Investment Advice

[McLovin]

Sorry, but that's terrible advice to someone who is looking to use the money as a downpayment for a house in as little as 3 years, and who "is risk averse and really cannot afford to loose the money."

[masraum]

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.

No stock market for her or her money then.

[sammyg2]

Originally Posted by McLovin

Sorry, but that's terrible advice to someone who is looking to use the money as a downpayment for a house in as little as 3 years, and who "is risk averse and really cannot afford to loose the money."

Let me re-phrase it: If she is risk averse and really cannot afford to loose the money, she should hide it under her mattress or bury it in the back yard.

If it were me, I'd follow MRM's advise to the letter.
We'll just have to revisit this thread in 3 years to see.
As much as "some people" want the economy to take a dump, I do not believe it will.

[MRM]

Then she should buy the house now. It seems like she can't really buy the house she wants and is hoping for her nest egg to appreciate. If that is so, I think the bigger risk is for her not to be in the stock market. If she doesn't need it now but wants to buy a house with it in the future, she needs it to grow and she doesn't have to pull it out ant any specific time so she can let it sit if it isn't growing. Since the Great Depression there's only been one time where the market went down and didn't fully recover in less than five year and that was the oil embargoed 1970s. In other words, anyone who can have a 5 year time horizon should be in stocks. Bonds would be terrible for her. Interest rates are climbing. Bonds will lose value over the next few years. Inflation may pick up. If she doesn't want to park it in cash, three broad based vanguard index funds are the way to go. Especially if inflation returns at all she need exposure to the market or the value of her cash dollars depreciates.

I'll add one slightly more complex option for her consideration: a broad based European index fund. Europe has been in the doldrums and the Dollar is at long-time highs against the GBP and Euro. The double whammy of a Dollar that regresses to the mean and a Europe that begins to grow again could offer a multiplier effect on her investment.

Personally, that is where my family's after tax money is going. It's split between the Dow, and S&P 500 index and an EFT that mimics the NASDQ with about 20% going to a European index fund. All indexes, all low cost. I've been preaching this gospel for years. I wish I had taken my own advice five years earlier.

[wildthing]

http://allfinancialmatters.com/wp-content/uploads/2013/08/SandP500_5-Year_Rolling_Returns_with-CPI_calendar_year.pdf

85% of the time, the 5 year periods were positive. But what if it was the 15% in the next 3...

Odds are good, but risk averse people focus on the 15%.

[wdfifteen]

What's missing from this equation is any information about her over all financial situation.
What percentage of her assets does this windfall represent?
What is her 401k invested in? What percentage of her assets does it represent? Does she have any real estate? Any other savings or investments?
We only have a small piece of the picture here. Not enough to give credible advice.

[Yorkie]

Originally Posted by wdfifteen

What's missing from this equation is any information about her over all financial situation.
What percentage of her assets does this windfall represent?
What is her 401k invested in? What percentage of her assets does it represent? Does she have any real estate? Any other savings or investments?
We only have a small piece of the picture here. Not enough to give credible advice.

She has no other assets to speak of such as real estate. This sum probably represents 25% of her net worth. Her 401K is medium to aggressive. The reason for the statement that she does not need the money for 3-5 years is that she is single now but she holds out some hope that she may find someone to share her life with (she is an attractive and active gal) and would like to contribute towards a house.

[KFC911]

Originally Posted by MRM

Then she should buy the house now. It seems like she can't really buy the house she wants and is hoping for her nest egg to appreciate. If that is so, I think the bigger risk is for her not to be in the stock market. If she doesn't need it now but wants to buy a house with it in the future, she needs it to grow and she doesn't have to pull it out ant any specific time so she can let it sit if it isn't growing. Since the Great Depression there's only been one time where the market went down and didn't fully recover in less than five year and that was the oil embargoed 1970s. In other words, anyone who can have a 5 year time horizon should be in stocks. Bonds would be terrible for her. Interest rates are climbing. Bonds will lose value over the next few years. Inflation may pick up. If she doesn't want to park it in cash, three broad based vanguard index funds are the way to go. Especially if inflation returns at all she need exposure to the market or the value of her cash dollars depreciates.

I'll add one slightly more complex option for her consideration: a broad based European index fund. Europe has been in the doldrums and the Dollar is at long-time highs against the GBP and Euro. The double whammy of a Dollar that regresses to the mean and a Europe that begins to grow again could offer a multiplier effect on her investment.

Personally, that is where my family's after tax money is going. It's split between the Dow, and S&P 500 index and an EFT that mimics the NASDQ with about 20% going to a European index fund. All indexes, all low cost. I've been preaching this gospel for years. I wish I had taken my own advice five years earlier.

If I were just coming out of a divorce, the last thing in the world I would do is buy a house .
I have a long term horizon for most of my investments, and for those seek a decent return via equities, etc. But....I just pulled a chunk out, locking in profits, and wish to use it in a similar fashion for another house in a few years...so where do I put it to preserve capital short term...that can also guarantee a small 2-3% return over the next few years? Short term investment/corporate bonds and cds (2-4 year maturities) held in a brokerage acct. imo. Bond funds are risky...

Lots of ways to skin a dawg

[Steve Viegas]

Attractive, active, worth $1MM... do you have my email to pass on to her?

[Don Ro]

Unless she's married to some position in CA...move to Arizona and buy a house.
If she gets married, the property is in her name.
This place is booming and will only keep going according to the local gurus...especially IF the Trump phenom continues.
I bought an acre here in '10 for $260,000...recently appraised at $470,000.
Personally, I'm in the market with a small S&P Vanguard Fund...that's it.

[lukeh]

I'd swear that for some the answer to every investment question on this site is buy Vanguard index funds.

If a person told me they needed the money in as few as 3 years, is risk averse and cannot afford to loose the money and I put them in the market I'd lose my license when the lady sues me in 3 years because she lost money. Then if I defended myself with the odds were on her side argument I'd get laughed at and they'd double her settlement.

There is a reason stocks are suggested for investors with a long term time horizon. 3 years isn't long term.

[fintstone]

Sounds to me like she has a good job and funded retirement. If that is the case, why not take a little risk? She doesn't need the money in 3 years to buy a kidney or heart transplant on the black market, it is for a house. A purchase that may well be just a whim. There is every chance that if she is as swell as stated here, she will be swept off her feet by a new suitor and her plans will change anyways.

[rcooled]

Originally Posted by Seahawk

Giving financial advice to a friend is a bad idea.

THIS ↑

If she winds up losing any money, your friendship will suffer.

[RKDinOKC]

Have some friends that buy and slow flip homes in their spare time during the week.

They buy meager small homes that they can pay cash for and they pay cash. No interest.

The house is not a dump to start with. It doesn't need major renovation like the homes you see on the flipper shows. Just a little TLC, ie. paint, flooring etc. maybe a little updating if fixtures and appliances.

The houses are livable. Good enough that they live in the home during the week and work on the house evenings while keeping their 8 to 5 jobs. Weekends they go to their very nice home in the country.

After about a year of fixing up and re-decorating they put the house back on the market. Being all updated, but not too fresh, and obviously lived in, it usually sells quick and for a nice profit.

Seems like something similar might be a good investment for this lady, especially if she likes decorating. It doesn't have to be where or what she wants to end up in. Just a stepping stone. It would provide her a place to live that will be an investment towards her "House" in a few years. She wouldn't be throwing away rent money. And she can increase the resale value with a little work.

[WPOZZZ]

She can move to Hawaii and hang with me. The only thing is $250k doesn't get you much in Honolulu.