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. 27, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan,
They say your home is your castle, but should it also be your bank? Our first e-mailer would like to know if real estate is a sure investment bet.
A question — investment philosophy long has bugged me. Is it wise to invest as much as possible, within your means, into a primary home as a means of investment toward retirement?
If chosen well, it will grow in value at a rate that competes with a favorable stock market return, has a low mortgage rate and has a favorable tax advantage when sold at retirement.
Rick
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 27, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Rick,
While investing in your home has been a prudent decision of late, you shouldn’t assume that the returns from real estate always are steady and
that they “will always grow.” There have been instances of real estate booms and busts. Some analysts, in fact, argue that the real estate market
today resembles the “bubble” of the technology-driven Nasdaq of two years ago.
I believe, further, that it is unwise to invest in any one investment “as much as possible” — especially an illiquid investment like real estate — since that limits your ability to put money in other investments and take advantage of other opportunities. If you dig a nice garden, why plant only geraniums?
While owning a primary residence likely will be a good investment for you, and it does provide some tax advantages, I think it’s just as important to see your house as a home — where you and your family can spend safe, quality time together — regardless of its investment potential.
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 27, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I’m a 50-year-old male. I was tired of money going
down the drain in my 401(k), so I put the entire amount ($72,516.81) into an income fund in September.
I contribute $78 weekly. As of today, my balance is
$81,010.51. I would like to retire within the next 10 to 12 years. Any suggestions on improving my earnings?
Thanks,
Terry
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 27, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Terry,
It usually is not a wise decision to put 100 percent of your 401(k) in just one fund, no matter how attractive the fund looks. Since your time horizon
is 10 to 12 years, you should consider having a portion of your account invested in domestic equities (stocks) and international equities, as well as
in your income fund. I really can’t advise you further without knowing what specific fund options you have to choose from.
However, you’re doing the right thing by investing each week. Keep up the good work, and try to increase the amount you contribute each year within your means.
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 27, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I am a 45-year-old furloughed airline employee since last October. My 401(k) is 75 percent in the Fidelity Magellan Fund and 25 percent in the Spartan U.S. Equity
Index Fund. Please give me some advice; I am totally lost.
Many thanks,
Stef
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 27, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Stef,
Do you think you will need to tap your 401(k), since you are out of work? If so, ask your airline if they permit hardship withdrawals without penalty.
If they do not, and the only way for you to get badly needed money is to withdraw from your plan — even though it means paying a penalty and income taxes — you should first transfer whatever you need to tap into a liquid money market within the plan and pull from there.
Funds needed before two years’ time typically should not be invested in stocks. Where they will be in that short a time is anyone’s guess.
If you don’t have an emergency need for cash, consider dividing up some of your funds among other options within the plan. Without knowing your specific time horizons, risk tolerances and financial needs, I cannot
recommend specific investment choices.
However, a typical investor in your age group with some tolerance for risk and exposure to equity-based investments might consider allocating some of her balances in international stock, domestic bonds, high-yield bonds and small-cap domestic stocks.
This way, the investor would diversify out of two large-cap, domestic-stock-based investments and gain exposure to other areas of the markets.
Please contact a financial adviser to address your specific situation.
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 27, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Jonathan Murray’s column will be off next week for the Labor Day holiday.
