Q: I recently received $125,000 from a trust settlement. I want to invest it for approximately four years and then use it to pay off my mortgage because at that time I will be 65 and retiring. Any ideas on where to place the money?
-- Bob, Davis
A: If you are set on using the $125,000 to pay off your mortgage when you retire in four years, you should not invest it in anything that could result in a loss of principal.
Unfortunately, in today's economy, you will not be able to earn much without taking on some risk.
Your options include higher yielding savings and money market accounts, CDs or T-Bills. Check out bankrate.com for the best available rates. Don't be afraid of online banks, as long as they are FDIC insured.
If you elect to invest in CDs, construct a CD ladder, i.e., split up your $125,000 into various maturities, e.g., six months, one year, two years, etc. Just watch out for early redemption interest penalties as you get closer to the end of the four-year period.
Since you will not be able to earn much on the investments listed above, consider paying off your mortgage gradually by increasing your normal monthly payments. When making these payments, indicate that the additional funds are on the principal.
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