Written Goals Could Be Map to Success

Bo Woods is running scared. He’s lost five jobs in the volatile field he loves--radio--and now he’s working two radio jobs and taking unnecessary financial risks to make up for lost time.

Consider Christmas 1998, when the promising high-tech stock he bought on margin bombed and ended up wiping out the $15,000 stock account he and his wife, Jennifer--then his fiancee--had built up over two years.

“First the stock went up and up, and then it went down, down, down,” said Bo, 35. “We were in New Jersey with my in-laws, and while Christmas was going on upstairs I was in a bedroom downstairs talking with the Schwab operators about how to stay out of jail,” he said, with a dash of hyperbole.

Jennifer, 30, is more steady. She’s a middle-school teacher who puts 30% of her salary into retirement savings every month, and wants to have a baby in two or three years.

Bo says he wants children too, but only after they’ve paid off the $7,000 owed on a car loan, paid down their $230,000 mortgage, finished remodeling their house and have $100,000 in liquid savings.

“I’d like to have enough money saved up so by the time I’m 50 I can retire and sell Popsicles on weekends or something,” Bo said. “I don’t want to be reliant on anyone for my livelihood.”

But if the Woodses really want financial security--and marital harmony--they need some written goals and a plan for achieving them, said Michael Glowacki, a certified public accountant and financial planner for Glowacki Framson Financial Advisors in West Los Angeles. “You can always change them, but writing down your goals makes them attainable,” he said.

Bo and Jennifer, who married last July, met in Norfolk, Va., in 1995 while they were walking their dogs. Jennifer, a small-town girl from New Jersey, had her first teaching job and Bo was riding high as a popular radio morning show host.

“They’d recruited me from another station in Dallas in January 1995 and I became sort of a star, making great money, more than now,” Bo said. “Then a year and three months later I was fired. The station sold and they fired everybody.”

It wasn’t the first job Bo had lost because of a change in station ownership or format, but it was the most devastating.

“To be totally honest, I’m not over the sting yet,” he said. “I’m working six days a week and I’m still scared to death, because it hurts. Losing your job is not fun.”

Bo and Jennifer had been dating for only three months when he had to tell her he’d been fired. It was a pivotal moment in their relationship.

“I told her, and she said, ‘What do you want to have for dinner tonight?’ ” he recalled. “A little bell went off in my mind and I thought, ‘You’d better keep this one.’ ”

They became engaged and moved to California, where Jennifer easily landed a teaching job in Burbank. Bo worked in construction until he could get more radio time.

Now they gross $100,000 a year, working two jobs each. Jennifer teaches middle school by day and computer courses at night. Bo works as a traffic announcer on weekdays and a syndicated disc jockey on weekends.

Their free time--and money--is spent remodeling the small fixer-upper home they bought on a nice street in Burbank. They’re doing most of the work themselves so the going is slow. The kitchen has been gutted since January. They’re spending about $1,500 a month on the remodeling, with $15,000 to $20,000 more to go.

The Woodses are disciplined savers, but they’ve made some risky decisions in their investments, Glowacki said.

They’ve already squirreled away $4,000 for their 2000 Roth IRA contributions and have $10,000 in what they call their “liquid fund.” But all this money is invested solely in volatile high-tech stocks.

Meanwhile, Jennifer automatically deducts $1,350 a month from her salary for retirement savings, but the money is invested in relatively low-yielding annuities through her 403(b) plan at work.

Because their No. 1 goal is achieving financial security, Glowacki recommends that the Woodses diversify their investments and focus on building their net worth.

First, the couple should direct all of their disposable income into building a $30,000 emergency fund in a money market account to tide them over in case Bo loses a job. Emergency savings should never be invested in stocks because emergencies are never planned, Glowacki said.

He points out that if the Woodses had had an emergency in April, their present $10,000 “liquid fund” would have come up short because their high-tech stocks fell significantly in value that month.

Once they build up their money-market emergency account to $30,000 they can start feeding their stock portfolio again. That, plus continued investments in their Roth IRAs and Jennifer’s 403(b) plan, will boost their net worth much faster than using the money to pay off their car loan or mortgage early, Glowacki said. He bases that on the assumption that stocks will return about their historical average (11% or so a year), and compares that return with the after-tax cost of the couple’s 7.5% home mortgage.

In fact, Glowacki recommends that the Woodses, who have an estimated $20,000 in equity in their home, take out a tax-deductible home equity loan to finish their remodeling and pay off their car loan. If they keep the loan payments under $1,000 a month, they’ll still have about $1,000 every month to invest.

Jennifer should transfer her 403(b) account out of the annuities and into Vanguard stock index funds, which mimic the returns of the stock market overall.

The couple should also move their Roth IRAs and future non-retirement investments into mutual funds--not individual stocks. Mutual funds may not be as sexy as individual stocks, Glowacki said, but given the Woodses’ goal of financial security, funds are a less risky way to participate in the market.

If Bo wants to keep the stocks he has now, that’s fine, Glowacki said. But he still counsels that individual stocks shouldn’t exceed 25% of the couple’s portfolio.

As for how to allocate their total portfolio, Glowacki suggested this mix: 15% in a Standard & Poor’s 500 index fund; 15% into a large-cap growth fund such as Alliance Premier Growth; 15% into a small-cap growth fund such as Managers Special Equity; and 25% in an international fund such as Harbor International Growth.

The remaining 30% could go into a bond fund, such as the Pimco Total Return fund, to provide a capital preservation element in the portfolio, Glowacki said. Although many financial advisors might argue that a couple in their 30s can afford to keep most long-term assets in stocks, Bo’s desire for early retirement means the couple might want a more conservative asset mix much earlier in life.

If they follow Glowacki’s suggestion and maintain their current rate of savings--about $32,000 a year--the Woodses should have a net worth of more than $1 million in 15 years. That assumes their investments grow by 10% annually and their home value appreciates by 2% a year.

But the important thing is that Bo and Jennifer write out their goals and work together to make them happen, Glowacki said. The Woodses are driven now to make money, but those priorities may change. “You control the treadmill. You can get off at any time,” Glowacki said. “Just remember, if you have a plan, it’s easier to see the big picture.”

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Jeanette Marantos is a regular contributor to The Times. 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, 202 W. 1st St., Los Angeles, CA 90012 or to money@latimes.com. You can save a step and print or download the questionnaire at https://www.latimes.com/makeoverform.

Information on choosing a financial planner is available at The Times’ Web site at https://www.latimes.com/finplan.

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This Week’s Make-Over

Investors: Bo and Jennifer Woods, age 35 and 30

Professions: Bo is a radio traffic announcer and disc jockey, and Jennifer is a teacher.

Combined annual income: $100,000

Goals: Start a family. Finish remodeling their home and pay off their debt. Build enough savings so they can work part time and move to a less expensive part of the country, where they can own land and livestock.

Assets:

* About $10,000 invested in four stocks: JDS Uniphase, Dell Computer, Lucent Technologies and Red Hat

* A small house in Burbank, worth about $250,000

* Bo’s Roth IRA worth about $7,400, invested in Dell, Cisco Systems, Intel and Amazon.com

* Jennifer’s Roth IRA worth about $9,600, invested in Dell, Cisco, Lucent and Qualcomm

* Jennifer’s 403(b) plan worth about $20,700, invested in annuities

* Jennifer’s state teacher’s pension, worth about $1,500 a month if she works until age 50

* Bo’s union pension, worth about $482 a month when he turns 65

Debt:

* Home mortgage of $230,000

* $7,000 car loan

Recommendations:

* Write down their goals to make them more attainable and to avoid conflicts.

* Continue their $4,000-a-year investments in their Roth IRAs and Jennifer’s $1,350 monthly contributions to her 403(b) and pension funds.

* Move 403(b) out of annuities into Vanguard index funds.

* Invest Roth IRAs in mutual funds.

* Put all their disposable income (about $1,000 a month) into building a $30,000 emergency fund.

* After the emergency fund is built, invest disposable income in mutual funds.

* Take out a home equity loan to finish remodeling and pay off remaining $7,000 on their car loan; home equity loans are tax-deductible, so the money is cheaper to borrow.

Meet the Planner

Michael Glowacki is a fee-only certified financial planner and certified public accountant with Glowacki Framson Financial Advisors in West Los Angeles. He is co-chairman of the Los Angeles chapter of the Financial Planning Assn. and co-vice chairman of the Los Angeles chapter of the California Society of Certified Public Accountants, personal financial planning division. He holds a master’s degree in business taxation from USC.