We plan to sell our business and retire in one year when we will be 56. How can we invest $200,000 for high yield with the understanding that our money will be safe without risks? B. J.
As stated previously in this column, you must recognize two risks. First is the risk that you might lose some or all of your dollars. If you invest in a stock at $10 a share and sell at $5 a share, you have lost $5 for each share you owned and sold. Insured savings accounts and certificates of deposit, US Treasury bills, notes and bonds, plus numerous other government issues are either direct obligations of the US government or are backed by its full faith and credit. Your risks of losing dollars in these investments is practically nil.
Second is the risk that your safe dollars will lose purchasing power. If your $200,000 returns a safe 8 percent return yearly and inflation continues at 12 percent, you are losing 4 percent in purchasing power each year. At 56, a male can look forward to a life expectancy of about 20 years. If inflation continues at 12 percent, prices will double in six years, double again in six more years and double once more after another six years. Thus, in 18 years prices can be expected to be eight time higher than when you retire.
The risk of losing purchasing power needs to be balanced against the risk of losing dollars. One compromise is an investment in high-yield income stocks. To avoid long-term losses of purchasing power, you might wish to put a part of your funds into a growth-oriented mutual fund and possibly as much as 15 percent in gold or silver.