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, Dec. 2, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan:
I am in the U.S. Navy, deployed on the seas to help fight the war on terrorism. I have about $10,000 in savings.
What should I do before I begin investing in the stock market? What are my options? Is it best to get a broker to buy individual stocks, or should I buy them online? What about through a mutual fund? How should I take this step?
Alvin
From: Murray, Jonathan P.
Sent: Tuesday, Dec. 2, 2002
To: Beamon, Todd
Subject: RE: $
Dear Alvin:
Thanks for serving your country, especially during the holiday season. I’m sure you’d rather be here with your loved ones.
As for your $10,000, would you like to use it for a home when you return, or do you already own one? If you were thinking of using it as a down payment,
I’d keep it in some form of short-term savings — possibly a money-market account, savings account (you have a pretty good one, I believe, through the U.S. Navy Federal Credit Union), or a short-term Treasury bill.
The interest rate won’t be anything to brag about, but at least it will be safe and sound when you return. That’s your main objective if you’re saving for a near-term need, such as a down payment for a house.
If your time horizon is longer, you should consider investing at least a portion of that money into equities — either directly, or, through a
professionally managed mutual fund.
In your case, since you won’t be available for
regular consultations, I’d suggest going with a fund approach. That way, you can fight the enemy, knowing that there is a money manager watching over your investments.
I would pick a couple of conservative growth and income
funds, one with a growth style, and one with a value style. If you know of a good financial adviser, ask her or him for some recommendations, and consider hiring that person to help keep an eye on things while you are away.
> From: Beamon, Todd
Sent: Tuesday, Dec. 3, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I’m a first-timer to stocks, and I don’t know where to begin.
Of course, I don’t want to lose money, but I would like to at least make some money on my investment.
Where do I begin, and what should I look for when talking with people about handling my money?
Jack
From: Murray, Jonathan P.
Sent: Tuesday, Dec. 3, 2002
To: Beamon, Todd
Subject: RE: $
Dear Jack:
Similar to Alvin (above), you first should give thought to when you will need this money.
Yet, unlike Alvin, you are going to be here in the United States, so I would recommend that you interview a number of financial advisers or planners and see who you like.
Look for someone who is not too busy to take the time
to educate you. Try to find someone who can meet with you on a regular basis and help you learn more about investing.
I will say, however, that you can’t say “I don’t want to lose money,” then say “I want to make money.” It should be one or the other.
If you absolutely cannot lose money, then you shouldn’t invest; you should keep your money in a CD or a savings account. But if you’re able to withstand
some risk, then you can consider adding some stocks or bonds to your investment portfolio.
Everyone WANTS to make a lot of money but not lose anything; that magic investment, however, doesn’t exist.
From: Murray, Jonathan P.
Sent: Tuesday, Dec. 3, 2002
To: Beamon, Todd
Subject: RE: $
Dear Todd:
Here is some additional information on Ginnie Maes, which I wrote about on Nov. 13. It comes from the Government National Mortgage Association:
Ginnie Maes are securities backed by a pool of mortgages and are guaranteed by the Government National Mortgage Association, a wholly owned government corporation that is part of the U.S. Department of Housing and Urban Development. The corporation seeks to serve low- to moderate-income homebuyers through these securities.
These guaranteed securities are called “mortgage-backed securities” — or MBS — the only such securities that are fully guaranteed by the government. As a result, a Ginnie Mae MBS carries precisely the same credit risk as U.S. Treasury bills, bonds and notes.
This federal guarantee differentiates Ginnie
Maes from other MBS, such as those issued by Fannie Mae and Freddie Mac, which are publicly traded corporations. In addition, Ginnie Mae is a guarantor of securities that actually are issued by mortgage lenders — and Ginnie Mae does not own or trade its own securities.
Ginnie Mae securities consist of insured mortgages from the Federal Housing Administration (FHA) or the Rural Housing Service (RHS), or consist of guaranteed mortgages by the Department of Veterans Affairs.
Private lenders — commercial banks, savings and loans, mortgage banks and credit unions — may issue Ginnie Maes on these types of mortgages, and they are
responsible for administering and servicing the pooled mortgages.
Because of the government’s guarantee of these mortgages, investors are assured of timely payments of scheduled principal and interest due on the pooled mortgages that back the securities. The payments also include any prepayments and early recoveries of principal on the pooled mortgages, and the payments are guaranteed — even if borrowers or issuers default.
Ginnie Mae has guaranteed more than $2 trillion in mortgage-backed securities since it was founded in 1968. Over the past five years, Ginnie Maes have averaged returns of 6.68 percent to 7.83 percent.
> From: Beamon, Todd
Sent: Tuesday, Dec. 3, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Talk to you next week.
