Expert: Paul Henneman - 1/2/2007

Question
Thank you for your answer. I am 38 and would love to learn to manage my money in a little more risky way. I have some free time to devote to it daily. Any suggestions would be wonderfull. J.R.
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The text above is a follow-up to ...

-----Question-----
I have 100,000.00 that I would like to earn a monthly check. I want to keep the money somewhat safe but would like to earn the best percentage I can safely. I want to be able to get a check each month. What kind of interest should I be looking for? Basically it would be like a retirement check. Thanks for any advice, J.R.
-----Answer-----
Thank you for your question!
   The first thing would be to decide exactly how much risk you are willing to have. Let me give you a few examples.
On the simplest level, perfectly safe with no risk, would be CD's (Certificates of Deposit). You can purchase these at any bank, or online. The returns are fairly low, under 5% a year, but perfectly safe. There is no risk. There is a time frame, for example one year, where your funds are locked up in the CD. However, you could divide your $100,000 by twelve, and each month invest that amount. That way one of your CD's will mature and be available to you each month. You would then take out your profit, and reinvest the CD. You would do this with one CD each month as they matured. With a 5% return, you could expect $5,000 a year in profit, or $416.66 a month. This is not much, and it is subject to income tax at the end of the year. But it is perfectly safe. My favorite source for CD's is www.Netbank.com, they are federally insured and have the highest returns for CD's that I have seen.
   A more risky alternative to increase your monthly income would be to invest in the Stock Market. Probably the safest way to do this would be to buy an index mutual fund. This is a mutual fund that simply copies a major market index, the most stable one is perhaps the S&P500. Your returns will never beat that average market performance, and it will never fall below it. You could expect perhaps on average a $1,000 a month income. However, there are a few problems relating to this.
  Some months will be good, where your investment would earn perhaps a few thousand. You would have to be disciplined, and only withdraw the $1,000, because some months your investments will lose money. You still will need to access your income on this months, so to keep your overall investment from dropping in value, you must only withdraw an average amount of expected return each month. There could be times when you see many months in a row of negative performance, this can be stressful. It is what is required to see the overall increase in returns, over time. Given time, the market comes back and losses convert to gains.
   The process you would need to do is to create an online trading account with an economical trading service such as www.foliofn.com or www.scottrade.com   You would first buy the index fund such as Vanguards S&P500 index fund with the ticker symbol VFINX with all of your available funds. Then each month you would log into your online account, sell $1,000 worth of the mutual fund shares, and have that money transferred to your account. This would also be subject to taxes at the end of the year.
   Of course you could combine these two options, perhaps spending one half of your funds in CD's, and the other half in the mutual fund. It all depends upon exactly how much income you need, and how much risk you are willing to take.
   I hope that this has been of some help. There are additional investment options that require more risk, but could further increase the income each month they would generate. If this is of interest, or you have any other questions, please do not hesitate to follow up with me.

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com


Answer
Excellent, thank you for the follow up. With some time, patience, and commitment, you can do well. It sounds like you have all of these.
First, I would recommend putting your current funds into an index mutual fund account. It will take a month or two to get even some basic knowledge to begin managing your investments on your own, your money can start working now at least in some way.
I would first start with "Investing for Dummies". While not exactly a flattering title, this book does a great job of providing the basic knowledge for just about every type of investment out there including stocks, mutual funds, CD's, bonds, and more. It also goes through the specifics of various types of accounts, such as IRA's and Roth IRA's. This will give you a firm foundation, and sources are provided for you to do more research on what interestes you.
I also strongly suggest that you order or pick up a copy of Barrons "Dictionary of Finance and Investment Terms". This business like so many others has a language of its own. You will constantly come across terms and words that you have not heard of before, or do not understand. This reference guide has faithfully served me for years, and still does. I have yet to find something it could not answer for me. The definitions are in enough detail as to be of great value.

The next step would be to begin investigating specific investment strategies. For this, William O'Neil, founder of Investors Business Daily, is a good place to start. Any of his books will do, much of the material is repeasted so just one is all you need, not all of them. Some general periodicals that should help keep you up to date and I feel are the best in the industry are The Financial Times, The Economist, Wall Street Journal, Forbes, and Fortune.

Some website resources are www.morningstar.com for mutual funds, www.motleyfool.com for chatrooms and articles, and finance.yahoo.com for a wealth of data on just about all public companies.

I hope this helps! It may be a bit overwhelming at first. Start with that first book, move slowly and deliberating, ask questions if you don't understand something, and if at all possible turn your finances into a hobby. Hopefully it will be at least a bit enjoyable. Over time you can do well. Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
ValuEngine Inc
www.ValuEngine.com