Q: I serve on a special investment committee for a small church. We have approximately $150,000 in savings. About $600 per month is needed for operating expenses above expected congregation collections. It is estimated that $30,000 per year is required for major church-building maintenance. We plan to place $50,000 in CDs, staggered such that they come due every quarter. That leaves $100,000 for other investments. Do you have any suggestions for determining how this money should be invested? Do we need a professional money manager?
B.B., via e-mail
A: First off, "you probably don't need a professional money manager," says Tim Shmidl, a financial consultant with Prism Financial Group in Overland Park, Kan. "That would just add to your costs."
Rather, he says, "study up on bond mutual funds, preferably intermediate-term bond funds of around eight to 10 years duration with highest-grade quality bonds."
In today's market, it would be hard to generate $37,200 annually (based on $30,000 a year for maintenance plus $600 a month for 12 months) from investing $150,000. That would require a 25 percent annual return. Thus Mr. Shmidl recommends that you keep the $50,000 in CDs, and invest the $100,000 in intermediate bond funds. He likes the PIMCO Total Return Fund. You might be able to get between 6 percent and 8 percent annually, which should help offset the $600 monthly expenditures. Shmidl would avoid stock funds, given current market risks. But even bond funds have risk, he notes, since their value would drop if interest rates were to rise.
Finally, to get the $30,000, you will have to take interest earnings and some of the principal out of the CDs, he says. But that will only last a year or so. Perhaps you could somehow raise additional investment dollars, he adds.
Q: I was thinking of putting my small savings in a stock fund, but a friend said I should consider a "hybrid" fund, since it would be safer. Why?
M.G., New York
A: Hybrid funds are usually referred to as "balanced funds," or "asset-allocation funds," according to Eric Tyson, in "Personal Finance for Dummies" (IDG Books). The funds invest in both stocks and bonds, and seek to have the "right mix" to profit from current economic circumstances. But they are also subject to market risk.
Questions about finances? Write:
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