Investing, some experts say, boils down to finding the right mix between risk and return. Want a high return? Then be willing to take a higher risk.
In the following profiles, Times Staff Writer Gregory Crouch shows how three investors ing situations will show you how three investors handled those risk-return trade-offs.
This Thursday, Charlotte Griffith will close her lesson plans, pack away Plato's "Republic" and Descartes' "Discourse on Methods," and end her 27th year as an English and psychology teacher.
For the summer, Griffith--mother of three, grandmother of six--plans on learning something new: windsurfing. She already runs, bikes and does aerobics.
During the past couple of years, Griffith, 62, has contemplated retiring from James Monroe High School in Sepulveda and making her summer vacation a year-round event. Griffith says she'll probably teach another year or two.
But because of sound financial planning, she could easily quit tomorrow.
Griffith and Century City financial planner Lewis Wallensky started charting a retirement plan more than two years ago. "When she came in to see me," Wallensky says, "she had just sold a house. Her question: 'What do I do with this money?' "
She had sold her two-bedroom, Sherman Oaks house for $200,000--her children were grown and it was too big. After paying off the remainder of the mortgage, Griffith had $150,000 left over in cash. She now rents an apartment in Sherman Oaks.
Because she was still working and earning an income--now up to $43,000 a year--Wallensky recommended that Griffith put her money into tax-deferred growth investments that would continue to pay income when she retired. The money would also have to be spread out over several investment groups in case any one area tanked.
"You don't put all of your eggs in one basket," Wallensky says.
His first suggestion was for Griffith to contribute more to her tax-deferred annuity at work. Because Griffith no longer had the mortgage interest and property tax deductions that come with owning a house, Wallensky had her increase her monthly annuity contribution from $400 to $600, and she later raised it to $800.
Her employer deducts the monthly contributions from her taxable income and she pays taxes on the funds only when she withdraws them, presumably when she retires and is in a lower tax bracket. "It's like a big great IRA (individual retirement account) with no $2,000 limitation," Wallensky says. The annuity now earns 8.2%.
Griffith took another $20,000 and invested it with Keystone Provident Life Insurance Co. in a variable annuity that pays a 7.5% return. She later added another $10,000.
To maximize income, Griffith placed $20,000 in American Pathway II, a variable annuity. In Griffith's case, the funds are invested in a high-yield bond fund. Two years later, her stake now is worth $25,000. To hedge her bet on Pathway, Wallensky recommended that $25,000 go into Franklin California Tax-Free Income Fund (current yield 7.3%), a municipal bond fund.
Single-premium universal life insurance was selected because it too allows Griffith's money to compound tax-free. Griffith invested $25,000 with Kentucky Central Life Insurance Co.
To protect against inflation, Griffith invested $25,000 in three debt-free real estate partnerships. Two, Centennial Mortgage Income Fund II and Shurgard Income Properties 10, received $10,000 each. Centennial (currently yielding 8%) invests in mortgages; Shurgard (yielding 6%) invests in mini-warehouses.
The remaining $5,000 went to Income Growth Partners IX, which is yielding 5% and invests in apartments in San Diego. "There is real growth potential in real estate," Wallensky says. "She had given up all real estate in her portfolio."
Payments from the partnership go right into American Mutual Fund, a growth and income fund. Griffith's stake already is worth $9,000. "When she retires and needs the income, she'll stop doing this and just spend the money," Wallensky says.
Griffith's $18,500 IRA was in Washington Mutual Investors Fund, a growth and income fund. Just two weeks ago, Griffith transferred the money to Cash Management Trust of America, a money market fund yielding 6.7%. "She is a little nervous about the market right now," Wallensky says.
"If Charlotte were to retire today, she would get a return of over $18,000 a year without affecting her principal," Wallensky says. "And a substantial portion of it would be tax-free."
Griffith is very happy with how her portfolio has turned out. "My big dream is to be part of a communal housing property," Griffith says. "Now I can afford it."