Expert: Paul Henneman - 7/17/2010

Question
"So here I am...a 57 year old single white male, never married, no kids, with no debt and a boatload of cash in the bank earning zip. I do have a small percentage of my NW in precious metals.

Being retired military, all of my estate and insurance planning issues are covered. So when I die...it all rolls to my heirs bypassing probate.

The only thing insurance I'm not paying for is Long Term Health Care.

I've travelled and lived all over the globe...just returned from 2 months in Europe and am gearing up for my annual Hawaiian Islands trip in October...about every 3 months I hit the road.

Me and a friend rent a huge home in a subburb of Denver...split the rent of $1K per month...a steal.

Any suggestions of what I could do with the cash in the bank which is losing value???

Thanks!

Ron"

Answer
Thanks for your question Ron!
    It sounds like you are in a great position.  But you are right that it also sounds like your money is not currently working for you like it should. However, what exactly you should do with it is a huge topic, and the exact answer varies greatly with each investor.
    The first thing you have to decide is how much risk you are willing to take.  One rule for investing that I have yet to see anything that even comes close to overcoming, is that the more potential return, the higher the risk and the bumpier the ride.   The other general rule is that if something can go wrong it will. A third and final rule is that as you get older, typical investment thinking is to reduce risk, because if your investments take a hit, there is less time for them to recover.
    The safest investments are certificate of deposits (CD's) and money market accounts. These type of investments only earn a few percent at best interest, maybe the best case scenario is to keep up with inflation.  But there is little to no risk. Even if the bank you purchase a CD or have a money market account with fails, it should be FDIC insured (check with the bank for how much is insured, and if the bank participates in the FDIC insurance program).  Another option for something save is an annuity.  There are several types of annuities, but the most common for your type of situation is where you pay a one lump sum, then receive a monthly income for either a specified time period (say 10, 20, or 30 years), or a specified monthly amount until you die.  Think of it like buying a monthly paycheck, where you pay up front.  If you live a long time, you eventually get back alot more than you put in. If you don't live a long time, the insurance company that sells you the annuity makes out like a bandit.  But you know all of the amounts going in, and even have some recourse if the issuing company goes bankrupt.
    Bonds are another category.  There is some risk here, but a conservative bond portfolio could earn about twice as much as a CD.
    Next comes mutual funds and ETF's. These are efficient ways to invest in a portfolio of stocks and/or bonds.
    Finally, the most risky, but possibly offering the highest return over time, would be to buy and sell specific stocks.

So what to do next? How to figure out all of the above? Step one: Research!  Do not do this lightly. Take responsibility for your investments, and if you make a bad investment it is no one's fault but your own. Perhaps start with something like "Investing for Dummies". It is not exactly a flattering title, but will give you some basics on most forms of investing. I think this book can begin to get you thinking about the possibilities that are available to you, and you can do further research on what appeals most.

   My final thought for you is that a diversified portfolio is most commonly advocated by any financial professional.  A small portion in risky but potentially more rewarding mutual funds or etf's, a larger amount in a conservative bond portfolio, and the rest in something safe such as CD's or money market account. How much in each category depends on you, how safe you want your investments to be, and if you have enough now to focus on wealth preservation or need more for the retirement you want.

I hope this at least helps get you started.  Please do not hesitate to follow up with me if I can be of any additional service, or answer any specific questions as you look into all of this.

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com