How would you do it? Let’s say you were a married couple in your 40s. You had kids that you hoped to send to college in 10 years. (Yes, they had kids later in life…) You weren’t willing to risk it capriciously, so no “black or red”… But you were hoping for a fairly safe return within 10 years. Stocks, bonds, real estate? What else? Hypothetically, of course…
For a fairly safe return - a balanced portfolio of a couple of stock mutual funds, a bond mutual fund, and a portion left in cash. Any of the consumer online brokerages can guide you in that.
For a chance at a high flyer - I have a stock picked out that will IPO in October. 
If the goal is specifically to provide college money, I would look into the 529 plans available to me. In a 529, the money could grow tax free as long as the withdrawals were for college expenses, and some state plans allow tax deductions for contributions. Different states have different plans with varying investment options which can be tailored to your needs (probably some reasonable combination of stocks and bonds – there are plans that target the date that your child will go to college). You should be well within the maximum total contribution (usually around $350,000), although you might have to put the money in over more than one year because of plan and gift tax requirements.
The first thing to invest in is an education about investing. A decent place to start is www.motleyfool.com.
I should be more specific, my apologies. This would be in addition to 529 plans which they have for their kids, and their 401(k) plans. Consider it “surplus” funds they can invest another way. Not to say it’s disposable, but something they’d like to see a larger return on.
Whatever vehicle you fancy, try to find a stock based on it instead. It’s much simpler and much less of a headache to just use an online broker instead of trying to do it the old-fashioned way.
So if you decide to go with real estate, buy an REIT, not a house. If you want silver, buy SLV, not coins. Gold? GLD, not bullion. Emerging markets? VT, not Hyundai.
And so on for any industry or asset class you can think of. Hell, if you just want to invest in the market as a whole, buy half QQQ and half SPY and use the rest of the time you scheduled for investing to watch a baseball game or ride a bike.
(Note: I’m not recommending these funds. They’re just the first ones I could think of.)
We’d invest it in the employee stock options in the employee-owned company my husband works for - they are returning about 30-40% per year (the highest point was 62%).
10 years is a fairly short time horizon, but, generally, I’m a boring, safe investor. In your position, in your 40s, I’d probably do 75-80% stocks, the rest in bonds, in a low-cost index fund. (Depending on your risk tolerance. More risk tolerance, balance towards stocks. Less risk tolerance, towards bonds.) Personally, I like Vanguard–they have very low expense ratios. Something like VTI or VTSAX for the stock portion and VBMFX for the bond portion would work. Reinvest the dividends, go to sleep, and wake up in 10 years and see what you got. Maybe rebalance along the way, moving slowly more into bonds, and out of stocks.
That’s the boring, “by the book” advice, and what I do. The catch is ten years is a bit short as an investment horizon. I’m thinking more 20, 30 years down the line.
Agree with puly, assuming that the couple already owns their house, and has a very low rate mortgage. If they don’t own their house, and their other life circumstances and their local real estate market make buying reasonable, then that money could go towards a downpayment. If there is a mortgage, but it’s higher than current rates, the couple should probably re-finance the mortgage, and depending on the numbers, using some of the cash to buy points might make sense.
Otherwise, totally agree: low-cost index fund, mostly stocks, moving to less risky mixes as you get closer to when you might want to use it (by rebalancing say every 5 years, on a strict schedule, so you’re not tempted to get out of stocks when they’re temporarily down or something).
The scary thing about investing in employee stock options, is that is putting all your eggs in one basket – if the company blows up for some reason, you’re not only suddenly unemployed, but your savings are gone, too.
Great information folks, thanks.
This has some logic to it, but one big advantage of investing in real estate at this time is the low interest rates. My understanding is that the commercial borrowing done by these REITs is at floating rates (or shorter term revolving loans, which are effectively the same thing). Which means that they don’t have the advantage of being able to lock in long term loans at historically low rates.
A lot of people believe that as a result of the budget deficits there must inevitably be a period of higher inflation coming up. If you’re in a REIT, then higher inflation/interest would inflate their holdings and income, but also their costs. If you buy your own properties at a fixed long term rate, then you make out like a bandit if inflation returns.
Of course, it’s also important to realize that investing in your own property is a lot more work, as CS states.
Real Estate. I’d buy a house for 75 grand. Rental rates for that type of property in my area are around 1200 per month. Minus management fees ,taxes and repair costs, even if the market stays the same, I’d more than double my investment.
I’d also buy a house with that 75 grand, (plus a bit more that I’ve saved up.) It would provide both rental income and my eventual retirement home.
Well, I sure wouldn’t invest it in a glass pool table.
Best advice.
Worst advice. Investing in the company you work is a double edged sword that if the company struggles it will kill your investment at the same time that it kills your income. ESP plans also have a tendency to discourage diversification since automatically invest but only in one company.
Also, don’t take investing, legal, or medical advice from strangers on the internet.
Here’s some specific recommendations for categories to consider and actual investments - std disclaimer, not a certified financial planner, not your financial planner, only a financial planner for my investing illiterate extended family. YFHMV (your financial health may vary).
Recommend a equal weight of thess or similar:
PFF - Preferred stock Exchange Traded Fund (ETF). Captures preferred stock dividends from a basket of companies. Preferred stocks pay dividends prior to funds being available for common stock dividends. The dividends may also accumulate (not all do, but if the company has hard times, it must pay off the accumulated dividends to the preferred stock holders before any other dividends). Current annual yield around 5.70%.
VPU - Vanguard ETF for publically traded utilities. Invests in large public utilities with primary goal of income. May also provide long term growth opportunities. Current yield 3.59%
VLTC - Vanguard ETF for long term corporate bonds. Invests in bonds of large corporations, primay goal of income. Current yield is 3.90%.
SDY - S&P 500 Dividend Achievers ETF. Invests in large S&P companies that pay substantial common stock dividends and have paid them continuously over decades. Primary goal is dividend income with some expectation of asset growth. Current yield 4.28%
All of these would be considered moderately conservative. ETFs and Vanguard in particular have lower expense rates (management fees) than most mutual funds so you get to keep more of your money. All of these spread the risk over a number of companies.
Do your own research. Invest long term. Those that got out of the market during the early Bush II recession and late great recession lost big. Had you held firm - you’d be ahead handsomely now. Read about Warren Buffet and his strategy. All winners - no, but a large percentage.
Yep. Trying to time the markets is a loser’s game for almost all investors. When the markets start falling and you react emotionally and sell, you usually end up in a “buy high, sell low” scenario–the opposite of what you want to do. I started investing seriously in late 2006, just before the market hit its peak in the fall of 2007. As the market was falling, I was continuing to buy steadily, every two weeks. Yes, it was frightening, but I held fast, never changed my strategy. And, sure enough, the markets rebounded, and my “by the book” dollar-cost-averaging strategy paid off. But it really is tough not to get emotionally involved. I do my best not to pay attention to day-to-day fluctuations of the market. There’s no point, and you’ll only stress yourself out and end up making bad decisions.
For me, the most influential investing book was the classic Random Walk Down Wall Street. Then, also read The Intelligent Investor. I don’t completely agree with Random Walk and the efficient market hypothesis, but for the amount of work I want to put into investing, the central ideas work for me.
I agree-if the world economy has in fact “bottomed out”, this is the time to get into stocks-it would also be a bad time to get into bonds.
What really concerns me is the confluence of so many negative factors-the S in recession, Europe in financial trouble, China slowing down, and the ME flaring up. Scarey times..but as a famous finance guy said “buy when there is blood in the streets”.
A couple of more notes on dividend investing.
What to do with them? Some dividend paying companies, brokerages, and investment plans have automatic reinvestement. Unfortunately, costs such as transaction fees and minimum investment amounts eat into your yield (a few have no costs for the DRIP but they are becoming rarer). I have a basket of stocks/funds of around twenty stocks. Paying twenty transaction fees every quarter (most pay quarterly) would “piss me off”. I sweep all my dividends into a single cheap fund and then allocate back to my core holding every year or so. My current cheap fund is DHY. This is a Credit Suisse fund that invests in high yield (read - more risky) bonds and similar investments. It’s only around $3.25 or so a share and pays a stout 9.75% dividend. Even with small dividend amounts, I can buy substantial blocks of it. WAIT - its’s risky. Some, but it has a substantial track record (do research). Risky. Yes, but it is a fund of multiple investments - the good should outweigh the bad apples. Risky. Yes, that’s why I pull out my money and put it into my more conservative stocks/funds on a regular basis. A great yield while accumulating. There are other similar cheap stocks/funds for this strategy.
Another good board I look at is Seeking Alpha - Today’s Articles on Dividend and Income. One exceptional writer I follow is Dividends4Life. He does long term analysis of individual stocks with an idea toward conservative dividend long term investing. His companies (that pass his analysis) pay a good rate of return, have a growing dividend, have the resources to protect that dividend and have over the years grown in asset value as well.
Std disclaimer - not a …, not your …, just an anonomous pixel set on the screen, YMMv.
I suggest you visit bogleheads.org and especially the Wiki. Also, you can post your question in their forums and will get great advice (not criticising the advice here, but bogleheads is a finance site focused on this sort of thing).