© St. Petersburg Times, published January 5, 2003
A letter that recently arrived from an 82-year-old widower was typical of many I have received over 11 years of writing the On Money column. After a lifetime of keeping his money safely tucked in the bank, low interest rates finally drove him to consider other options. He quickly became hopelessly confused.
"With no Internet, I desperately need help," he wrote. "I do not have financial knowledge. I realize this is not the best investment time and I need guidance to avoid serious risk."
These are tough times to be an investor -- with or without access to the Internet. Because of that, it is more important than usual to follow common sense guidelines when deciding what to do with your money. As we kick off our new Money section, I'd like to share four guidelines to live by.
No. 1 on my list is to restrict your investments to things you understand. Even if you use an investment adviser, blindly trusting someone else with your money is a bad idea. Some people learn about investments on their own, some do it with the help of their financial advisers. But until you actually do learn, keep your money invested within your knowledge and comfort zone.
No. 2 is to grasp the relationship between high yields and high risk. Especially if you are in your late 70s or older, spend some principal to meet expenses rather than chasing exotic, supposedly high-yielding investments and risking losing everything. I have heard many sad tales from people who lost their life savings in viaticals and notes backed by car loans.
Even if you are certain something is a great deal, pay attention to guideline No. 3: Diversify your investments. Spreading your money around can cut your risks dramatically. Real diversification covers the type of investment (stocks, bonds and cash) as well as the issuer, the industry and the geography. Don't tie all your money to a particular sector or region of the country.
Guideline No. 4 is to get a good grip on your risk tolerance and stay within it. Over the past three years, many investors discovered they were more risk averse than they thought. A key element of risk is your time horizon. If it is your emergency fund or money you might need to spend in the next few years, it belongs in short-term investments such as money market funds, not in long-term investments such as stocks and long-term bonds. If you are investing for retirement many years away, a long-term approach is your best bet for countering the risk of inflation.
Q. If the Florida Prepaid College Program is discontinued, will my children get the benefits promised when they signed up? Who should I call about this?
The future of the prepaid program rests with the Legislature, which might decide that it is no longer financially feasible to guarantee tuition costs for prepaid participants.
Florida law protects the benefits of students who are within five years of college or already enrolled. Legally, the state could give refunds with interest to other participants if it discontinued the program. However, the Legislature might choose to grandfather in all those currently enrolled.
Talk to your state legislators if you are concerned about the program. For those who are not already enrolled, the deadline to sign up this year is Jan. 31. Call toll-free 1-800-552-4723 or visit the Web site (www.florida529plans.com) if you are interested.
Q. Many years ago I purchased AT&T stock, reinvesting all dividends. Now I hold many shares of AT&T and its spinoffs. I cannot for the life of me figure out my cost basis for each stock, should I elect to sell all or part of them. It's a tangled web. Can you help?
If you are inclined to figure this out yourself, look first at AT&T's Web site (www.att.com) in the "investor relations" section. For those who don't have access to the Internet, Horizon Publishing sells a book, AT&T Tax Wizard, for $14.95. Call toll-free 1-800-233-5922.
If you still need help, go to a tax professional to prepare your return for the year in which you sell your shares. Yours is a very common situation, and the tax preparer may even have the needed information on file.
-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.