CBS 6 Answers Team: Personal Finance (Week 2)
PERSONAL FINANCE
Len Valletta
Financial Planner, Albany Financial Group
518-786-3300
Below are some of the questions sent to CBS 6 Answers Team member Len Valletta during Wednesday's live chat. Check back for more from our Answers Team in the coming weeks!
CBS 6 VIEWER: I have been working for GE for about 7 years. I put 10% of my pay into GE stocks and the company puts an additional 3%. Should I keep putting my money into GE stocks or should I put it into something else?
LEN VALLETTA: Through the S&S plan, you have several other options. I would suggest you diversify. They have an index fund, a small cap, an international fund, as well as some others. It is always a more prudent strategy to not put all your eggs in one basket. This is not a prediction on the future performance of GE stock, as I don't know how well the stock will do in the future -- but it is too much of a gamble to have your entire retirement in one stock.
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CBS 6 VIEWER: I bought a new car Nov. 8th -- the sticker price was $34,400, and I bought it for $19,700. I had to finance through a dealership at 7.19% to get that price. I only financed $7,500. I have good credit. How do I get a better loan?
A-TEAM LV: If you own a home you could consider a home equity line of credit, assuming you have enough equity in the home. If you don't own a home, then I would shop around -- and don't be afraid to ask them for a better rate or else you may take your business elsewhere. The worst they can say is no!
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CBS 6 VIEWER: When I was a kid in the '60s, we were encouraged to open savings accounts in school. Interest rates were always in the 4, 5, 6% neighborhood. Now they are 1.5%. Why? Does this almost force people into the stock market, where they are exposed to disaster?
A-TEAM LV: Interest rates, as well as the stock market, are cyclical. This is an extremely unusual environment we are in because there have been no great places to put your money for the last year. It will change over time, and what looks scary today could actually turn out to be the best investment opportunity of a life time. Stocks as well as interest rates will eventually rise, and so will real estate prices, but it will probably take some time before any of that happens.
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CBS 6 VIEWER: Regarding my NYS deferred compensation plan, I'm about 30% stable income, 70% various stocks, including some international stocks. Have about seven years until retirement at age 54, but probably won't need to access the money until many years later. Am I too risky or should I stay put?
A-TEAM LV: I don't think you are too risky at all. Especially in light of your time horizon. The fact that you are still investing is a big benefit. Although it doesn't seem like it now this market will come back, and in the meantime you are buying in at some bargain prices. You will be rewarded for this in the long run!
CBS 6 VIEWER: OK, great. Thank you. I just recently increased the percentage of money going to the stable income by 10%. Was that a mistake? I was frightened by the losses, so instead of transferring money out of stocks, I just decreased the amount going in. Should I diversify more? I don't think I'm into bonds or treasury notes. Is this something I should check into? Yes, my time horizon is long, but it's hard to stomach these losses and feel that it will come back.
A-TEAM LV: Believe me I know! I firmly believe we will see it come back and when it happens, it's liable to be in a big way. If it's causing anxiety then I don't have a problem with what you did because at least you didn't sell positions at a loss and you are still buying in with some of your money at these low prices. Only if you had the stomach for it would I say to ramp up your stock exposure.
CBS 6 VIEWER: OK, I hear you. So, no to bonds? I'll probably just sit tight for awhile. You've been very helpful. Thanks for your time.
A-TEAM LV: You're welcome. Let me also say that there are some real bargains in bonds right now, especially corporates and high yields. Again, it could take awhile to bear some fruit but I think it will be worthwhile in the long run. For a percentage of your portfolio I think it would be great.
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CBS 6 VIEWER: I have a 401k that I have recently lost about 4% on my investment. I am 59 years old and moved to cash and bonds about a year ago. My question is, can I withdraw funds at 59 1/2 even though I am still working. I would like to take advantage of the realestate market without having a mortgage.
A-TEAM LV: Whether or not you can take a withdrawal depends on your specific 401k plan. Ask your employer for a summary plan description. It will tell you if in-service withdrawals are allowed. Having said that even if it does, you should wait until you are at least age 59 1/2 so you are not faced with an IRS penalty. Lastly I would say that while I agree there are some bargains in real estate, ther are some even bigger bargains in the stock market and my guess is that in your 401k plan you have some choices that could take advantage of that.
CBS 6 VIEWER: My 401K, T Rowe Price, has numerous funds available, but many are retirement-year funds -- i.e., 2015 etc. I am currently in JP Morgan money markets and PIMCO total return, any suggestions for a stock fund?
A-TEAM LV: T-rowe price growth and equity income are two good large cap funds. I believe it is their International equity fund and they also have a good midcap fund as well. They have a lot of other good funds but those are some of the ones I'm familiar with. Don't hesitate to call T-rowe price directly for some general guidelines. They will probably be hesitant to give specific advice. Good luck!
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CBS 6 VIEWER: I am a 42-year-old female. I have a 401K that I have invested in Key Bank stocks only and some bonds. I have been watching my 401K lose money every month -- last month, it was $8,000. This month, I can't even look. What would you advise?
A-TEAM LV: You definitely need to diversify! Most 401k plans have several choices with mutual funds and you should take advantage of that. You are young enough that this market downturn can actually benefit you as you buy in at some low prices -- but it is much too risky to put all your eggs in one basket with one stock.
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CBS 6 VIEWER: Everyone here says to stay the course for Stocks and more importantly for me, mutual funds, but how long does one need to wait before drastic measures must be taken?
A-TEAM LV: That all depends on your time horizon. If you have five to ten years or more, then riding it out makes tremendous sense. If your time frame is shorter than you have a tough decision. Things will get better, I promise -- but you need to be patient!
CBS 6 VIEWER: With the price of mutual funds being lower, now is the good time to purchase more funds, correct? Retirement for me was approximately two years ago at age 60.
A-TEAM LV: I agree that the timing could be great but hopefully you won't have to pull all your accounts in two years because that is more of a gamble. Even if you retire in 2 years, if you can let at least a good portion of the money sit for awhile then I think you will be fine! Good luck!
CBS 6 VIEWER: We had this same problem with the stock market a number of years ago andit rebounded well. What was the most significant change that contributed to the rebound?
A-TEAM LV: Bargain prices and we are at bigger bargains today!
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CBS 6 VIEWER: I'm a retired state worker; my husband is in his own business. He will start drawing out of an IRA account this year. Most of our investments are in IRA accounts. We've lost about 25% of investments with current downturn. Question -- should we divest part of non-IRA investments and open short term CD and draw interest on some of our savints?
A-TEAM LV: Normally, I like that idea quite a bit, but if you have to sell stock holdings right now to generate cash, then I would hold off as long as possible as you are selling into a severe downturn that has to improve at some point. Keeping two to three years of spending in cash is a great strategy and you should do that as soon as the market rebounds.
