The first question you need to answer is, “How much are you willing to lose?” Because the first rule is to never invest money you aren’t willing to lose.
Keep in mind that right off the bat you’re going to lose to inflation. So your $75,000 now will be worth about $59,000 in 10 years, that’s what happens if you leave it in cash.
If you go for something as safe as possible that earns 3%, you’ll be taxed on that 3% and then lose to inflation. Means you need to find something closer to 6% to beat inflation, pay taxes, and still have the $75,000 you started with.
This. Also, don’t dump $75k into the market at once. Invest $1000 in each of these funds (or funds like this) initially, then $500 (or something) into each fund every month or so. That way, if the market crashes tomorrow, you aren’t “starting” from underwater. (you don’t get as much upside if it keeps climbing, but its less risky).
Buffet and Munger don’t likely have many years left, but a few hundred dollars in Berkshire Hathaway B shares gets you a pass to their annual meeting - which is worth going to to hear about their strategy.
I’ll have to look them up, but the studies I’ve seen have said that if you have a windfall, dumping it in all at once is a better strategy than dollar-cost-averaging. I just did a quick Google search, and this came up.
I dollar-cost average, but that’s only because I want to be continually investing and socking away my money. If I came into a big pool of cash, I’d put it all the market at once (minus keeping behind any cash I need for other things.)
Well, that’s the issue - its September and there are a lot of signs of a cooling economy. I’d never put a huge lump sum into the market in September or October in any year, but especially not in an election year, with Iran misbehaving, the Eurozone in eternal issues, and gas prices going up. I’d never do it in any circumstances - too risky, but right now, no way.
Not that I didn’t just invest a few grand last week, but to me $75k is above my “stick a lot of money in” threshold.
I agree with your caution; I’d probably only put half that amount in one lump sum in the market to hedge my bets. I don’t believe in any “September effect” or timing the market in that way (look at that part of the year onward for the last 3 years in the S&P, for instance. Not much effect in 2011, but 2010 and 2009 you would’ve lost out significantly on waiting. Of course, in 2008 you would’ve gotten royally screwed [not so much in October], but that was particularly brutal, like last year’s July.) It does feel to me like we’re at another peak, but if I went with my gut, I would’ve lost out on a lot of gains along the way.
At the end of the day, it all comes down to your risk profile. I feel that I have a fairly conservative risk profile but, like I said upthread, I also have a much longer investment horizon, so I pretty much go “by the book” in regards to index investing style, including not timing the markets, lump sum investing when I have the opportunity, but also dollar cost averaging every two weeks.
Be careful not to put too many eggs in one basket though (we know people who were wiped out in the Enron disaster).
If they have any debts, use the money to pay those down but keep making the payments to their savings account or other investment vehicle. Guaranteed X rate of return (where X is the interest rate on the debt).
If they’re not maxing out their retirement vehicles, use the cash to do that - i.e. bump up their withholding rates, and use the money to cover the cash shortfall.