Every Wednesday, Legg Mason Wood Walker Inc. financial adviser
Jonathan Murray answers e-mail on your investments. To be included
next time, send
your questions.
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 20, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan,
Thousands of workers have received the dreaded pink slip in the last few months, and our first questioner is one of them. He’s wondering how to manage his retirement funds now and if he can stick it to the old company in the process:
I recently was laid off by a telcom company. Should I take my 401(k) from my former employer and convert it into an IRA? What are the advantages-disadvantages of the two?
Are my former employers somehow earning money off
my 401(k) if I leave it with them? I’d rather they didn’t earn any more off the fruits of my toil now that they’ve canned me.
Thanks,
Dwight
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 20, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Dwight,
You certainly don’t have to roll over your 401(k) into an IRA (unless your former employer makes you) but it does offer you better control over your hard-earned assets. In an IRA, you can invest in almost anything you need to customize your own portfolio. The only disadvantage is that the costs might be higher than those of the 401(k). I would meet with a financial adviser as well as a tax expert to determine what’s best for you.
As to whether those company officials are earning money on your 401(k), rest assured that they are not, because the assets most likely are invested in
mutual funds that pay you, not your employer.
Make sure that you don’t have too much of your 401(k) invested in company stock, since that can be volatile — especially telcom!
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 20, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I have a second mortgage with an interest rate of 13.99 percent. I always send additional money, and I plan to pay off this debt in 2 1/2 years. My bank, however, now is offering a lower interest rate: 8 percent. The monthly payment will be about what I’m
sending now. Would I do better to keep the higher
interest rate and have my debt-to-income ratio appear
lower on paper?
Thanks,
Tara
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 20, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Tara,
Talk with your existing mortgage company first. Tell them that you would like to take advantage of today’s lower interest rates and refinance your home. Have them give you various choices, including paying off the second (higher interest) mortgage, considering a variable rate, wrapping the two loans together or reducing the term of the loan.
With rates at such attractive levels, they should be able to show you a way to either lower your monthly payment or decrease the term of the loan, possibly saving you thousands of dollars in interest. Then, shop around, using the bank’s offer as a guide.
Just to give you a rough idea of how low rates
have fallen, I just refinanced my 30-year loan to a 15-year and locked in a rate of less than 6 percent.
Be sure to check SunSpot or The Baltimore Sun for weekly mortgage rates!
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 20, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I’ve never invested in stocks before, but I’m considering taking advantage of the current slump and getting some “bargains” on reputable companies — Intel, for instance.
What happens if I buy and hold, my share price
goes lower and lower, but then recovers and climbs to a higher price over, say, a few years? Do my initial losses mean I lose out overall? Or does an increase in value over the long term benefit me regardless?
Thank you,
Peter
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 20, 2002
To: Goldstein, Jon W.
Subject: RE: $
Hi Peter,
When investing in stocks, remember: If you don’t sell, you don’t lose. If the stocks you buy today go down in value, but you don’t sell them, you lose nothing (except perhaps some sleep as you hope for their turnaround). You have a “paper loss” — nothing more.
Conversely, if you don’t sell, you don’t win either. Let’s say, for example, that all of your sleeplessness, praying and hoping turns your declining
stocks around, and they go higher than what you originally paid. Well, you haven’t made anything until you sell them. It’s only a “paper gain.”
Investors in the late ’90s learned this the hard way, as many investors watched their stocks soar in value, but they didn’t sell, thinking their shares would continue to climb even higher (and for a while, they did!) Ultimately, however, we know what happened: They came tumbling down.
Have a great shopping trip on Wall Street. I agree that bargains abound!
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 20, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Talk to you next week.
