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: Beamon, Todd
Sent: Monday, Nov. 3, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan:
After almost seven years in court, I have received my divorce settlement. My intention is to use the money for college tuition for my two daughters. They are 10 and 4 years old.
However, I don’t think I can tie up the money in the college plans that are available. I want the ability to access the money in an emergency.
I’m looking for a risk-free, or as close to that as possible, income investment. I’ve heard about REITs. What do you think? Or could you point me in another direction?
Karen
From: Murray, Jonathan P.
Sent: Tuesday, Nov. 4, 2002
To: Beamon, Todd
Subject: RE: $
Dear Karen:
Now it’s time to get you back on track. With a 10-year-old and a 4-year-old, I question whether you need an “income investment” for their college education.
After all, ideally, you don’t want to tap these funds until they go to college. I realize that you might want to, in an emergency, but you should have other funds set up for that purpose.
Therefore, the objective of these two accounts — especially the 4-year-old’s — is long-term, conservative growth and appreciation, not income. And, in the case of real estate investment trusts, nontaxable income.
The best way to get tax-free, long-term growth — with diversified, professionally managed accounts — is in a 529 College Savings Plan. So many are available, so you might want to ask a financial adviser for guidance.
Or, go to www.savingforcollege.com. It is a very informative site for 529 plans.
> From: Beamon, Todd
Sent: Tuesday, Nov. 5, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I’m 39 years old, and I want to put away money for three to five years. What type of investment do you suggest I use that will give me moderately aggressive growth with safety? I would hope to use dollar-cost averaging over the long term.
Steve
From: Murray, Jonathan P.
Sent: Tuesday, Nov. 5, 2002
To: Beamon, Todd
Subject: RE: $
Dear Steve:
Three to five years … . Well, I agree that you should not be aggressive with these funds. Even though most three-to-five year periods have been positive for equities, we’ve seen recently that there is no guarantee for that! In fact, cash has outperformed stocks for the past five-year annualized period!
However, since stocks are so beaten up, you should have some of them in your portfolio — directly, or in a mutual fund or both.
I would mix in an intermediate-term bond-based investment, some international investments, and a hedge against rising rates or inflation: a TIPS fund perhaps (Treasury-inflation-protected securities).
Overall, that blend should be a nice one for three to five years.
And, your idea of dollar-cost averaging is a good one. That way, you buy more shares when they are lower in price, and fewer when they are high. Periodic investment plans do not assure profit or guard against loss in a declining market.
Because dollar-cost averaging requires continuous investment regardless of fluctuating price levels, investors should consider their financial ability to continue purchasing shares through periods of low prices.
From: Beamon, Todd
Sent: Monday, Nov. 4, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Utility stocks have “really taken it on the chin” in recent months.
Is now a good time to buy some? How should I evaluate any stock I might be interested in? Should I invest in individual stocks or would a mutual fund be better?
From: Murray, Jonathan P.
Sent: Tuesday, Oct. 29, 2002
To: Beamon, Todd
Subject: RE: $
Dear Ernie:
Yeah, utilities “aren’t your father’s Oldsmobile,” are they? It wasn’t too long ago that they were seen as the most defensive of equities: almost bondlike.
But not anymore. With deregulation and sophisticated energy trading and futures markets, many utilities got away from their “bread-and-butter” business of supplying electricity to homeowners and businesses.
Many of them still are attractive investments, however. They offer handsome dividends and upside potential from currently depressed prices. I prefer the diversified approach of a fund, unless you have a lot of investable cash to buy a handful of your favorites.
Look for well-tenured managers, a focus on their basic business, strong FFO (funds from operation) and a dividend payout ratio that isn’t too high.
Lastly, if you seek relative safety and attractive income, don’t overlook certain utility bonds, either. There have been recent offerings with current yields in the 7 percent to 8 percent range from a local utility. These investments are subject to availability, and the prices and yields may change.
> From: Beamon, Todd
Sent: Tuesday, Nov. 5, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Talk to you next week.
