Personal finance chat with Jason Lilly

Jason_Lilly: Disclaimer:

Jason_Lilly: Comments made during this program are not intended as specific investment advice. Please consult with your investment professional before making any decisions. Opinions expressed in todays program are the sole opinions of Jason Lilly and not Rockland Trust.

James__Guest_: Hey Jason. I'm in my late 20's and banking about $800 a month into my retirement - invested in a very agressive but well diversified portfolio through TIAA-CREF. I know since my timeline is long term I should ride out these market ups and downs but I'm getting hit pretty hard of late. Is it worth moving funds into lower risk funds (bonds, etc.) if I feel a downturn coming?

Jason_Lilly: Congratulations on your saving discipline. You are off to a great start! You will see many more of these market down turns. Continue doing what your doing It will work out well over time. Just make sure you have a good mix large cap, small, mid cap and some international

Gayle__Guest_: This current market downturn has me very nervous. I am thinking of selling out of my portfolio and sitting on the sidelines until the market comes back. Is this a good idea?

Jason_Lilly: Timing the market has not worked well for investors. Numerous studies support my comment. Investors tend to make changes that cost them significant returns.

Jason_Lilly: Consider 2008 - the S&P 500 was down each of the first 3 months ending the 1st quarter with a -9.5% loss. If you sold at the end of 1Q you would have missed the almost 5% gain in April and another 1.3% gain in May. If you then decided markets had settle and it was time to "get back in" you would have invested just in time to experience a ‐ 8.6% month in June.

Jason_Lilly: A much better approach is to sit tight, don't make drastic changes, double check your overall stock, bond, cash mix and rebalance the portfolio. It works..

teddy__Guest_: Hi Jason, I have about 19K in a money market savings account at a well known bank. how do you suggest I allocate this amount? would a short term cd work or something different? thanks

Jason_Lilly: Teddy: 1st — What does your cash reserve look like? Target 3-6 months living expenses. If you spend $3k/mth you should have at least $10,000- $20,000 in cash. You can maximize your cash yield by CD shopping, but that can take some time and Banks usually like you to open another type of account with the CD ... probably not worth the aggravation. Money Market accounts have decent yields including Vanguard, Fidelity and Federated.

Jason_Lilly: If this money is for long-term investing then follow your mix - if you're targeting 50% in broad based stock funds, you are probably below that target currently, so focus on adding to the underperformer.

ignorant_immigrant__Guest_: I am working in US for about 9 years now. Have about 80K in my 401k and about 6K in stocks. Looking at US ecomony I am inclined to invest in Real Estate in my home country which doubled in last three years. Should I continue contributing to 401K or divert the money to Real Estate investment I am considering?

Jason_Lilly: Take a cue from the US Real Estate Market - Be careful. I believe Real Estate is an important part of the financial picture, but don't buy with the intention of a quick profit. If you are considering moving back to your home country at some point in the future it may make sense, but not at the expense of your investment portfolio. So, do both.

she__Guest_: I am 56, have about 24 in Ira, 35 in credit card debt, should I cash in Ira to pay down credit cards?

Jason_Lilly: No!

Jason_Lilly: Without knowing everything I would say this calls for a budget makeover.

Jason_Lilly: Seriously there is work to be done. Spending from your IRA will be expensive. You can eliminated the 10% penalty by using SEPP (Substantially Equal Periodic Payments) but the larger issue is what will you have left.

Jason_Lilly: You need to cut costs, call your CC Co. they may reduce your interest rate. Get on a payment plan and get rid of that debt.

Jason_Lilly: ..And, rip up the card.

ccbmom__Guest_: Is it better to take a Parent Plus loan in my name for tuition or use an alternative lender (MEFA, RISLA, etc) and put the loan in my student's name? They will be coming out of school with a large loan repayment but I don't want to have to carry the full load either. Thank you.

Jason_Lilly: A good and difficult question —

Jason_Lilly: Consider borrowing costs. Private lenders are typically more expensive.

Jason_Lilly: Also, consider your personal situation, can you afford to take on more debt? Does paying the debt negatively affect your retirement savings? As the debt owner, will that limit your options for borrowing in the future? Lenders do not like to see debt to income ratios above 40%.

Jason_Lilly: Also, the child can benefit by establishing a credit record (hopefully positive) as well as the responsibility of debt management, which as we know is extremely important.

Jason_Lilly: Another option is some type of blended solution. Each take on some of the obligation, but not at the cost of your successful retirement planning. You don't want to be living above your child's garage in your 80's because you paid for their college, instead of your retirement.

ajt618__Guest_: My husband and I both work as engineers and have ahouse in Sudbury. How much savings should we have and where should we put this money? Savings? Invest?

Jason_Lilly: Excellent question and I won't be able to give the answer the attention it deserves in this forum, but here goes:

Jason_Lilly: 1. Cash Reserve should be 3-6 months

Jason_Lilly: 2. A diversified portfolio for your retirement savings is imperative. The mix between stocks, bonds and cash will be the biggest driver behind the returns and the risk in the portfolio. Know your mix. If you don't there is some good free website info including at Vanguard, Fidelity, T. Rowe Price and our website Rocklandtrust.com

Jason_Lilly: 3. A good test = multiply your current portfolio by .04 if the amount is a number that is a comfortable spending amount - your in good shape. If it is too low, you need to save more. Alternatively, take the spending amount you would like say $50,000 per year and divide by .04 = $1,250,000 That means you need $1,250,000 as a target. If your close great!

Jason_Lilly: 4. Don't forget other issues - inflation, pensions, social security etc. all facter in.

money__Guest_: We have just come into some money - $300,000 - we are in our mid 40's. I say CDs are our best option at this point - to wait until the market stablizes. Your thoughts?

Jason_Lilly: As a 40 something your still have decades to invest. The difference bewteen Cd returns and a balanced, diversified portfolio will add up to tens, if not hundreds, of thousands of dollars over your time horizon. Consider dollar cost averaging (4 quarterly purchases) into a well diversified balanced portfolio.

Jason_Lilly: these days Cds carry some inflation risk. In other words if a Cd yields 3.5% for the year, but inflation averages 4% - You have lost real purchasing power.

woocity__Guest_: On the flip side, is now a good time to invest?

Jason_Lilly: I think so. It may not be the low, but my guess is 5 years from now today's market will look like a buying opportunity.

Jason_Lilly: Interestingly, the 10 year av. Annual return on the S&P 500 is less than 3%/yr. A far cry from the long term av. Of @ 10%, suggesting more upside in the future.

teddy__Guest_: Thanks, Jason. I'm a newcomer to investing..so bear with me...What exactly do you mean by "broad based" stock funds?

Jason_Lilly: Large Cap, mid cap, small, cap, International, growth and value. you can get broad based exposure piecemeal through style pure funds like a mid cap value fund, or use a catch all like the Vanguard Total Stock Market Index Fund, or the Total International Stock Index Fund. Fidelity, Schwab and other have similar funds

jcbmom__Guest_: I am 50 and what little I have(about 50k) in 401k is disappearing down 12% this year. I have 40lk in FID DIVIDEND GROWTH &FID CAP APPRECIATION should I move this to FIDELITY US BD INDEX and/or FIDELITY RETIRE MMKT?

Jason_Lilly: The S&P 500 is down about 12% for the year, so you are in line with the overall market. Acceptable if retirement is still many years away, but I would suggest revisiting your Asset Allocation (stock, bond mix). At yor age a fixed income component in the portfolio probably makes sense. The Fidelity US Bond Index is a could first choice.

Gayle__Guest_: Thanks for the answer to my previous question. You mention rebalancing. What exactly to you mean and how often should it be done.

Jason_Lilly: Rebalancing is simply: Selling high and buying low.

Jason_Lilly: Assuming you start with a defined asset class mix, rebalancing ranks the asset classes by return and requires selling a little from the best performers, taking those proceeds and buying some of the worst performer.

Jason_Lilly: Rebalancing can provide better risk adjusted returns over time.

billy__Guest_: What is Rockland Trust?

Jason_Lilly: We are the largest publicly traded commercial bank headquartered on the South Shore.

Jason_Lilly: You can visit us at rocklandtrust.com

john__Guest_: Hi, if 401k and IRA is maxed out, should money go into savings or investing(into i.e mutualfunds) ?

Jason_Lilly: I love this question. I wish I heard it more. It means you are doing a great job saving!

Jason_Lilly: Once the tax defferred accounts are maxed, consider low cost, tax efficient Index funds for additional savings. But, make sure the cash reserve is in place, credits cards balances are gone etc.

Boston_com_Moderator: Thank you for joining our chat today with Jason Lilly, and a big thanks to Jason for hosting. If you're interested in discussing your financial concerns further, email reporter Rob Weisman at weisman@globe.com. He's working on a story about how the market has affected people, and would love to hear your story.

Jason_Lilly: I want to thank you all for your questions. I hope these answers are helpful.

Jason_Lilly: I can be reached at jason.lilly@rocklandtrust.com