Investment Advice

[Yorkie]

Got a friend who is in her late 40s, recently divorced and as part of the settlement she received about $250K in cash. She does not need the money for 3-5 years so she is wondering where she should park her money. She already has a 401K through her company. I was thinking that she should buy a bunch of Vanguard Index funds but I'm an engineer and not a investment banker. Any advice is appreciated.

[MRM]

She should buy a couple of Vanguard index funds. An S&P 500, one that mimics the Dow, and one that mimics the NASDQ. Tell her to check the box to reinvest dividends and check back in on them when she needs the money. And in the meantime to max her 401(k).

[Seahawk]

I am not sure what, "doesn't need the money for 3 to 5 years" means.

Is she in the protection mode or growth mode? What is her risk tolerance, understanding of financial risks, etc. Can she afford to lose the money?

An hour session with a financial planner would be well worth her time.

Let her decide. Giving financial advice to a friend is a bad idea.

[wildthing]

3-5 years is too short for the stock market. Especially after this run. Does she need it in 3-5 years? Then stay in cash.

[VincentVega]

Good advice. When you can answer what its for and when you need it you can give better answers.

Lots of sources for this, this is a good one https://investor.vanguard.com/other-savings-goals/

This tool helps with some of the basic questions https://personal.vanguard.com/us/funds/tools/recommendation

Last one, I like the idea of these balanced funds. Changes are you wont hit a home run but you also arent going to get burned. https://investor.vanguard.com/mutual-funds/lifestrategy/#/

[Yorkie]

Originally Posted by wildthing

3-5 years is too short for the stock market. Especially after this run. Does she need it in 3-5 years? Then stay in cash.

She is currently living in a rented apartment but hopes that she can afford to buy a little place in a few years time and that the money would help with the deposit. She is risk averse and really cannot afford to loose the money.

[KFC911]

Originally Posted by Yorkie

She is currently living in a rented apartment but hopes that she can afford to buy a little place in a few years time and that the money would help with the deposit. She is risk averse and really cannot afford to loose the money.

Slowly begin to buy short term corporate bonds, cds, etc. (3-5 year maturity)
but take it slow, dollar cost average in over the next 18 -24 months as interest rates rise, and hold to maturity. Avoid stocks completely and bond funds too imo.

Gives her a modest, "safe" return...

My .02 worth exactly what you paid for

[Don Ro]

I have everything with Schwab.
They call me on occasion to see if I'd like to drop by for a review of my portfolio and for any investment advice...free of charge.

[recycled sixtie]

Originally Posted by Seahawk

I am not sure what, "doesn't need the money for 3 to 5 years" means.

Is she in the protection mode or growth mode? What is her risk tolerance, understanding of financial risks, etc. Can she afford to lose the money?

An hour session with a financial planner would be well worth her time.

Let her decide. Giving financial advice to a friend is a bad idea.

+1
This is the best advice.

[aigel]

I'd keep it in cash. Go put half of it in a savings account (Capital One has a very good one) and the other half in CDs that are 6 months or 1 year term, so she can take it out on time for her down payment.

I you put it in an index fund and the market crashes, your 250k may be 150k. Sure if the market keeps running up the 250k may be 300k, but that's not worth the downside risk!

G

[Esel Mann]

Yorkie,

First, anytime one encounters a 'windfall' of ka-ching, the first recommendation from anyone with investment experience would be to park it for 6 months to a year. By park it I mean in multiple FDIC insured CD's with maturities for example in the 3,6,9, or 12 month windows. Will she make a bundle? Absolutely not, but it will be safe for the time being and principal will be preserved. Nobody ever jumped off a bridge because they missed the market up-side. Market down-side though is a different story....

Why do this? because it is within that window which folks are most vulnerable to losing their 'windfall', beit from hookers-n-blow or stocks and bonds. The window also provides folks time to contemplate purpose/use of the 'windfall' as well as seek additional advice.

As to where she can seek additional advice, there are financial planners as well as financial advisors out there. With the money parked in CDs she will have plenty of time to seek advice out. As to where to start, you mention she has a 401(k), while said 'windfall' is not 401(k) monies, it wouldn't hurt to talk with someone from the 401(k) custodian. Second, everyone knows at least one person who has ka-ching but doesn't show the bling-bling. She should have a private conversation with that person as well. Not so much for raw advisement but to help point her in the right direction.

[Crowbob]

I think the lady should buy herself a divorce present. After all, he earned it.

[Seahawk]

Originally Posted by recycled sixtie

+1
This is the best advice.

My Nephew is an investment guy in Atlanta, does extremely well - not interested in living in NYC. He is in his 30's living the dream.

We make it a point to not talk about money or investments in detail when we are together. He is helping my son get started with his portfolio (and my daughter) but we don't collude: We like each other too much.

[KFC911]

Originally Posted by Crowbob

I think the lady should buy herself a divorce present. After all, he earned it.

911 or 1911 ?

[wdfifteen]

Originally Posted by Esel Mann

Yorkie,

First, anytime one encounters a 'windfall' of ka-ching, the first recommendation from anyone with investment experience would be to park it for 6 months to a year. By park it I mean in multiple FDIC insured CD's with maturities for example in the 3,6,9, or 12 month windows. Will she make a bundle? Absolutely not, but it will be safe for the time being and principal will be preserved. Nobody ever jumped off a bridge because they missed the market up-side. Market down-side though is a different story....

Why do this? because it is within that window which folks are most vulnerable to losing their 'windfall', beit from hookers-n-blow or stocks and bonds. The window also provides folks time to contemplate purpose/use of the 'windfall' as well as seek additional advice.

As to where she can seek additional advice, there are financial planners as well as financial advisors out there. With the money parked in CDs she will have plenty of time to seek advice out. As to where to start, you mention she has a 401(k), while said 'windfall' is not 401(k) monies, it wouldn't hurt to talk with someone from the 401(k) custodian. Second, everyone knows at least one person who has ka-ching but doesn't show the bling-bling. She should have a private conversation with that person as well. Not so much for raw advisement but to help point her in the right direction.

I like this advice. Ladder some CDs, think about it while they cook. Give yourself time to adjust to the new life, visit a FEE ONLY investment advisor, then decide whether to reinvest them in the market, real estate, more CDs, hookers and blow, etc. I do like I-Bonds one year maturity, backed by full faith and credit, but you can only buy $10,000 worth a year.

[wildthing]

Actually good advice. Don't feel pressured to do something immediately. This is the same advice FPs give to those who received an inheritance.

[Yorkie]

Originally Posted by Crowbob

I think the lady should buy herself a divorce present. After all, he earned it.

You are making some assumptions there Crowbob. She earned more than her Old Man for the majority of the marriage and they lived in her house. Fortunately no kids involved.

[nfl72]

you don't happen to have her phone number, do you!

[McLovin]

If she's looking to possibly use the money in the next 3-5 years, I'd not put it in any stock fund.

Way too much downside risk, compared to upside reward, at this time.

(Basically, what aigel said)

[sammyg2]

Originally Posted by MRM

She should buy a couple of Vanguard index funds. An S&P 500, one that mimics the Dow, and one that mimics the NASDQ. Tell her to check the box to reinvest dividends and check back in on them when she needs the money. And in the meantime to max her 401(k).

that pretty much says it all.