Question brought to me by a fellow Soldier.

[mrpaseo]

I ate breakfast with a fellow Senior Non-com today and the topic of retirement/finances came up. He told me that he had two CD's totalling 30,000 dollars earning 3.5% and what he should do with the money when the CD matures. He currently has 6 month CD's and just allows them to roll over.

I explained that he is not keeping up with inflation and taxes so we need to figure out another plan for his money.

He is 50 years old and will be leaving the service in about 2 years. By that time he will have a Masters (Degree) so he intends to continue to work.

I know you need more information but I would appriciate your suggestions with the info you have here, and please ask any questions you might have.

Thanks,
Ray

[sweeps]

Need more information. What is the money being used for? Emergency fund? Education? Retirement? Or some other goal?

Earning 3.5% in a CD isn't necessarily a bad thing. For an emergency fund or a planned down payment on a new home, it could be very appropriate.

[mrpaseo]

Need more information. What is the money being used for? Emergency fund? Education? Retirement? Or some other goal?

Earning 3.5% in a CD isn't necessarily a bad thing. For an emergency fund or a planned down payment on a new home, it could be very appropriate.

Here is his answer: "Really don't need it now, I have no plan now looking to make some money towards my retirement, probably won't need it for 10 years. I don't plan on retiring and probably work until I'm 70."

Thanks,
Ray

[jIM_Ohio]

Keep the CD, put new money into something with more upside.

My advice would be find an equity income fund which yields around 3.5% and start there. Open this account in an IRA or taxes will kill the plan.

Point being that person knows what a 3.5% return looks like. So find a fund which yields 2.5%-3.5% and invest in that, and see how compounding works. Once person is used to seeing principal see saw up and down, he should learn more about asset allocation and add more diversification.

Hopefully there is about 60k invested (30k in CDs and 30k in equity income) when the other funds are added to improve allocation.

[kork13]

Also, put the CD's into longer-term (thus higher-yielding) CDs. If he has no intention of tapping them for a while, move them into CDs at least 1-2 years in duration, or longer. Because they're not intended for immediate need, go for yield not liquidity. He should be able to get up to 4.5%, possibly higher, by increasing the duration of his CDs.

[mrpaseo]

So assuming this Soldier has an emergency fund and all bills paid off, you believe the best option for him is to locate and purchase a londer CD? He also told me that he does have retirement funds so I guess this is another venue to diversify.

I havn't done much research on 50 Plus investors, I am actually trying to learn so I can help others.

I will show him ING Direct's 4.5% CD but will ensure he looks around for the best deal.

Thanks for your input,
Ray

[MYOM]

Corporate bonds can pay more than a CD if you don't need the government guarantee. The difference in yield is the cost to be insured by the best creditor on the planet.

1. He first needs an emergency fund of 3 months net income.

2. It is important to pay off all high interest rate debt except for his mortgage before investing.

3. Buying a home should be next if he does not already own a home.

4. The first investment should be in a qualified retirement plan.

5. Next comes a discussion of his objective, Growth, Growth and Income, etc.

6. If it is Growth and Income the mix is 80/20 to 60/40 stocks to bonds.

7. Portfolio Construction is next where you allocation a specific amount of money to investments within each of those two percentages.

Now you are off to the races. Good luck!!

Dan Clemons, author and retired Certified Financial Planner

[jIM_Ohio]

Corporate bonds can pay more than a CD if you don't need the government guarantee. The difference in yield is the cost to be insured by the best creditor on the planet.

1. He first needs an emergency fund of 3 months net income.

2. It is important to pay off all high interest rate debt except for his mortgage before investing.

3. Buying a home should be next if he does not already own a home.

4. The first investment should be in a qualified retirement plan.

5. Next comes a discussion of his objective, Growth, Growth and Income, etc.

6. If it is Growth and Income the mix is 80/20 to 60/40 stocks to bonds.

7. Portfolio Construction is next where you allocation a specific amount of money to investments within each of those two percentages.

Now you are off to the races. Good luck!!

Dan Clemons, author and retired Certified Financial Planner

Dan- I agree with most of the steps.
I will challenge #3- buying a home if a soldier is not a good move unless he knows he wants to live there for a long time (after discharge).

[kork13]

So assuming this Soldier has an emergency fund and all bills paid off, you believe the best option for him is to locate and purchase a londer CD? He also told me that he does have retirement funds so I guess this is another venue to diversify.

I havn't done much research on 50 Plus investors, I am actually trying to learn so I can help others.

I will show him ING Direct's 4.5% CD but will ensure he looks around for the best deal.

Thanks for your input,
Ray

wandering around, i found 3-yr CD's at 5% from Pentagon Federal... just another option...