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For a risk averse individual, an index fund sounds fine. Also consider a Russell 2000 or Wilshire Total Market fund.
I also like the short end of the yield curve right here. You can get that through a high yielding online savings account, or open a Treasury Direct account, and buy 3 or 6 month Treasuries and keep roling them over. Since she probably isn't earning that much, the tax advantages of Treasuries may not really mean anything, and it might just be easier to keep it in savings.
I also think international markets are a better opportunity that the US right now. Maybe take 10 or 20% of the money and get into an international fund.
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