JSparks wrote: ↑Fri Dec 13, 2019 8:20 pm

Sorry it took so long to get back on the forum. It's been a crazy week. I wanted to answer a couple of the questions and make some clarifications.

She is not looking for distributions/income from this investment. She is also not looking for a "risk-free" investment. She has no need to earn more than 4% over the 16 year term so she's looking for whatever the least risky option is to get to her goal which is to pay for a wedding with a certain dollar amount for her daughter. She's trying to precisely match what her mom gave her when she got married. She gave me the investment amount, the term, and the final required amount. I came up with 3.92-ish% required to get her there. This is inclusive of federal, state, and local taxes based on her current bracket and a prayer that taxes won't change much between now and then (I did pad the number to allow some upward tax movement though).

I thought about suggesting a single mutual fund for this since she wants a set-it-and-forget-it investment. Of course, I will help her monitor it from time to time just to make sure its on track. I'm thinking a target retirement date fund set for something like 2020 (VTWNX?) but I'm not sure.

I will join the chorus of several people noting that the OP's friend's plan doesn't seem to make a of sense. Here are some problems:

1) Inflation on the amount given to OP friend. Let's say she got $X for the wedding. Is she computing inflation on $X since she was given the money as the amount to give?

2) Inflation on the amount given to the daughter after 16 years. Say $X above plus inflation is $Y. Does $Y include inflation over the next 16 years? That is, do you need about 4% nominal or 4% real growth .....

3) Why in the world 16 years? Why not 14, or 17 or . ...... how can you possibly know this far in advance the date of a wedding? Or is the idea just to say when the daughter hits a certain age "if and when you get married, here is something towards the wedding?"

4) I think the idea of bucketing this particular expense is bad. She has savings? Invest them in a reasonable long term asset allocation. When the time comes to give the daughter money, give it then, using a portion of her savings that is appropriate and what she can afford.

Both 1) and 2) are basically "are we talking real or nominal dollars," something which trips up a lot of people.