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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Investment choices
Dear Dr. Don,
I will be receiving a settlement in
the near future and will have approximately $70,000 to invest after
paying off all my bills including my mortgage. We have about seven
years to retirement.
We have a Section 457 plan from my husband's work
that we will max at 25 percent. We also have my husband's company
retirement and Social Security for both of us. What would be the
best type of investment for this settlement money?
Connie Cash
Dear Connie,
Deciding where you should invest this money depends on how
the rest of your portfolio is invested. You don't want to look at
this money as a separate part of your portfolio. Not only do you
have a choice between stocks, bonds and money market securities,
you also can invest in real assets like your home.
If you're already heavily invested in the stock market,
then buying additional stocks doesn't make much sense, especially
this close to retirement. It's not that you don't want stocks as
investments; you just don't want to overweight them in your portfolio.
The ideal is to have a portfolio diversified (spread)
across investments to reduce the overall volatility of your investments
and for your portfolio to increase in value on an inflation-adjusted
basis.
The more risk you take on in your portfolio, the higher
the potential return. The problem is that you can't spend potential
return -- only realized returns.
Putting it all into money market funds (cash) isn't
the answer because, while cash investments are very secure, you'll
be hard pressed to stay ahead of inflation by investing in Treasury
bills. If you can't stay ahead of inflation, your portfolio is losing
purchasing power.
I think it's worth your while to get a financial checkup
by having a fee-based financial planner review your portfolio, your
financial situation and your retirement goals. If you're reluctant
to hire a financial planner to take a look at the big picture, you
can get a rough idea of what may be appropriate by using SmartMoney's
One Asset Allocation Worksheet.
For more specific recommendations about your investments
you could use Financial
Engines' subscription service. Depending on the level of service
you need, the subscription costs between $160 and $300 a year, but
Financial Engines offers a full refund if you cancel the service
within the first 30 days.
-- Posted: March 21, 2002
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