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Question for the Money Doctors

Question submitted on Jan 30, 2013.

Question

We have some money we''d like to invest. We are 55, do not have cc debt, and do already have a 401K. Our FP wants us to buy a whole life policy, investing 10K every year for the next 5, then 4k for next 2 years. Our research shows that whole life is not a good investment. I''d like to put the 50K we have into buying a home in a better school district for better real estate value down the road. What would be best way to invest this 50K?

Answer

I would need more information to give you specific guidance. However, I do have some general rules of thumb when talking to investors. First, give yourself an emergency fund equal to 3-6 months of living expense. These dollars should be invested in a savings account at a bank or a short-term bond fund at a custodian such as Vanguard, Schwab, Fidelity, etc. Second, fully fund your retirement plan with as much as you can. This money will grow tax deferred which super charges the growth and compounding. Third, fund IRAs, either traditional or Roth, depending upon your circumstances. IRA accounts can be opened at custodians such as Vanguard, Schwab, Fidelity, etc. Fourth, open a regular investment account at same custodians as mentioned above. Once you have significant dollars in the aforementioned types of LIQUID investments, you can consider more non-liquid investments such as life insurance, real estate, etc. You want to be able to access funds in the event you need them—liquidity is very important--as the saying goes cash is king.

Lastly, I would take a hard look at your FP and who he works for. My bet is he works for a life insurance company which is why he is recommending life insurance. I would suggest working with a CPA/PFS; you can find one near you by visiting www.findacpapfs.org.


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