Jewish World Review Sept. 26, 2000 / 25 Elul, 5760
Base investments on trust
DEAR BRUCE: I have heard advertisements on the radio for investments with an 11 percent return per annum. They are not certificates of deposits and are not guaranteed, but the company that issues them guarantees the money. What do you think? -- T.G., Sarasota, Fla.
DEAR T.G.: Listen to those commercials very carefully. What you are doing is loaning money to the company that is advertising. Only their credit is what guarantees your repayment and the strength of that company is what is paramount. If they are willing to pay 11 percent, you can rest assured that they are not as strong as I would like them to be if I were investing my money with them. I say this because a strong company would have no problem in borrowing the money for a point or two under this number. If, however, you are persuaded that the company is strong enough and will repay you, the return is decent. But understand that, only the faith and credit of the company guarantees your investment.
DEAR BRUCE: Some time ago I worked for a company, and I have a small pension coming. If I collect it now at age 55 I can get $125 a month. If I wait until I'm 65 I can get $300 a month. There is quite a reduction here and I have to make a decision. -- J.H., Muskegon, Mich.
DEAR J.H.: It seems to me that it's a question of how long you think you are going to live. If you take the $125 a month, you will be ahead of the game from age 55 to about age 73. If you live past 73, every month you will have lost $275, but if you don't live to that age, then you've beat the system. The question is what do you think your chances are of longevity? This is what insurance companies are all about, betting that you are going to make it for so many years. Now the bet is yours.
DEAR BRUCE: How would you suggest that someone invest his money from a big windfall such as winning the lottery? What should he do to keep the money from the tax man? -- C.B., Gatesville, Texas
DEAR C.B.: When you win $1 million in the lottery, what you have really won is an annuity that will pay you $50,000 a year for 20 years. Should you accept the cash up front, you will find that you will receive a whole lot less, perhaps $300,000, and then the government takes their share of that. Having said that, it's still not a bad problem to have.
As for how the money should be invested, unhappily, there is no pat answer for that. The age of the investor certainly is a factor, as are the investor's other assets and tolerance for risk. All of these variables have to be satisfied before a decent answer can be determined. Any time one is investing large amounts of money, it certainly would be wise to consider a fee-based planner to at least get some idea of what options are available to
Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).
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