Investing Questions

A: I'm not a financial advisor, but I think if you put it into anything, make sure it's short-term rather than long term. I think interest rates are going up ... at least a bit, so if you wait 6 months or so before locking her in, I think she'll get more for her money. In the meantime, have you considered a short-term bond fund for some of the cash? It's a bit more risky, but since she doesn't need the funds for day to day living, it might be a worthwhile investment should she live another 10 years.

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Q: The transaction described in my question took place yesterday and I will have $450,000 cash left after I payoff the loans and taxes. We are doing approximately $125,000 in renovations to our primary residence. I can pay cash or finance the renovations with my equity line.

A: It never makes sense to borrow to pay for something when you have that much cash sitting in a bank account earning basically zip.

Use your cash to do your renovations and invest the rest. Or, you can even use it to pay down your mortgage a little and then invest the rest.

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Q: Recently finished paying off all my debt through consumer credit counseling service, and despite having used such a service, I have a much higher-than-average credit score with all three bureaus.  I also have an income in the high 50's and only my mortgage and one car loan on my credit report.  I've received in the mail a notice from Capital One telling me they'll give me an unsecured personal loan with no advanced fee, a 7.9% fixed APR for 60 months, no pre-payment penalty and no balloon payment at the end.  My husband and I still have debt to pay (which is all in his name), and we're interested in using this loan to consolidate and pay off everything once and for all.  How do I check out whether it's a scam?  Capital One gave me three months to reply.

A: Congratulations on completing your consumer credit counseling services program, and paying off your personal debt. That's quite an accomplishment.

As for this personal loan, I'm skeptical. These kind of loans typically have rigorous repayment requirements and enough fine print to make you crazy. If you're late on one payment, it could invalidate the 7.9 percent rate and you'll be obligated to pay back this personal loan at 20 percent or higher.

If all the debt you have is a mortgage and car loan, I'd much rather see you tap your home equity to pay off your remaining debt than use this lender's program. While you'd be putting your home on the line with a home equity loan, you can write off the interest you pay. Also, the interest rate should be much lower than what you're being offered.

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Q: I am about to inherit from the sale of my deceased mother's home approximately $140,000.00.

The balance on our home is only about $49,000. (Interest rate of about 7 percent) We have a credit card balance of about $6,000 which we intend to pay off immediately. We have a home equity line of credit for $25,000 with a balance of about $21,000.

One car loan with $12,000 balance. One motorcycle loan with $8,000 balance.

We are thinking about paying off the house and credit card balance and raising the limit on the equity line of credit and rolling the two vehicle loans into it so that we will have interest deductions on our taxes.

I am almost 50 and my husband is 53.  We will have no dependents to claim starting this year.

We also plan on possibly putting some of the money from the house into a CD for my 21 year old son and another one for our 23 year old daughter and maybe some for us.

We both contribute to a 401k plan, but my husband is taking an early retirement from Delta (leaving at the end of March) and will no longer be able to contribute to his 401k.   I plan on maxing out on my 401k.

Does any of this sound reasonable to you?   If not, could you please offer some alternatives?

A: First, pay off your non-deductible debt, including your credit cards, car and motorcycle loans.

Next, refinance your first mortgage and home equity loan into one mortgage, with a much lower interest rate. As I write this, a 30-year mortgage was available for 5.5 percent and less for a 15-year mortgage.

I don't know how much time is left on your mortgage, but consider getting a 15-year mortgage, so that when you turn 65, your home will be entirely paid off. Next, take the cash you would have continued paying on your mortgage, and use it to prepay your home loan. Every dollar you use to prepay your mortgage earns you that rate of interest.

I don't know about you but my savings account is paying about 1 percent. If your mortgage interest rate is 5.5 percent and you prepay your home loan, you're doing a whole lot better if you pay down your mortgage than if you leave cash in a savings account.

Or, as you suggest, you could entirely pay off your mortgage, which will substantially free up your monthly cash flow.

After you've done all this, here's where you'll be financially: Your credit card debt and car loans will be paid off. Instead of two loans, you'll have one mortgage with an extremely low interest rate. You'll be maxing out your 401(k), and hopefully taking advantage of Roth IRAs (you and your spouse may qualify to put away $3,500 each if your family earns less than $160,000 per year. And, you'll still have more than $110,000 in the bank, or about half that if you decide to pay off your home loan.

At this point, I'd spend a few hundred dollars to buy a few hours of a fee-only financial planner's time. Then, you can map out how to conservatively invest your remaining cash. You can find a fee-only financial planner by calling 888-FEE-ONLY.

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Q: I enjoyed hearing about you on NPR and hope you can give me some insight.

In a q & a column written by another financial adviser often seen on public broadcasting (who shall remain nameless), she advised a couple who was inheriting several hundred thousand $$ to use the money to pay off their mortgage.

I am also inheriting some money and wonder if this is a smart tactic.

Perhaps I'm looking at the figures wrong, but here was my analysis. Over the 30 years of my $192,900 mortgage, at 6.625%, my amortization table says I will pay interest of $251,757.33. My compound interest calculator says that if that same amount (my inheritance) is invested at 6.625% for 30 years, it will earn $1,124,619.86 (compounded annually). So, since it appears I would earn 4 1/2 times as much interest as I would pay out, it seems to be a bad move for me to use my inheritance to pay off my mortgage, (not even taking into account the tax advantages of the mortgage.)

Am I looking at this correctly and do you agree, or is there some hidden advantage to using the inheritance to pay off that mortgage?

A: I don't know who the other financial advisor is, but I think you're on the right track. In fact, because you probably write off some of the interest, your net interest on your mortgage is probably more like 5.5 percent, or perhaps less. And, if you invest the money over a long period of time, you might earn substantially more than 6.625 percent on your money. So the rewards of investing the money are greater.

However, if you were not going to actively manage your money and instead were going to allow it to sit in a money market account earning 2 percent, the tables would be turned. Then, you'd be borrowing money at 5 percent and earning it at 2 percent, thus eroding your principal over time.

If circumstances changed in your life, and you were no longer writing books or earning an income, you might want to pay down your mortgage so that you weren't cash poor each month (assuming this was all the cash you had). But if that were the case, I'd suggest you move rather than spending all of your available cash. (Or, get a reverse mortgage.)

Bottom line: I'd invest in a diversified portfolio and see how it goes.

By the way, congratulations on all of your books. My 7th book was just published. It's called 50 Simple Steps You Can Take to Disaster-Proof Your Finances. You can see it on my website. www.Thinkglink.com.

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Q: What is the likelihood that someone will get the face value of corporate bonds invested in a company that files chapter 11 like Kmart?

A: I think it's unlikely you'll get the face value. But, I could be wrong. There's a lot left to be written about the KMart situation -- and, of course, no one knows the future. If the store can right itself -- get itself back on track -- then your investment might turn out ok. Other than that, I can't guide you.

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Q:  I am getting married in May of 2003.  My fiancé and I are paying for the wedding ourselves.  We both work and have decided on an amount of money that each of us can save per paycheck.  I have a lot of bills from school loans and car payments that eat up the majority of my check.

Can you tell me if there is any short term investment that would be good for us instead of just putting the savings in a regular savings account earning minimal interest.  We are obviously looking for something not very risky and something that we would not be penalized for.

A: Thanks for your nice note. You and your fiancé have a specific short-term goal in mind -- your wedding. You don't want to risk your hard-earned savings on a hope that the stock market will cooperate. That's gambling, not investing.

I suggest two options: First, open a 1-year or 6-month CD. Put in your cash and then you can renew/add to it when it comes due. Time it so that you can tap your cash when you need it.

The other option is to open up a brokerage account with a Fidelity, or Merrill Lynch. Keep the funds in cash reserves. That should earn more than a money market, but keep the cash liquid.

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Q: A friend of mine saw a money program on PBS in which the host (she wasn't sure who) indicated that there are tax penalties for the 529 plan if your child does not start college before 2013.  My daughter is only 1 and I just put a good amount into her plan.  Can you tell me if there is any truth to this?

A: Yes . . . and no.

The current tax laws expire in 2011, I think. Right now, 529 plan can grow federal and state tax free. If you use the money to pay for college tuition and expenses, you can withdraw the earnings tax free. But in 2011, that law will expire so the profit would be taxable. But I'd be shocked if Congress didn't extend the law permanently. After all, who'd want to risk offending parents as a voting block??

You never know for sure, but I'd be willing to bet that your friend will be fine.

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Q: I have a neighbor who thinks that she can support herself by trading commodities. She took a course to learn how to do this. I don't want to be discouraging and I really don't know anything about this and it's none of my business, but this doesn't sound like a good plan to me. If this is not good and I had an opportunity to say something, what would it be?

A: All you can say is this: "95 percent of the people who trade commodities lose money. Only people like Hillary Rodham Clinton win. Good luck, and I hope you have a backup plan.

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Q: My mom is elderly, she is cash poor but has a 300k home which she is willing to me upon her death. Is there any way to avoid inheritance taxes by having her "gift" some of the equity in the home to me? Please help.

A: If your mom dies this year, she could pass down $750,000 in assets tax-free. That number is going up next year. So, there's no reason for her to "gift" you any equity now, since you'll inherit the property tax free some day, depending on her other assets.

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Q: You mentioned two programs for contributing to 529 plans. One was UPromise but I didn't get the second one.

A: BabyMint.com.

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Q: I have a question regarding investments. At this time with everything going on with our market, what would you suggest that someone do with an inheritence. I would like to have this money work for me for my retirement. Some people say C.D.'s are safe....I would also, if possible like to keep my name confidential. This is a significant amount of money, and I am 37 years old. I already have a Roth IRA and mutual funds, which are automatically deducted from my checking account, which I never check the status of (my Dad said to just keep doing it, and don't check it!) Please help me as I am lost without my main financial advisor, my Dad.

A: First, please accept my condolences on the loss of your father. But it sounds like you've internalized his best advice over the years, and so I know that you will be able to carry on and make the best financial decisions because of all the help and advice he gave you throughout the years.

He left you with a substantial sum because he was sure that you would use it wisely. Here are some suggestions.

First, unless you need the money to live off of today (and it doesn't sound like you do), please consider investing at least some of it for the long-term. You could take half and invest it in an inexpensive S&P 500 index fund and another part in a short-term bond fund. You could invest the final quarter in a growth-oriented mutual fund, if you like, or a Wilshire 5000 yype whole-market index fund. You can also keep part of it invested in short-term CDs. I wouldn't do anything long-term right now because interest rates are so low. When interest rates rise, you can invest it for the longer-term, if you want.

These are conservative investments, but I'm sure your father would approve. Vanguard has the least expensive index funds. Go to www.Vanguard.com to investigate.

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Q:  I've heard people on WSB in Atlanta talking about the 529 plan for college savings and it always seemed like a very good plan.  However, on PBS this past weekend someone was saying that if you have a child who will not be pulling out the money before 2011, you should seek other avenues, because all of the tax benefits will go away.  Is this true?

A: The issue is whether all of the tax savings will indeed "sunset" in 2011, that is, disappear entirely. The reason 2011 was chosen by the Bush Administration was because it met certain financial projections. My guess is that by 2011, the tax savings will be so ingrained that if congress tried to do away with it, there would be a huge revolution from parents nationwide, and anyone voting against it would be voted out of office.

My feeling is, these benefits are pretty safe. By the way, the estate tax is supposed to be completely phased out by 2011 and then that law "sunsets" at the end of that year. But again, I think that after having zero estate taxes, anyone who tried to bring them back would be voted out of office.

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Q: My wife and I just bought a new home using your book as our Bible. Thank you! I noticed that you had also written several books on personal finance. I need your advice...

I graduated college in 2000 and have a school loan for $28,000 at 11% interest, for 10 years. I have been paying that one off for a year now--usually adding some extra money for principle each month.

With my new home, I have a $130,000 at 6.75% interest, for 30 years. I have been paying that one off for a couple of months--again adding some extra money for principle each month.

My first question is...How should I allocate how much extra money I pay each month? Which way will I save myself more money in the long run? Should I put all of my extra money into the school loan because it has a higher interest rate? Or should I put all of my money in the mortgage because the term is longer? Or is it somewhere in between? Let's say I have $1000 extra a month to pay off whatever I like...Where should I put it?

My other question lies around my $25,000 savings account. I feel that is two much money to be sitting in a savings account in a credit union! I am not sure what to do with. I am looking at stocks, but am wondering about the fact that stocks are a good long term investment (say 10 years). Since that is the case, wouldn't it be much safer to put that extra money towards my school loan--that would pay off at 11% over 10 years--pretty good right? Any suggestions on this one?

Thanks for all advice you can offer, and for a great book to use during my first home buying experience.

A: Thanks for your nice words about book. I'm glad it helped you.

First, see if you can get your school loan lowered. If you took out a government-sponsored loan, many of those loans had their rate reduced. If it is reduced, then you can decide what to do from there.

If it cannot be reduced, take 11,000 out of your savings account -- where it is earning virtually nothing, and pay off a chunk of your school loan. Keep $10,000 in cash for an emergency account. That can stay in your money market account, or in a short-term CD. You won't get much more interest, but it's something.

Do you have a Roth IRA? Are you eligible for one? If so, use the remaining $4,000 to open up a Roth for yourself and your spouse. Once you open it up, I'd put the cash into an S&P 500 fund. Vanguard typically has the least expensive index funds, so start there. You can check out www.morningstar.com for more mutual fund ideas.

As for your savings, you should open up a brokerage account (preferably where you open up your Roth IRA) and start plowing $500 per month of that cash into your financial future. You can do another S&P 500 account, or try something else. The idea is that regularly you add to that cash and over time, it will grow. Use the remaining $500 per month to prepay your school loan. You'll have it paid off in 2 years, and will have been able to to put aside a huge chunk of extra cash.

I recommend you pick up my book 100 Questions You Should Ask About Your Personal Finances, which will give you much more detail about investing and other places where you can save money in your life.

But congratulations on getting started. Be sure to watch the interest rates, so you can refinance and save even more. 

As for paying off your home loan early, consider this: Simply refinance your loan into a 15-year mortgage. You'll pay less in interest and will be able to save tens of thousands of dollars by paying off your loan in half the time.

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Q: My husband and I have a lot of E & EE bonds. We have been purchasing I-bonds this past year. We are in our 60's and do not feel that IRA's are for us at this age. My question is should we cash in the E & EE bonds and purchase I-bonds? We know that the I-bonds are earning more but will it cost us a lot in taxes, since we are still working. We are at a lost.

A: I wouldn't cash in my e-bonds unless you have a use for the cash. The I-bonds will do better, but buying bonds right now just doesn't make a whole lot of sense. You need to speak with a financial planner who can assess where you are with your entire net worth, and where you want to be when the time comes to stop working.

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Q: I have a son in the 3rd grade and would like to know the best way to save for college at this point. I've heard you talk about the 529 plans. Would that be a good option? Would a Roth IRA be a good option as well? Which companies or states offer the best plans or what I should I look for when choosing?

Also, what would be the best option to saving? I know you should have 3-6 months of expenses saved but I'm not sure of the best place to put it to get the best return on the money and still have relatively easy access to it if it is needed.

A: I think you should open up a 529 plan for your son. Go to www.collegesavings.org and www.savingforcollege.com and check out all of the different plans. These websites will walk you through all of the state plans, and actually rank them for you.

As for saving emergency funds, you should keep 1 month in a money market account, and 2-4 months in a 4 or 8-week CD. The interest won't be great, but at least it's a bit better than a money market account (check to make sure it is . . .) and you'll have easy access to the cash.

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Q: My husband and I have a lot of E & EE bonds.  We have been purchasing I bonds this past year.  We are in our 60's and do not feel that IRA's are for us at this age. My question is should we cash in the E & EE bonds and purchase I bonds?  We know that the I bonds are earning more but will it cost us a lot in taxes, since we are still working.  We are at a lost. 

A: You need to assess how much you'll pay in taxes vs. how much you'll earn. And, I don't know why IRAs aren't for you. They will defer taxes on your compensation until you stop working, and will then hopefully be in a lower tax bracket.

Consult with your accountant or financial advisor on how i-bonds could fit into your portfolio.

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Q: I am 30 years old and do not have any financial sense. I make $44,000 a year and have 10,000 in a 401K program. I had an enormous amount of debt ($16,000) that I was lucky enough to have a relative help me to pay off so that I can pay off the money interest free. I am looking for some guidance into my financial planning. All of the financial planners that I am able to find on-line only handle investing. I would like to do that but am starting out with only a couple of hundred in savings so I do not think they would be interested in speaking with me. Do you have any suggestions of a company or a seminar that can help me to budget my finances in order to put some money in the markets and to purchase a home in the next few years?

A: Contact your local office of the Consumer Credit Counseling Service of Greater
Atlanta. They will help you budget for free or for very little money. They
have a debt management program, but you don't need that.

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Q: I am considering adding I-Bonds to my portfolio as a way to diversify. I currently have a traditional IRA in a large cap mutual fund which is down about 20%. I make regular monthly contributions, but at 50, I don't plan to use it for about 10 years. I am considering using the additional $1500, as a result of the new tax law, to purchase I-Bonds in a Traditional IRA with my bank. I can't get the bonds from Schwab. Do you think that would be a sound investment?

A: I-bonds are a good way to diversify. I-bond interest is a composit of a fixed interest rate (right now 3 %) for 30 years plus an inflation rate that changes every six months (1.44 currently). The way the composit rate is set, the current rate for bonds is 5.92%, which is pretty terrific considering where the price of bonds is.

The inflation component is based on the Consumer Price Index for Urban Consumers (CPI-U) and it changes May 1 and October 1 of each year.

The place to go to get information on I-Bonds (more than you'd ever want to know really) is www.publicdebt.treas.gov.

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Q: Hello, I hope you will be able to assist me with this situation...I cosigned a personal loan for my boyfriend before he became my ex-boyfriend and made most (if not all) of the payments. Now that I repaid the loan and improved his rotten credit history, is there any way that I can file with the credit bureaus a "comment/note" stating that he failed to repay the loan and that he does not deserve a good credit rating? Believe me, I think I got off cheap compared to what a lifetime with him would have cost me. 

A: Unfortunately, you can't teach everyone about this dog's old tricks. If you start writing bad things about him, you could open yourself up to a lawsuit.

If your ex-boyfriend continues in his ways, eventually everyone will find out. In the meantime, move on. You will have a far better life without him.

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Q: Have a question about the residential cap gain exclusion.  I have been renting my home of 18 years for 2 years now. I would like to continue renting and keep ownership for a couple more years because my plans are indefinite. To qualify for the exclusion I know I must live in the house 2 of the prior 5 years when I sell. But could I transfer ownership of this house to a trust or do something else to qualify for the cap gains exclusion (and step the basis up to today's value) during the time window? I think the Congress' intent with the exclusion is to reward homeowners who meet the home ownership requirements, not to penalize home owners who choose to get into rental property. Of course, that's only my guess, and their
intent may be secondary to the IRS interpretation. Any thoughts you have on this are greatly appreciated.

A: I couldn't hazard a guess of what Congress' ulterior motives might be.... So let's just take what's on paper.

You have two options with regard to your rental property: First, you can move back into the home for 2 years and convert it to a personal residence. But if you've been depreciating that property for the 18 years prior, you will still have to recapture some of that depreciation. Then you would be able to take the rest of the profits (up to $250,000/$500,000 depending if you're married or single) tax free.

But this is mess. A better way to do it would be to keep the property as an investment property and use a 1031 Tax Free Exchange (also known as a Starker Trust). You can sell the property and identify a like-kind investment property to purchase within 45 days of the sale. Then, complete your purchase within 180 days. (There are other rules and regulations so be sure to work with a real estate attorney and 1031 third party company.)

You will be able to roll over all of your profits on the sale and defer taxes until you sell the next property. Your attorney can help you with the details.  If you decide to sell, Congress has helped you, too. The long-term capital gains tax right now is 20 percent. It is going to 18 percent. So if you sell in a few years, you'll probably only pay 18 percent tax. That's much less than income tax.

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Q: My question concerns where to place our emergency fund.  Is a 4-5% money market fund the best or would it be better to place the funds in a bond fund and get 7%?  Will the bond fund offer the same amount of stability and liquidity?

A: I'd keep your cash where it is really safe and liquid. If you have other immediate cash with which to pay true emergencies, or if you can carry the costs on your credit card until the end of the month, then you could put your cash into a 2 or 4-week CD. Otherwise, put it in a money market, where you earn a reliable rate of return and can access the cash without penalty at any time.

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Q: Last night my husband found out that he would receive a sizable inheritance from an uncle who died last year.  The inheritance will come in the form of a stock portfolio.  We need help.  A Smith-Barney account will be set up and the stocks will be transferred into his name.  We have so many investment issues now that we are overwhelmed.  Do we keep everything in stocks, do we move money for the kids college, do we sell some to redo our kitchen (which we were getting ready to do by refinancing our house).  How do we go about finding someone who can help us keep this money growing for us and the kids.

A: First, my condolences on the loss of your husband's uncle. There's always something bittersweet about receiving an inheritance. I get many letters from listeners and readers who worry about not losing the inheritance due to poor financial decisions -- in fact, they're so worried that they end up doing nothing!

You should sit down with a fee-only financial planner who can help you evaluate the stocks in your old and new portfolio, as well as the financial impact it will have in the short and long-term.

A fee-only financial planner will charge you hourly, like an attorney, for his or her advice. You can find one by calling 888-FEE ONLY, which is the number for the national association of personal financial advisors.

As for whether you should finance your kitchen redo or sell some of your newly-found wealth, wait to sit down with the financial advisor first and go through the numbers. Only then can you determine intelligently how to pay for your home improvement.

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Q: I am about to retire in a few months, and have thought all along that I should take a lump sum for the payout of my pension. I am working with two different Financial Consultants, from two different companies, and they both feel that my lump sum is very generous compared with lump sums provided by some other large companies. I also realize that this is in their best interests for me to take the pension in a lump sum as well, since I will be using one or both of them for investment advice.

The lump sum is equivalent to about 14 times the annual payout for my wife and me.

I would be interested in your recommendation.

A: If you knew how long you were going to live, you could make the best decision. Since you don't know, you'll have to guess.

I'm with your advisors. Typically, you'll do better over the long run with a lump sum, plus you don't have to worry about the company changing its pension payout rules after you've retired.

Take the money and then decide whether you want to work with either of these advisors, or find someone else, or do it yourself.

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Q: In your article "Is now the right time to refinance?", you referto the US economy beginning to slow down and may actually head into recession later this year.  That said, would it be wise to invest in a Vanguard fund (for example) or find another type of short term investment until the future is a little  more clear?  Also,  in a recession will the  mortgage rate down more,  or if the feds lower another  quarter or half will they go down more?

A: The federal funds rate (short-term) has little to do with the long-term bond rate (Mortgage rates). mortgage interest rates are tied to the 10-year bond, so they operate in a different arena. 1-year ARMs are more likely to be affected (rate will go down) if the fed lowers the fed funds rate.

I wrote that story a few months ago, but the economy is still slowing - near a stall really. As far as your investments go, you should really pick a mutual fund or an index fund with an excellent long-term track record (15 years + is good) and stick with it. Find one at www.Morningstar.com.

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Q: I know that the market is low right now. Is that a good time to buy into it? Also, how much money do you need to start investing?

A: Those are good questions.

First, you should invest no matter whether the market is "high" or "low." That's because no one can time the market and you should just plan on getting in above the low and below the high. If you invest regularly, it's called "dollar cost averaging," which means you'll buy more when the market dips and less when it rises, but that over time, you'll end up with more money in your investment than you otherwise would.

My book, 100 Questions You Should Ask About Your Personal Finances, explains how to invest and where to get started in detail. You should try to open up an S&P 500 index fund, and Vanguard (www.Vanguard.com) typically has the cheapest funds. Open a fund and invest regularly. That's how to really increase your net worth.

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Q: I have received an inheritance from my mother. This was so important to her that I had this money. I'm so afraid of investing it. Where can I put it without fear of loosing it. I know that I won't beable to make a big profit without gambling, but that's something I'm not willing to do. I really enjoy listening to you when you fill in for Clark.

A: Your mother wanted you to have this money to help create a solid financial future for yourself. To do that, you need to invest it wisely. I suggest you go to Vanguard (www.Vanguard.com) or Fidelity Investments or Charles Schwab (www.Fidelity.com, www.CharlesSchwab.com) and open up a couple of mutual funds.

First, you'll want an S&P 500 index fund (try to get one that's tax managed so there's no tax bill at the end of the year). You might also want a total market fund (mirrors the return of the overall market, which some overlap of the S&P 500 fund, which mirrors the return of the 500 biggest stocks). Finally, you may want to pick a growth mutual fund (Go to www.morningstar.com and find one that has 4 or 5 stars and a solid 15-year return).

Then, you basically want to forget about this money. As long as it grows 8 to 10 percent per year, you're beating inflation and setting yourself up for solid returns over the long haul, which you need for stocks.

The other thing that will combat your fear is information. Pick up a copy of my book, 100 Questions You Should Ask About Your Personal Finances and read the investing chapters. I think once you acquire some knowledge in this area, your fear will lessen.

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Q:  Where can I turn to for advice on refinancing and saving for college and retirement?   Do you have any recommendations for a good investment counselor/company that can help set me up for the future?  Is this something you do?  I also want to take advantage of the current interest rates and refinance too.

A: I have a load of information about refinancing on my website, www.thinkglink.com. For saving for college, I have information about this in my book, 100 Questions You Should Ask About Your Personal Finances (about retirement, and investing, too). For information on 529 plans (your best bet, I think, for saving for college), go to www.savingforcollege.com or www.collegesavings.org (I think it's a .org, but might be .com).

As for financial counselors, I think you should only use a fee-only financial planner, and then only if you really need it. They charge you by the hour as opposed to charging you a percentage of your wealth.

I hope this gives you a good start.

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Q: Is now a good time to invest in independent energy providers like Calpine Corp., (CPN) given energy needs, but also with consideration to Congress agenda restructuring?

A: I never recommend individual stocks or bond issues because something isn't necessarily right for everyone. But I do believe a well-diversified portfolio will serve you well in the long run. Energy would be a part of that. As for these companies, I have no idea.

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Q: Where can I learn more about Bond funds? After losing about 50 % of my stock/mutual fund portfolio since 2000, I need to redirect my planning and financial goals.  What is the best way to calculate how much you will need for retirement.  I would like to come up with a figure and work toward that.  I am 41 years of age with 14 months to go before I retire from the military

Also, to your knowledge, can an investor begin a 401K on their own?  Active Duty Military do not have that option...how do I get started?  My goal is to have the flexibility to manipulate my account to maximize my gains/returns.

A: First, only employees can open a 401(k). Anyone who earns less than $160,000 per year (joint family income, or $95,000 for single income), can open up a Roth IRA in any financial institution for $2,000 ($4,000 if you're married, $2,000 each for you and your spouse). If you have self-employed income, you can probably open up a Keogh plan which is basically a 401(k) for self-employed people.

As for a bond fund, I think you're a little young to salt away that much in a bond fund. However, you can find out about bond funds and how they rank at www.morningstar.com. If you lost 50% of your money, you were probably heavily invested in a tech or internet fund. That should only represent 15-25 percent of your investments. The rest should be in an S&P 500 index fund. Vanguard and TIAA-CREF have the best index funds (Vanguard particularly). Go to www.Vanguard.com or www.tiaacref.com and learn more.

PS: The worst time to sell a fund is when everything is down. If you still like the companies the funds hold, keep them and wait until the market bounces back (which it will undoubtedly do).

PPS: Please read my book, 100 Questions You Should Ask About Your Personal Finances. (Available at your local bookstore or online or at your local library.)

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Q: I am currently investing about $50,000 in Franklin  Templeton.  My
investment is distributed between Global Funds, Mutual Discovery, Class C; Growth Funds, Class C and Small Cap Growth Fund, Class C.  My portfolio has dropped considerably this year but the capital gains on these funds was pretty high this year, therefore, increasing our income tax.  My financial adviser has asked me to consider moving some of this money into variable annuities.  Can you help me understand if that will be a good move, or should I be looking elsewhere?  I am also invested in my 401K at work, primarily in equity growth and index funds. Needless to say, I have lost a lot of money this year. 

A: Generally speaking, I think variable annuities make a lousy, expensive investment. They're really for people of enormous wealth.

Everyone lost money last year. That's what happens when the bottom drops out of a market. That's why you need to invest in quality mutual funds with 15-year track records, so you have the good with the bad.

I'd go to www.morningstar.com and start looking at 4 and 5-star funds with 15-year track records and then build a diversified portfolio.

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Q: What is the difference between cooperative ownership and condo ownership? Which is the better investment?

A: The difference is in the form of ownership. With a co-op, you own shares in the corporation that owns the property. Your shares equal your unit. You pay "rent" each month (your monthly association fees) which include your share of real estate taxes. With a condo, you own everything in the unit (except the walls, floor and ceiling) plus a prorata share of the common areas; and, you pay your taxes separately.

As for the question of investment? That's strictly local. In New York, both condos and co-ops appreciate equally. In Chicago, areas where there are plenty of coops and condos, both appreciate at about the same rate. But generally, outside of New York, co-ops are a less understood form of ownership and are considered more difficult to sell.

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Q: Do you have financial email updates??

A: Currently I only update my website. I don't have an email newsletter. But here's one I think is extremely valuable. It's good reading week in and week out.

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Q: I have a mutual fund established in my daughter name (currently 8 years old).  This fund was established for college.  The current value is approximately $10,000.  It is a custodial account set up as a UTMA.

My question:

Would it be wise to sell the shares in the account (pay the capital gains taxes) and roll the account over into a 529 college savings plan.

A: You control the cash and its investment in the UTMA. In a 529, those decisions are made for you. If you've been doing well (up until this time), then keep that cash there and open up a 529 plan for the other savings you'll have. If not, then you can put it all in the 529.

It's up to you.

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Q: Are contributions to a qualified 529 plan deductible?

A: The money is tax-deferred until you use it and then it's usually taxed at the child's rate. Some of these programs are actually tax-free at the state level, so check into it. But nothing for your income tax forms.

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Q: A couple of weeks ago I heard you on the radio staying that The LA Times had a series of articles on Investing 101.  Can you tell me where I can find them?  I have look on the LA  Times Web site and could not find them.

A: Kathy Kristof is the author of that series, and she has a new book out called INVESTING 101. I preview it on my website, and you can buy it online at amazon.com or at your local bookstore. It's the essence of that series, but broadened. It's a great book.

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Q: I have read much about laddering Treasury securities as a way to produce regular income and reduce interest rate risk.  More often than not it is recommended to either have securities maturing in 1,3,5,7,and 9 years, or 1,2,3,4,and 5 years, replacing each as it matures.  The recommender (such a word?) then says to purchase the securities through the Treasury Direct program.  Of course, the fallacy here is that program offers only 1,2,5,10, and 30 year Treasuries.  Nobody has ever said where to buy Bills and Notes maturing in 1,2,3,4, and 5 years.  Can the yield on these instruments stand a brokerage commission?  And, if one buys them through a broker do you continue the ladder with a broker or work them into the Treasury Direct program.  Or maybe you buy 1, 2, and 5 year notes from the Gov. and fill in the 3 and 4 year notes from the broker?  This seems like a wonderful way to invest, but I obviously am missing part of the picture's mechanics.  Can you shed some light on this for me? I would be very grateful.

A: You certainly brought a smile to my face today. Your question is a good one, except that the US Government is about to get rid of its Treasuries altogether. You've probably heard a lot about paying down and off the national debt. Well, those 1, 2-year and 30-year treasury bills are going by the wayside. In fact, my husband, Sam, and I were discussing this morning what lenders are going to tie the 30-year mortgage interest rate to since the 30-year T-bill is about to be discontinued.

Okay, now to the general question: I think laddering isn't such a bad idea, but it depends on how old you are. For example, if you're 30-years or more away from retirement, you shouldn't be buying bonds at all. You should take your money and invest for the long-term in equities. Then, as you need cash, you can sell off your equities bit by bit, enjoying the higher rate of return and continued growth.

If your heart is set on bonds, the next question is, what is your tax bracket. The higher your tax bracket, the more you benefit by purchasing municipal bonds, which are federal and in some cases state tax free. These you could ladder as well.

I hope this helps. I talk a bit more about bonds and investing in my book, 100 Questions You Should Ask About Your Personal Finances, which you can buy through my website, or at www.amazon.com or at your local bookstore.

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Q: My husband and I are within 6 months of making 23 years of frugal living payoff.  Twenty three years ago, we moved to the Atlanta area with $2,000 cash to buy a house with, two children in college and an elderly mother-in-law to help support.  We now have almost a quarter of a million dollars in cash assets (stocks, cds and bank accounts).  Part of the stocks are in tax deferred accounts which we are slowly converting to taxable income.  We have converted about half using real estate "paper losses" to even out the taxes due. I can quit teaching at the end of this school year but cannot draw my teachers' retirement for two more years after that.  We will be selling our primary residence for about $100,000 and will convert our rental property to a primary residence.  We owe $30,000 on it.  We will use part of the current property to finish updating the rental (we updated all mechanical systems while it was a rental).

My question is this:  For the years between now and 65, what is my best bet for health insurance?  I am incredibly healthy.  The biggest health expense is one I am now incurring for dermatology and monthly trips to a chiropractor.  My husband is on Medicaid (he had to take medical retirement 8 years ago and has been on my group insurance).  He is still under treatment for a heart condition. Our youngest child is 18 and headed to college next fall with $25,000 and a paid for serviceable car.  He recently had a hernia surgery but has been very healthy prior to that.  I don't yet know if I can convert my group policy since I am "quitting work" for the two years until I start to draw retirement.  My retirement income then will be 4 times what we currently live on since we only live on a fourth of my after tax income.  My husband's social security is more than our living expenses. Any ideas about medical coverage for the three of us?  

A: You can wait six months to resign, and then buy COBRA insurance coverage coverage. While it is expensive, it will cover you in the meantime. You might also check with AARP. You're above the age limit for membership and you might be able to purchase less expensive coverage through them.

Medical insurance is expensive, but you'll have the funds available even if you have to purchase full-blown insurance on your own. Look into HMO policies, and catastrophic coverage. The problem is not that you're healthy. You're 63 and hopefully you'll live to be 93. The problem is that if you get into a car accident, or get hit by a bus tomorrow, or have a heart attack out of the blue (it happened to Jim Fix) or discover some other health emergency, you'll be bankrupt in a year without health insurance.

Try COBRA, AARP and then talk to your insurance agent about medical insurance options. You might also try the web. Sites I like include QuickenInsurance and Quotesmith. But off the top of my head, I can't tell you if they do medical or not.

Congratulations on your frugality, and being able to retire when you're in the prime of life. Enjoy your retirement -- you've earned it.

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Q: I enjoy listening to you on the Clark Howard show and thought I'd write with two questions.  I currently have 7% equity in my house (based on the purchase price).  I have some money saved up that i could either: put towards the mortgage principal, put in the stock market or do something else with it.  I could put enough towards the principal to reach 20% equity (my PMI payment is approximately $80/month).  Is this a wise idea considering the current activity of the stock market.  I bought the house in Feb. 99, so it will be two years this coming February.

Separate question:  This year my wife and I received some shares of stock as a result of an estate settlement.  We sold some of the stock this year, for a loss from the price when we received it.  How do I account for this on our taxes.  Is it chalked up as a loss or something different because the manner in which it was received?

A: IF you can buy down your mortgage to 20 percent equity with a cash infusion, and get rid of PMI, then do it. You can take the $80 per month savings and send that to a mutual fund (try an S&P 500 index fund) to build up your savings and investments.

As for your stock, it is indeed a loss. You can carry forward a loss for up to 3 years. So make sure you use it up and do not let it expire. Your tax preparer can advise you further on how to make the best of it.

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Q: My 86 year old mother was persuaded by a bank rep to take $10,000 of her CD's and invest it into a Pershing Annuity.

Now, my mother is very upset because she knows nothing about mutuals, stock, bonds, etc.  She doesn't even understand what she did, although she says she went to the bank and signed some papers.  She does not have a clue as to what she signed or what it was for.  My mother says the rep. called her and told her this would be a better way to invest her money, and my mom believed her.  What I want to know is if there is anyway my mom can get out of this annuity and put the money back into CDs?  The amount of interest she was getting on the CD compared to what she is earning with the annuity is drastically reduced, as it would be based on the Market's fluctuations.  She has two funds ONEBX and OGIGX.  May I get some advice on what may be done, if anything, to put things back the way they were.  My mom is much too old and not at all well-versed in the ways of the Stock Market to be involved in such a process.

A: You can contact the Federal Trade Commission if you think there was something untoward about the way your mother was approached.

You may also be able to get her out of the annuity, although she will lose some money (life's lessons are expensive).

But there's a bigger issue here. You and your mother should sit down and seriously discuss her ability to handle her finances alone at this stage of life. It is entirely possible that you should be listed as a co-owner of all her bank accounts and possibly she should even give you power of attorney. If for nothing else, to keep her from making such costly mistakes.

It will be very difficult for your mother to give up control of her finances. But if she is prone to making these kinds of mistakes, soon there won't be anything left.

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Q: This year my husband started "dabbling" in on-line investing...small amounts, since he's still learning.  A few months back he bought  150 shares in a company that was going to have a 4 for 1 split in late October.  Several days after the split date his on-line printout showed the split (he now had 600 shares) and a $ amount of about 1200.00.  He decided to sell, and did an on-line transaction.  It was confirmed on line, and a few days later he received a written confirmation.

Several days later we got a "correction" ...Ameritrade had "taken back" the $1200, and showed that we had traded 150 shares for a grand total of $299.00.

A call to the company got him a "Oh, well. I guess we posted it too soon".  We wrote to the CEO of the company on November 19 and have not had our letter acknowledged.  My husband found a regulating agency which he wrote to to complain, and we have not yet heard from them.

My question is:  What rights do we have here?  If they showed he had the 600 shares, and confirmed twice that he sold 600 shares, how could they just take it back with a shrug of the shoulders?

I really hate to just have $900 snatched away without any explanation.

A: The whole thing smells funny to me. File a complaint with the Federal Trade Commission and the SEC. You need to go back and see exactly what happened on what date. The company, if it is complying with SEC laws will have an exact record.

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Q: I heard you on Clark Howard around the Christmas holidays and could not write down the web site that you referred a caller to regarding foreclosed property investment.  I have done a search on the internet but there is so much to weed through for legitimate site who are not trying to con you.  Could you kindly point me in the right direction on what sites I might get started with?

A: HUD.GOV offers information on foreclosures. Most of the other sites charge a fee. I'd suggest you find an agent who works on foreclosures, or talk to local banks about picking up a copy of their available REO or foreclosured properties.

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Q: I am a newly divorce female.  I need help with investments.  I just opened up a 401k with my employer.  I am only investing 3% at this time.  I have two small children.  My income is roughly about $2600 after taxes.  My monthly bills are as follow:

Mortgage  -    $1102
Car note   -    $  480
Credit cards - $  250
Utilities  -       $  200

I just opened a savings account.  Please give me some investment direction.  I was interested in the Roth IRA.  I don't know much about.  I don't even know where to go to open one.  I respect your financial expertise.

A: I'm glad you're trying to save even when things are tight. A Roth IRA is a good place to put some of that cash, because it will grow tax-free forever (You can invest the funds in a mutual fund, CD, or shares of stock).

However, before you do that, I'd like to see you open up a money market account and build up an emergency reserve of 3 months' worth of expenses. So the account should have $6,000 in it. After that, you can then start socking money away in a Roth IRA or other retirement vehicle.

And, congrats on putting something away in your 401(k).

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Q: Some months ago I was driving in Atlanta, listening to you on Clark Howard's show when you listed 10 - 12 things to do to shape up finances.  I was scribbling fast -- trying not to wreck -- but didn't get them all. 

"Kick a bad habit" was super advice in my case: I've quit eating meat, quit smoking, and have saved money.  Does the excellent list appear somewhere on your web site, or would you pls email it? 

A: I have a book coming out this spring called 50 simple things you can do to improve your personal finances. The list came out of that book. On my site, look up personal finance resolutions. I think you'll find a few other suggestions.

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Q: I have a question on capital gains taxes from the sale of our house. We sold a house and made a good bit of money on the sale, we recently purchased another house, will we have to pay capital gains tax??? Thank you and I loved listening to you when Howard was on vacation.(maybe he can take more time off...) just kidding...

A: As long as you lived in the house for 2 of the last 5 years, you can take the first $250,000 (up to $500,000 if you're married) in profits tax free. There is no longer any requirement about buying a new house.

Hope this is the news you were waiting for!