You're 55 and have $100K to invest. What to do?

Keep your costs down and don't settle for meager returns if playing catch-up.

By InvestorPlace Nov 30, 2012 2:56PM

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By Jeff Reeves

 

One of the best parts about my job is interacting with real human beings who have real financial questions. Last week, I got a good one from a 55-year-old who just got a windfall of $100,000, but never had a penny in his retirement account before this sum.

 

So ... what should you do?

 

It's impossible to sum up all the ins and outs of retirement planning in 600 words or so, but here's my basic advice to get you started:

 

Invest in stocks for growth, investment-grade bonds for safety

A "safe" rule of thumb is to use your age as the percentage of fixed income or bonds you should hold (see InvestorPlace video) -- in your case, 55%. But seeing as you are starting from nothing, I might encourage you to be slightly more aggressive to ensure you grow your money fast enough. $100,000 or even $200,000 won't provide for much wiggle room if you want to retire at 65 and live to be 85.

 

Keep your costs down

Think about it this way: If you have $100,000, but you pay $2,000 in fees and trading costs and "research," you need to make 2% each year just to break even. If your returns don't justify these expenses, then you're throwing money away. If investing is intimidating, there is nothing wrong with going to a bank or a certified investment adviser to get advice or set up a plan -- but be wary of just giving them the keys to the castle. Sometimes it helps just to pay someone a few hundred bucks and sit down for an hour to discuss your specific situation.

 

Funds (particularly index funds) are your friend

If you have a basic idea of how to invest, don't feel like you need to craft a crazy portfolio with 20 investments or more. Instead, stick with mutual funds or exchange-traded funds -- preferably low-cost ones that are "passively managed" by being benchmarked to a fixed list of investments. The most popular example is the SPDR S&P 500 ETF (SPY) that charges a mere 0.09% in expenses -- or less than a $1 on every $1,000 you invest. Best of all, it's pegged directly to the holdings that make up the S&P 500 Index. So you get the diversification of all the big-name stocks in there like Microsoft (MSFT), Exxon Mobil (XOM) and Walmart (WMT) -- but you don't have to pay a high-priced manager to pick the right mix. It's built-in diversification, done cheaply. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

 

Don't overdo it

The biggest problem investors have is that they trade too much or change strategies too quickly. They sell too soon because they are afraid a stock will keep declining, then miss the rebound. They buy a stock too late after it is already up 50% or 100%, then are frustrated when it never moves higher. They pay lots of money for fancy software and active trading … all just to spin their wheels. Research continually indicates that the best strategies are long-term ones, not ones that should change every month based on the whims of the market.

 

Paper trade before you get complicated

Over time, you may learn enough about the markets to want to branch out from index funds and into direct investment in individual companies. That's great -- but make sure you understand the practical matters of the market before you get over your head. I highly recommend "paper trading" (explained here at InvestorPlace) for a while before making any complicated moves. This involves simply writing down the amount you would theoretically invest and the shares you bought, then tracking the pick over time just like you really owned it. It's often the most instructive way to learn about your investing skills … and best of all, you can make beginner mistakes without losing your shirt in the process!

 

Related reading

Jeff Reeves is the editor of InvestorPlace.com and the author of "The Frugal Investor's Guide to Finding Great Stocks." Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing he did not own a position in any of the stocks named here.

 

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72Comments
Nov 30, 2012 5:06PM
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hmm a 55 year old man, with a 100k present. First of all he needs to pull his head out, as he should have already have a chunk in for retirement. Second of all, learn how investments work. There all kinds of investments out there, and all kinds of leeches waiting to take your money. NOBODY WILL LOOK OUT AFTER YOUR MONEY, BETTER THAN YOURSELF. Remember that!

  Sure a stash in the fund that mirrors the S & P 500 would help, but, also don't put all your eggs in one basket. Like the poster above stated, some gold would be good, preferably the real stuff, the stuff you can hold in your hand.  If you have the knack at fixing up houses, dealing with renters, then being a landlord can help. Watch your investments daily, and continue to learn how the stock market works.  I for one, would branch out into high quality dividend paying stocks, that pay out at least 5% in dividends. Under 5% stocks that have growth potential is ok, as long as they are sound companies. MLP's are an example, but, you need to know they come with tax issues. BDC's are a great way to get great dividends, and are lower priced stocks, but, do your due diligence..meaning know when to buy, and what price to pay. Some BDC's pay out dividends every month. Mortgage REIT's pay great dividends, but, know which ones are sound. Lots of smaller industrial stocks pay higher dividends, as well as the shipping companies, but, no more than 10% of your portfolio.

  Spread your risks out, study your investments, and know what the companies you invest in do, to make money. Don'tt take others advice, unless you know what the heck your investing in, and more importantly with WHOM your investing your money. Remember Bernie, Madoff??  Lots of rich, and elites invested in him, and they lost big time.  Just because they are rich and maybe celebrities, doesn't make them actually smart when it comes to investing.

  Either take your dividends as cash, to invest in other stocks or investments, or reinvest the dividends back into the stock for future gains and accumulate more shares.  Over the long haul, retirement could be nicer because you did your own due diligence. Also, NEVER FALL IN LOVE WITH A STOCK.  I keep trying to tell my father that, as his original investment of $4,400 has turned into $220,000. He has never rung the cash register on that stock. At least take back your original investment. Like playing blackjack, when your up, and beyond your original investment, stash the original, and play on the houses money.

Nov 30, 2012 11:10PM
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This has served me well:  when you think the rules have changed and the market will go up forever SELL. The day you think the rules have changed and the market will go down forever BUY.  Don’t be afraid of bonds. They are there to keep you ahead of inflation and will serve you well the next time the market drops 700 points, which it will.  Nothing wrong with the advice of 55% - 45% but do know your investments. Spend some time on Vanguard’s website which has very low cost mutual funds and compare risks to rewards and remember that markets are driven by two things: Fear and Greed.
Nov 30, 2012 7:43PM
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Gold has been a horrible long term investment.That`s Archie Bunker thinking.If you

put 60% in the S&p and 40% in the total bond marker over a 20 year span you`ll

beat 95% of the so called experts.

Dec 1, 2012 12:33AM
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My accountant helped me with my plan. He ask me how long I planned on living. I laughed and said who knows?  He said, well you can live comfortable until you're 85.  So if I live longer than 85 I will have to get a job. LOL
Dec 1, 2012 8:04AM
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Buy a house for 20,000 or less and fix it up.

Get a reverse mortgage.

Prepare your own food.  Buy bananas they are better than dog food cost about 15c a piece.

 

Nov 30, 2012 11:49PM
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I'm not sure we set up a Life Plan, maybe we just got lucky...

But Diversity or Allocation is not only Investments with a Financial Advisor or Investment House..

First the two of us, don't agree enough to even try it...

Although many Investors I know got killed during the Downturn, maybe some didn't...But it didn't seem to matter whether they were with an Investment Firm or they were on their own...The Best advice sometimes ISN'T.

Only about 25-30% of our Net Worth is in any kind of vechicle involving Wall St.

Other is in Property or Real Estate, hard assets,collectibles or cash...

No longer working, so SS or other paying entities, give us our working cash or pay our bills.

We are diversified about as far as we can go.....So far it has worked. 

Nov 30, 2012 8:17PM
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Being that the person has not saved a dime towards retirement before now...Is perplexing? At 55.

Maybe they had planned on working until they are Eighty.....??

Because of that it would take me several pages to give them ideas...WHICH,,,,,,,

They probably shouldn't follow but, a small portion of anyway...They need to start reading today, and then read some more; Get a little advice from some friends....Learn to understand terms that a Financial Advisor or Money person might discuss with them....FIRST TIME Free Advice is always best....

Do not settle on the first FA/Broker you talk to, not even if it's the one your Grandpa used..Unless maybe he is a very close caring friend of the Family...Consider not using relatives, unless maybe a close loving brother or sister..? 

You have your work cut out for you at this age; But I took over all our investments at about the same age....Difference maybe, was I had been interested for over a decade before I did. Early 40s.

Dec 1, 2012 12:18PM
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Royal....No I don't think better Dividend stocks are overbought, reason being from what I can gather are many retirees are still scared and have their savings in CDs and cash instruments..BECAUSE,,,,

of what 2008-2009(early)....Did to them....And fears of a Depression.

As  soon as we have a deal on the "fiscal cliff" (hopefully) I think you will see a large influx of "sideline cash" back into the Markets....Don't believe they are as worried about paying more on Cap Gains or Div. income..Because they are getting so little now to keep up with inflation or rising costs.

 

And they may be like us, where much of it (their money), is invested in IRAs or ROTHs....

Which gives you a multitude of tax advantages.

I would look for div payers of 5-6% to appreciate, along with REITS and MLPs,LPs.Just my opinion.

Things like: MO,GE,CAG,WAG, Oil/gas plays, some Retail and Telcoms,that's how we have bet.

Dec 1, 2012 9:25AM
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Wait until Greece  defaults on its bonds and exits the Euro- then put your money in a Greek bank who will pay you 21%  interest.  Buy a little house on Crete and live off your interest.
Nov 30, 2012 11:30PM
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Asset Allocation, maybe equals diversifying I guess...

But before you do all this planning probably wise to give 20% to your wife to put in a sock for ready cash..LoL..

But seriously take 20K to the Credit Union parcelled out into Rolling CDs...Like 2-5K every month or two, to be used only in emergencies....As a "rainy day fund"....It's liquidable cash available usually in a matter of minutes, Unless over the weekend or Holiday....Not much of a fee except loss of an Interest payment at most....No biggie if you HAVE to HAVE the cash.....But let it build.

No GREAT return "at this time", but the money is there NOW....NEVER, NEVER, NEVER, put all your investments or savings in ONE PLACE....Or into just a few select assets...

With a fresh 100K you can do many different things...But you have to be very careful, because it really isn't that much in the Grander scheme of things.  

Dec 1, 2012 3:11PM
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Isn't it interesting how the media is still promoting stocks?  The US economy isn't "out of the woods" and not by a long shot!  Wait until interest rates rise and that's where the next panic will begin.  Once bond funds collapse we should see huge distortions along all markets and my bet is once again the small investor gets hurt the most.  I personally don't like handing over my future to Wall-Street or the big banks.  Not at least until the rot and corruption has been taken out and even there I 'm not holding my breath.  For a $100k I see no reason why a person couldn't start a business or businesses that could give them an income for life.  A year or two of food, water. medicine, a generator and whatever is needed to protect your family and property would also be the best insurance you could have to sleep at night.
Dec 1, 2012 12:27PM
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Nice to see discussions and ideas about investing for a CHANGE...
Dec 1, 2012 11:45AM
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Yeah it is a lot of Fair-Good-Very Good..Investing advice..Even the 38 and some shells or Vegas.lol.

 

Guess you really don't want to out live your savings or investments, because then you have to depend on your kids...If you have any ??.....Right now they all seem to be doing fine, BUT also think our Estate is part of their Retirement plan..?

They seem to get more antsy, if we go to Casinos too often, hah,hah...We don't give away the grocery money...And slow down if we lose too often...But normally we stay even or a little ahead of the Game.

We both like to play Poker too...Active.

If you worked hard and saved and/or invested; Are comfortable ?? You better have a little fun before everything goes away...Some people like Cruises, others travel...We have never liked the first, and have done plenty of the second...So nowadays we spend little on either.

The last trip of any expense, our kids got us a few years back...Paid for 4-5 days in Niagra Falls,(a second honeymoon) they even gave us some travel cash...Good kids, we are blessed.

We found 5 Casinos in Canada an Upstate New York..Plus did all the sites,except Maid of the Mist.

So you gotta have some fun too, in your retirement; Don't just die in front of the TV or in front of this screen. On the way back home we played at the MGM in Detroit...So we had a pretty good time.

Dec 1, 2012 1:12AM
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buy MSFT  you will not lose safe for next three year we can't live without MSFT FACT
Dec 1, 2012 10:31PM
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"You're 55 and have $100k to invest.  What to do.?"  Find another $900k right away and PRAY that you can retire at age 67.
Dec 2, 2012 9:36PM
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If that is all you have , play, lvs, or ,mgm ,or mpel ,  there you go (mpel ) asia loves to gamble , go all in. screw the gurus   . Just know when 2 sale   when it doubles  . in about three years......... 

Dec 1, 2012 10:40PM
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Down here in Fl. they have hearing aids stores on every corner. They cost a lot too. I think about 1800 dollars. I don't know how you would invest in that market. I think they are made in China invest in the Boomers market and you will make money. My simple thinking. LOL
Nov 30, 2012 8:36PM
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Invest $99K in an extremely risky triple-leveraged market fund, either long or short.

It is the only way you will have enough (assuming it hits big) to retire in 10 years.

Spend the last $1000 on a gun and bullets in case it doesn't work out for you.

Dec 2, 2012 12:32AM
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Have a nice night to all...And Church as well...

Have been watching "It's a Wonderful Life" w/ Jimmy S..(Kind of forced,again); But  Gen. Stewart is one my favorites anyway...It's a nice show..Always next year.

 

So kind of got my Hope for Humanity tonight, along with my second, good mixed.

 

Have a safe weekend....All

 

Dec 3, 2012 10:23AM
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High quality dividend stocks are your best bet for the long term money growth. Too many people are selling their dividend stocks for the wrong reasons. Today  a $1.00 dividend gets you $.85 with 15% tax. tomorrow a $1.00 dividend gets you possibly a low of $.61 with 39% tax. Do these sellers say the $.61 is not something to bank on? Put these stocks in a Roth. I  laugh all the way to the bank every quarter
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