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, Sept. 30, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan,
It’s a problem most of us wish we had: how to invest a huge and unexpected windfall. A newly minted millionaire e-mailer is looking for some tips:
My wife and I have an unexpected windfall coming: after
taxes, approximately $1.9 million.
We are, of course, planning to pay off all debt and mortgages and also establish a college fund for our child.
For the balance, approximately $1.2 million, would you suggest a mix of stocks, bonds and cash? What are your initial thoughts? I am 41, my wife, 33.
Lars
From: Murray, Jonathan P.
Sent: Tuesday, Sept. 30, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Lars,
Yours is a good challenge to have. Congratulations!
Given the size of this nest egg, you should first spend some time finding a team of trusted
advisers to guide you: an estate-planning attorney, a certified public accountant and an investment
consultant-adviser. By surrounding yourself with this team, you will be able to formulate a strategy to manage this wealth for generations.
Abraham Lincoln once said, “If I had eight hours to cut down a tree, I’d spend seven sharpening my axe.”
Too many investors jump right into chopping down the tree, investing immediately without a plan or
strategy. They hear a tip over here, buy a fund over there and so on.
Instead, you and your team should spend a lot of time
“sharpening your axe” by implementing a financial plan (including an investment policy statement), that reflects your goals, objectives, tax
picture and risk-tolerances.
From that document, design an appropriate asset-allocation model that includes not only stocks, bonds, cash, but international investments, real estate, commodities and alternative investments.
Then, to “chop down the tree,” find the best money managers, with differing investment styles, to invest this capital.
Lastly, make sure to set up regular, quarterly meetings to evaluate and review your holdings.
Good luck!
> From: Goldstein, Jon W.
Sent: Tuesday, Sept. 30, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I am a former employee of Time Warner Inc., now AOL Time Warner Inc. Ever since last year’s merger, when my shares were converted to AOL shares, the stock has
been in free fall.
Is there any way, short of prayer and writing nasty notes to Steve Case, to get some of that value back?
If the slide continues and the companies split, could I get my good, old, solid Time Warner shares back?
Jack
From: Murray, Jonathan P.
Sent: Tuesday, Sept. 30, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Jack,
Unfortunately, there is no easy way to “get that value back.”
You have a couple of choices: You could sit and do nothing and just wait for the shares to go up. They might. Or, they might not. Even if Time Warner is spun
off, there is no assurance that those shares will regain their old luster.
Your second choice is to bite the bullet, sell some of the shares and diversify into other sectors, industries and companies that might fare better going forward.
The important thing right now isn’t what Time
Warner’s value USED to be — it’s whether you are properly positioned to grow and preserve your wealth going forward, starting TODAY.
It’s OK to reflect on the past; just don’t get paralyzed by staring at it!
> From: Goldstein, Jon W.
Sent: Tuesday, Sept. 30, 2002
To: ‘Murray, Jonathan P.’
Subject: $
With low interest rates on money markets and CDs, would
Maryland municipal bonds offer a low-risk alternative? What are the current yields?
R. Twilley
From: Murray, Jonathan P.
Sent: Tuesday, Sept. 30, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Mr. and Mrs. Twilley,
Municipal bond yields have fallen, along with other interest rates. Depending on the bond’s maturity and credit quality, yields range from 1 percent on the short end, to 4 percent on the long end.
For investors in high tax brackets, these yields may compare favorably versus a taxable bond.
Consult with your tax adviser to see if tax-free bonds are appropriate for you, then consult with a financial adviser about finding attractive municipal offerings.
> From: Goldstein, Jon W.
Sent: Tuesday, Sept. 30, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Talk to you next week.
