will be garanteed 13% this year ( 10% immediatly ). This is probably the best decision I have made. Take care Kar guy

Well we moved out of the market a couple of years ago and put that money into CD's at 5%. If I was doing that now I probably would still go with CD's but for a shorter time frame due to the low return rates.

Cabo,

First of all, I really try hard never to tell anybody what I think they should do with money. But this is just a hypothetical you are putting out here so I will hypothetical right back atcha.

It sounds like you are asking about the formula for what I call "the cost of sleep."

There are two key words in your question: preservation and safety. If that is truly all that is important, and ROI, not so much, I would use short term CD's in banks insured by the FDIC.

I would split it up maybe, even though I think the FDIC is insuring up to $250,000 now. But I think that might be slated to revert back to $100,000 at the end of the year. I have not looked at the FDIC website for a while. But it explains all that and has something where amounts can be plugged in to check what would be insured. It is not just a flat amount. It has to do with how the accounts are named.

CD rates are so low right now, it is painful to even ask about them. The reason I said short-term CD's is that I do not see how they can get a whole lot worse and I have wondered if inflation will cause rates to go up over the next year.

Those double-digit CD's I held in the early 80's were freakish I know. I knew it was not right even then. Those double-digit CD's paid Boomette's tuition. I do not expect rates even close to those, nor should they be.

But how inflation cannot set in and affect rates, I do not know. But they will find a way to pay us nothing is my guess. Even so, short term CD's are what I would use. Of course, rates could also get lower. So who knows how CD rates will be down the road.

(I will try very hard now not to start in here on a rant about the Fed over the past several years.)

So back to those CD's. Painful though those rates may be, FDIC insured CD's pass my cost of sleep test. I am so unsophisticated as an investor that I cannot even imagine buying a CD on the internet. I like small, bricks and mortar banks that shelve their mortgages and do things the old-fashioned way. And where when I go there, they say, "BOOMER!" You know, like on "Cheers" when they say, "NORM!"

I never invest in anything that is not liquid. Let me clarify that. By liquid, I mean CD's and stocks that, of course, I could take a hit on for cashing in at the wrong time, but that would be my decision. I have to have those decisions all in my own hands. I refuse to tie up in an annuity. I do not understand annuities. I do not try to understand annuities. I cannot turn it over. But that's just how I am.

And since you said "out of the market" I will not go into dividend payers like utilities. Who knows anyway about those. Somebody might decide they are not green enough or something like that. But we just bought more utilities.

Cabo, I know my answer was 101 and you already know that stuff. I wish I had a really good answer. And I know the thing about how low rates lose against inflation. But the principal remains. And sometimes all I can do is try to hang onto the principal, even though inflation eats away at it. But also, I just cannot let go of those dividend payers. Even though they take a hit in price, the check is still in the mail. For now.

It was not supposed to be like this.

And that was all just hypothetical. I know nothing.

Boomer

The FDIC insuring up to $250,000 of deposits is set to return back to $100,000 at the end of this year.

Index funds with a guarantee?
Or did you utilize some sort of an annuity package?

You have my attention!!!

Can you be more specific? Who offers this investment? What is the name of the fund or funds?

I don't understand your statement about a guarantee, but I will investigate that when you explain what you bought.

Thanks.

Do you trust your kids?
 

I have diversified greatly, and was not hit too bad in recent events. Or at least I don't think of it that way because I never saw the bubble gains as real. That said we plan on refinancing our sons house so we have a stable income. He has a good job and would never stiff us. That said in order for it to be arms length and make the payments deductable for him (and income for us but at our lower tax rate) the rate has to be the same or not much lower than what he can get elsewhere. This has the side benifit of avoiding state inheritence taxes in some states (Fed not an issue we don't have that much)
This was suggested by the investment bankers and hedge fund managers in my family.

Hope this helps

I don't think I would pull out of the market right now. Personally, my portfolio has been bouncing back so I'm straying put. If I did make a move it would probably be into bonds. :shrug:Good luck.

I have an opinion on this one. Please forgive me for not keeping it to myself. I know you did not ask. This is not directed at your specific situation, just family mortgages in general.

This could be a good idea because it is recycling the family money. You know about the imputed interest rate and the IRS stuff. And I assume you are going through an attorney and filing the mortgage at the courthouse and making sure the title is clear and figuring out how the property taxes and insurance will be handled. You are the bank when you do this so from an investment perspective, you have to think like a bank, not like mom and dad.

But I just have to say that anyone doing this really needs to consider what would happen if for some reason the house payment did not come through, one time, two times, maybe more not than often.

By bringing this up, I am not saying that a child would intend such a thing to happen. What I am saying is that life happens. Illness. Job loss. A spouse. An ex-spouse. All sorts of things could possibly get between you and the house payment.

But if the answer is that you could really do without the money if you had to, and if all the bases are covered, just like you are the bank, these things can work out fine. Just not always.

I have known of family mortgages. I know people who have done it. I have seen the good, the bad, and the ugly. But a family mortgage can't truly be arm's length. Even if on paper it is that way.

When looking at this as an investment, the bottom line has to be whether you as the lender can afford not to get paid. Life happens.

I wish you the best. (And I really do know of some of these that have worked out beautifully. But possibilities must be considered, just like with any investment.)

Boomer

According to The Wall Street Journal Congress voted this week to extend the $250,000 deposit insurance limit for the FDIC until the end of 2013.

Thanks, spk.

Now if only we could get even 5% on CD's. But I wonder if we will ever see that again. The window for 5% did not seem to be open for long. At the time, I was running around chasing 5 for 5. (And feeling like I was probably being an idiot. And I wish that were true. I would much rather have seen the market thrive.)

And if only Congress has sense enough not to mess with the capital gains tax and dividends taxed at 15%. Unless they want to make those rates even better. Ya think????!!!

I have to wonder if the market will be getting back on its feet and staying there about the time those tax rates expire by 2011. If Congress messes with those rates for the worse, I have to wonder if that would pretty much hamstring the market. At least for the individual, small investor. (But I am a mere bumpkin. I don't know anything.)

There are those who believe that stocks are fairly valued now. I am a buy and hold girl. And I have bought a little lately. But only dividend payers that I understand. With CD's paying nothing, I figured if I feel comfortable that the dividend rate is pretty much locked in, I might as well shop a little. Get paid to wait. Kraft has been my favorite buy recently. Seems like mac and cheese is in vogue and will be for a while.

I don't think anybody really knows what to do. This is like nothing we have ever seen before. I do not care what they say.

Boomer the Buy and Hold Bumpkin

Call Bernie Madoff:faint:

Boomer,

My feeling is that we will not see 5% interest on CD's for quite some time. I could not even hazard a guess as to a time frame because I have no faith in the economy right now. (I think I am a victim of bail-out fatigue). We completely bailed out of the stock market, which as our personal portfolio, in May 2006 when we lost 20% in two weeks time. That was cash set aside to carry us until we could tap one of our 401k's and we are now happy we did that.

Great advice I think for safe, investing. Everyone wins, you, the children. You get to help family and yourself. Sort of like the good old days.

We are in for alot of inflation in the next few years. Perhaps another alternative is gold.

FDIC Insurance
 

Not true that deposit insurance is reverting to $100,000 at year-end. Per the FDIC website "As of May 20, 2009 deposits at FDIC insured instituitions are now insured up to at least $250,000 per depositor thorugh December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and other certain retirement accounts which will remain at $250,000 per depositor." (I'm not that smart, I just work at a bank and know where to look).

Golly Cabo - I think if it is money you might need in the next 5 years, Boomer gave some good advice. I might look at some tax free bonds - My personal money I know needs to last 20-30 years so I have 30% in equities and 70% in cash and bonds (bonds are 45% - cash 25%). Our financial advisor thinks I should be 70% bonds 30% equities, but I need the comfort of the cash reserve so I know I can get by for 3-5 years if the market tanks again. I am in a "trust no one" mode with my money after the whipping we took the past couple of years. I did keep working 2 years longer than I had originally intended so that helped. I may look for part time work next year for an additional cushion if the picture doesn't get better. Good luck - being able to sleep is the key - upset stomach just makes you spend your money on PeptoBismol.

Sounds like Bernie Madoff is out on bail. When anyone promises 13% returns on equity stock index funds it is time to run for the door. No index fund can promise these returns.

Like the rest of us, I took a beating in the stock market over the past several years. When the market was going up 14000, I thought I was a genius. Then when it tanked at 7000 I came to the realization that at my age 68, it is better to be safe (sleep factor) than sorry. I have therefore been systematically taking my money out of the market and putting it in CD's. I am quite sure that the market will eventually return to the pre crash highs, but time is working against me. I don't want to be a millionaire at 90.

I know what to expect from my CD's and I don't have to worry about another financial setback when the stock market takes another dive.

There is so much corruption in our country that I just don't trust the stock market any more. My goal is to get out systematically and take the least losses possible.

I say I am not a gambler by nature, but afterall how is playing poker and different from playing the market.

Thank god my retirement is in a fixed income for life and not in a 401k.

...

I do not think that people who had their money in federal insured banks lost a dime, so long as each account was under the insurance limit. Many accounts, many banks if it makes you feel better, but under your mattress, earning no income, your kidding right. :jester:
Withdraw huge amounts in cash from any bank, and you will end up on a federal watch list for sure. As I understand it cash deposited or withdrawn over ten thousand is reported to the watchdogs. We won't need our security clearance in retirement but I wouldn't want to end up on a watch list.:eek:

I'd really be hesistant about travelling, either by plane or car, with LARGE sums of cash. Too many bad or unexpected things can happen. I agree that having $$'s in FDIC insured accounts is the way to go if one wants to put all of their cash someplace.

Remember that recent news story of the woman in Israel (I think) who supposedly had over a million dollars in her mattress and it got hauled away?

I would say keep it in the stock market.....

I have been buying stock at these great prices!

I sold a bunch when the DOW was at 14000 and will again. Just hang in there. :pepper2:


If you are really that nervous take out a little to take a loss...and you will do better on your taxes.

Real Estate is still a good investment if you are looking a few yrs down the road.

Oh dear! Please tell me that there are not retirees out there, headed south, down the interstates, schlepping suitcases full of cash, across all those state lines for immortal porpoises or whatever. Oh dear! Oh my! Please tell them not to do that.

All kidding aside. Carrying around large amounts of cash is not smart and could be really dangerous. Trudy and BobKat are right. FDIC insured accounts are where some people like to stash cash. Look at the FDIC website for more info.

Boomer

$250,000.00
 

Buy a Boat- Sounds silly but when K2at mentioned the market liken to playing poker and real estate (motgages) about the same why not invest a good sized boat that you could probably get cheap now. Sound corny but not fishy like the others are. :wave:

Stay Invested and still get high yields for LIFE!
 

I agree with this statement and after losing CONSIDERABLY while waiting on the market to "come back" month after month for almost a year we finally switched 50% of my money to a "Variable" GUARANTEED Annuity that pays 6% for life and 6% is always adjusted once a year so that "if" portfolio balance goes up the 6% "Yield" is adjusted to higher balance Guaranteed NEVER to drop below HIGHEST Market Value on any given anniversay date on your YIELD even though portfolio balance may drop 6% rates are locked each anniversary year and..... you are still invested in Market either aggressively or consersatively. However your money is locked for 7 years to which if you pull it out 1st year it will cost 7% ....if you pull it out 2nd year 6% .... 3rd year 5% ...4 year 4% ....3 year 3% etc. After 7 years you will not pay any penality for taking out and your 6% can grow as your portfolio grows (adjusted for balance every year) and will never go down in yield even if balance drops. We have ours thru MetLife...#1 Rated Company

My thoughts Exactly!
 

My Thoughts EXACTLY!! :agree:

A bit off track from original question but
 

Looking at existing houses now in TV. Does it make sense to buy the house cash by taking out of stock market? Planning on six months in TV. Have existing house up north paid off. Leaves us with a decent pension, SS and some cash.

The original question had to do with investing $250k taken from the stock market. One really needs more information about you to give an answer that meets your needs. For example, is your total household net worth greater than one million dollars? If it is you may want to purchase some life insurance with part of the money to cover estate costs. It is possible Congress may not modify the estate tax allowing it to revert to the one million exemption after 2010.

Another thing how large is your portfolio? Does the $250k represent more than 50% of it? If so, and you are absolutely against owning individual stocks, I would suggest mutual funds. In that case split the money into five equal parts of $50k each and buy five different funds from the same fund family. Vanguard has pretty low expense ratios, so I would start there. Use Morningstar to help identify particular funds. Invest the money as follows: An S&P 500 index fund, A bond index fund, a technology index fund, a high yield fund and an international fund. After 12 months and one day re-evaluate and shift your fund allocation back to 20% in each fund. (If the money is in tax deferred accounts you can shift every six months since you won't have to worry about tax consequences.)

Still, I generally agree with some of the other posts that you probably shouldn't pull the money out, now. Yes, the market cold dip again but it might not. I think the worst is over and that the economy is safe. Over the next five years the markets should rebound nicely.

If you do not like your current mix of stock investments, consider becoming a bit more defensive y buying consumer staples and shifting into high dividend paying stocks.

Finally, although annuities have there place in some portfolios they might not fit in yours. After all, if you have a well funded pension that plus social security means you already have two annuities. Do you need more?

250, what to do?
 

I'd buy another home in TV so the kids wouldn't have to fight over this one....

Hi jrjr,

While I hope we all know that nobody should be taking investment advice from somebody posting on a forum, I enjoy the discussions and have to throw in my opinion from time to time. It can be fun to bounce some ideas around.

I will say that the last two points you make here in your post, I can mostly agree with.

But about that word "high" in front of dividend. I have to fine-tune that one just a little. So jrjr, please bear with me here. I bet you already know all this.

All dividends are not created equal and if a dividend looks too good to be true, it just might be. An investor needs to look at dividend history. How long has the dividend been paid and how consistent is the history of increases? Also, I have to know the company. Know what they do. I have to understand the company. A dividend that is way high may be ripe for being cut. In my unschooled, not-a-professional, sleep-at-night book of investing, if something looks out of whack, it probably is.

And I know that this is the old buy and hold philosophy showing. Catching a good solid company when it is down can give you a decent dividend while you wait for the price to go back up. I can't look just at that percentage return of the dividend. For me, it is relative to all the other stuff I have to think about. But like you, jrjr, I like good dividend paying stocks. In fact, I will not buy a stock that does not have a dividend.

I do not think anybody who is now retired or close should be putting anything at risk that they will need for retirement expenses. That's my "bird in the hand" philosophy. I have seen too many people retire based on the projections of some investment "expert" who was plugging numbers into a computer and spitting out such a pretty picture.

And as far as the market now is concerned, I think all bets are still off. We have never seen anything like this mess. It has grown arms and legs all over the place. We have no means of comparison in our economic history. Meanwhile, my little buy of a few shares of Kraft is doing well. I just felt like mac and cheese was a good bet. But who really knows? I sure don't. I think it is going to be a while. But my cup of Maxwell House is half full.

Boomer

Good points, Boomer. When I look for high dividend yielding stock I generally focus on utilities in areas with relatively stable populations or in lieu of that utilities that have diversified revenue flows.

Hey, jrjr,

I hear you. Utilities 'R' Us.:beer3:

But please always remember that I have no idea what I am talking about. And I really do think all bets are off. Who knows? And like I have said before, I have a deep-seated fear that someday I will throw all caution to the wind and start investing in Beanie Babies and Pez dispensers. But for now, I remain cautious. And I am still as mad as a wet hen over this whole big mess. And whether we individually took big hits or not, we all are affected, or will be, in one way or another.

Boomer

Hey Boomer,

Forget the Beanie babies and Pez dispensers. Try calculators, instead. after teaching college for over thirty-six years I can tell you that calculators will be in great demand if there is a major collapse. Nobody can do simple arithmetic anymore.

By the way a good tool for analyzing a dividend stock is to divide the dividend per share by the earnings per share. If the result is greater that 100% do not purchase the stock it means the company is cannibalizing itself to continue to look good to its shareholders. Some companies like utilities will have high percentages, say 75% or more but that's just because they normally pay high dividends.

Uh oh, jrjr,

I was just about to move forward today with my real life, where I talk to people I can actually see, when I looked back and saw your post, fellow utilities fan.

I am known to digress a little from time to time. Never could color inside the lines. And when I saw this part of your post, I thought, "Ohhhhhhhh, I just have to make sure this person knows about this story. I cannot leave this morning until I make sure."

So here goes......

If you do not already know about a short story "The Feeling of Power" written by Isaac Asimov, a long time ago, then you absolutely must get your hands and eyes on it. You will love/hate it. It is about exactly what you just said.

I am not a huge science fiction fan, but I know a little bit about some of the biggie sci-fi authors from the last century. And I always say that good science fiction makes the reader stop and think, "Could this really come true?" And then the reader looks around the present for signs that it could. But then the reader could start to lose a lot of sleep. Kind of like reading Orwell.

So anyway, if you have not read this story, please, oh please, get thee to a library and find it. This one's for you, jrjr.

And now I must get back to acting like I am talking about investments in this post so as not to digress way too far and be accused of being an English major. Soooo, about those dividends.......

Boomer :read:

Thank you all so much for contributing to this thread. I sincerely appreciate the thoughtful insights and perspectives you shared so unselfishly. Your collective suggestions are better than most professional planners I have spoken with. They are very helpful....and.....your consulting fees are the best.

Sorry for being late to this discussion - I hope it's not so old that people have stopped reading or adding to it.

As recent retirees, we are currently exploring our investment options and have attended various lunch/dinner seminars and had a few follow-up meetings. This is what I have found out:

Indexed Fixed Annuities - the concept is that you buy an annuity that is tied to some index (e.g., S&P 500). The annuity guarantees that your principal is never lost but yet allows you to profit from the upside in the stock market - hence is sold as a good hedge against inflation. The problem is that the rate that the index is allowed to go up is severely capped (perhaps 5-7%). That is, if the S&P goes up by 15% in a year (which is not uncommon in an up year, especially in a high-inflation period), the annuity only goes up by the capped amount - 6.75% in the case of the product that one agent is trying to sell us on.) Sure, the account value won't decrease, but the cap means that your annuity is a very poor hedge against inflation. So, if we get back to double-digit inflation rate as many are suggesting we are headed for because of our increased deficit spending, while stocks may keep up with inflation, the annuity will lose buying power each year. That's my take on it, but will welcome contradictory views.

Variable Annuities - Several companies (Prudential and Axxa are two that I know of) have products out that offer both an account value (that can go up AND down relative to the market) and another value (I call it an "annuity account" that is used to determine annual payments if you decide you want to annuitize your fund rather than take out the principal. This latter value is tied only to market gains. That is, if your portfolio value starts at $100K and goes up at some point during the year to $125K, the $125K becomes the new basis for which annuity payments are made. This value is locked in and will never go down, but can ratchet up even more if your underlying account value at some point goes even higher before you start taking money out of the account. The nice thing is that at whatever point your annuity account reaches a new high, from that point until the next high, your annuity account will grow at 7% per year. There are some attractive features added concerning death benefits and others. One downside to this is the higher fees that are charged to cover the profit and added risk that the insurance company is taking. The other negative as I understand it is that though this appears to offer reasonably good inflation protection while it is in its accumulation phase, once you start to take money out, I believe it is a fixed percent of the value of the annuity account. Hence any inflation from that point on will not be addressed. I am still evaluating this option to see if it makes sense.

Indexed CD As I understand them, they are like a CD in that the initial principal is guaranteed by the FDIC, but the interest rate is not fixed but rather can go up based on the increase of an index such as the S&P 500. I believe that annual increases in this CD are taxable, so it probably makes more sense to own it in an IRA or other tax sheltered vehicle. This also sounds intriguing to me but I need to learn more.

Taxes on the annuities
 

Do not forget to look into the tax consequences involved with annuities. When we were looking into annuities last month we were told that we could expect to pay higher income taxes when drawing a monthly check from an annuity vs using our existing CD's.

I would be a little scared when someone tells me 10 percent now and 13 percent later