I'm a single woman, with no dependents and in
my mid-forties. I recently sold a home, with no plans to replace it
with another, and need a little help with my future financial plan.
I am considering going to a Certified Financial Planner but have some
concerns about how they are paid. I have some knowledge about investing
but am afraid of making big blunders if I go it alone. I'm also interested
in socially responsible investing and would like to know your opinion
on this approach to investing. Finally, I have a 401(k) with a former
employer and need to decide where to put this money. What do you think
about annuities, Roth IRA or other retirement investing plans?
Whew! Dr. Don doesn't know if his editor will give him the
space to respond to all these questions. Let's start off with the
easy one. If you want to choose investments based on how good a
corporate citizen the company is, go ahead -- it's your money. You
may lose a few percentage points in return, but that's not the point.
People invest to reach future goals. One of your goals is a better
planet. Who is going to stand in your way?
In choosing a financial planner, you need to
know how the planner is compensated for time spent helping you.
Fee-based planners will charge you explicitly for their work. The
fee may be based on a percentage of assets, or on time spent, but
you'll know exactly what you're paying for their services. Planners
who don't bill you for their work are being paid a commission on
the investments you purchase. I recommend a fee-based approach,
because it takes sales pressure out of the picture. A CFP designation
is desirable, but isn't the only standard for professionalism in
the field of personal finance. If you are interviewing planners
who aren't CFPs, ask about their professional designations and how
it prepared them to advise you on investments. You also will need
competent tax advice, especially concerning the proceeds from the
sale of your home.
Finally, you're wise to take your time in deciding
how to invest money held in your previous employer's 401(k) plan.
The financial planner you hire will help you with your decision,
but Dr. Don wants to leave you with a few things to think about.
You have at least four choices. You could do an IRA rollover into
a brokerage account, mutual fund(s), an annuity(s), or pay the taxes
now and establish a Roth IRA. I prefer mutual funds to insurance-based
products (annuities) because you can better control sales charges
and expense ratios. I think you would be better off in mutual funds
than in a brokerage account where you have to choose individual
stocks. Write back and let us know how things worked out.
Bankrate.com writers base their answers on our editorial
content and advice of financial professionals. We make no claims
or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content,
advice and answers are intended only to assist you with your financial
decisions. However, by its nature such information is broad in scope.
Your financial situation is unique, and our content, advice and
answers may not be appropriate for your situation. Accordingly,
we recommend that you get different opinions and seek the advice
of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
-- Posted: Aug. 11, 1999