203 lines
11 KiB
Plaintext
203 lines
11 KiB
Plaintext
Philadelphia financial planner Christine C. Dattilo is interviewed by
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Investor's Forum comanager and OnLine Today financial writer Mike Pietruk.
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June 14,1989:
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How much cash reserve should an individual have in savings prior to
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considering investing?
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A rule-of-thumb for liquid cash reserves is savings of 3 months salary.
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But I believe two factors in today's economy call for an increase in
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savings equal to 6 months salary. The first is a likely economic downturn
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- a recession. During recession periods layoffs will increase and the time
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to acquire a new job with a similar salary will also lengthen. (Tip:
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Monitor the frequently watched statistic of # of help wanted ads, and
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length of time it takes for a job to be filled satisfactorily, increase
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your savings as these numbers decrease). The second factor impacting
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liquid savings is the amount of personal credit we carry. This number is
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at historical highs. Many families have little reserve credit to rely on,
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and also are beginning to find even minimum payments burdensome. Remember
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that even though 6 months of salary may seem like a lot of money you don't
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want to damage your credit rating by becoming a "slow pay" or defaulting.
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In case of extreme emergencies you may need to draw on whatever credit you
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have.
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Should one keep their savings in checking, passbook savings, CD's, Money
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Market funds or what?
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Liquid cash reserves, should be exactly what they imply, Liquid. That
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would mean CD's with withdrawal penalties aren't probably a good idea.
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Passbook savings pay inexcusably low rates on your money. Checking
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accounts, even the interest bearing variety don't adequately reflect your
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reserves - they're too easily susceptible to spending temptations.
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Therefore I would recommend a type of Money Market. Shop around for a
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money market fund or account with low management fees a history of paying
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some of the highest rates available. (Hint: Check Donaghue's). Try to
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find a Money Market that allows you to wire money to your bank account in
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case of emergencies, and also has checkwriting privileges.
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Do you have any interesting ideas for people to save or interesting
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products that folks typically overlook?
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I think many people have some of the best savings opportunities right in
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front of their nose. These would be employer sponsored plans. Many
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companies offer thrift-savings plans, credit union accounts with payroll
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deduction, low-interest rate credit cards and loans. Check these areas out
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first. As far as interesting products, one of the most exciting is the
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Pilgrim Prime Rate Trust. This product pools your money with other
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investors to buy Senior Collateralized Notes (a product that's only been
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available to investors of $5 million or more). The result is that your
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account is credited with prime rate interest. Your rate fluctuates with
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the Prime Rate. Currently Pilgrim Prime Rate Trust is paying 11%, and the
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Net Asset Value of the shares have never fluctuated from the original price
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of $10.00. I believe this and other innovative products are worth serious
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consideration for a family's liquid cash reserves.
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When one has enough cash to begin investing, where should they put these
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funds?
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As soon as one has a good cash reserve built-up they should set up an
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investment program immediately. A good place to start is an equity mutual
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fund. With a decent cash reserve an investor should be able to withstand
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the ups and downs of the stock market. Many funds have systematic dollar
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cost averaging programs (the best way to invest, no matter how much or how
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little money you have). The Franklin Group allows deposits as little as
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$25.00 a month. And Colonial Investors will automatically dollar cost
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average your investment out of their money market fund into one of their
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mutual, assuring you that your money never sits idle. For the beginning
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investor I wouldn't look much further than mutual funds. There are mutual
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funds that invest in Real Estate, Strategic Metals, OTC Stock and Energy
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providing much in the way of diversification.
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Should one diversify, and what is your feeling about speculation?
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Diversification is always prudent. With diversification you are buying
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increased safety. As soon as one can carry a good balance in a solid
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equity mutual fund, (a good guideline is 4-6 months salary, with a minimum
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of $5000) its time to diversify. Being a firm believer in the "buy and
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hold" strategy, I'd recommend a diversification of 60% stocks, 30% bonds,
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and 10% in real estate, precious metals, or maybe even a good energy fund.
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You asked about speculation. Being a financial advisor I have a
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difficult time recommending speculation in any field that your not employed
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in full-time (i.e. a commodity trader on the side). But I also understand
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that to some, money would be no fun unless they could speculate. So go
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ahead, speculate! But with only 10% of your invested monies - and don't
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leverage that 10% beyond 1/10th of your net worth.
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How much should one put down towards a home--the minimum the bank requires
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or should a person strive for the maximum down payment they can afford or
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put together?
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The home mortgage deduction is about the only deduction left. So my advice
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is put down the minimum down payment required and take the full advantage
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of the deduction. Put any extra savings into your investment program.
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How important is insurance planning, and does this change as one grows
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older and one's income and family needs change.
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Adequate life insurance is critical. But life insurance should be bought
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to be life insurance, not an investment (although if it provides investment
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benefits, fine). Don't overbuy insurance. You'll find it to be an
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expensive investment. Disability insurance is also important and often
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overlooked. Don't ignore your needs in case of disability. Insurance
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needs do change as you grow older, richer, poorer, and bigger(family-wise).
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Have your insurance reviewed every 5-7 years. But don't change policies
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easily until you've looked at ALL the ramifications to your taxes, cash
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values, surrender values, and current cost of insurance.
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When should one begin planning for retirement, and which vehicles should
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one use in this planning?
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Begin planning for your retirement in your early 20's. Look to your
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company for the best planning vehicles. Make sure to maximize 401K payroll
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deductions before considering other vehicles such as tax-deferred annuities
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or life insurance savings plans. If you are self-employed start a SEP
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(Simplified Employee Pension), its better than an IRA and often called a
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Super-IRA. Lastly, contribute to an IRA. IRA's are not dead, and still
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make excellent savings vehicles even if not fully deductible.
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How do we change both our general investment planning and our retirement
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planning as we grow older?
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As you grow older its important to diversify away from long term
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investments such as real estate. Your concentration should focus towards
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bonds and away from equities. At 60 years and older I'd keep a minimum of
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60% of investments in bond funds. At 65 make sure those bond funds are
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tax-free - because of the new Medicare surcharge tax. Annuities are worth
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serious consideration when you near retirement. The guaranteed monthly
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payment of an annuity can help you plan retirement without worry about
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market conditions or interest rate fluctuations.
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Is it a mistake to separate general wealth building from retirement
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planning?
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The answer to that question is Yes and No. When you are young (45 and
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younger) I feel you should ALWAYS be extremely conservative with your
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retirement money. Set aside every dollar you can in company sponsored
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plans for retirement. If you have no company plans, set up your own
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retirement plan with an annuity. With a variable annuity you can even
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design your own conservative investment plan, diversifying among fixed
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accounts, bond funds, and stock funds. Contribute to that annuity
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annually. Also make sure you are contributing to an IRA. With your
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investment dollars you can be more aggressive. You can choose from a
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variety of aggressive growth mutual funds, growth - income funds, blue-chip
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funds, small cap funds etc. Tax-deferral should take a backseat to the
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quality of the investment. Certainly real estate, and carefully chosen
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individual stocks are appropriate for the young investor.
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For the middle-age to older investor (45 and older) you should also be
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extremely conservative with your retirement money. But you also should be
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more conservative with your "wealth building" dollars. An investment in
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real estate or other long term (10 years or longer) investments become less
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desirable. An investor should look to move all their money more towards
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bonds and other semi-liquid investments. Tax-deferral is worth serious
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consideration, as the chances for early withdrawal penalties become less.
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I think in one's later years the focus should be on a well-provided
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plan for retirement. Your investment policy should be evaluated in this
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light.
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Finally, as that day of "no work" and retirement arrives, what should we do
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with our money?
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Enjoy it! Stop worrying about making "the big score". If you've planned
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carefully you'll have adequate health insurance, a cash reserve invested in
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high interest paying accounts, and taxes won't be a major concern (use
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tax-free's to help avoid the bite of the Medicare surcharge). If you have
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a large estate you should be sitting down with a good estate planner.
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Hopefully your life insurance is up-to-date. Latest statistics show that
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only 6% of the population 65 and over are financially independent without
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working. Its a sobering thought. So start early, plan carefully, and
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enjoy.
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Another file downloaded from: NIRVANAnet(tm)
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Rat Head Ratsnatcher 510-524-3649
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Burn This Flag Zardoz 408-363-9766
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realitycheck Poindexter Fortran 415-567-7043
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Lies Unlimited Mick Freen 415-583-4102
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