Advice? I sold my mutual fund. What to do with the $ now?

[Lisa0825]

Hello all - Most of my retirement money is in the Teacher's Retirement System of Texas, and I have no control over it. But I do have a rollover IRA that I have played around with over the past 8 years. I bought several individual stocks and one mutual fund.

I decided to sell my one mutual fund because I really think we are due for a correction. (I'm not messing with the individual stocks.) I am trying to decide what to do with the $ now ($4700). I have been reading up on bonds, bond funds, money market, and what to do in a bear market, but frankly, I don't have a head for finance, and find it confusing. So I thought I'd ask my DU buddies for input/advice.

My situation is: Single, 48yrs old, at least 15 yrs until retirement, wanting to buy a house in 2 years, minimal debt.

Thanks for any advice

[pangaia]

1. Yikes, So difficult to give a correct answer. There is none.

I am retired and have been investing in NO LOAD mutual funds since about 1980.and done fairly well.
There are a gazillion out there and too many different types to discuss-- from the most conservative to the most risky.

If you want to stay in the market and are not too experienced.. index funds are difficult to beat. But an index of what , you may ask? S&P, DOW, different bond indexes, etc etc..

I will only tell you what has done well for me for the past year and NOT necessarily a recommendation.. PONDX. Just Google PONDX..

About the safest thing outside of putting cash in a safe at home, are T-Bills. When trumper won I put a LOT in T-Bills.. just to wait out the storm and see what happens...Not to profit but just to be safe...

I had better stop, it's too complicated. Hope others will add their thoughts.

[Lisa0825]

3. Thanks! yeah, I am looking for SAFE right now, to wait this out.

Aside from having a feeling that we're in for a correction, I also hear my ex-husband's words echoing in my head - "The market hates uncertainty!" And Trump provides a shitload of uncertainty! LOL!

I will definitely look into the T-Bills!

[ginnyinWI]

2. put it into a high-yield savings account

Like Syncrony Bank. Interest rate is currently 1.05% right now. FDIC insured. Save it to put down on your house.

Want more opinions? Go to bogleheads.org and ask them. It's a financial/investing forum.

[Lisa0825]

4. Thank you! I will look up Syncrony!

Thanks for the tip on the forum! I appreciate it!

[bresue]

19. ALWAYS CONSIDER THE RATE OF INFLATION

The US inflation rate for the last 12 months was 2.2% (https://www.bls.gov/news.release/cpi.nr0.htm), so if your money is parked in anything less, such as a 1.05% security, you will actually be losing that 0.9%. Just a thought when considering any investment.

[BSdetect]

20. You will also pay tax on gains.

Investing in the SM is always a risk.

Anything that pays under 3% is churning or losing money after taxes and "real" inflation.

[A HERETIC I AM]

21. The OP's account was an IRA, so taxation of capital gains, dividends and interest isn't an issue.

[Nitram]

5. Index funds with low fees seem to be the way to go.

[Lisa0825]

6. Here's the one I am looking at now: Vanguard Total Bond Market Index Fund ETF

I saw it mentioned in an article this morning.

[Nitram]

7. All our mutual fund investments are with Vanguard. they are reliable.

[lastlib]

12. Personally, I would avoid bond funds right now.....

Interest rates are generally rising after the Fed's recent actions. Rising interest rates normally means falling bond prices--so bond funds could decline in value in this environment. Maybe not a lot, unless the Fed gets more aggressive, but it could still cost you some $$.

My 2cts.

[Lisa0825]

13. What would be your suggestion for something safe to put it in?

It's not earning anything at the moment, LOL

[lastlib]

16. Not a lot of really likeable options in the current environment, I'm afraid...

For a two-year time-frame, I would suggest something like Wells Fargo Ultra-Short term Income fund, but with $4700, you may not have the minimum investment for that fund. (BTW, you'd have the same problem with a lot of other bond funds too, since so many have a $10,000 minimum.) There are some money-market funds with decent yields and $5,000 minimums although some of those have some gotchas that apply to the $5K-10K starts. If you find a high-yield savings account, that might be as good as anything else. But I would honestly have to do a lot of research to come up with some specific options for you. If you want a place to start, I'd suggest Morningstar.com

[Lisa0825]

17. Thanks for the suggestions!

I will definitely check that link!

[A HERETIC I AM]

18. Both the Class "A" and "C" shares of the fund you mention have a $1,000 minimum purchase

http://financials.morningstar.com/fund/purchase-info.html?t=SADAX

However, you are wrong to suggest that "so many have a $10,000 minimum" as that does not apply to IRA's in most cases, nor does it apply to all share classes. What it most often does apply to is the likes of the Fidelity's and Vanguards of the mutual fund universe (ie: No-Load funds). You have to pay a lot to get into the fund and if you want any guidance, you'll have to pay extra or meet a balance minimum.

There are dozens of bond and blended funds that, when bought inside an IRA can have minimums as low as a $250 initial purchase, and even $50 is not uncommon.

And FWIW, SADAX has averaged only 1.18% per year for the last 10 years. Not exactly stellar performance. You would be better off with a CD. At least you wouldn't have the 0.70% expense ratio.

[PoindexterOglethorpe]

8. If you are looking to buy a house in two years,

you will want to keep that money very liquid, as in cash or CDs, so you have it available for the down payment or any of the myriad of expenses that happen when you buy a house.

[Lisa0825]

9. That particular account is a rollover IRA from a previous job's retirement.

I think I would incur a penalty if I take it out for anything early, wouldn't I?

I have another separate account where I have been saving for the house, but I cashed it out to help a family friend finish nursing school. Soon as she starts work this year, that fund will begin getting replenished.

[PoindexterOglethorpe]

10. Yes, that's right.

I spaced out, even though you clearly gave your age.

I take it you've simply sold the mutual fund and the cash from that sale is still sitting in the IRA account? Which means you're not up against any time limit to re-invest.

Do take the time to educate yourself as much as possible.

I can tell you this, though: trying to time the markets is almost always a losing game. There are people who cashed out everything a year or so ago, utterly convinced that the peak had been reached and we were in for a huge crash. While there have been some ups and downs, there hasn't been a crash. Indeed, the market is currently very near its peak. Which isn't to say another crash isn't possible. But thinking you can spot the top or the bottom of a market isn't going to happen. One strategy is to pick a fund or two and dollar average, meaning you put in a fixed amount every month or so until your entire cash is fully invested.

Sometimes people freak out at what looks like a large drop in the Dow, but right now even a thousand point drop at this point would be only a 5% drop. It helps to look at the long picture. And this is money you don't want to touch for another 11 years, or you'll pay a penalty. That length of time works in your favor for positive returns. Again, do some research. Hopefully the more you learn, the better you'll feel about investing in some way or another.

Here's another suggestion: There are funds out there that invest in stocks that pay dividends, and those can do quite nicely. I can't name any funds or even fund families here, so do a bit of research.

The basic rule about diversifying investments is always a good one.

I hope you are able to figure out a good way to handle this money. Best of luck to you.

[Lisa0825]

11. Great advice, thank you!

Yes, the cash is sitting in the IRA account, awaiting my decision about what to do with it. Since this was a "play" account for me, to try my hand at investing, and NOT my primary retirement account, I am more comfortable taking some chances with it. I even bought some penny stocks when I first started out! I got over a 1000% return on one of them! Pity I didn't have more to start out with! LOL! I also lost money on several, but they all balanced out to still put me ahead, and I learned a lot.

So while I understand that the long haul is best, with this account, I'm good with trying to time it. If I turn out to be wrong, it will be a lesson learned. If I turn out to be right, I'll be able to brag about it. LOL!

I am thinking of staying out of stocks (with this cash) for up to a year, depending on what the market is doing. So I want to put it in something safe during that time. At this point, I am thinking either the bond fund or a money market account.

I also have a half dozen small stocks that I am leaving alone, no matter what the market does. So I am not totally pulling out. I just wanted to move that one chunk.

Thanks so much for the thoughtful reply! I appreciate your suggestions!

[A HERETIC I AM]

14. You have numerous choices.

And which way to go depends on your tolerance for risk as much as anything.

If you absolutely do not want any risk whatsoever, just stay in cash, but even then you'll lose to inflation.

Since this is an IRA, liquidity isn't really an issue. Having said that, there isn't much you can invest in that won't be "Trade Plus 3" for settlement anyway. As mentioned above, Treasuries are excellent from a safety standpoint, and they settle same day.

Depending on your IRA custodian (Regular full service broker/dealer as opposed to a bank with limited choices), you may be able to access securities like REIT's, Closed End Funds, Brokered CD'S, individual bonds, Unit Investment Trusts, Master Limited Partnerships/MLP Funds etc. In short, plenty of relatively safe ways to earn income with low risk of loss of principal.

If your goal presently is interest and/or dividends coupled with safety, then there are literally scores of available choices.

No matter what you decide, the key is to be able to sleep at night! Stay within your risk tolerance, be sure what it is you are looking to do and have patience.

[Lisa0825]

15. Thank you for the input!

I will be researching those this weekend