What would you suggest?
Whats your scenario?..age…income…risk tolerance etc…?
I know the bears are beating their end of the world drums and they may be right for a while…But…I do feel after the smoke clears possibly mid 2009 we will do what history suggests and rally hard…Excess is being flushed out of this market and value will return soon…I would not go short here,nor would I bet the farm on the long side…As for creating income from that 6 figure account there isnt much to be made unless your six figures is closer to 7 figures thanks to Bernanke…Sad isnt it?..Money markets pay squat…CD’s pay beans…Corporate notes are scary…Callable CD’s are the same…Bonds are getting the closest thing I think you could look into…But I honestly think its best if you simply tuck into a money market fund and forget about this market for a while…You dont sound like a trader and now is not the time to start…Infact never start…Don’t believe the fables being spewed on this forum…It’s very hard to make a buck in this market when you trade in realtime with real money…If you dont need the money spread it out in some CD’s or just park in a money market fund and sit idle…My suggestion is to dollar cost average into index etfs after January 1st…Make sure to include Asia,Russia,India,Europe and America ofcourse…I dont think you can lose over the longterm…I dont believe this market goes to zero…But at the same time Im not a bottom caller…Id say put %1 in a week…Play it safe but dont avoid equities because of this…I’ve been in the pig real estate business and I can say once this smoke clears I would take the equities market over the pig RE business anyday…
Rookie,
Thanks for the reply
Age=50 (retired early after sale of company) , income=$15k/year from rentals + around $70K wife salary, + ($40K to $60K double tax free )Money Market returns. Wife wants to retire in couple years, Risk Tolerance = low. I talked to 5 financial managers after selling my company 3 years ago and just couldn’t stomach the possibility of significant loss in the srock market for that nest egg so I stuck the entire thing (close to $3M) in a double tax free MM… I lost about $75K this year in our IRAs before I transfered out of funds into a MM in September (balance around $300k) after that first big 900 point drop. I just don’t see a stock market rebound in the next couple years. In my opinion, formed from a observation of general economic conditions, we’re in for a protracted downturn and flat bottom before the next bull market.
I’m glad to see my current strategy of “tucked into a money market” is at least reasonable in someone else’s opinion besides mine. I figured the IRAs would be my exposure to the market but I plan to wait until there is a clear indication that we are out of the death spiral we’re in now. If I miss the first 20% or so of the next bull market…so be it.
I’m planning to purchase several more rentals over the next few years, but I’m kind of picky and conservative in my selection so it’s been tough finding deals to cash flow in my target areas which admittedly is reasonably small (just a few towns where I thoroughly understand the rental and sales markets). My buying criteria is 10% cash on cash return + 30% equity but I consider properties that come reasonably close.
I’d like to shop the Money Markets for the best returns but don’t want to jeopardize the federal guarantee of MMAs on the balance in the accounts before 9/19/2008. I am seriously concerned the money markets could see serious losses.
jmd_forest
jmd_forest,
Congratulations! It sounds to me like you’re doing great so far! You’ve probably already beaten 99% of all the investors in the market by just keeping your money safe. I’d say that was very smart!
Mike
jmd,
Ok I have considered a few different options for you…It seems you and I are the same boat but a little different…Cash flow positive properties are decent but if you are talking that kind of cash I’m puzzled why you would even bother with RE…I HATE REAL ESTATE…Property managers are the worst part about the business…And for the money you make I wouldn’t even bother…I make a little more than you in RE business and I can’t stand to be bothered by water bills,tenants,maintenance etc…But it’s your money and time…
Consider Municipal Bond funds…FLTMX…FTFMX (example ONLY****)
For the next few years people like us have very few income choices…We either accept some and I mean very little risk to make any kkind of returns or we are relegated to money market funds…I understand you are paralyzed by fear but there are some decent Municipal funds that have faired decently considering the slaughter we have experienced in the markets this year…This won’t go on forever but let’s assume it does,even these funds have broke even for this year which says alot come 2009 and beyond…
Also consider as lame as it sounds building CD ladder…I’m sure you know what that is and if you aren’t familiar go bankrate.com and they have a great CD ladder calculator to get started…Most brokerage houses have become well versed in this method because NO one wants stocks anymore…At least every 3 months some of your cash gets freed up so you are not completely cashless for any prolonged period of time…
Also consider a company like CW Henderson…They cater to high net worth individuals who want very low to no risk and make more than a money market fund…Just google them and you can get in contact with them and speak to someone…This year they were flat which is incredible to say the least…They use a mixture of short and longterm TIPS,Bonds,Govt issues etc…Worth a look…
Also look into callable CD’s and you can use the ladder system also.This site is very good and worth a look…I’m sure you will but please naturally do extensive research before buying anything… http://www.fisn.com/rates.htm
Other than that I don’t have that much to offer…Stay away from zero coupon bonds,high yield junk etc…It seems you have little tolerance for risk and rightfully so…CW Henderson is in the stay rich business and some very bright people run it…If I can answer anything else please just ask…
Rookie and Mike,
Thanks for the replies. I’d like to think I’m not “paralyzed with fear”, but am prudently fearful. I hope I have 40 more years left and I don’t want to go back to work because my nest egg took a dive. When you look at a 40 year time frame, my nest egg doesn’t seem very big. I’m still driving the 10 yr old, 190k mile car I had when I sold out a few years ago
Most of my nest egg is from the sale of a business I built over 12 years of very hard work and long hours before selling out to a Fortune 500 Co. I like RE because I can control it more than most other investments and, at least currently, it doesn’t take much time maintaining my rentals (although the rehabbing can be a full time job when I have a project property) . I buy and rent in a “somewhat” affluent area, averaging around $1500/month per unit. I also like the craftsmanship of turning a run down property into a gem and making a profit on it. I usually buy beat up and financially distressed properties, put my own sweat equity/craftsmanship into the property and either sell or rent out at the improved market value. I’m not afraid of hard work, Ive done it all my life, its just that previously it was hard mental work as opposed to the physical rehabbing.
I’ve looked at Municipal Bond funds previously and will look again. I’m also considering the CD ladder option (5 years out max) since I think it will be at least that long for a real recovery to start and Money markets will return crap during that time. I’ll also investigate CW Henderson to see what they’re all about although I’m leery of financial advisers since if I’d followed their advice 3 years ago I’d be down 1/3 at this point.
Again, thanks for the tips. What are your thoughts on the short/medium/long term safety of money markets and other cash instruments? if we see a REAL depression, can/will the government really cover their insurance liability on these items?
jmd_forest
jmd,
Considering you are young and working with that much capital,not allocating even %10 into equities can be viewed as overly cautious…But in the end you have to do what you feel comfortable with…Also financial advisors are not professional money managers (typically financial advisors are failed stock brokers or ex-cold callers)…I do understand even the pro’s have been caught this year…Historically after market crashes and depressions the following year the markets rebound %30…After the smoke clears you should consider even a diminutive portion of allocation in equities…Other than muni bond funds,tips,govt issues,money markets there isnt much more than CD’s…I dont like CD’s,but thats because I’m a trader( and I like my money liquid)…If you enjoy RE investing and playing landlord and it works for you then maybe thats your niche,but RE is NOT a liquid asset…But you are sitting on alot of cash that will be doing nothing,and then when you account for %3 inflation a year you will be at a net loss on the year…There is only so much that you want to dump into homes…We also don’t know how long this real estate slide will last or this credit crisis…My next concern even though it seems like light years away is rising interest rates…I know we are going to be at zero soon enough but in time there is one way to go,and that will only compound the real estate problem…never mind the new guidelines now for RE investors having multiple mortgages and no more liar loans…
As for the safety of money markets being able to maintain $1 par I’m not concerned…But in time that may change…And no the government will not be able to insure money market funds if things get amplified much worse than they already are…But again comparing the past depression to this current one is unrealistic…