CONFUSED BUT TRYING TO UNDERSTAND

[AJL]

YOU KNOW, I GLANCE AROUND THIS FORUM AND AM AMAZED AT HOW MANY HAVE SO MUCH! AND I WONDER HOW THEY DID IT?I SUPPOSE A GOOD EDUCATION HELPS AND A RETIREMENT IN ONES BACK POCKET IS NICE TO RELY ON, BUT I CONSIDER MYSELF AN AVERAGE JOE BLOW TRYING TO FIND A WAY TO BE ABLE TO RETIRE BEFORE I GET TOO OLD TO ENJOY IT. I KNOW THAT I NEED TO CHANGE MY THOUGHT PROCESS QUITE A BIT ON JUST "HOW" TO INVEST WHAT I HAVE AND NOT BE TAKEN ADVANTAGE OF ALONG THE WAY. I "THOUGHT" THAT MY FINANCIAL CONSULTANT WOULD HELP, BUT IT SEEMS THAT MOST OF THEM JUST PUT YOU INTO MUTUAL FUNDS & "LET IT RIDE" REGARDLESS OF THE UPS & DOWNS. IF YOUR NOT INVESTING A MILLION DOLLARS, IT SEEMS THAT THEY DON'T EVEN KNOW YOUR ALIVE! AND ALL YOU GET IS A "YOUR IN IT FOR THE LONG HAUL"? I KNOW THAT I CAN MAKE MY RETIREMENT WORK IF I CAN JUST UNDERSTAND HOW THE "SYSTEM" OPERATES! CURRENTLY I AM 57, HAVE ABOUT 70K IN FUNDS AND NO PENSION TO FALL BACK ON. ANY IDEAS WOULD BE APPRECIATED AT THIS POINT. TIME IS NOT ON MY SIDE, BUT AM THANKFUL I STARTED SAVING WHEN I DID!

 

[Nords]

Re: Confused but.

AJL, do us all a favor and turn off your CAPS LOCK key.  Some of us are wearing reading glasses and we appreciate the contrast provided by using both upper & lower cases.

It's good that you posted separately from the "Hi, I Am..." thread so that yours breaks out from the crowd.  But things may move a bit slower on this board.  It can take a day or two for all of us to get around to reading the posts.  If you don't get an answer in 24 hours, it won't help to post in a louder tone of voice.  Try to give it two or three days.

Most of us "did it" by living below our means and by saving as much as we could at the earliest opportunity.  Ironically many of us did put our money into mutual funds and "let it ride", and we regularly added more.  But hardly any of us use financial advisors-- you don't need a financial advisor if you're willing to read & apply the info.

You're already saving, so the first step would be to park any new savings into a money market account while you start learning how you want to invest it.  A fine book for that purpose is William Bernstein's "The Four Pillars of Investing", and another resource is his Efficient Frontier website.  But as you poke around on this board you'll find many more books & websites on how the system operates.  Vanguard is a popular company because it offers low-cost index funds, and Fidelity is also starting to catch on to that trend.

While you're deciding how much risk (volatility) you wish to tolerate and how you're going to allocate your assets, you can also take a look at your expenses.  The idea is not to deprive yourself but rather to figure out what's valuable to you.  Spend your money on the things that have value to you and don't spend money on the things that don't make you feel that they're worth the opportunity cost.  A popular conventional example is the retirement savings lost by daily spending on Starbucks & cigarettes.  You may find other things that you don't care to spend any more money on.

You will be in it for the long haul, and it's mostly about maxing your savings while minimizing your expenses. 

 

[newellcr]

AJL,

While I was composing Nords covered everything more eloquently, not that my post was impolite... So I'll second Nords' advise.

Kind Regards,

Chris

 

[maddythebeagle]

Ditto on above. Also, there are "catch up" provisions in a lot of the savings plans (401k, so I would hit that hard). Most people here are big fans of index funds in order to minimize costs

 

[Gone4Good]

Considering the information you provided I'd guess that your single largest asset is your Social Security benefit - which I believe is safe and secure for someone in their late 50's. The first thing I'd do (if you haven't done so already) is calculate my benefit at:

http://www.ssa.gov/planners/calculators.htm

The second thing I'd do is prepare a detailed budget of how much I spend.

The third part is the hardest, but the most important. I'd try to do everything I could to reduce my annual spending to the level of my expected social security benefit. This should give you a good eight years of solid savings and the comfort of knowing that you can retire on the government benefit you've earned. Depending on your annual savings rate, you may not need to cut your spending so much - you'll have to play around with the specifics of your situation to get a better idea.

I would also caution against looking to some investment strategy as the key to securing your retirement. Chasing high returns to make up for lost years of savings may end up doing more harm than good. Instead you should focus on those things you can control. You can't control the returns on your investments and you probably don't have too much control over your income. What is totally within your control is your spending habits. Many on this board can give you excellent tips in this regard.

Best of luck.

 

[AJL]

I do apologize for the capital letters, force of habit I guess. I was amazed at the response and so quickly this has all happened. Major problem was not having anyone to talk things over with. Most of my friends, relatives and people that I work with in the construction industry understand very little when it comes to saving and investing. When I try to talk to someone about stocks or funds and investing they look at me like I just got in from the planet Neptune!! Needless to say, most of what I've done has been on my own and am responsible for being where I am today, being right or wrong. I think after reading the responses, I know that I indeed need to study on what avenue of approach to take. I think that I let myself become overwhelmed by the thought of having to live on social security in 8 years and some panic set in. Even in the construction business, if you have a large job to do, it is done in segments, one bite at a time. I am the first to admit that I'm not the sharpest tool in the shed, but after reading some of the different topics in these forums, I am beginning to feel refreshed that there are persons out there that are willing to devote their time and patience on giving some guidance to those that are "feeling lost".
Thanks much!

 

[modhatter]

I am not an expert by any means, but I will tell you straight that it is unlikely that you will be able to increase your current portfolio to a degree necessary to live comfortably. Without continuing to contribute to your plan, you would probobly be lucky to double your current $70K. No one is expecting great things from the market at this time, nor in the next 10 years. However, if you could continue to agressively save & put in money monthly, maybe you could get it up to $300,000 by then. That is not a whole lot to try and live off of, but it certainly would imporve your lifestyle over trying to live off social security. So it is very important that you give it your best shot.

It is also VERY important that you cut your spending down to absolute minimum and sock away every cent you can put your hands on.

Is your current portfolio growing ? If not perhaps you should consider making some changes. If you want to post the funds that you currently have in your portfolio, then I know some of the more experienced people on the board will comment on them and give you some good advice.

I lean towards high paying dividend stocks. I don't know if you know what I'm talking about. I think they are particularly good in troubled times. So perhaps you might consider this for future contributions. There are books on the subject. One very easy read is by Ben Stein called "yes, you can Be a Successful Income Investor"

It touches on the best way to derive income to live on as well as grow your portfolio.

Second, I agree with the above poster. You can also call your Social Security office and request a Soc. Sec. income statement that will show you what you might receive from Soc. Sec. if your present income remains the same until you reach retirement age.

I would not even consider retireing at 62. You will lose quite a bit of your social security income. You should probobly wait until your 66 yrs. old or what ever it is for your current birth date. Second, I'd start thinking about possibly relocating to somewhere that it is cheaper to live. We don't know where you live, so it is hard to comment on this. Do you own a home or do you rent? I'm talking about moving if you retire, depending on where you live now. Whey don't you go ahead and post the finds you currently have, and let the others give their two cents.

 

[Jarhead*]

You've been given good advice from previous posters, and the only thing I would add is that
don't get discouraged and try to make up for lost time by putting your savings at risk.

My father was a logger, and worked until a bad back forced him to leave his job at age 70. He had raised a large family, and had 0 assets, and only Soc. Sec. (Had they been able to save anything, it would have relieved a lot of pressure on him, my mother, and myself (along with my brothers) that subsidized the short-fall for years.

Point being, you are age 57, have $70,000 saved, and if you are like the typical construction worker, in much better physical condition than the public at large.

From what I have read, you actually fit the average American profile (financially) more closely than most folks on this board.

In any case, don't get discouraged by "woulda", "shoulda" "coulda" type thinking.

You've identified your "problem", and if you zero in on doing the best you can over the next 10 years or so, you should be fine.

 

[AJL]

I appreciate the advice that all of you have given me so far. It seems that everyone has their own ideas on many different subjects but all pointing to the same goals. I was a little hesitant when I first signed on the web site, but I'm sure glad that I did!!Perhaps if I can get the "hang" of this, I may be able to give someone a boost also. Anyway, thanks.
Here's my situation:
Married for 33 years, live in New Castle, PA. The youngest daughter and 6 yr old grandaughter live with us. Wife works part time at the hospital usually 3 days a week.
1. Home was purchased 4 years ago for 149K @ 7%-30 yrs.
2. Refinanced home 1 1/2 years ago @ 5.62%- 15 yrs. Equity is about 45k. payment is about $1200/month.
3. Home is currently appraised at 165K approx.
4. My plan was to sell home at 59 1/2 to avoid taxes? and -
5. Move into a cheaper home-somewhere in the 85-90K bracket?
6. Started a new job in Feb 2005-was let go from other job along with others-age probably but was told financial! Yeah! Together we make about 65k per year. 10k cut!
7. Saved in 401k for the last 3 1/2 yrs, but won't be eligible on my new job until july 2006. Ain't that a kick in the head?
8. Funds that I currently have: American: cwgix, agthx, anwpx and awshx. and Emerald hssax. The hssax is what my advisor suggested-I'm not too crazy about its performance. I've had this since Jan. 3, 2005 (28k in hssax). and about $800 in money market.
9. Currently saving about $300 per month in roth ira's.
10. No savings accounts, checking about $1700 balance.
11. current portfolio - 70k
12. almost forgot- I have 37k in term life insurance. dropped my wife's policy- I told her that if something would happen to her, I'd probably just move to the beach and live the simple life.
Other that getting my savings a kickstart again - I would appreciate some feedback on this. By the way-
Semper Fi

 

[Nords]

New Castle, eh? Haven't heard that name in 25 years-- I grew up in Murrysville.

Sounds like you nailed the mortgage rate and should continue to pay at 15 years instead of stretching to 30 or getting a home equity loan. You & spouse can get as much as a $500K capital gain tax-free when you move, so you don't have to wait for a particular age. $85K wouldn't buy a timeshare in an outhouse here so I don't know how good your "new" neighborhood would be. Is there some other reason to move, or would you be happy to stay in your current home?

If you're not eligible for a 401(k) at your current workplace you might be eligible to boost contributions to some other tax-deferred savings plan. Anyone else here know of an alternative?

Because you're over 50 you can put extra into your Roth IRA. I believe the "catch-up" extra in 2005 is $500 and next year rises to $1000. So you can put in quite a bit more than $300/month if your expenses allow.

It's always easier to lower your expenses than it is to raise your income. You'll get your biggest bang for the buck by figuring out what spending you could cut without feeling like you're leading a life of deprivation.

Are you able to deduct your daughter/granddaughter on your tax return? Or claim the granddaughter as a child care tax credit? You'll want to include all that data with your tax-return preparer (for us it's TurboTax).

Your GI Bill elegibility probably ran out a while ago, but have you taken your DD214 to the VA to check into possible healthcare or other benefits?

 

[Martha]

I would think about contributing to a traditional/deductible IRA until you are eligible for a 401(k) at work. If both you and your wife are over 50, you could contribute up to $4500 each to the traditional IRA and save taxes. You can contribute both to ROTH IRAs and deductible IRAs, but the total cannot exceed $4500 each for 2005. At a $65,000 total income, you and your wife should be eligible for the deductible IRA.

 

[Calgary_Girl]

8. Funds that I currently have: American: cwgix, agthx, anwpx and awshx. and Emerald hssax. The hssax is what my advisor suggested-I'm not too crazy about its performance. I've had this since Jan. 3, 2005 (28k in hssax). and about $800 in money market.

I would definitely think about diversifying outside of the U.S. I'm Canadian and the TSX is higher than the DJIA right now. Look at Canadian Equity - one of my funds has returned 29% YTD.

 

[ESRBob]

IT SEEMS THAT THEY DON'T EVEN KNOW YOUR ALIVE! AND ALL YOU GET IS A "YOUR IN IT FOR THE LONG HAUL"? I KNOW THAT I CAN MAKE MY RETIREMENT WORK IF I CAN JUST UNDERSTAND HOW THE "SYSTEM" OPERATES!

AJL--
If your advisor is telling you 'you're in it for the long haul', s/he may be actually giving you better advice than most. The ones to worry about are the ones who are telling you that you can whip the market's tail by buying and selling on their recommendations (or letting them do it whenever they think it is a good idea). That is called "churning' and is pretty muc guaranteed to eat you alive in commissions and spreads over time.

While there is much to figure out about how the 'system operates' in terms of rules, Roth IRAs, taxes and so forth, which folks here are giving you great advice on, don't let yourself get seduced into the thought that the smart guys are coining money hand over fist and only the dumb guys are plodding along in mutual funds that go up and down.

My strong opinion and plenty of research backs up that a broadly diversified, low-fee mutual fund strategy, with other illiquid investments (commercial real estate, energy, private companies) can bring you out on top over the long run, and maybe over the short run, too.

Watch the mutual fund and advisory fees (try to be below 0.4% of assets on average per year).

If you don't think you're getting to your goals fast enough, try taking a side job using your contracting skills helping people on small remodelling projects. Or maybe rehab a dumpy house in a good neighborhood, using your skills and sweat to turn a lemon into something worth a lot more. Just about everybody I know wants to do an addition or remodel these days,but nobody can ever find a contractor who'll return their call. Seems like you might be sitting on a mini gold mine right there with your skills and weekends/evenings. The side cash plus growth in your esixting savings could have your 70k doubling in a few years with some sweat, and doubling again in a few more years after that if you could apply your skills to a rehab or two and the real estate market goes sideways instead of crashing.

Good luck

 

[Telly]

I would definitely think about diversifying outside of the U.S.  I'm Canadian and the TSX is higher than the DJIA right now.  Look at Canadian Equity - one of my funds has returned 29% YTD.

FYI, AJL's CWGIX fund is greater than 70% international. CWGIX has done very well. But Morningstar has some concern about its future performance due to its ever-increasing size, about $32 B now. If someone has it, I'd keep it. But I probably wouldn't recommend stocking up on it now. I'm holding.

 

[newellcr]

No kiddin. Uniontown... My SIL lives in Murrysville.

Cheers,

Chris

 

[AJL]

I'm not sure how the question/answering is to be done, but I'll just keep writing til the audience stops writing I guess?? The respones surely have definitely given me some areas to shoot for. I have been looking for some of the books mentioned but haven't found any at Wal-Mart. I'll have to try the book stores or order on line I guess. I have read a few books in the past years, but not alot on investing advice, and its usually for a broad audience and not specifics. Thats what makes this forum unique. Everyone has a different situation, and learning from other persons who have different "angles" gives one alot to choose from. I have noticed that a few of the posters have given the advice to "stay in a safe mode" because of my age, which is probably very good advice! But, maybe not too safe.
Until I get some of the reading done, I would like some input on the problems that are ahead of me.
1. I'm not sure about the HSSAX fund should I keep it? It has done well in the previous years, but charting the fund-it has been having its ups & downs. And, if I do change this fund, should I start using some of the internet companies like Morningstar - etc.??This fund only has three or so alternates in the family that I can move to without being charged a fee??and they are pretty new and not doing that potent!
2. One of the posters mentioned that very few of you use a financial consultant! This means that I'm not being very smart at present I guess. Aside from the $40 a year Brokers fee, I also get hit with .5% on the American Funds and 1.45% on the Emerald Banking & Finance-A Fund (HSSAX)?
3. Its hard not be beat ones self up over these investments - and a financial consultants make it hard to understand at times, probably because they don't want you to know the other angles??
So, theres the start of my dilema-the first bite of the elephant!!
An old quote from my past - "Ain't no use in being stupid unless you got someone to share it with!"
Thanks everyone!

 

[Nords]

I have been looking for some of the books mentioned but haven't found any at Wal-Mart. I'll have to try the book stores or order on line I guess.

Yo, AJL, call your local library and either use their catalog-search computer or get their online website address. Most local libraries run an interlibrary loan system with their entire state so the book you want is free and probably only a couple days' wait.

When I come across a book I'd like to read, I request it through our library's website. When it comes into our library (usually within days but sometimes a couple weeks), they send me a postcard and hold it for two weeks while I wait for the requests to pile up. I usually get a three-week extension on a three-week loan, and I don't think I buy more than one or two out of every hundred that I borrow.

Our kid & I were able to request the latest Harry Potter from the library book three months before it was published. A few other people had the same idea (we were #181 & #182) but the library purchased multiple copies of the book and we had our loaners a week after the book hit the stores.

 

[yakers]

American funds are loaded funds. As loaded funds gothey are pretty good. Since you have paid the load I would only change to another fund if you need a different asset allocation. I do notseea HSSAX fund. Its OK by me to use an advisor but it should be on a fee basis and real service should be provided.
When I was young and knew nothing of financial matters I had an advisor who put me into Oppenheimer and American funds. They did OK, I am only now moving the Oppenheimer into my GovtTSP (401 type) account,it was a closet index fund anyway, which is not the worst thing I could say about a fund but I might as well buy the index.

 

[Mountain_Mike]

AJL,

I actually think you have a pretty good portfolio at present.  Since I assume you have already paid the sales fees up front, I would let those "ride" and seek out lower fee companies (Vanguard, Fidelity, T. Price) in the future.

You are doing better than most, in that you now have an awareness that is lacking from the masses.  Take the advise that others have given, and you should be okay.

 

[73ss454]

Mountain,

I am also getting ready to switch from Oppenheimer to Vanguard.
I also have paid the sales charges over the years. But I find that the 12B1 fees and other yearly charges are much higher than Vanguard. Why do you say to leave the money with Oppenheimer?

Thanks,
JOE

 

[Telly]

I looked up HSSAX on msn moneycentral. It is a specialty fund, financial. They show the fund as being 99.8% in financial services stock.

1.74% Expense Ratio. But its returns in the 2000 through 2002 bear market were super! Whether that was just a one-time nicely uncorrelated performance vs. S&P 500 or not remains to be seen, but it sure looked great then. As to performance this year, this isn't much of an up year across the board for domestic stocks so far anyway.

American Funds - I think that American Funds purchased through an employers 401k plan DO NOT have an up-front sales charge.

If purchased on your own via an American Funds dealer, the sales charge % is a sliding scale inversely proportional to the amount of dollars invested. For larger stakeholders, the rights of accumulation and letter of intent pull down the %.

 

[AJL]

Ok, I think I am starting to slowly understand some things. But there are a few questions that I have??
1. I was told that the expense ratio was the yearly commission that was charged by the broker on the mutual funds that you have?? In my case anywhere from .45% to
1.75%! I know about the up front charge on the loaded funds, usually around 5% or so, but I was not aware that in a 401K that the fee is usuall waived. This is a good thing to know and probably saved me money that I wasn't even aware of!!!
2. Was also told that stocks that pay dividens may be a better way to go on new money??I have never dealt with stocks, although our shop guy here deals in the penny stocks and seems that he has done pretty good the past couple of years but as he says, "just by dumb luck".
As one poster has mentioned, save as much as I can between now and 8 to 10 years. I have found that if you can keep "cash" out of your hands, the better off you are. And like the 401K, if you don't see it, you don't miss it as much, and you learn to live within your current take home pay. So I need to create a budget and persuade my wife to follow it as closely as possible. She's pretty frugal until it comes to the kids and grandkids- I've had to curtail her spending - especially at Christmas time. Usually we just buy something that we both can use now instead of the multitude of clothes & stuff that ends up in a closet or the garage to collect dust.
3. So, this has given me a little spark to "get with the program". I do appreciate all the advice and help from everyone so far.
By the way, I have thought about buying and refurbishing houses. My wife is super at colors and decorating. But, I don't know if the gamble is worth it at this point. Its a little hard sometimes to get support from the "little woman", especially if things don't work out - I'm sure some of you know what I mean I can deal with ridicule with most everyone until it comes from the one you live with!! I hate the "I told you so"!! Sometimes I still can hear the ringing in my ears years later!! Anyone out there have the same dilema? Has anyone overcome this obstacle lately? She doesn't deal with the investments, she lets that up to me and won't even try to understand-unless the bottom falls out-then I'll probably hear from her!! Other than that all is well in New Castle - Fireworks Capital of America! Thats about all we're famous for I believe, other than the usual corruption of town politics.
Later.

 

[Patrick]

I can deal with ridicule with most everyone until it comes from the one you live with!! I hate the "I told you so"!! Sometimes I still can hear the ringing in my ears years later!! Anyone out there have the same dilema? Has anyone overcome this obstacle lately? She doesn't deal with the investments, she lets that up to me and won't even try to understand-unless the bottom falls out-then I'll probably hear from her!!

Yes, it's bad enough knowing that you messed up without having your face rubbed in it.  If she say's she told you so, I suggest replying with something along the lines of "Yes, I made a mistake.  I'm only human.  How would you like it if I pointed out every mistake you made?"  I did this with my wife once.  She doesn't say she told me so anymore.

 

[Michael Moore]

I hate the "I told you so"!!

If she's made the decision to have you handle everything financial, then she's given her explicit approval to whatever you do and has zero cause to complain. Not that pointing that out always helps.

Do you have a contractors license? It might be worth your time to get one, since there seems to be a shortage of them. Here in San Francisco I needed an electrician for a service upgrade, and I was able to get two guys to come out, but only got a bid from one of them. And that bid probably turned out to be one of those "I really don't want to do this so I'll quote high" deals. Even at that, it took the electrician 5 days over a period of 3 months to do the work.

If you can do quality work on time without stringing people along you'll probably become wealthy just from that.

cheers,
Michael

 

[Mr._johngalt]

I am not an expert by any means, but I will tell you straight that it is unlikely that you will be able to increase your current portfolio to a degree necessary to live comfortably.  Without continuing to contribute to your plan, you would probobly be lucky to double your current $70K.  No one is expecting great things from the market at this time, nor in the next 10 years.  However, if you could continue to agressively save & put in money monthly, maybe you could get it up to $300,000 by then.  That is not a whole lot to try and live off of, but it certainly would imporve your lifestyle over trying to live off social security.   So it is very important  that you give it your best shot. 

It is also VERY important that you cut your spending down to absolute minimum and sock away every cent you can put your hands on.

Is your current portfolio growing ?  If not perhaps you should consider making some changes.  If you want to post the funds that you currently have in your portfolio, then I know some of the more experienced people on the board will comment on them and give you some good advice.

I lean towards high paying dividend stocks.  I don't know if you know what I'm talking about.  I think they are particularly good in troubled times.  So perhaps you might consider this for future contributions.  There are books on the subject.  One very easy read is by Ben Stein called "yes, you can Be a Successful Income Investor"

It touches on the best way to derive income to live on as well as grow your portfolio.

Second, I agree with the above poster.  You can also call your Social Security office and request a Soc. Sec. income statement that will show you what you might receive from Soc. Sec. if your present income remains the same until you reach retirement age.

I would not even consider retireing at 62.  You will lose quite a bit of your social security income.  You should probobly wait until your 66 yrs. old or what ever it is for your current birth date.  Second, I'd start thinking about possibly relocating to somewhere that it is cheaper to live.  We don't know where you live, so it is hard to comment on this.  Do you own a home or do you rent?  I'm talking about moving if you retire, depending on where you live now.  Whey don't you go ahead and post the finds you currently have, and let the others give their two cents.

This is a good post, but I would suggest taking the SS at 62
and starting now to plan for it, using 62 as a target. You can do a lot in 5 years, and by moving/downsizing should be just fine. A disclaimer:
I am heavily biased toward "doing it now". Waiting until 66 just is not
in my bag of tricks. 66 may never come (62 either for that matter).
This morning I called a couple of old business associates just to chat
and catch up.
One just had major surgery and is going back in for more. Another
was dead. I would be retired at 62 even if I was starting with
-0- at age 57. But, that's just me.

JG