Answers and Guides from Top Financial Advisors

The options that are now available are varied and I suspect that whatever strategy is put into place may need to be revised over the next few decades. To your original question, though, I would suggest including assets that offer the opportunity to reset and mitigate the impact of inflation. For me this would include the following: TIPS, MLPs, REITs and floating rate notes. All of these can be added using ETFs. A conservative client may appreciate the double benefit of convertibles: Get paid now for waiting and get paid later if the stock price rises.

If they are in good health, you can consider adding more to cash value life insurance (maybe a policy with a long-term care rider) or even a separate long-term care policy with a 5% compounded benefit.

In prior decades when stock trading commissions were $100 per trade or a max of 7% of the investment principal, dividend reinvestment plans were attractive because an investor avoided the purchasing commission cost. An investor still did and does incur the selling commission costs.

Now commission costs are significantly lower.

People tend to place their investments with Dividend Reinvestment Plans (DRIPs) on auto-pilot and forget to scrutinize their investment.

Successful investing is similar to gardening. An investor needs to pull out their poor performers, replant, and harvest their successful investments. An investor needs to think about the economic seasons and the conditions of the investment soil.

DRIPs do not encourage diversification and sustaining an asset allocation plan. DRIPs do create extra tax work in a taxable account.

For my clients in tax differed accounts, I reinvest the dividends from their mutual funds automatically. I also watch the asset allocation of their portfolio, the mutual funds relative performance, the current investment environment, and plan for the anticipated investment environment in accordance with my client’s financial goals.

I don’t take investing lightly and I don’t encourage anyone else to adopt a lackadaisical approach.

I hope you have great success Keenan, Dave

Keenan,

You may want to consider index funds at Vaguard instead. You can purchase the funds in small amounts on an ongoing basis, and have the dividends reinvested. The issue with investing in a dividend reinvestment program is the risk you have in owing one, two, or ten stocks (many of which may have the same return characteristics).

As an example, I am not sure if GM had a dividend reinvestment program, prior to its restructuring, but if they did, and you would have invested there, you may have lost almost everthing. With index funds you can invest in hundreds (the S&P 500) or thousands (the Russell 1000, Russell 2000, or Russell 3000) of stocks thereby gaining diversity that you would not have in just a few stocks.
You can futher diversify by investing in international stock indices.

All of these indices pay dividends too.

As your asset base grows you may want to consider using Index Exchage Traded Funds (ETFs). Vanguard has low cost brokerage accounts. Below is a link to a good article that explains ETFs as compared to mutual funds.

http://news.morningstar.com/articlenet/article.aspx?id=558822&pgid=rss

I don't think a DRIP is inherently any more risky, than the actual item you are reinvesting into. All you are doing is taking dividends earned on your investment, and buying more of the investment. Therefore, your overall risk is limited to the risk of the investment itself.

Contact your company's plan administrator directly or try the human resources contact at your facility. You'll need to determine what types of plans that you have available because the rules may differ. If you are seeking to "cash out" then you'll receive the funds in your name. Remember that you may be liable for any taxes for a distribution.

Even if you are over age 59 1/2 bear in mind that taking all the money as a final distribution will count as income and impact your taxes. I had a tax client who did this without calling me first and he took his $105,000 401(k) balance out resulting in a very large income tax bill.

If you're rolling it over into another IRA account, you should set up that account and provide the account number along with any transfer paperwork that may be needed to your firm's administrator.

Great answers from Steve and Helen. Just to piggyback a bit, another source to find a qualified financial advisor is NAPFA, which is the largest professional organization of fee-only advisors in the country. Fee-only advisors charge only for their services, there are no product sales. On the left side of the site's http://napfa.org/ home page is an area labeled Find an Advisor. Just enter your zip code and you can get started. In each advisor's bio there should be a listing of the services they offer. Full disclosure I am a member of NAPFA.

Gloria, Helen and Steve are on mark. You will be better off in working with a team of advisors that specialize in different aspects of this type of situation. Talk to a couple of different advisors to get a feel of how each would approach your situation. Good Luck, Dan

Hi Randi-kay, It depends on what type of retirement plan you have at the hospital. I processed a case recently for a Sr VP at Meridian Health Care Systems in NJ. This women had three plans she was participating in. 1] 403b 2] A Fixed annuity 3] A fixed pension Depending on which type of plan you have, the options and procedures for "cashing" them out are different. Review the effects of cashing them out versus rolling them over before you make any decision or take action. Good Luck, Dan

I would recommend that you find a CFP® professional that can look at your needs holistically and make recommendations. You can find a CFP® professional through their website, www.cfp.net or through the Financial Planning Association website, www.fpanet.org. Through those resources, you can find a financial planner that has experience with retirement planning issues. I would suggest that you interview a few (generally the first consultative appointment is free) and find the planner with whom you feel most comfortable. Through that process, you’ll discover who has the experience you are seeking.

Generally, all hard credit inquiries impact your credit score. Keep in mind that if you are applying for an auto loan or visiting a car lot and they perform a credit report, not every one of the inquiries will have the same impact. While the credit scoring formula is not specifically known, the credit scoring models do take into account that someone looking for a car may visit a few dealerships over the course of a week. The same can be said about mortgage inquiries over the course of a couple of weeks.

You may need different advisors for different things. An estate planning attorney will be helpful in reviewing your health care directives, powers of attorney and wills. You can find one through the National Association of Estate Planners and Councils (www.naepc.org). An elder law attorney will be helpful in advising on asset protection (National Association of Elder Law Attorneys, www.naela.org).

You may want to speak with a board-certified financial planner familiar with estate planning and who may also be licensed to sell insurance products or works with someone who is. Without knowing the specifics of your situation, it is difficult to provide an answer.

There are so many variables to consider when discussing retirement income planning. At your ages you have probably already selected pension and Social Security benefit options. Depending on the amount of cash, investable assets or other insurance policies, you may have other options available.

For example, you may have existing cash value life insurance which may be exchanged as part of a "life settlement" that could supplement your current assets or be used to buy annuities that have a rider for payouts when a policy owner is receiving skilled care or is in a nursing home.

Depending on your assets, your elder law attorney may advise you to consider converting such assets into immediate annuities. But to qualify for Medicaid, you would need to make sure that the immediate annuity is compliant with Medicaid rules. There are only a few insurance carriers that offer this. Otherwise, an attorney needs to draft special language and have it reviewed which may cost additional money.

J, Congrats. Looks like you are well on track. I work with quite a few clients like this. What I suggest is the following. Work with your CPA and your financial advisor to review other tax defferred plans under the IRS guidelines. to see what works best given your individual scenario. You might want to consider a 512 i plan for great tax defferred benefits. Good luck Dan

Everyone says they want more risk in their investment portfolios until they don't. In a universe of thousands of choices, it is difficult at best to provide anything more than tips. What you really need to consider is having a plan including an investment policy that will provide you with a road map for your investing. It's one thing to pick an investment but it's another to have a process for evaluating the choices and the rules for when/what to buy or sell. Otherwise, you're at risk of assembling a "collection" of investments rather than a "portfolio" built for your needs.

In addition to the suggestion of working with a qualified financial planner, I also suggest diving deep into your risk profile by using the tool at www.RiskProfiling.com. This risk measurement tool goes beyond what most advisors use because it includes behavioral analysis as well. I find it provides a more accurate risk profile for an investor.

That being said, if this is money for retirement and you're looking to go beyond what you can do in your 401(k), consider a variable annuity. You can put away more money above and beyond your elective contribution limits than a 401(k). You can access a very low cost ($240/year) variable annuity through a fee only planner (or anyone other than a commissioned insurance agent as these options are usually not offered by them). The Monument series of Jefferson National is one option and includes more than 300 different mutual fund-like subaccount investment options.

You can also consider contributing to a Roth IRA depending on your income.

Without knowing your age, investment time frame, risk capacity (which is different than risk profile), it would be near impossible to make specific recommendations.

If you are a "passive" investor, then index funds or index Exchange Traded Funds (ETFs) may be the best way to go. You can build a portfolio with them based on the models found on the Bogle Heads blog (http://www.bogleheads.org/wiki/Lazy_Portfolios).

If you want more alternative investments that you'll never get in your 401(k), then consider adding Master Limited Partnership mutual funds or ETFs for an inflation hedge and income. I think emerging markets are a good addition.

For active investment in a mutual fund, consider Kaufman for large cap, Harbor for bonds, Ivy Asset for a global "go anywhere" mandate.

Or consider bringing in a professional to help you.

Great question J, the answer depends on several variables. One very important question I ask my clients is why are you investing?

Some other information I like to know about my clients’ is, what is their tolerance for risk, what is their investment time frame, and what are their financial responsibilities?

I recommend you find a financial professional to work with you. All success is accomplished by have a great team. Olympic athletes have coaches, trainers, doctors, agents, and other professionals on their team. Do you deserve any less? Are the fruits of your labor and your financial future not worthy of professional assistance?

I provide model investment portfolios for anyone to use at their own risk at www.DavesFavs.com These portfolios are for investors who want growth of their assets, global exposure, and are slightly riskier than what you’ve listed as your existing investments.

You’re on the right track J. I wish you continued success,

Dave