Progress, Not Perfection
With today’s column, The Times, as it did in December, revisits six past Money Make-Over subjects to see how they responded to the advice they received from financial planners and whether they profited from it.
In looking at what each investor did--and did not do--some common themes appear.
Two people, for instance, had rather ambitious goals--for one, it was to afford a first home on L.A.’s Westside; for the other, to whittle down $45,000 in debt. Here, each has indeed made progress toward her goal.
For one single mother and one childless couple, all of whom earn good salaries and generally made good investment choices on their own, the main issue was as much a matter of attitude and finding the best approach toward what they have as of building security for the future.
To a second couple and another individual, however, the financial planners presented perhaps the toughest challenge: Change your ingrained habits--an almost irresponsible approach to money in one case, an excessively conservative investment course in the other--or be sorry down the road.
Easier said than done? Very much so, in their cases.
But for them, as for any investor, it’s never too late to change further.
Free Spirit Takes First Finance-Savvy Steps
Kathy Harter now spends much of her free time eagerly reading about mutual funds, annuities and real estate investment trusts.
It’s quite a change for the free-spirited Harter, 51, whose approach to personal finance sometimes bordered on the feckless. When she sought advice from Money Make-Over last spring, she had just moved to Honolulu and was seeking full-time employment.
Harter, whose one child is grown, has worked on a freelance basis as a writer and computer operator, relying on her parents’ largess for half her income. She had little saved for retirement--indeed, she had put off thinking seriously about providing for her own financial future.
Her bond-heavy portfolio, worth an estimated $150,000, had been selected by her father. Two years ago, when he became too ill to keep advising her, as Harter put it last May, “I was losing more than a father, I was losing a safety net.” Certified financial planner Phillip E. Cook of Torrance urged Harter to firm up her job situation and commit to a disciplined retirement saving plan as soon as possible.
The planner estimated that Harter would need to begin putting away $1,100 a month if she wants to retire with an annual income of $30,000 in today’s dollars. Moreover, in Cook’s estimation Harter had a portfolio suitable for a cautious retiree, not someone who needs her assets to grow. He advised her to place almost all of her holdings in domestic and international stock mutual funds. It was an aggressive suggestion for an investor of that age, but Cook believed it was called for given the lost investing time Harter would need to make up for.
Harter’s employment situation remains shaky. She’s working as an assistant to a Hawaii state legislator, but the position is temporary and scheduled to end next month. As a result, she’s been unable to augment her retirement savings. In fact, she’s had to dip into her savings over the last several months to make ends meet.
Harter was determined to become a more knowledgeable investor, however. She began reading financial newspapers and magazines and making alterations in her portfolio. As luck would have it, her first move was not an immediate success. Harter sold her utility company shares and placed the proceeds, about $9,000, in Fidelity Diversified International Fund (five-year average annual return: 16.8%), as Cook had suggested. But “the utility shares promptly went up and international fund promptly went down. It was sobering,” Harter said, laughing.
But she soldiered onward, ultimately transferring close to $30,000 out of bond funds and into such investments as Fidelity Growth & Income Portfolio (five-year average annual return: 22.3%), Fidelity Equity Income Fund (five-year average annual return: 21%), Fidelity Balanced Fund (five-year average annual return: 11.6%) and Fidelity Advisor Institutional Growth Opportunities (five-year average annual return: 21.3%).
Those choices are somewhat more conservative than Cook recommended, however. And Harter has kept about $75,000 of her portfolio in U.S. Savings Bonds. “I know financially they aren’t the best thing, but emotionally I need them. They are my backup rent money,” she explained, adding: “I didn’t go as far or as fast with aggressive growth as Phil recommended. I just got my feet wet.”
HELAINE OLEN
Credit Card Debtor Gets Her House in Order
Dianne Franks is slowly but surely regaining control of her financial life.
The contract administrator from Pasadena turned to Money Make-Over last fall, seeking advice mainly on how to handle more than $45,000 in credit card, student loan and other unsecured debt. Since then, Franks, who is in her early 40s and makes about $44,000 a year, has paid off two of her credit cards--Sears and Shell Oil--and is now taking on her Home Depot bill. In all, she’s knocked almost $2,000 off her tab in a few short months.
Ginita Wall, the certified financial planner from San Diego who advised Franks, had suggested tackling one credit card at a time, beginning with the one charging the highest interest rate. Franks decided to address her smaller bills first, hoping for the psychological boost of receiving fewer invoices in the mail, even if it would cost her more in the long run. However, since her smallest bills were on revolving store accounts whose interest rates were higher than nearly all of her bank credit card accounts, Franks has in fact followed the spirit of Wall’s advice.
“I think twice before spending money these days,” said Franks, who now pays cash whenever possible.
Franks has not set up a formal budget and has no plans to do so, contrary to the advice of Richard Pittman, director of counseling for the Consumer Credit Counseling Service of Los Angeles. However, she has indeed cut back, eating out much less often and even giving up her morning ritual of buying coffee and a muffin at the local supermarket.
Franks is considering returning to school part time in the fall to study psychology. And she promises to pay the bills for her classes as they come due.
“I refuse to take out another loan,” she said firmly.
--HELAINE OLEN
She Sees the Path to Her Dream Home
Last summer, Carole Panick had a goal but no game plan. The advertising copywriter for NBC television, now 30, had hopes of being able to afford to buy a condominium in Santa Monica, where she now rents, in a few years. She makes about $50,000 a year, and although she had about $12,000 stashed in her 401(k), she had little put aside beyond that.
Financial planner Margie Mullen of Mullen Advisory in Los Angeles told Panick that her goal was ambitious--Westside real estate is pricey, after all--but that she could achieve it in five years if she puts herself on a strict budget and saves $480 a month for this purpose. Most of the money would be invested in a stock mutual fund and the remainder in a bond fund, Mullen advised.
Assuming that the investments performed as Mullen projected--an average annual return of 10% for the stock fund and 7% for the bond fund--Panick could expect to have more than $47,000 at the end of the period.
So far, Panick has indeed cut back on her discretionary spending, but because her weekend freelance work has dried up, she’s been able to put aside only $200 a month for her down-payment fund.
Nevertheless, thanks to a $2,000 gift from her parents, she has passed the $5,000 mark toward her goal, and, as Mullen recommended, the savings are invested in Vanguard’s Index-Trust Value Portfolio (five-year average annual return: 21.8%), a growth-and- income fund.
Panick followed Mullen’s recommendations on restructuring her 401(k), reducing her position in her employer’s stock to 15% from 50%, transferring out of the bond fund and putting the remaining 85% of the retirement plan savings into a diversified stock fund. She has also increased her contribution, to 6% from 3% of her pretax pay, to take full advantage of the company’s matching contribution.
Panick may not be progressing toward her dream home by the sea as quickly as she’d hoped, but she’s not discouraged.
“I feel like I’ve made a good start,” she said. “Before I had no idea what to do, so I wasn’t doing anything. Now I’m going in the right direction even if I’m not getting there as fast as I planned.”
--GRAHAM WITHERALL
Investing Raises Fears for Couple in Their 50s
Ed and Jean Salkeld were looking for a road map to a comfortable retirement when they met with financial planner Suze Orman in October.
The Claremont couple, who are in their 50s, had grappled with employment problems earlier this decade. He has been working for a while as an assistant manager at a pool-supply warehouse; she is a transit analyst with the Pomona Valley Transportation Authority. They suspected that they’d need detailed directions to reach their goal--retiring comfortably within eight to 10 years. The advice they received from Orman, who is based in Emeryville, Calif., confirmed those suspicions.
In devising a plan for the couple, who had more than $200,000 in assets, Orman touched on many issues: revocable living trusts, wills and durable power of attorney for health decisions; life insurance, and a thorough overhaul of their admittedly unfocused and overly conservative investment portfolio.
The Salkelds have taken the first steps along the route Orman sketched out.
A plot of vacant land in Florida with an estimated worth of $55,000 that the couple no longer intend to build on has been put up for sale. Orman had argued that its prospects for appreciation were fairly poor and pointed to management and upkeep headaches.
Most of the $89,500 the couple had saved, both in and out of tax-favored retirement accounts, was invested in low-return bank and money market accounts. Orman had suggested setting aside $25,000 for emergencies and keeping it in a money market.
She also advised that more than $100,000 of the couple’s current assets, plus any future savings, be invested in a diversified mix of mutual funds.
The Salkelds have taken only the smallest step toward carrying out that advice--moving a $2,100 IRA from a money market account into one of Orman’s recommended funds, Vanguard Index-Trust Total Stock Market Portfolio (five-year average annual return: 22.2%), a growth-and-income fund that tracks the Wilshire 4,500 index.
“It’s a big decision for us, and it’s a little scary,” Jean Salkeld said.
The Salkelds are taking it one slow step at a time, getting comfortable with each stage before moving on to the next.
“We probably will invest some of it soon, but we’re not moving too quickly on it.”
As for the other matters, the couple is working with an attorney to craft a revocable living trust and a durable power of attorney for health-care decisions. The trust will make passing assets to heirs easier and the durable power of attorney removes questions about the care they would wish in case of serious illness or injury.
“Those are important things that we agreed we needed to get started on,” Jean said.
--GRAHAM WITHERALL
Deprivation? Not for Highflying Pair
Since learning from a financial planner that just a bit more conservatism on their part could produce a $15-million nest egg in 40 years, John and Linda Buch made a decision: Start spending.
“When do you stop building your portfolio? When is enough enough?” John, 44, said by way of explaining the decision he and Linda, 34, made to embrace a contrarian philosophy.
The United Airlines pilots, who together make about $300,000 a year and already have about $1 million in individual stocks, real estate, mutual funds, savings and individual retirement accounts, came to Money Make-Over for advice on early retirement. There was no real problem with the way they were investing their money--rather, it was a matter of deciding on a financial course to carry them forward. Follow the traditional path and build up as big a retirement nest egg as possible? Or do something else?
Since hearing the anti-traditional-retirement view of New York financial consultant Stephen Pollan, coauthor of the bestseller “Die Broke,” they decided to head in a different direction, one that advocates financial (and career) prudence but also will have them enjoying more of their money now.
The Buchs, who are renting in the South Bay, have long wanted to own an airplane and had been thinking about buying a home but hadn’t taken any serious steps toward do either. Since their consultation, they’ve decided there’s no time like the present.
They’ve also come to the conclusion that they don’t want to retire early, that they hope to continue working at UAL until the mandatory retirement age of 60. They enjoy flying, so why not?
“After talking with Stephen Pollan,” John said, his wife “insists that the house be on the ocean. We are going to spend the money on it.”
--LYNDA NATALI
A Portfolio Touch-Up Between Road Trips
Linda Boyd has accomplished just about everything she had hoped to when she signed up for a Money Make-Over in June.
The single mother, self-taught investor and world traveler, 47, had sought advice on whether she could retire early, on financing college for her daughter, now 4, and making sure she’ll have the wherewithal to satisfy her wanderlust.
And indeed, her portfolio showed a similar, shall we say, spiritedness. Boyd, who earns $74,000 a year working in management for Orange County, has assets of roughly $300,000 in various retirement accounts, mutual funds and equity in her Anaheim Hills home. But her investment portfolio had a pronounced emphasis on growth stocks.
Fee-only financial planner Sharon Rich of Belmont, Mass., said that basically, Boyd was managing her money well and was on track to retire early, but added that she needed to diversify a bit by beefing up the small-cap part of her portfolio and adding an international fund component.
Boyd took the advice. “I re-balanced my portfolio pretty close to what Sharon recommended.”
The planner thought Boyd would be wise to consider umbrella liability insurance to protect her personal assets in case of any kind of legal claim as well as set up a trust for Taylor. Boyd now has that coverage, and she’s looking into the trust.
As for an education fund, Boyd started one and had roughly $5,000 in it last year, but she hasn’t been able, as Rich suggested, to increase what she’s been adding to it. She hopes to improve that later this year.
In the meantime, Boyd and her daughter have hit the road, traveling to Idaho, Montana, Louisiana and making several trips up and down the California coast. And they’re plotting future itineraries. “We’ve got trips planned about every month,” Boyd said.
--LYNDA NATALI
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Helaine Olen, Lynda Natali and Graham Witherall are regular contributors to Money Make-Over. To be considered for a published 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.
