Best use 250,000

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This topic contains 8 replies, has 6 voices, and was last updated by  Zigzagger 1 year, 4 months ago.

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  • #135067
    cj
    Participant

    House paid off. 2 rental properties paid off 4th Rental property loan 125,000 @ 3.75%. Retiring within a year. What is the best way to use this life insurance policy. Low risk tolerance. I would love your ideas.

    #135147
    Dan Schointuch
    Keymaster

    Check out the target date retirement funds from Vanguard or Fidelity. They’re very low fee and widely diversified. Each is based on the approximate year of your expected retirement, so with an average risk tolerance, you’d probably want one of the 2015 funds like this: https://personal.vanguard.com/us/funds/snapshot?FundId=0303&FundIntExt=INT.

    The funds start off aggressively, with a 90/10 split between stocks and bonds, and grow more conservative as you approach and pass retirement age. The 2015 funds are currently about 50/50 between stocks and bonds.

    You can easily increase or decrease your risk by picking one of other other target dates. For example, there’s nothing stopping you from getting a 2060 target retirement fund instead, which would currently have the 90/10 stocks to bonds split, if you were ok with a lot of risk and looking for gains.

    Or you can get one that no longer has a date and is labeled something like “income”, for investors already in retirement and looking for less risk, like this one: https://personal.vanguard.com/us/funds/snapshot?FundId=0308&FundIntExt=INT#tab=2 It’s currently 30/70 stocks to bonds.

    If you want absolutely no risk at all with the freedom to withdraw at any time, then you’d want an FDIC insured savings account. Ally.com offers almost 1% interest on theirs. But the limit on FDIC insurance is $250,000, so you may have to put some of your money in a different account at a different institution to keep it all insured.

    #135173
    cj
    Participant

    Thanks for your suggestions. I had not thought of the one for when I am retired.
    cj

    #135559
    SherrieL
    Participant

    Before using a target date fund, I would check the fees, some are ridiculously high. I have my investment money in a Vanguard S&P 500 index fund, the lowest fee I could find at the time. Managed funds of any kind will have higher fees, to pay for all that expertise, and meta-analysis of their results over long term finds that managed funds do no better, after fees, than the market as a whole. See Nate Silver’s book, “The Signal and the Noise”, Chapter 11, especially sub heading “Buy High, Sell Low”, page 364 in my paperback version.
    Also, I would consider paying off the other rental property, even though it would take half of your pot. Can you realistically earn a guaranteed 3.75% in whatever you put your 250K into? Or even 3.75% less what your tax deduction is for the interest? Then, use the money you are currently paying on that mortgage to pay into the investment fund you put the rest of the money in. You will then be paying yourself the money you currently are paying a bank. And, be debt-free with income property, a retirement fund, and no worries! Sweet!

    #135562
    Dan Schointuch
    Keymaster

    Yes, @sherriel is right about fees. Some of the lowest fees will be found on funds provided by Vanguard and Fidelity. For example, the Vanguard fund I linked above only charges 0.16% in fees.

    With Fidelity, make sure you’re looking at Freedom Index Funds (the word “Index” is important). The 2015 Freedom Index fund also has only 0.16% in fees.

    #135639
    Laura
    Participant

    I would Charles Schwab due to the low rates.

    L

    #135640
    Laura
    Participant

    Hi again,

    Charles Schwab trades are fee over the over the phone and about nine dollars if you speak with a broker.

    I have invested in ETFs, which pay dividends.

    L

    #135646
    Waterdude
    Participant

    What are ETFs and how do you invest in them? Compare with mutual funds – index funds? What risks? Thanks

    #137608
    Zigzagger
    Participant

    ETFs (Exchange Traded Funds), and to make decision making more complicated, CEFs (Closed End Funds) are both types of index funds. The differences are in how they are managed, their fees, how strictly they follow their index, how they are priced, for example, CEFs can sell at a discount to their net asset value or at a premium to it, and how you buy them. For example, ETFs and CEFs are bought like you buy any stock. They are traded at whatever their price is at the moment you place a buy or sell order, whereas, you have to wait for the end of the day for a buy or sell order to be exercised on an index mutual fund, which is bought thru a mutual fund company. I encourage you to consider CEFs because some sell at greater than 5% discounts and pay good dividends. That is like buying $1.00 worth of goods for $0.95 or less. You should do your due diligence on these and in that regard I recomend http://www.cefconnect.com.
    Good Luck

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