Author Topic: This may at first sound lazy, but I have a short-term investment question.  (Read 2977 times)

Rollin

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I would like to invest a small sum of money that I can see returns on over the next five years.  Reason being that I'm 51 and would like to start filling in the years 57 through 62 with other forms of income.  My goal is FI at 57.

As I get $500 here or there I would likely place it in the same place to keep it simple and since I feel I'm diversified, but conservative.  I have two rental incomes, a life insurance annuity, and the DW has an income that are working for us now (and I'm fully employed at over $100,000 as well).  I have SS (after 62), a 457K (government version of a 401K) (after 59.5), my pension (after 62 unless I want to take early retirement hit), I own two homes that I can either sell when I retire or continue to rent, my life insurance annuity continues until I croak, and will fully own a 3rd home by age about 60.  All that after 62 stuff is about equal to our current income.

So, I need to invest in something that may help me avoid some taxes and keep me a little above inflation.  In this short period I'm not comfortable with the stock market, especially since it is so high now. I can be talked into that though if it makes sense.  In other words I am open to suggestions.  However, I do like things simple!

COguy

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So, I need to invest in something that may help me avoid some taxes and keep me a little above inflation.  In this short period I'm not comfortable with the stock market, especially since it is so high now. I can be talked into that though if it makes sense.  In other words I am open to suggestions.  However, I do like things simple!

The investment you want doesn't exist.  In a higher interest rate environment, there would be Ibonds, but right now they will match the CPI before taxes.  So, you need to ask yourself which you value more:

1) return - will swing wildly in value (think stocks, etc..)
2) safety - will lag inflation

Personally, I would just buy 10k in Ibonds/year and sell once the current environment changes because that is about as close to your desired investment as you are going to get without equity like risk.

the fixer

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You can invest in the stock market with a 60/40 or 70/30 allocation with bonds and hope for the best. There's a decent chance you won't get the return you hope for, but as long as you are flexible enough to keep working for an extra year or two that won't be a big deal. This is basically what a lot of us FIRE folks are doing.

If your plans are less flexible than that, you're stuck with low-risk and lower-return investments like I bonds.

You should also consider how much of a difference a high return actually makes over such a short time period.

Another Reader

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457 plans are different than 401k's.  Because they are deferred compensation plans, not retirement accounts, you can take money out without penalty after you separate from employment.  You pay the income tax as if it were ordinary income.  457 plans are ideal for early retirees, as long as the investments are of decent quality.  If you have a stable value fund that pays in the 3 percent range today, you may want to consider accumulating some cash in that investment as you near retirement. 

If you qualify to use the "catch up" provision at your age, you can contribute $23k to the 457 for 2013.  In your shoes, I would do that for 6 years, plus take any additional money and invest in a taxable account.  I would hold good dividend paying equities and maybe some I-bonds on the taxable side.

Rollin

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COguy - I was afraid that was the case, but thoughtI'd ask.

The fixer - good advice - thanks.

457 plans are different than 401k's.  Because they are deferred compensation plans, not retirement accounts, you can take money out without penalty after you separate from employment.  You pay the income tax as if it were ordinary income.  457 plans are ideal for early retirees, as long as the investments are of decent quality.  If you have a stable value fund that pays in the 3 percent range today, you may want to consider accumulating some cash in that investment as you near retirement. 

If you qualify to use the "catch up" provision at your age, you can contribute $23k to the 457 for 2013.  In your shoes, I would do that for 6 years, plus take any additional money and invest in a taxable account.  I would hold good dividend paying equities and maybe some I-bonds on the taxable side.

This is news to me, but good and may provide a better pathway to FIRE.  I was under the mistaken notion that I had to wait to get the money out so I was not investing in the 457K as heavily as I could - thinking that I needed something mid-term to invest in to get me to 59.5.  Good news indeed!

Thank you.
« Last Edit: March 27, 2013, 07:21:29 AM by Rollin »