I’m 64. I just inherited $50,000. I was hesitant to invest it in stocks when I took a bath after September 11 and saw my $70,000 401(k) cut in half. I looked at high interest savings with digital banks such as CIT bank. But I worry about their legitimacy.
-James
I understand your concerns about both stocks and I want to make sure a financial institution is legitimate before putting your money into its products. Fortunately, there are some fairly simple ways to check this.
Keep the following in mind: While there are some things to consider as you make your decision, the answer that’s right for you will ultimately depend on your risk tolerance and goals. Regardless of your final choice, you’ll want to do a significant amount of research if you plan to do this yourself – or consult a financial advisor.
Previous investment experience and risk tolerance
Our past experiences often influence our perceptions and future behavior. Investing is no different. Like many others, you saw the value of your portfolio drop significantly when the markets fell after the September 11 terrorist attacks. However, your portfolio has fallen much more than the market as a whole, indicating that you may not be diversified or have made some unfortunate timing decisions. I have covered a similar scenario in another recent column you may want to read it, but for this discussion we can take it for what it is…a bad experience that left a sour taste in your mouth due to market risk.
If your risk tolerance is low, holding a less aggressive portfolio is the way to go. That’s because you’re more likely to stick to your plan during volatility. If you invest too aggressively for your temperament, you’re likely to abandon your investments at exactly the wrong time. That may have been partly why your losses after September 11 were so great. You can’t fix that now, but you can prevent it in the future by holding investments that you feel comfortable with. (And if you’re looking for a financial advisor, use our free matching tool.)
Ask an Advisor: I’m 64 and received a $50,000 inheritance, but I’ve taken a dip in the stock market before. Should I put it into high-yield savings?
Deposit accounts such as high-yield savings accounts are currently very popular because interest rates are attractive again. An annualized rate of return (APY) of 4-5% looks great compared to the 1% and lower we’ve become accustomed to in recent years. I would caution you to be aware that these interest rates are a function of the Fed’s current fight against inflation. Within the past 12 months inflation is 4% as reported by the BLS, the real inflation-adjusted return on a 4-5% high-yield account is still barely above 0%.
That doesn’t make it so bad. Just realize that you are not actually growing your account, just tracking it. That might be all you want or need. (A financial advisor can help you find an online bank that offers the type of high-yield savings account you may be looking for.)
Legitimacy of the banks
Now that we’ve discussed some of the underlying principles, let’s look at what seems to be the crux of your question. How do you know if a particular financial institution is legitimate?
Fortunately, this is quite easy to recognize. You can look them up on the FDIC website.
You probably know this, but for the benefit of readers who may not, the FDIC insures member banks’ deposits up to $250,000 “per depositor, per bank, per ownership category.” That coverage means that if the bank goes bankrupt, you will get your money back up to those limits. (Consider talking to a financial advisor about banks that pique your interest.)
Finding out if your bank is a member of the FDIC is quite simple. You can look them up on the FDIC BankFind site. If you can find them there, you can trust that the institution is legitimate and that your money is safe.
Next steps
Ask an Advisor: I’m 64 and received a $50,000 inheritance, but I’ve taken a dip in the stock market before. Should I put it into high-yield savings?
It is wise to be cautious in the stock market. As you have experienced, investors can indeed ‘take a bath’. The fact is, however, that the stock market – over time and as a whole – is rising. Estimates vary, but a long-term average of 10% is not abnormal for a portfolio. The process of dipping your toes back into the stock market involves understanding three things: your timeline (when you’ll need your money); your risk profile (how much short-term fluctuations in the value of your investments can you tolerate); and your goals (how much you want or need to grow your shares).
Tips for finding a financial advisor
If you have questions specifically related to your investment and pension situation, a financial advisor can help you. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Planning for retirement? Use SmartAsset’s Social Security Calculator to get an idea of what your benefits might look like in retirement.
Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and provides marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.
Brandon Renfro, CFP®, is a financial planning columnist at SmartAsset, answering reader questions about personal finance and tax topics. Do you have a question that you would like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAsset AMP platform, nor an employee of SmartAsset, and has received compensation for this article.
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