"Money is a terrible master but an excellent servant."--P. T.Barnum
Beyond the charts and general principles of investing, personal financial planning is really as individual as the people involved. Age, financial situation and acceptable risk will vary greatly from investor to investor. But the following are three investing situations that can serve as a guide. The financial planning was done for The Times by Harvey S. Gettleson, a partner with the Ernst & Whinney accounting firm in Los Angeles.
Maurice and Patricia Oppenheim are understandably proud of their latest investment, a spacious new four-bedroom home in Burbank, accented by Victorian furniture that belonged to her grandmother.
Whether in real estate, stocks or their other investments, the Oppenheims have done well for themselves by sinking their money into what they know.
Take their profitable investment in Maytag stock. "One time he asked me, 'What is the best product around here? What works?' And I said Maytag," said Patty Oppenheim, a retired deputy district attorney.
In 1980, when the Oppenheims bought their 100 shares, the stock never closed higher than $29.50. The stock split two for one in January, 1986, and now trades in the mid-$50s.
"I could understand a washing machine but I couldn't understand a gold bar or a statue," said Maury Oppenheim, a deputy district attorney.
Maury Oppenheim, 55, said his approach to investing has always been conservative. The couple's most unusual investment is in regional shopping centers in semirural areas, and they have very little debt.
"I figured if anything bad happened to me, I wanted to make Patty as secure as I could make her," he said.
"Security with a big S," Patty Oppenheim added.
"I never felt I had to make the world's last dollar," her husband said, adding that the couple's salary, pension and investment income total nearly $85,000 a year. "I could never see staying up nights worrying about whether to buy or sell a stock."
Gettleson said the Oppenheims' most immediate worry should be planning for Maury's retirement at about age 60. First, they need to figure out their monthly living expenses and then add 5% to allow for future inflation, Gettleson suggested.
To supplement the Oppenheims' pensions from their employers, Gettleson suggested a program of savings to build up a nest egg of perhaps $100,000. The Oppenheims could add the interest earned on the principal to their retirement income without touching their original savings. He recommended an annual savings program of $20,000, which would achieve that goal in five years.
The money should be invested somewhat conservatively, Gettleson said, in a fixed-income and growth portfolio such as a mutual fund "family of funds" that allows the investor to move money from fund to fund without paying commissions. Such funds could include growth investments in blue chip stocks (possibly 50% of the portfolio), fixed-income growth investments such as government securities (possibly 25% of the portfolio) and some speculative investments (possibly 25% of the portfolio).
"My philosophy of retirement money is do your speculating outside of that because it's hard to replace," Gettleson said.
Similarly, Gettleson advised rolling over employer-sponsored retirement funds into an individual retirement account at retirement. IRA withdrawals are not required until age 70, and the Oppenheims could further supplement their pensions with the interest earned on the account, he said.
"You can use that as a hedge and you can let it build, but if you need it you can draw it out," he said.
Gettleson suggested that if the couple is considering moving to a resort or retirement area after Maury Oppenheim stops working, they might think about buying the house now and using it as a vacation home or renting it out. While tax reform limited an owner's ability to rent a second home and deduct the losses against income, there are some good reasons for buying now.
"Prices in Palm Springs, Oceanside and places like that are depressed a little bit because of the impact of the tax law on second homes," Gettleson said, adding that with relatively low interest rates and the fear of renewed inflation, housing remains a good investment.
Many employers offer different ways that an employee can elect to receive a pension. Although retirement plans vary, an employee generally can take a full pension, which often ends five years after retirement if the pensioner dies before that, or the employee can opt for a "joint-and-survivor" pension that pays out a greatly reduced amount when the pensioner is alive but pays an annuity for the rest of the surviving spouse's life.
Gettleson recommended that Maury Oppenheim pick the full pension and then buy insurance, with premiums that end after five years, that will pay an annuity to Patty Oppenheim when he dies.
The thought of retirement planning "is just overwhelming," Maury Oppenheim said. "Most of us, I guess, are like the U.S. Congress--you don't deal with a problem until there's an emergency."