How should I invest the $200,000 I received from the sale of my house?
I am a 63-year-old single woman with no children, and I plan to retire at age 65 and go back to Peru. I sold my house and I received $230,000 and I want to invest 200,000, but I will need $100,000 in one or two years. How should I invest this money?
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For half of the money you shouldn’t look at investing it at all. For clients in this situation, I recommend keeping the money needed in two years in a federally-insured savings account. Both the risk and the cost of investing would end up being against your best interest. While I am confident clients benefit far beyond my fee when money is invested, my fees on such a low-risk portfolio would eat too much into those low associated returns. Advice to invest this half would not be in their (or your) best interest.
Investing the Other Half
For the other half of the money, where you invest will depend on when you think you might need the money. If you will not need/want to spend the money for at least 3 years then investing becomes a very good alternative. As your time frame moves further out, you can invest more aggressively. This not only means adjusting the bonds/equities allocation, but also the allocations to sub-asset classes such as small cap stocks, developed and emerging market equities, real estate, and others.
Other factors include your tax situation, how much income you need during retirement, what sources of income you have, and how much additional money you might have saved. Without this information, I can't offer more specific advice on the other $100,000 without breaching my fiduciary duty.
Investing The Half Needed in 2 Years
If you want to invest the half needed in the next two years, it is possible to do this in a relatively safe portfolio. Because you will need $100,000 within a couple of years, you can't take on much stock market risk with this half of the money. The reason is if a stock market crash happens, you won't have time to wait for the market to go up again. For the first $100,000, the most aggressive you should invest is in short-term Treasury Bills or Notes. When I say short-term, I mean they should mature in 1-2 years, around the same time as you might need the money.
If your need for the money has significant inflation risk, meaning inflation could threaten your ability to afford what you want to purchase with the $100,000, then it should be invested in a portfolio designed to protect against short-term inflation. This would be a portfolio with an emphasis on Treasury Inflation Protected Securities and I-bonds along with other investments which are highly correlate to the inflation rates specific to what you are purchasing.