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Managing Money for 10 Years

Question: My husband, Gregg, runs a non-profit literary arts organization called the Citylit project (create link to www.citylitproject.org). He inherited a nice car from someone he published, Adele Holden, a poet/English teacher who grew up during the segregated 1930s on the Maryland's Eastern Shore, scene of Maryland's last lynchings. When her memoir book published, she bought a black Infiniti I-30 cash outright since, she explained, Gregg would be driving her all over the state to readings and events. He did, and when she passed away she left him the car. We plan to donate the proceeds from selling the car to CityLit Project and publish African-American poets, likely young emerging poets, given Adele's passion for teaching. So my question is, what's the best way to invest $10,000 for the most gains which also allows access to proceeds within the next 10 years? Thanks. Marik, Baltimore MD.

Answer: This is a wonderful story, and a terrific use of the money. Now, in terms of investing the $10,000, the key concept is the relationship between risk and return. It's an axiom of modern finance that the only way to create the opportunity to earn a higher return is to take greater risks--and vice versa. The trick will be to mix and match investments to create a portfolio that gives you the chance for a decent return for the amount of risk that makes sense to accomplish your goals. Another factor to consider is how much of this money will you draw on during the 10 year time horizon? The more you want to tap into it on a regular basis the more conservative the portfolio choices become.

One way to structure the portfolio is to build a layer investment cake. The foundation would be "cash", which is Wall Street jargon for short-term securities, such as a three month to 1 year certificate of deposit, Treasury bills, money market mutual funds, and the like. With these investments your principal is safe, you'll make some interest on it, and the money will be easily drawn on when you need it. You could boost the income you earn by then putting some money into longer term fixed income securities. Since you have a 10 year time horizon, I would consider a adding a final layer of stocks through an broad-based equity index fund such as the Standard & Poor's 500. That would be your riskiest investment, but it would also offer the best opportunity for growth. You can play around with the percentages (or skip the stocks altogether) depending on how much--or little--risk you're willing to take.

I'm curious if any readers have other suggestions about how they might manage the money. Please send them in the comments section.

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