$50,000 to invest, want little to no risk. CDs? Silver? Etc?

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mariem
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$50,000 to invest, want little to no risk. CDs? Silver? Etc?

Post by mariem » Tue Jan 20, 2015 1:04 am

I am very low income but do manage to pay all my bills every month. I have no credit card debt and I own my home. A few years ago I was awarded $50,000 in a lawsuit. Knowing very little about investing, I have basically just kept the money in a savings account earning 1% interest. Does anyone have other options for earning more interest than 1%? I considered CD's as I have found one that is 2%....obviously, not a substantial difference, but if i'm not going to touch it, it might as well be earning an extra 1%, right?

While I do view this money as "emergency only" money, and have no plans on touching it, something COULD happen someday to where I'll need it. And, at my current pay (which probably won't increase anytime soon) if I lost this money to poor investments and had to replenish it...it would literally take a lifetime (and then some). So...point being, would like little to no risk...just something that might yield more than 1 or 2%. Are CD's (laddering) a good option? Would physical silver/gold be better? Or something different altogether that I've never considered?

Also....if I ultimately do put the money into multiple CD's from a single institution, does multiple CDs translate to multiple 1099-INT forms (1 for each account) or would it be one single form with it all calculated? Not trying to tremendously complicate my tax preparation either.

I truly appreciate any suggestions!

Globalviewer58
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Globalviewer58 » Tue Jan 20, 2015 7:37 am

The desire for no risk makes CDs a good choice. In a given tax year you would expect one 1099 from each bank or credit union where you bought the CDs. A ladder can make sense to allow you to have long maturity and higher rate overall. Another way to invest is to buy several long term CDs with the idea that you may redeem one or more early in an emergency and then lose the early withdrawal penalty on the emergency amount only.

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TomatoTomahto
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by TomatoTomahto » Tue Jan 20, 2015 7:42 am

Physical gold/silver are NOT low risk. I wouldn't touch them with a barge pole.
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by rakornacki1 » Tue Jan 20, 2015 7:46 am

Agree with globalviewer58 on how to approach investments in CDs.
With regard to precious metals (gold, silver, etc.), I absolutely would not recommend this for you. The risk associated with these are much higher than what you are looking for in an emergency fund.
Good luck and great profits.

lazyday
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by lazyday » Tue Jan 20, 2015 7:50 am

Series I savings bonds are even safer than CDs, because inflation might reduce the spending power in a CD. But the yield might be even lower. They now pay about 0% + inflation, lately about 1.5%.

You can only buy $10,000 per SSN per year, and $5,000 as a tax refund.

With CDs there is risk that a bank will deny an early withdrawal. So you might want to spread the CDs over a few banks and credit unions. Check depositaccounts.com for rates: there's at least one CD paying 2.25% now.

Depending on what risk means to you, it also might make sense to put 10% to 25% of the money into the stock market. Looking backwards, 10% in stocks has been less risky than putting 100% into bonds, and depending on early withdrawal policies, it might have been less risky than CDs when you include loss of spending power.

If you put a bit into stocks, you could use Vanguard's Total Stock Market index fund, and Total International index funds. Over the next 20+ years, this should have a better expected return than CDs. Just don't sell when stocks lose value.

Dandy
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Dandy » Tue Jan 20, 2015 8:22 am

Forget Silver - Buy 5 CDs each with a 5yr term. That way you will get a higher rate (for now) and if you need some money you won't have to redeem the whole 50k - just the amount you need. You can get about 2.25% if you search. Make sure you know the early withdrawal penalty before you buy.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Grt2bOutdoors » Tue Jan 20, 2015 8:48 am

Dandy wrote:Forget Silver - Buy 5 CDs each with a 5yr term. That way you will get a higher rate (for now) and if you need some money you won't have to redeem the whole 50k - just the amount you need. You can get about 2.25% if you search. Make sure you know the early withdrawal penalty before you buy.
+1 - If you had purchased silver in 2011 - it would have cost about $47 an ounce, today it sells for $16 an ounce! Ouch!! :shock:
Certificates of Deposit are the way to go. Series I bonds pay very little since their rate is mainly dependent on what inflation is doing, since energy prices have been falling, inflation when calculated will be below the previously calculated rate - therefore it's likely the interest rate to be announced in May will be near or at zero. Further, Series I bonds can be thought of as insurance against unexpected inflation, the price you pay is cheap - when inflation is low, no one wants to buy them, when inflation is high, everyone will be clamoring for them. Nevertheless, it's likely CD rates will keep at or close to the same rate being paid by Series I bonds, at least in the near term. Long term, no one knows.
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lazyday
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by lazyday » Tue Jan 20, 2015 9:12 am

Grt2bOutdoors wrote:Series I bonds pay very little since their rate is mainly dependent on what inflation is doing, since energy prices have been falling, inflation when calculated will be below the previously calculated rate - therefore it's likely the interest rate to be announced in May will be near or at zero.
...
Long term, no one knows.
I see them at this moment as lower expected return than a good CD, but lower risk, especially if have a 30 year timeframe. There's no guarantee CDs will keep up with inflation, even with great early withdrawal policies.

I bonds can also have tax benefits, which might be a material factor if OP someday moves to a higher tax bracket or uses the money for education.

It might make sense to wait until late in the year to buy, to avoid 6 months at 0%+0%. Or one might accept a little more risk and just use CDs.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by jfn111 » Tue Jan 20, 2015 9:39 am

I play with Gold and Silver but only with a tiny fraction of my investments. Unless you're convinced of the Zombie Apocalypse I would stick with conservative investments. You might consider $40,000 in C/D's and $10,000 in a total stock fund. (Or something like $7500 in total US and $2500 in total international)

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by rkhusky » Tue Jan 20, 2015 10:06 am

You need to do a risk analysis. In a very rough sense, determine what are realistic risks, what are the probability of occurrences, and what is the impact if the risk occurs. Can you think of something where you would need all $50K for an emergency? Lose your job and have to live off the $50K? - there are assistance programs that would help with expenses. Furnace breaks down and needs replacement - $2K? Car totaled - need $10K for a decent used one? etc.

If it is not realistic that you would need $50K in an emergency, you could put some of it in a higher risk, but higher returning investment. For example, $20K in CD's, $20K in Bond Fund, $10K in Total Stock Market. Or $10K in CD's, $20K in Short Bond Fund, $20K in Intermediate Bond Fund.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Sbashore » Tue Jan 20, 2015 10:07 am

TomatoTomahto wrote:Physical gold/silver are NOT low risk. I wouldn't touch them with a barge pole.
+1
Speculating in precious metals could be quite harmful to your stated goals.
Steve | Semper Fi

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Aptenodytes » Tue Jan 20, 2015 10:15 am

I agree with rkhusky that you have not demonstrated that you really need to put this money somewhere that has zero risk. I would suggest you read something like the Getting Started Wiki and think about your situation from a fresh perspective.

It sounds like this $50k is the only savings you have. So think about setting aside 3-4 months of expenses in a genuine risk-free holding such as savings account, for use as an emergency fund, but then putting the rest in a retirement account that can accumulate higher returns for you to tap into in retirement.

If you are eligible for a Roth IRA you may want to contribute the max every year to a Roth until you have used up everything not in the emergency fund. Then when you have used up everything available from the windfall see if you can eke out a bit extra savings from current income.

Risk brings rewards, and you may want to reconsider before walking away from those rewards.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Grt2bOutdoors » Tue Jan 20, 2015 10:18 am

lazyday wrote:
Grt2bOutdoors wrote:Series I bonds pay very little since their rate is mainly dependent on what inflation is doing, since energy prices have been falling, inflation when calculated will be below the previously calculated rate - therefore it's likely the interest rate to be announced in May will be near or at zero.
...
Long term, no one knows.
I see them at this moment as lower expected return than a good CD, but lower risk, especially if have a 30 year timeframe. There's no guarantee CDs will keep up with inflation, even with great early withdrawal policies.

I bonds can also have tax benefits, which might be a material factor if OP someday moves to a higher tax bracket or uses the money for education.

It might make sense to wait until late in the year to buy, to avoid 6 months at 0%+0%. Or one might accept a little more risk and just use CDs.
{snip} I am very low income but do manage to pay all my bills every month. And, at my current pay (which probably won't increase anytime soon) if I lost this money to poor investments and had to replenish it...it would literally take a lifetime (and then some). So...point being, would like little to no risk...just something that might yield more than 1 or 2%. Are CD's (laddering) a good option? {snip}

From the OP's exact words - there is no expectation of ever moving into a higher tax bracket, no need for education money, but there is a need for "I might need the money if I get into a pinch" and "don't want to lose what will take me a lifetime and then some" but do want "to earn a higher interest rate - they found one paying 2%". To suggest that using CD's is taking a risk is IMO a poor use of words especially to someone who is seeking a vehicle that offers a fixed rate of return and can count on receiving that known stated return throughout the term of the CD - can you even suggest that an I bond will offer a stated and known interest rate throughout it's term of 30 years? Can you further inform the OP that the I bond has an early withdrawal penalty of 3 months interest if redeemed during the first 5 years of holding the security? Given those restrictions, I would say one who purchases the I bond is the one taking the risk - risk of a lower rate than currently offered, risk of paying a penalty if they needed to get their hands on it in a "pinch". If short term rates move up as expected, you can pretty much expect some movement upwards in short-term funding vehicles like CD's and other nominal instruments, by keeping the maturities of CD's within the 5 year window, the OP has a higher likelihood of receiving a higher nominal rate - we don't know what inflation will be, so I won't even beging the guessing game of "but the OP could lose to inflation". The OP's main concern is safety of nominal principal and liquidity.
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leonidas
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by leonidas » Tue Jan 20, 2015 10:24 am

Silver and Gold are not for the risk averse. CD's and I-Bonds are a good choice.

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53timr
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by 53timr » Tue Jan 20, 2015 10:31 am

Since you are looking at this amount as your emergency fund, you need to keep it liquid and readily available. Don't buy silver, it is too risky as other posters have mentioned. Not knowing your age and personal situation I can only answer as if it were me. I would invest it as follows:

$10,000 in a savings account for ready access if needed in an emergency
$10,000 in a 1 yr CD (when each CD renews, roll it into a 5 yr CD)
$10,000 in a 2 yr CD
$10,000 in a 3 yr CD
$10,000 in a Target Date Retirement fund at Vanguard (based on your anticipated year of retirement)

This would accomplish three things:
1. Provide you with a readily accessible emergency fund in a savings account.
2. Provide you with a CD ladder that will keep additional funds accessible while earning some interest. When each CD renews, roll it into a 5 yr CD at a better rate.
3. Provide you with a relatively safe investment with both stock and bond exposure which should help keep your $50k portfolio keep pace with inflation and hopefully grow a little.
“I take my investment advice from my dentist, because he’s just as likely to lose me money as a financial advisor.” | ― Jarod Kintz, This Book Title is Invisible

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by eschaef » Tue Jan 20, 2015 10:43 am

53timr wrote:Since you are looking at this amount as your emergency fund, you need to keep it liquid and readily available. Don't buy silver, it is too risky as other posters have mentioned. Not knowing your age and personal situation I can only answer as if it were me. I would invest it as follows:

$10,000 in a savings account for ready access if needed in an emergency
$10,000 in a 1 yr CD (when each CD renews, roll it into a 5 yr CD)
$10,000 in a 2 yr CD
$10,000 in a 3 yr CD
$10,000 in a Target Date Retirement fund at Vanguard (based on your anticipated year of retirement)

This would accomplish three things:
1. Provide you with a readily accessible emergency fund in a savings account.
2. Provide you with a CD ladder that will keep additional funds accessible while earning some interest. When each CD renews, roll it into a 5 yr CD at a better rate.
3. Provide you with a relatively safe investment with both stock and bond exposure which should help keep your $50k portfolio keep pace with inflation and hopefully grow a little.
I think this is excellent advice.

I am making what I believe to be a reasonable assumption here that you have at least $5000 of earned income for 2014 and expect to have it again in 2015, since you said you are working and able to cover your bills. If this assumption is correct, then for the $10,000 invested in at Vanguard, before April 15th, create a ROTH IRA account at Vanguard, contribute $5000 for the tax year 2014, then immediately contribute $5000 for the tax year 2015. This can be invested in the appropriate Target Retirement fund. In the future, if you have a little bit here and there than can be saved, you can add it to this account.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by nisiprius » Tue Jan 20, 2015 10:44 am

Not silver. $50,000 invested in silver 2-4 years ago would have lost about $15,000 since then. (It could have lost over $30,000 if you were unlucky enough to invest at the worst possible time). I don't think that's what you are looking for.

To say it could have lost over half your money is not to say it didn't do magnificently well in the ten years before 2011. The point is that gold and silver are, in the short term, volatile, fluctuating assets with the potential for large gains and large losses.

They may or may not be more "stable" than other assets in a genuine situation of societal collapse, revolution, for escaping refugees etc. In fairly ordinary times they are a volatile, unpredictable way to make or lose a fortune quickly.

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53timr
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by 53timr » Tue Jan 20, 2015 11:07 am

eschaef wrote: I am making what I believe to be a reasonable assumption here that you have at least $5000 of earned income for 2014 and expect to have it again in 2015, since you said you are working and able to cover your bills. If this assumption is correct, then for the $10,000 invested in at Vanguard, before April 15th, create a ROTH IRA account at Vanguard, contribute $5000 for the tax year 2014, then immediately contribute $5000 for the tax year 2015. This can be invested in the appropriate Target Retirement fund. In the future, if you have a little bit here and there than can be saved, you can add it to this account.
Very good idea!
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Logan T » Tue Jan 20, 2015 11:47 am

eschaef wrote: I am making what I believe to be a reasonable assumption here that you have at least $5000 of earned income for 2014 and expect to have it again in 2015, since you said you are working and able to cover your bills. If this assumption is correct, then for the $10,000 invested in at Vanguard, before April 15th, create a ROTH IRA account at Vanguard, contribute $5000 for the tax year 2014, then immediately contribute $5000 for the tax year 2015. This can be invested in the appropriate Target Retirement fund. In the future, if you have a little bit here and there than can be saved, you can add it to this account.
I'd agree with this. You could keep 6 months expenses in an online savings account earning around 1% and put the rest of the money into a Roth IRA. However, the contribution limits for those under 50 is $5,500 and those 50 or over is $6,500. Since it may take a while to move all but 6 months expenses to a Roth IRA, some of the money could be invested in a taxable account in something like the Vanguard Wellesley Income Fund Investor Shares (VWINX).
You really don't need to begin saving for retirement before you reach 60. At that point, simply save 250 percent of your income each year and you'll be able to retire comfortably at 70. -Jonathan Pond

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by lazyday » Tue Jan 20, 2015 11:48 am

Grt2bOutdoors,

If you view risk in nominal terms instead of spending power, then CDs are lower risk.

Otherwise, my opinion is that I bonds are lower risk. Ignoring taxes, and the small penalty in the first 5 years, they retain your buying power for 30 years under any conditions.

If in the future a better opportunity is available, just sell the I bonds, and if it's before the 5 year cutoff, pay the small penalty (3 months inflation payment, if fixed rate is 0).

You do have to wait a year to redeem. Maybe ok for 10 of 50k.

I'm not saying that I bonds are the right answer. Just my opinion that they are perhaps the safest financial investment available, for the long or medium term.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by lazyday » Tue Jan 20, 2015 11:53 am

Good points about using a Roth.

Also to think about different kinds of risk.

Usually, people think about losing money. Another kind of risk is "shortfall risk" or not having as much money as you'll need, such as to retire. Thinking this way might encourage a small % in stocks, even for someone who doesn't like risk of loss. But it doesn't make sense to move too far outside of one's comfort zone.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Ktemene » Tue Jan 20, 2015 12:17 pm

Consider using the Harry Browne Permanent Portfolio for part of your money. The HBPP allocation is designed to protect your money based on an economic cycle analysis: in prosperity, in inflation, in deflation, in recession. The gain in the past has usually been moderate (3%-5% above inflation) but the principle has been safe, with small losses in the few years when there were losses, and with no large sickening swings in value. No need to mention that the past cannot predict the future. For a short explanation of the theory, see
http://www.crawlingroad.com/blog

However, the HBPP is controversial, esp. because one of the four allocation classes is gold. Google on the Boglehead site and you will find an extensive discussion of the HBPP.

http://www.crawlingroad.com/blog/
2014 returns- +9.1%

http://www.crawlingroad.com/blog/2008/1 ... l-returns/
historical returns

1981 worst year ~4%
2008 ~0.7
2014 + 9.1

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by eschaef » Wed Jan 21, 2015 10:08 pm

Logan T wrote:
eschaef wrote: I am making what I believe to be a reasonable assumption here that you have at least $5000 of earned income for 2014 and expect to have it again in 2015, since you said you are working and able to cover your bills. If this assumption is correct, then for the $10,000 invested in at Vanguard, before April 15th, create a ROTH IRA account at Vanguard, contribute $5000 for the tax year 2014, then immediately contribute $5000 for the tax year 2015. This can be invested in the appropriate Target Retirement fund. In the future, if you have a little bit here and there than can be saved, you can add it to this account.
I'd agree with this. You could keep 6 months expenses in an online savings account earning around 1% and put the rest of the money into a Roth IRA. However, the contribution limits for those under 50 is $5,500 and those 50 or over is $6,500. Since it may take a while to move all but 6 months expenses to a Roth IRA, some of the money could be invested in a taxable account in something like the Vanguard Wellesley Income Fund Investor Shares (VWINX).
Yes, the yearly contribution limits are higher than $5000, but I was building on 53timr's idea of splitting the money into a $10,000 emergency savings account, 3 laddered CDs of $10,000 each, and $10,000 invested in stocks/bonds in an attempt to keep up with inflation. As the OP's stated desire is "little to no risk", I'm not sure investing more than that would be in line with the stated risk tolerance. Inflation is in itself a risk, of course.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Seattlenative » Thu Jan 22, 2015 5:23 am

53timr wrote:Since you are looking at this amount as your emergency fund, you need to keep it liquid and readily available. Don't buy silver, it is too risky as other posters have mentioned. Not knowing your age and personal situation I can only answer as if it were me. I would invest it as follows:

$10,000 in a savings account for ready access if needed in an emergency
$10,000 in a 1 yr CD (when each CD renews, roll it into a 5 yr CD)
$10,000 in a 2 yr CD
$10,000 in a 3 yr CD
$10,000 in a Target Date Retirement fund at Vanguard (based on your anticipated year of retirement)

This would accomplish three things:
1. Provide you with a readily accessible emergency fund in a savings account.
2. Provide you with a CD ladder that will keep additional funds accessible while earning some interest. When each CD renews, roll it into a 5 yr CD at a better rate.
3. Provide you with a relatively safe investment with both stock and bond exposure which should help keep your $50k portfolio keep pace with inflation and hopefully grow a little.
This is an excellent plan. One thing I was curious about: the OP stated that he was earning 1% in his savings account. Per Bankrate.com, the national average APY is 0.09%, so unless the 1% figure is a typo, the OP presumably is using a high-APY online bank like GE Capital Bank, Synchrony, Everbank, Barclays etc. If this is correct, then the paradox is that CD rates at online banks aren't significantly higher than their online savings accounts. Online banks' business model focuses on attracting a lot of short-term highly liquid capital from savings accounts as distinguished from longer-term capital from CDs (time deposits). Perhaps an economist or banker could explain this concept better than I can, but my point is that with the exception of very-long-term CDs (5 to 10 years), there may be no real rate boost for investing the funds into CDs, and not enough to offset whatever the bank's early-withdrawal-penalty might be in the future.

OP, could you tell us which bank you are using for your savings? Obviously you want to make sure that the part of your savings which is FDIC-insured earns the highest yield possible, given that most banks really are paying nothing for your savings.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by IPer » Thu Jan 22, 2015 5:56 am

53timr wrote:Since you are looking at this amount as your emergency fund, you need to keep it liquid and readily available. Don't buy silver, it is too risky as other posters have mentioned. Not knowing your age and personal situation I can only answer as if it were me. I would invest it as follows:

$10,000 in a savings account for ready access if needed in an emergency
$10,000 in a 1 yr CD (when each CD renews, roll it into a 5 yr CD)
$10,000 in a 2 yr CD
$10,000 in a 3 yr CD
$10,000 in a Target Date Retirement fund at Vanguard (based on your anticipated year of retirement)

This would accomplish three things:
1. Provide you with a readily accessible emergency fund in a savings account.
2. Provide you with a CD ladder that will keep additional funds accessible while earning some interest. When each CD renews, roll it into a 5 yr CD at a better rate.
3. Provide you with a relatively safe investment with both stock and bond exposure which should help keep your $50k portfolio keep pace with inflation and hopefully grow a little.
This is a great answer according to the OPs original post, the only thing I would do differently, maybe is take the $30K in CDs and cut it in half and put the other $15K
in 3 bond vehicles (Muni, Intermediate and Short Term) but this, of course, adds a small amount of risk but it also tames inflation a bit, hopefully! ;)

Keep in mind, also, that there is a bond element to the Target Date as well as stock which most likely will balance this equation nicely enough.

Very good 53timr!
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Seattlenative
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Seattlenative » Thu Jan 22, 2015 6:22 am

53timr wrote: $10,000 in a savings account for ready access if needed in an emergency
$10,000 in a 1 yr CD (when each CD renews, roll it into a 5 yr CD)
$10,000 in a 2 yr CD
$10,000 in a 3 yr CD
$10,000 in a Target Date Retirement fund at Vanguard (based on your anticipated year of retirement
Another idea for a fund for the $10,000 allocation would be Vanguard Balanced Index Fund Admiral Shares (VBIAX): Very low cost at 0.09% ER, it offers a classic 60/40 U.S. stock/U.S. bond split. Nothing fancy, it would create some risk for OP but definitely some potential of his overall savings at least keeping up with inflation. Reading the description of VBIAX carefully, I wish I myself had invested in this particular fund rather than having spent a lot of time in the past few years futzing around with different types of ETFs and (in the past) with individual stocks.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by gkaplan » Thu Jan 22, 2015 10:43 am

Has the OP been back?
Gordon

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by robertalpert » Thu Jan 22, 2015 11:55 am

mariem wrote: I have no credit card debt and I own my home. A few years ago I was awarded $50,000
If you still have home mortgage, paying that off would be a perfect risk free investment. Then, If there is earned income, use the $50000 to contribute the max each year into a Vanguard Roth IRA using a safe fund like Total Bond Market fund. You can draw out the contributed portion in an emergency.

With the remainder, split half into bank CDs and other half into taxable mutual fund account to invest in a low risk investment like Limited-term tax exempt bond fund. (You could also consider using Total Bond fund in taxable account as you might not be affected by its taxable dividends.)

When you choose to venture out beyond 100% bond portfolio, come back here and post again.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by The Wizard » Thu Jan 22, 2015 1:17 pm

gkaplan wrote:Has the OP been back?
Not yet, no...
Attempted new signature...

Call_Me_Op
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Call_Me_Op » Thu Jan 22, 2015 1:42 pm

CD's and silver in the same breath? Surely you must be joking....
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Kevin M
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Kevin M » Thu Jan 22, 2015 2:23 pm

Seattlenative wrote:<snip> the OP presumably is using a high-APY online bank like GE Capital Bank, Synchrony, Everbank, Barclays etc. If this is correct, then the paradox is that CD rates at online banks aren't significantly higher than their online savings accounts. <snip> with the exception of very-long-term CDs (5 to 10 years), there may be no real rate boost for investing the funds into CDs, and not enough to offset whatever the bank's early-withdrawal-penalty might be in the future.
Most of the banks you mention offer 5-year CDs with a rate of 2.25%, and some of them have an early withdrawal penalty (EWP) of only six months of interest (1.125%). I don't consider 5 years as "very-long-term", and the small EWP reduces risk of locking up money for five years. I consider 2.25% significantly higher than 1%.

Over five years, cumulative return on 2.25% is 11.8%, which is $5,884 on $50,000. Cumulative return on 1% is 5.1% or $2,551. So the higher rate returns 131% more over five years. I'd say that is significant.

If a 5-year 3% CD becomes available in one year, and you do an early withdrawal to reinvest at the higher rate, you still earn more than the savings account during the first year (1.125%).

----

Many good suggestions so far.

CDs and I Bonds are both very safe. The small EWP on the CD provides some inflation protection, since if inflation increases, CD rates also probably will increase, so do an early withdrawal and reinvest at higher rate. Of course I Bond is a better inflation hedge, but currently you can earn 2.25/1.5 = 1.50 times as much in the CD, so you're paying a pretty decent premium for the inflation hedge. I still like I Bonds though.

I would just go with one or more 5-year 2.25% CDs instead of a ladder, since you generally earn more by doing an early withdrawal then by owning a short-term CD. There is some risk of an early withdrawal being disallowed or EW terms being changed on existing CDs, but this risk is quite low IMO. Also, some banks and CUs allow partial withdrawals, in which case multiple CDs are not required, so you should check terms and conditions for this.

CDs can be owned in an IRA at some banks and credit unions, including Synchrony Bank.

I would keep a sufficient amount in a 1% savings account for unexpected expenses ("emergency fund"), but also consider I Bonds as part of the EF after the 1-year lock-up period.

If OP goes with "little risk", then perhaps 20% in stocks is OK, but for "no risk", no stocks. Of course no investment is without some risk, but savings account, CDs and I Bonds are much closer to "no risk" than stocks. If OP did go with a small stock allocation, I probably would not use a Target Retirement fund, since the savings account, CDs and I Bonds already provide the low-risk portion of the portfolio. A long-dated TR fund would be OK, since they are 90% stocks. Otherwise would go with a 70/30 split between Total Stock and Total International Stock funds.

Kevin
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Phineas J. Whoopee
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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by Phineas J. Whoopee » Thu Jan 22, 2015 3:44 pm

Call_Me_Op wrote:CD's and silver in the same breath? Surely you must be joking....
I thought that from the subject title, but OP did explain s/he is new at this and has little knowledge. I can easily see somebody who hasn't followed markets having the impression silver is among the safe choices, although clearly it is not.
PJW

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by dave_m_ » Thu Jan 22, 2015 4:21 pm

For no risk, CDs are kind of the obvious choice. For the little risk, putting a portion in something like Vanguards LifeStrategy Income Fund could be an option worth looking at.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by mariem » Tue Jan 27, 2015 11:11 pm

Seattlenative wrote:
53timr wrote:Since you are looking at this amount as your emergency fund, you need to keep it liquid and readily available. Don't buy silver, it is too risky as other posters have mentioned. Not knowing your age and personal situation I can only answer as if it were me. I would invest it as follows:

$10,000 in a savings account for ready access if needed in an emergency
$10,000 in a 1 yr CD (when each CD renews, roll it into a 5 yr CD)
$10,000 in a 2 yr CD
$10,000 in a 3 yr CD
$10,000 in a Target Date Retirement fund at Vanguard (based on your anticipated year of retirement)

This would accomplish three things:
1. Provide you with a readily accessible emergency fund in a savings account.
2. Provide you with a CD ladder that will keep additional funds accessible while earning some interest. When each CD renews, roll it into a 5 yr CD at a better rate.
3. Provide you with a relatively safe investment with both stock and bond exposure which should help keep your $50k portfolio keep pace with inflation and hopefully grow a little.
This is an excellent plan. One thing I was curious about: the OP stated that he was earning 1% in his savings account. Per Bankrate.com, the national average APY is 0.09%, so unless the 1% figure is a typo, the OP presumably is using a high-APY online bank like GE Capital Bank, Synchrony, Everbank, Barclays etc. If this is correct, then the paradox is that CD rates at online banks aren't significantly higher than their online savings accounts. Online banks' business model focuses on attracting a lot of short-term highly liquid capital from savings accounts as distinguished from longer-term capital from CDs (time deposits). Perhaps an economist or banker could explain this concept better than I can, but my point is that with the exception of very-long-term CDs (5 to 10 years), there may be no real rate boost for investing the funds into CDs, and not enough to offset whatever the bank's early-withdrawal-penalty might be in the future.

OP, could you tell us which bank you are using for your savings? Obviously you want to make sure that the part of your savings which is FDIC-insured earns the highest yield possible, given that most banks really are paying nothing for your savings.
Technically, my savings account is through BBVA Compass, but the savings account is branded as "SmartyPig". (http://www.smartypig.com) Sounds a little less than legit, but I've been with them for a couple years now, and have never had a problem. Not sure why they are no longer listed on Bankrate.com...as that is how I discovered them.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by mariem » Tue Jan 27, 2015 11:21 pm

53timr wrote:Since you are looking at this amount as your emergency fund, you need to keep it liquid and readily available. Don't buy silver, it is too risky as other posters have mentioned. Not knowing your age and personal situation I can only answer as if it were me. I would invest it as follows:

$10,000 in a savings account for ready access if needed in an emergency
$10,000 in a 1 yr CD (when each CD renews, roll it into a 5 yr CD)
$10,000 in a 2 yr CD
$10,000 in a 3 yr CD
$10,000 in a Target Date Retirement fund at Vanguard (based on your anticipated year of retirement)

This would accomplish three things:
1. Provide you with a readily accessible emergency fund in a savings account.
2. Provide you with a CD ladder that will keep additional funds accessible while earning some interest. When each CD renews, roll it into a 5 yr CD at a better rate.
3. Provide you with a relatively safe investment with both stock and bond exposure which should help keep your $50k portfolio keep pace with inflation and hopefully grow a little.
Thanks, Op...will definitely look into this. As for my age, I am 33.

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by mariem » Tue Jan 27, 2015 11:32 pm

I am making what I believe to be a reasonable assumption here that you have at least $5000 of earned income for 2014 and expect to have it again in 2015, since you said you are working and able to cover your bills. If this assumption is correct, then for the $10,000 invested in at Vanguard, before April 15th, create a ROTH IRA account at Vanguard, contribute $5000 for the tax year 2014, then immediately contribute $5000 for the tax year 2015. This can be invested in the appropriate Target Retirement fund. In the future, if you have a little bit here and there than can be saved, you can add it to this account.
I currently contribute the minimum necessary with my employer sponsored 401-K (Fidelity) to get the matching contribution. In your opinion, would contributing to a Roth IRA be more beneficial in the long run than contributing additional funds to my 401-K? My 401-K options are somewhat limited with Fidelity. The funds there are in a Target Retirement Fund (and have been doing poorly). At my level of investing (in a Roth IRA), does Vanguard offer any guidance?

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by WHL » Wed Jan 28, 2015 6:30 am

Grt2bOutdoors wrote:
Dandy wrote:Forget Silver - Buy 5 CDs each with a 5yr term. That way you will get a higher rate (for now) and if you need some money you won't have to redeem the whole 50k - just the amount you need. You can get about 2.25% if you search. Make sure you know the early withdrawal penalty before you buy.
+1 - If you had purchased silver in 2011 - it would have cost about $47 an ounce, today it sells for $16 an ounce! Ouch!! :shock:
And if someone would have purchased silver at any time between 1981 and 2007, they'd still be in the black.

Isn't it wonderful how cherry picking your information works??? Image

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Re: $50,000 to invest, want little to no risk. CDs? Silver?

Post by terran » Wed Jan 28, 2015 10:51 am

Since you say you have very low income, would it be worth using some/all of this money for education/training that would allow you to increase your income? If you're happy with your job and your income (nothing wrong with that as long as you can survive on it), then by all means invest it with one of the many good plans discussed, but it might be that the investment with the greatest return would actually be yourself.

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