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Author: phillyd100 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Need good investing plan Date: 4/11/2008 2:47 AM
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I am 49, have earned a decent amount of money, and have changed careers to pastor a church. I can use some advice on how to invest wisely so I can retire someday.

I have two issues.

1- One kid is in college and one is going to begin in Sept 2009. I've saved enough for both ... should I just put their money in money markets at this point or let their funds ride?

2- I've got no debt, my home is paid for (about $450,000 equity) and I've got about $700,000 cash. What is the best strategy? Give it to Buffet and Co? Pick my own stocks? Standard Fidelity/Templeton type funds? Invest in real estate (prices are down.)

Any help would be appreciated.
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Author: ltangel Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 62183 of 76418
Subject: Re: Need good investing plan Date: 4/11/2008 7:37 AM
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My suggestions:
1. Go slowly! Better to wait than try to undue a poor decision.

2. Read. Bone up on some basics.

3. Decide what your comfort level of risk is so that you may put together an asset allocation which you are comfortable with before you invest.

Good luck!
I am still doing all of the above!

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 62184 of 76418
Subject: Re: Need good investing plan Date: 4/11/2008 7:55 AM
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Welcome! You have made an exciting change to your career and I wish you the best.



I can use some advice on how to invest wisely so I can retire someday.

An excellent goal. Before you can finalize your plans, you will need to more completely quantify your goals and your investing profile. Answering these questions will help...

(1) At what age would you like to retire? 55? 60? 70? Having a goal date in mind helps you plan ways to get there.

(2) How much money will you need per year in retirement? What portion of this is covered by pensions or Social Security? Typically, you will not want to use more than 4% of your retirement funds the first year; then you can increase withdrawals at the rate of inflation.

(3) As a best guess, how long do you think you (or your spouse) will live? You never want to outlive your money!

(4) What is your risk tolerance? You want to be able to sleep at night. But you also have to remember that being too conservative brings about a whole new set of risks -- namely the real possibility of losing to inflation over time.

Help us out by answering some of these questions -- along with any other information you can think that might help -- and the answers we give you back will be improved. For now, I will work in generalities...



1- One kid is in college and one is going to begin in Sept 2009. I've saved enough for both ... should I just put their money in money markets at this point or let their funds ride?

Typically, you will not want to have money in the stock market that is needed within 5 years. If you are set financially to pay for college without any added gains, I think setting this in a safe place makes perfect sense. If you wanted to take some risk to get growth, maybe having up to 25% of the funds in the stock market would be ok.

My vote -- move to a money market fund and rest easy that you have provided for your kids' educations!



2- I've got no debt, my home is paid for (about $450,000 equity) and I've got about $700,000 cash. What is the best strategy? Give it to Buffet and Co? Pick my own stocks? Standard Fidelity/Templeton type funds? Invest in real estate (prices are down.)

That is a *fantastic* position to be in! In retirement, do you see yourself downsizing your house? Or do you think you will stay in this house? If you plan to downsize (or move to a less expensive area), it is possible you have another chunk of money coming back to you someday.

For the $700K, you have to think about your timeframe. You said you are 49; if your spouse is about the same age, there is a real chance one of you will need to have your money around for another 40 years. Possibly longer. For this reason, having the money sitting in cash is not a good call; at least some of it needs to be in the stock market.

I'm 36, so my portfolio looks a good bit different from what you might want. But the general principles are still the same -- spread your money among various asset classes to gain from diversification.

To make life simple, I like to work with index funds. If you use the right ones (I stick to Vanguard as they have the lowest fees and some of the best policies in the industry), you can get great diversification with little time/effort on your part. This gives you more time for the things that matter in life.

Your answers to the earlier questions will guide the way your portfolio should be structured, but the general asset classes I use are:

(a) Total United States stock market
(b) Total International stock market
(c) Fixed-Income
(d) REIT (real-estate investment trusts)

You could leave out (d) and be fine. Also, you will want to be careful about using bond mutual funds (even index funds) for the fixed-income portion of your portfolio. The problem with these is that as interest rates rise, these funds will lose a lot of their value; rising interest payments are not likely to fully compensate for this loss. If you visit the bond board (http://boards.fool.com/Messages.asp?mid=26550658&bid=100135) you can get some help in where to put this portion of your portfolio.

I hope this helps get you started.

Acme

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 62185 of 76418
Subject: Re: Need good investing plan Date: 4/11/2008 7:56 AM
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1. Go slowly! Better to wait than try to undue a poor decision.

This is the best single piece of advice one can receive. I did not specifically mention this one, but I asked lots of questions to show that a lot of thought is needed before one can really proceed to the answers. (And even then, the best answers are never going to be clear until we can use hindsight!)

Acme

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 62187 of 76418
Subject: Re: Need good investing plan Date: 4/11/2008 9:10 AM
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1- One kid is in college and one is going to begin in Sept 2009

One quick point on this - make sure you research your state's benefits regarding 529 plans. A large minority of them give tax credits or other benefits for investing the money - even if it is invested in a 529 money market fund.

For the money you know will be going to college expenses, you may find some significant tax savings by parking it in your state's plan. My state gives up to a $1000 state income tax credit for contributions and they are only required the remain in the account for one year. I have many clients now "buying" 529 money markets for their kids, even if the kid is already in college.

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 62188 of 76418
Subject: Re: Need good investing plan Date: 4/11/2008 11:13 AM
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1- One kid is in college and one is going to begin in Sept 2009. I've saved enough for both ... should I just put their money in money markets at this point or let their funds ride?

Definitely leave the money in a money market account, especially if it is enough to cover the cost. No since in "gambling" with this money since it is an immediate need fund. Nothing like, sorry son, had you money in the market just because and now you can go to school. If the money winds up being a little short, you kids can find summer/part time jobs to pay for the difference. Plus, check for available scholarships. There are often plenty of small amounts of money that no one applies for simply because they are small. Enough $500 checks can add up.

2- I've got no debt, my home is paid for (about $450,000 equity) and I've got about $700,000 cash. What is the best strategy? Give it to Buffet and Co? Pick my own stocks? Standard Fidelity/Templeton type funds? Invest in real estate (prices are down.)

Keep reading and studying. Do a Google on lazy or coach potato portfolios. Don't invest in something that you don't understand and can explain to your wife so that she understands. Also, don't invest in something that you can't control of manage daily, i.e., if you do rental property will you have to hire a manager/repairman.

JLC

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 62189 of 76418
Subject: Re: Need good investing plan Date: 4/11/2008 1:31 PM
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...One kid is in college and one is going to begin in Sept 2009. I've saved enough for both ... should I just put their money in money markets at this point or let their funds ride?...

The problem is that some of the money will likely not be spent for six years and that is a long time to leave the money invested at a rate that is below inflation after taxes. One option would be to put the money that won't be spent on tuition for five years into iBonds because they will keep up with inflation(at least the understated CPI inflation rate) and be tax free if used for qualified education expenses(not room and board). The rate will be reset on May 1st so you will need to find out if they likely to go up or down then and time any purchase around that date.

Here is a link to the "Bonds and Fixed Income" board to an unrelated question where you can ask about the iBonds.

http://boards.fool.com/Message.asp?mid=26550658

Here is a link to the "Paying for College" board for other general questions.

http://boards.fool.com/Message.asp?mid=26539425


A few addition comments;

1) As previously mentioned a 529 college plan is worth looking into. These can also be used for room and board which can cost as much as tuition at a state university.

2) In years when you have low income and are in a low tax bracket, if you have any traditional IRAs or 401ks you can roll the money into a Roth IRA and never have to pay taxes on it again. You do not have to do this all at one, you can rollover just enough money each year to get you up to the next higher tax bracket for that year.

3) If you have a working spouse, you can still make contributions to an IRA even if you don't have income that year as long as you meet a few requirements.

4) You mentioned possibly buying more real estate. It looks like you already have about 40% of your net worth in real estate so from a diversification standpoint you really shouldn't buy any more.

5) In 2008 through 2010 there will be a special zero percent capital gains tax rate for people with a low enough income. You will of course need to research the details but if you have any stocks with capital gains you might want to sell them during these years, even if you eventually buy back the stock after you have waited long enough to not run into the "wash sale" rules.



Greg

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Author: phillyd100 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 62199 of 76418
Subject: Re: Need good investing plan Date: 4/11/2008 10:17 PM
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Thanks alot everyone. I really appreciate the time and energy it took to chime in. My wife and I are going to research how much money we have in the college funds and probably put them in a Money Market. I think we have about $80,000 left in the one who is already 2 1/2 years into his education. He won't even use what's left. The younger kid has about $150,000 (it may be $180,000 ... we're going to look at that tonight as well.)

I also believe we have another $150,000 parked away in other accounts. We're going to get it all under control and take our time like you guys suggested.

My wife's tolerance for risk is minimal to zero (hence all the cash.) My younger son and I dont' mind risk ... we just bought some Ford stock (I believe it's going to be $25.00 in 3 years so I'm in.)

But now that we're not earning the money we once did with our career change she is understanding that we need to invest and grow our money. I'm thinking I'm not going to live very long but she will so I want her taken care of. She's a great woman.

I'm also thinking of encouraging her to go to work ... she's a CPA and an MBA and maybe just use a bit of her money to live (supplementing the Pastor's salary which is quite low comparative to what I made in my business) and invest the rest of that as well. Even in today's climate she should be able to earn decent money. I'm thinking of encouraging her to start her own accounting practice ... this way she earns money and will have something to sell at the end.

I'm really trying to retrain us from to move from "work" earners to "investment" earners.

Oh yeah .... our home is larger than we need and I can see us downsizing once the kids "get out!" Maybe sell the GTO and the valuable car parts and invest that too. I'm starting to get a taste for this project and want to attack it like I've done my previous business and now pastoring the church.

It's really the only way I know how to operate.

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