I’m 64 and Received a $50K Inheritance But I ‘Took a Bath’ in the Stock Market Once Before. Should I Put It Into High-Yield Savings?

I’m 64. I just inherited $50,000. I’m leary of investing it in stocks as I took a bath after 9/11 and saw my $70,000 401(k) cut in half. I have been looking at high-interest savings in digital banks such as CIT bank. But I am concerned about their legitimacy. 

-James

I can understand your concern about both stocks and wanting to be sure a financial institution is legitimate before depositing your money into its products. Fortunately, there are some pretty straightforward ways to check.

Keep in mind: While there are some things you should consider as you work through your decision, the answer that’s right for you will ultimately depend on your risk tolerance and goals. Regardless of your ultimate choice, you’ll want to do a significant amount of research if you plan to do this by yourself – or consult a financial advisor.

Past Investment Experiences and Risk Tolerance

Our past experiences often influence our perceptions and future behavior. Investing is no different. You, like so many others, saw your portfolio value drop significantly as markets fell after the Sept. 11 terrorist attacks. However, your portfolio fell much more than the market as a whole, indicating you may not have been diversified or made some unfortunate timing decisions. I’ve addressed a similar scenario in another recent column you may want to read, but for this discussion we can take it for what it is… a bad experience that has left a sour taste in your mouth for market risk.

If your appetite for risk is low, then holding a less aggressive portfolio is the right choice. That’s because you are more likely to stick with your plan during volatility. If you are invested too aggressively for your temperament then you are likely to abandon your investments at precisely the wrong moment. That may have been partly why your losses were so large after 9/11. You can’t fix that now, but you can prevent it going forward by holding investments you are comfortable with. (And if you’re looking for a financial advisor use our free matching tool.)

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High-Yield Savings Returns

Deposit accounts like high-yield savings accounts are very popular right now since their interest rates are appealing again.  An annual percentage yield (APY) of 4-5% looks great compared to the 1% and lower we’ve been accustomed to for the past several years. I would caution you to be mindful that these rates are a function of the Fed’s current fight against inflation. Over the previous 12 months inflation has been 4% as reported by the BLS so the real, inflation-adjusted return of a 4-5% high yield account is still barely above 0%.

That doesn’t make it bad, just realize you aren’t really growing your account – just keeping up. That may be all you want or need. (A financial advisor can help you find an online bank that offers the kind of high-yield savings account you may be looking for.)

Bank Legitimacy

Now that we’ve discussed some of the underlying principles, let’s get to what seems like the heart of your question. How do you know if a particular financial institution is legitimate?

Fortunately, that is pretty easy to identify. You can look them up on the FDIC website. 

You likely know, but for the benefit of readers who may not, the FDIC insures the deposits of member banks up to $250,000 “per depositor, per bank, per ownership category.” That coverage means that if the bank goes under you get your money back up to those limits. (Consider talking with a financial advisor about banks that pique your interest.)

Finding out if your bank is a member of the FDIC is pretty simple. You can look them up on the FDIC BankFind site. If you are able to locate them there, you can be confident that the institution is legitimate and your money is safe. 

Next Steps

You’re wise to be cautious about the stock market. As you have experienced, investors can indeed “take a bath.” However, the fact is that – over time and as a whole – the stock market rises. Estimates vary, but a long-term average of 10% is not abnormal for a portfolio. The process of dipping your toes back into the stock market is to get sense of three things: your timeline (when you’ll need you money); your risk profile (how much short-term fluctuation you can tolerate in the value of your holdings); and your goals (how much you want or need your stocks to grow).

Tips for Finding a Financial Advisor

• If you have questions specific to your investing and retirement situation, a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Planning for retirement? Use SmartAsset’s Social Security calculator to get an idea of what your benefits could look like in retirement.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column.

Please note that Brandon is not a participant in the SmartAdvisor Match platform, and he has been compensated for this article.

Photo credit: ©iStock.com/-slav-, ©iStock.com/Szepy

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