Expert Advice.FINANCIAL EXPERT: Pierre Dunagan, managing partner of Dunagan, Robinson & Isbell Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. in Chicago. HIS STRATEGY: Ensure that the Gays have enough money on which to live--even if emergencies arise; diversify their investment portfolio and increase savings through tax-deferred vehicles. Dunagan's recommendations: * The Gays should keep at least $20,000 in short-term investments--CDs and money market funds--which equates to about six months of living expenses, or $3,300 a month, to pay their bills strain-free. * Use Debra's $25,000 in severance pay Severance Pay Compensation that an employer gives to someone who is about to lose their job. Notes: Severance pay is not always paid to employees. It depends on the situation in which the employee is losing their job and whether legislation requires severance to be paid. and Invest $5,000 in each of five different stocks--two blue-chippers and three growth stocks in consumer goods consumer goods Any tangible commodity purchased by households to satisfy their wants and needs. Consumer goods may be durable or nondurable. Durable goods (e.g., autos, furniture, and appliances) have a significant life span, often defined as three years or more, and companies, technology firms and cyclicals like auto manufacturers. * Further diversify holdings. "The Gays have an aggressive risk profile and a decent understanding of the market. Their desire is to stay 100% invested in the stock market," Dunagan explains. "Usually, I would suggest putting 30% in bonds and 70% in stocks." Of the $134,000 in her 401(k), he suggests Debra take $34,000 and split that money up among three different stocks and place the remaining $100,000 in four diversified mutual funds. He advises them to hold on to $16,000 of her AMOCO AMOCO American Oil Company company stock, which was part of her 401(k) and is currently valued at $34,000, since oil stocks act as a great inflation hedge Inflation hedge Investments designed to hedge against inflation and the loss of purchasing power associated with it. inflation hedge An investment with a value directly related to the level of general price changes. . * Place additional funds in an Individual Retirement Account. "By rolling the money over into an IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. , Debra not only defers taxes, but she is going to have a lot more investment options," he adds. "This way she can diversify her money into a broader array of stocks and mutual funds." She should continue contributing 15% of her pay to her retirement funds (whether they're in the 401(k) plan at her new job or her IRA accounts). * John should save $200 a month in an equity growth fund and a growth and income mutual fund ($100 each), which he is using as a quasi-retirement account. He should structure and place 10% of his earnings in a simplified employee pension plan (SEP 1. SEP - Someone Else's Problem. 2. (tool) SEP - A SASD tool from IDE. ), which works in a way similar to an IRA. * Don't incur any new debt. Currently, the couple has a mortgage on their home (from which they are getting rental income); two cars; John's student loans and credit card debt Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. (his business account). "They primarily pay cash for most items instead of financing them," says Dunagan. "They are not creating new debt, which is always a good sign." * Don't forget Junior. He adds that the Gays should increase the contribution by an additional $100 to Murphy's college fund, which totals $11,000. (He will pay part of his tuition.) FINANCIAL GOALS: * Secure $2 million in assets (excluding their primary residence) that the Gays will need to live comfortably in retirement by age 55. * Contribute $75,000 toward Murphy's college education. |
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