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Basics

  • no debt; no dependents; early thirties
  • 401K is maxed (5% company match)
  • ESPP is maxed out 10%
  • Roth IRA is maxed out
  • salary is about 115K
  • 100K cash in a checking account

Question

I am trying to figure out a way to invest the extra cash that doesn't involve a lot of "maintenance" or education. I have tried to get in to personal finance in the past but it almost bores me to death after every attempt. I want to keep things really simple. At the same time I don't think I have enough money to hire someone to handle my money completely.

I have looked into bonds, but it doesn't even really seem worth the effort considering the amount I would be able to put into them. The best option I have seen so far is to just pick a couple ETF's that are rated well and stick all my cash there. Is there something I am missing? This is cash I wouldn't want to touch for 10+ years. I just want to forget about but at the same time not lose money in the process. Any recommendations for someone in such a straightforward situation?

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Have you considered a consultation with a financial adviser? Not to manage your money, but to help you form a plan that you'd follow on your own? Many employers and credit unions provide this service, some for free. –  littleadv Oct 5 '12 at 6:14
    
How is your money invested in the 401K and Roth IRA? For example Mutual Funds, ETFs, Index funds, Target Date funds, Individual stocks, bonds, fixed income, CDs? –  mhoran_psprep Oct 5 '12 at 10:04

5 Answers 5

I can think of three things you might do:

  1. Talk to a fee-only adviser. As the comments suggest, this would only be one or two sessions to lay out what all you have, establish what you want it to do, and write a plan that you are comfortable carrying out yourself.

  2. What do your 401k and Roth IRA look like? If you mean for this money to be long-term, then your retirement portfolio might be a good place to start.

  3. I don't currently own them, but one of my personally hobby horses is I-Series Savings Bonds, commonly called I Bonds. Even in the current low interest rate environment, they are a good deal relative to everything else out there. I summarized this more fully in my answer to another question. You can invest up to $10,000 per SSN per year, and the interest rate is the sum of a fixed rate plus a floating rate based on CPI. Currently the fixed rate is 0%, but the floating rate is better than what you can get from most other cash-like instruments.

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Look at a mixture of low-fee index funds, low-fee bond funds, and CDs. The exact allocation has to be tailored to your appetite for risk. If you only want to park the money with essentially no risk of loss then you need FDIC insured products like CDs or a money market account (as opposed to a money market fund which is not FDIC insured). However as others have said, interest rates are awful now.

Since you are in your early 30's, and expect to keep this investment for 10+ years, you can probably tolerate a bit of risk.

Also considering speaking to a tax professional to determine the specific tax benefits/drawbacks of one investment strategy (funds and CDs) versus another (e.g. real estate).

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So, you have $100k to invest, want a low-maintenance investment, and personal finance bores you to death.

Oooohhh, investment companies are gonna love you. You'll hand them a wad of cash, and more or less say "do what you want." You're making someone's day. (Just probably not yours.)

Mutual fund companies make money off of you regardless of whether you make money or not. They don't care one bit how carefully you look at your investments. As long as the money is in their hands, they get their fee.

If I had that much cash, I'd be looking around for a couple of distressed homes in good neighborhoods to buy as rentals. I could put down payments on two of them, lock in fixed 30-year mortgages at 4% (do you realize how stupid low that is?) and plop tenants in there. Lots of tax write-offs, cash flow, the works. It's a 10% return if you learn about it and do it correctly.

Or, there have been a number of really great websites that were sold on Flippa.com that ran into five figures. You could probably pay those back in a year. But that requires some knowledge, too.

Anything worthwhile requires learning, maintenance and effort.

You'll have to research stocks, mutual funds, bonds, anything, if you want a better than average chance of getting worthwhile returns (that is, something that beats inflation, which savings accounts and CDs are unlikely to do). There is no magic bullet. If someone does manage to find a magic bullet, what happens? Everyone piles on, drives the price up, and the return goes down.

Your thing might not be real estate, but what is your thing? What excites you (i.e., doesn't bore you to death)?

There are lots of investments out there, but you'll get out of it what you put into it.

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You can buy dividend stocks, just buy and hold. you will get cash or extra stock every quarter.

You can also sell covered calls on your dividend stocks, this will give you even more cash.

you can also... actually this rabbit hole goes very deep. just stick with my first sentence.

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sidenote: people ranked this down but even the OP was deciding on buying highly rated ETFs (which issue dividends, hello), it accomplishes what OP wants to do –  CQM Oct 7 '12 at 15:52

Congratulations on being in such good financial state.

You have a few investment choices.

If you want very low risk, you are talking bonds or CDs. With the prime rate so low, nobody is paying anything useful for very low risk investments.

However, my opinion is that given your finances, you should consider taking on a little more risk. A good step is a index fund, which is designed to mirror the performance of a stock index such as the S&P 500. That may be volatile in the short-term, but is likely to be a good investment in the longer term. I am not a fan of non-index mutual funds; in general the management charge makes them a less attractive investment.

The next step up is investing in individual stocks, which can provide very big gains or very big losses.

The Motley fool site (www.fool.com) has a lot of information about investing overall.

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