Below are some of the questions sent to CBS 6 Answers Team member Dennis Fagan during Wednesday’s live web chat:
CBS 6 Viewer: Hi there. My husband currently contributes 17% of his pay into his 401K at work. We are steadily losing money - my question is this: would we be better off lowering the contribution (to the 5% needed for company match) and putting the rest into something like a CD? Thank you.
Dennis Fagan: Do not lower the contribution as you are receiving a tax deduction and perhaps a company match on each dollar your husband contributes. If you wish to become more conservative, select a guaranteed option within the 401(k). That said, you should evaluate your objectives and your time horizon before you sell anything or reduce contributions to the stock market AFTER it has already fallen more than 40%
CBS 6 Viewer: I have about $18,000 with mutual funds with Key Bank. I am recently retired. Should I ride the market out, or take the money out now?
A-Team DF: It depends upon what mutual funds they are and whether or not you need the money (or income from it) within the next three to five years.
CBS 6 Viewer: Franklin Templeton Funding. I really do not need the money now.
A-Team DF: As long as you don’t need the money, the vast majority of the Franklin Templeton funds will work. However, you should have a thorough understanding of what fund you are in, what the objectives are and how much risk you are assuming. If you know the name of the specific fund, I can help.
CBS 6 Viewer: The only info I have on my statement is: Franklin Templeton Funding Funds Allocation CL A. Does that help? Should I talk to my agent at Key Bank?
A-Team DF: That does help. This is a balanced fund with about an equal distribution between stocks and bonds. Hang in there.
CBS 6 Viewer: Thank you for your help.
CBS 6 Viewer: I’m not sure if I selected the correct option. We run a small trucking company that contracts with USPS and employs 60 people. In your opinion, do you feel that our company is recession proof? I know this is a tough question to answer and may not have a yes or no answer. One would think that dealing with the government it should be some what recession proof? Hmm, maybe not. LOL.
A-Team DF: I don’t know if this is the correct option… Let me just say that I would assume that NO company is recession proof if this is a DEEP recession. I would assume that this is going to be one. Look at your sources of revenue as well as trying to cut your expenses now before you have to.
CBS 6 Viewer: Who should a person contact to invest a small amount of money - about 10k - in the stock market? Most financial groups are looking for people with at least 50k.
A-Team DF: You can establish a discount brokerage account if you are comfortable investing on your own - or look for a fee-based advisor that accepts these minimums. That said, we would be happy to meet with you.
CBS 6 Viewer: My husband has been offered (I would say is being pressured) an opportunity to buy into Rockwell Energy Management, LLC; Rockwell Energy Acquisition Fund, LP. At first he was offered one “share” for $100,000. They then offered him a half-share at $50,000. Now they are down to a quarter share at $25,000. They sent a book about their company and talked about the natural gas project… If they happen to get the offer down to something we can afford, is this a good idea? I am retired and my husband will retire within five years.
A-Team DF: No, stay out of partnerships where there is no liquid market (meaning you cannot see the value of the account and/or redeem the shares upon demand). This is not the time to speculate.
CBS 6 Viewer: My husband and I are state retirees without debt and we do own our home. We are still in NYS Deferred Compensation Plan. Should we take some distributions at this time and invest in CD’s or should we leave the funds in the Stable Income Fund?
A-Team DF: Continue to leave it in the Stable Income Fund. Generally speaking, it is better to continue the tax deferred growth than removing it now only to have to pay taxes.
CBS 6 Viewer: I am 62 years old, a retired teacher, collecting retirement and still working part time earning 30,000 this year and 25,000 next year when I will stop working. My husband is 59 years old and still working until Dec, 2009. I have an IRA which has decreased from 350,000 to about 200,000. I have a financial planner who says I should keep my money where it is and ride it out. Do you agree with that plan?
A-Team DF: Don’t be patient any longer. You need to review your account, reevaluate your positions, objectives, tolerance to risk and learn about the history of how bear markets run their course. After that, assume a “worst case” scenario (within reason) for your investment portfolio and then act. Also, when considering your financial position, don’t just look at your investment portfolio. Also consider your pension and social security income.
CBS 6 Viewer: I may be interested in finding an new financial advisor. Any advise on how to go about that to get a good fit for my situation?
A-Team DF: Fee only. Experienced. Track record. Funds custodied at a major discount brokerage firm. Referrals.
CBS 6 Viewer: What is your advice about applying for Social Security? Is it financially better to apply at 62 or 66?
A-Team DF: It depends upon your income needs as well as your health. If you need the income from SS to retire, then go ahead. However, the break even period is approximately 12-15 years depending upon your investment returns.
CBS 6 Viewer: My wife and I are 12 to 15 years from retirement and have one child in last year of college. Our only debt is $335 a month for a small addition on the house - college has been paid for until this point. Our combined IRAs (traditional and Roth), annuities and small 401K have plummeted from $193,000 to $102,000. We have small savings for emergencies and CD - about $50,000 worth. If we withdraw our IRAs and annuities, I believe we will pay a 10% tax right off the top. If we were to do this, the balance would go into the CD and slowly return it to the market. Is this a good or a bad idea? If it’s a bad one, can we roll these into another type of vehicle without penalty?
A-Team DF: Bad idea. You do not have to remove your money from an IRA in order to put it into CD’s. You can have a CD that is also an IRA. That said, are you certain that you want to get out of the stock market AFTER it has already declined 40%? There have been 11 bear markets of more than 40% with ten of those ending before the stock market dropped 50%. The one time that it went further than that was during the Great Depression. Given this, unless you believe that we are entering a depressionary period, we are much closer to the bottom of this bear market (nightmare) than the top.
CBS 6 Viewer: The company I work for has a $2,000 403b match yearly in my money with American Funds. I also have my own side, business, where I’ve made about $30,000. Is one way that I can offset the total income from both jobs be that I increase my 403b contribution from my first job to lower my gross income since I don’t yet have a separate IRA for myself? Also, can’t I open an IRA with a single distribution at the end of the year for the same reason? If so, is there a max that I can put in?
A-Team DF: Yes, you can increase your contributions to your 403(b) or, if you wish or if you exceed the limits on your 403(b) open an IRA.
CBS 6 Viewer: Is there a max or min amount I can put into my own IRA? Is the max for the (b) $15,000 a year so I could only put in 13 plus their match?
A-Team DF: For 2008, the rules are up to 100% of earned income or $5,000 for those under age 50 and up to $6,000 for those above 50.
CBS 6 Viewer: For people in their mid to late 50’s who were planning on retiring in the next couple of years - how long do you think it will take to recoup the paper losses that we’ve incurred this year?
A-Team DF: The S&P 500 has dropped about 40% from its high. Assuming a rate of return of 8% per year, from these levels, it will take close to 7 years because you are working from a lower level. You might want to revisit your entire financial picture. Perhaps things are not as grim is my response.
CBS 6 Viewer: When you say revisit the financial picture, do you mean meet with a financial advisor to get into more conservative funds? Also, when is this stimulus package going to stop this downward spiral of the stock market?
A-Team DF: No, I do not necessarily mean move to more conservative funds. I do mean that you should look at exactly where you are financially at the current time, what your goals and objectives are, what sources will be available to utilize for income after retirement and then set a plan. Perhaps the decline in the market has set back your goals.
CBS 6 Viewer: Can I have too much GE stock in my retirement account?
A-Team DF: Certainly. Try to keep it under 10% of your investment assets. That said, now may not be the time to lighten up. Come up with a strategy to reduce your exposure.
CBS 6 Viewer: How do I get out of the stock market quickly without losing my shirt?
A-Team DF: The S&P 500 is down 40% from its October 2007 high. That said, if a company is publicly traded, you can sell it at 9:30 tomorrow morning and after a 3-day settlement, receive a check.
CBS 6 Viewer: I have come into some money through an inheritance, and it has enabled me to pay off my credit card debt. It is a bit bittersweet because I lost my wife, so at this point my home is supported by my salary alone. I am lucky enough to have a reasonable mortgage that I refinanced a while back and have streamlined my bills, so basically I am living paycheck to paycheck. On occasion I have to dip into this inheritance just to pay for things such as taxes or the unpredictables that I would probably otherwise have to put on a charge card. The money is in a savings/checking account receiving very little interest. Is there a better approach to earn a better interest rate but still leave a bit around in case of emergency?
A-Team DF: Please accept my condolences for the loss of your wife. Regarding your question, there are many vehicles that may help you receive more interest from your inheritance. Certificates of Deposit are offering up to 5% and there are other options as well - although some of which you shoulder some of the risk.
CBS 6 Viewer: The CD avenue sounds like the way to go. I have about 150K in this inheritance and I have been chipping away at it at about 10K a year. So that’s what I lack in my paycheck in order to live in what I consider a pretty reasonable life style. How should I break that up and invest it? Obviously the more I put into a CD, the more I can make on it but I am a bit paranoid to lock too much up.
A-Team DF: Stagger (ladder) the maturities on the CD’s in the following fashion, excluding what you wish to keep out for emergencies, etc… 1/4 three months; 1/4 six months; 1/4 9 months and 1/4 twelve months. Then when one matures, just renew it for a year. This strategy would change if interest rates change drastically.
CBS 6 Viewer: Is there any end in sight for what the market is going through?
A-Team DF: I hope so! Historically, there have been eleven bear markets (this one included) of more than 40%. Ten have stopped prior to 50%. The only one that did not was during the Great Depression that fell 89%. With this in mind, there is a good chance we are nearing the bottom. However, DEFINITELY review your current investment strategy to make certain that you can handle whatever comes.
CBS 6 Viewer: What would you tell a 24-year-old young man who has $30,000 sitting in his checking account to do with his money? He has no credit card debt or auto loans - he does have a 125k mtg and a two-year-old child.
A-Team DF: Begin to save through your company sponsored 401(k), deferred comp or 403(b) plan first.
CBS 6 Viewer: He was putting in 5% but then he stopped. He was not happy with the lack of growth.
A-Team DF: Tell him that he is 24 and saving for when he is 64 so that it doesn’t matter where the stock market goes over the next 1, 2,3, 5 or even ten years! In fact, he accumulates more shares as it stays low. Furthermore, he gets a tax deduction on each deposit! He is being shortsighted.
CBS 6 Viewer: For students such as myself in college - should we be looking to cut our college trip shorter or change colleges, due to the increase in tuitions?
A-Team DF: Do everything you can to finish college! Unfortunately you are going through college at a very trying time for our nation’s economy. I graduated from SUNY Albany in 1983, a recession similar to this. Hang in there.
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