Expert: Paul Henneman - 2/22/2004

Question
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Paul...I have viewed the NetBank site and I think I'll see if my hospital will do a direct deposit into their money market plan instead of into my local credit union. I have $4000 sitting in my credit union savings account that I could maybe transfer to NetBank instead. I've been slowly building this up for emergency use mostly, but obviously if I can withdraw needed funds at any time from a money market account then that is a better place for that chunk of money.The $1000 I mentioned in my initial question refers to my income tax refund I have coming back. I was going to start investing with that sum of money. It didn't dawn on me to put my emergency fund anywhere else. Then you talked about investing in a mutual fund. I'm not sure where to find something like this. My hospital offers something called a 357 (I think). They don't contribute anything though. Is that like a mutual fund? I'm not sure how stable I am in my job. I might be relocating in a few years so would it be better to invest in something not tied to my work so it will travel with me? Next time I get to the city (I live in the boonies), I will look for that Dummies book on investing and TRY to understand a thing or two. In the meantime, thank you so much for your guidance.
Patricia
Followup To
Question -
I know zero about investing but do know I should do something. I am now single at 40+ years of age and have nothing for retirement. I could put only $1000 into something right now and add $100/month thereafter, but don't know if I have the energy or time to learn what is best. Is there someplace or someone I should go to and let them handle this for me and if so, does it cost much?
Answer -
Patricia,
   Thank you for your question!
   There is something that I suggest for you. Start a money market account. This is essentially a savings account, but does earn some small interest. It is an excellent, and perfectly safe place to begin building up money to invest in the future. The best money market account I have found is NetBank (www.NetBank.com). They offer the highest interest rate and are federally insured (very important) up to $100,000. You could deposit your initial investment there, and then add to it each month.
  After you have about two to three thousand in the money market, you should begin considering investment in mutual funds. These will earn many times higher interest rate than the money market, and over time your investments will grow. Never stop adding what you can each month, but your existing money already there will 'work harder' for you. I do not recommend investing in a single mutual funds, but instead several that specialize in different areas of the economy. Some examples are mutual funds that specialize in technology, real estate, health care, energy, there are many many more.
  I do strongly suggest that you put just a little bit of time and energy into learning about this. Reading 'Investing for Dummies' is a great start. It is available at most major bookstores and at Amazon.com  There is a good mutual fund section that will give you the basics on this type of investment, as well as sections on most other types of investment so you can determine for yourself if you think mutual funds are the best way to go. It will also give you the information you need to determine if you should spend the fees to have someone else manage your investments for you, or do it yourself.
  You do not need a million dollars to be a successfull investor. But it does take education and discipline. You are not getting an early start at 40+, but it is not too late either. But don't wast time, get going! The way interest compounds over time, the longer you invest the better.
  Also, if you have any debt, do your best to get rid of it. Credit cards and huge car loans are the downfall of the vast majority of people in this country as far as having a financially secure retirement. The interest for these items essentially reduces your income by 10 or more percent. Don't make purchases on credit cards, and car loans should be of manageable size, with as much down as possible. If you do have debt, start with the smalles debt first and apply all your resources to paying it off. Then move to the next smallest debt, and you can increase the amount you pay off each month since you no longer have the first payment that has been taken care of.
  I hope that this helps! Please do not hesitate to follow up with me if I can be of any additional assistance.

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


Answer
Patricia,
 Thank you for the follow up! Yes, I do recommend putting all of your emergency in a money market account. It will earn at least a little interest there. Just make sure that the money market account is FDIC insured (NetBank is), this way if there is any scandal or the bank goes under for any reason, your deposits are insured. You would get it back. But this is incredibly rare anyway, not a real worry, just precaution to cover all bases.
  Mutual funds: I would suggest looking at www.morningstar.com. They are the best known place for mutual fund information and research. You can purchase mutual funds directly through an online service, I'm sure morningstar has information on this, but if not I can provide some suggestions.
  Employer investment plans: I'm not terribly familiar with anything other than 401k plans. If your employer has this, it is excellent and you should definitely participate. The issue is taxes. Most employer investment plans are 'tax free', meaning that you do not pay taxes for the funds you contribute. Even if your employer does not contribute also, this is a huge benefit. Consider that most americans pay 25% to 35% in taxes. This means that you do not pay this to the funds you contritue, a huge advantage even if the investment plan does not return a great deal. With 401K's you can 'roll over' to another job with no problem. Lack of job security should not prevent your participation. Even if a new employer does not have a 401k, you can either let whatever contributions you have put in up to then sit and continue to earn interest tax free (the best thing to do), or you can pull it out to put in another plan.
  Another suggestion: A complex topic, but you may want to consider an IRA plan. This is also tax deferred. It is a big topic to discuss here, but 'Investing for Dummies' covers it nicely. Amazon.com does have the book if you do want to get a head start and order it through the mail.
 I hope this helps, follow up by all means as always if needed!

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