Personally I am a big fan of the S&P500. If I had a large sum of cash and knew I wouldn’t need the money for several years or longer I would feel comfortable investing it in a fund tied to the S&P500. Obviously the S&P500 could/can go down and so you may accidentally “time” the market poorly and buy before a big dip. If you don’t need the money for a few years the odds are that even in that situation you’d turn out ok. The S&P500 has a great return rate over time and is a diversified stock option.
If you were looking to reduce the risk of badly timing the market you could also invest a set amount every couple weeks to spread out the risk either way (say $5,000, $10,000, whatever, every couple weeks, etc).
As stated above, keep several years expenses out in cash and that would allow you to weather any market downturns since you wouldn’t have to tap those stocks until presumably they came back up in value. As you spend your cash reserves, then perhaps each year sell some of your stocks that have increased in value to ensure you keep a cash cushion. Rinse and repeat. If you didn’t need to replace the cash then let the stocks ride.
This is just one of many options. REITs might be another good investment with regards to inflation. There’s risk to anything but keeping the funds in cash with high inflation is a sure way to lose buying power.
Reading the article posted by @bluebayou, it sounds like it is not imprudent to hang onto bond funds even in the face of rising interest rates, though they recommend intermediate term ones, not long term, as they are too volatile in that situation. Since when the bonds mature, they buy new ones to replace them. The fund is buying the higher-rate securities that are available on the market now, which raises your income yield. So that’s a reason to hold onto them for the long haul, if I understand this right.
My mom has Vanguard Intermediate term investment grade fund, total bond market index, and total international bond index fund. They look mostly like intermediate term bond funds.
This sounds like something I would do, and good advice but my mom is 82. She likely won’t need her money for a long time, but I suspect putting that money from the bank into the market might really alarm her. People are funny. Wish she could put it all in ibonds.
Yes, are all intermediate funds, but they have different risks. The International will be affected by foreign exchange rates as well as country risk. The Intermediate Investment grade are lower quality (52% BBB), in contrast to Total Bond which is 66% governments.
I realize that Vanguard (and Fidelity and the others) are pushing international diversification, but personally can’t see the value for adding International bonds to a US portfolio.
usscuuw - thanks for the reply on renting vs. buying a place. Just trying to understand. How do you get to the “cost for renting” to compare with buying then apply the 20% anaylsis? Isn’t renting an annual cost and buying is a lump sum and then you pay some taxes and ins.every year? Not sure how I’d compare them? I see you followed up not sure I understand ‘opportunity cost.’ Maybe this is all obvious and I’m missing it!
Could be that the previous poster was assuming buying with a mortgage, so the comparison would be something like rent + renter’s insurance versus mortgage interest + property tax + homeowner’s insurance + maintenance + opportunity cost of downpayment and mortgage principal. @ucscuuw is that a correct assumption?
If buying with a lump sum (no mortgage), then it would be rent + renter’s insurance versus property tax + homeowner’s insurance + maintenance + opportunity cost of the money spent to buy the place.
Obviously, if there are homeowner association fees, add that to costs.
I think depending on ones financial situation another aspect to the decision is the persons age and situation and of course wants. My father is working on this decision now. He is 83 and in good health. My mother passed away 2 years ago. He lives in a nice home and a nice neighborhood that while large for one person is not too large. It would be cheapest from a net worth standpoint to continue living there. However, since my mothers passing his social situation is changing. He has looked into senior rental properties which give him less responsibilities in maintaining his home as well as more opportunities for socializing with people like himself. While the rent wouldn’t be cheap it is likely it could be financed for the rest of his life from the sale of his home and he wouldn’t be responsible for any expensive upkeep and maintenance. Is it financially the best move? Maybe not. Is it the right move? Maybe, we will see.
My father is in a similar situation though several years older than your father. Wife of 60 years/my mom passed a couple years ago. They lived in a house they built 15 or so years ago that was mostly retired couples. In past few years, they started building larger houses in phase 2 of the development. Now young families lived there. Very different neighborhood now. He can’t understand why everyone days have all the time in the world to stop and talk.
We recently sold his house and he moved into senior living facility. Best thing for him emotionally and physically. Very social person (having spent more time with him the past 5 years than I did probably since I lived under his roof growing up, I am amazed at the number of conversations he strikes up – with pretty much anyone and about pretty much anything). He was alone 8-10 hours a day during the week. Now he talks with a number of residents and staff. Total social butterfly. And everyone knows him by name. Put on a few pounds because he now eats 3 meals a day (if he forgets, someone is knocking on his door asking if he is coming down to eat).
Tougher financially but not as bad as I would have thought initially. Needs some level of support that family cannot provide. Tough to arrange for that now. And not inexpensive. And that level of support will increase over time. We don’t need to monitor all of that, find replacement if someone is sick/moves to something else, etc. Gives everyone peace of mind. And him still being in his old house by himself was a trainwreck waiting to happen. Glad we were able to convince him to move before it did.
Yep, that was my general idea. If you buy with no mortgage, that’s an even difficult buy situation given low interest rates and high equity markets performance over the last decade
@busdriver11 I have virtually all of my money managed by Vanguard in their Personal Advisor program. I am 73 and none of my money is in a bond fund. When I established the account, I filled out a questionnaire about my risk tolerance which is very high.
I can make an appointment at any time to talk to my personal advisor. Maybe you and your mom can do this.
Basically, he needs to determine the cost of moving to the senior rental and then determine if the quality of life improvement is worth the cost. Of course, different senior rentals could have different costs and effects on quality of life.
Also, pay attention to how well each senior rental handled COVID-19 (for whatever preferences one has in terms of minimizing the burdens of both disease and attempts to limit the virus) in case of a similar event in the future (whether a variant of the same virus or a different one). Some places had enough outbreaks due to virus brought in by unvaccinated employees and therefore had both the burden of disease and the burden of being in lockdown much of the time (worst of both worlds).
Another factor in the rent vs. buy debate that I don’t see much discussion of, is that they generally aren’t comparable living situations.
While a house may involve some level of homeowner maintenance, and may cost more or less depending on the situation, most of the time owning a house is a far superior living experience. Just off the top of my head:
you are not sharing walls and participating indirectly in other people’s drama- and sex-filled lives
no one walking over your head or making other noises at odd hours, like vacuuming or running washing machine at midnight
you can make all the noise you want without worrying about the neighbors
you can paint/decorate the way you want
you can have covered parking directly attached to your dwelling
you can have as many visitors as you like for as long as you like
so much more storage space, especially closet space. Basement and garage storage is a huge bonus.
so much more living space. An apartment is likely 1/2 to 1/3 the amount of space you are downsizing from. It can get cramped.
while taxes/insurance may go up, this probably pales in comparison to rent increases.
in a plague situation, apartment = germ factory + petri dish.
no pet restrictions
A senior living place that offers some services such as meals or social activities offsets some or all of this, as does lack of maintenance/yardwork. But it’s generally not an apples-apples comparison when comparing a house to an apartment.
We downsized into a 2BR apartment for a year before moving into our retirement house. It cost substantially more for the year compared to what we downsized from, and we ran into most of the issues above. Unless you live in a place with absurdly low rents it’s hard for me to see how renting could ever be cheaper if you own your house.
You can tell where my biases are. My kids will have to drag me kicking and screaming from this house.
As far as I know, your mom is not obligated to stay wth the advisory service, and the money can be allocated as your mother wishes. Perhaps you can be included in the call with the advisor so s/he can explain him/herself and you can see how receptive s/he is. It’s an advisor, not a trustee, and your mother can do what she wants with the money.
I have decided to start ‘journaling’ information on the house and our financial stuff so if I die suddenly and pre-decease my DH, DDs and DH can have some additional ‘guidance’. I am continuing to structure financials and will be reading up on ‘Estates, Wills and Trusts’ - have a book, we have wills in place in our current state (written long ago, 28 years ago but essentially same primary beneficiaries). This is not DH’s cup of tea - I have two graduate business degrees and have a lot of interest and knowledge, as well as motivation to be able to pass on assets to DDs/grandchildren easily. My parents had inheritance $$ for us (and they had a trust in place) - a decent amount of $$ for all 5 of us - parents died at 64 and 77 and no facility outside of home and hospital; DH did have a little inheritance because his mom died only 2 weeks after moving into skilled care - owned a modest home and had a few other assets (teacher retirement funds split 4 ways, and a small life insurance policy through teacher’s also split 4 ways - four sons). DH’s father died 3 months prior to his mother - and he was in skilled care but the mom was able to keep the house and her own retirement and SS funds while the dad’s SS and assets went to skilled care facility.
DDs are interested in being educated about 401k, Roth IRA, term insurance, and they are learning and doing. We are financially doing a lot better than son in law’s parents, and so DD is also having to reinforce that with some of his thinking. For example, SIL was resistant about getting more term life insurance on him - and DD convinced him to get it (he ended up getting 20 year term insurance because of a particular company and agent he wanted; I was pushing for 30 year term insurance) - they have a 3rd child right now that is only months old and 30 year is more appropriate, but oh well. DD agreed for me to purchase a term policy on SIL and have DD be the beneficiary – and she got SIL to sign off on it – it is a 30 year term policy and I pay the annual premium.
For many cases, it is best to compare comparable housing when comparing owning versus renting costs. For example:
Owned house versus rented house.
Owned condominium versus rented apartment.
However, if one is moving into senior housing with some assistance, there may be more limited choices of housing, although housing for lower level assistance is sometimes offered in less dense ways.
You can have good and bad neighbors anywhere. My house is on a fairly big lot yet my next door neighbor leaves his yappy dog out at night in the cold or rain and starts his loud truck engine in the driveway at 5:30 am.
We haven’t made any decision yet, but when we compare owning a condo vs renting an apartment, the condo comes short for us. The HOA fees are so high (almost like a rent) and you don’t have the good parts of ownership (like the privacy or lots of storage space) only the bad (like still doing lots of maintenance). Also, with any rental situation you can be more fluid compared to owning (if that is something you desire).
Don’t mutual funds, including bond funds, have to mark to market every day? So, if interest rates increase, bond values decrease and hence the mutual fund’s value goes down. I think this is how bond funds work, but happy to be corrected if i am wrong.
In contrast, if you own the individual bonds, you can hold them to maturity and don’t have to mark to market.
My kids will have to drag me kicking and screaming from this house.