'I want to enjoy the rest of my years': I'm 65, retired and own my home. I have $300,000 to invest. What should I do with it?

MW 'I want to enjoy the rest of my years': I'm 65, retired and own my home. I have $300,000 to invest. What should I do with it?

By Quentin Fottrell

'Is the stock market reliable?'

Dear Quentin,

I am 65 years old and retired. I own my own house and I have low monthly expenses. Here's the best part: I have about $300,000 to invest. Where is a good place to put this money to work so I can depend on it? I want to enjoy the rest of my years left on this planet. Is the stock market reliable? How do you feel about CDs and mutual funds? Any advice is appreciated.

A Lady Looking to Invest

Related: 'His divorce lawyer was completely useless': My husband is on the mortgage of his ex-wife's house. She's behind on the loan. What now?

Dear Looking,

The stock market gets less reliable as you get older.

At 65, you are retired and comfortable and have paid off your home. You're in a good place. Buying a house is a long-term investment - unless you have money to renovate and flip houses, although that too is risky - and so is investing in the stock market.

If you look at the market's performance over the last century, you will see that the Dow Jones Industrial Average DJIA has headed in the right direction of that time - that is, up. But you will also see big dips and lots of jagged edges. It's not a straight line. Life is not a straight line.

Neither should your investment strategy be a straight line. The rule of thumb is that you should be 100% in equities minus your age. So if you are 40 years old, you should have 60% in equities, with 40% in bonds. If you are 65, it should be 35% in equities, with 65% in bonds.

Look at your life's timeline and you will see dips: The Kennedy Slide of 1962 (the stock market did not fully recover from that until after the Cuban Missile Crisis), Black Monday on Oct. 19, 1987, the dot-com bubble on March 10, 2000, and Great Recession from 2007 to 2009.

For diversity and security, look at shorter-duration bonds, mutual funds and exchange-traded funds, with a maturity of less than five years; Treasury inflation-protected securities - inflation-protected bonds issued by the U.S. Treasury.

Health Savings Accounts allow you to save money in a tax-advantaged account and withdraw it tax-free for qualified medical expenses. HSAs are essentially one way to build a "medical nest egg" over your lifetime, depending on how much you use during your working life.

CD rates typically track the federal-funds rate, which the Fed set at 4.5% to 4.75% in November.

A money-market account traditionally gives you a lower interest rate than a high-yield savings account, allowing you greater access to your money. However, based on current annual percentage yields for both, there's very little difference in rates.

If you wish to learn more, you can read more about I-bonds here. They are U.S. savings bonds issued by the government. You can buy up to $10,000 worth of I-bonds per individual each calendar year, and the new calendar year resets on Jan. 1, opening up purchases again.

You can track the performance of the S&P 500 through the SPDR S&P 500 ETF Trust SPY. The S&P 500 SPX is weighted by market capitalization, which means Apple $(AAPL)$, Microsoft $(MSFT)$ and Nvidia $(NVDA)$ collectively make up roughly 20% of this portfolio.

Certificates of deposit are investment vehicles that attract people looking for a safe haven for their cash in an uncertain economic climate. CD rates typically track the federal-funds rate, which the Fed set at 4.5% to 4.75% in November.

Inflation is still above the Fed's 2% target, but unemployment is low. Even though prices are high, retail sales look buoyant ahead of the December holidays, leading economists to wonder whether lower interest rates will be tied to a recession.

As you are a retiree and like CDs for their safety, you could hedge against inflation by opening a CD ladder. Buy 1-, 2-, 3-, 4- and 5-year CDs; that way, you keep your funds relatively liquid as you have one account maturing every year. APYs hover at 4.3% to 5%.

There are risks, namely geopolitical events, forthcoming jobs data, and whether the Fed can tame inflation.

There are risks ahead. Some are geopolitical, such as the war in Ukraine and unrest in the Middle East. There could be some worries when jobs data is released this Friday. And there are concerns that the Fed won't be able to tame inflation while continuing to navigate a soft landing.

Henry Allen, a macro strategist with Deutsche Bank $(DB)$, wrote last week that, although the upward momentum might look unstoppable right now, with a rally continuing into 2025, "it's worth remembering there've actually been several wobbles this year already."

"So given how markets have already reacted to various shocks this year, it's clear that any one of these factors could drive a fresh selloff, particularly if they became a more persistent and longer-lasting problem," he said in a note to clients.

Donald Trump's presidential election win was followed by a stock-market rally, helped by expectations of a period of looser financial regulations. But some analysts worry that his plans for increased tariffs for Mexico, Canada and China could impact future Fed's rate cuts.

A Trump-related trade war that could elevate inflation and deter more Fed rate cuts "further reinforces expectations that the central bank will slow the pace of rate cuts," Ricardo Evangelista, senior analyst at ActivTrades, said Monday.

So what does this all mean for you? Proceed cautiously with your $300,000, given your age and the uncertain road ahead for the U.S. economy and stock market. (Here's a tip: It's always an uncertain road ahead.) At 65, your portfolio allocation should be reliable.

Leave the stock market's reliability in the laps of the gods.

Related: My friend declared bankruptcy. Can creditors still go after him for child support, back taxes and student debt?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

'His divorce lawyer was completely useless': My husband is on the mortgage of his ex-wife's house. She's behind on the loan. What now?

'I've nothing saved for retirement': I'm 50 and earn $45,000. I don't have a 401(k) match. Should I put 10% of my salary in a Roth IRA instead?

'I'm young, debt-free and happy-go-lucky': My boyfriend has $45K in debt, two houses, kids and pays child support. Is he a safe bet to marry?

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-Quentin Fottrell

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December 03, 2024 09:56 ET (14:56 GMT)

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