Roland, I recommend term life insuarnce as it is a pure life insurance, cost is lowest. We recommend select.com for policies. But, you first need to know if you need it, why you need it and for how long you need it. If this if for dependent children or spouse, a 20 year level term policy is best. You pay the same premium each year and you can be done with it when you should be retiring.
And to add to Deborah's comment, there likely isn't a need for insurance once you retire. I think of insurance as a way to replace lost income if someone were to pass prematurely. Of course, once you retire, there wouldn't be any lost income from working anyhow.
My father got started with investing with a book popular in the 1960s entitled, "Buy Term and Invest The Difference." Separating your insurance from your investments is usually a good idea as it allows you to build wealth with low-fee vehicles which you can use (spend) before you die. We recommend avoiding whole life insurance and buying term until your children are through college.
Tim, I am not sure what your question is? sorry if I am being dense.
Tim, assuming you are itemizing deductions, you can calculate the actual after-tax cost of your mortgage with the following formula: Mortgage rate x (1 - tax rate). For instance, if you are in the 25% tax bracket with a mortgage rate of 8% = 8% x (1-.25) = 6%. If you can get a loan that is less than 6%, than it makes sense to take that loan and pay off the mortgage.
Tim, What type of loan would you be looking at? If your "second" mortgage is a line of credit, then the answer from me would be no. I would target all discretionary money to pay down the line of credit. You should talk to your accountant or tax professional to see if the interest deduction is worthy of keeping.
However, if you are still taking the standard deduction, than the after-tax cost of your mortgage is still 8%.
Hi Tim, I would simply make it a priority to pay off the second mortgage in the next 3 years. At 8% you aren't doing yourself any favors by keeping it. Normally I would suggest that paying off the loan in the next three years be alongside and on top of the 15% you are saving and investing from your pay.
The reason to do both is because you need to have money for retirement and emergencies. Just paying down your loan doesn't build equity and you need to do both.
Sorry Andru, perhaps David and Deborah have some tips, but I'm more of a boring financial planner as opposed to an investment manager. I'm not sure I'm the right person to ask about high dividend paying stocks. I'm more of a fan of a diversified portfolio of large, mid, and small cap stocks, as well as international stocks. I'm always a proponent of owning both growth and value stocks as well. And of course, step one is having an appropriate mix of stocks and bonds. Sorry I can't help much on that one...
Andru, a broad question like that would be difficult to answer in this format. At today's stock dividend rates, your ROTH would need to be or grow to $750,000, a very large amount for ROTHs unless a traditional IRA was rolled over. Dividend stocks are overpriced at the moment in my opinion due to the "rush" of income needs of bond investors. I would seek advice from a napfa registered advisor in your area. I agree with Lon in that a managed dividend growth fund such as Vanguard's would be worth a look.
That's good, interesting stuff... both David and Deborah.
Another question coming at you ...
Andru, We like to put investments with the greatest returns in Roths such as these Vanguard ETFs: Emerging Markets (VWO), Mid-Cap Value (VOE), Small Cap Value (VBR), Technology (VGT).
Markets are inherently volatile. Fortunately asset classes bounce both ways. The job of comprehensive wealth management is to provide clients the best chance of meeting their goals. And asset allocation means we always have something to complain about.
We don't try to predict future quarter's best asset class. Instead we aim for the best possible returns for the smallest possible risk based on long term averages. We are content to consistently come in fourth in the Olympics and get to the bottom of the downhill ski racing run with a decent time and all our bones intact. We aim to manage portfolios so that when you need money in retirement there will be a smart place to get it from.
This means doing what my father calls "making half a mistake." It means avoiding the pride that tries to beat everyone else over any short period of time. And it involves having enough invested in stability for 5-7 years-worth of safe spending.
A balanced portfolio holding U.S. stocks, foreign stocks and resource stocks is still the best tactic to hedge against inflation and secure the financial independence necessary for retirement. We have a saying within the firm, "It is always a good time to have a balanced portfolio." This is true even during months when the S&P 500 is the best or worst performing index.
EW, we don't time the market, but one way to "get into" the market is to "dollar cost average" your investments. Start with the minimum needed to open a good diversified no load mutual fund, then add monthly or quarterly to that fund. You will buy in good times and bad times with that strategy.
E.W.: My opinion would be to focus on your investment time horizon. When do you need the funds? If you anticipate needing the money in five years, than investing in the market now could be risky (of course, the last thing we want is for the market to endure a correction right before we need the money). However, if you anticipate using these funds during retirement, in 20-40 years, than I'd focus on the long term. If we don't need the money for 20 years, do we really care what the market does tomorrow, and what the value of our investment is a year from now? I don't. I care what the value is 20 years from now. History tells us that if we invest today, our investment will grow at an impressive rate if given enough time. I would focus on that, and start dollar-cost averaging the money into the market.
"It is always a good time to have a balanced portfolio." -- That's great.
@E.W.: Here is a portfolio for 65 years old:
Recommended 40-Year Old Portfolio
Here is the breakdown between the three asset classes we use for stability and the three we use for appreciation:
3.0% Short Money
6.7% US Bonds
4.9% Foreign Bonds
31.7% US Stocks
35.7% Foreign Stocks
18.0% Resource Stocks
There is good new for 2013. Congress permanantly extended the 15% tax bracket having a capital gains tax of 0%. Yes, "zero percent". Consider selling appreciated stock up to the limit of the 15% tax bracket each year in any taxable accounts. If your Adjusted Gross Income is below $72,500 Married filing jointly ($36,250 Single) then you should realize up to that amount in capital gains to take advantage of 0% capital gains tax. Otherwise you risk selling a lot in some future year and paying 15% or more.
fees, this is an industry problem with commissioned sales people, they do not have to disclose all of the fees, they meet their due dilligence by providing a prospectus of 100+ pages. Keep calling your advisor and request a meeting to go over your portfolio and get a total fee. You might want to see a fee only advisor. I agree with David, we use all online tools for mailings. the paper clogs up my shredding service.
Fees: Good question. It sounds like you might have two sources of fees: fees charged by your actual investments, and fees charged by your advisor. Concerning your investment, you are looking for the expense ratio, which is the equivalent of an annual fee. You also want to know how your advisor is compensated. The fund paid to the advisor could be another annual fee each year, or it could be a larger fee of approximately 5.5% for loaded investments.
REITs (Real Estate Investment Trusts) are part of our "Resource Stock" allocation (one of our six asset classes). Currently we think they are a good investment. It is one of the few allocations which we got out of entirely during its run up and then got back into it in 2009 after the bottom. In normal markets we think a 10% allocation specifically to REITs makes sense in a portfolio.
We divide our REIT allocation into two ETFs:
Vanguard REIT Index ETF (VNQ)
Vanguard Global ex-US Real Estate ETF (VNQI)
with about 60% in the U.S. and 40% in foreign REITs.
Jon120772: I agree with David. Utilizing cost-efficient REITS such as Vanguard REIT Index ETF is a great way to minimize costs while adding diversify to your portfolio. I'd encourage utilizing 5-10% of your portfolio in this asset allocation.
Hi Allen, We recommend having a large 30-year fixed mortgage at these interest rates (3.635%) as a 30-year fixed mortgage that you pay the minimum on is the best hedge against inflation. So I would keep the large mortgage regardless of keeping or selling the condo.
Having said that, if you are willing to hang onto the condo and have the hassle of renting it, I think doing that would be a good option.
Allen: I think the answer depends on your expertise. If you are comfortable and capable of fixing adjustments that need to be made on the rental property, than maintaining that property can be a way of keeping a diversified portfolio and even generate potential tax benefits. However, if you are incapable of maintaining the property or have no interest in keeping the property in good shape yourself, selling the property and investing in a range of diversified stocks and bonds might be the better way to go.
Allen, remember that there are tax consequences when you sell the condo if it was converted to investment property. That plus the hasstle might put selling in the "to do" column.
Alright, less than 30 minutes to go! We have a few more questions in the queue, hopefully we can hit them all!
Jaybird: I certainly hope that her entire portfolio isn't invested in just bond funds. It is hard to predict what bond funds will do over both the short and long term, but not having a mixture of bonds and stocks is simply asking for trouble. Step one should be identifying an appropriate mixture of stocks and bonds that is assertive enough to meet your mother's retirement needs, but conservative enough to not suffer excess market fluctuations.
Jaybird: Do you know the percentage of her portfolio that is invested in bond funds?