What To Do With New Money?

A reader has some change burning a hole in his pocket and asks the following:

“I have read you posts from time to time on Seeking Alpha and have recently become a regular visitor of the Englightened American blog.

I would love to see a post on where to invest new money… not necessarily the stock market but any type of investment. I recently came into about $100,000 and have been researching my options to death. There is so little out there that looks across a broad range of investment options.

What would you do with a $100,000?”

Thanks for reading. You’re going to get me into trouble with questions like that as I’m not allowed to give out anything construed as personalized investment advice. Where to put $100k new money really is dependent on each person’s time frame, risk tolerance, work tolerance, etc.

For instance, I personally wouldn’t mind being a landlord and the housing crisis will present good opportunities to pick up properties that are immediately cash-flow positive. Other folks may not want to work that hard or deal with the hassle.

Bonds [corporate & junk] may be attractive and that’s probably where I’m going to direct my research in the near term but neither I nor a new $100k have the resources to properly diversify a bond portfolio so default risk is a big factor. The question of whether a company is going to stay in business seems a much simpler question than asking what this company is worth.

If you didn’t need the money in 10 years, TIPS may be attractive, especially those near face value with a small spread with the 10-year tbill. TIPS near face value offer protection against deflation with an inflation kicker, even if you don’t take government numbers at face value.

And of course, there’s always stocks but I would be very mindful of focusing on those in industries or with business models with strong long-term prospects. That may seem obvious but some industries and business models that seem viable now or in the recent past may not be viable going forward. ¬†[I have a separate post discussing stocks.]

Finally, I’ve got to put in there that none of the above should be construed as financial advice. Just some ideas but they may be completely unsuitable for you or everyone, for that matter. And even good ideas
poorly executed can be costly so hire a good financial advisor or keep hitting the research.

P.S. I make no pretense to offer “professional” opinions or research. But regular readers will get the sense that I don’t put much stock in finance “professionals” and their myriad alphabet soup (CFA, CFP, RIA, etc) of qualifications which apparently licenses them to be paid for mediocrity. ¬†Check out this article from the weekend’s Journal about how Wall Street failed the average consumer (duh).

One Response to “What To Do With New Money?”

  1. Recommended Reading - Dec 4,2008 | Old School Value Says:

    [...] What to Do with New Money presented by The Enlightened American [...]

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