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What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:01 am
by lgb
Since Bank Savings and No Penalty CD's and Money Market Fund type accounts from the big brokerage houses are at .50% to 1.3%... (mid June 2020) I have some new money via Inheritance (in a Roth 5K, IRA 150K and a Taxable brokerage account 35K) that is presently mostly in the big brokerage house Money Market Fund type accounts that used to pay 2.5% to 2.0% a year ago that is now cut in half roughly or less (basically the brokerage house 'cash account' and some sliver into some sort of Short Term Fund that I'm not sure how long that should really stay in there, its just what it was in when it transferred over.

Can I change this to be invested in something else that is still fairly safe/predictable like the No Penalty CD's, Savings Accounts or the current Money Market Funds that could at least have a good chance of making 3 or 4 percent?

Have no plans to need to touch this new money, but if it is going to sit in these respective accounts would like it to toss off some gain. Spouse isn't so keen on this getting invested like usual and prefers a bit more certainty that the Money Market Fund or a higher CD rate would have provided, I'm interested in preserving the inheritance and growing it slightly versus subjecting it to my 'normal' investment risk profile.

Also have another 80K coming soon, also from inheritance/cash, that I don't know if I can only dump it to the Taxable account or if into the Inherited Roth or Inherited IRA? Spouse is fine with leaving it in the local Bank - but we have way more already in Emergency Fund at local bank - making basically nothing.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:06 am
by livesoft
A TIAA Traditional Annuity with little to no liquidity might pay around 3% nowadays.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:07 am
by jebmke
real interest rates are negative and inflation is still low so my guess is 1-2% nominal yield is as good as it gets right now.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:07 am
by Sandtrap
What does your existing portfolio look like?

For better context, You can edit your post with the pencil icon to include that in the forum portfolio review format.

j🌺

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:12 am
by dbr
Right now, you can't have what you want under the conditions you specify. Right now a safe return after inflation is a little less than zero. A rational person should probably spend the money or acquire stuff instead.

It is a reasonable assumption that an investment in stocks would have an expected return of 4% real over the long term future, but it also entirely possible that return would not materialize in any specific period of time.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:16 am
by 1130Super
High yield bonds if willing to take a little risk

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:31 am
by dbr
1130Super wrote: ↑Tue Jun 16, 2020 8:16 am High yield bonds if willing to take a little risk
True. That and long term corporates get in the ballpark, but for this saver (not investor) I doubt the risk would be called small. A loss of 20% in any given year is possible. Nor is the yield guaranteed.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:36 am
by GrowthSeeker
Normally, high yield bonds are not thought of very well in the Boglehead universe.
But does the fact that the Fed is starting to buy corporate bonds change this?

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:39 am
by Spirit Rider
"Profit is the reward for risk." This is as true in investments as it is in business.As pointed out by @livesoft an annuity is probably the only place you are going to find a guaranteed 3%.

To have better liquidity you could look a multi-year guaranteed annuity (MYGA). they are currently yielding in the low 3% range. There appears to be little benefit to increasing the term.

ImmediateAnnuities.com is showing a Harbourview A- 3YR $10K min @3%. They are not liquid (there are surrender fees < 3 years). Earnings are tax free until distribution unless rolled over in a 1035 exchange. It is a way to expand your tax-deferred space.

They are not risk free, although an A- rating is very good for an insurance company and they are backed by a state guaranty fund/association ($250K min). It would take a total systemic failure of the insurance industry for you to have a loss. As evidenced by 2008/2009, the U.S. government is not going to let that happen.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 8:59 am
by willthrill81
lgb wrote: ↑Tue Jun 16, 2020 8:01 am Can I change this to be invested in something else that is still fairly safe/predictable like the No Penalty CD's, Savings Accounts or the current Money Market Funds that could at least have a good chance of making 3 or 4 percent?
As noted above, the only 'fairly safe' investment that's still paying 3% is TIAA's Traditional annuity. But you probably don't have access to that.

No penalty CDs, high yield savings accounts, and such are only paying in the 1%-1.2% range, not even close to what you're looking for.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 9:06 am
by carminered2019
Pay off the mortgage if you still have one. Guarantee 3% return.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 9:12 am
by Marmot
vipertom1970 wrote: ↑Tue Jun 16, 2020 9:06 am Pay off the mortgage if you still have one. Guarantee 3% return.
And the freedom that you feel...priceless :D

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 9:16 am
by reln
lgb wrote: ↑Tue Jun 16, 2020 8:01 am Since Bank Savings and No Penalty CD's and Money Market Fund type accounts from the big brokerage houses are at .50% to 1.3%... (mid June 2020) I have some new money via Inheritance (in a Roth 5K, IRA 150K and a Taxable brokerage account 35K) that is presently mostly in the big brokerage house Money Market Fund type accounts that used to pay 2.5% to 2.0% a year ago that is now cut in half roughly or less (basically the brokerage house 'cash account' and some sliver into some sort of Short Term Fund that I'm not sure how long that should really stay in there, its just what it was in when it transferred over.

Can I change this to be invested in something else that is still fairly safe/predictable like the No Penalty CD's, Savings Accounts or the current Money Market Funds that could at least have a good chance of making 3 or 4 percent?

Have no plans to need to touch this new money, but if it is going to sit in these respective accounts would like it to toss off some gain. Spouse isn't so keen on this getting invested like usual and prefers a bit more certainty that the Money Market Fund or a higher CD rate would have provided, I'm interested in preserving the inheritance and growing it slightly versus subjecting it to my 'normal' investment risk profile.

Also have another 80K coming soon, also from inheritance/cash, that I don't know if I can only dump it to the Taxable account or if into the Inherited Roth or Inherited IRA? Spouse is fine with leaving it in the local Bank - but we have way more already in Emergency Fund at local bank - making basically nothing.
Look into SPIA or DIA.

https://www.immediateannuities.com/

Or payoff debt.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 9:37 am
by Svensk Anga
Some stable value funds in 401k plans pay 3%. If you have access to one of those, sell stock in the 401k to buy the SVF, then use the cash in your brokerage account to replace the stock you sold. Reverse the process when you want to spend this money or when a better alternative becomes available. This may work out better after tax.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 9:43 am
by tibbitts
I'm tempted to say if you don't know (that you have access to an employer account that pays more), there's no point in asking. It just isn't something publicly available today. As far as I know TIAA Traditional vs. brokerage and banking) is not available to anyone except through some kind of employer or past employer relationship.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 9:45 am
by tibbitts
Svensk Anga wrote: ↑Tue Jun 16, 2020 9:37 am Some stable value funds in 401k plans pay 3%. If you have access to one of those, sell stock in the 401k to buy the SVF, then use the cash in your brokerage account to replace the stock you sold. Reverse the process when you want to spend this money or when a better alternative becomes available. This may work out better after tax.
Are there still such stable value plans paying 3%? Well, outside of NYC's legendary 7%? TIAA Traditional isn't "stable value" but sort of the same thing... yet only available to a tiny subset of people.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 10:36 am
by BogleTaxPro
lgb wrote: ↑Tue Jun 16, 2020 8:01 am Also have another 80K coming soon, also from inheritance/cash, that I don't know if I can only dump it to the Taxable account or if into the Inherited Roth or Inherited IRA? Spouse is fine with leaving it in the local Bank - but we have way more already in Emergency Fund at local bank - making basically nothing.
Unless that 80K is already in a Roth / IRA, you can not add it to your inherited Roth / IRA. Only a retirement account inherited from the same person can be added to a retirement account already inherited from that person.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 10:38 am
by GrowthSeeker
I don't know much about it, so I'm not advising it at all, but there is the Vanguard Managed Allocation Fund (VPGDX), an actively managed, Expense Ratio 0.30 fund currently paying out 2.42%

Here is a Portfolio Visualizer with:
Managed Allocation Fund in Blue
TSM/TBM at 45/55 in Red
The 2 middle LifeStrategy Funds 50/50 in Yellow

Just a thought.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 10:41 am
by willthrill81
vipertom1970 wrote: ↑Tue Jun 16, 2020 9:06 am Pay off the mortgage if you still have one. Guarantee 3% return.
And for most now, that's an after-tax guaranteed return. Yes, that's pretty much unbeatable for most these days.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 10:41 am
by 1130Super
dbr wrote: ↑Tue Jun 16, 2020 8:31 am
1130Super wrote: ↑Tue Jun 16, 2020 8:16 am High yield bonds if willing to take a little risk
True. That and long term corporates get in the ballpark, but for this saver (not investor) I doubt the risk would be called small. A loss of 20% in any given year is possible. Nor is the yield guaranteed.
What about Short term high yield bond fund? Perhaps find a credit union or bank with a high introductory rate on savings account? I have a credit union in my town that has a 5% introductory rate For first year but it’s limited to $2000.
Nothing is guaranteed ever except paying off debt, but even paying off debt could have a negative nominal after tax return.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 11:00 am
by dbr
1130Super wrote: ↑Tue Jun 16, 2020 10:41 am
dbr wrote: ↑Tue Jun 16, 2020 8:31 am
1130Super wrote: ↑Tue Jun 16, 2020 8:16 am High yield bonds if willing to take a little risk
True. That and long term corporates get in the ballpark, but for this saver (not investor) I doubt the risk would be called small. A loss of 20% in any given year is possible. Nor is the yield guaranteed.
What about Short term high yield bond fund? Perhaps find a credit union or bank with a high introductory rate on savings account? I have a credit union in my town that has a 5% introductory rate For first year but it’s limited to $2000.
Nothing is guaranteed ever except paying off debt, but even paying off debt could have a negative nominal after tax return.
Is there a short term high yield fund with that yield? If there is the OP should buy it. Usually short term means less yield. But also there is reinvestment risk. The shorter the term the less certainty of continuing to get the same yield.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 10:49 pm
by lgb
Marmot wrote: ↑Tue Jun 16, 2020 9:12 am
vipertom1970 wrote: ↑Tue Jun 16, 2020 9:06 am Pay off the mortgage if you still have one. Guarantee 3% return.
And the freedom that you feel...priceless :D
We have paid off the mortgage early about a year ago now, 15 years early - and we don't regret it at all. Realize quite clearly now that a house is 'kind of' an investment, but is actually quite non-liquid, has quite a bit of ongoing expense, has built-in ongoing property taxes and you're not quite in control of really whether there could be interested parties in your house when you might want or need to sell and hopefully it has proven to be an asset (and gone up in value), put lipstick on the pig at the end when selling, additional expense to sell - whether there is actual gain when backing out certain expenses could be a long debate for some people depending upon so many variables. I saw a list once that listed about 40 negatives to a house/property and how it maybe isn't all that great of an 'asset'- that you could shake your head (Yes absolutely!) after each and every one.... (and then wonder why we may have agreed to risk so much of our income potential towards it for seemingly little return and so many uncontrollable variables tied to it. (it is a good forced savings account though)

So we don't feel bad at all that the mortgage isn't always looming over our heads to be paid any more. However we may not have the most 'sure' incomes - so that was a concern if incomes were to dry up for whatever reason. Would hate to not be able to pay our mortgage.

We did the nerdy math thing and realized yes, maybe a few points could be had investing that amount instead of paying off the mortgage - but ridding yourself of owing on this 'thing' that has so many uncontrollable variables as to its actual value is indeed priceless to remove from your financial picture - and can only be understood fully once you've done it, and moreso if you've tried selling your house or someone elses at some point in your life and it wasn't in a fast moving/hot area that sells before it is even listed.

Re: What to invest in to make 3 or 4 percent?

Posted: Tue Jun 16, 2020 11:34 pm
by annu
A municipal bond fund like https://investor.vanguard.com/mutual-fu ... view/vwiux maybe an option, especially if in high bracket wrt tax.

Re: What to invest in to make 3 or 4 percent?

Posted: Wed Jun 17, 2020 7:48 am
by lakpr
You may want to consider a bar-bell strategy with the short term treasuries and long term treasuries.

Below link shows you the past performance with a 100% allocation to intermediate term treasuries, a 40:20:40 allocation to short-term treasuries / intermediate term treasuries / long term treasures, and a 50:50 allocation to short-term treasuries / long-term treasuries.

https://www.portfoliovisualizer.com/bac ... ion3_3=100

While the effective duration is almost the same in all three portfolios, the bar-bell strategies eked out a bit more juice from the turnip.

Of course the standard disclaimer: past performance is no guarantee of future results. The 3% to 4% you are seeking seems to be achievable, but not guaranteed.