he's very skittish about losing his principal, and doesn't want an investment that fluctuates. He, basically, wants a guarantee on his principal
joer1212 wrote:My father will soon be receiving a check for $100,000 from a Workers Comp settlement. He is very risk-averse, and was planning to deposit this money in either a CD or regular bank account. However, interest rates are terrible right now. A 1-year CD yields around 1%. I am trying to convince my father to invest this money in something more lucrative, but he's very skittish about losing his principal, and doesn't want an investment that fluctuates. He, basically, wants a guarantee on his principal. I am trying to convince him to take on just a bit more risk so that he can get better returns.
What is best investment my father can make with this cash that would provide safety of principal, but still yield more than the 1% that CD's are paying now? Is there a stable value fund he can get into, or are these only for 401k's? What about those 'insurance accounts' that paid about 3% a couple of years ago?
You seem to be under the misguided impression that taking on "just a bit more risk" will result in better returns. There's a reason it's called "risk": there's a risk of lower returns, in addition to the possibility of higher returns. There are many investments that might result in better returns than CDs or bank accounts, but possibly not ever, or during his lifetime.
Generally, stable value funds are not available to retail investors, outside of retirement plans.
He might want to consider an annuity, although the only guarantee there is on principal is that you'll instantly lose it (of course, it may be paid back over time, depending on your lifespan and the terms of the annuity.) Annuity rates are also relatively horrible right now, but they're much higher than other, approximately equally "safe" investments.
It would be a mistake to try to convince any relative or friend with whom you plan to have an ongoing relationship to invest outside of his/her comfort zone.
Raymond wrote:You may want to consider the following:
1. You stated the money came from a worker's comp settlement - are there any medical bills (past, present or future) that need to be paid? What are the other expenses - mortgage, utilities, food, etc.? Is there any other income or other assets?
2. Be careful with offering advice, especially if your father is risk-averse. If you convince him to put it in a higher-yielding but riskier instrument, how do you think he will feel if it drops by 10%, 20% or even 50% in a short amount of time? Who do you think he will blame?
3. You may want to consider his situation to be similar to that of a lottery winner (except, unfortunately, your father was injured). Is he (or his spouse/significant other) a spendthrift? Will long-lost friends and distant relatives come sniffing around for handouts?
See this link:
"Managing a windfall"
Also, search for "windfall" in the search box in the upper right-hand corner of this page.
I hope your father recovers from his condition.
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