Dear Mr. Berko:
My husband and I are 26 and recently inherited $27,000. That's more money than we believed we'd ever see at one time. I have a degree in art history, and he has a bachelor's in music, but we can't find jobs in our fields. I work at Dillard's, and my husband works for Home Depot. We don't make much, and Mom takes care of our son.
Our problem is that we know this money must be invested but we don't know how to invest it. We bank at Wells Fargo, and someone there wants to put this money in an annuity and will give us a 10 percent cash bonus if we invest now. We said we'd think about it, but he calls us every day. We went to a big stock firm called Edward Jones. The people there wanted to sell us an index annuity, which really sounded fantastic but was very confusing. They call twice a week. A friend told us about Morgan Stanley, and a broker there told us to put the money in a safe certificate of deposit. I guess we didn't have enough money for his time. We know annuities are not good because of the high cost to own them. Could you please help us invest this money or recommend someone who would give us good advice?
-SR, Wilmington, N.C.
Dear SR:
With degrees in art history and music, you two must be made for each other. As you know, those Mickey Mouse degrees have little value in the job world. Therefore, investing that $27,000 properly is hugely more important for your future than you can imagine.
Wells Fargo and Eddie Jones love pushing annuities because the commissions are so generous and because annuities also pay trails, or small annual commissions to the salesmen as long as people own the annuities. You're right about the Morgan man; you don't have enough money for him. Most honest brokers can't make enough money providing advice on a $27,000 investment or even a $100,000 investment. It takes just as much time to open an account for a client with $500,000 as it does for a client with $27,000. Many financial advisers discourage accounts under $250,000, and ongoing personal investment advice for folks at your age and stage is hard to find.
Warren Buffett (his wife calls him "Buffy") has a nearly perfect investment solution that's as boring as watching iron rust. It produces darn fine investment results without guesswork; it's an easy concept; and annual management costs are only 0.09 percent. Buffy's will says that when he passes, 90 percent of the cash bequeathed to his wife should be invested in the SPDR S&P 500 ETF and 10 percent should be invested in U.S. Treasury bonds. So find a discount brokerage in Wilmington and open a joint account, a Roth IRA for you and a Roth IRA for your spouse. I recommend a Roth because it provides tax-free growth and because the gains are not taxed when you take the money out at retirement. Deposit $27,000 in the joint account, and invest all of it in the SPDR S&P 500 ETF (SPY-$212). Wait a week, and then instruct the broker to transfer $5,500 into your Roth IRA and $5,500 into your husband's Roth IRA ($5,500 is the maximum allowable annual contribution), making sure to reinvest all the dividends. Do the same next year, and in the third year, put half of the remaining $5,000 into each Roth IRA. Then keep this investment for the rest of your lives, and never, never, never sell it.
The Standard & Poor's 500 is an index of 500 stocks that reflects the overall return characteristics of the stock market. It's the leading economic indicator for the economy. I recommend SPY because its average annual total return since inception in 1928 has been 9.57 percent. And its long-term performance trounces almost every mutual fund, hedge fund, pension plan and managed account on the planet. If the past is prologue, that $27,000 could be worth $1 million when you're both 66 and enjoying your grandkids.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Tue, Jun 14, 2016
