Our call for correspondence, found at the end of this column each week, has long generated a flow of good questions about personal finance from readers.
But ever since an amplified version of that call went out on our website, that flow has become a flood. And we've fallen a little behind. This week's longer column - not the last of its kind - aims to make way for more. Keep writing.
Q: I have a small brokerage account with Fidelity with stock holdings of about $2,000 and money-market holdings of about $3,000. I'm charged a $50 annual maintenance fee unless I make at least three fee-paying transactions during the year. This seems a lot to pay, given the size of my account. Is there a different brokerage that would be more economical for me?
C.R.C., via e-mail
A: Brokerage companies have fixed expenses - staff, rent, paper shuffling - that they prefer be paid by clients. This overhead runs about the same for a $5,000 account as with a $500,000 account.
You're currently hooked up with a company that's known for reasonable expenses. If you're happy with them, ask what you might do to escape this burden. Perhaps it's just a matter of beefing up your account size, either now or over time. That could make the annual fee go away - or at least lessen it in percentage terms.
If you can't come to terms, or wish to change, many other companies will oblige you, such as online brokers Ameritrade Inc. (www.ameritrade.com) or E*Trade Financial (www.etrade.com). They might charge nothing more than a transaction fee whenever you buy or sell. You also won't get any advice, which your current broker is probably supplying, on at least a nominal basis.
Q: We're told to diversify investments. We are also told that buying into one family of mutual funds makes managing investments easier. What are the risks of investing primarily with one fund company?
J.B., via e-mail
A: Many fund families make a name for themselves by performing well in one particular asset class, says Jack Cohen, a senior vice president with stock brokerage Robert W. Baird & Co. in Atlanta. Unfortunately, he says, it's rare that one firm is successful in all asset classes. For example, a fund company may be quite successful managing large-company growth stocks, but its value managers may be mediocre.
The problem here, says Mr. Cohen, is that studies have shown that diversification among asset classes may be as important as diversifying among individual stocks.
If you zero in on a fund family, Cohen suggests you first ensure that it demonstrates a history of financial stability, low turnover among fund managers, adherence to its philosophy, and of course, acceptable returns. Check with a fund-tracking service such as Morningstar (www.morningstar.com).
Q: My husband is retired and has a pension, and I will retire with a pension in a few years. We have money in mutual funds, some bonds, stocks, and savings. We will receive a moderate inheritance soon, and wonder what is the best way to invest it: in T-notes, real estate, or something else?
B.L., via e-mail
A: Sean Sebold, a Chicago-area certified financial planner, says that in situations like this he often takes clients through a process called "financial mapping." This identifies their investments and maps them to a specific goal.
A high-priority goal for most people is to have enough money for retirement. A person with limited resources will map almost all of his or her resources toward generating retirement income: investing in short-term corporate bonds, real estate, or Ginnie Maes, for instance. If you have plenty of retirement resources, you might build a map with other goals in mind. How about taking a vacation, funding a grandchild's education, or giving to a worthy cause? In these cases, equity-linked CDs, 529 college-savings plans, or charities could be appropriate.
Mr. Sebold suggests you make a list of your lifetime financial goals. Can you achieve all of them? If you can, then perhaps it's time that you find a life investment for your inheritance rather than a financial one.
Q: My husband's FICO score has fallen to 555 because of recent credit problems. We've scored well enough that we're getting a home-equity loan to lower several high- interest credit cards. We hope to build the score up within four or five months so we can buy a house. We already have been approved to buy the house, but I'm afraid his score still won't be high enough when they run our credit the final time. Any advice or suggestions?
E.M., via e-mail
A: On its own, a FICO score - developed by Fair Isaac Corp. (hence, FICO) - is just a number that a computer coughs up after peering into your credit history: how much you owe, whether you've had late payments, any new credit cards in your wallet, etc.
Scores range from the 400s to 800s. A good score, say, above 700, can open lots of credit doors. And as you're finding, a so-so score in the 500s or 600s can slam shut many credit portals.
Ryan Sjoblad, a spokesman for Fair Isaac's consumer website, www.myFICO.com, says raising your score takes time. To determine how much a score might rise in four or five months is difficult, he says, because everyone's credit profile is different. The most important thing, though, is to continue to pay bills on time. With no more black marks, scores improve over time as the importance of negative information diminishes.
Mr. Sjoblad adds that paying down any large credit-card balances and refraining from applying for new credit also helps to boost scores.
To get a ballpark idea of how much a score can change in a month, you can access a FICO score simulator on the FICO website for $12.95.
Q: I am 65 and retired with adequate income that isn't dependent on my investments. I am invested in REITS and some oil-royalty trusts. The income is very good, but I need to know what the downsides are with this type of investing. The stocks I have in my IRA are Advanced Micro Devices, Anworth Mortgage Asset, Hugoton Royalty Trust, Hersha Hospitality Trust, Impac Mortgage Holdings, Novastar Financial, and High Yield Plus Fund.
J.T., via e-mail
A: If you don't need the income generated by your investments, then you should first examine the logic of the basic structure of your holdings, says Michael Castelone, a certified financial planner in Yarmouthport, Mass.
Beyond your IRA, you're holding income-producing assets that are generating very good income. This income could also be causing your Social Security benefits to be taxed.
Within your IRA you're using the same investment strategy that you're using outside the IRA. Mr. Castelone sees this as a good opportunity to diversify your portfolio - always a good idea.
If you owned your REITS just within your IRA it wouldn't matter that you are generating ordinary income; all income from an IRA is considered ordinary income when you take it out.
If you were to buy some individual stocks or stock funds beyond your IRA that aren't generating much dividend income, you can hold those positions and reduce your current tax - and maybe even avoid paying tax on gains if you leave them to beneficiaries.