Money Magazine has a nice little section where you can send in your questions and the answers will be printed in the next addition. I thought it would be a good idea to post for all my readers to see.
Q. I plan on retiring in Five to 10 years. For asset-allocation purposes, should I consider myself a short-term or long-term investor?
A. You definitely a long-term investor. The past year has clearly demonstrated why you don’t want a portfolio made up mostly of stocks when you’re within a few years of retirement. But you’ll be living on this money for decades. Even though the 10-year return on stocks looks poor right now, equities have come out ahead over a 30-year period.
Rather than Solely focusing on time horizon to determine your stock/bond mix, figure out how much long-term growth you need from your portfolio, suggests Allan Roth, a financial planner in Colorado Springs. Among the things to consider: the value of your savings today, what you’ll collect in pensions or Social Security and what you expect your expenses will look like post-retirement.
– Carolyn Bigda
Q. I’m thinking about putting most of my cash in Fannie Mae or Freddie Mac stock, since the price of the shares is so low. Shouldn’t the bailout help those stocks rise?
A. Putting all your money into one or two stocks is an invitation to disaster and that true even if the company isn’t, like these, losing billions of dollars in an imploding market. Moreover, it’s not even clear that Fannie and Freddie are a deal at today’s prices. Such bargain-basement temptations are usually cheap for a reason, says Erick Ormsby of Alcosta Capital Management. “These companies have a whole host of problems that will take a long time to work out,” says ornsby, “even if the government doesn’t let them fail.”
– George Mannes
Q. If a large investment firm went bust, would I lose the money I have in Mutual Funds, IRAs or other accounts?
A. To date, no mutual fund company has failed. In this market, though, anything is possible. But even if a fund family were to go belly up, the money you have in its funds – whether in an IRA, a 401(k) or any other account – would be safe. Here’s why.
First, unlike when you buy a CD at a bank, the money you invest in a mutual fund doesn’t become part of the assets of the parent firm. Instead, it goes to whichever mutual fund you’re buying, which is a seperate entity. In fact, the fund company doesn;t even own the funds under the firm’s name; it merely has an agreement to manage the assets and sell shares. if the parent company went bankrupt, the assets of individual funds would not be avilable to the firm’s creditors. Finally, to protect shareholders, federal law requires funds to have insurance that cover instances of fraud, embezzlement and the like
– Waletr Updegrave
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