Question:

I’m a healthy, 60-year-old woman, still working, with a modest retirement portfolio worth about $40,000. I will soon receive a lump-sum tax-free pension settlement worth about $25,000. After I max out my Roth IRA for 2008 and 2009 and pay off some credit cards, I’ll have about $10,000 left. I intend to keep this as an emergency fund, though I don’t think I will need it in the future. How should I invest this money to keep it growing but also protected from a major loss? Bond funds? Certificates of deposit?

Click here to read Merriman's answer!

ERIC JONSON:

You have done a great job of putting together a prudent plan for the money you will receive; paying off debt and funding your IRA are the right things to do.  Establishing an emergency fund makes sense with the remaining amount.  I recommend using the Vanguard Prime Money Market Fund for this purpose so you will not subject yourself to any kind of market fluctuations. You will be able to get access to your money instantly without any penalties. The current yields on money market funds are low, but they will rise if interest rates go up in the future. More important, you will know that all your principal is there if you need it.  You could get a higher yield from a bond fund, but your principal could fall in value if interest rates rose. I think it’s best to keep your emergency fund totally safe, and a money-market fund will do that.

Eric Jonson is a financial advisor for Merriman