$200k - where to invest for safety

You realize that max safety is in direct conflict with max growth or divs?

It depends. How long are you investing for? What other investments do you have? Do you have an emergency fund? What kind of risk are you willing to take for what kinds of rewards? I'll trot out my standard advice to go read "Investing for Dummies".

Dollar cost averaging is a means of minimizing emotional pain at a cost of reduced returns. The assumption is that the stock market has a long term up trend with lots of unpredictable ups and downs along the way. If that's true, the way to maximize returns is to invest everything immediately.

But that runs the emotional risk of investing just before one of those unpredictable downs. Ouch. DCA gives you two emotional crutches. If the market goes up as you are making the investment, you can tell yourself "I'm making money". If it goes down, you can tell yourself "I'm buying more".

Nothing wrong with that, much of good investing is managing your emotions. But mathematically, the best thing to do with a lump sum is invest it all immediately.

-- Doug

sorry - forgot about the 20 questions....

This is special gravy money - short term - let's say for college in the next couple of years.

All our other portfolio investments are spread around in various funds that run the entire spectrum.... risk vs reward domestic, intl, emerging, growth, value, divs, small, med, large, etc -

SO - don't really want to gamble with this $200k - that's why it's been sitting in the dumb checking account.

Then why move it?

-- Doug

As Douglas Johnson said, if the money is already earmarked, then what is so dumb about (200k in) a checking account?

A savings account paying 1.x% would be an improvement, but maybe prepaying for college would be worth 7%. If it is indeed gravy money you wish to consume, these days cash can negotiate 10%, 20% - even 50% discounts. Sounds pretty safe to me. I've even heard of some people negotiating 50% off on a house!

Money is a medium of exchange for product. Investment involves an exchange for inputs of production, then production, then an exchange for money.

Pick a few of the larger diversified utilities to average your risk. You should get at least 4% in dividends plus some capital growth.

-- Ron

Half of the money has been in some laddered 6mos CD's and I've been looking at div paying stocks & funds, but balanced with the factor of preserving the principle vs betting on cap growth in a shakey economy.

buy a CD

Then an FDIC insured CD is the answer.

That's nowhere near consistent with "max safety of principal".

For example, the two biggest utility ETFs, the SPDR (XLU) and the Vanguard one (VPU) both went down by approximately

29% in 2008.

Now, over longer periods, their average returns have been quite decent - trouncing the S&P 500 over, say, 5 and

10 year periods. But these come with substantial volatility and sometimes with big lags (ie. both were trounced by the SP500 in 2009).

These types of investments may have a place within a larger diversified portfolio, but if the OP is interested in stability of principal (note that the money is currently in *cash*) then at best utilities could be a very small part of that portfolio.

They do both throw off current yields in the area of 4%, which is lovely. And in the long run, that certainly helps smooth things out -- but you must account for periodic huge losses with this kind of investment.

Bank CD's or Treasuries for max protection of principle. Spread it out to 4 different banks if you want even more safety.

Depends on what you're protecting against. If you need full liquidity, then by using multiple banks, you're increasing the odds that some of your money will be frozen for a day or so when a bank fails. On the other hand, if you're trying to ensure _some_ liquidity, then spreading the money across multiple banks decreases the probability that _all_ of the accounts will be frozen simultaneously. (For this purpose, the incremental benefit of using more than two banks is miniscule.)

This is all predicated on the fact that with FDIC insurance, there is no risk of loss, just risk of being frozen.

Mark Freeland snipped-for-privacy@nyc.rr.com

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But there is still the risk that FDIC will fail. That risk may be small, but then who would have believed that Lehman Brothers and all the rest would fail. Maybe next time there will not be any bail out.

It is easy to list a lot of things NOT to do, but investments with high yield and no risk do not exist. For that matter, investments with pretty good yield and minimal risk do not exist either, despite what the sales people may tell you. (Actually, such investments may exist, but you probably have to be an insider or be willing to commit a crime in order to have access to them. Any who comes to you promising such an investment surely is a scammer.)

All this was explained by Confucius, or somebody, who stated: "You can't have your cake and eat it too."

Yes, and in addition, it's not likely that the funds would all be needed immediately.

-- Ron

According to the FDIC:

"FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC began operation in 1934, no depositor has ever lost a penny of FDIC-insured deposits."

Brian

Perhaps I am a pessimist, but I always look for the worst possible thing that can happen when considering investments. I suppose Lehman Brothers could have put a similar sentence in their advertisements, and a lot of people certainly would have believed it. The chances of major disasters may be small, but we know they do happen. Perhaps diversification is a good idea, even if you are a conservative investor wanting minimum risk. Personally I would not want all my eggs in one basket, even if that basket is backed by "the full faith and credit of the United States government."

Do you think Lehman could have said that for very long before getting a call from the US Attorney General? It's not just the FDIC "advertisements" either. It's posted in every FDIC member institution.

You'd think someone else in the government would have noticed and said, "HEY!" If it weren't true. Do you have some evidence that FDIC is not backed by FF&C? If you agree that it is, are you still concerned? Personally, if the case is a FF&C institution failing, I suspect we'd have bigger problems than insured CDs.

Brian

You seem to imply that the statement that the FDIC is backed by the full faith and credit of the U.S. government is an advertising claim. It is, in fact, black letter law. Read the Glass-Steagall Act of 1933.

Just poor wording on my part. I realize that FDIC protection is not "advertising." People did not expect Lehman Brothers to fail, but it did. Similarly, people do not expect FDIC to fail, but to my mind a prudent investor should never make the assumption that any particular event with economic and financial implications is impossible.

What I am saying is that not only would the banks fail, but that the full faith and credit of the government could turn out to be worthless. In that case, insured depositors still would not get any money back from either bank or government insurance. A lot of people evidently thought we were close to a large scale meltdown in this last crisis. Who knows what could happen in the next one. It is prudent to keep one eye on the "worst case scenario."