Once in a great while, everyday American families are fortunate enough to receive a windfall – an unexpected infusion of cash.
Maybe an inheritance?
A particularly lucrative real estate deal?
Entrepreneurs whose companies are acquired by venture capital firms frequently receive seven- and eight-figure payments.
Winning lottery ticket?
Or, maybe you’ve saved over a long period, but you’ve been leery of market risk…
For any of many reasons, you may find yourself with a sizable quantity of cash. I’m calling this a “windfall” not because I want to diminish the hard work (yours or someone else’s) who created it – but because it’s liable to be unanticipated, unbudgeted and unlikely to happen again.
If so, you’re probably asking yourself: “How do I invest that lump sum for retirement?”
After all, you want to put your savings on a stable foundation, make them grow as much as absolutely possible while protecting your nest egg.
Let’s take a look at some advice to guide your decision-making. (Note, and this is important, most of this advice applies to all retirement saving, not just windfalls!)
“Act in haste, repent in leisure”
Asher Rogovy, chief investment officer at Magnifina in New York shared this important consideration:
It's easy to succumb to greed when investing a lump sum all at once. With the pressure of cash burning a hole in the pocket, it's important not to rush through due diligence, research and analysis. Investors that aren't up for the task should contact a professional investment advisor for assistance.
It makes sense that a pile of cash, and worries about missing out on an opportunity, might tempt you into a quick decision.
Rogovy wants you to slow down. I would say, “Don’t just do something, stand there.” At least until the feeling of urgency passes, and you’re calm enough to do your due diligence.
With that in mind, let’s continue by looking at a few places to put your money.
Assets to consider for your lump sum investment
The U.S. News article I reviewed suggested specific assets to evaluate, especially suitable if you have a lot of cash to invest at once.
Here’s what they recommended:
- Index funds
- Real estate investment trusts
- Series I savings bonds
- Individual retirement accounts
(Oddly, they left out some of the shortcomings of each – but don’t worry, I’ll fill you in!)
We’re going to take a look at them, then suggest one more that wasn’t included on the list (because financial advisors don’t get paid to sell it).
Let’s start with the three “conservative” assets:
Bonds (specifically, 6-month Treasury bills)
Laurie Itkin, a financial advisor at Coastwise Capital Group, explained one reason to consider bonds: “It's a way to get well over a 4% annualized yield risk-free without committing for longer than six months.”
Short-term Treasury bills are highly liquid. They aren’t as sensitive to interest rate hikes as longer-term bonds. When interest rates go up, they don’t fall as dramatically.
The downside of Treasury bills, as far as I can see, is they’re currently paying barely half the rate of inflation – thus, at least today, 6-month Treasury bills are a guaranteed way to lose purchasing power. But at least you’re only locking in that loss for half a year at a time…
Series I savings bonds (I-bonds)
The difference between most bonds and I-bonds is this: “I-bonds promise a rate of return that is guaranteed to keep up with inflation.” I’ve written extensively about I-bonds before, so I won’t recap. Briefly, each individual is limited to $15,000 in I-bond purchases per year, and you can’t buy them with retirement savings – meaning that, yes, they appreciate with inflation – but then you’re taxed on those “profits.”
That’s just insulting.
Annuities (but watch out for high fees, confusing jargon and high-pressure sales tactics)
Annuities work like this:
- You hand over a pile of money to an insurance company
- They promise a fixed income stream in the future
Now, obviously there’s a trade-off here. As Investopedia explains: “Annuity holders will pay fees up-front and sacrifice potential returns possibly earned elsewhere, but in return an annuity provides certain guarantees and safety nets, such as guaranteed income for life.”
Those who are worried about outliving their retirement savings sometimes turn to annuities… and that worry creates an opportunity for financial advisors and other marketing folks…
There’s also a whole new vocabulary you’ll need to learn – “mortality and expense fee,” “joint life payout,” “subaccount,” “surrender fee,” “participation rate,” “exclusion ratio,” “market-value adjustment” – to understand all the different types of annuities.
Ever try to buy life insurance? Annuities are so incredibly complicated they make life insurance look like Dr. Seuss. In my mind, they’re a prime example of the type of investment we’re so often cautioned to avoid: an investment that’s sold rather than bought.
So if you’re considering an annuity, make sure you fully understand the trade-off you’re making (and the industry jargon!) before committing a single dime.
Index funds (and real estate investment trusts or REITs)
My primary concern here is that you understand what you’re getting in exchange for your money. With stocks currently priced for negative after-inflation returns for the next 10-12 years, broad equity index funds don’t look like a good deal.
REITs have been struggling for quite a while now – the pandemic crushed commercial real estate, housing is in a rapidly-deflating bubble… Remember the Wall Street adage about catching falling knives.
In fact, of all the suggestions on the list above, the only one that makes sense to me is Individual Retirement Accounts. (And you can learn more about inflation resistant investments here).
Now, here’s one stable, safe-haven asset that’s mysteriously not on the list above – and an explanation why…
Why don’t financial advisors recommend physical gold?
There are several reasons. Since physical gold is a tangible asset, and financial advisors pretty much deal with paper, they just aren’t trained for real assets.
Furthermore, financial advisors usually get paid based on how much money you have invested with them. Since they can’t sell you physical gold, any money you invest in physical gold is no longer invested with them – so recommending physical gold would cost them money. (I don’t want to make the blanket accusation that financial advisors care more about their commissions than your financial health; however, on this issue, I believe the burden of proof is on the advisor.)
Personally, I’m a bit of a contrarian – if my financial advisor told me not to consider an asset, I’d look into it just to be adversarial. I’d think, “There must be some reason they don’t want me to know about this…”
That’s me, though.
I just want you to know that the ultimate historical safe haven investment, physical gold, is available – even though you won’t hear about it from financial advisors. You won’t read about it in mainstream publications.
Both physical gold and silver have a solid track record as safe havens that can preserve your buying power against inflation – and (unlike virtually every other asset) may even increase in value during economic turmoil.
Learn why you should consider precious metals in your retirement savings, and, if you’re interested in learning more, request a free info kit.
Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver. Based in the Los Angeles area, the company has been in business since 2003. It has an A+ Rating with the BBB and hundreds of satisfied customer reviews.
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