By Claudia Buck, McClatchy Newspapers –
This week marks the last call by our current trio of “Ask the Experts” contributors. Here with some closing advice are Davis, Calif., certified financial planner Kevin Young and Sacramento, Calif., estate planning attorney Michelle Goff. Also contributing advice the last few months was Auburn, Calif., investment manager Glenn Kenes.
QUESTION: I have $15,000 sitting in a savings account earning next to nothing. Can you tell me what my best short-term (one to two years) investment would be?
ANSWER: Low interest rates today are great if you’re a business owner wanting to expand or a homeowner wanting to purchase or refinance, but they are terrible for fixed-income investors.
If your investing time horizon is one to two years, then “park” the money where you will have no loss of principal. Consider an online FDIC-insured bank, such as FNBO Direct or ING Direct. These online banks tend to have slightly better rates compared to “brick and mortar” banks.
It’s important to know there is no free lunch when it comes to investing. When someone wants to sell you a product they claim is safe and provides a high rate of return, please run away.
There’s always a tendency, especially among older clients who don’t have as much time to make up for money lost in bad investments, to consider riskier, higher yields because their current fixed-income investments are earning next to nothing.
There are many risks with investing, starting with inflation. When your money is in a low- to no-yield checking and savings account, the cash is vulnerable to the loss of purchasing power that comes with inflation.
Another is default risk. A lot of investors chase yield by purchasing high-yield junk bonds. These types of bonds have a higher chance of default, which is why they pay higher yields.
For example, investors currently can receive high returns on government bonds in countries like Greece and Spain. But do you really want to take the default risk associated with these bonds?
There is also liquidity risk, which is the inability to quickly convert your investment to cash without any loss in its value. Examples of illiquid investments are real estate, a business partnership or anything you can’t get rid of in a hurry without potentially incurring a large transaction cost.
Investors should ask their advisers how much risk is being taken in their portfolio. If an adviser can’t answer this question or doesn’t understand traditional risk measurements, I recommend changing advisers.
Q: My mother has Alzheimer’s and is living with my brother. He has completely wiped out her savings, which are intended for her long-term care, and I recently learned that he may be selling her house in Southern California. What can I do to protect my part of any inheritance? I have a letter from her doctor stating that she is incapable of making any financial or personal decisions. What can I do?
A: Your best bet would be to file a conservatorship to take over management of her financial affairs. If you and your brother disagree about who should serve, the court may appoint a neutral party, such as a private fiduciary. That person would manage her estate and possibly pursue financial elder abuse charges against your brother.