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Investing a windfall

Question: I am 63 and have enough to live on from Social Security, some bonds, the rental of a small cottage and the annuity I purchased when I bailed out of the stock market in March. (My intuition about things to come was causing pretty high anxiety when I'd wake up in the middle of the night, because I had half of all I possess in mutual funds.)

Last year my brother and I inherited 2/3 share of a house from our cousin. It's now worth approximately $270,000 but for many reasons probably won't be sold any time soon.

I asked my brother, who is a wonderful and generous person, if he would buy me out so I could use the money for investment, charitable giving and travel. (One further note about my situation: I don't own a home but live in a rent-controlled apartment I love in the busy, interesting downtown area of my small city.)

Long story short, soon I will have some $45,000 to invest! I feel happy and grateful and sometimes even giddy.

Chris, I really admire your knowledge, insight and wisdom. If you were in my place, what would you do with the money in this economic climate. I've thought about putting $5,000 into gold just in case things get much worse. Thanks SO much for any help you can give. Sarah, Berkeley, CA

Answer: I'm going to give you a very conservative answer (no surprise there, I guess!). First, however, I would strongly recommend taking some of the money and start planning for and then going on a trip that you've dreamed about for years. Enjoy a portion of this windfall.

Then I would take all or most of the remaining money and put it into a certificate of deposit at an FDIC insured bank (or a federally insured credit union), an online savings account with a good yield (again, backed by federal deposit insurance), or a mix of short-term Treasury bills. All of these options will preserve the value of your principal, and earn you a slender amount in interest payments. I would then use the year to figure out how you want to invest this money, what might be the right trade-offs between risk/growth investments and safety/income investments. What about owning some blue chip dividend paying stocks? How about Treasury inflation protected securities? Another annuity? Or keep it in easily accessible, safe investments? There's no rush to decide, and at the end of the year (or some period of time) you'll figure out what's the smart financial decision for yourself.

Last, you mentioned putting a sliver of the money into gold. Here's my two cents: I'm not a fan of speculating in gold. Eyeballing a one year chart, the price of the precious metal is down from its March peak of around $1,000 an ounce to about $777 as I'm writing this. To be sure, the price of gold has risen dramatically in recent years. But if you want to speculate on future prices, I'd prefer that you make a comparable bet on a blue chip stock market index. Yes, the index may go lower--a lot lower as the economic gets worse--but the index will reflect real earnings, employees, profits and markets in the underlying companies. Investors will eventually decide prices have been beaten down too far, that there is value in the market, and start investing more aggressively.

To me, buying gold is simply a bet that you'll be able to sell the precious metal at a higher price in the future than what you paid for it. You might win. You might lose. Other people are more comfortable with that kind of bet than me.

What do listeners and readers suggest she do with the money? (To send us your ideas, just scroll up to the top of the page and click on "Contact")

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