 Frank
Armstrong
Frank Armstrong, CFP, is the author of Investment
Strategies for the 21st Century, published here,
President of Investor
Solutions, Inc., a fee-only Registered Investment Advisor, and Chief
Investment Strategist of DirectAdvice.com. |
 Barry
Freedman
Barry M. Freedman CFP,
is Chairman of Freedman Financial Associates, Inc. in Peabody, MA,
a MA Registered Investment Advisor.
He has served on the National Board of the Institute of Certified
Financial Planners (ICFP) and as chairman and president of both the
Greater Boston Chapter of the International Association for Financial
Planners (IAFP) and the Boston Society of the ICFP.
He is quoted frequently in national and local publications and is
an industry arbitrator on the NYSE and for the National Association of
Securities Dealers (NASD). He started is financial planning practice in
1968.
His oldest son Marc, a CFP, is President of the firm. |
Questions and Responses
What's a good fund alternative for a teenager with a
small bank account earning minimal interest?
What's a good investment for a soon-to-be college graduate?
Where can I learn about a "lost" mutual fund?
How can a couple in their 70's shelter themselves from
taxes?
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What's a good fund alternative for a teenager with a
small bank account with earning minimal interest?
from J.
Q: I am 14 years old and am upset about my
banking situation. I currently have about $2000 and my interest rate is 1.01%. I
was wondering if a mutual fund would be good for me. If yes, which one? If not,
what do you think would be a good idea for me to get the most out of my money?
A: (Frank) I
don't blame you for being upset. Banks are notoriously stingy with their returns
on short term deposits. They borrow from their depositors at a very low rate,
and charge their borrowers a much higher rate.
You might find that you can pick up some additional return without
substantial additional risk by moving your account to a money market fund.
Or, if you are willing to tie up your funds for a longer period, check out CD
rates. As always, shop around for both CD and Money Market rates. There are
large variations between rates, and the rates change almost every day.
What's a good investment for a soon-to-be college graduate?
from Jason
Q: I am a 21 year old senior in college. I was interested in
investing. I already purchased shares of Vanguards 500 index fund. I was told by
some of my friends and colleagues to invest in a Roth IRA. I would like to
know what kind of Roth should I invest in and what other Mutuals should I look
into?
I inquired about stocks but was told by my financial advisor that I shouldn't
invest in stocks because I would get killed on broker's fees. Also I was told to
only invest in no load funds. Why is that?
A: (Frank) If you have earned
income, then you can consider a regular or Roth IRA. And, it's a great idea for
you to start early. The value of time and compounding earnings is enormous.
IRA investing is a long term commitment. Having given you large tax
advantages, the government doesn't want you to tap into the funds until you are
ready to retire. So, with certain exceptions (death, disability, first time home
purchase, etc.) funds withdrawn before age 59 1/2 are subject to tax penalties.
Given the long term nature of IRA investing, you may find that it is
appropriate to have a rather aggressive investment policy After all,
fluctuations in value are not a major concern if you don't expect to use the
funds for many years. All other things being equal, you should be comfortable
with a "risky" portfolio. That might include small company stocks,
value stocks, foreign, and emerging market stocks. Since you already have the
Vanguard S&P 500 index, why not put your IRA into one of their other
excellent index funds in these categories?
I certainly agree that no load mutual funds are the best way to go. Why pay a
huge commission for a fund that is unlikely to do any better than one without a
commission. It's like running a 100 yard dash from six yards behind the start
line. You might win, but you certainly have made it a lot tougher. Fees and
expenses are important to long term results. There is a direct relationship
between high costs and low returns.
Buying individual stocks will most likely cost many times as much in
commissions as a fund. And you are unlikely to get sufficient diversification in
your portfolio. Inadequate diversification introduces unnecessary risk into your
portfolio without increasing return.
You are on the right track, and it sounds like you are being given good
advice. Good luck.
Where can I learn about a "lost" mutual fund?
from James
Q: I have lost contact with the company handling my mutual fund. I am
in the Air Force and had to fulfill a series of assignments spanning years
before returning to the states. I believe the original company merged or was
bought by another company. How can I find where my fund is at? My quarterly
statement papers were lost in storage so I don't really have a starting point to
look.
Is there a group or company that deals in relocating lost funds? Any help
would be greatly appreciated.
A: (Frank) First, thanks for
serving in the US Air Force. We all owe you.
Why not post the name and approximate time you bought the fund on the Mutual
Funds Interactive main newsgroup
(www.brill.com/wwwboard)? With all the participants there it's very unlikely
that someone won't know what happened to your fund. I'm always amazed at how
much useful information is available from that group.
How can a couple in their 70's shelter themselves from
taxes?
from Louis
Q: I am 78, my wife is 72. I have an IRA account and my wife has a
taxable account.
Would it make sense for each of us to shelter our taxable monies in a
variable annuity instead of muni funds?
Our monies are essentially equally divided for estate purposes and the income
from our accounts plus Social Security yields an adequate income.
A: (Barry) Generally I am opposed
to variable annuities except in very unusual situations. If your purpose is to
shelter the income generated in your taxable accounts, I feel there are better
and less expensive opportunities.
Munis and/or muni funds are only one of several investments. If all you're
looking for is a stream of tax free income, then the munis are an inexpensive
way to invest. You should also look at 'tax efficient' mutual funds and unit
trusts which may provide an opportunity for greater growth and little or no
income tax until sold and then taxed at capital gains rates rather than regular
income tax rates.
Unfortunately, with an annuity, someone will eventually pay the tax on the
deferred build up at regular income tax rates. Unless you are planning to 'annuitize'
the annuity, then stay away. They are very expensive since they provide many
benefits that most people never need or use, but which they pay for nevertheless
(death benefits, investment expenses, commissions, etc). A good rule for
investing would be to pay for only what you need and not for things you'll not
likely use or ever need.
