Investments and Insurance
Q. My friends tell me that in today’s financial market I’m losing money by keeping all my savings in a money market account. Are they right?
A. Yes and no. It depends on what you are comparing with your account. The same amount invested in an aggressive stock mutual fund, or even a conservative fund, would probably provide more income, but with a higher risk. The greater the rate of return, the greater the risk. Making the best decision about stock investment depends on how much risk you can tolerate.
There are even times when U.S. Savings Bonds provide greater return than money market accounts, but they can present problems with holding periods and an inability to rapidly convert to cash. If your goal is to have rapid access to your cash, a money market account may be the best thing for you. However, I would advise you to talk to a financial advisor to see if you might do better by re-allocating your asset mix in a way that would allow you to still maintain a safe degree of liquidity.
Q. I heard recently about some new kind of government mutual fund or government money market fund. Can you give me any information about this financial instrument?
A. You may be thinking about mutual funds that are invested entirely in government bonds. The funds are actually administered by mutual fund companies, and most major financial companies, like Fidelity, Dreyfus, American Express and others, have them. Some of the funds are invested solely in U.S. Government securities, some are invested in State Government securities and some invest in a mix of these securities. While the percentage yield on these investments is often lower than corporate securities, many of them are partially or totally tax-free. This means that the higher your income, the higher your after-tax earnings will be.
Many people like the tax-free aspects of these funds, and, in the case of U.S. Government securities, the no-risk investment. You should talk with your financial planner or your tax advisor about any contemplated investments in these funds.
Q. You’ve written about the advantages of Charitable Reminder Trusts in providing lifetime incomes. But with the continuing growth of stock market activity, wouldn’t it be more advantageous to manage my own capital? I'm afraid if I'm locked into a charitable trust, I’ll be left behind!
A. In the first place, I wouldn’t recommend that you set up a Charitable Remainder Trust (CRT) using all or even a major portion of your assets. CRTs are best used when you desire to re-position a low-yielding asset, or avoid capital gains taxes on assets, and to ultimately make a significant gift to one or more charities.
Most CRTs are managed by professional investment managers and will probably out-perform the market. In the case of a Charitable Remainder Unitrust, this would also result in higher payments to the trust beneficiaries, so they would not be “left behind.”
Q. I’m interested in finding out about long-term care insurance. Though I enjoy good health now, it seems like a good precaution for the future. My concern is I’m already past retirement age. Is it financially feasible to buy it at this time in my life?
A. If you are in good health long-term care insurance is usually available to age 75 or 80, depending on the company. Of course, the longer you wait, the more expensive the cost. In the past, Emeritus College has given a class on issues of long-term care, and lectures on the topic have also been offered by other groups in the community. It would probably be well worth your time to investigate these presentations when they are offered.