I have $100,000 Earning Nothing: Help!


Here’s a recent communication from a friend of mine:

“…we were told by our bank to put the money into a money market, well that was at the rate of 0.02%  and it is still there making no money. We are talking about $100,000.  We would like to put the money in a couple of places, maybe some in a high risk and other places.  Our bank has a financial adviser but I don’t know if that is the best route to go.  Please help!”

Whoever told my friends to put $100,000 in a money market account should find a new job. I guess it could’ve been worse though. A friendly insurances salesman could have hawked a high-fee annuity on them.

They still have their money. That’s the good news.

The bad news is they only earned $22 on $100,000 over the last year – Ridiculous!

This is money that they don’t need. They’re still working and have no need for the money for at least five years. So why would someone tell them put it in a money market account?

Laziness. Their “advisor” just didn’t care. “Just put it in our bank and we’ll pay you no interest. Deal?”

Luckily they have friend that just so happens to be a CPA and all around nice guy.

Going forward, they’re going to earn at least the risk-free rate and more depending on their risk tolerance.

Here’s their personalized investment plan (you can download the PDF or read below the PDF):

Investment Objective

Capital Preservation

Your portfolio will be focused on preservation of capital, meaning choosing insured accounts or a core fixed-income investments that promise return of principal proportionate to your risk tolerance.

For investors whose primary objective is to preserve their capital, Optimize Your Retirement (OYR) builds a diversified portfolio consisting of a mix of risk-free assets and a small allocation towards equities.

This means OYR will explore all investments in risk-free or very low risk investments to find the best opportunities that fit into your risk profile. OYR will also explore limited equity investments to achieve proper diversification.

Currently, you’re receiving 0.02% on your invested capital, which is less than the risk-free rate. This is unacceptable in order to preserve the purchasing power of your capital.

Your expected rate of return should be greater than or equal to the risk-free rate on a 2-year Treasury note which is currently yielding 1.3%.


CD Ladder

Designed to generate FDIC insured risk-free returns, this strategy focuses on strict preservation of capital and provides you with flexibility of reinvestment if interest rates begin to rise.

We recommend building a CD Ladder in Certificates of Deposit that mature each year over a three-year period. For a $100,000 portfolio, this means investing $50,000 in a 1-year CD and $25,000 each in a 2-year and 3-year CD. The chart below illustrates the amount invested at each time horizon and the expected return and income to be received.

CD Ladder

The only risk involved in a Certificate of Deposit is the credit risk of the issuing bank. The FDIC insurance mitigates this risk to essentially zero. Your principal will not go down.

As each Certificate of Deposit matures, you’ll roll your money into the maturity that adds a year to your ladder. For example, when your 1-year Certificate of Deposit matures, you’ll roll it into a 3-year maturity (your original 3-year maturity will have 2 years left at the end of year 1). This process repeats itself as long as your objective has stayed the same.


Core Bond / Equity Income ETF

Designed to generate returns slightly in excess of the 5-year Treasury bond, this strategy focuses on preservation of capital and generation of income.

We recommend the core holdings of short-term bond ETFs mixed with dividend-paying equity ETFs. For a $100,000 portfolio, this means investing $50,000 in a mix of short-term government bills/notes and corporate bond ETFs, $25,000 in a 3-year CD, and $25,000 in dividend-paying equity ETFs. The chart below illustrates the amount invested in each type of security and the expected yield and income to be received.

Core Bond / Equity Income ETF

Investment option #2 contains more risk than option #1. With added risk comes a greater return. The dividend-paying equities (stocks) segment of the portfolio contains the most risk. For instance, you could see a drop of 30% of your invested principal in this segment if there was another recession in the United States. We believe dividend-paying stocks will do the best compared to other stocks in a recessionary period.


Core Direct Treasuries

Designed to generate returns in-line with the current 5-year Treasury bond, this strategy focuses on preservation of capital and maintaining purchasing power.

We recommend the core holdings of direct Treasury notes and bonds (90% allocation) and the remainder (10% allocation) in the Vanguard Total Stock Market Index Fund (VTSAX). For a $100,000 portfolio, this means investing $90,000 in a mixed duration of Treasuries and $10,000 in the VTSAX, which is the equity portion. The chart below illustrates the amount invested in each type of security and the expected return and income to be received.

Core Direct Treasuries
Investment option #3 is made up of a majority of government securities at 90% with the risk coming from the 10% VTSAX portion.

T-bills mature in a few days to up to 52 weeks. T-bills are sold at a discount to the face value and then mature at face value. For example, you may spend $980 for a T-bill and at maturity receive $1,000. Treasury notes range from 2 – 10 years and pay interest semi-annually.

This option is similar to option #1 in that you’ll roll over you securities as they mature. This is quite easy to do but this option will involve more administrative work than option #1.

Side by Side Comparison

Your Investment Options

The chart below summarizes your investment options. These model portfolios can be adjusted further based on your feedback. These portfolios will allow you to achieve your objective of capital preservation.

portfolio choices

Investing involves risk. The term “risk” as it relates to investing may have negative or scary connotations in your mind. It’s true that riskier assets have a greater chance of declining in value. That’s why it’s important to take the appropriate amount of risk given your objective. Given that your goal is capital preservation, it doesn’t make sense to have all, or even a majority, of your capital in equities (stocks). The two main enemies to capital preservation are inflation and taxes. Your goal is to stay slightly ahead of these two so that you can keep up your purchasing power.

Investment Philosophy

Holistic low cost passive investing is our core.


We believe in looking at your entire financial picture prior to investing your capital. Some high-impact items are:

  1. Tax
  2. Social Security
  3. Income Structuring

Getting these high-impact items right will help you get more money in retirement. Some steps like making sure you claim Social Security optimally will end up putting tens of thousands of dollars more in retirement.

Low Cost

Our recommended portfolios will mostly hold ETFs and index funds, with direct investments in Treasuries and Certificates of Deposits. ETFs and index funds are less expensive than mutual funds. The average expense ratio for mutual funds is 0.70% while for ETFs and index funds it’s about 0.29%. ETFs and index funds also have a lower turnover ratio decreasing the taxable gains from distributions.


We take a passive approach to investing. Investing is not something that should be in the forefront of our clients’ minds. After we set up a portfolio, we monitor it quarterly to make sure that it’s meeting our clients’ objectives. We’ll meet once a year at tax time to review your portfolio and make any necessary adjustments.

By | 2017-03-06T07:10:33+00:00 March 6th, 2017|Investing, Retirement Planning|0 Comments

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