Conference nyoss1::market_investing

    $500K is alot of money to be diversified. The things come to mind are
    mutual funds, inventment management companies, individual stocks,
    bonds, money market funds, etc. 
    
    What is the time span for this investment? What is the goal for this
    investment? (ie. How much you want this money to grow to at retirement?)
    And, how much risk you are willing to tolerate? By answering these 
    questions, will help to determine what investment vehicles you want to
    take.
    
    Mike

    Sorry to hear the circumstances.  One thing that shouldn't happen is
    for you to have to make critical investment decisions when your mind
    is obviously going to be distracted with more human emotions.  Don't 
    let anybody rush you into anything!  NOTHING is that critical that it 
    can't wait for you to make time for it.
    
    Initially, put all of your money in T-bills -- the most liquid and
    safest investment on the planet.  A convenient way would be to buy
    the Benham Capital Preservation I fund (1-800-4SAFETY), though there
    are many other choices, too.  This is safer than an insured bank account.
    It doesn't earn enough interest (except maybe in MA, CA, NY) to cover
    both taxes and inflation but you won't lose, either.
    
    Take your time analyzing your needs as .1 suggests, and learn to make
    your own decisions.  It isn't that hard and you don't need a personal
    money manager.  A financial -planner- might help, but that should be
    looked at as one of your options, neither the first nor the only one.
    
      John

    Many noters here, can, and often have, offered sound financial advice. 
    The problem is that their/our advice tends to be generic due to the
    format of this conference.  So, understanding all that.....
    
    First, by suggesting that you would put the money in a bank, you have
    demonstrated your level of novice.  By recognizing and asking for
    guidance, you show you are smart enough to know you do not know; that
    is rare.
    
    Second, you have plenty of time to think out and arrive at an
    intelligent strategy.  And it is one that you spouse needs to
    participate fully in.  It may even help take the edge off the tragedy.
    
    I would suggest that you do a little research into people/agencies that
    provide financial planning & advice for a fee.  Stay away from planners
    who also sell securities/funds.  Stay away from planners/managers who
    offer to manage it all for a percentage.  You should look for someone
    who will help you assess your situation, understand your financial
    goals and recommend ways (and explain the rationale behind the
    recommendations) to achieve those goals.
    
    As with any other fee_based professional, be prepared to pay what
    appears to be a premium for the service (although an initial, short
    consultation may be free); Doctors & Lawyers often charge over $100/hr
    - even garages charge $50/hr.  And do not be shy in asking for a full
    accounting of expenses; time, postage, telephone charges, etc.  If at
    any time you don't like the advice, you are not tied in to that
    planner, just do not go back for more.
    
    What you should expect out of that is a plan that details your
    financial goals and provides suggested investment vehicles (perhaps
    even specific stocks/funds/banks/etc) to meet those goals.  What you
    should NOT expect out of that is a plan that "lives" on all by itself. 
    Any plan you get is a snapshot in time.  If you then want continuing
    advice, work out a continuing fee_based arrangement with the planner.
    
    All of that aside, and to give some level of re-assurance, if all you
    did was to split the $500K between 10 Tax-Exempt, Municipal Bond Funds,
    you could have VERY reasonable safety of capital and expect something
    more than $35K (Fed_tax_free) income per year without reducing the
    $500K.
    
    Good Luck,
    
    Dave

    I'm sorry to hear of your husband's illness.
    
    You didn't mention your own age, employment status or health,
    nor whether you have children (and their ages).  If you're
    working, 50 and childless your needs are different from those
    of a mother of three pre-teen children who is 35, for example.
    
    I agree with John H. that you should take your time and just
    put it all in T-bills via a mutual fund for the short term (a
    year or so).  Normally I encourage people to study finance for
    a while, but you'll be somewhat distracted (though if your
    husband finds it a good diversion, please do work with him
    on this!).
    
    Don't feel a rush to invest, either (and you may well be pressured
    by salespeople).  Decisions made in haste as the result of
    high-pressure sales are often wrong.  Take the time to recover
    and re-establish some sense of equilibrium.
    
    If you can find a good fee-for-service advisor, a few hundred to
    set up a portfolio is not too much; if you can't find such a person,
    you will eventually need to figure out your own balance between
    growth and income, but half-a-million is enough that even a portfolio
    targetted to "aggressive growth" funds will still throw off ten
    to forty thousand a year of income--so the major point of having
    non-growth elements would be to reduce volatility!
    
    		-John Bishop

This continues .0:
    
To clarify and provide some additional background information, I am
30 years old and we do not have any children.  I am in good health
and am working as an engineer so my income is good (although even
one "good" income seems slim when I'm used to two).  

I'm not sure at this point what my "goal" in terms of investment
income is, but I have in my mind that I'd like to own a small house
and be generating about $50K in income per year from my investments
to live on (if I choose not to work or to work less) while continuing to 
invest income beyond $50K (or whatever I determine I need as base income to
live on).  


The house issue is hard to figure out at this point because I don't
know what state I'll be living in (I'm presently in CA where housing
is expensive) so I don't know what kind of money I'll need for a house
or whether I will be able to stay in my present house on one income
alone, but I will have at least $100K from equity in our current house in 
addition to the $500K.

At my age, I'm not really looking closely at retirement but I need
explore that issue as well.  I guess my main goal is to set myself
up so I have the option of not working while being able to continue
growing my investments, but I first need to assess how much $ I
need in order to generate > $50K in income and how long it will take
me to get there.

Thanks, your replies thus far have been very helpful.

    

    re: .5
    
    In today's ecomony, it'll be difficult to generate $50K annual income
    from $500K (that's 10% return on your money). I think it'll be
    realistic if you expect about 6% return with reasonably low risk. If
    you want to also have the potential to grow your capital. Then, you may
    have to only use a portion of your total capital for income generating
    or settle for a lower (than 6%) return. This may mean two thing to you: 
    a) you may have to work a little for supplemental income or b) set a 
    lower standard of living with less income. The $100K equity on your
    home may not seem much in California. But, in the North East where the
    RE market is really depressed, you can purchase a reasonably nice house
    for CASH. Of course, if you do decide to do that, you also have to be
    prepared to pay capital gain tax, assuming that $100K equity are
    mostly capital gains. Thirty years of age is still a long way from
    retirement. But again, from your statement, it looks like you are trying
    to set up a "retirement style" of living, now. So, how long do you reach
    your actual retirement age is somewhat irrelevant in this case. But,
    the bottom line is that to generate $50K a-year income and to have
    enough capital appreciation to fight-off inflation, $500K is NOT
    enough. I have to agree with the previous suggestions. Take you time 
    to get the in's and out's about investment and make decisions only when 
    you fully understand why that's the decision and what the trade-offs
    are.
                                                              
    Mike  

    re .5
    
    This, of course, changes the formula considerably.  My suggestion is
    that a 30 year old female engineer has quite a bit of room to grow,
    salary wise, throughout her career; peak salary years are often close
    to age 50.  Since you have no children to support, you will be in a
    financially good position.  If, indeed, you got $500K and were able to
    continue to work as a high-tech engineer, I suggest that you can very
    well afford to assume some "timing" risk in your investments. 
    
    By timing risk, I mean...
    
    A portfolio heavy in growth stocks (for high potential ROI) will see
    potentially wild swings in ROI depending on the stocks chosen. 
    However, if you can wait out the down turns and sell on a high side,
    you can EASILY realize a better than 15% gross annualized ROI.  I would
    STILL recommend a fee_based financial adviser since your are an
    admitted novice, but the financial outlook is definately NOT gloomy. 
    It still takes a considerable amount of research to build that
    portfolio, but depending on how actively you manage it, you should
    expect to do well.
    
    Luck
    Dave
    

Alas, 1/3 to 1/2 of all marriages ends up in divorce

One factor not discussed is marrying again (male or female).
$500K is a sizable amount; you may want to consult with
an attorney regarding pre-nupital agreement in the event of
marrying again.

Take a look at Jane Bryant Quinn's book, Making the Most of
your Money in the 90's. It covers most of the issues discussed
here.

Gim

    
    Sorry to hear of the circumstances. $500k is a lot of money, I for sure
    would get professional advice. Before going to anybody I would get
    clear in my mind what the money should do for you (no touch until
    retirement, quit work and live on it), etc.
    
    Also, I would consider making the most of the time with your husband,
    go on a cruise, etc. If it takes some cashing in of the policy, or
    taking a loan against it, so be it!
    
    Simon

Another important factor is estate planning; there was
no mention of it here.  How an estate is handled can have
a major impact on the net inheritance.  

For example, the cost basis of an asset is the fair market
value at time death. If the house has appreciated significantly
and is in the husband name, then the cost basis is the fair
market value at time of death. In this case there would
no capital gains tax.  If the house is jointly owned than
half of it would have no capital gains tax.

You really need to see an attorney specializing in estate
planning to get the full details.

Gim

re: .10

> Another important factor is estate planning; there was
> no mention of it here.  How an estate is handled can have
> a major impact on the net inheritance.  

It's my understanding (of course, I could be wrong) that there is no estate 
tax when it is passed on to a surviving spouse. So, I think she's going to get 
100% of the estate doesn't matter how the estate planning is done.

Mike

    Estate planning is critical when there is a significant amount of money
    involved. There are Federal and State tax exposures. The State tax
    varies from state to state. I suggest you meet with a Tax Attorney who
    can advise you on all aspects of your tax exposure as well as the various
    legal instruments (such as revocable and non revocable living trusts)
    to minimize your tax exposure.
    
    On the investment side, I would second the opinion expressed earlier
    that you deal with a paid finacial consultant -one who gets no benefit
    from where you decide to invest. I would also add that at your age,
    you could provide for an early retirement by choosing (among other
    investments you should make) a financial instrument which defers the
    tax on growth. For example, you might invest in something called a
    "Variable Annuity". This investment is like an IRA. You can defer all
    taxes until you start to withdraw at 59 1/2. The effect of not having
    to pay annual taxes on growth is considerable. You are free to choose
    how you want the money in the variable annuity invested e.g. so much
    in a mutual fund which focuses on growth, so much in one with a focus
    on income, etc.
    
    Please enjoy the time remaining with your spouse...but recognize the
    need to plan ahead. 

        
    First of all, let me say that I'm sorry to hear of the circumstances
    that you're faced with.   My comments below are comments that I would
    give to any noter in this conference, and don't consider any probate
    considerations, etc.  As has been suggested, you should consult a good
    tax advisor on these matters.
    
    One thing that I'd suggest is to develop your 'investment muscle'
    (which is located somewhere near the stomach) gradually over the next
    year or so.  The best way I know of to do this is to start with the
    safest, most predictable investments and gradually add riskier, less
    predictable investments.  Take it slow.  Wait to see how your
    'investment muscle' feels in the market downturns before accepting
    riskier investments in your portfolio.  John H's suggestion of starting
    with T-Bills is exactly what I'd recommend, too.
    
    fwiw, here's a sketch of a plan to develop your investment muscle and 
    to develop a portfolio that should stand the test of time:
    
    	o  Start with the safest, most predictable investment: T-Bills.
    	   Read and learn about financial investments, and take your time.
    
    	o  When you're ready to add some risk to your portfolio, start with
    	   diversified, low risk bond mutual funds.  Bonds are exposed to
    	   two major sources of risk: default risk and interest rate risk.
    	   Avoid default risk (almost) entirely at this stage by sticking
    	   with U.S. Govt. bond funds, and to minimize interest rate risk,
    	   stick with 2-5 year average maturities.  Find a no-load fund
    	   with low management fees to do this, and _gradually_ put your
    	   money in over time.  By 'your money' I mean some fraction of
    	   your portfolio, not the whole thing.  By investing gradually,
    	   you diversify across time; by investing the same dollar amount
    	   across time (dollar cost averaging), you will develop some good
    	   investment habits right from the start.
    
    	o  When you're ready to add stocks to your portfolio, you need to
    	   think about two things:  [1] what % should you allocate to T-Bills,
    	   Government bonds (or "notes" if you're talking about 2-5yr
    	   maturities), and stocks, and [2] which stock funds to invest in.
    
    	   At this stage I'd suggest that you ignore all the 'hot tips' and
    	   'great stories' that you'll inevitably hear.  I'd suggest that
    	   you select a no-load, low-annual-fee stock index fund, and the
    	   index I'm talking about is the S&P 500 index (as opposed to some
    	   of the more volatile indexes).  Historically, this has been a
    	   relatively high-yielding investment, but your mileage may vary.
    
    	   As far as [1] goes, my best advice is to read Barron's or
    	   similar sources and find out what the pro's suggest in the way
    	   of asset allocation.  As a default you might use a ratio of 60%
    	   stocks to 40% bonds, and then mix in as much T-Bills as your
    	   risk tolerance dictates, e.g. 30% T-Bills, and 
    	   70% * (60%Stocks + 40%Bonds) for the remainder.  Remember to
    	   take your time with this.  Take a long time.  See how it feels
    	   when the market drops; taking 'risk' is not intrinsically good;
    	   it's only good if you get paid commensurately for it.   The
    	   worst case is when you take on more risk than you're ready for,
    	   sell after the market drops, and jump back in after it rises
    	   again.
    
    	o  At this point, if you've continued to learn more about
    	   investments and have gradually built a balanced, diversified
    	   portfolio, you'll be ready to take on still more 'risk' by
    	   investing in growth-oriented funds.
    
    	   Let me explain what investment risk is.  People who have studied
    	   the market have observed that the movements of all stocks in the
    	   same economy are highly correlated.  You know this intuitively,
    	   it shouldn't be a surprize.  When IBM stock goes way down, DEC
    	   stock tends to do the same.  We're affected by the same business
    	   factors, the same macroeconomic factors, etc.  If you plotted
    	   the %returns of an individual stock vs the %return on the S&P
    	   500 over the same time period, you'd find that the data points
    	   would look conspicuously linear; in other words, as goes the
    	   economy, so go individual stocks.  The major difference between
    	   them is the slope of the line; some companies, for example, move
    	   1.5 times as much as the index _in either direction_.  The slope
    	   of this line is called 'Beta', and regrettably the intercept of
    	   this line is invariably near zero.  Investment risk is measured
    	   by Beta.  
    	   
    	   If you start with $100, and the stock moves up by 2x and then
    	   down by 1/2x, how much do you wind up with?  Well if you're
    	   holding only 1 stock, then you'd calculate your return
    	   as 2.0 * .5 = 1.0.  No change.  Doesn't sound too
    	   good.  On the other hand, if you hold a well diversified
    	   portfolio, then you would calculate it like this: (2.0+.5)/2
    	   or 1.25.  You're way ahead.  This is the power of diversification, 
    	   because in _dollar_ terms, there is greater potential on the 
    	   upside than on the downside.
    
    	   On the other hand, see how your investment muscle feels when
    	   $500K suddenly becomes $250K overnight.  Remember, this takes
    	   lots of time, and there are lots of things to learn.
    
    	   From this discussion, you can see that what you want is not good
    	   returns, but good risk-adjusted returns.  A service like
    	   Morningstar can help identify good higher-Beta funds that have
    	   the best risk-adjusted returns over a 5-year period or so.  And
    	   remember to avoid sector funds because you want to enjoy the
    	   power of diversification.
    
    	o  Eventually you should look at international investments, since
    	   the best growth is probably somewhere outside the U.S..  Studies
    	   have shown that you'll lower your investment risk _and_ improve
    	   your return if you hold something like 60% foreign bonds, 40%
    	   U.S. bonds in your bond portfolio.  Similarly, you probably want
    	   to hold something on the order of 10% of your total portfolio
    	   in international stocks.  As always, buy only diversified funds
    	   with no load and low fees, and invest gradually over time.
    
    If you take your time, continue learning about investments, and 
    diversify, diversify, diversify, I think you'll be pleased with the
    results.
    
       /Jim Finnerty                
    

	To the basenoter.

	My sympathies for your personal tragedy.

	While John H.'s suggestion about T-bills is definitely sound, his
	response came before you gave more details about yourself. This
	changes the picture quite a bit, that I would recommend that you go
	for something more risky.

	First, you have quite a bit of time on your hand, if you are going to
	get the money in a couple of years. That should be sufficient to 
	get educated about managing finances and plan how to divide up the 
	money when it comes.

	The second factor in your favor is your young age and your employement.
	Both of these let you play with a little more risky investments.

	I would recommend that you contact a few of the major mutual fund 
	families, such as 20th Century, Janus, Financial-Invesco, Fidelity,
	etc. and read through their prospectii. Many of them will have 
	discussions on choosing a good blend of investments based on one's
	personal situation. 

	Secondly, start subscribing to the Wall Street Journal, and read
	at least the articles on the first page of section C (Money and
	Investing). You can also complement this with magazines like
	Money, Forbes, Businessweek, etc. 

	Finally, read some standard books, such as those by Peter Lynch
	and Malkiel that are often bandied about here in this notesfile.

	In substantially less than 2 years, you should have a fairly good
	idea of where you want to park your money when you receive it.

	Last but not the least, I would strongly second the opinion expressed
	here that you involve your husband in this process. 

	Best luck to you!

I would like to add my sympathies. 

I would back the suggestion about getting to a tax attorney rather soon.  
Depending on how you hold the house, you tax liability could change by many 
thousands of dollars.  Here in California the Joint Tenants With Rights of 
Survivorship is not as valuable as some of the other holding methods.  You 
can hold the home so that the whole base value is restated of the time of 
your husbands death.  Not all states allow this, Ma for one did not, so 
please be careful and find a good estate planner.

As for the other suggestions, I can't disagree with any of them, remember, 
though, you have to sleep every night with your choices.  I can't sleep if 
my money is in a bank or T-Bills as I worry that it is too conservatively 
invested.  Many people worry about risk to principal and never want to see 
it fall.

If you are worried about how you are invested, than it is time to change, 
no matter how diversified or planned it is.

My thoughts are with you,

Matt