Readers Have Questions about Investing and Advisers
“I am almost ready to sit down and put a plan together, but I am afraid. When I’ve tried to plan previously, I ended up with less than when I started. I have to start taking RMDs from two IRAs and a 401(k) this year. Can you advise me?” – Jim, Palm Coast
I believe retirement planning shouldn’t be hard, complicated or stressful. While financial products, investment vehicles, tax laws, and Social Security benefits may become more complicated, the planning process should not be (that’s what financial planners are for). It sounds like you need a fresh perspective . . . a 2nd opinion on your financial plans and investing. Fortunately for you and others like you, The Volusia/Flagler area is home to dozens of credentialed, educated, experienced and reputable financial advisers. If you want to work with a Certified Financial Planner™, go to www.cfp.net. Visit the advisers’ websites as well. Ask around. Find at least three and interview each one. Many advisers will analyze your current investments and make recommendations without obligation. Evaluate what each does for you and how comfortable you are with the adviser and his or her firm. Pick one to help you and, hopefully, your financial fears will subside.
“I am with a financial planner who has me in bonds; I’ve lost $30,000 in the last three months. She won’t suggest better investments, but has no problem charging me. Should I freeze my account and/or run from this adviser?” – L.J., Volusia
Yes, run, but not because of the losses. Run from the lack of communication you describe and her unwillingness to discuss alternatives. If one of my clients expressed the concerns you have, we would have promptly talked, at length, about the investment strategy being used and suitable alternatives. Now, about those losses on your bonds, here are a couple of important points: 1. If they are individual bonds, you will receive the face amount of the bond as long as you hold it to maturity and as long as the issuing company is alive and well. 2. If you are in bond funds, the losses could be temporary or permanent. The longer the maturity of the bonds held inside bond funds, the more they will, generally, fall in value as interest rates rise. 3. To reduce your exposure to rising interest rates, consider these strategies: “shorten up” your bond portfolio, invest more in equity investments, increase your cash holdings, or move part of your investments into a fixed annuity. Whatever you do, don’t give up and don’t pay for poor advice (don’t pay for “no advice” either). Losing $30,000 in three months implies a large portfolio and, I’ll bet, significant fees for your adviser. You should expect and get communication. It sounds like you also need a 2nd opinion. Plenty of advisers, both attentive and professional, are available to help.
“I’m 81 years old and have $330,000 at my disposal. I’m not interested in making money (earning interest) as much as I am in security. (The only advantage of the bank, over my mattress, is the bank is insured). I’m considering an 18 month CD. What’s your opinion?” – Bill, DeLand
For safety of principal, your choices are narrow yet rather straightforward: 1. Cash, in your wallet, under the mattress, or in your safe; 2. Checking, savings, or money market account at the bank or credit union; 3. Certificates of Deposit (CDs) with maturities that best fit your needs. You can also ladder the maturity of the CDs with some shorter and some longer; and 4. Fixed rate annuities and fixed index annuities (with principal protection based on the claims-paying ability of the issuing insurance company). The State of Florida also has a state guaranty association that “insures” fixed annuities up to $250,000 per insurance company. Visit www.flahiga.org for more information. For readers outside of Florida, you can do an internet search with the following words to locate information on your state’s insurance guaranty association: “annuity insurance guaranty (your state).”
David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.