Expert: Paul Henneman - 9/30/2005

Question
I have an extra 100 a month,  should I invest it in a mutual fund or annunities or should I put  the extra toward my morgage payments? I got a 30 year morgage for 5.5%,  which would be better in the long term?

Answer
Bob,
  Thank you for your question! Unfortunately there is no easy answer to your question, but I hope that I can provide some information that will help you decide.
  The stock market has historically performed much better than real estate. You mention mutual funds and annuities, of the two a mutual fund would be much better and a good way to begin investing in the market. However, the past four to five years has been very, very good for the real estate market, with returns much higher than most mutual funds or stocks. So it depends upon if you want to go with recent history, or a much longer historical period.
   It also depends upon how much your mortgage payments are. If they are under $1,000 a month, then adding an extra $100 dollars a month will make a big difference. The lower your current payments are, the bigger the difference. If your payments are over $1,000 this will not make a big difference. Here is a link to a great website where you can enter your figures and it will tell you exactly the difference that your additional payment will make:

http://calculators.interest.com/content/calculators/additionalpayment.asp

   If you do decide to go with a mutual fund, most have a minimum investment of $1,000. I would recommend setting up a money market account, one of my favorities is available through www.NetBank.com They have one of the highest rates, and are insured by the goverment for deposits up to $100,000. You could save your $100 monthly until you have enough to invest. You can purchase a mutual fund through any brokerage website, the lower the fees the better. Two good ones are www.FOLIOfn.com and www.Scottrade.com  A good website to do research to find what mutual fund you want to invest in is www.morningstar.com, and wwwl.motleyfool.com has lot of information as well, including chat rooms that you can monitor for advice or even ask questions. A generic index fund is probably what you should look for, perhaps one that is based on the S&P 500.

I hope this helps! Please do not hesitate to follow up with me if I can be of any further service,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEInstitutional.com
(800) 381-5576