Q: Our broker's last four stock suggestions, which included Microsoft and Hewlett-Packard, all dropped in value the day after his recommendation. Is this just bad luck? Also, how do you feel about real estate as an investment in the next three years?
F.S., via e-mail
A: It appears that your broker suggested technology sector stocks, which tend to be more volatile and fluctuate more often than other sectors, says Cheryl Burbano, a certified financial planner in Wesley Chapel, Fla. If the price-to-earnings ratio (p/e) of the stock was high at the time of purchase, she says, the stock may have been overvalued and went through what experts call a price correction - an event that laymen brand a loss.
As for real estate, it is very lucrative in most of the United States right now because of low interest rates on mortgages, Ms. Burbano says. But it is a matter of opinion whether this bull run is sustainable. If inflation is high, for instance, mortgage interest rates will start to rise, making the housing market less affordable to first-time home buyers and the middle class in general, she says. Demand would decrease and that would generally mean lower prices, or at a minimum a slowing in the rise of housing values.
There are other ways to invest in real estate besides direct purchase of land or buildings, says Burbano. You can also hold real estate in your portfolio by investing in a Real Estate Investment Trust (REIT) or in a mutual fund that holds shares in different types of REITs.
Q: A year and a half ago, I purchased a deferred annuity through my local bank. In the face of a current investigation into the annuity seller's activities, and lawsuits against it in California and Florida, I am now very uneasy about my investment. I am faced with a decision whether to cash it in, pay the penalty for early surrender, and lose my first year's interest at 5 percent plus 6 months interest at 3 percent. My annuity is for $100,000, so it would be a sizeable loss.The only advice I get from the financial adviser at the bank is to take the loss if I'm too uncomfortable. However, she assures me that the company's ratings and reserves remain high.
B.T., San Diego
A: The question to be asked here, says Thomas Curtis, a certified financial planner in Gaithersburg, Md., is why did you buy the annuity? If your reasons were sound, then you should not "cash in," he says, as the insurer is a solid company with years of annuity experience.
Without knowing your age or financial circumstances, Mr. Curtis says, it's difficult to determine whether the annuity was the right thing for you to buy in the first place. He also is concerned that you used the bank's "financial adviser" without seeking independent advice. It's not too difficult to imagine, he says, that this person would market products that the bank wants to sell and not necessarily what works best for you.
Next time, seek independent advice before making such an investment decision. You may end up with the same result, but Curtis adds that it's always better to have fee-only financial planners offer you with advice because they don't receive any compensation from the annuity company as the bank probably did.