NEW YORK — Avoid Risk, But Don't Be Too Cautious
Q I'm inheriting about $400,000 and am a retired widow, own my home, and have three married children. How should I handle this bonanza? I get $25,000 yearly from annuities.
- Name withheld, Massachusetts
Q I am a lady 85 years old. I want to invest $50,000 to $100,000 to help support my two adult children and and me and leave money for them later.
- Name withheld, California
A "Women, older women in particular, tend to err on the side of conservatism when it comes to investing," says David Bendix, who heads Bendix Financial Group in Uniondale, N.Y. "In both these two cases, the women need to seek as much return from their investments as possible, while also protecting their assets."
The woman in Massachusetts: Mr. Bendix says that much more needs to be known about her situation, such as age, total annual income, and any coming financial requirements. She "really needs to go to a good financial planner, since she is inheriting a substantial sum," he says.
"She should consider putting 60 percent (or $240,000) of the $400,000 into stock mutual funds," split between funds focused on large, small, and foreign companies. "The remaining 40 percent should go into bonds." Her tax bracket will determine whether she goes with tax-sheltered municipal bonds or higher-yielding corporate bonds.
Financial experts generally suggest that a lump sum should be invested gradually, not all at once. This method lessens the risk of putting in all your money just before a market decline. A conservative move, Bendix says: Immediately put a portion of the money in US Treasury issues.
The woman in California: Bendix would apportion the $50,000 to $100,000 this way:
1. 30 percent into balanced funds, which hold a mix of stocks and bonds. These typically pay dividends quarterly, with annualized yields of 2 to 5 percent.
2. 15 percent in "floating-rate bond" funds, such as the Eaton Vance Prime Rate fund (800-225-6265), which now yields 7.23 percent. Floating-rate yields adjust gradually with interest rates, depending on the economy.
3. 55 percent in "strategic income funds," which include a mix of high-yield, corporate, and US government bonds. Putnam (800-225-1581) and Oppenheimer (800-525-7048) both have such funds.
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