I agree with the other recent posters … if you want no risk, it’s going to be CDs at a bank, and if you go that way, staggering chunks of CDs (say, four $2500 1-year CDs, all started three months apart), is a good model for that. For a teeny bit more risk, a money market at something like ING (ingdirect dot com) pays 1.1% APY (as of today). My advice to you is to go with a money market.
The following is all YMMV territory, but I’m giving honest details about what I’d actually do in your position. I’ve been doing well the past several years, but only because I made several lifetimes’ worth of bad financial decisions before the age of 40.
Put $7000 into Sharebuilder dot com, half in GLD (a gold ETF) and half in a blue-chip with a decent yield (one of: {PG, MCD, MO, GIS, etc.}), and set up the account to buy $200 worth of the same blue chip every month, withdrawing from your checking account, which is where you park the remaining $3000. Sharebuilder gives you zero-cost dividend reinvestments (in fractional shares, down to the thousandths of shares), which is a very good thing. The problem is that the monthly purchases cost $4, which is 2% of $200, which offsets some of the dividend yields, which is why you choose Altria (MO), whose yield is over 6%, and try not to think about all the lung cancer. I’m weird about it and feel better buying PG (Procter & Gamble) with half the yield of MO, but I invest $1500 per month, so the $4 transaction fee is only 0.27%. Then I’d obsess over it and try to manage to be in a place to continue the monthly purchases after the $3000 ran out. Note: The primary reason I’m talking about Sharebuilder is because of their no-cost dividend reinvestments in fractional shares.
I’m confident that the old reliable blue-chips with dividends are a safe bet, but that’s my opinion. Consumer staples, tobacco and fast food are not really going to disappear from the landscape, and people will not make dramatic changes in their purchasing habits of these items, but Exxon and AT&T are more volatile due to random government policies and arguments over cell phone coverage. Also, the consumer staples are at P/E ratios in the low teens, which is rational and understandable, as opposed to tech companies with P/E ratios in the 30s and 40s.
If the $4 per month for periodic sharebuilder purchases bugs you (and all fees should bug you), you could open an account at TD Ameritrade and put it all into TIP, which is a T-bill ETF whose yield is indexed to inflation. In fact, if you want to go riskier than money markets, putting it all into TIP is the next higher risk that I’d advise. (But only if they reinvest dividends at no cost in fractional shares; I’m getting tired at the moment and don’t want to look it up. If they don’t offer free dividend reinvestment, I’d really want to nudge you into sharebuilder.) When I started, I felt very nervous about $400 per month, which is what I started with, but I’ve literally funnelled every raise in the past several years into increasing that investment.
[my positions, just in case you care]
At the moment, my non-401K holdings are cash (60%), GLD (32%), AGG (6% – just an experiment), PG (4%) and tbills (treasurydirect dot com). The t-bills are really just there gathering dust, with the account set up so I can move a lot into short term t-bills in a very short period of time, for some notional future emergency that may occur. The PG is so low because I’m just getting back into it after getting nervous about having too much GLD. I.e., my monthly periodic investment is no longer gold, and I’ll be buying $1500 in PG every month until I change it. I’ve gone into and out of AAPL several times in the past several years for quick gains before product announcements, but it’s scary because I go in specifically to get a predictable 2-5% bump, which means I need to go in big ($10K purchases), and get out within a week (two weeks in one case). The thing that bugs me is that all stocks are way too volatile, because the crackheads on Wall Street need to make the markets move in large directions so they can suck off their little derivatives, high frequency transactions and other bullshit. But that’s the way the market is at the moment, and I’m not seeing any real work to reform that – they don’t see their very existence as a problem in need of solving. IAC, it is what it is, and I try to identify predictable changes that have some basis in events I can understand.
The bulk of my 401K is in an S&P index fund, which I’ve left basically untouched since 2008 and which has recouped some of its losses, but only because I got cynical and assumed that they’d play games to make the market appear to recover, and that’s what they’ve done. I continue to purchase it, but at a lower rate, and I buy the same amount of “fixed” investments. I also buy a little bit of a health technology index fund, which is my version of buying lottery tickets.
And I continue to learn new things – right now, and in the near future, there is an increasing need for software designers who can work in cryptography, secure computing and information assurance.
[/my positions]