Quote:
Originally Posted by needadvice
Wow, this was by far the most detailed reply that I have received to any of my posts. It has been very education, enlightening, and helpful. I thank you very much. I need to start making moves next month, so if you have any other thoughts or ideas before that time, they would be greatly appreciated. A question regarding purchasing the mutual funds that you suggested. Do I buy them directly from the mutual fund provider? Also, it looks like you suggested that I buy a TIPS directly from the government and not through Vanguard Inflation-Protected Securities (VIPSX), is this the best move? Once again, thanks for your advice.
|
I try to provide detailed information. I tried to come up with a conservative portfolio since I noticed that 1) you really need this money to be secure, but 2) that you are a conservative investor. Since it is a lot of money, I beg you to sit down with a CFP and discuss your plans.
The CPA or CFP might believe that the method I discuss is too complex and that it's best to get 5% in a CD. You can find a CFP near you by going to NAPFA.org. It's under the tab of consumer information. You may also want to consider one of Dave Ramsey's Endorsed Local Providers. You really want objective advice and you really cannot get that with a free consultation. I would set up an appointment and pay for 2 hours time to make sure you get everything in order.
Again, paying for a consultation is better than getting a free one!
Going to a professional and paying $200 to $500 is worth the weight in gold. You have all this money and you want to make sure it's safe, but you are spending it over a 5 year period, thus it doesn't have the same risk requirement as money you would spend today (i.e. you use the cash to buy a house outright because your a retiree who cannot have a mortgage is an example).
You want to buy mutual funds directly from the mutual fund provider. So that means, you would invest $25,000 in FASIX at Fidelity, $20,000 in Vanguard with VASIX, and $5,000 in VALIX with Scottrade. I'm hoping that's low risk since it hopefully has less than 8% equities. Fidelity has a six-month hold on VALIX or you get charged a significant fee of $75, which is why to consider Scottrade.
I think buying a 5 year TIPS has two benefits: 1) you don't pay an expense ratio or commission if you buy directly from TreasuryDirect.gov and 2) you are buying individual issues and thus the volatility should decrease as you near the term of your bonds. Owning a 5 year TIPS mutual fund means that since the fund is constantly rolling it over to get it to a 5 year maturity means that you will or might have the same risk as a 5 year government bond. The fact that it is an inflation-protected bond may provide additional benefits and reduce volatility.
I also suggest I-Bonds. You now can only invest $5,000 thru TreasuryDirect and $5,000 thru your bank to buy paper I-Bonds. The current rate is 4.875% for the first 6 months if you buy by October 31st. The major problem is the fixed rate is 0% so that means if inflation where to go away, you would have a rate of around 2.5% average for the year. Also, if you hold less than 5 years, you will forfeit the last three months interest. Lastly, you CANNOT take the money out FOR ANY REASON, thus it is illiquid. Because they are illiquid non-marketable bonds, however, they aren't subject to interest rate risk. It is one of the very few illiquid investments that will protect your principal.
In years 1 thru 5, you can take the money out as needed. If you find it to be a good product and hold it a couple of years, selling at the penalty won't be a big deal particularly if you sell them in a time period when the last three months interest have been very low.
Good luck!