Hi there Chris,
I completely disagree with the claim made above.
Further, one should understand the difference between yield
and total return
Yield is interest or dividends. See this: http://www.investopedia.com/terms/y/yield.asp
If you wanted to take any principal risk at all, then a portfolio of VERY diversified investments that actually shows a standard deviation low enough to provide some true diversification MIGHT be a way to go. (and again could only achieve rates claimed above by adding growth of principal AND yield, OR is such a below investment grade bond
that the default risk
would be atrocious)
But for a five year window? No ... not appropriate at all and based on your questions, information provided, and past investment experience, a completely unsuitable recommendation.
By the way, because this site isn't registered as an investment adviser with the SEC, we can't make the kind of specific recommendation made above anyway (under the registered investment advisers act of 1940) ... you'll notice that my discussion above discusses alternatives, and some general education about those alternatives.
MOST important, however, is the fact that in today's interest rate environment NOTHING is yielding the kinds of rates claimed above (a blended portfolio with some equities, if you get lucky about when you pulled them out - maybe) ... but that's not yield.
AND for a five year window? Completely unpredictable, and inappropriate ... quite honestly, dangerous, given your intended goals for this money.
Now, if some of those dollars are going to be there 10 years or more, then it almost becomes inappropriate NOT to recommend SOME equities ... but even then, the investor needs to understand the risk.
As you go about your search out there...be very aware of the credentials of those offering "ADVICE."
Those with a SERIES SEVEN securities license, for example, (even though some of them don't even realize it) owe more loyalty to their broker/dealer than to you. They DO NOT work for you
. They REPRESENT a broker/dealer ... that's why they're called brokers.
The series 7 license is a registered rep's license ... and the entity being represented is a broker/dealer NOT YOU. (Next time you run into someone that has registered rep on their business card, or the card says "securities offered through ...") tell them to go read their contract before making the claim that they're actually offering advice....because all they can offer you BY LAW is the opportunity to BUY something from them.
If you want good, unbiased advice from a fiduciary who represents YOU
, sit down with a CFP who is ALSO a fee-only financial adviser (These folks refuse to take commissions), which eliminates the conflict of interest that permeates the registered rep's business model. They represent only you.
Here's a good place to start: http://napfa.org/
Use the find an advisor search
(right there on the front page), find a fee-only person in your area, give them a call and ask them about an investment that pays a 7+ percent yield ... once they fall out their chair laughing, they will best be able to help you understand the trade-offs that exist in today's environment.
Two final thoughts:
(1) Whether it's a CD, an annuity or any other (Index linked hybrid, such as the one you mention) you will get a guaranteed rate that is Very Low single digits, along with a PARTICIPATION in an index, such as the S&P 500, meaning that you will only get a portion of that return ... AND it will likely come with a CAP - This is the price you pay for the guaranteed rate of - in today's environment, 1 or 2 %). You'll never get anything close to what the index actually does.
(2) In today's environment you'll only be able to achieve the kinds of returns claimed above, but take substantial risk .. even long bonds are barely getting to 4's. You'll either have to blend in equities or it it's actually doable with yield is would be with a junk bond, junk bond, fund, or a junk bond ETF ... and not only will there be incredible default risk there, guess what happens to bond PRICES (principal amount invested) when rates go up - and that's the only place they can go from here - those bond prices go down.
Here's an excellent article on why that happens: http://www.investopedia.com/ask/answers/04/031904.asp
If it sounds to good to be true ...
(Be careful out there)