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Investing Live: Mutual Funds
with Keith Fevurly
Financial Planning Education Director
at Kaplan College
Tuesday, April 10, 2001; 2 p.m. EDT
Keith Fevurly, Financial Planning Education Director at Kaplan College,
talks about how to determine which investments are right for you and steps
you should take to plan your financial future.
Fevurly holds an MBA in Finance & Accounting from Colorado's Regis
University and a law degree from Washburn
University in Topeka Kansas. He also has an LLM specialty degree in taxation
from the University of Denver Graduate Tax Program. He is certified by the Certified Financial Planner Board of Standards.
Fevurly has been involved in the education of personal financial
planners for more than 15 years. He most recently has held the position of vice
president of education for the College of Financial Planning in Denver, where he was responsible for the development and
administration of all curriculums. He has held previous jobs in private business and was an estate tax lawyer with the Internal Revenue Service.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for
guests and hosts; guests and hosts can decline to answer questions.
washingtonpost.com:
Keith Fevurly: Hello and good afternoon. This is Keith Fevurly, Financial Planning Education Director at Kaplan College, here to answer your investment and financial planning questions. So here we go!!
Burke, Va.:
My son is currently a college freshman. The majority of funds for college tuition is invested in three mutual funds (a balanced, an equity, and a bond fund). All, to varying degrees, are depressed in value.
Is it advisable to seek alternative funds for next year as opposed to utilizing these funds when they are so low and hopefully await a modest rebound?
Keith Fevurly: No, generally you probably should keep what you have. The bond fund should produce a positive return as interest rates decline, so hang with that one (as well as the balnced fund). If going to cash in any, do it incrementally and use the equity fund so as to minimize capital gains tax hit.
Las Vegas, Nev.:
How safe is real estate investments that specializes in large commercial/residential/corporate buildings?
Keith Fevurly: On the risk pyramid( you remember that one don't you), real estate investment are right up there with common stocks in so far as risk (ie, they are considered more risky). However, the potential reward is also greater. Over the long term- say 10 years or more- you should be fine, particularly if this real estate is in a growing part of the country.
20910:
I would like to save more than I currently do (12% in a 401K, $2,000/yr into Roth IRA and $200/mnth into a money market fun) I'm 27 and single and am still renting. I have built an emergency fund with the money market. So, I have been tracking where I spend my money for the last three months and now I feel I need to put myself on a budget. BUT I am an engineer and have never taken a finance course in my life. Could you recommend a book to read or a website with contacts to find someone that can help me?
Thanks
Keith Fevurly: Good question. Don't we all need a little help now and then. I wouldn't read a book at all- you should be able to get what you need through common business reference publications such as Money, Smart Money, and/or Kiplinger's Personal Finance letter. If you are looking for a CFP practitioner to help you, try the referral service at www.fpanet.org/. That is the Web Site for the Financial Planning Association, the major professional organization in the field.
New Carrollton, Maryland:
I am 51 years old and have a 403K where is the best place to invest my funds?
Keith Fevurly: Not sure I've ever heard of a 403K?! Surely you mean a 401(k) retirement plan. These types of lans are individually directed meaning you get to choose where to put your money. Most employers give you a wide range of choices in which to invest. Right now, the short term play is probably a bond fund as my guess is interest rates are likely to come down further. However, long term, growth stocks are the place to be! Thanks for the question.
Alexandria, Va.:
As a newcomer to investing, how do I know which mutual funds are "good" and which are not as "good?"
Keith Fevurly: You don't. That is why you may need some help, for example, a Certified Financial Planner. Generally, though look at the long term track record of the mutual fund and determine if its investment objective (growth, growth and income, equity, etc.) fits your risk tolerance (some call it the "sleeping at night" factor) and if it does, go for it!
Ft. Lauderdale, Fla.:
Keith,
Is the mutual capital gain distribution a tax on top of a tax? We are taxed on the increase in share price minus our purchase price. Then, we also must report the capital gains distribution as "income" even though we received nothing for it. Please explain.
Keith Fevurly: Capital gain distributions from a mutual fund are taxed to an investor annually. When you sell shares from the fund, these previously taxed distributions are added to your basis upons sale and reduce the appreciation (we hope!) subject to tax. There is really not a second taxable consequence, but you need to keep good records to determine upon what you have previously been taxed.
Bethesda, Md.:
Most financial planners & commentators say that one should have (at least) fifty percent of your holdings in stocks -- but this unanimity makes me uneasy -- Isn't there a kind of 'everyone will be above average' kind of fallacy here?
Keith Fevurly: Hello Bethesda! What percentage of your portfolio should be in what asset class depends upon a number of factors, not the least of which is how old you are and where you are currently in your career or life. generally, the younger you are (less than 50), the greater percentage you should have in stocks. As you get older, move proportionately into a greater percentage of fixed income investments such as bonds. Income will be more important as you get older and approcah retirement. I don't know about you, but I certainly above average so I listen to what other professionals in the field tell me! Good luck.
Boston, Mass.:
We have two children. One in tenth grade and one in the third grade. We also expect to be retiring in eight or nine years.
What do you recommend in terms of saving / financial planning for their college and or our retirement?
Keith Fevurly:
This is a very common challenge for a lot of people. Since you have one child in 10th grade, you should not be doing anything too risky or subject to volatility with his or her money. Try some more conservative mutual funds or some fixed income types of investments (such as savings bonds). The child in the thrid grade is a different story. Here, you have time to recover from the volatility of growth tyrpes of assets (such as a stock). I would probalby be in some form of growth mutual fund here. Be careful not to sacrifice your retirement for their college education. Your kids need you around then as well- both physically and financially!!
Riverdale, Maryland:
How do you see mutual funds fairing during these tumultuous times in the stock market?
Keith Fevurly: Back with you after as they say "a commercial break". If I knew the precise answer to this question, I wouldn't be sitting her. I would be out selling my exclusive knowledge to others. Seriously though, mutual fund will move as the stock market does generally. I believe that this is a good time to BUY as share prices are generally depressed and this is a good time to get in. However, do your homework on the particular fund you are considering, for example, while I think tech stocks and funds that invest in them are going to come back, I think they will not come back as much as previously. Too much speculation was occurring in the NASDAQ.
Washington, D.C.:
I am a rather inexperienced investor in my 20's and I have a simple question.
I have been thinking of purchasing a Roth IRA for the first time. I have not purchased for 2000 because I
only had $1000 to put in into the IRA account. I read somewhere that I shouldn't bother investing for this
year if I couldn't put the whole $2000 in for the year; and that I should just begin with 2001. Is there any
logic behind this? I realize the full $2000 is best, but isn't half-way better than nothing?
Thanks!
Keith Fevurly: Hello DC. I am a big fan of Roth IRA's- where else can you get a tax free distribution- so Yes, even if you can only invest halfway, do it! By the way, you are to be commended for thinking about saving for retirement in your 20's- some people don't get around to it even in their 50's!!!
Fairfax, VA:
What's the difference between "CFP," "CFA," and "CPA," and is there a difference in the
kind of person who gets each of those designations?
Keith Fevurly: It's all alphabet soup, isn't it!? However, these are all very reputable designations held by very qualified and knowledgeable individuals. A CFP stands for Certified Financial Planner and is an individual who workd directly with you, the consumer, in achieving your financial planning goals. Kaplan College has a program that prepares individuals to become a CFP; just click on the Website link included on the home page here. A CFA stands for Chartered Financial Analyst and is a well respected designation for primarily security analysts and individuals who handle institutional types of investments. Kaplan Inc. (the parent of Kaplan College) has an excellent program to prepare individulas for this designation as well. Finally, a CPA is a Certified Public Accountant. These individuals are doing lots of different things these days, including auditing, tax preparation and management consulting. Some CPA's are also CFP's and can help you with your personal financial planning.
New York, NY::
I've gotten hurt in the market these last few months; any way you can suggest to better
understand the markets, both for myself and to help advise my parents (in their 70s)? I'm willing to spend
some time on this because I figure it's a skill I'll need my whole life.
Keith Fevurly: Who hasn't been hurt in the market over the last couple of months?! Reading financial journals and publications like the Wall Street Journal is a start, but if you want to know more, any of several courses on investments either in a traditional degree program like an MBA or a designation program such as a CFA or CFP (see my answer to an earlier similar question) is also a possibility. You are right- understanding investments and the markets is a skill you will need the rest of your life!!
LaPlata, Md.:
What mutual funds do you recommend that would not be affect dramatically by the
decline of stock market ?
Keith Fevurly: You should really talk to an investment professional here. There are as many types of mutual funds as you can imagine out there-first you need to determine what are your investment objectives and then try to match the mutual fund to it. Generally, defensive types of mutual funds (those that invest in stocks of companies that we all need and use, such as utilities) will fare best in a down market. Also, the "blue chip" stocks that are represented by those on the Dow Jones Industrial Average.
Washington, D.C.:
Federal employees will have two new funds to pick from for their 401(k) plans
beginning this May. An international index and a small/mid cap index join the already available 500
index, bond index, and T-bill index. How would you allocate these? I am 46 years old and probably will
not retire for another 10-15 years. Because I joined federal service 26 years ago, I will have a defined
benefit pension indexed to inflation, which may enable me to take more risk with the 401(k) part
perhaps.
Keith Fevurly: Consider yourself fortunate to have a defined benefit plan indexed to inflation- those are a rare breed these days. yes, you will be able to take more risk with your 401(k) becasue you have this assurance. You still have some time before you retire (15 years)- I would have a good chunk of my money in small cap funds. Since 1926 (a long way back) these have returned an average before tax return of over 17%- however, they are volatile, so if you can't sleep at night worrying about it, don't do it. The rest (say the remaining 40%) I would split between bonds and international stocks. Don't see much reason for T-Bills at your age, but they are very safe!
Fairfax, Va.:
Would you recommend going to a discount brokerage, individual mutual funds companies, or local banks for purchasing mutual funds?
Keith Fevurly: I can get myself in a lot of trouble here! I would go to wherever you feel that you are going to be getting objective advice. All of these organizations are capable of providing it, but if it were me, I would be more interested in establishing a relationship with one trusted financial advisor and not any one company or bank.
L.A., Calif.:
My husband and I have both worked as self-employed free lancers for years. He is 64
and I am 55. Recently, given some bad direction, we placed and lost a huge chunk of our retirement in
the Nasdaq. (half a million) We just sold some property and now have about $250 thousand left in cash
and stocks. Our earnings and earning potential have diminished and we have no pensions. We do own
our home and another piece of property, both of which have gone up in value. We have a $150,000
mortgage on our home which is worth about $600,000 and land holdings worth about $300,000. We
have nothing in our IRA's. How can we invest more wisely to secure our old age which seems to coming
up much faster than expected?
We don't want to sell our land or home at present but will if necessary.
Keith Fevurly: Hello LA. Wow, this is a very involved situation and one that I will not attempt to answer here. I would search out a financial advisor,preferably a CFP of some experience, and work with him or her in addressing your questions.Generally, at your ages and given your past unfortunate experiences, I would not be in anything too aggressive or volatile, such as undeveloped real estate. I wish I could tell you more, but really would need more information to better advise you.
Pittsburgh, Penn.:
Hi Keith,
I am presently considereing taking out a home equity loan to purchase a minivan for my family. I am
putting hald down (15k) and borrowing the rest. Does this make finacial sense.
Larry
Keith Fevurly: Hello Pittsburgh. Did you get out to see the new ball park yesterday? This is a close call. To me, it never makes financial sense to go into debt to purchase a depreciating asset, such as a minivan. However, if you need to borrow, taking out a home equity loan will at least give you an income tax deduction for the interest. You might also check into leasing the minivan- usually you are better off buying it, but you never know. Have someone run the numbers for you.
Vienna, Va.:
Is there any advantage for a person over 60 to convert his IRA to a Roth IRA?
Keith Fevurly: Probably. I am not sure you have enough time to take advantage of the growth possibilities and tax free distribution to make up for the lack of the deduction on the front end.
Crownsville, Md.:
Regarding the new TSP small cap (Wilshire 4500) and International (EAFE Index) funds, it seems that index funds for small cap and international funds really lag behind their managed fund counterparts because there seems to be more of a need to select the winners in these groups. Would it be adviseable for federal employees to invest in these areas outside the TSP plan?
Keith Fevurly: This is a very common question-whetehr to take advantage of actively managed funds or "go passive" and invest in Index Funds. The answer to what you should do depends upon how good the moeny manager is. Many have not significantly beaten the market on a tax and expense fee adjusted basis. Therefore, you may wish to take another look at Index Funds. As a federal employee, you should have some retirement income security that others don't have, so factor that in as well.
New York, N.Y.:
I am interested in starting an investment club. Is it possible to buy stocks and/or
mutual funds without a broker? If so, how does one go about achieving this goal?
Keith Fevurly: New York, New York! Sorry, my last question (and answer). Sure, it is possible to get into mutual funds without a broker-many load and no load funds have a toll free number where you can call and begin your investment program. Once it, follow a strategy of dollar cost averaging (invest no matter what the market does) and you will come out ahead in the long term. I guarantee it! Thanks.
Keith Fevurly:
Thanks everyone for your questions and for allowing me to try and help you with some answers. I will be back on this Site in May talking about everyone's favorite investment, the ubiquitous 401(k) retirement plan. Talk with you then!
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