A New Style
It is one Ann Landers column Albert Monroe can’t forget.
A man on the brink of retirement lost his life savings after giving it to a financial planner to invest.
“He asked Ann Landers what he should do,” recalled Albert, 67. “Of course, the only thing she could say is, ‘Go back to work.’ ”
Albert was determined never to let something like that happen to him. He carefully guarded the money he and his wife Izonia, 65, made over the years.
Most of their savings, accumulated from Albert’s job as a production control coordinator at Hughes Aircraft as Izonia worked as a hospital admitting clerk, was invested conservatively in Albert’s 401(k) company retirement plan.
In 1989, Albert retired, and most of the conservatively invested 401(k) money became conservatively invested individual retirement account money.
But Albert also went back to school after he left Hughes, to learn barbering.
“What I wanted to do was start anew,” he said. “I got into barbering--what I really love--and I’ve been a happy camper ever since.”
Today, he owns Albert’s Barber Shop in Inglewood, and the couple have $87,000 tucked away.
But he suspects it’s $87,000 that could be better invested.
“I’ve always been afraid of getting into something I didn’t know anything about,” Albert said. “A co-worker of mine lost a lot of money during the stock market crash a few years ago. I didn’t lose anything.”
The majority of the Monroes’ money--$62,000--is in an IRA earning 7.4% annual interest in a certificate of deposit; $8,000 is in a money market account yielding 5.5% annual interest.
The one time they ventured from their financial ultra-conservatism was three years ago, when they invested $10,000 in an American Legacy II Annuity offered by Lincoln Life Insurance Co.
“I was shaking in my boots when I gave her the money,” Albert said, referring to the woman who set up the account. “I told her I would like to try it and have it as safe as possible.”
The risk paid off. The account now stands at $16,969, a gain of about 70%. Even so, Albert isn’t sure if it was a wise decision. He wonders about the unsolicited calls he gets from brokers hawking various products.
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The Monroes sought professional help hoping to learn more about investing and to get pointers on planning their finances so they’ll have the wherewithal to travel.
“I want to know from some expert whether what I have done so far is good, bad or not so good,” Albert said. And “taking a cruise is certainly something we would want to do once or twice in our lifetime.”
The Monroes have indeed made some wise investment choices, but there are a number of changes that will help them maximize their savings, said Joyce Streithorst, a fee-only certified financial planner with Joel Isaacson & Co. of New York City.
One of the smartest things Albert did was to put off the brokers calling him at his barbershop. One in particular has been especially persistent.
“It is generally not in the best interest of the investor to invest with the person who is constantly calling,” Streithorst said. “I’m not trying to make a judgment on this person, but I think you have been smart to be hesitant.”
Senior citizens like the Monroes often find themselves the targets of phone solicitors trying to sell them investments, experts say. Some are legitimate brokers looking for potential customers, but a great many are con artists trying to steal money.
“The first thing I tell anyone is never, ever, buy anything based solely on a sales pitch over the phone,” said John Nester, spokesman for the Securities and Exchange Commission, which recently published a free guide for investors on dealing with cold callers. “A legitimate or honest broker would have no problem providing you with written information before expecting you to invest.”
Nester reminds investors that a broker must know a person’s entire financial picture, including financial goals and risk tolerance, before he or she can suggest any kind of investment. If you hear the words “once in a lifetime opportunity” or the broker says returns are guaranteed, be on guard, Nester cautions. “We tell any investor to ask about investments and the people selling them,” Nester said. “Ask the broker: ‘How are you compensated? Are you recommending in your interest or mine?’ It seems like a rude thing to ask, but it is your money.”
Consumers can also request that their names go on a national do-not-call list; write to the Direct Marketing Assn., P.O. Box 9014, Farmingdale, NY 11735-9014. Many national companies subscribe to the service and will remove your number from their calling lists if you ask.
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Albert credits his newfound interest in financial planning to a segment of the television program “60 Minutes” that profiled an African American millionaire who earned his fortune in the stock market. “I saw that and I just starting paying attention to it,” Albert said. “The older I got, the more I started thinking about it.”
Izonia says she is grateful for her husband’s interest in their finances, especially his discipline, something she freely admits she lacks.
“He is a saver, and I am glad he is, because if we were both like me we wouldn’t have anything saved,” she said.
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Currently, their monthly income is about $3,800, which includes $1,500 in combined Social Security benefits, $450 from Albert’s barbershop business, $1,332 in monthly disability payments Izonia gets for a work-related injury and $536 from Albert’s pension. Their primary monthly expenses are the $596 mortgage payment on their manufactured home in La Puente, the $575 space rental fee and the $365 payment for their 1995 Chrysler Sebring. Although the couple have several credit cards, they pay off the balances each month.
Streithorst applauded the Monroes’ lack of debt, but she had several suggestions.
One of the first things she noticed was the high interest rate on their mortgage--9.8%. She suggested refinancing their mortgage, possibly through Albert’s credit union, to get a lower rate.
The Monroes could save even more money if they increase the mortgage at the same time and use the extra money to pay off their auto loan--about $13,000. A lower rate could save them thousands of dollars a year.
Streithorst suggested that they take the money saved through the refinancing and use it to pay down the principal for a few years. This would in effect pay off the car loan portion of the mortgage and prevent converting it from a five-year car loan into a 30-year car loan.
Next Streithorst turned to their investments.
Because the Monroes are paying more than 1.5% in annual fees for their annuity, Streithorst suggested that they begin taking out the 10% annual distributions--the maximum allowed without a penalty--and placing the money in no-load stock and fixed-income mutual funds.
“The higher fee structure within annuities, as compared to no-load mutual funds, decreases your performance,” Streithorst told the couple. “Once the annuity is no longer subject to early withdrawal penalties,” in seven years, “I recommend you take a full distribution at that time and further diversify through no-load mutual funds.”
Currently, the Monroes have about 20% of their total portfolio in equities. She suggested increasing their equity exposure to 30% to 40% over a period of time, using the annuity distributions and the money from their CD when it matures in 1999. (The CD’s 7.4% interest rate is well above current market levels.)
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Moving some money into mutual funds that invest in corporate bonds--which pay higher interest rates than government bonds--and in stocks would give the couple a more diversified portfolio. The stock market has performed better than fixed-income investments over long periods, so an investment there would be expected to be more likely to offset--or perhaps even more than offset--inflation. But because there is always the shorter-term risk that stocks will fall in value, Streithorst advised the Monroes to keep most of their money in safer investments.
She also advised them to keep 5% of their money in mutual funds investing in foreign stocks, to further hedge their risks. Foreign stock markets sometimes perform well when the U.S. stock market isn’t, and vice versa.
For the first annuity distribution, Streithorst suggested several mutual funds for the Monroes to consider, among them Vanguard Fixed-Income Securities Short-Term Corporate Portfolio (five-year average annual return: 6.38%) and Vanguard Fixed-Income Intermediate-Term Corporate Bond Fund (less than 5 years old).
“I recommend these because of your conservative approach and Vanguard’s quality and low fee structure,” Streithorst said. “They don’t have the volatility of long-term-bond funds.”
Among her suggestions for growth-and-income funds are Scudder Growth & Income (five-year average annual return: 20%) and Strong Schafer Value (five-year average annual return: 22.5%). For an international fund, she recommended Janus Overseas (less than 5 years old).
“The Janus Overseas is a good international fund with a very good manager and strong performance record,” Streithorst told the couple. “Schafer also has a strong manager that has been with the fund for a long time.”
However, she cautioned the Monroes to evaluate their situation and risk tolerance each year as they make decisions about where to put their annuity distributions and the money from the CD when it matures in 1999.
“The most important thing is to be comfortable where the assets are and to make sure you can sleep at night without worrying,” she told them.
In regard to estate planning matters, Streithorst said Albert needs to check to make sure Izonia is the primary beneficiary of his IRA.
Albert, always the cautious investor, said he felt satisfied with the advice they received-- especially the thousands of dollars in annual savings Streithorst “found” by refinancing the mortgage and car loan. He and Izonia just might be able to take that vacation after all.
“It definitely helps make that Caribbean cruise more possible,” Albert said.
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Lynda Natali is a regular contributor to The Times. To participate in Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
The Situation
Investors: Albert and Izonia Monroe
Gross annual income: $45,500
Net worth: $108,000
Goal: Learn more about investing
Problem: Not enough diversity in portfolio; high-interest-rate mortgage
Plan: Refinance mortgage at lower rate; raise equity investments to 30% to 40% of portfolio
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
This Week’s Make-Over
Investors: Albert Monroe, 67, and Izonia Monroe, 65
Gross annual income: About $45,500
Financial goals: Learn more about financial matters.
Current Portfolio
Cash: About $62,000 in individual retirement account invested in a certificate of deposit; about $8,000 in money market account
Annuities: About $17,000 in annuity
Loans: Owe about $43,000 on manufactured home and about $13,000 on car
Recommendations
Refinance home mortgage at lower interest rate and increase loan amount so as to pay off auto loan.
Begin investing in mutual funds, using annual distributions from annuity and money from CD when it matures. If the couple are comfortable with this degree of risk, the portfolio should be 30% to 40% in equities (U.S. stock mutual funds and/or annuity investment), 5% in a foreign-stock fund and the remainder in bond funds.
Recommended Mutual Fund Choices
Vanguard Fixed-Income Securities Short-Term Corporate Portfolio: (800) 662-7447
Vanguard Intermediate-Term Corporate Bond
Scudder Growth & Income: (800) 225-2470
Strong Schafer Value: (800) 368-1030
Janus Overseas: (800) 525-8983
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Meet The Planner
Joyce Streithorst, a fee-only certified financial planner, is a senior financial planner with Joel Isaacson & Co. of New York. She is a member of the International Assn. for Financial Planning.
