We expect he’ll receive a worker’s compensation payout of around $ 100,000 in the next couple of months. He has no debts except the monthly cost of assisted living. He already has enough in savings, plus his monthly income, to pay for a couple of years of monthly expenses. I’ve thought about CDs, money-market and mutual funds, but can’t decide which.
Where do you suggest I park the money for him?
The Son
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Dear Son,
Interest rates are still in your favor — for now.
I won’t tell you what to do with your money, but I will give you some guidelines to help you decide. You don’t say how old your father is, but you clearly want to lock in current rates before the next rate cycle begins in earnest. The Fed has cut its benchmark rate by 75 basis points since September. It’s expected to deliver another rate cut before 2025.
Not everyone agrees, however. Doug Ramsey, chief investment officer and portfolio manager at the Leuthold Group, said in a recent note that, “based on the market’s momentum and valuation, an impending rate cut might be the least justified one in modern history.” The Fed’s next two-day policy meeting is scheduled to finish on Dec. 17.
For your father, you could (rather than “should”) consider a Certificate of Deposit or high-yield savings accounts (HYSA), which are offering interest rates of 4%-plus and up to 4.95%, according to the personal-finance site Bankrate. Remember: With CDs, the interest rate you sign up for will remain the same for the duration of the contract; not so with HYSAs.
You’re on the right track with your choice between CDs and money-market and mutual funds. Both money-market funds and CDs are seen as relatively safe investments, potentially providing returns in the form of interest or dividends, says Fidelity Investments. “Money-market funds are generally more liquid than bank or brokered CDs,” it says.
“Interest rates on money-market funds and CDs are influenced by the federal funds rate, which the Federal Reserve raises or lowers in response to inflation and other economic data. The interest paid on a money market fund can fluctuate daily whereas the interest rate on a fixed-rate CD remains the same for the term of the CD,” Fidelity adds.
Related: ‘She’s the queen of CDs’: My mother-in-law, 83, opened 12 CDs at different financial institutions. Should I intervene?
Mutual funds mainly invest in stocks, bonds and short-term debt, whereas money-market funds invest in ultra-low-risk, high-quality, short-term debt securities, like Treasury bills, cash and cash equivalents, municipal debt or corporate bonds. If your intention is to safeguard your father’s money, you could choose either, but perhaps lean towards money-market funds.
Another consideration: CDs issued by a bank that is insured by the Federal Deposit Insurance Corporation (FDIC) are covered by FDIC insurance ($ 250,000 per depositor, per insured bank, for each account ownership category), while money-market and mutual funds are not covered by FDIC insurance. In other words, investment products are not FDIC-insured.
Investors have been bullish on gold in 2024. “Anecdotal evidence indicates that retail bar and coin buyers may be Republican-leaning,” a report by the WGC said. But some analysts say there’s less reason for a gold-centered safe haven with the uncertainty surrounding the presidential election lifted, and the Republican party controlling the Senate and the House.
With your own uncertainty surrounding your father’s health, you could consider laddering his new-improved portfolio to hedge against unexpected events. With your father’s $ 100,000, you could keep some of that in a HYSA and CD ladders, which allow you to buy one-, two-, three-, four- and five-year CDs so that you have one maturing every year.
Assuming you are your father’s power of attorney, you have a fiduciary duty to put his interests first and invest his money wisely, avoiding any reckless behavior. Given what you say in your letter and the options you have outlined for yourself, it sounds like that’s exactly what you intend on doing. As a fiduciary-led strategy, it’s not the most exciting one.
The satisfaction lies in the certainty of having done the right thing.
Related: ‘I have zero regrets’: I’m 84 and estranged from my two adult sons. My 48-year-old wife will get my seven-figure estate. Is that selfish?
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
The Moneyist regrets he cannot reply to questions individually.
More columns from Quentin Fottrell:
‘Should they divorce so he can qualify for Medicaid?’ My sister inherited $ 350,000 from her father’s estate, but her husband was diagnosed with dementia.
‘He forced me to take Social Security at 62’: My husband inherited millions, but never gave me a penny. If I divorce him, would I get any of it?
‘My mom still has his original will’: A few months before he died, my father went online and made a secret will, cutting off my mother. Can he do this?
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