If She’s Careful, Investor--and Furry Friends--Should Be Fine

Victoria DeSmet Blunt dreams of a retirement filled with globe-trotting and buying what she wants when she wants it.

At the moment, though, it seems to her that all her money is going to meet mundane, day-to-day requirements and that the occasional unexpected expense takes whatever emergency fund she manages to set aside. Blunt, 53, a typist for Santa Barbara County, worries that her retirement life will hold more of the same, that she will never have the means to visit foreign lands or make large purchases as the need arises instead of several months later.

Her job pays about $24,000 a year, and she gets $500 a month in alimony that will continue as long as her ex-husband is alive. She has about $217,000 in equity in her home, and her other investments are worth more than $100,000.

Karen Altfest, a fee-only financial planner based in New York City, said Blunt is in better shape than she thinks.

As long as Blunt takes some precautionary steps to carefully budget her finances, she can stop worrying that her nest egg will be diminished by unexpected expenses.

In fact, Altfest said, given the equity in Blunt’s home and what she’ll get in Social Security and in pensions from her current and previous employers, Blunt may have a better income once she retires than she does now.

The key to Blunt’s long-term financial security is how she manages her money.

Although she may not be able to describe every last specific, Blunt knows she is thrifty in almost every way. She bikes to work to avoid the cost of gasoline and parking. Her first vacation in two years was a long weekend in West Virginia to visit a friend. She gets $12 haircuts every six weeks and only goes to the cheaper matinee showings if she goes to the movies at all. (She hasn’t been to a movie in six months.) Her few extras include tithing about $100 a month to her church, keeping five cats and spending $50 each month for a cleaning lady.

“I will squeeze the life out of a penny before I spend my day cleaning the house,” Blunt said.

Still, like many people, Blunt can’t say exactly how she spent the $20 she got from the ATM. And emergencies--such as the 30-year-old stove that broke or the plumbing that needed fixing or the cat that had to go to the veterinarian--seem to pop up every month.

She pays $865 a month on her mortgage--the balance is now about $83,000--on her ranch-style home in an unincorporated section of Santa Barbara County. She expects to have that paid off in 15 years.

Blunt shares her home with her 25-year-old daughter, Caitlin, a full-time student at Santa Barbara City College.

Blunt wants to see her daughter graduate from college, so she offered to let her live at home rent-free until she finishes her education. So Caitlin does not pay rent or contribute significantly to the household expenses, although she works two jobs to pay for her schooling and for board and care for her horse.

“We struck a deal that I won’t go back on because it’s important that she finish her education,” said Blunt, who graduated from Pepperdine University and has a teaching credential from UCLA.

Blunt also aids her daughter financially from time to time. In May, for instance, when the horse was attacked by coyotes, Blunt put the $962 veterinary surgery charge on her credit card. Her daughter is paying her back $100 at a time.

It all leaves Blunt feeling frustrated.

“I’m in such a muddle here,” she said of her financial situation. “I don’t know if I’m doing well. I don’t know if I’m doing poorly. What can I do to make it better?”

Altfest agreed that Blunt does indeed need to have more of a cash surplus to handle these kinds of emergencies. That means devising a budget--first by tracking, over six months, where each dollar goes, then looking to see where any savings can be realized.

“I think it’s really important for you to know exactly what’s coming in and what’s going out and be able to give yourself some system so there are no little surprises,” Altfest told Blunt.

For those who don’t do it, the planner said, budgeting is a real eye-opener. People generally don’t know what they’re spending money on day to day.

Blunt pointed out that she does track her major expenses but agreed that she needs to pay closer attention to the smaller ones.

As for Blunt’s investments, Altfest was impressed with the amount set aside but said the choices show a worrisome lack of diversity.

Blunt has been attempting to teach herself about investing since 1992, when her 25-year marriage ended and she lost her best friend, a financial planner who for years had helped her with her portfolio, to cancer. She suffered other losses that year too. She was laid off from her job as a senior secretary with Minnesota Mining & Manufacturing Co. (also referred to as 3M) when the company sold her division to Alcon Laboratories Inc., a maker of surgical instruments and other health-care-related products. An aunt died, and so did her dog. It all threw Blunt into a whirlwind emotionally and financially.

As do many divorcing women with children, Blunt wanted to keep the house, which the couple purchased in 1980. At the time, both her son, now 27, and her daughter were living with her. To get it, she agreed to forfeit any entitlement to her husband’s stock and what would she have received from his pension from GTE Corp., where he has worked for 30 years.

The settlement also gave Blunt the monthly alimony payment, which she’s used to cover tax payments on the house and sometimes unexpected bills.

“Without it, I’d be up the creek without a paddle,” Blunt said.

With the divorce, Blunt was forced to think about her financial future as never before. She taught herself how to follow stocks in the Wall Street Journal and research companies in other financial periodicals at her local library.

She is proudest of the stock choice she made for $5,000 she inherited in 1994. She put the money into Tetra Tech Inc., an engineering company that focuses on environmental problems. As of July, that investment had grown to $9,500.

As for her approach, Blunt says she prefers conservatism, investing in what she knows, and that she likes to have at least some of her money invested in “socially responsible” stocks.

“I don’t like taking risks with my money because I’ve worked too hard for it,” she said. “I’m the slow-growth, long-term type person. Most of what I bought I plan to hold on to until the bitter end.”

Ironically, Altfest said, Blunt’s portfolio is not conservative. Almost half of her investments are in a handful of stocks, most of them in the volatile sectors.

Greater diversity would provide Blunt’s portfolio with a certain amount of stability. The idea behind diversification is to reduce an investor’s risk--if one kind of investment is doing poorly, it’s likely that another kind will be doing well.

For instance, Blunt has a significant amount of stock in 3M (worth $16,500 as of July), a company in which she also has retirement-plan holdings worth about $24,200.

Blunt also has more than $22,000 in American Funds’ Washington Mutual Investors Fund (five-year average annual return: 20.3%), a growth-and-income mutual fund; and $38,000 in a PaineWebber money market account.

Altfest recommended wholesale changes to Blunt’s portfolio. Only $26,000 of her holdings would be left alone--$2,000 in stock in Imation Corp., a 3M spinoff that makes photo film and fiber-optic cables; the $9,500 in Tetra Tech; $3,000 in Bankers Trust New York Corp. stock; and about half of what’s in Washington Mutual Investors.

Altfest was especially insistent that Blunt sell her 3M stock. With that and the retirement plan, Blunt is making herself dependent to an unnecessary degree on the fortunes of a single company.

Blunt may also want to sell her Cisco Systems Inc. stock, recently worth about $6,700. Altfest said the computer networking company may have reached its peak.

Selling her stakes in 3M and Cisco, closing the money market account and liquidating a portion of the mutual fund holding would free up about $72,200. Altfest suggested that 40% of that go into mutual funds investing in bonds and the rest into mutual funds investing in stocks.

Altfest recommended a mix of funds that would give Blunt exposure to foreign and domestic stocks and bonds and satisfy her desire for a “socially responsible” investment:

About $20,000 would go into Vanguard Fixed Income Intermediate-Term U.S. Treasury Bond (five-year average annual return: 7.4%); $15,000 into Hotchkis & Wiley International stock fund (five-year average annual return: 17%); $20,000 into Strong Short-Term Bond (five-year average annual return: 6.6%); $7,200 into Neuberger & Berman Socially Responsive (the fund is less than 5 years old); and $10,000 in Baron Asset (five-year average annual return: 24%), which invests in small-company stocks.

Such a diverse mix should give Blunt a less volatile portfolio.

Once Blunt retires, Altfest suggested that she sell her home and move into a less expensive one.

“I think you’ve got the makings of a wonderful retirement fund if you decide to sell the house when you retire and move into a smaller, less expensive place and invest the rest of the money,” Altfest told Blunt.

“That will provide you with a nice cushion for your travels and general living,” the financial planner added.

Blunt, who plans to start a women’s investment group with several co-workers and friends, said she feels a bit more on track now. She’s already thinking ahead to her first retirement jaunt--a major trip to Europe.

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The Situation

* Investor: Victoria DeSmet Blunt, 53

* Gross annual income: about $30,000

* Goal: A comfortable retirement

* The problems: Too little set aside for unexpected expenses; investments lack diversity.

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This Week’s Make-Over

* Investor: Victoria DeSmet Blunt

* Age: 53

* Occupation: Clerk-typist

* Gross income: About $30,000 in salary and spousal support

* Financial goal: Align investments to assure a comfortable retirement

*

Current Portfolio

* Real estate: $217,000 equity in Santa Barbara County home

* Stocks: $16,500 in 3M, $9,500 in Tetra Tech, $3,000 in Bankers Trust of New York, $6,700 in Cisco Systems, $2,000 in Imation

* Mutual funds: $22,500 in American Funds’ Washington Mutual Investors

* Cash: $38,000 in a PaineWebber money market fund, $2,000 in bank checking account

* Retirement plans: $24,200 with former employer 3M, $2,200 with former employer Alcon Laboratories, $2,000 in pension plan with current employer Santa Barbara County

*

Recommendations

* Track expenses over six months, then create a comprehensive budget. Whenever she can, Blunt should be putting aside $100 to $250 a month for emergencies.

* Revamp stock and mutual fund investments to reduce risk. To do that, sell stock in 3M and Cisco, liquidate half of Washington Mutuals holding and pull all money out of money market account. Put proceeds into a diversified mix of mutual funds.

*

Recommended Mutual Fund Purchases

* Hotchkis & Wiley International: (800) 346-7301

* Vanguard Fixed Income Intermediate-Term U.S. Treasury Portfolio: (800) 662-7447

* Strong Short-Term Bond: (800) 368-1030

* Neuberger & Berman Socially Responsive: (800) 877-9700

* Baron Asset: (800) 992-2766

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MEET THE PLANNER

Karen Altfest is a fee-only certified financial planner and vice president of L.J. Altfest & Co. financial advisors in New York. She specializes in planning for women. She also teaches financial planning for novices and conducts money seminars for women. She is a board member of the National Assn. of Personal Financial Advisors.