Questions and Responses

How can I save my retirement nest egg?

Previous volume

Next volume

How can I save my retirement nest egg?

from Barbara

Q: I was at a firm for 13 years and had a 401(k). I left and rolled it over to an Alger retirement fund. I hardly have any money left, due to the market going down. I started with about $100,000 and am down to $45,000. 

What should I do? I'm afraid when I retire, which is in about 8 more years, I will have no more money in it. I am presently at a firm and I am contributing a 401(k) plan here.

A: (Rick) Sorry to hear about your account's demise. You have fallen for a very basic investment mistake called "chasing the hot dot". No doubt the eye-popping 88% return in the Alger Capital Appreciation Retirement fund tempted you into jumping in.

Unfortunately, your timing was terrible. The fund was invested in high tech and telecom, so chances of a quick comeback are slim to none. It is very unfortunate that Alger calls their aggressive growth fund a capital appreciation "retirement fund". Nothing could be further from the truth. It is a speculative, aggressive growth fund that no retiree or soon-to-be retiree should be in.

I have two suggestions. One, get out of the aggressive fund. It is clearly not the right fund for you. I would suggest the Vanguard Balanced Index for starters. It is a well diversified portfolio of stocks and bonds the is a better match for someone thinking of retiring in ten year. Second, I would suggest putting the maximum amount into 401(k). You need to build up your nest egg as soon as possible, and the only safe way to do it is by saving more. Good luck!

What can I do to rescue my trust fund?

from Jim

Q: They trust fund I inherited is being invested by a bank that has chosen Evergreen. It is really being battered, but they are not changing the investment.

I am at the mercy of this bank, as my father-in-law died and left this money for me in trust through his will. I am on a monthly fixed income, which pays for all my expenses. It seems that there is nothing I can do, as I have no say on what they do with this money they invested in the stock market. Sure, it looked good when the market was at its high, but now my funds are approaching near a 50% loss!

I only get a quarterly report on my mutual funds, but I do get a small increase every year, averaging $150.00 more a month. Anything I can not pay for with my fixed budget is taken care of, like dental, prescription medication, new glasses, a new hearing aid, etc., which is under the medical category.

Is there anything I can do to steer the investment in the right direction? How would you handle it, recognizing that I have to go by the terms of the will?

A: (Paul) One of the benefits for the donor of a trust in setting aside funds in a trust, is that there are very specific instructions as to how it should be managed and when distributions are to be paid.  It sounds like you've done some homework, but you might get a copy of the trust and seek counsel as to your options.  

If the account has decreased by 50%, there could be some basis for removal.  I'm not an attorney, so please seek counsel.  This could be a costly route, but one that might answer some of your questions.  I have clients that are in similar situations, and have been frustrated by the trustees in getting accurate information.

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.