Stocks? Annuities? Mutual Funds? Advice, please!?
I found out yesterday that I own about ,500 worth of stock in a local bank. My dad bought the shares for me when I was a kid, and now that’s how much they’re worth. I’m trying to decide what to do next. I was thinking about selling the stock and putting the money into a CD, because I really don’t trust the stock market all that much. A family member suggested an annuity, and others have suggested more investments. Investing the money in anything but real estate isn’t an option. I just want some advice about my options from someone who knows. Again, I don’t trust the stock market…What’s the best thing to do?
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March 21st, 2010 at 1:04 pm
A great site I like to visit for financial advice is http://www.clarkhoward.com He is a financial expert with his own radio show. Lots of good info there.
March 21st, 2010 at 1:04 pm
I am a Nigerian Prince who had the same problem on a much larger scale. I got help by sending out emails to people who were willing to help me transfer my millions.
March 21st, 2010 at 1:04 pm
FYI, a CD is an investment that’s not real estate. If you want to be safe, you can open up an ING high yield money market savings account, and earn like 5% a year. You can pull the money out whenever you want, too.
March 21st, 2010 at 1:04 pm
6.00 % apy is what you can earn at http://www.fnbodirect.com in a savings account that is FDIC insured. You could "park" the money there for awhile while you think about whether you want to invest in real estate or other things.
Since you don’t trust the stock market you may want to stick the money in this FNBO direct savings account while you consider how to invest in real estate, etc.
March 21st, 2010 at 1:04 pm
If you are a young person, the ONLY intelligent place for that money to be is in stocks. Yes, they go up & down during any given day or week or month, but over longer periods of time they will return 10%-12% a year consistently, which a CD or Bonds will never do….
Having said that, having $14,500 all in the SAME stock is insane, unless it’s only 4-5% of your total assets!
NEVER take another word of advice from the "family member" that suggested an annuity, either! Annuities only make money for the person who sells them to you. They are generally touted as "safe" because you can never lose your money; but you won’t lose it if you put it in a shoebox under the bed for 30 years, either!
You should make this money work for you…how hard depends on how big you want it to grow, and when you want to spend it.
If you are 20ish, and you invest it in an Aggressive Growth Mutual Fund, it will be worth $1.5M when you retire.
If you are 30ish, buy a Growth-oriented Mutual Fund. When you retire it will have grown to roughly $250,000
If you are 35 or above, you probably need to talk to a Financial Advisor to determine your personal risk tolerance, goals, and current assets to determine the best choices.
But bear in mind "not trusting" the Stock Market (which is composed of thousands & thousands of companies) is a bit like not trusting gravity! If the market ever did completely collapse, the banks would all fail (so your CDs would be worthless), the government would fall (so gold bars would still be pretty, but no-one would be there to buy them), and civilization would come to a halt. What you’d want then would be potted meat & bottled water, not money!
Best wishes!
March 21st, 2010 at 1:04 pm
The stock market is not all bad. Keep in mind all that FDIC insurance does is gaurentee you up to $100,000 if your bank goes bankrupt nothing else. Yes you may loose your money in the stock market, but if you invest in solid companies you are typically safe.
Some things to keep in mind:
- Any interest earned on a CD or savings account is taxable at the end of the year. This effectively reduces the amount of money earned on the account. If you are not worried about a smaller return then by all means go this route.
- Putting the money into stocks, mutual funds, or annuities means that you do not pay taxes on the increase until you cash out the investment. This could mean a higher rate of return.
- The S&P 500 index has averaged a 10% rate of return over the last 20 years.
- A mutual fund or investing in an index fund automatically diversifies your investment. This means your money is spread out over many different companies helping protect you from one stock going bad.
ING does tend to have high interest rates for its online savings accounts. This may be the best route as you can get the money whenever you need. A CD has a small time window where you can take out the money without a fee.
March 21st, 2010 at 1:04 pm
Since you don’t want to invest in the stock market and I’m sure the bond market would be included in that distrust, simply put the money in a high yield savings account. It’s insured by the FDIC just like your local bank and is easy to do. LINKS BELOW to the top high yield banks. Whatever you do, DO NOT invest in annuities. Every personnal finance column I read says to stay away.
March 21st, 2010 at 1:04 pm
Without knowing how old you are, or your financial goals, it’s hard to give an accurate answer. So, let’s assume your 25 years old, interested in saving for retirement and we’ll go from there.
First off; are your outstanding bills such as credit cards paid off? It wouldn’t matter what investment you’d have, you would have to make on average 20% just to break even, from what you owe on your credit cards. Long term, you would be much farther ahead getting rid of your debts. The money you save from not sending it to creditors could be banked. You’d be surprised how fast it accumulates when you don’t have any debts. For a quick exercise, add up what you pay to those guys’s every month and look at what you send out in a year. Opened your eyes didn’t it? It’s amazing how much cash you send out the door every Friday, paying those minimum payments on those high interest cards.
Second, do you have a rainy day fund? You should have 3 to 6 months of expenses in a money market fund. You could have an accident, get sick, get laid off or have a major unexpected expense jump out at you. This fund would be strictly for emergencies only, not for going to Aruba.
Third, I’m not sure why you’re leery of the stock market; over the long haul it’s the best way to make money.
If you were to invest the money for 5 years or less, I’d avoid the stock market. The fluctuations during a short time span, can be devastating if you’re counting on that money to purchase a home or whatever.
Long term, 5 years or longer it’s the only way to accumulate real wealth. How do you think the big boys like the Vanderbilt’s do it?
Here are some examples for you to consider:
Let’s assume you’re 25 years old, have $10,000 to invest for retirement at age 65 and annual inflation stands at 2.2%.
Savings Account: Average annual interest earned is 5.0%, invested for 40 years.
Total interest earned: $60,399.89
Interest earned after inflation: $25,293.00
Total future value in year 2047: $29,480.59
CD Account: Average annual interest earned is 4.50%, invested for 40 years.
Total interest earned: $48,163.65
Interest earned after inflation: $20,168.96
Total future value in year 2047: $24,356.55
Mutual Fund Account: Average annual interest earned is 12.00%, invested for 40 years.
Total interest earned: $920,509.70
Interest earned after inflation: $385,471.73
Total future value in year 2047: $389,659.32
After looking at savings accounts, CD’s and mutual funds, which one would you rather have?
Before you do anything, pay a couple bucks and go to a FEE ONLY financial planner and get good advice. Use only a fee only adviser, they don’t have an interest to sell you something, because they’re paid up front. The other guys need to see that you buy something or get you on their programs to make money.
It’s true that money deposited in banks are insured. My uncle was caught up in that savings and loan issue a long time ago. It took him almost 4 years to get his money from FDIC. The money’s insured, but they don’t guanrantee timely payment.
Sorry, it’s so long but this is a chance for you to do something good with this cash, as I’m assuming this is a one-time shot. Got to make this one count.