Experts advise on financial portfolios, planning

Who are you and what is your investment risk tolerance?

What sort of financial portfolio do you have? How is the portfolio broken down?

What sort of cash reserves do you have?

What were your plans for your investment? In what time frame?

What are your plans now?

NATOSHIA BETTIES

AGE: 37

OCCUPATION: Supervisor at SITEL Technology Services

RISK: Very low

Her husband has a 401(k) worth a little more than $3,000 the last time they checked. They're not sure how much of a hit it's taken since the recent financial meltdown, because he's afraid to look at it. She doesn't have a 401(k), although her company offers it.

None at this time. Mrs. Betties said she contributes about $50 every other week into a credit union savings account. However, the money they had in savings has been used to pay bills while she was out on maternity leave for her third child and because of her husband's hours being cut at his job. Both have company-provided life insurance policies, each $10,000. They have a 30-year mortgage that they refinanced two years ago.

Her husband wants to use his 401(k) for his retirement. He would also like to be able to start his own business at some point.

ANIBAL IBARRA

AGE: 44

OCCUPATION: Journalist/editor

RISK: High

Mr. Ibarra's investments were worth about $50,000, which now have lost about 15 percent of their value. The breakdown is 50 percent in Treasury bonds, 35 percent in energy stocks, 15 percent in Internet-related stocks.

Mr. Ibarra has savings for four months. He has a whole life insurance policy worth $200,000. His mortgage is about $40,000.

I wanted to develop my newspaper. I wanted to see it expand regionally (within two years) by having branches in Alabama, Tennessee, the Carolinas and Georgia. I was planning to put more in savings for my business.

MARY HOLMES

AGE: 50

OCCUPATION: Registered nurse

RISK: Moderate

Mrs. Holmes has been investing in a 401(k) for 20 years. It was about $115,000 but has lost about 10 percent of its value. The breakdown is 40 percent in growth income, 30 percent in mutual funds and 20 percent in managed equity.

Mrs. Holmes has savings for five months. She also has a mortgage of less than $200,000 and term life insurance worth $200,000.

I didn't plan to do anything with it. I'm going to keep growing it for another 15 years. I'm going to continue to invest. I'm just going to have a wait-and-see attitude about it.

Mark Detroye

AGE: 62

OCCUPATION: Business development specialist, MAU Inc.

RISK: Moderate

Mr. Detroye has between $70,000-$120,000 in Real Estate Investment Trust (REIT) from rollover IRA. A 401(k) worth between $4,000-$8,000 split evenly among international, domestic large cap and emerging markets. His spouse's 401(k) is worth between $3,000-$6,000 and similarly invested. Both have IRA rollovers, along with a joint IRA. Each has a Roth IRA.

He has between $15,000-$30,000 in an ING savings account; $1,500 in an ING six-month CD to mature in 41/2 months; between $8,000-$15,000 in bank checking and money market accounts -- no line of credit. He has one credit card that is paid in full each month. He has no mortgage; $100,000 in term life on himself; $25,000 on his wife.

Mr. Detroye and his spouse want to retire at age 67 and 65, respectively. He wants to do community service work and travel more as time permits.

WILLIAM C. LOCKETT

AGE: 69

OCCUPATION: Retired from Army, as a teacher and from the Georgia Department of Labor

RISK: N/A

Mr. Lockett earns about $50,000 annually from four sources: military retirement, his federal investigator's retirement, teacher's retirement and Social Security. Factoring in his wife's income and earnings from a part-time job, the couple makes about $100,000 per year. He has a low-interest FDIC-protected savings account and has some government savings bonds that he started in the 1970s.

He has cash reserves in his checking account to get him through six months, if need be. He has a mortgage that has been refinanced, which he expects to have paid off in seven years. He also has a $150,000 term life insurance policy, along with several other smaller policies.

Mr. Lockett said his main aspirations were to live comfortably and provide for his family. He helped his four sons pay for college with the help of student loans and scholarships.

STACEY WILLIAMSON

AGE: 28

OCCUPATION: Staffing supervisor at MAU, Inc.

RISK: Moderately aggressive

She has an overall portfolio that was worth between $15,000 and $20,000 but has since lost 10 percent of its value. Her 401(k) is divided among high yield bond funds, stock funds (large and small cap) and international stock funds (moderately aggressive). The portfolio is broken down to 10 percent bond funds, 52 percent stock funds and 38 percent international stock funds.

She has three months' savings in a high-interest account with ING. She says she generally doesn't touch it but replaces the amount as soon as possible when she has gone in it. She also has a 30-year fixed mortgage and standard life insurance that's part of her company's benefits package.

It's for retirement, actually. I'm not planning on starting a business. It might be nice to buy a vacation property or second home. I don't have any children yet. And I'm still paying for my own college, and I didn't intend on paying for my children to go to college. I'd love for them to go, but ideally they will earn scholarships. I really don't plan on touching my investments until I retire.

Continuing to invest in her 401(k) is appropriate. Making systematic contributions is a defensive strategy called "dollar cost averaging." Although this strategy does not prevent a loss, it does make market volatility work for the investor. When the value of shares falls in price, one buys more shares. When the market is high, one buys fewer high-price shares.

Your first step is to set your retirement goals, and work backwards to calculate how much you need to be saving monthly. This will give you some confidence that you can achieve your long-term retirement and/or vacation home goals. You currently have an aggressive allocation to international stocks. I would re-look at your risk and asset allocation. Dollar cost averaging into your 401(k) plan will pay huge dividends later.

Itemize monthly committed expenses such as housing costs, utilities, credit card payments, etc. Once the committed expenses can be met, consider rebuilding cash reserves (three to six months is an adequate goal). Consider reducing or eliminating discretionary expenses. Set goals: short-term goals (two to five years), five- to 10- year goals, with long-term goals such as retirement. Establish a written plan.

Determine the amounts needed to save to reach goals. I use a technique called the Reverse Budget to develop a monthly amount to save for each goal. First goal is to accumulate a minimum of three months of income in a money market or savings account. Add some inexpensive term life insurance for you and your husband. Continue contributing to your husband's 401(k). Consider one for you or a Roth IRA.

The respondent states that his portfolio has declined by 15 percent. Because 50 percent is in Treasury, it is likely that the utilities and Internet stocks declined by 30 percent. Therefore, this sector of the portfolio needs attention. The respondent might consider the industries represented by these Internet stocks. Certain industries will be negatively affected by an economy trending downward.

Your Treasury Bonds should have helped stabilize your portfolio, but you are taking too much sector risk and business risk by only owning energy and Internet stocks. You could hit a home run but are more likely to strike out by taking this added risk. I would highly suggest beginning to diversify, but you may need to wait until the market bounces back to diversify. I would continue to build up cash reserves with another job.

The respondent has a very healthy attitude toward money and investing. Many investors can benefit from her attitude in this period of great market uncertainty. Having five months of cash reserves gives the respondent adequate cushion to be less concerned about the short-term performance of her portfolio. Therefore, she can afford to be aggressive in the short term.

I would suggest you develop a long-term goal and timeline for your retirement and other life goals. I would suggest you check to make sure you are maximizing your 401(k) match from your company and maximizing your contribution to reduce taxes. You appear to be diversified, but I suggest you review your overall asset allocation, sector risk and any concentrations in your stock portfolio.

His savings account is over $20,000. Unless these funds are to be used soon, the respondent might consider "laddering" these funds in CDs to get a higher yield. For example, he might buy a 12-month, 24-month, 36-month CD. As each matures, renew it for 36 months. Their 401(k) appears to be all stocks. The respondent might consider having an investment risk tolerance assessment.

Based on current economic conditions and your asset allocation, you might need to adjust your financial plans. Your allocation is too aggressive for someone close to retirement and needs to be adjusted. You are overweighted in REITs, and I suggest a review of your accounts asset allocation. You need to have exposure to small- and mid-cap stocks and spread investments among value, core and growth within those.

In his opinion, he is not personally affected by these extraordinary economic conditions we are experiencing. He is still accomplishing all of his goals and expects to continue doing so. I commend him on his achievements. Those who are perfectly healthy have no need of a physician.

I recommend reviewing your interest rates on (the checking) account to make sure you're getting the best interest rate possible and are still maintaining your FDIC insurance. I recommend reviewing your risk tolerance and long-term goals while integrating your plans for giving to the community. You might want to explore a foundation or endowment that would help with this legacy into perpetuity.