Earlier this month, I announced the M-Network’s new Ask the M-Network feature. In brief, we’ll do our best to provide feedback on personal finance questions (several members of the network answer each one). We are not financial professionals, so this is not professional advice. It’s our opinions as people who write about personal finance.
Today, I’m answering the following question from Mr. CM:
I am 67, retired, only debt is $400,000 mortgage on a $2 million home. Just got $75,000 and want to know what to do with it. I want to MAKE money not lose it. I don’t want to pay my mortgage down, I don’t want to put it in the bank, I don’t want to buy mutual funds. So what do I do to make money? Thank you.
Normally, we’d have specific ideas written by several members of the network. In this case, however, we came to the consensus that there isn’t (unfortunately) much we can offer. Some of the safer ways to earn money have been ruled out. One thing we agreed on is to make sure that you figure out exactly how much you owe in taxes and put that aside before doing anything with the rest of your money.
The basic rule of investing is that higher returns come with more risk. A CD doesn’t have a very high risk if it’s insured by the FDIC, but it has a lower return than a stock or mutual fund might have. You might earn 15% (or 3% or 8%) on the stock/fund but you might lose everything.
From what you’ve said, you’re not willing to take bigger risks (like mutual funds) and you don’t want to use the safest (FDIC-insured) investments. Since you’re a retiree, we understand why you wouldn’t want to take big risks, they’re not advised for people of your age (though generally someone at 67 will still have a certain percentage invested in stocks or mutual funds).
The options you haven’t ruled out are (basically):
Bonds
CDs? (not sure if they counted as part of the bank)
Real Estate
Direct Business Investment
Jewelry/Gold/Art/Antiques/other commodities
If bought wisely, the first two generally have lower risk and lower returns (better than none!). The second three generally have very high risk and possibly higher returns. I would not advise taking the latter three in your situation.
There’s just no sure way to make much money with that $75,000. FDIC-insured CDs at a bank are the closest thing you have to guaranteed earnings. It’s not exciting or a high rate of return, but it’s more than the original $75,000 and may even keep up with inflation.
Since it’s such a large sum, you may want to take this problem to a fee-only financial planner. Emphasize to the financial professional that you’re looking for ways to make money with it, but don’t get your hopes up too high. Unless you’re in the position to take a risk, you can’t expect high earnings. They may be able to help you pick out some of the safer bonds which have slightly more risk and slightly higher earnings than CDs.
I’m sorry that we’re unable to offer more, but there are never fully-safe investments and in times like this the pickings are even slimmer. Since you’re retired, you’re also limited by time-frame so investing with “40-years-down-the-road” in mind isn’t much of an option.
Again, none of this is professional financial advice and should not be regarded as such.
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I say figure out a hobby you really enjoy doing and then try to make a business around it. It will give you something to do and could potentially be profitable. That’s my game plan for retirement.
I bonds have a pretty decent interest rate right now, but they’ll be resetting in May, so there’s no telling where they’ll go from there.
Something else to consider are muni bonds – depending on what investment vehicles you currently have – as they are safe and have some tax sheltering to them.
I think the best advice is to speak to a financial advisor – and not even one you have to pay for. Your local bank or credit union should have planners on hand that you can speak to for no fee. They may try to sell you their product, but it’s not required for you to see them. Just let them know upfront what you’re interested in and that should take care of it!
Good luck!
I-bonds would be an awful place to put your money. The current fixed part of the interest rate is 0% the rest is based on the consumer price index = inflation. This is the part that varies and is currently 5.64%. They use the previous 6 months of data to determine the inflation interest rate. In september the CPI was 218.7 and last month it was 210.2, so there would have to be some pretty decent inflation between now and march to get anything above 0% on I-bonds for the next 6 months.
If you don’t mind a little hassle, then do the reward checking account route. You should be able to make 5%, but you have to make like 20-30 debit card transactions/month. Apart from that you’re looking at 4% max in a CD or savings account.
Whoa, no banks?!?
Jeeze, no banks, no mutual funds… only want to make money not lose it – I guess that rules out equities since he could very likely lose money.
I guess that leave bonds and possibly credit unions. Could maybe get a CD, Reward Checking, or savings/money market account at a credit union that pays 3-5%. That might be too bankish.
Any business idea will have risk. Real estate investing has risks too. As far as direct lending I wouldn’t go near prosper or anything like that.
Seriously, why no banks? Do credit unions count?
@Personal Finance Ology, that sounds like a fun way to use the money but unfortunately it’s not very low-risk. If the questioner is set for life, then it certainly could make his life a bit more exciting
@Kristy, the reason I recommend fee-only is that they’ve got less reason to steer you wrong. Free isn’t bad, but if you have to spend a lot of time working out what’s good and what’s trying to make them money, it’s a lot of stress and potential for sub-par investing you could avoid.
@Tom (comment 3) I’m not really up-to-speed on specific bonds right now, so I definitely recommend that anyone get all the details before investing.
@Tom (comment 4), I guess we all want a guaranteed investment where our money can grow substantially. The problem is that most of those are scams…only banks have insurance. It seems their rates weren’t high enough.
A fee only financial adviser agrees with Kristy that iBonds are not a bad investment right now. As for MAKING money, that’s debatable but they aren’t doing too bad right now and would be a safe option. Besides, he can only buy $10,000 per calendar year (if he’s married, double that) so it could form part of his plan. From a recent article:
The interest rate on I Bonds has two parts: a fixed rate that is assigned at purchase for the life of the bond—this rate is reset for new purchases every six months—and the inflation rate, which is reset every six months for all i bonds, new and exisiting. The fixed rate on new purchases is currently 0.7%. The current inflation rate, based on changes in the consumer price index for urban consumers, is 4.94%. So the composite rate, or the sum of the fixed and variable rates, is 5.64%. These rates are available through April.
I would implement a combination of high interest reward checking account (you can do a search through CheckingFinder.com to find the highest rates), reward savings, and possibly a CD (but with the rates dropping like crazy you may want to consider 2 reward checking accounts (typically have $25K limit).
Here are a few:
Florida Central Credit Union 6.01
First Robinson Savings Bank 6.01
Union State Bank/Bank of Atchison 6.01
Communications Federal Credit Union 5.25
Connexus Credit Union 5.15
Keystone Bank 5.15
First New England Federal Credit Union 5.15
Three Rivers FCU 5.01
Legence Bank 5.01
Community Bank of Pleasant Hill 5.01
Community Bank of Raymore 5.01
United Heritage Credit Union 5.01
I have been a banker for a large financial institution for
26 years. Although some CD rates are slightly higher from
one bank to another, please consider your personal tax bracket
before making any substantial investment. Interest is taxable
as regular income and this will reduce the net return. A tax-free product is worth looking into. Your advisor can calculate
the differences in actual gain very quickly.
You have got to be kidding me right? You are sitting on $1.6 million in equity and you want advice on what to do with $75,000? You are stupid and my advice would be to just burn the money. This is exactly why middle class people can never be rich. With the investment plan I use, I could easily make returns of $40,000 a month just on the equity you are sitting on and squandering, lmao.
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