Ukiah Daily Journal from Ukiah, California on March 18, 1998 · Page 7
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Ukiah Daily Journal from Ukiah, California · Page 7

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Ukiah, California
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Wednesday, March 18, 1998
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Page 7
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THE UKIAH DAILY JOURNAL Commerce WEDNESDAY, MARCH 18, 1998 — 7 Boom r , Continued from Page 3 cult for him to predict how much Ite might get in Social Security rrfcome. '"'Nietzsche must also boost his emergency savings, Bolton said. Ideally, he should have $25,000 reserved for this purpose - more than double what's now in his rnbney market fund. But Bolton said this doesn't need to be Niet- zche's top priority, that he can raise this amount slowly, by earmarking financial windfalls, such x returns and extra day work. ^'Everyone in the entertainment jstry is essentially an indepen- jjt contractor," Bolton says. "If have one year's expenses set in such a volatile industry, J'H feel good and not under gsure to take the first job you get when you aren't work- u increasing his savings to this 'will reinforce Nietzsche's ?lye to live on less and will him well if he ever finds m"mself between jobs for a long sriod. Will tightening the belt mean swer trips to San Luis Obispo? fSure," the financial planner ssponded. "I think Jack - like nost people - won't totally understand money till it takes blood, veat and tears to achieve savings. Traditionally, if it doesn't hurt, ijou aren't saving enough." Regarding large-company ivestments, Bolton recommends Nietzsche consider curtailing his investment in Dodge & Cox Bal- nced and turn to an index fund, iich as Vanguard Index Trust 500 Portfolio (five-year average annu- al return: 17.2 percent). An index fund is particularly suitable for Nietzsche because of his relatively high - 38 percent combined federal and state tax rate, Bolton said. That's because, unlike funds where managers buy and sell shares frequently, incurring plenty of taxable gains along the way for their investors, index fund managers rarely sell shares. They simply buy all the stocks in a particular market index and hold on to them in an effort to match not beat - market performance. "It's important for a portfolio to be sensitive to tax concerns, as well as performance and risk," Bolton pointed out. "A balanced fund is for someone with one fund only, but as Jack expands his portfolio, a balanced fund makes it more difficult for him to control how much of his money is invested in equities versus bonds." Bolton stressed that Nietzsche needs to begin investing in funds that specialize in international stocks. Such a diversification move should help protect his assets when the U.S. market turns bearish, and Nietzsche would be giving himself a chance to profit, albeit with some risk, from the potential for high gains that foreign investments can offer. For these, Bolton's recommendations include T. Rowe Price International Stock (five-year average annual return: 11.6 percent), Vanguard International Growth Portfolio (13 percent), Warburg Pincus International Equity (12.5 percent) and Babson- Stewart Ivory International (10.3 percent). Nietzsche should also add a small-company mutual fund - the small-company segment is now represented only by the stocks of a single company - the brewery. Nietzsche explained that he purchased Mendocino Brewing mainly to show support for local industry, not to add diversity to his portfolio. Bolton recommends T. Rowe Price Over-the-Counter Securities (five-year average annual return: 15.1 percent), Dreyfus New Leaders (13.2 percent) and Managers Special Equity (16.1 percent). When it comes to bond purchases, Nietzsche must consider strategy, Bolton told him. Nietzsche could continue investing in his annuity, Bolton said, but he may want to consider one or more bond funds instead. Bolton acknowledged that annuities do allow investors to accumulate tax-deferred assets, but said he advises his clients to be wary of them. Most come with high administrative costs that can eat up chunks of profit, and they have high surrender charges - fees assessed when you sell within the first five to 10 years - that make them much less desirable for an investor who needs flexibility. But Nietzsche told Bolton that because his working environment is so unstable, he likes having a guaranteed minimum return on at least one of his investments. "A comfort level is critical for investing," Bolton says. "Some people feel if they have a fixed annual return, they are more comfortable investing aggressively." To be properly diversified, Bolton said, "if Jack keeps the annuity, he would have to be 100 percent in equities outside of his annuity." Should Nietzsche later decide to investigate bond funds, the planner recommended considering federal-tax-exempt bond funds such as Vanguard Municipal Bond-Intermediate Term Portfolio (five-year average annual return: 7.3 percent), USAA Tax-Exempt Intermediate Term (7.1 percent) or SitTax-Free Income (7.3 percent). All of Bolton's recommendations take Nietzsche's self- described "moderate" tolerance for risk into account. A more risk- tolerant investor would want suggestions for funds with a potential for greater returns. . ...—--•-Bolton also suggests Nietzsche consider placing his future emergency-fund savings in a tax-free WHEN IT COMES TO YOUR Sign up with California's Internet Service Provider! month free wl I Pick up your FREE I Internet Startup KM at I The Book Rack I Ukiah •(707) 468-1638 I Cannon Computer I Ukiah* (707) 462-2531 4® \ Gardener Craig Computer * I Ukiah'(707)468-1175 Local access in: Ukiah, Porter Vnllcy , Hopland, & surrounding areas THE 1-888-333-GRID www.thegrid.net money market account as another way to reduce his tax burden. However, there are some things Nietzsche should not contemplate in an effort to cut his tax bill. For example, Bolton quickly reassured Nietzsche that it is reasonable for him to rent an apartment rather than buy a home. Yes, owning a home would allow him to deduct the interest on his mortgage payments from his taxes, but it would be a large commitment for someone a variable annual income. What's more, ownership can be a long-term burden. "You need greater control and certainty over your income before you buy," Bolton told Nietzsche. TAX RETURN A Count on our knowledge A Rely on our experience A Depend on our skill ill k. Financial Resource Solutions Barbara Reid CFI? EA Call for your tax appointment I (800) 559-5377 PUT TWENTY YEARS OF REAL ESTATE PLANNING TO WORK FOR YOU! Specializing in: • FHA/VA • Conventional • Jumbo • First Time Homebuyer • Specialist • Purchase and/or • Refinance SHEILA DALCAMO 216 W. Perkins Street, Suite #107 J£JI Cal'Bay Mortgage Ukiah, CA (707) 462-0211 I MORTGAGE SPECIALIST RICK L. BOWERS, CPA, CMA • CERTIFIED PUBLIC ACCOUNTANT • CERTIFIED MANAGEMENT ACCOUNTANT • NOTARY PUBLIC Personal Service and Professional Results. 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