Investing, retirement planning with John Gin

(08/18/2008)

10:07

Kim Quillen, T-P:

Good morning and welcome to John Gin's chat about investment and retirement planning. Feel free to go ahead and start posting your questions now. John will begin answering them at 12 noon.

Monday August 18, 2008 10:07 Kim Quillen, T-P

11:56

[Comment From SusanSusan: ]

What's the deal with the ups and downs the market has seen in recent weeks/months. What is going on, and are there any safe havens in this volatile market?

Monday August 18, 2008 11:56 Susan

12:06

John Gin:

Susan, you have asked a great question. My short answer is that we are paying for the sins of the past. As a country, we are overextended and our savings rate is too low. All of this came to a head in the last year and it will continue to be played out. The real estate, mortgages, and the financial sector have been the most stressed. Try to remember that these ups and downs of a business cycle occur on average about every 5 years. When the down side of a business takes place, it is often very volatile and painful.

The best advice is to stay invested and diversified. Match the investment with the time frame of need. For example, cash and CDs should be held for every day and short term needs ( 1 to 3 years). The investments in your 401(k) should be for your longer term ( 8 to 10 year +) retirement goals. Try to avoid making short term emotional changes in your investment. Being out of the market even in a short time frame will seriouly hurt your returns.

Monday August 18, 2008 12:06 John Gin

12:06

[Comment From JohnnieJohnnie: ]

If you are about 10 years pre-retirement, can you realistically catch up if you have fallen behind in your expectations on your 401k results?

Monday August 18, 2008 12:06 Johnnie

12:13

John Gin:

Yes, you can. My personal experience is that when you can focus clearly on a goal like retirement, nothing is impossible. You should start doing some work to find out how much you need to save for your retirement, make sure your asset allocation is appropriate for your age ( try not to "caught up" by investing in the latest fads), look at your current expenses and see if you can trim some discretionary expenses that you really don't need to spend and can save toward retirement. It's not going to be easy, but you can definitely make it.

Monday August 18, 2008 12:13 John Gin

12:13

[Comment From KENKEN: ]

I AM ABOUT TO RETIRE AND HAVE $300,000 IN INVESTMENTS. WHAT IS THE BEST I CAN DO TO GET MONEY FROM THIS INVESTMENT WITHOUT TOUCHING THE PRINCIPLE?

Monday August 18, 2008 12:13 KEN

12:21

John Gin:

You are asking one of the most debateable questions in the world of finance: How much can I withdrawal from my portfolio without substantially depleting it? The rough answer is a range between 4% to 5% of the portfolio, provided the portfolio is invested in 35% cash and fixed income and 65% in growth investments. In order to keep up with inflation over your life expectancy, you cannot invest all of your money in bonds or CDs and live from the dividend/interests. You need to have growth investments in stocks/real estate to provide growth to offset the effects of inflation. I know this is a hard pill to swallow in a down market, but it's something you make do your homework on.

Monday August 18, 2008 12:21 John Gin

12:23

[Comment From TomTom: ]

Advisors say invest your retirement money in diversified mutual funds. But I read that these funds have returned only 2% a year since 2000. Given that the market has long sideways periods, how does an investor get ahead at a reasonable rate?

Monday August 18, 2008 12:23 Tom

12:34

John Gin:

Tom, you made a great comment. The S&P 500 Index with dividends reinvested has done exacted as you said, about 2% per year since 2000. However, if you go back to the decade of the 1990s, the S&P 500 Index averaged close to 17% to 18% per year. Because we will never know which part of the market will do well, all investors should diversify. The S&P 500 Index represents U.S. large Company stocks. To be truly diversified, you should also include in your portfolio small and medium company stocks, international stocks, REITs (Real estate investment trusts), and bonds of all types. If you look at the annual returns for these other types of investments since 2000, you will see that the returns can be much higher. The key is to spread your money across the board in growth and fixed income investments.

Monday August 18, 2008 12:34 John Gin

12:37

[Comment From RICKRICK: ]

I plan on retiring in about 14 years at the age of 65. I have consulted with 3 different "financial advisors" and none have come up with similar strategies. I plan on being totally debt free and am looking for about $4000.00 per month income not including Social Security. I am also being told by two of these advisors that I should not count on Social Security benefits because of the shape it is in. What do I believe ???

Monday August 18, 2008 12:37 RICK

12:47

John Gin:

Rick, you bring up a very good point about how financial advisors differ in their recommendations. Generally, the more information you can provide to a financial advisor, the better the results. The type of information that I would want to know would be: your net worth worth (assets/liabilities), your tax situation, income and expenses, your current investments, how did you select those invesrtments, what previous investing experience did you have, etc. By looking at the big picture and a bit of your investment experience, there should a general strategy that is in the ball park.

With this information and the fact that you have 14 years to retirement , the advisor can also look at your retirement planning taking into account both alternative on the Social Security issue.

Monday August 18, 2008 12:47 John Gin

12:48

[Comment From GaryGary: ]

Mr. Gin, If you were ready to get a little more agressive with your investing with a set aside stash designed to augment retirement, where would you put your money?

Monday August 18, 2008 12:48 Gary

12:59

John Gin:

Gary, rather than tell you where to invest aggressively to possibly take advantage of a down market, I prefer to tell you how to do it. Many financial advisors will implement a "core-satellite" strategy. The core portfolio will be globally diversified for the majority of the money (80% to 85%). The rest of the money in the satellite portion (15% to 20%) is going to be aggressive to try to capture opportunities in the market. You can look at what you think are the opportunities by splitting the 15% to 20% into three or four areas. This way, if you are wrong, the majority of your portfolio is still there for your long term goal. If you are right, you can reap the rewards!

Monday August 18, 2008 12:59 John Gin

1:01

[Comment From DCtoNODCtoNO: ]

What are the best Mutual Funds to invest in for the short term (6 months to 1 year)?

Monday August 18, 2008 1:01 DCtoNO

1:11

John Gin:

The best mutual fund for a 6 to 12-month term is the money market mutual fund. In today's interest rate envirnoment, you may be able to get a better yield in a CD.

Typically, mutual funds would be a better investment vehicle if your term frame is longer. Any time frame less than 3 years should be in cash, laddered CDs, and money market funds. You want to protect your principal.

From 4 to 8 years out, you can consider bond and more conservative stock mutual funds.

From 9 years+ out (long term), you can consider the entire universe of mutual funds.

You want to match the right investment to your goal.

Monday August 18, 2008 1:11 John Gin

1:12

Kim Quillen, T-P:

This concludes today's online chat with John Gin. Thank you for your participation. And be sure to watch for John's column, which appears weekly in the money section of The Times-Picayune. An archive of John's columns can be found at www.nola.com/business.

Monday August 18, 2008 1:12 Kim Quillen, T-P

1:13