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Outgrowing a Fund
Dear Jeff:
I am 48 years old and my husband just passed away, leaving me with our 17-year-old son and $20,000 in life insurance. I can't work, but am not receiving disability yet (and probably won't for at least another year). The insurance is what we have to live on. We have nothing in savings. Our house is not paid for, but we will keep it. Our bills run about $1,100 a month (this includes our mortgage payment and taxes) and I was thinking of investing in something that will give me money in a year or two to live on. Our son will be going to college and he works part time now. I know nothing about investing and don't know if it is a good idea. Do you have a suggestion?
Jeff Says:
The $20,000 that you received from life insurance proceeds will be a nice cushion for you when you need it. But, in reading your question, it seems to me that you might actually need to use it sooner than you expect in light of your monthly expenses of $1,100 and no current income. If you agree that this possibility exists, then you must be very careful about investing this money in anything other than very liquid short-term investment vehicles such as savings or money-market accounts. It is true that you would be giving up the potential for a greater return on your money, but you would also be guaranteeing that your principal will be there when you need it.
Most financial planners will agree that you should not invest money, even in mutual funds, unless you expect to keep the money invested for approximately five years. Therefore, you should only invest if you are willing to accept the risk that the market value of your investment could be less than your initial investment at the time that you actually need the money.
Thank you for sharing your story and allowing me to, as it were, prey upon your circumstances, with the hope that it will help people understand the true benefit and purpose of life insurance.
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