Measure stock performance in years, not weeks

Dear Bruce: We have placed most of our life savings (which are not a lot) in diversified stock market investments, and we have been losing steadily for the past three weeks. Should we be scared? Should we draw out the money and put it in certificates of deposit? We can’t afford to lose what little we have to live on in our old age. – H.C., via e-mail

Dear H.C.: Investments in the stock market, unless you’re an active trader, cannot be measured in weeks. They should be measured in months or, more likely, years. But the variable that you put at the end of your short note must be considered, and that is your age. You are correct to say you can’t afford these fluctuations as could, say, an actively working 30-year-old. That said, it’s possible your losses over the past few weeks may have been overcome already. If you are going to watch them on a daily basis, however, I would be more comfortable selling and putting the money into a CD, recognizing it will be a modest return. You’ll probably sleep a lot better.

Beating the credit system

Dear Bruce: My mom has started opening credit cards for the temporary zero percent interest period and then either paying off the balance or transferring it before the no-interest period ends, and subsequently opening a new card with a temporary zero percent interest period. Can this negatively affect her credit score? She is always on time with payments and never has more than two or three credit cards open at any one time. – E.M., via e-mail

Dear E.M.: Your mom is gaming the system very successfully, and I congratulate her. This will work as long as she has the timing to be certain she’s not late. The idea is to hook you in and then impose the higher interest, but she’s beating the system. Although she’s not considered a particularly good customer from the credit-card point of view, this will not affect her credit negatively. She’s like the supermarket customer who only buys things on sale. The supermarket doesn’t like cherry pickers, but cherry pickers like cherry-picking for good reason.

What to do with a windfall

Dear Bruce: With some inheritance money ($20,000), I have paid off all our credit cards and my wife’s car loan. This freed up $400 per month. My original plan is to send the $400 each month to my individual retirement account and a savings account. We have a 401(k) ($40,000), an IRA ($35,000) and a savings account ($1,500). I still have a car loan ($12,000) at 2 percent and a motorcycle loan ($9,000) at 9 percent. Would you recommend saving the money or paying down the motorcycle and/or car first? Making the payments on the car and motorcycle are no problem at all. – R.V., via e-mail

Dear R.V.: The easy answer would be pay off your loans, but the troublesome part is that, when you pay off the loans, even the most disciplined investor can find other ways to spend the money. That said, I would invest the $400 a month in an IRA or some type of savings plan that is tied to some type of solid investment, but not a savings account. Paying off the loan is easy, but there is no imperative to make the investments afterwards.

If you are absolutely disciplined, you might wish to consider the motorcycle loan. But the car loan, at two points, makes no sense at all; 2 percent is found money, the 9 percent is a different matter. It is so easy to take a windfall and pay down debt, but the debt can creep back almost unnoticed.

Recouping lost interest

Dear Bruce: I transferred a $50,000 IRA from one firm to another. This was a direct rollover. The check was lost in the mail. It took three weeks for the firm to resend the check. I think it would have taken much longer if I had not called several times to find out when they would reissue the check.

They said they were backlogged, and they would expedite the request. I would call back a few days later, and nothing was done. This is a very reputable firm, and I was surprised by the lack of service. It just doesn’t seem right that my money was in limbo for five weeks from the original rollover request and gaining no interest, at least for me.

Do you think I have any recourse? I feel I have lost money due to their inability to perform a basic service. – M.S., via e-mail

Dear M.S.: I understand your frustration, and the likelihood is you are correct that if you hadn’t been on top of this, it would have been more time lost. It is my opinion that you have every right to ask the company for the interest lost over the five-week period. Even at a modest 5 percent that will work out to almost $250, not an inconsequential number. My thought is to write to them and express your dissatisfaction with what otherwise has been a satisfactory relationship and say that their consideration of this claim is appreciated. In the event it is rejected, then regulatory authority is your next avenue to address.

In the comfort zone

Dear Bruce: I have $360,000 in various securities. I have been working with the same broker for more than 40 years. He recently died, and a new young broker is handling the account. He has suggested I am not getting enough return and that I could do much better if I would let their management team take over. They have various opinions as to how the money should be invested. I have worked all of my life for this nest egg and living on Social Security and the $17,000 to $20,000 that it produces.

I don’t know if I am scared or just reluctant to turn over my entire portfolio to someone with whom I have no experience. – Reader, Las Vegas, Nev.

Dear Reader: I can well understand your reluctance. You’ve indicated that, between the income and Social Security, your lifestyle is comfortable. This is another case of, “If it ain’t broke, don’t fix it.” Very likely, you could have a better return on your investment portfolio; however, you are living comfortably, sleeping well and not doing without anything you need or desire. I wouldn’t change a thing.

Unwanted credit boosts

Dear Bruce: I would like to know what should be done when credit card companies send a notice that your credit limit has been increased, even though you did not request it. I have heard it is a bad thing to have a high credit limit, even if all your balances are $0. What is considered a normal credit limit? – Reader, via e-mail

Dear Reader: What the credit card companies have determined is that you are worthy of a higher credit line and they’re hoping to encourage you to use the card more regularly. It is true too much available credit sometimes can be a problem with regard to a credit rating. Until such time as you have been refused credit because of a too-high availability, I wouldn’t worry. The big thing is to not abuse credit, and you are clearly not.

Rainy-day savings

Dear Bruce: The recent ups and downs in the market have made me question whether I have enough money in cash. Conventional wisdom used to recommend keeping an emergency nest egg equal to six months of living expenses. As someone with a relatively low risk tolerance, I am wondering whether my current 5.2 percent money-market account for my rainy-day fund would be a good place to park more money.

What percentage of a portfolio should be kept in cash? Where are the best yields and returns to be found for that cash? My husband and I hope to retire in 15 years. – L.R., via e-mail

Dear L.R.: Let’s address the rainy-day fund idea. You observe correctly that it was a common notion to keep about six months’ cash on hand for emergencies. That idea has somewhat outlived its usefulness, given the availability of instant credit. Put another way: Why have money sitting around at a low interest rate when you can get a higher rate and arrange for a line of credit to provide that instant rainy-day money if needed? The instant loan, credit card, line of credit, etc., can be paid back almost immediately by converting other investments into cash.

That said, this notion is somewhat tempered because of your low risk tolerance. You clearly are aware of the fluctuations in the market, which would give many investors a stomachache. At this writing, if you had ridden it out, you would be more than OK. There are many institutions across the nation that are FDIC-insured and that are paying about 5 percent, with absolutely no risk. Your money market account has little risk and is paying about the same. There’s nothing wrong with a low risk tolerance, but it does, in essence, condemn you to a low return on your savings. If you’re retiring in 15 years, I’m guessing your age is late 40s, early 50s. If so, I suggest you increase your risk tolerance, because you do have the time to overcome the ups and downs of the marketplace.

Separating money and children

Dear Bruce: My younger sister and her husband are expecting their first child in two months.

As the doting aunt, what is the best savings vehicle for me to encourage them to begin for their son when he’s born? I’d much rather give my nephew cash for college than the latest toy. – L.B., Phoenix, Ariz.

Dear L.B.: There are lots of vehicles, but for small amounts you are somewhat limited. Rather than choosing the vehicle right now, the critical thing is to be certain the child cannot get his hands on the money until he reaches 18. There are 529 accounts, Coverdell Roth education accounts and others. You will have lots of time to choose those, but the important thing is to be 100 percent certain the money is insulated from the child.

Loaning money to the government

Dear Bruce: I would like to have a better understanding of savings bonds. I have a 13-year-old son and a 4-month-old granddaughter. The bonds would be for them. What exactly are savings bonds, and how do I purchase them?. – R.M., Oakland, Calif.

Dear R.M.: U.S. savings bonds are simply a mechanism for the government to borrow money from its citizens. The interest rates vary, but the proceeds are fully taxable unless purchased for children – with limits on the parents’ income – and used for college expenses. One great thing about savings bonds is the low initial purchase price. These can be purchased at any bank or savings institution. That said, at the risk of sounding unpatriotic, I would prefer to invest the money in a solid mutual fund.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.[[In-content Ad]]