Examining allocation of a six-digit portfolio
Q: My husband and I are over 65. We inherited stock which, added to what we already have, amounts to $345,000. Much of it is in growth companies. We have about $100,000 in money-market funds and some $80,000 in bank CDs. We own our home outright, and have debt of about $12,000 that we are paying off with our earnings. A family member thinks we have too much money in the money-market account. We plan to invest some of the money funds in a Roth IRA. Any advice? And are discount brokerages reliable?
E.K., from N.C.
A: "There is nothing wrong with having ample reserves in money-market funds. That can be very prudent," says Paula Hogan, of Hogan Financial Management in Milwaukee. "Many smart people keep a large cash reserve," especially in an uncertain economy, or as they get older and might suddenly need cash, she says.
Ms. Hogan favors keeping three to six months cash on hand - perhaps even up to 12 months for more risk-averse persons. The cash, she says, should be "outside your investment portfolio," so you can tap into it in an emergency.
She recommends having no more than two-thirds of your portfolio in stocks - about what you have now. A Roth IRA to shelter assets can be beneficial, says Hogan.
Finally, if you use a discount brokerage, "look for an established firm, like Waterhouse Securities, or Charles Schwab."
Q: We often read about the need for a person to check their credit reports. But is this necessary for a person who has paid off their mortgage, has no debt, and pays off all credit cards each month?
H.A., Tyler, Texas
A: "It is wise to check credit reports annually to see if there is any unusual activity," says Ms. Hogan.
Q: Last week, a story mentioned that some $2 trillion was invested in socially screened portfolios, such as pension funds, but only a small fraction of that, $153 billion, was invested in socially screened mutual funds. Why is there so little interest in mutual funds?
A: "Actually, there is growing interest in socially screened mutual funds," says Todd Larsen, a spokesman for the Social Investment Forum in Washington.
In 1995, $12 billion was invested in socially responsible mutual funds. By 2001 that had hit $153 billion, an increase of more than 1,000 percent, Mr. Larsen says.
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