Need advice on how to start investing when scared to death of risk

[Xmascarolmarie]

I am in desperate need of some guidance. I am 58 and my husband is 59 and is going to retire at 62 from teaching. He is on TRS2 so we will get approximately $4500 pension with 100% survivorship. We will also be able to collect SS. At that point, we will still have a 16 year old plus a daughter in college. Insurance will be our biggest concern for the first few years of his retirement. We are debt free and I inherited some money over the last 5 years from my parents. My parents were from the Depression so they also passed on to me their very conservative views on money.
We have been investing in Traditional IRA's the last several years. Even though I love the pre tax benefit, I have finally decided to switch to Roth IRA's this year for both of us.
The rest of my inheritance is in CD's and a money market at our credit union. Plus, I just moved a small amount into a Discover high yield savings account.
I know that I should have more of a "portfolio", but I am terrified of risk. I have met with so many financial advisors that my head is spinning. I even started a Vanguard account, but canceled it before funding it. I research things to death and get scared off after reading complaints or bad reviews about places to invest.
Any suggestions would be most welcome! I really am ready to make a move, I just don't know how to do it.

[james.hendrickson]

Why not invest in some treasury bonds? They're about as safe as can be and you might pick up an extra interest rate percentage point.

[Xmascarolmarie]

Do you suggest investing in a bond fund through someplace like Vanguard or Fidelity, or do you suggest buying the bonds directly?
Since I am considering Roth IRA'S now, I think I might actually be ready to take a step into some kind of fund that is on the less risky side but still can grow while hopefully preserving capitol.

[disneysteve]

Welcome to the site! You haven't really given enough info to answer the question. How is the money you already have invested (the traditional and Roth IRAs)? What are your monthly expenses and how much of that is/will be covered by the pension and SS?

What is the interest rate on the money market at the credit union?

You need to figure out your goals for the money first before you can figure out how it should be invested.

[Xmascarolmarie]

I am excited to have found this site!
The traditional IRA's are in IRA cd's making 2%.
I want to start the Roth IRA's wherever I decide to invest.
The money market is an awful 1% and that is where most of our money is while I try to decide where to start with this journey.
Our living expenses should be able to be covered by the pension and SS except during the 3-4 years that we will be paying for insurance which will likely be around $1700 per month on PEBB.
Also, I hate the idea that the rate of inflation is higher than the interest we are generating. I want the $200,000 inheritance to stay ahead of inflation since it is our safety net.

[disneysteve]

I am excited to have found this site!
The traditional IRA's are in IRA cd's making 2%.
I want to start the Roth IRA's wherever I decide to invest.
The money market is an awful 1% and that is where most of our money is while I try to decide where to start with this journey.
Our living expenses should be able to be covered by the pension and SS except during the 3-4 years that we will be paying for insurance which will likely be around $1700 per month on PEBB.
Also, I hate the idea that the rate of inflation is higher than the interest we are generating. I want the $200,000 inheritance to stay ahead of inflation since it is our safety net.

All good info. It's great that your expenses will be covered by the pension and SS, other than the insurance. That puts you in a great position as far as investing because you won't be dependent, at least immediately, on that money to pay your bills.

First thing I'd do is move your money market over to that new Discover account. That's paying 1.6% vs. the 1% you're getting now, so 60% more interest which is significant.

As for investing, stick with one of the major players like Vanguard, Fidelity, or T. Rowe Price. It sounds like you're fairly risk-averse, which is perfectly fine, so you want to stick with relatively conservative investments. At the same time, however, you need to get some growth in your portfolio. As you pointed out, you're currently actually losing ground to inflation so you need that stock exposure to counter that. Take a look at their balanced funds. At Vanguard, for example, they have their Life Strategy funds. The Conservative Growth fund is about 60% bond and 40% stock. They have multiple other balanced funds with different allocations, more or less conservative.

Please ask all the questions you have. There are lots of folks here happy to help. There are no stupid questions so don't be embarrassed.

[Xmascarolmarie]

Thank you guys so much!
Great advice!
i am going to reopen the Vanguard account and look at the less risky funds. Gotta just do it!

[kork13]

Totally agree with Steve. It's completely okay that you're very conservative. However, as you brought up, you need to ensure that your money is still able to grow a bit, and stay ahead of inflation. Personally, I'm one to keep things simple & inexpensive. Since your SS/pension will be enough to cover your needs once you're drawing them, I'd keep your money in just 2 buckets: Cash & conservative investments.

Put maybe 1 year's worth of expenses in the savings account. Then given your low risk tolerance but need for some income with a touch of growth, I'd say you need to find a good, simple balanced fund.

Personally, I'd put all the rest into Vangaurd's Wellesley Income Fund. It's roughly 60% bonds, 40% stocks -- so it's fairly conservative, stable & reliable, but it still typically earns 5-7% on average, which will keep you above inflation & even grow a little bit. You could expect around 3.5% in quarterly dividends, and you could set it up for the income to be deposited into your savings account. So as you spend down your cash, it'll be replenished somewhat by the income off of your investments -- if you put your $200k in there, you could expect roughly $7k/year just from dividend income, plus whatever value growth the fund gets.

You've really done very well -- you've prepared yourself for retirement with the resources to cover all of your expenses! That's great! I don't say this to discourage you, but I've just gotta say.... Sitting heavy in those CDs, money market, and so on... It's killing your money slowly. If you keep everything in there, it's going to slowly erode away. I'd suggest getting out of them when you can. What I laid out (and what others have & certainly will) is very simple, still quite conservative, and will easily provide for your needs.

[Jluke]

Vanguard Wellesley as noted above. Very good choice for your situation.

I believe in 2008 financial crisis it was down only 10% or so.

long track record of good performance so that may or may not continue but there is risk in everything.

[disneysteve]

A couple of other comments:

As Jluke alluded to above, even a "low risk" balanced fund can lose money, at least in the short term. If the stock market drops 30%, the stock portion of that balanced fund will probably drop about 30%. Your total investment will fall by a smaller amount since the stocks only make up 40% of the total but you still may see a 10-15% drop so you need to be prepared and okay with that. You don't want to panic and sell when that happens. You just want to hang in there and wait for it to recover.

The other thing is how to invest. When you open the account, you'll need to fund it with at least whatever the minimum investment is. For most Vanguard funds, that's $3,000 (though I think it's less in a Roth account). Beyond that, hyou don't have to dump all of the money in at one time. You can split up the money that you are planning to invest and put in a chunk of it every month or every 2 weeks until you've invested it all. That's called dollar cost averaging. The idea is that if you put in, perhaps $1,000 every month, some months the share price will be lower and you'll get more shares; other months the share price will be higher and you'll get fewer shares. But over time, your average cost per share will be lower than if you bought all at once. So that helps buffer risk a bit also.

[Xmascarolmarie]

Just got home from work and saw the additional posts.
Thank you all for helping me work through my anxiety over taking a leap into investing. I feel so much better about it all!

[Drake3287]

Don't forget to look into Obama care (assuming it's still around) for your kids when they turn 18. I'm also a public employee who's now retired with medical for myself and wife but when I retired I also still had kids in college. Although I could have kept my kids on my employer's plan for a cost, I ended up having them go with Covered California (Obama care) and it saved us a ton simply because they were students and or had limited income. I simply reimbursed them for the cost. I don't remember the exact requirements but I think you simply can't claim them on your taxes as a dependent or something like that. For us it made more financial sense at the time.

As for being conservative with money, I'm the same exact way including how my parents brought us up. Don't overly worry about future finances, you're already doing better than many. Although I never brought up finances with co-workers, I know for a fact many of them never saved a dime or planned for retirement properly other than our pension. Some of us are now busy traveling and buying new expensive toys while others can't afford to go out to lunch until the next pension check arrives. You'll be fine.

[disneysteve]

Don't forget to look into Obama care (assuming it's still around) for your kids when they turn 18. I'm also a public employee who's now retired with medical for myself and wife but when I retired I also still had kids in college. Although I could have kept my kids on my employer's plan for a cost, I ended up having them go with Covered California (Obama care) and it saved us a ton simply because they were students and or had limited income.

I haven't looked into ACA coverage yet but we'll be doing that soon enough when our daughter turns 26 and ages off our policy. Hopefully, the ACA will still exist so that people like her will continue to have access to affordable insurance. If not, I'm really not sure what she'll do. It never occurred to me to see if an ACA plan would be cheaper now than keeping her on my policy. Probably not as her therapist only accepts one insurance and it happens to be the one that I've got, so even if she could get a lower premium, if she had to pay out of pocket for therapy, it wouldn't be worth it.

[jIM_Ohio]

I am in desperate need of some guidance. I am 58 and my husband is 59 and is going to retire at 62 from teaching. He is on TRS2 so we will get approximately $4500 pension with 100% survivorship. We will also be able to collect SS. At that point, we will still have a 16 year old plus a daughter in college. Insurance will be our biggest concern for the first few years of his retirement. We are debt free and I inherited some money over the last 5 years from my parents. My parents were from the Depression so they also passed on to me their very conservative views on money.
We have been investing in Traditional IRA's the last several years. Even though I love the pre tax benefit, I have finally decided to switch to Roth IRA's this year for both of us.
The rest of my inheritance is in CD's and a money market at our credit union. Plus, I just moved a small amount into a Discover high yield savings account.
I know that I should have more of a "portfolio", but I am terrified of risk. I have met with so many financial advisors that my head is spinning. I even started a Vanguard account, but canceled it before funding it. I research things to death and get scared off after reading complaints or bad reviews about places to invest.
Any suggestions would be most welcome! I really am ready to make a move, I just don't know how to do it.

Logically (and reading between the lines) you know you need equity exposure, emotionally you cannot do it. I would suggest opening an etrade account, and every month purchase about $100 of an equity ETF in a taxable account. You will see the account value does not fluctuate much. I suggest taxable so there is no penalty if you sell and close account, and this should be easier than going to Vanguard. I would suggest a portfolio of no more than 20% stocks and 80% bonds/cash as you begin. Your logic is correct. Experience will help overcome the emotional.

[jIM_Ohio]

A couple of other comments:

As Jluke alluded to above, even a "low risk" balanced fund can lose money, at least in the short term. If the stock market drops 30%, the stock portion of that balanced fund will probably drop about 30%. Your total investment will fall by a smaller amount since the stocks only make up 40% of the total but you still may see a 10-15% drop so you need to be prepared and okay with that. You don't want to panic and sell when that happens. You just want to hang in there and wait for it to recover.

The other thing is how to invest. When you open the account, you'll need to fund it with at least whatever the minimum investment is. For most Vanguard funds, that's $3,000 (though I think it's less in a Roth account). Beyond that, hyou don't have to dump all of the money in at one time. You can split up the money that you are planning to invest and put in a chunk of it every month or every 2 weeks until you've invested it all. That's called dollar cost averaging. The idea is that if you put in, perhaps $1,000 every month, some months the share price will be lower and you'll get more shares; other months the share price will be higher and you'll get fewer shares. But over time, your average cost per share will be lower than if you bought all at once. So that helps buffer risk a bit also.

The minimums on ETFs is "zero" at etrade, and all the Vanguard ETFs are there without a transaction fee. Lower minimums to start.