What is the best safe place to invest $100,000 with the objective of producing income, taking into account that the presidential election squabble will affect the next president’s four-year term of office and have a detrimental effect on investments? I am 67, retired and free of debt. The money is in an IRA. I am a conservative investor, not a risk taker. I’d like to get $500 a month without touching the principal.

Paul's Answer:

Let's ignore for a moment the fact that your money is in an IRA and look at some alternatives.

If what you want is rock-solid assurance that your money will be there, and $500 a month in the meantime, you could put it in short-term certificates of deposit. Rates posted at www.bankrates.com suggest you should be able to get a one-month CD paying over 6 percent. Have your bank or credit union roll over the certificate every month and send you a check for the interest. Your money will be as safe as it can be, backed up by federal deposit insurance.

The downside is that if interest rates fall, your CD yield could decline below 6 percent and you could start receiving less than $500 a month.

Another rock-solid alternative is to buy individual bonds that will pay you at least 6 percent. The interest payments on the bonds won't change, and when the bonds mature you will get every penny of your principal back. The trick is to figure out what maturity you want. Longer-term bonds generally produce higher yields. But they also make you wait longer before you are certain that you can get your principal back.

Or you could invest in a bond fund or a combination of bond funds. This is probably the best alternative, even though you might have to occasionally dip into your principal to get the $500 a month. A bond fund constantly buys and sells bonds, and the portfolio's overall interest rate, hence its yield to you, will move up and down slowly reflecting changes in interest rates. That means that if interest rates go up, your yield will gradually rise, presumably about the same time that inflation is higher.

However, the market value of existing bonds almost always moves inversely to the direction of changes in interest rates. So if rates rise, bonds fall. You can overcome this if you own individual bonds; just keep them to maturity and you get your money back. But if interest rates go up for an extended period, a bond fund's entire portfolio could decline and not recover by the time you want your money back.

This leaves bond investors with some tricky choices to make. We've discussed some of those choices, and made recommendations, in an article called All About Bonds, which you can find on our Web site.

As I hope you can see, picking "the best" place to invest is not as simple as it might seem. But bear with me, for I have an idea that may come close.

In the end, you may not have any way to accomplish your goal of leaving your principal untouched. If you have a traditional IRA, you will be subject to minimum required distributions starting when you reach age 70½. At that time you will have to start liquidating your IRA. If you have other accounts, you might be able to take your distributions from them and leave your bond fund portfolio alone.

If your $100,000 is in a Roth IRA, it won't be subject to the minimum distribution requirements. But assuming that you'll have to meet those requirements, you simply cannot create a portfolio now, whether it's CDs, Treasury bills bonds or bond funds, that will remain inviolate.

So I suggest you let go of that as a primary objective and focus on finding a safe way to obtain the income you need without subjecting your principal to much market risk. I think a combination of Vanguard GNMA and Vanguard Long-Term Corporate bond funds would make an excellent base. They have current yields of 6.8 percent and 7.0 percent. That means you could take out $500 a month and have some income left over to build up funds for a "rainy day" if interest rates declined. And if rates dropped, the value of your bond funds would rise.

I think this solution gives you wide diversification, a "cushion" of excess yield and the flexibility to withdraw exactly what you need for income and, later, for meeting your IRA distribution requirements.