Very very low risk tolerance

[chocolatebear11]

Hi,

For those with very low risk tolerance, where should that person put a large sum of money in?

The person is 60yo and has over 200k to invest, but is afraid of stock market. The person does not need the money any time soon. The person wants to put the entire 200k in a CD with interest rate of 0.85%. What are some low risk investments in this circumstance? I-bond seems like a great spot but it’s only 5% of the amount

[jacoavlu]

there is basically nothing that is low risk when inflation is 15% plus and the nominal “risk free” rate of 10 yr treasuries is 3%

[Hank]

How did this person make it to age 60 and "not need the money any time soon" yet have an irrational fear of capital markets? Surely there must be more to this story.

[jfoxcpacfp]

What is the purpose of the money? Leave to kids? Nursing home protection? The biggest risk of keeping $200k in cash for many years is not that they will lose it all in the stock market (assuming they appropriately invest, which is really quite easy) but that the nursing home costs double or triple by the time they need it. Huge risk of being “risk averse”. Of course, the kids won’t be calculating the inflation erosion and can just spend it to upgrade to 1st class on their next overseas vacation.

[Tim]

“For those with very low risk tolerance, where should that person put a large sum of money in? ”

Those on either of the risk tolerance spectrum greatly increase risk of loss. The point is middle of the road is safer. That is how I would approach this. Can’t afford all in on either side.

[Hatton]

If no legacy plans an immediate annuity might be a consideration.

[The White Coat Investor]

"Even if risk tolerance existed and could be measured accurately, why would it be an important factor to consult when considering how to invest? You should invest in the way that has the greatest prospect to fulfill your investment goals. That might mean taking more or less risk than you would prefer. If you are a sensitive soul who can brook no paper losses, the solution is to get a grip, not to invest "safely" if that locks in running out of money when you are old." -- Phil Demuth

[The White Coat Investor]

How did this person make it to age 60 and "not need the money any time soon" yet have an irrational fear of capital markets? Surely there must be more to this story.

A pension? Still working now and able to live on what SS will pay when that time comes?

[Larry Ragman]

1. Vanguard short term inflation protected security index?
2. Vanguard Short Term Tax Exempt?
3. Pay off mortgage?

[jacoavlu]

1. Vanguard short term inflation protected security index?
2. Vanguard Short Term Tax Exempt?
3. Pay off mortgage?

all lose to high inflation

[Zaphod]

why lock up money in a cd when you can get 5x the return on a short term bond?

they have to get over risk tolerance frankly.

[jacoavlu]

they have to get over risk tolerance frankly.

it comes down to an understanding of “risk”.

Many only think of one side of the risk coin. As in a loss of account balance dollars from equities investment. But the other side of the coin is loss of purchasing power due to rampant inflation.

[xraygoggles]

VUSXX is a Treasury money market fund, comprised of 30-day T-bills. Literally the safest investment in the world - yielding 0.45%.
VGSH is Short-term Treasury index, comprised of 2-yr duration Treasuries. As long as they don't sell before 2 years, you will yield at least 1.2%.

I would not do a CD, since rates will continue to rise, and you will be locked in at current rates, plus the money will be illiquid for a few years.

[jacoavlu]

VUSXX is a Treasury money market fund, comprised of 30-day T-bills. Literally the safest investment in the world - yielding 0.45%.
VGSH is Short-term Treasury index, comprised of 2-yr duration Treasuries. As long as they don't sell before 2 years, you will yield at least 1.2%.

I would not do a CD, since rates will continue to rise, and you will be locked in at current rates, plus the money will be illiquid for a few years.

“safest”

that’s kinda the point. Some people think a guarantee getting their dollars back at a future date plus some guaranteed fraction of a penny of yield is safe, when it’s not safe at all bc inflation is 15%+

[Larry Ragman]

all lose to high inflation

Yeah, but everything does that is not a hard asset and the question requested options for someone risk adverse clearly defined in terms of market risk. That means not stocks, though maybe real estate would be ok. Short term allows adjustment for interest rates rising and the first option at least adjusts for inflation. Now I sorta like paying off the mortgage since the return is guaranteed, though I concede keeping the mortgage payments is superficially attractive since it will be repaid with inflated dollars.