Where to invest $100,000

[NAF1138]

@Corry_El

I only partly agree. I think a general method of investing is clearly superior to others: do it yourself investing in a few broad based low cost mutual funds.

A number of other suggestions which have been made might not be outright wrong in 100% of cases, but are inferior to the above simple advice for the vast majority of people and cases. Namely, buying lots of different funds to ‘diversify’, or buying individual stocks, or paying professional advisers unless you just absolutely cannot gain a basic understanding of the simple approach. There’s loads of potential downside in each of those relative to the ‘boglehead’ approach, but not a lot of downside in the BH approach.

Yeah, this I can get behind. If you are probably about 45 or under (a case can be made for 50 and under, but over 50 your time horizon starts to change dramatically unless you want to work into your late 60s or 70s) and your focus is accumulation this is a good way to go. And at that age your focus probably should be on cash accumulation and long term growth. Note probably. There are a whole bunch of reasons why it might not be.

The only significant caveat to that I think is if by some chance this is an older person, rare on this forum from what I can tell but I suppose possible. Then annuities might be considered as part of the investment. Long deferred annuities seldom make sense for younger people.

Again, depends on the age, but also probably true. When you have less than 20 years to retirement you need to shift your focus from asset accumulation to how to position those assets to protect from market losses (and no bonds aren’t inherently safer if interest rates start to rise again) and what those assets are going to look like as income. Annuities CAN be (sometimes, occasionally, with the right product by no means all the time) a good piece of that puzzle.

And whole life insurance as a rule is a rip off. Term life may be a necessary protection for loved ones but is not really an investment.

Term insurance for anyone over the age of 55 is usually (again, not always but frequently) a bad idea. There are a thousand caveats to this, I won’t get into them. Suffice it to say, term is good for short term needs. If you are still in a position where you need to have those short term needs protected as you start planning for retirement in earnest, well then you have bigger fish to fry and need to start looking at the cost benefit analysis of paying off those debts now vs possible returns on your investment. Again, not something to talk about on a public message board.

Permanent life insurance is, without question, the single best way you can pass money on to your heirs. No ifs ands or buts. Whole life is often a bad idea, but it isn’t always. Whole life is also not the only option. Again, it all sort of depends on what you are looking to do. Life insurance as an investment is usually a bad idea but again, not always. Hard to say. If you are even moderatly wealthy it should be part of your portfolio, if you are lower to lower middle class it probably should be too (though not as an investment. For other reasons) Everyone else, not so much.

Then having adopted the BH approach, it’s still an open question how much risk, how much stock v bond, the investor should choose. To know that, yes, we’d have to know more of OP and goals and it could vary very widely depending. But the basic approach of a few broad based low cost index mutual funds (or ETF’s, no big difference there) is best for almost anybody who does not have an extensive background in finance, and most people who do.

True. But we also don’t know what percentage of the OPs savings this 100k represents. Is it everything? If so…should it all really go into the stock market? Maybe yes maybe no. It depends. Is it just a percentage? If so why is this percentage being held out to invest? What is happening to the rest of the funds? How are the other assets allocated? Is this money qualified or non qualified? How old is the OP. Marital status? Kids? When does the OP want to retire? Will there be a cash pension in addition to this money? Lots of stuff to not know if you are suggesting an investment strategy. In general, for most people between the ages of 21 and 50ish it’s a good plan (full disclosure it’s what I am doing). But it isn’t for everyone in every circumstance. The moral of all of this being, you may not need to hire a financial adviser but you (the OP) do need to learn on your own what you want and not just take for gospel what ANYONE tells you. It’s easier to get a qualified adviser, but even then you have to make sure you are getting second opinions. Ultimately it’s your money, you have to make the decisions.

[Dangerosa]

@Corry_El

I only partly agree. I think a general method of investing is clearly superior to others: do it yourself investing in a few broad based low cost mutual funds.

The reason I own BRK.B is to go to the annual meeting. And both Warren and Charlie (Charlie is really the brains of the outfit - and if you ever need an entertaining read Poor Charlie’s Almanack is wonderful.

And they agree with you, much to the chagrin of the many financial advisers that attend. They said so about three times at the annual meeting this year.

[amarone]

@Dangerosa

The reason I own BRK.B is to go to the annual meeting. And both Warren and Charlie (Charlie is really the brains of the outfit - and if you ever need an entertaining read Poor Charlie’s Almanack is wonderful.

And they agree with you [about low cost mutual funds], much to the chagrin of the many financial advisers that attend. They said so about three times at the annual meeting this year.

Warren Buffett has specified that on his death, the money he leaves to his wife should be invested in a Vanguard index fund. He is also winning a bet that he can beat the returns achieved by a hedge fund simply by investing in an S&P 500 index fund.

[Dangerosa]

@amarone

Warren Buffett has specified that on his death, the money he leaves to his wife should be invested in a Vanguard index fund. He is also winning a bet that he can beat the returns achieved by a hedge fund simply by investing in an S&P 500 index fund.

Yep, the specific one I recommended upthread.

[Bill_Door]

You could get a FDIC insured return of better than 10% but you have to invest it in 1978. That’s when I got a three year CD at 14% interest and they gave me a nice piece of luggage for opening the account. Normally I steer clear of bankers with a lot of luggage hanging around the office, but it was too good a deal to pass up.

[Mama_Zappa]

Without any specific investment criteria (timing etc.) or recommendations (mutual fund, treasure maps etc.), you can effectively increase your rate of return by maxing out any Roth-type retirement assets - for example if your work offers a Roth 401(k) with acceptable investment choices, max that out for several years - I think the maximum is 16K or so per year. Then use an individual Roth (if your income allows) for an additional 5-6 K a year. Lather/rinse/repeat until the 100K is done.

By not paying taxes on the earnings over, say, the next 10 years, your net balance will be higher than if you were paying taxes on them. Say your money earns 8,000 a year and your tax bracket is 25%, and you pay taxes on the earnings each year - at the end of 10 years, the regular investment would be worth 179K and the tax-deferred investment would be worth 215K.

If it’s in a Roth, that 115K is pure profit. If it’s in a regular IRA, you still profit, just not as much: you’d have about 187K instead of 215K - versus 179K.

That’s a pretty simplistic example but it’s something to think about regarding the mechanism of how you save.

[septimus]

@Bill_Door

You could get a FDIC insured return of better than 10% but you have to invest it in 1978. That’s when I got a three year CD at 14% interest

Your real return was less spectacular: Inflation averaged 11.2% in 1979 and 13.6% in 1980.

@Bill_Door

and they gave me a nice piece of luggage for opening the account.

You picked the wrong bank? Michael Moore got a free gun when he opened an account.

[Hilarity_N.Suze]

Edward Jones–no problems. They tried to talk me into some kind of index fund, and also tried to talk me out of a couple of stocks that have ended up performing quite well. But they have also made some good recommendations. Personal service at small branches, which I like.

Charles Schwab–also okay, I moved my funds but not because of anything to do with the way they were handling them.

These were both fine with communicating thing like tax consequences and college saving strategies.

[TommySeven]

@Hilarity_N.Suze

Edward Jones–no problems. They tried to talk me into some kind of index fund, and also tried to talk me out of a couple of stocks that have ended up performing quite well. But they have also made some good recommendations. Personal service at small branches, which I like.

Not that I particularly want to defend Edward Jones, but their attempt to talk you out of those individual stocks wasn’t necessarily bad advice. If I tell you not to play roulette, and you ignore my advice and win, then my advice was still sound.

But do you know the total fees that you’re paying to Edward Jones? From what I’ve seen, that’s not easy to calculate, and in most cases surprisingly high.

@NAF1138

Life insurance as an investment is usually a bad idea but again, not always. Hard to say. If you are even moderatly wealthy it should be part of your portfolio, if you are lower to lower middle class it probably should be too (though not as an investment. For other reasons) Everyone else, not so much.

In the analyses that I’ve seen, whole life policies range from really bad to maybe marginally better than appropriately placed ETFs/mutual funds in some limited cases. But even if the OP falls in to one of those limited cases, how is he/she supposed to determine whether an offered policy is good or bad? The effort to analyze the things is considerable.

@NAF1138

None of this is wrong. Similarly, it’s also neither unbiased or universally true. The best answer the OP can possibly get without giving us all a lot more information than they are likely comfortable with is “it depends”

That’s disappointing and makes for a bad thread, but it’s true.

Most good investment advice will be at least this disappointing.

[Corry_El]

@NAF1138

1. Yeah, this I can get behind. If you are probably about 45 or under (a case can be made for 50 and under, but over 50 your time horizon starts to change dramatically unless you want to work into your late 60s or 70s)

2. Term insurance for anyone over the age of 55 is usually (again, not always but frequently) a bad idea.

3. Permanent life insurance is, without question, the single best way you can pass money on to your heirs.

4. But we also don’t know what percentage of the OPs savings this 100k represents. Is it everything? If so…should it all really go into the stock market?

1 and 4 conflate two separate points:

a) investment approach, assuming financial assets*: the ‘boglehead’ approach is best for almost anyone without an extensive financial background: few, broad based, low cost mutual funds or ETF’s, could be bond or stock funds not just stock funds, and an asset allocation determined by your circumstances at a particular time, not tying to time the market. And not individual stocks, and not direction by self or paid professional into particular parts of the market ‘that are going to do better’. Moreover, in most of the few cases where this basic approach is not optimal for a particular person, it’s unlikely to be far from optimal. In contrast picking stocks or sectors or employing advisers or trying to time the market can turn out very badly relative to market performance for people who don’t know what they are doing, ie the vast majority of retail investors.

The above is bordering on self evident fact, not just one person’s opinion. Of course an independent minded person would want to learn more and fully understand it themselves. But it’s pretty much a fact whether they accept it or not.

b) asset allocation: different issue. For example in 1 the BH approach is best at 45 or 50 or 70. The likely change is that in later life the investor would shift the asset allocation more to bonds and away from stocks, not a change in the basic approach of few low cost index funds. And quite late in life purchase of immediate annuities might be substituted for bonds. But this isn’t at odds with BH method. And changing to safer assets, whether shorter term bonds or cash or annuities is still asset allocation. It’s not ‘asset allocation then something else to prepare your portfolio for old age’. There is no ‘something else’, that’s also asset allocation.

Asset allocation is a personal matter, depends not only on age and goals, but personality type etc. I did mention the old fashioned default ‘age in bonds’ formula for asset allocation, which assumes the money is for retirement. If so, that’s unlikely to be disastrous, but isn’t given as ‘the’ answer. And if the money isn’t for retirement, and OP didn’t say so, then nothing can be said about the right asset allocation.

2. I simply mentioned that term life is something some people need to protect loved ones at certain points in life. But it doesn’t really fall under the category ‘investment’, is not part of the answer ‘how should I go about investing $100k?’

3. All life insurance products but term tend to be a bad deal for the great majority of investors. The main exception, to which you seem to allude, is that life insurance can be used to pass assets to heirs outside the estate tax. But the estate tax threshold in the US now is over $5mil for an individual, not relevant now to someone with $100k.

4. Back to investment approach, v asset allocation, two different topics.

*as mentioned, I’m excluding the possibility the person has expertise in managing rental properties, investing in their own business, etc investments other than financial assets. There’d be no reason to have asked the original question if so.

[octopus]

@Hilarity_N.Suze

Edward Jones–no problems. They tried to talk me into some kind of index fund, and also tried to talk me out of a couple of stocks that have ended up performing quite well. But they have also made some good recommendations. Personal service at small branches, which I like.

Charles Schwab–also okay, I moved my funds but not because of anything to do with the way they were handling them.

These were both fine with communicating thing like tax consequences and college saving strategies.

How much are you paying for that personal service at a small branch? Edward Jones is shady.

[NAF1138]

@Corry_El

1 and 4 conflate two separate points:

a) investment approach, assuming financial assets*: the ‘boglehead’ approach is best for almost anyone without an extensive financial background: few, broad based, low cost mutual funds or ETF’s, could be bond or stock funds not just stock funds, and an asset allocation determined by your circumstances at a particular time, not tying to time the market. And not individual stocks, and not direction by self or paid professional into particular parts of the market ‘that are going to do better’. Moreover, in most of the few cases where this basic approach is not optimal for a particular person, it’s unlikely to be far from optimal. In contrast picking stocks or sectors or employing advisers or trying to time the market can turn out very badly relative to market performance for people who don’t know what they are doing, ie the vast majority of retail investors.

The above is bordering on self evident fact, not just one person’s opinion. Of course an independent minded person would want to learn more and fully understand it themselves. But it’s pretty much a fact whether they accept it or not.

b) asset allocation: different issue. For example in 1 the BH approach is best at 45 or 50 or 70. The likely change is that in later life the investor would shift the asset allocation more to bonds and away from stocks, not a change in the basic approach of few low cost index funds. And quite late in life purchase of immediate annuities might be substituted for bonds. But this isn’t at odds with BH method. And changing to safer assets, whether shorter term bonds or cash or annuities is still asset allocation. It’s not ‘asset allocation then something else to prepare your portfolio for old age’. There is no ‘something else’, that’s also asset allocation.

Asset allocation is a personal matter, depends not only on age and goals, but personality type etc. I did mention the old fashioned default ‘age in bonds’ formula for asset allocation, which assumes the money is for retirement. If so, that’s unlikely to be disastrous, but isn’t given as ‘the’ answer. And if the money isn’t for retirement, and OP didn’t say so, then nothing can be said about the right asset allocation.

2. I simply mentioned that term life is something some people need to protect loved ones at certain points in life. But it doesn’t really fall under the category ‘investment’, is not part of the answer ‘how should I go about investing $100k?’

3. All life insurance products but term tend to be a bad deal for the great majority of investors. The main exception, to which you seem to allude, is that life insurance can be used to pass assets to heirs outside the estate tax. But the estate tax threshold in the US now is over $5mil for an individual, not relevant now to someone with $100k.

4. Back to investment approach, v asset allocation, two different topics.

*as mentioned, I’m excluding the possibility the person has expertise in managing rental properties, investing in their own business, etc investments other than financial assets. There’d be no reason to have asked the original question if so.

Yeah ok. I guess my main point got lost in the details. I don’t disagree with anything you said, I just disagree that it’s sound advice to give to someone who is asking an internet message board for investment advice because of your own point 4. That’s not a small decision and someone to is coming here to ask about it is almost by definition not qualified to make that decision on their own right now. So my advice again goes back to, it depends. Go out and learn more or hire someone to help you. Don’t take any specific advice on this board or anywhere as gospel for your situation. None of us know enough about it.

[Dewey_Finn]

@NAF1138

Permanent life insurance is, without question, the single best way you can pass money on to your heirs. No ifs ands or buts. Whole life is often a bad idea, but it isn’t always. Whole life is also not the only option. Again, it all sort of depends on what you are looking to do. Life insurance as an investment is usually a bad idea but again, not always. Hard to say. If you are even moderatly wealthy it should be part of your portfolio, if you are lower to lower middle class it probably should be too (though not as an investment. For other reasons) Everyone else, not so much.

The problem with your suggestion that whole life is sometimes a worthwhile investment is that the commissions on it mean that you can’t trust that what the insurance salesperson is telling you. Is he/she recommending this insurance product because it’s best for you or because he/she will make a lot of money by selling it to you?

[Hari_Seldon]

Whatever you do, if you are in the US, avoid financial advisers. Why? In Canada, financial advisers have what is called fiduciary responsibility. That means that they are legally required to put my interests ahead of theirs. The SEC has been fighting for years to institute such a rule in the US, but the financial industry has been fighting this tooth and nail. Today’s NY Times has an article about a couple that saved for retirement and gave their retirement savings to a financial adviser. Who promptly invested it in something that paid him (the adviser) 10% and eventually lost a great deal of their money. The story went on the say that Congress passed a law reversing the SEC rule, but Obama, damn him, vetoed it. Now they are going to court (backed by the Chamber of Commerce) to claim that a rule requiring the client’s interest come first would be too onerous for financial advisers. So my takeaway is avoid them completely.

I guess I would put it into an index fund and pray. No guarantees and not 10%, but low fees and probable reasonable growth. Unless a recession is on the way.

[NAF1138]

@Dewey_Finn

The problem with your suggestion that whole life is sometimes a worthwhile investment is that the commissions on it mean that you can’t trust that what the insurance salesperson is telling you. Is he/she recommending this insurance product because it’s best for you or because he/she will make a lot of money by selling it to you?

While there are a lot of unethical agents out there, almost none of them will make enough money of any particular deal to risk putting their license or ability to contract with insurance companies in jeopardy by selling you an inappropriate policy or by misleading you about how the policy works. Does this mean that they will always give you good advice? Nope. But that doesn’t have to do with commission as much as it does their general knowledge and competence and that’s a problem you will run into with fee based planners too. Find an agent who does this for a living and has for a while and who can work with multiple companies and you are probably fine. Just make sure you understand what you are buying. If you don’t, don’t buy it.

[NAF1138]

@Hari_Seldon

Whatever you do, if you are in the US, avoid financial advisers. Why? In Canada, financial advisers have what is called fiduciary responsibility. That means that they are legally required to put my interests ahead of theirs. The SEC has been fighting for years to institute such a rule in the US, but the financial industry has been fighting this tooth and nail. Today’s NY Times has an article about a couple that saved for retirement and gave their retirement savings to a financial adviser. Who promptly invested it in something that paid him (the adviser) 10% and eventually lost a great deal of their money. The story went on the say that Congress passed a law reversing the SEC rule, but Obama, damn him, vetoed it. Now they are going to court (backed by the Chamber of Commerce) to claim that a rule requiring the client’s interest come first would be too onerous for financial advisers. So my takeaway is avoid them completely.

I guess I would put it into an index fund and pray. No guarantees and not 10%, but low fees and probable reasonable growth. Unless a recession is on the way.

NM. People should do their own research on fiduciary rules.

[Urbanredneck]

Wow, thanks for all the great advice. Still sifting thru everything said.

[Hilarity_N.Suze]

@octopus

How much are you paying for that personal service at a small branch? Edward Jones is shady.

I don’t really need a lot of service, actually. I only pay for actions (buy/sell/trade). They are very transparent about what the costs are. I’ve gone for long periods of time with no actions at all and they still send me monthly account statements.

[Mama_Zappa]

@Dewey_Finn

The problem with your suggestion that whole life is sometimes a worthwhile investment is that the commissions on it mean that you can’t trust that what the insurance salesperson is telling you. Is he/she recommending this insurance product because it’s best for you or because he/she will make a lot of money by selling it to you?

Interesting point. I imagine it depends on how you acquire the policy, at what age, and whether you maintain it long enough (or die fast enough to profit :D).

We have a total of 4 whole-life policies.

1. for 1,000 dollars. Given to me at birth by an uncle who was an insurance broker, paid in full - dunno what that would have cost, over 5 decades ago, but presumably several hundred dollars. Let’s say 200 bucks. Right now I could cash it in for about 1,400 dollars - so, it’s increased 7-fold. Over 5+ decades, to be sure - I can’t be bothered to figure out the annual rate of return that gives that.
2. and 3): policies on each of us for 10,000 dollars, taken out by our parents. Mine, when I was in college - my husband’s, same (I think) though they also took out a loan against it to help pay for college so maybe it was sooner. Roughly 140 a year for each, for 35 years now, so total premiums for each of about 5,000 dollars. Mine is worth a bit over 4,000, my husband’s is worth nearly 8,000 (I guess his must have been in place well before college). Figuring in the cost of what term insurance would have been in the interim is tricky but in his case he’s definitely come out ahead; in mine, only if you figure in the term cost.
3. Me, for 100K, when my company was sold and I wasn’t automatically eligible for the new company’s insurance. I was able to translate part of the previous coverage to an individual whole life policy only. Glancing at recent(ish) numbers, my 1800/year premium is turning into a growth of about 1,500 or so a year, as part of the premium goes directly to the cash value and part goes to the cost of insurance, and there’s some interest income as well.

Anyway - that’s all anecdotal, and I’ve never purchased whole insurance directly through a broker, so I don’t know how all that works. But, whole life can be a decent deal if you’re younger and want guaranteed coverage forever plus a safe(ish) small rate of return. I’m quite sure it’s not an ideal investment and certainly not what the OP is looking for.

Term insurance becomes punitively expensive as you age - ours went up about 40% when we hit 55 years of age, and it had gone up a similar percentage when we turned 50. I’m hoping we have enough of our other debt (mortgage etc.) paid down before we turn 60, that we can drop a good chunk of the coverage. It’s still cheaper per dollar of coverage than the whole policy - but in 10 years that will not be true.

So my advice re whole life: if you’re going to get it, buy at least some while you’re young enough that it’s cheap(ish) and keep it in force. Term life is cheaper up front but goes up over time, and if you develop health issues you may not even be able to get it.

[TommySeven]

@Mama_Zappa

1. for 1,000 dollars. Given to me at birth by an uncle who was an insurance broker, paid in full - dunno what that would have cost, over 5 decades ago, but presumably several hundred dollars. Let’s say 200 bucks. Right now I could cash it in for about 1,400 dollars - so, it’s increased 7-fold. Over 5+ decades, to be sure - I can’t be bothered to figure out the annual rate of return that gives that.

About 4%, assuming 50 years exactly. Some of those years were low-rate years like now, but that includes e.g. the seventies, when interest rates (on risk-free government debt) were double digits. You of course also got the insurance.

@Mama_Zappa

2. and 3): policies on each of us for 10,000 dollars, taken out by our parents. Mine, when I was in college - my husband’s, same (I think) though they also took out a loan against it to help pay for college so maybe it was sooner. Roughly 140 a year for each, for 35 years now, so total premiums for each of about 5,000 dollars. Mine is worth a bit over 4,000, my husband’s is worth nearly 8,000 (I guess his must have been in place well before college). Figuring in the cost of what term insurance would have been in the interim is tricky but in his case he’s definitely come out ahead; in mine, only if you figure in the term cost.

Ahead compared to what, though? You’d need to calculate the cost of equivalent term life insurance coverage, and the return on whatever you would have done on the leftover money, which is hopefully not zero. That gets complicated. For rough orders of magnitude, $10/month invested in the stock market for the last 35 years would be worth about $27k today, if I did the math right and assuming dividends were reinvested and ignoring taxes (so correct e.g. in a 401(k) or IRA, optimistic by zero to >20% otherwise), using Shiller’s stock market data, and assuming 1% expenses/year. That expense ratio would be unreasonably high now, but fewer low-cost products were available in the past.