Have a Finance Question? Ask a Financial Expert Online.
I believe your idea for protecting the principle for 6 months while earning 4% interest is a wise one. You would gain very little by investing in longer term bonds at this point. I regard the American stock market as rather volatile and overpriced right now. One must take rather large principle risks for double-digit total return prospects.
The first rule of investing a windfall like this is "Don't lose it", especially when you may need the funds for a 1031 exchange later. The second rule i s"Don't forget rule 1".
I think you are probably 99.99..% safe putting it all in one place despited the FDIC limit. I don't foresee a wave of bank failures in the next 6 months. To be 100% safe, divide it among different banks. You wil still get your 4% interest.
I firmly believe in balancing your investments in both income instruments and equities, as Chris has suggested above. However, since you may need the money for a 1031 conversion, a six month guarantee of principal in today's market is a safe and reasonable choice for maintaining liquidity with principle protection. For the longer term, consider a 60/40 mix of equities and bonds, or a good balanced fund.
In your situation, IF it is likely you won't be needing that money anytime soon, I would consider putting 10-25% into New York municipal bonds or a mutual fund that holds them. Most brokers and CFA's won't tell you this because they don't make much money on the deal. Although the principal is not guaranteed in such funds, diversity provides protection from calamity, and you will find that you can still get yields of over 6% TAX FREE in the exchange-traded funds of Van Kampen Merrit, Pimco and others. You might also consider buying such NY muni bonds directly. I am about 40% in "laddered" variable maturity-date long term munis, and muni funds, myself, and have been retired for 13 years with that allocation ratio. I have not regretted it.