SEPTEMBER 2013 ;e Costco Connection 15
in bear markets stocks can lose 20 percent of their
value or more.
I think the best move for you is to keep this
money safe and sound in a bank account at a federally insured bank. While it is true that you will not
earn anything on the money right now, it is also true
you will not see the value of your account go down.
If you decide you can live with some risk and
you take my advice to wait until your niece is
older—say, 30—to give her this money, then you
might want to consider investing in an exchange-traded fund (ETF) that invests in big U.S. companies, what are commonly called blue chips. The
SPDR S&P 500 ETF (ticker symbol ETF) is one
example. You can purchase an ETF from a discount
You could also consider doing both: Keep some
of the money safe and sound, and invest the rest. It
all depends on what feels right to you. There is no
better investment guide than to listen to your gut.
I am 52 years old and I am contributing
$800 every pay period [every two weeks]
to my deferred pretaxed 401(k). No company matching. Sixty percent of my money
is in guaranteed 4 percent interest and 40
percent of it is in “low-risk“ funds. Now, my
friend says that I should stop this and place
my money in “index universal life” instead.
What do you think?
Ingrid Y., Arlington Heights, Illinois
I THINK YOUR friend is wrong. I am simply not a
fan of using life insurance—any kind of life insurance—for retirement saving. It is much less costly to
invest for retirement separately, and then, if you
need life insurance—and I am not even sure you
do—purchase the least expensive form of life insurance, called term insurance. Bundling your retirement saving with life insurance is not a good deal.
Now, about your retirement saving: Given that you
are not getting a company match, you might consider focusing on funding a Roth IRA first. Because
you are at least 50 years old you can invest a maximum of $6,500 in a Roth IRA this year. While your
contributions will not lower your taxable income for
the year of the contribution (as your current retirement account does), withdrawals from your Roth
IRA will be 100 percent tax-free in retirement if you
follow a few easy rules. The money you withdraw
from your current workplace retirement account
will be taxed at your ordinary income tax rate. C
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I am 70 years old. I just have a new grand-
daughter. I do not have much to give to her
except $50 a month. Please help me to know
what to do to make it better for her.
Lan A., Austin, Texas
GRANDMA, I HAVE a quibble with your note.
What makes you think $50 is not much? It is a lot.
Be proud of how wonderful you are to want to help
your granddaughter. If you were to save $50 a month
for 10 years and earn an average annual rate of
return of, say, 2 percent, you would have more than
$6,500 saved up by the time she is 10. That’s fantastic. (Yes, as I note in the next question, bank saving
rates are below 1 percent today, but they will not stay
Another option to consider is that once your
granddaughter is closer to a year old, perhaps there
is a weekly enrichment program her parents would
love to take her to—music, movement, group play—
but can’t afford on their budget. If so, that could be
a tremendous way to start making her life better
My 14-year-old niece is in foster care and
will be there until she is 21. I have a small
amount of money set aside from my mother
(less than $2,000) that I would like to put
somewhere (invest/save) that would grow
so that she could have some sort of inheritance when she reaches 21. Is there anything I can do for her? I probably would
add to this account occasionally, but not
on a regular basis.
Linda P., Palatine, Illinois
HOW LUCKY YOUR niece is to have you in her
life. My only suggestion is that you should not
feel you must pass on this gift when your niece
turns 21. You know your niece best, but wouldn’t
it be a shame if you gave her the money before she
was ready to be responsible? So keep your mind
open about when you want to give her this gift.
You’ll know when the time is really right.
Now, about where to invest. I first want to start
with a question for you: I know how precious this
$2,000 is. If you were to invest the money and the
value fell to $1,800 or even $1,600, would you be
heartbroken? If so, then you are never to let anyone talk you into investing it in stocks. I think
stocks are a fine investment over the long term,
but only if you are comfortable with the fact that
on a regular basis.
; 401(k) vs. Roth
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Investing in their future