Every Wednesday, Legg Mason Wood Walker financial adviser
Jonathan Murray answers e-mail on your investments. To be included
next time, send
your questions.
> From: Goldstein, Jon W.
Sent: Tuesday, May 21, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan,
Health care costs continue to rise, making us wonder if we will have enough to support ourselves and our parents as we all get older. Could smart investing help defray these costs?
Here’s the question:
I need to save seven to eight percent a month for my mom, who is in
assisted care. I have $200,000. Where should I put it?
Ron
From: Murray, Jonathan P.
Sent: Tuesday, May 21, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Ron,
When you say that you want to “save” seven – eight percent a month, are you referring to
the
desired earnings on your $200,000, or are you referring to saving that
from
your pay going forward, and wondering where to invest the $200,000?
The reason I ask is that if you were hoping to earn an income on your
$200,000 of seven – eight percent, it will be very difficult if not impossible to find a
liquid, guaranteed eight percent income stream today that won’t affect your
principal.
Any investments paying that kind of income will carry risk — they will
likely
be investments that are either very long-term, illiquid, not guaranteed,
or
they will carry significant credit risk.
Now, if you were simply planning on saving seven – eight percent of your pay to help pay
for
your mom’s care, and were looking for a safe place to invest the $200,000
to
supplement that, I would suggest a short-term, laddered portfolio of
bonds,
most of which should be T-bills, which are guaranteed by the U.S. government.
But the yield on that kind of rock-solid portfolio will only be about 4 1/2 percent. To get a higher yield, you could blend in a small amount of
intermediate-term bonds, maybe a high-quality corporate bond or a
preferred
stock or two, but be careful … with interest rates likely heading higher
over the next year or two, the prices on fixed income vehicles could
decline.
> From: Goldstein, Jon W.
Sent: Tuesday, May 21, 2002
To: ‘Murray, Jonathan P.’
Subject: $
My wife purchased 100 shares of Maryland National for our
son at its low of $3. They are now 70 shares of Bank of America @
$69. He is 14 years old and we were thinking of selling and rolling
the proceeds into a college savings plan. Capital gains is a
concern, but so is keeping one stock. Your thoughts?
Brian
From: Murray, Jonathan P.
Sent: Tuesday, May 21, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Brian,
Wow, your wife really did a great job picking MNC off at its lows! I
remember when MNC fell to $3 per share. Many people thought the bank wasn’t
going to make it. But those folks, like your wife, who fought off those
fears and stepped in, have made out very well. That’s half of the secret
to
successful investing: “buying low.” Now you’re faced with the other
half,
which is “selling high”.
Your wife turned a $300 investment into $4,830. So what if you have to
pay a
long-term capital gains tax? Too many people let the tail wag the dog, and
they put tax considerations ahead of investment rationale. When you buy a
stock, you want it to go up, not down. It has given you a handsome
return,
so I would sell it and diversify into a solid mutual fund for your son
within
a tax-free 529 plan.
> From: Goldstein, Jon W.
Sent: Tuesday, May 21, 2002
To: ‘Murray, Jonathan P.’
Subject: $
AOL: Bail or wait it out? Just starting to enter loss
territory on my position.
Thanks,
Jim
From: Murray, Jonathan P.
Sent: Tuesday, May 21, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Jim,
AOL’s a tough call, and much of it depends on your overall financial
picture. You need to ask yourself the following questions:
-What portion of my overall portfolio does AOL represent?
-Am I a growth-oriented investor who can withstand volatility?
-What is my time horizon for these assets?
-Do I need a technology/media company in my portfolio?
-Do I need income?
-Is there a better investment idea out there for me?
Your responses to these questions should give you your answer.
> From: Goldstein, Jon W.
Sent: Tuesday, May 21, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Talk to you next week.
