Knowledge, good advice key to protecting your investments
By HELEN HUNTLEY
Published August 24, 2003
I am often fascinated by what troubles people enough to put pen to paper. Recently I heard from a retiree in her 60s who said her $300,000 house and two cars are paid for and she has after-tax income of $110,000 a year from her investments.
Her problem: She just inherited $100,000 but does not trust her financial adviser to tell her what to do with it. The value of her retirement accounts has declined 40 percent, to about $800,000, and she does not want the same thing to happen to her inheritance. She worries about outliving her money considering that her parents lived into their 90s.
"Please don't divulge my name," she asked. I suspect that if I did, she would hear from a few readers offering to swap problems with her!
The truth is, lots of us feel insecure about our money. No matter how much we have, we worry that we do not have enough, and sometimes those worries turn out to be well-founded. Who really knows what three decades of rising and falling stock prices, inflation and interest rates will do to savings?
This reader is certainly wealthier than most of us, but her worries are common. If your highest priority is safety, you can stash your money in bank CDs, but your income will be at the mercy of fluctuating interest rates. If you put your money in stocks, the value of your portfolio will suffer when the market does. If you buy an annuity that will deliver fixed payments for the rest of your life, you will not outlive your income, but you will lock in today's low rates.
The best we can do is to become knowledgeable about investments, secure good advice and then put together a balanced portfolio designed to meet our highest priority needs without exposing us to more risk than we can tolerate. Nobody claims that is easy. If you want a financial adviser and you do not trust the one you have, you need to get a new one.
Q. ManuLife administers my 401(k) plan, and I am very concerned about the fees they charge. Right now, I have all my money in a money market fund and the fees are more than the interest the account is earning.
I am 60-plus years old, so I have to invest in the retirement account. My employer ignores my concerns about the fees. A ManuLife representative gave me the runaround and misinformation when I asked for a breakdown of actual fees charged. I contacted the Department of Labor and they said they were unable to do anything. Do you have some miracle suggestion short of leaving the company?
Your employer is in control here. If other employees share your views, perhaps you could present your concerns as a group.
ManuLife spokeswoman Wendy Smith said the company can tell you within minutes the investment expenses it charges on each "sub account" available through your plan. What it cannot so readily tell you is what you are paying in the way of administrative expenses, which were negotiated between your employer and a broker who represents ManuLife. The broker is supposed to be providing ongoing services related to the plan and gets a cut of the administrative fees as compensation. She said your employer may have asked that "summary" statements be sent to plan participants rather than detailed statements, which would provide you with more information.
If you are not able to resolve the situation to your satisfaction, I suggest that you direct your new retirement savings elsewhere. Since you are 50-plus, you can put $3,500 a year in an individual retirement account. In addition, lower tax rates on dividends and capital gains make taxable accounts a good place to invest in stocks and stock mutual funds.
Q. I have been writing to the companies in which I own stock, trying to find out if the dividends they pay will be ordinary dividends or qualified dividends under the new tax law. This will make a big difference in my tax bill and thus in the estimated taxes I owe. Some of them won't even answer me. What should I do?
I suggest that you assume that most common stock dividends will be qualified dividends entitled to the lower rate. Then assume that dividends from preferred stocks, real-estate investment trusts and income mutual funds will be ordinary dividends. If you really want to be on the safe side for your estimated taxes, you also could assume that dividends from all mutual funds will be taxed as ordinary dividends, although that will not be the case. Once you've been through one tax season, you will have a better handle on how to do your estimated taxes in the future.
- 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.
