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Survival Guide Tuesday: Investment tips

by Frank Mungeam

Bio | Email | Follow: @KGWNews

Posted on September 30, 2008 at 1:01 PM

Updated Wednesday, Nov 4 at 2:35 PM

Thanks to Mark Gaskill of MKG Financial for answering your money questions during Tuesday's KGW Survival Guide.


Arlene asked:
I'm have about $20K left in Vanguards Index 500 fund and Primecap fund. I'm wondering if I should reallocate to a mix of money market and bonds at this point. I will need access to the money sooner rather than later. I'm currently in Nursing School and running out of funds

Arlene: Yes. If you are in Nursing school and believe you will be accessing the funds in the near future, you can not chance having the assets exposed to high market risk. You can only afford to expose yourself to high market risk if you plan to stay invested for a long period of time. Time is the antidote to risk, and you don't have very much time to stay invested. The market could go up or down from here--we don't know--but given my understanding of your situation, you don't have the luxury of riding out these risks.


Anonymous asked:
I am a low-income, disabled boomer. The majority of my retirement will be coming via a recent inheritance. I am unfamiliar with financial matters, yet am dealing with my family's financial planner. I am finding it difficult to get a straight answer out of him, as he appears to handle matters very confidentially. Earlier this month, I asked if the "Wall Street" crisis would effect me. He simply answered that the "estate" chose to take "cash." Last week, given the seriousness of the Wall Street crisis, I again asked him, where my money was, and he answered that, he had not yet "cashed it in." What does this mean? Are there any monies left? What should I be looking for, in this process of receiving a monthly, retirement income? How do I know what this financial planner is doing with my inheritance, if I can't get a straight-forward, non-condescending answer out of him? I mentioned that Suze Orman strongly suggested either putting monies in money market(s), and/or into FDIC bank account(s). He said, that he would put the money into money market account(s). Is this really a good choice? What other suggestions can you offer? Thank you.

Anonymous: I am not entirely sure why the planner would be so secretive, but it may be due to the fact that the planner is prohibited from giving you details until you actually receive and own this inheritance. Is there an executor or other individual who is in control right now? If so, the planner may need to follow their orders rather than yours until the money is in your full possession. I suggest you find a financial planner who will give you advice on setting up a diversified portfolio of low-cost index funds. Trust me, Suze Orman would give you similar advice.

With the help of an advisor you can taylor an index fund portfolio to be high or low risk depending on your mix of various investments. For more information on why this is a good idea, go to I have no affiliation with this website. I simply think it has a lot of good information.


Mark said:

I have my 401k with the federal government split into International Stocks and Small-Business funds. The international market hasn't taken as big a hit as the American stock market but I fear they may follow suit. Would it be wise to pull these foreign investments and put them into the American market in the hopes that it will start going up or is it going to get possibly worse?

You absolutely should not change investments based on a speculative forecast. By trying to reduce risk by outsmarting the markets in an attempt to be in the best investment fund, you will actually serve to increase your risk by concentrating your portfolio. You must stay diversified. The premise of diversification is that different investments do well at different times. Therefore, in a properly diversified portfolio, you will always have some investments that are doing well and some that are doing poorly. You must keep them all because we never know when the various markets might turn.

I say again, concentrating your portfolio in an attempt to miss what you think will do poorly will increase your risk and pose a major danger to your investments because you will undermine your diversification. This is why people lost so much money in the tech crash--they forgot about diversification.


Anita Hedvall said:
I wonder if I should worry about (cash out) my money market account at TD Ameritrade? It is not insured. As I understand it that money will be fine unless TD Ameritrade goes under??

You money market fund is NOT like a bank deposit fund, and the health of this money is not related to the health of TD ameritrade.

If you have a standard money market fund, TD ameritrade can go under and you should still have your investments. In addition, TD ameritrade could be fine, but if the money market fund is poorly managed, you could lose money. Think of this money market fund as a regular mutual fund that happens to be comprised of very, very conservative investments.


Jean said:

I am moving my 401K from one managed account to one with a better return over the past ten years. I am 75. My financial advisor is suggesting buying C shares. What do you think?

'C' shares are usually best if you are going to invest for a short period of time. 'A' shares are more cost effective if you are going to invest for a long period of time. These share types simply indicate the way you are charged and the way in which the advisor is paid. 'C' shares are not common because most mutual fund investors are long term, so they usually use 'A' shares, but you may be in a special situation which is why your advisor is recommending C shares.

I suggest you find an advisor who will set you up with a portfolio of low-cost index funds. The advisor may charge you hourly or as a percentage of the assets under management. For more information on why low-cost index funds are a good idea, spend some time at This website has an extensive, thoughtful explanation for why index funds are a good choice.

Robin said:
I would like to invest in S&P 500. How and who would i contact? Is there a minimum?

I would contact Vanguard or Fidelity and ask for information regarding their S&P 500 index funds. They will be able to help you buy an index fund that is based on the stocks in the S&P 500.

Whether or not this is an appropriate investment for you is another matter. It is impossible tell without knowing your situation in full. I suggest you find a financial planner who will look at your financial situation in a comprehensive manner.


September 30, 2008 6:10 PM

Anonymous 2 said:
I am trying to determine if interest rates will rise after tomorrow's anticipated baleout. How are they going to avoid a rapid interest rate increase and ensuing inflation?

First, since we can't predict The Senate or the House, how can we predict interest rates that we suspect may be dependent on our lawmakers?

Inflation and interest rates are dependent on many, many factors--one could argue a virtually infinite number of factors. I would not try to speculate on these rates or on future inflation. I would simply invest with the idea that competitive market forces and human labor generate wealth over long periods of time. This is why I suggest you invest in a mix of mutual funds comprised of stocks, bonds and commercial real estate.


Bill said:

Between the 401(k) and the 403b, at this time which would be more useful / beneficial - or are both equally at risk at this time ?

The difference between your accounts will depend on the investments you choose within them. There is nothing inherently better from an investment perspective with these two types of accounts. The difference will be dependent on the investments within the accounts. I suggest ask your employer for the phone number of the financial professionals who are associated with your company's plan. They can give you specific advice. Don't be afraid to ask a lot of tough questions, and make sure you get all of your questions answered.


Anonymous said:
I am a 73 year old widow who several months ago transferred all of my stock funds to money market funds which are invested with a broker, is this a good thing or should I be looking at making the funds FIDC safe??

If you want your assets covered by FDIC insurance, call your broker and ask them if they can set you up with CD's at several banks so that you never have more than $100,000 in a single bank. Most brokers have the ability to set you up with CD's from several banks, just the same way they could buy several different stocks for you.


Terry Holtman said:

I have about 300k in tax free bonds. Is this safe, or should I worry. I have this with Edward Jones. Thanks


It is difficult to say. It is highly, highly unlikely that there will be a default in these bonds. However, their value may fluctuate violently to the positive and/or negative between now and the time they mature. Further, you will be losing money if we enter into a situation where the rate of inflation is higher than the interest payment on the bonds.


Pat said:
Hi, I hear everyone talking about 401k's and those that are retiring in the future, but what about people llike myself that are already retired. I have my money in my credit union with an investor and have a diversified portfolio. Do I just leave things the way they are? I will have to start drawing on this in a year and a half.

What does your advisor at the credit union tell you? The answer to this question has to do with specifics of your personal situation. How old are you? How much do you expect / want to spend when you stop working? What is the impact on your ability to support yourself if the market drops another 25% before coming back? What is the impact on your ability to support yourself if you invest in highly conservative assets with an extremely low rate of return?

I would ask these questions of your advisor at the credit union. They can help you because they understand the specifics of your personal situation.

But do not change your investment based on a forecast. the chance of the market going up or down from here is the same as it has been on every other day in history.


Doug Van Zanten said:
I am responsible for a non-profit 403(b) that is currently invested with AIG/VALIC. With the changes in feduciary responsibilities (5500 reporting) that will be required after January 1, 2009, and the current state of AIG, should we change companies or plans all together?

Great question. Unfortunately, I will be forced to deprive you of an answer because I don't know the specifics of your plan and it would thus be irresponsible to make a recommendation.

I will say that I strongly advise you get the 403(b) up to date with the new responsibilities and that you hire an objective, completely independent consultants to help you with this, especially if we are talking about a big plan. I suspect that the 403(b) industry will move toward simplification and most plans will only offer one provider in the distant future, much like current 401k's. There is nothing wrong with going with a single provider. I suggest a company through which you have access to a wide variety of low cost index funds.


Judy Fenton said:

I have 2 IRA'S one at Washington mutual, one with bankers Life & casualty. Should I move them into a cd or leave them alone? Are they FDIC safe? Thanks Judy

The fact that these IRA's are set up through banks does not guarantee FDIC insurance. Whether or not the assets are FDIC insured depends on the specific investments you have in these accounts and on the size of these accounts. Ask your banker for guidance on this one.

If you are like most people, you have invested your IRA into shares of stocks, bonds or mutual funds. These are not FDIC insured, so if the investment losses money, you don't get it back. However, if you own mutual funds, the good news is that these asset are usually segregated from the balance sheet of the banks, so you get to keep the investments even if the bank fails. The bad news....and good that these investments are exposed to the risk and return of the capital markets.


Tina said:

I will be receiving 200K this month. Where is the safest place to put this money?

the safest place to put this money is to split it, $100,000 each, between two banks in FDIC insured accounts. Actually, split it evenly between three banks so that, after the assets accumulate interest, you will never have more than $100,000 in any one bank. There are special programs and situations where you can get more than $100,000 of FDIC insurance through one bank, but these require more explanation.

Keep in mind, just because this is the safest course of action doesn't mean that it is necessarily the most appropriate way for you to deploy your assets.

Hal said:
Sir: I have most of my money in short term t bills. Will the interest on them ever go up? I believe that the yield has been artifically low for several years and that the housing bubble was done on the backs of savers. What will happen if the Chineese and other foreign investors decided not to roll over treasuries? If interest rates go up will that stabalize? Thanks, Hal
Sir: My previous comment was cut off. What I was asking at the end of the message was: by raising short term interest rates, would this help to stablize the US dollar? Thanks, Hal

Investors must understand that currencies are always fluctuating, and predicting their movement before the fact is difficult if not impossible. The US dollar has never been stable and never will be stable, nor has any other currency even been stable. Currency values have been violently fluctuating for as long as civilization has had currency to work with.

Nadine said:

My question is should I continue to put money in the Oregon College Savings Growth Plan for the children or hold off until the market picks back up? It seems like everything I am putting in is going away as fast as it goes in each month.

It seems you are in an aggressive portfolio in the Oregon College plan. First, do not stop putting money into the plan. The best way protect yourself from the negative downturns the market sometimes takes it to invest consistently through the good and bad periods.

Now that you know you should keep investing, you need to decide what risk level is most appropriate. The growth portfolio could lost another 20%. We had a situation like this in '73-'74 when the markets had two years, back to back, where they were down over 20% in each year. On the other hand, the growth portfolio could go up 40% over the next 12 months. We just don't know.

I suggest you contact the Oregon Plan and ask them to explain the amount to which the their portfolios have historically gone up and down during good and bad times. This will help you choose a portfolio that is best given your personal situation. Once you have chosen a portfolio, stick with it through ups and downs and keep contributing regularly.

Loren said:
My wife and I have $35-45k that we are looking to use as a down payment on a house in 2-3 years. What do you think would be the best way to invest those funds in the meantime to maximize return? About what kind of a rate do you think would be acceptable while minimizing risk? Thanks.

If you want to access this money for a down payment in such a short period of time, I suggest an FDIC insured account at your bank. Your banker can help you set up an appropriate account. The return will be very low right now but the risk will also be low. In fact, the money will be insured by the US government. Accepting low return is a trade off you will have to make. I encourage you not try to squeeze a little more return out of the account. If this downturn has taught us one thing, it is that higher returns do not come without higher risk. If you see an investment with juicy returns, understand that it is highly likely there is an increased level of risk attached to it. Trying to get a sliver of a percentage more return on this money just won't make that much of a difference over the next 3 years.


kim said:
Would it be best for me to leave my 401k in medium risk stocks, where it is now, since the market seems to be going up as much as it goes down? Or should i move most of it to bonds?

You should not change your investments based on a forecast of whether or not risky assets like stocks will go up or down in the short term. Risk is always there and stocks can always lose money. There are some periods of time when we feel more worried about risk, but he chance of a rise or decline in stocks is the same today as it was two years ago. This is why you should keep yourself exposed to a constant level of risk given what is most appropriate for your goals. There is probably an advisor on your 401k plan who you can ask for help in understanding the tradeoffs between different risk levels. Ask your employer for the contact info of this advisor. Once a risk level is chosen with professional assistance, you should stick with it through positives and negatives. If you get out every time the market is down, you will always lose money.


leonard said:
Are money market accounts even worth moving money into, given the low rate of return?

Whether or not you should invest in money market accounts depends on your goals. If you might need quick, short term access to this chunk of money, then money markets still satisfy this need. If you do not need to touch your money for a long period of time and have had a discussion regarding investment risk with a professional so you understand the positives and negatives of exposing yourself to risky assets, then a money market account may not be good for you.

On Tuesday evening, David Foster of Deschutes Investment Advisors will be answering your investment questions here in the KGW Money Blog. Submit your questions by filling out the "Comments" form below.