(00:00:00) St. Cloud and 38 in the Twin Cities cloudy and 40 degrees and Mark. That's the latest news. Thank you so much Chris Robert six minutes now past eleven o'clock in this is midday on Minnesota Public Radio marks it a click in the Twin Cities and with me here this morning in st. Paul Studios Financial writer Grace Weinstein whose latest book is the lifetime book of money management published by visible ink, press out of Detroit, Michigan. Thanks a lot for coming in Grace Weinstein all the way from Detroit to answer the questions today all the way from New York. And thank you. If you have a question about paying off your mortgage early saving for college or retirement insurance or anything else on the financial Specter Specter. We would like to hear from you this morning. We'll be talking personal finance for the balance of the hour and taking your calls. If you're listening in the Twin Cities metropolitan area. You can join the conversation by calling to to 76 thousand. That's 2276 thousand in the Twin Cities metropolitan area anywhere else you listen to the broadcast. You can call toll-free with your question the toll-free number 1-800 to 40. Two two eight two eight. Once again that toll-free number for questions for financial writer Grace Weinstein one eight hundred two, four two two eight two eight. Well Grace Weinstein, I'll start things off with my question interest rates are now on the way up again. What kind of implications do you think this is going to have for the real estate market the spring and is now the time for people who have been sitting on the fence to to make a decision and buy that (00:01:22) house. Well, it's no longer quite as automatic a decision buying a house isn't what it used to be where you could count on automatic appreciation and so on I wouldn't say to jump into the housing market just because rates are going up if you were planning to buy a house or if you were thinking about refinancing an older mortgage and hadn't gotten around to it. Then by all means do it now because there is this kind of inching up of the interest rates (00:01:45) and one would assume to right now than if the more people are going to be making that decision to actually buy a house that it's going to be a seller's market out there. (00:01:54) Well, it would be time there are a lot of houses for sale certainly in the Northeast where I am, there are still a (00:02:00) Out (00:02:00) of for sale signs dotting the landscape houses that have been in in the inventory, you know, the selling inventory for quite a while and it's been a buyers Market. It would be nice if it turned around for bid and evened (00:02:10) out. What's your prediction here? What do you think interest rates will do in the next quarter in the next year old and (00:02:16) well, I don't know if my crystal ball is any clearer than anybody else's but it seems that they are going to inch up a bit. I don't think there's going to be a sudden Spike, but maybe we can expect a slow movement (00:02:26) that we've seen the last of seven percent thirty year fixed (00:02:29) mortgages. They may be some up and down. I mean it isn't a steady upward Trend we can go up a little bit fall back a little bit. I but you can never try if you're doing personal financial planning whether it's a mortgage or anything else. You can never try to time it that precisely you can't wait for the absolute bottom and interest rates and you've just got to move ahead when it's the right time for you to do it (00:02:48) that said, let's go to the phone lines with the first question for Grace Weinstein Mark and Burnsville. You're on the air. Good morning. Well, thank you very much. I'm a freshman in high school and a fourth grader talk about college savings. I'm getting conflicting advice from my volunteer friends, which is worth the price of the given it to me. How aggressive I should be in savings plans for the kids the tell me. Oh, geez, you can't lose much in three years ago aggressive the other side says. Oh no only three years. You got to be conservative in a bond fund and then for the fourth grader, I suppose I have a little more latitude but I'll be very interested in hearing what you have to say. (00:03:24) Okay. Well, I think you're conservative friends may be right on this one. As far as your High School freshman is concerned clearly equities in the best way to go. If you have the kind of time Horizon that would allow you to survive a drop in the market. But if you're going to need the money in three years, I would keep that more conservatively invested. But remember that he or she will have a four-year College span. So you're actually talking perhaps seven years before that last college tuition bill is due. So you might divide up the money and put some of it in a balanced mutual fund. I wouldn't go too aggressive though. Not at this stage with the fourth grader. Of course, you've got a totally different story and you can and should invest for growth. (00:04:00) In a perfect world, when should Mark have begun (00:04:02) saving for college now in a perfect world, which of course we don't have you would start as soon as children are born. You also want to consider how you want to do that savings whether you want it in the child's name or not. You often get the advice to put College savings and custodial accounts that doesn't even help so much for tax savings now certainly your fourth grader. You'd still be paying taxes at your own tax rate bracket. The the high schooler would be at his or her lower bracket. But something to think about is if either child might qualify for financial aid, you can lose out considerably if you have major Savings in the child's name (00:04:37) next to buying a house right now for many families is a biggest expenditure paying for college. (00:04:42) Probably I think yeah paying for college, I think retirement saving would Loom pretty high on my catalog of things and but that's a lot harder to put a dollar figure on you can look at colleges and say well, okay. I think my kid will go to a private college or a State University or what have you and and predict based on a certain interest rate assumptions. It's harder to predict how long you'll live in retirement and what will happen but that's really the key thing that most people ought to be focusing on. In fact, some advisors will say if you have to make a choice between retirement saving and college saving to save for your own retirement and then tap that money if you need to for (00:05:18) college, okay, let's take another call down and st. Paul you're on the air conditioning. Good morning. Thanks for taking my call. Thanks for calling. I'm going to be closing on a house that I'm that I live in now and at the end of March and I'll have about forty to fifty thousand dollars from that closing that I'm going to put towards a new house, but the new house will not I will not close on that for about two and a half months and I'm wondering what Should do with that money for those two and a half months. The best I can find now is a savings account at a bank for two and a half percent. (00:05:50) No, I would suggest a 60-day treasury you'll do a little better than that and the in fact these spread wide and a little bit more last week so that you can do better on a 60 months t-bill, then you would on even a why don't you can get a two-month the certificate of deposit anyway, so I would I would go with that and then your money will roll over before right before you need (00:06:14) it. Okay. Let's go back to the phone lines with another question Pat in st. Paul. Good morning. Yeah. Thanks for taking my call. I am wondering I'm a full-time employee, but I'm also a graduate student and I'm wondering if there is a legitimate way to depreciate like my computer equipment and that my tax return. (00:06:31) Hmm. I'm afraid I don't know of one. If you ran a home business and use your computer strictly in your business. Then you could either take it as an expense or depreciate it. I don't know of a way to do it as Student I'm sorry. (00:06:44) It seems a big tax loophole maybe in the 70s or early 80s was anybody that did any work at home would start to write off a portion of the heat a portion of the mortgage a portion of whatever else it might be that a related to the housing expense as many of those are loopholes are closed now is (00:06:58) that correct? They are certainly close the IRS considers a home office deduction a red flag. And in fact, I know people who are legitimately entitled to a home office deduction who don't take it because they're afraid of an audit. I think that's foolish if you're really entitled to it take it but you've got to be it doesn't have to be a full-time business, but it has to be a legitimate business and a home office must be your principal. Not only your principal place of business used exclusively for the business don't put up guests or watch television in your office. But you also have to do most of your business there and that has wiped out a lot of legitimate entrepreneurs people who are computer Consultants who do their work. In other people's offices interior decorators who do their work. In other people's premises who really only have that one place of business, but can no longer claim it under the new Supreme Court ruling the came down last year. (00:07:42) And if you try claiming it, you better be able to back it up pretty well (00:07:45) with that's right. There's a new form and 88 29 form that has to accompany the schedule C and they want the square footage of your office and all the other details (00:07:52) coming up now in 15 minutes past eleven o'clock. You're listening to midday on Minnesota Public Radio Financial writer Grace Weinstein is here and we are talking personal finance and we'll be talking personal finance for the balance of the hour. If you have a question, you can join the conversation by calling two two seven six thousand if you're listening in the Twin Cities that number again 2276 thousand in the metropolitan area outside of the Twin Cities anywhere. You can hear the broadcast. You can join the conversation by calling toll-free 1-800 to for to to 828 that toll-free number. Once again, if you have a question for Grace Weinstein one eight hundred two, four two two eight two eight. Let's take another call Joe and st. Paul. Good morning. Good morning Grace. Thank you for taking my call this morning. Okay on my question is about my wife supplement retirement fund through her employer and this is kind of a debate between her. Nice, she's had this fun for the last eight years and approximately 75 to 80% of her money is in the column which is the guaranteed interest. However, she has been contributing last couple years 50% of her bi-weekly payment into the stock fund and now is doing some of the the interest into the aggressive stock. I'm trying to convince her to take a large portion of the guaranteed into the more stock fund column because she has a least 25 years between now and retirement. What do you think of this (00:09:21) idea? Okay, I was I was going to ask you how old she was certainly with a long-term time Horizon. You're better off in equities. Nobody knows exactly what the markets going to do with certainly more volatile. It will go up and it will go down. But if you have the time to write out those Cycles, you're generally better off in the stock market the problem with those so-called guaranteed. Estimate contracts first of all, they're not guaranteed there were there that's really a misnomer if I ever heard one, they're backed by insurance company contracts and if there is solid as the insurance company is secondly any fixed income investment is going to lose ground to inflation over that period of time. There's no question about it. So I think you're right. She ought to move some of that money, but you ought to diversify it oughtn't all be in one stock fond. I don't know how many choices her employer offers. Is there a choice of more than one stock fund (00:10:09) their? Yes. There's a there's a money market. There's an aggressive stock. There is a stock kind of a blue-chip kind of stock fund also and then there's kind of a balanced the vision unit to so I was thinking perhaps to get it at least maybe like 1/3 aggressive 1/3 the balance Dock and maybe one-third into the regular stock. (00:10:33) That sounds like a good combination. If she's very uncomfortable with aggressive you could cut back and have less than a third in there though. There's no point in making her uncomfortable about it. That's clearly Most profitable volatile piece of it you might put anywhere from 10 to 20 percent in that and divide the others between the the Blue Chip and the balanced fund may be actually a little more in the Blue Chip because the balance tends to provide more income and she could wait for that till she's older but spread it out. If and I think you're on the right track with that. (00:11:01) What do you tell people are a little nervous about the stock market because they may be expect a major adjustment coming up soon. (00:11:07) As I said about mortgages. It's absolutely impossible to time the market and professionals don't succeed in doing it and amateur certainly shouldn't try the best thing to do is not to wait. I mean, it's impossible to buy at the absolute low clearly. We're at record highs now and that is making some people fearful but I wouldn't say to stay away from it. I would say to invest over time do they the tried-and-true dollar cost averaging so that you keep your money coming in you buy more shares when prices are lower and fewer when prices are higher, but you but your advert averaging it over time and you generally come out ahead that way. (00:11:39) Let's go off to Baldwin, Wisconsin for a call for Grace Weinstein. Good morning. You're on the air. I have a mutual fund question. What are the what would you say are the expected and normal returns from the various classes of mutual funds like aggressive growth growth Bond both long and short term and you can write down the line small cap and so forth. (00:12:01) That's a hard one for me anyway, because I'm not really a quite as tuned into that. I'll historically common stock Blue Chip funds since 1926 have averaged about a 10% yield where the more aggressive small cap stocks have averaged over 12% bonds much lower treasury bills much lower not even keeping up with the rate of inflation right now what you can expect very so much there's there's just such a range among individual funds and that's not the only thing to look at though because to look at the current advertised yield of a fund is only giving you a piece of the picture you want to look at returns over a period of time you want to look at who the manager is and what that managers track record is and what the loads and fees Are associated with a particular fund (00:12:44) for many small investors mutual funds. That's the route they take what's the best is there a good source of information that you could recommend for somebody who's trying to decide on what fun they want to go (00:12:53) with? Well, there's something like 4,000 funds now, so it's a real tough one. It's not a simple choice and it's not even a simple choice between load and no-load funds because you've got low loads and back-end loads and Redemption charges and all kinds of crazy things going on in the fund Market the Investment Company Institute in Washington puts out a directory of all the the approximately 4,000 funds with their objectives and how much money needs to go in and so on that directories available for about $5 the there's a very good newsletter called the no-load fund investor out of New York state that provides ratings and information about no-load funds and you've got to read the financial press a lot of magazines have Forbes Money Magazine kiplinger's and so on do do periodic fund reviews and bring people up to date on the information. Do (00:13:41) you like any of the No funds better than others. I mean European Pacific growth funds or (00:13:47) well a lot of Americans are wising up to the fact that an awful large large part of the equity Market these days is outside the United States and clearly that's an element of diversification is to go International as well. It's more volatile. The only way to do it really is through mutual funds and there are some good ones by and large I would suggest it's less volatile. If you stick to a broad-based international fund rather than going into a particular sector sticking to the Pacific region or or a single country fund which is even more risky for the individual investor and you have to know the difference between International and Global to because one the international funds invest early overseas in the global funds can be both us and international and they vary the mix and their portfolio depending on what the portfolio manager sees. His (00:14:34) best right now should a small average investor pretty much no matter what have some sort of international representation in the Folio right now given the day and (00:14:43) age anybody who has a portfolio of you know more than a few thousand dollars probably should have some representation overseas some small piece at least to know 10 percent 15 percent depending on your age and your risk aversion (00:14:55) level. Okay, let's take another call Mark in neu-ulm. You're on the air with a question for Grace Weinstein. Yes. Good morning Grace. My question has to do with what factors should be considered considered in deciding if an individual should use the services of a financial advisor. (00:15:12) Hmm. That's a good question. There's so much information out there today and so many kinds of investment vehicles that it's all very very complicated and that can make it advisable to use a financial advisor, but you have to be you have to know what your own objectives are and that's something actually a good adviser advisor can help you focus on your objectives work through your timeframe and what you need to do to get to a particular place. You want to be careful about Our advisors who have particular products to push and to make their money from selling those products. Certainly there are good commission based financial planners, but you have to always keep in mind that they make their living by commissions from the particular product. They sell so you might turn for help to an advisor for an overall financial plan to help you put all the pieces together figure out how to plan for your own retirement. Maybe help your elderly parents, maybe put your kids through college or you can turn to somebody for help with one particular segment of that. Although I mean, it's easier if you look at the whole the whole context that can get to be expensive with a fee-based planner, but I think most of us could use some help. I mean, I know planners who use other planners to help them focus on what they need to do. So it's a question of how much studying you want to do. Most of us are so busy earning a living and managing our day-to-day lives and it's hard to step back and look at the whole picture and and plan out an agenda for a long period of time and that's where planner can Really useful (00:16:43) if someone likely to get more objective good advice from a fee-based planner than from a stock Brokers calling up saying look I'd like to sit down and talk to you (00:16:51) about. Yeah. Yeah. I mean there I was talking about commission-based planners versus fee-based planners stock Brokers are another category altogether. And again, there are good ones out there and I and you need to work with Brokers. Sometimes I certainly wouldn't slam a whole profession. But if you want very want to be sure that your advice is objective that you don't want to go to somebody who is making money solely out of what is sold to you because there's at this just an inherent conflict of interest (00:17:15) there if you're going fee basis are rules thumb as to how much you should be (00:17:18) paying. Well it can cost a couple thousand dollars for a good plan on the other hand. Some people will charge an hourly fee. Some folks will a lot of good feedback as planners will sit down with you for an hour without charging you anything to determine what your overall needs are and give you some basic advice right there and then charge an hourly fee some charge more if they actually manage your Investments for you and others will just General charge by the hour or the plan to give you the overall advice that you can then go ahead and Implement their whole lot of different ways of doing it. Unfortunately today. There are so many people stock Brokers insurance people who call themselves at financial advisors because it does sound better. So the consumer has to be very careful and identify just you know, and ask you don't have to be shy about asking how are you paid for this if you if I buy this how much do you make on it? You're entitled to know and that's where people sometimes get a little timid and they don't ask but once you know that you can choose to use a broker you can choose to use an insurance agent or a commission based planner, but just be sure you understand what the ground rules. Are (00:18:23) you listening to midday on Minnesota Public Radio and here this morning is financial writer Grace Weinstein. Her latest book is the lifetime book of money management. It is a one of several books. He's written about personal finance and we're taking your calls this morning with personal finance questions. Let's go back to the phone lines Paul and Egan. You're on the air. Good morning. Good morning. We have four small children and we're sort of focused on private high school rather than college at this point. We think it's probably a big burden to think about both and but our plan right now is to fully fund our 401 at work like 15% and also to attempt to pay off our house so that by the time we get at least close to high school age. We maybe will shift some of the cash from investing for retirement and so forth and try to get them through high school and then hopefully we can find some scholarship money and so forth for college or plan on the state universities. I'm just wondering what you think of that strategy. (00:19:24) Well, I don't know how important apparently private high schools are important to you. I certainly I agree with your strategy of fully funding the 401K. I think that's that's very important because that's checks sheltered money. And especially if you've got an employer providing any matching funds there that's terrific paying off the house. Well, you have to look at your whole picture on that. That's the interest of course is a tax deduction in there aren't a whole lot of tax deductions anymore, you know for interest so you might want to look at that. And then the big question is College college, maybe more important than High School whether scholarship money will be available or not. A lot of it depends on need rather than on Merit these days, although there is a fortunately a small Trend back toward some merit awards. So I would take a good look before you get firmly committed to this strategy at the college financial situation because if you have a mortgage on a house, you may be more entitled to financial aid then if you don't if you have money put aside in And your own name toward College, you're better off for financial aid than if it's put aside in the names of your children because that money is assessed more heavily by the college's I wouldn't I just wouldn't stop the planning at age 18, I guess that's that's what's concerning me because in the long run College maybe at least as important. If not more important than the high school (00:20:45) overall in general are people making it right decision if they get a mortgage a 30-year mortgage and they're paying 7% on that and they're paying their house off. They're paying the mortgage over paying it in an effort to be done with the house payments and 15 years instead of 20 or 30 years. How do you make that decision? (00:21:01) Well, if you can afford those somewhat higher payments, then you certainly Save A Lot in the long run because the interest payments are you know, you can save many thousands of dollars. A lot of people have taken 15 year mortgages in refinancing just for that reason, but of course, you don't have to commit yourself you don't you lock yourself in that way if you have a 30-year mortgage and you can prepay principle, then you can do it as it suits you. Budget rather than locking yourself into those payments. That's a good idea. And of course what you have to weigh in as I just said to this caller, there's a lot that goes into the equation in terms of whether you should pay off the house or not. You do have the tax deduction on the other hand. If you're paying 7% is pretty good. People might still be paying eight or nine percent at a time when they can only earn three or four percent on their money. So that whole thing has to be you really have to do the calculation see where the tax benefits fit in in which way is best on an individual basis. (00:21:52) What about the argument that I mean 7% money is relatively inexpensive if you're putting it into the stock market or something like that. (00:21:58) Well again, you have to do the arithmetic if you're if you're paying off credit card bills at 18% I mean that's clearly a mistake and what you should do. If you have excess cash has not invested at seven or eight or even nine percent if you're paying off 18 percent credit, but pay off their credit first, that's that's the best investment. You can make people tend not to look at the whole picture and that's where we go back to using a professional advisor who can help you do that. (00:22:20) Grace Weinstein is a guest on this Saturday. Midday will take another call. Kelly and st. Paul you're on the air with a question. Yeah. I have a question about whole life insurance both. My husband and I are 34 years old and last year about this time. We purchased two Whole Life policies for a hundred thousand each and we got some term insurance to and the reason we did it. I did it mainly for diversification because we already had some mutual funds and we are both in a 401k plan at work. And my question is is that I've had friends who say that whole life really isn't that a good place to put your money these days and we're putting quite a bit into it each year and I just wanted you to comment on what you think about whole life (00:23:00) insurance. Do you have young children? (00:23:02) Yeah. We have a (00:23:03) baby. Okay, the purpose of life insurance is not investment purpose of life insurance is to protect your child and your spouse if something happens to you and your income is no longer coming in don't look at it as an investment true whole life has a savings component, but that's a very expensive way to save and not the most efficient way to do it at all. In fact. People at your age. I would have suggested had you asked me sooner and I'll get to that in a minute that you buy a whole lot of term insurance because you get a lot more bang for your buck. That way you can buy a lot more term insurance at the age of 34 for the same premium. Then you can whole life insurance (00:23:39) make the distinction between term and whole life insurance. If you would for (00:23:41) people term insurance is Pure Insurance. All it provides is a death benefit during the term that it's in effect, which could be one year five years ten years, whatever it's generally renewable. It's generally convertible to whole life insurance, but it doesn't have the savings component. It doesn't build cash value which is what whole life insurance has therefore it costs less. Therefore. It doesn't have the residual benefits. There's no cash value to borrow against which you do build in a whole life policy. There are advantages to whole life people who want her estate planning who wanted to carry life insurance throughout their lives and have it available at a very late age are better off with whole life generally because term becomes very expensive when more expensive ones you hit 50 or so for the young family. Because you can buy so much more pure death benefit coverage and that's what life insurance is for with term insurance. That's what I would recommend. However, you already have the insurance and you pay a tremendous amount Upfront for whole life insurance the commission's I'm assuming that you did by the through an agent. I was the only line all there's nothing. Well if it was bought through an agent the commission's and underwriting costs and charges associated with issuing a whole life policy can total a hundred and sixty-five percent of your first years premium and what that means is that you don't start to build cash value for a long time. If you were to surrender that policy and the lapse rate is very high people lose a lot of money this way you would get very little if you wanted to borrow against it you would not be able to for quite a long period of time. There are new products out called or new way of buying Insurance called Low low life insurance just as there are low load mutual funds and in fact just a week or so ago. There was a whole network. When the what is Wednesday and for it's based in Florida that represents 10 insurance companies selling low load policies so that if you do want whole life insurance a lot more of your cash value is available to you almost immediately. The premiums may be as high but you get a lot more back from it because there aren't those, you know, excessive commission's built in but for somebody who already has whole life dropping it at this point when you've already paid that commission is a mistake. Keep it going keep paying for it. If you've got assuming you've got a good policy, but don't look on life insurance as an investment its protection for your family (00:26:01) the argument for paid financial planners grow stronger as our shrinks and diminishes here. Let's go back to the phone lines with another question for Grace Weinstein John and Minneapolis. You're on the air. Good morning. I would like your opinion on stock market game which is being played by over 10,000 students in Minnesota and perhaps a half a million around the country in the game student teams of To five members each are given a hypothetical hundred thousand dollars to invest in Common Stocks. They learn how to buy sell short sell and buy on margin on a daily basis awards are given to the teams with top investment portfolios at the end of the 10-week game. This is played in grades 5 to 12. Do you think this is a good idea to teach students speculative techniques in at that age? (00:26:54) It's interesting the way you end up that question. I think the more economic and financial education. We give our youngsters. The better II there's a crying need for information in this country among both adults and young people about how to manage money and I wouldn't say that the stock market game is focused so much on speculative techniques as it is on teaching young people how to understand a very important segment of our economic world and knowing how the stock market works is is very important to many Are fearful and they fall victim to scams and frauds of one kind and another because they don't understand the basics of how the system works. So I think anything that teaches young people about investing about credit about savings about checking is all to the good and I think it's (00:27:38) terrific and you yourself have written. Some books say I think for young people to teach them about money and how the financial system in this country (00:27:46) Works. Absolutely. In fact, I did a short article for your sound money newsletter or a year or so ago about teaching your children to invest and interesting them in the stock market and letting them know how the system works. I mean, I think it's tremendously important. We have a crisis of consumer illiteracy in this country something like half of the adult population doesn't understand how to compare credit card rates doesn't understand how to shop for a mortgage and you know, that's probably one of the biggest threats we face as a nation and anything we can teach our young people is all to the good (00:28:15) school system failing in this one in this regard. I mean can graduate from school and know how to do certain I don't know calculus computations or something, but you don't know the difference between buying and leasing a car. You might not be able to balance a checkbook. And (00:28:29) you know Mark it's funny because I just gave a little talk on that yesterday here in Minneapolis to the rotary. I think it was almost 20 years ago that there was a movement in this country toward consumer education and I went around the country. I was doing an article for Money Magazine at that time and I looked at schools in Memphis and Chicago and New Jersey and whatnot. They were teaching kids from three year olds and in preschool up through High School different elements of consumer education. And the three year olds would could learn that a bigger box of cereal might be more cost-effective than a smaller box of cereal things like that. But we that national movement kind of petered out. We went on to the next educational movement of one kind or another we do ask our schools to do an enormous amount and I don't know whether we're putting too much of a burden on them, but parents either can't or don't do many of these things and I can't think of much that's a lot more important than coming out of school knowing How to manage your money and do it intelligently, so I think yeah, we should have a lot more of this and I think maybe the pendulum is swinging back and we're waking up to the need to do (00:29:31) it. What do parents do have a keen interest in making sure their children grow up with an understanding of what money is and so forth. What do you recommend that parents (00:29:39) do allowances free and clear of paying for grades or rewarding for good behavior or even paying for household chores, I think children need to learn how to use money as they learn how to read books or do other things and that they need to manage it for themselves with the hands-on experience that lets them make mistakes because you learn by making mistakes. And if you have those lessons with the small amounts of money that you might have as an with an allowance, you're not as likely to make the same kind of big spending mistakes with larger amounts of money later on. (00:30:12) So that's a good place to start then start money managing when you're five years old with your dollar 50 or whatever. It might be (00:30:19) absolutely and make sure that some of that I mean even if you say to the youngster, all right part of that has to go in the church collection plate or part of that is for lunch money with an older child or whatever make sure that part of it is the discretionary money that lets the child make mistakes and learn how to spend (00:30:31) 23 minutes before noon and you're listening to midday and Minnesota Public Radio. This is Mark's a deck like my guest this Saturday is financial writer Grace Weinstein. Her latest book is the lifetime book of money management and we are talking personal finance. If you have a question for Grace Weinstein and you're listening in the Twin Cities metropolitan area, you can join the conversation by dialing 2276 thousand that's 2276 thousand in the Twin Cities outside of the Twin Cities anywhere. You can hear the broadcast. You can call toll-free with your question at one eight hundred two, four two two eight two eight the toll-free number. Once again one eight hundred two, four two two eight two eight. Let's go back to the phones John and Roseville. Thanks for waiting around the earth. Good morning. I Question about rolling over the value of some equities in a 401 k into qualified variable annuity recently retired age 65 and have a good number of shares of my former employer stock in this 401K also have Savings in it and multiple choice Investments, which I don't plan to move. And also I have shares of that employer, you know, in other Holdings direct Holdings and I want to diversify and with my financial advisor agree that we should start with a 401k shares He suggests rolling these over into a particular variable annuity which has a number of name-brand funds as well as some of its its own funds. Now the question is when I look at the prospectus a lot of high cost seven percent decline deferred sales charge and a myriad of other details in the prospectus. So first thing how do I quickly convince myself to this is a good idea to roll over these equities in Variable annuity and secondly, how can I judge if this is a good annuity? But besides your faith in the in the financial advisor, I'll listen to your response. How old are you? 65? (00:32:27) Okay. So there's not a question about withdrawal penalties. If you roll the money over you can put that money into an IRA. If you are finished with the 401K and keep it in a variety of Diversified mutual funds the problem with a variable annuity as you just put your finger on is that it is so expensive whether it's worthwhile or not depends on the performance of the underlying funds but you'll have a broader choice of funds. If you do it outside of a variable annuity without paying those sizable fees and facing the 7% declining surrender charge if you need to take the money out, I'm not a big fan of variable annuities because they're so expensive and because they limit your choice of funds. Usually I think you're better off rolling that 1K money into an IRA you're going to need to start taking distributions when you're 70 and a half and you can diversify within the IRA meanwhile in different kinds of mutual funds. That's the way I would go. (00:33:25) Okay, let's take another question Jean and st. Paul you're on the air. Good morning. Yes. We just inherited some money that we plan to actually put away for retirement which for us is about 20 years out and we're looking at annuities as a possibility and don't really know much about what would be the advantage of putting it in like annuity mutual fund versus some other kind of investment. Also, we've been thinking about an asset management fund where the asset manager actually kind of moves the money around to supposedly take best advantage of the market and wonder about the pros and cons of something like that. (00:34:00) Well Asset Management funds out to start with the second half of your question are really Market timing devices and can be fairly volatile. There there sometimes are mixed up with but they're not the same thing as an index fund which Tracks the performance of the overall Market or a particular market index. If you're 20 years from retirement. There are a variety of things you can look at if you are eligible for any kind of tax qualified plan that that's a good way to go because that lets your money grow faster. If you don't have to pay interest on a currently if you can't put it into an IRA or if you're self-employed Akio then and annuity might be a way to go as I said to the previous caller variable annuities tend to be fairly expensive and also fairly volatile. Another option might be a fixed annuity which will guarantee a certain rate of return but a lot of that depends on the overall mix of your other Investments, if you don't have other mutual funds and of course, you can just go straight into mutual funds. You don't need the annuity rapper The Virtue of that is the tax deferral on the interest which imitates an IRA and other tax qualified plans in that respect. So you really have to put it in the Of your other Investments and how aggressive you are there and what your tax shelter situation is as to whether you need the tax deferral whether you need to go aggressive or a more conservative way, but you can look at mutual funds either in or out of an annuity. I'm not as crazy about Asset Management funds. I think they tend to be too volatile for most people (00:35:33) talking about retirement planning a little bit what age are most people retiring now are they retiring a little earlier now than they used to are they not (00:35:40) the average age is around 62. Yeah, which means a good 30 years or so that you have to plan for in retirement and that's were a lot of people get into trouble and a lot of financial advisors are still behind the times on that and they you still get this this sort of advice that you should switch from equities to fixed income at retirement because now you've got to protect your money when you're going to lose money to inflation and not make it through 30 years or so, unless you keep at least some portion of your portfolio and equities and that that's true with just about any age. I mean people in their 70s should still have some portion inequities, of (00:36:10) course radio people always looking for rules. Um, but is there some percentage you should be putting away to your retirement toward retirement? (00:36:17) Oh not in what but toward retirement. Well, the more the better, I mean when we always say try to save 10% of your income of front pay yourself first the 10% if you can some people find that tough and which case 5% is okay, too, but just try to keep doing it if you start if you if you look and I'm the numbers are in my book and I don't remember them off the top of my head, but I do know that if you start saving at 21, let's say or 25 and saved for ten years. Let's say 25 to 35 and you put $1,000 away for those 10 years each year and you stop saving many. You don't save another Penny until you're 65, you'll have more at the end then the person who starts at 35 puts away a thousand dollars a year for 30 years till age 65 just because it's you started earlier it compounds, you know, the magic of compound interest it works (00:37:05) how Untouchable is that money? What's point in your life you touch that money before retirement. What what merits Taking some of that money out. What kind of a crisis would Merit (00:37:15) that I can now time at legally what you're allowed to do, but what you should do. Well, first of all, legally, of course, you've got the 59 and a half except that you can often take it earlier from a qualified plan. If you annuitize it and take equal amounts each year over a period of time 401K plans, for example, which is the most popular kind of retirement saving now you're allowed to borrow against but they have reduced the number of reasons and many employers have real hardship kinds of things. But generally you can for college tuition for medical emergencies as far as your own if you have an IRA or Akio, you really can't borrow against it what you're doing man is withdrawing and facing early withdrawal penalties. If you're if you're not old enough, you should try to keep that money put aside for retirement. One of the biggest mistakes that that young people make these days is first of all, I don't put enough money in their 401K is because retirement just seems you know, so endlessly far away. Secondly they do put it in there too conservative opting for get And so on but thirdly if they change jobs they may have a couple thousand dollars in the 401K and it doesn't look like a whole lot of money and gee I need a car and all this other stuff. So they take the money out and they don't roll it over and they're losing that incremental advantage of having that money build over the years. (00:38:28) So start early and leave it alone, right? Okay. Let's go back to the phone lines Joan and st. Paul. You're on the air with a question for Grace Weinstein. Thank you. I've been buying a non-owner occupied duplexer about 10 years and the equity that they're at this time produces more gain than if that Equity were invested in something else because of the current low interest rates wilfred's go up. It might be wiser to sell it but there's something I don't understand. I'm wondering if you could give me a formula or an explanation about recapturing as far as paying taxes goes out when I sell it income (00:39:03) property. I'm afraid that is a little beyond my scope, you know, you need to talk to an advisor who is really tuned into real estate rules. I'm sorry, but yeah, whether you should sell just because interest rates go up is a question. Anyway, you've got tax benefits and other things that you have to weigh in the whole equation. (00:39:23) Okay, let's take another call Jim you're on the air. Hi, I'm self-employed and Incorporated. I pay myself every two weeks. My financial advisor has recommended that I send that paycheck to a money market checking account, which I understand can earn about 9% then write another check off of that account into my personal account and try to live off of that the idea being that at the end of every month a fair bit of money can build up that can be another form of retirement planning and I just wonder what you think (00:39:52) about. Well, I don't know what kind of money market fund your advisors talking about the journey nine percent unless that's a high-yield junk bond fund. There is no such animal out there today. Most money market funds are paying from two to three percent depending on whether their taxable or tax exempt so I don't think you want to get into that kind of situation. It's fine, too. To send your paycheck directly into an investment vehicle or to send it to a money market fund and then transfer what you need to a checking account. I would say that you want to stay away from that that high-yield stuff. But if you go into a bond fund they were good bond funds out there that are paying more than a money market fund just be aware that just because they send you a check book that you can use that is not necessarily a good idea with a money more true money market fund. The net asset value is always a dollar. So when you write a check it's a non-event as far as tax authorities go with a bond fund even a good conservative bond fund the net asset value fluctuates. And when you write yourself a check you are selling shares and you may have a taxable event. If you write a lot of checks on a bond fund you're going to have a nightmare at tax time. So I would be very cautious about just what your advisor is recommending here and make sure you understand what's going (00:41:05) on a regular nine percent money market right now would be like winning the lottery I suppose. (00:41:09) Yeah. That sounds like a real misnomer. I don't know. He's talking about but it sounds like a high-yield junk bond fund and that's (00:41:16) dangerous quickly a question about certificates of deposit for people are living off the interest income on these and they're coming to term and the interest rates while they are climbing up. I mean, they're pretty low. Where do you put that money now? If you need to get the income out of it she just is that's a real Ray. (00:41:32) It's a real tough one for retirees. Probably the best thing to do. If you really can't afford to take any chances with your money is to construct a ladder of CDs so that you have the maturing at yearly intervals and will be reinvesting at varying interest rates so that if interest rates do indeed go up you'll at least catch the upswing and you know go out five years maybe but then have shorter periods so that you'll be able to roll over the money and catch the upswing when it happens (00:42:00) just sort of have to accept the low rates for the time being. I'm (00:42:02) right and bear in mind that that is coupled with a fairly low rate of inflation, you know, those double-digit interest rates the sounded so good to people. We also had double-digit inflation. So you get it both (00:42:12) ways. Weinstein is a guest on this Saturday midday, and we are talking personal finance. If you're listening in the Twin Cities 2276 thousand is a number to call to join the conversation outside of the metro area anywhere you could hear the broadcast. You can call toll-free 1-800 to for to to 828 Gene and Minneapolis. Thanks for waiting. You're on the air with a question. Yes. Thank you. My wife and I own a single family rental in Minneapolis. We haven't trying to sell it. Unfortunately the market value and the the mortgage amount are the same. We are considering a looking at a mortgage. That would be assumable possibly by a non qualified individual and I'd like to get a comment on on that process or any other suggestions you might have. (00:43:03) I'm not sure what you mean unless you're planning to finance the purchaser yourself (00:43:10) contract or something. I'm going to contract for deed. Is that what you're made? Let you're still on the line aren't you? I'm sorry. (00:43:16) Yeah, could you give us a little more information on what on what you (00:43:19) mean the the property we moved out of the property. It was on the market the the value of of the the property is the mortgage the mortgage balance and at and trying to sell it. We were unable to sell it without bringing cash to the closing table which which we don't want to do we're unable to sell it at the at higher than Market when the agents fees are are added in there. So it's been on the market now. It's a rental property. Now we are we re recouping exactly what the payments are. I guess my question is are you trying to arrange a For deed or something some arrangement like that right now for deed or a and have an individual assume the mortgage, you know, and as an on by not by not qualifying to traditional ways (00:44:19) with no down payment and just talking (00:44:21) about no down payment might be possible rather than through a through a mortgage company. My myself acting as the person that said that is a little Christmas. What kind of risk do you know? (00:44:34) That's that's the question is. I mean there is there is a big risk, of course in holding the mortgage yourself and I'm just wondering if the market is improving here and if you are indeed covering your costs with the rental whether you might not just want to wait a bit and be able to sell more advantageous lie without getting into the risky position of holding the mortgage. (00:44:54) What kind of things do you need to do if you decide to go with the contract for deed Finance it yourself or is that have a good (00:45:01) lawyer, you know and Sure that you do adequate credit checks on the buyer because you can be left stranded too. Especially if somebody's buying without a down payment and just assuming the mortgage they don't have any equity in the house either and they can walk away and leave you (00:45:14) stranded. Like I read your book yesterday to saying something to get a big down payment because the more of a down payment the buyer has into it the more likely they're going to stick with it and pay the thing (00:45:24) off. Absolutely. (00:45:25) Okay. We still have a lot of people a lot of folks on the line with questions for great grace Weinstein as we wind up this hour, let's get some more calls on Mary Beth and wattana. Thanks for waiting. You're on the air. Yes. My husband and I work full-time and we have a full-time or full term life insurance. And the problem is I were looking at having a child and possibly having me stay home at least part-time and the problem is I don't know if we'll be able to make this monthly payment on this full term life plan, and I'm wondering how I could either reduce it or change it. (00:46:02) What is a full term life fly your tone term insurance? I don't quite follow what kind of (00:46:07) policy have full term life insurance (00:46:11) through your employer through an agent (00:46:13) through an agent (00:46:15) and it has monthly payments. (00:46:16) Yeah monthly payment. (00:46:18) Well, I don't you don't have any cash value in this policy then it's a term strictly a death benefit policy. (00:46:25) Yeah, and it just started a year (00:46:27) ago. Well, I'm not sure I'm getting the full picture here if you have term insurance and you have young children or young child, you need life insurance, but I'm not sure I'm fully understanding what kind of policy you have. So if it's a first of all you can it cost a little less if you pay annually because you're paying a premium just for paying monthly payments, but that wouldn't make a big difference. I don't quite know exactly what kind of policy you're talking about. Here is pure death benefit. No cash value. Is that what you're (00:47:01) saying? No, it has cash (00:47:03) value. Okay, then it's that's what I thought. It's not a Term Policy at all. You ought to find out then how much cash value you have what the surrender value would be and talk to a financial advisor who doesn't have an interest in making a commission from insurance about whether you can replace some or all of that with a Term Policy that would give you a lot more for your money. (00:47:26) Okay. Let's take another called Joan in Minneapolis. You're on the air with Weinstein yes, I would my question is how do you find a financial advisor? Who whose bottom line? Isn't that the cell you whatever product they have totally independent one not here you have Jim of it's been on there in his financial advisor. That's telling him. He's getting nine percent on money market, you know, he's in big trouble. (00:47:50) Okay. Well, that's a good question. There are associations of financial advisors. There is a one in particular nap for the the National Association professional financial advisors represents only fee-based planners exclusively. So that's an organization that you could contact the accounting profession American Institute of CPAs also has a personal financial planning Division and those folks don't take commission's on what on things that they recommend that's fee-based. And I think within the ICF P the here, these are all alphabet soup. There's the International Association for financial planning. I AFP and the ice Happy The Institute for certified financial planners. They had they represent all kinds of financial planners, but they will also tell you which are fee-based. So through one of those organizations and you can get their addresses either in my book or through your library. You can be recommended to if we base (00:48:48) planner the arguments been strong throughout the hour for financial planners. Once you've decided on somebody we think you want to go with is it appropriate to ask for (00:48:56) references or anything? And no absolutely as you would with anybody you were going to trust for for serious advice you need to ask for references and you want to be sure that a financial advisor is dealing with people who are similar to you in the amounts of money that you may be talking about investing or the you know, whether the kind of even professional or business category that you're in so that it's somebody who has some knowledge and experience about your particular type of problem and some interest in dealing with you. You don't want to be the poorest customer, you know of somebody who's going to be devoting a Time to dealing with more affluent people for (00:49:31) suppose we should underscore to of that if anybody's worried about offending somebody at asking these questions. They probably don't want to be working with that person. Anyway, (00:49:37) absolutely. I mean, this is your money your you care and never turn over everything and defer all a decisions to a plan or no matter how good that planner is, it's your money. Nobody cares as much about it as you do and you have a right to ask hard questions and be sure you're satisfied with the answers. (00:49:51) Okay back to the phone lines Richard and Faribault. You're on the air with a question for Grace Weinstein. Yeah. Thank you. First of all, the general age old question if we have a large portion of money set aside for college but not enough for all of it. Should we find some other way to use that money? Maybe we'll just start with that one (00:50:09) find some you mean it's so that you qualify for financial aid. Is that what you're suggesting we call ourselves lost them. I'm not sure if he meant to use the money up so that the kids would qualify for financial aid, but I don't I don't think that's particularly good idea. I don't know how well the children are so I'm were sort of shooting in the dark here, but the key thing is Is to put aside as much as possible as early as possible. And then I think it's a good idea to expect youngsters to supplement part of the money. It's pretty tough to put your own way through college these days but to at least pay for the extras the books the social life and so on and to earn money toward that and there's nothing wrong with having a part-time job during college taking college loans. There is a whole College Loan program out there from the federal government as well as various State and college programs and there are ways of putting the whole package together (00:50:59) and I suppose that what would you have to say about college kids and their dealings with money any suggestions how to (00:51:07) keep them from bringing (00:51:09) thousands of dollars in credit card bills home for spring break or sort (00:51:13) of thing. Well this with this brings me back to my crusade to teach younger kids how to handle money. I think college kids really they have to have credit cards really if you try if you know the average Mobility. I mean, you need a credit card to get a plane ticket rent a car or whatever but people have to learn how to manage money. They have to learn if they're going to take money. Out of an ATM. They have to put the money in first and we have to teach (00:51:32) them Grace Weinstein has been the guest on this Saturday. Midday much many. Thanks Grace for coming in. She's the author of the lifetime book of money management and several other Publications regarding personal finance. If you would like to order one of those books you can do so by calling 1-800 77662 65 the technical directors for this broadcast have been Clifford Bentley and Bryant honest and kitty Isley produced the program. Thanks everyone for staying with us and thanks to those of you who called sorry for the folks. We were not able to get two on the line. I'm Mark zdechlik. Midday on Saturday is supported by the oriental rug company specializing in sales and service of handmade oriental rugs and located in Minneapolis at 50th and Bryant.