I’m about to pay off my mortgage in a couple of months.
My plan is to take that money I was spending and invest it in something.
I still have about 20 years before I retire. Also, I don’t know squat about the stock market nor do I have any desire to learn. Reason being, judging from my friends who invest; they spend way too much time in front of the computer/CNN watching that damn “ticker” (or whatever it’s called). If some one can convince me that I can invest in the stock market and not have to watch it every five seconds; I’ll consider that.
So basically, I have a significant amount of cash that I can invest in monthly installments. I prefer this investment not to require a whole lot of management.
Index Funds or Index ETFs (exchange traded funds) with low fees - the large mutual fund companies like Fidelity, Vanguard, and T. Rowe Price are good options. You might also look into lifestyle portfolios, which will invest in a variety of bonds, stocks, and cash, and as you approach retirement, shift the portfolio to more conservative (cash and bonds) investments. Again, those three companies (amongst others) can help you. Index funds (and note the plural) with a monthly investment are probably the most basic “set it and forget it” strategy. I like to place most of mine into a large cap (S&P 500) fund, followed by a mid/small cap fund, an international fund, and a small piece in a global investment-grade bond fund. Depending on your appetite for risk, you might opt for more in mid/small caps, or more in bonds. Either way, I just download the prices on mint.com once a week when I review my spending, and don’t sweat the daily/weekly movements. While I think dollar-cost averaging (which basically means investing the same amount no matter the market) first got overhyped, then slammed unnecessarily, by investment pundits, it’s a solid, if not spectacular, strategy for those who don’t want to follow the market very closely.
For an advisor we use Edward Jones, although there are any number of reputable firms to choose from. They have tools at their disposal that you don’t, they stay abreast of new rules and laws, etc. They can tailor for your level of risk, objectives, duration, everything. Call one and meet to discuss, then follow up every 6 months to a year. I sleep good knowing someone so knowledgable is watching out for part of my financial well-being.
If your employer provides direct deposit, find out whether you can have a portion of your check deposited directly into your investment account. If not, the types of companies mentioned by D_Odds can arrange to transfer money directly from your checking account to your investment account each month. Set it up to go automatically into index funds and/or lifestyle funds (dated retirement funds – if you have 20 years to retirement, you’ll want to look at 2030 funds).
This method has worked very well for me. It requires zero thought or effort. Everything is done for you automatically. If you want, you can check your balances regularly and make any necessary changes, but you don’t have to.
Seconded. If your employer has a 401(k) or 403(b) that invests in mutual funds, that’s good. There’s no stock market watching involved.
People who do intensively manage their investments don’t always do better than the ones who just invest in a good mutual fund that tracks an index like the S&P 500, either. ISTR reading somewhere that most of them do worse, in fact.
Do you have a 401(k) plan at your job? Max it out.
This. S&P500 index funds are always a good choice. Excellent diversity and no thought required. Just setup an auto-transfer from your bank (or even direct-deposit.)
Since you’re 20 years from retirement, you may want to shift some percentage of your portfolio to bond funds over time. They have a lower long-term return, but very little volatility, so you won’t get your ass kicked if you happen to retire when the next bubble pops.
It’s been abundantly demonstrated that unless you’re very good AND very lucky, it’s tough to beat index funds. For one thing, they’ve got ridiculously low management fees, since no one has to do a ton of research to determine whether/when/which stocks to add/remove from the portfolio; instead of 1-3%, index funds typically have management fees of about 0.2%.
John Bogle has been promoting index funds for a long time. He founded Vanguard group in 1975, and now it’s one of the biggest players out there. Echoing others here, I’d advise the OP to invest in a few different index funds.
I think you have to be aware that investing always takes a little bit of work. I guess the bottom line is what you want this investment money to do; there are extremely safe, low-return investment opportunities (money market funds or GICs); I think they return about 3-5%. Getting into higher returns means higher risk, and more research and monitoring. Most of my investing is done through my bank RRSPs (Registered Retirement Savings Plans) - I tell them I’m a conservative investor and don’t want any money in US stocks, and they put my investment money in safe things and send me a statement quarterly.
I think your friends are playing the markets (selling short or whatever), which is a good hobby for some people, and not great for other people like yourself, who aren’t interested in putting that much time and effort in (and I understand it’s pretty easy to lose your shirt in that game if you don’t do your homework).
My mother was the same way. The problem with hyper-conservative investing is that in periods of high inflation, your money will not be earning enough to beat inflation (and note that the Consumer Price Index (CPI) is only a proxy and most consumers find the true cost of goods to rise faster than CPI, especially for those with higher medical needs). You will be losing spending power. If taking on any risk is going to give you agita and keep you up nights, then I understand that decision, but this kind of conservative investing, over a long (20 year) horizon, is potentially more harmful than a low cost, diversified portfolio. No doubt though, you felt a lot better than I did at the end of 2008, the year I kept rocking myself to sleep with the mantra “dollar cost averaging, dollar cost averaging, dollar cost averaging”.
Also, while I haven’t gone rate shopping for money markets in awhile, I did notice a local bank advertising it’s whopping rate for a 30-month CD - 2.5% annual percentage yield (and 1.5% on a 9-month CD). My couch cushions give better rates than that due to change falling out of my pocket. I’m not familiar with the GIC market, but money market funds are not returning 3-5% right now (much to the chagrin of many corporate treasurers).
You can certainly lose your shirt picking and buying individual stocks. Mr. Neville’s grandfather did. Having a lot of individual stocks is also a pain in the ass at tax time. Mr. Neville’s grandfather liked to give him a few shares of stocks as presents, and they were always a pain to deal with at tax time (I think we sold all of ours in 2007 when we needed a down payment for our house). Our mutual funds seem to be much easier to deal with when we have to do our taxes.
I tucked my money away in safe funds right before the stock market crash. Last fall I poked its head out and moved it into slightly higher risk stocks (so yeah, I do wheel and deal a little bit). Mostly, though, we invest in my husband’s employee-owned company share offerings that returned 65% last year. We’ll have to see where we’ll park that investment money if he stops working for that company .
I’d buy a bond mutual fund and put about 30% there (or whatever your risk profile looks like) and put 70% in stocks (and I’d put 40% in a U.S. based index fund and another 30% into an international fund.) Every six months, or year, whatever - but on a schedule - rebalance. As time goes on, weigh more towards the bond fund.
Shop around in your area for banks that offer special deals on savings accounts. One bank in my area has “bonus rate savings.” It has the normal savings account rate (~1%,) but if you don’t withdraw for that month, you get an additional 1.5%.
CD’s are quick and easy. Stagger them so they mature in different months, buy another one when the last one matures.
Money market accounts are generally safe and insured by the banks. These average around 4%.
I’m not a financial adviser but I have heard is if your employer offers a match on 401(k), TSP/other retirement plans, take it. Money you have available for investing after should go into a Roth IRA because whenyou/your heirs withdraw, the money is tax-free. Low expense index funds with some spread among different markets (SP 500, Wilshire 5000 is better), an international one, bonds. Keep the majority in stocks and balance once a year. Ignore hot stock tips and watch CNBC only to check out Maria Bartiromo. Few people are good at predicting the market long term. Some people such as John Bogle advocate subtractiing your age from 100 and use that for the percentage you have in stocks. I use 120 but it’s not a hard and fast number as I am more comfortable investing in the market than others.
One thing that I have found helps me is once a month write down what the funds are worth and keep track of it. You will get peaks and valleys and it helps to keep in your mind the long term trend is upwards. It may have a decade or so of not doing much but the dollar-cost averaging and dividends will grow.
You don’t have to prove you are the greatest investor ever. You just have to prove you can invest prudently for the future.
It wouldn’t hurt to have several months income in a liquid funds (bank CDs) for emergencies.