HELP! Need $170,000 Financial Planning Advice?

Question

I have $170,000 cash to be used for all my expenses during 5 years of school and am looking for a safe, hands-free place to invest it. I have worked out my budget for the next 5 years and this money should be enough to cover my expenses if it grows above inflation. I am not interested in purchasing real estate, owning a business, or managing a large stock portfolio, so I would be grateful for any ideas regarding the best way to invest this money for the next 5 years. I will need to be able to withdraw 20% of the money each year to cover my expenses. Money-market savings accounts and certificates of deposit do not appear to have high enough interest rates to be viable options. The only option that I have found so far are Treasury Inflation-Protected Securities (TIPS) and Vanguard Inflation-Protected Securities (VIPSX) looks to be the best TIPS, but I don’t know enough about inflation, diversification or investing to know if putting the entire $170,000 in a TIPS for 5 years is the best option. I would greatly appreciate any financial planning advice regarding my situation. If you could map out the specific investment vehicles or sketch a composite portfolio for the $170,000 I would be very thankful. This would be easier for me if I was investing for the long term, but my 5 year window, expense requirements, and the current inflation outlook and bear market make my situation very confusing. Thanks for your help.

Answer 1

I cringed when I read this.  Please do not take advice from people here that is a lot of money and you never know who is telling you where to invest it.  Pay the few hundred and talk to a licensed planner who you know will have a least some experience handling money.

Answer 2

The Vanguard Inflation-Protected Securities Fund is a confusing fund to discuss, but to put it simply, it does not always keep up with inflation.  For instance look at the link below.  In 2006, the fund returned 0.43%, below the rate of inflation.  In the 2nd quarter of 2004, the fund lost 3.04% in just three months.

Skipping the Vanguard fund and investing directly in 5 year TIPS from the government is also not assured of success.   You would have to sell most of the bonds before maturity, and they might sell for less than you bought them, depending on  market volatility.  You could consider splitting up your money into fifths and putting 1/5 in the bank and the other fifths into TIPS maturing in 1,2,3, and 4 years.

Unfortunately, with today's interest rates, it is very hard to find safe investments that match inflation