Personal finance chat with Jason Lilly

Jason Lilly, a financial adviser for Rockland Trust, answered readers' questions about investments, the economy, and the news about Bank of America Corp.'s planned takeover of Merrill Lynch & Co. Here's a transcript of the discussion.

Jason_Lilly__CFA: Thank you for joining today's chat. My name is Jason Lilly and will be taking your questions. I work as a portfolio manager with Rockland Trust within their Investment Management Group.

Jason_Lilly__CFA: Rockland Trust does not take responsibility for the content of this program. Answers should not be considered specific investment advice. I would encourage you to consult your financial professional before making any decisions.

JoJo__Guest_: I have my retirement in Fidelity and TIAA-CREF, should I withdraw it and wait till this go away and reinvest it again after?

Jason_Lilly: Regardless of where you have your investments Fidelity or TIAA CREF, timing the market tends to work against the majority of investors. Instead, revisit both accounts check your stock percentage. Make sure it is appropriate. Make sure you are diversified across both accounts with large cap, small cap, mid cap and international stocks, as well as diversified bonds.

Jason_Lilly: While there are no guarantees, following a consistent investment approach has been shown to be the best way to build long term wealth. Consider today's market as a good test of your long term financial resolve.

Jason_Lilly: Stay invested and keep saving for retirement. Simple, but incredibly effective.

phub467__Guest_: we have a household income of about 58,000, with too much work needed to be done with foreclosed propreties, should we wait to buy a single family a bit more hoping the prices will contiune to decrease?

Jason_Lilly: Forclosed properties can be tricky. If you are handy they have the potential for a really good bargain.

Jason_Lilly: I think the bigger question is why are you buying and how long do you plan on owning. If this is a flip situation be careful the real estate market is still unstable at best. If your buying for a primary residence, or as a long term holding now could be a good time. I doubt it is the bottom, but we don't know until well after the fact.

529___Guest_: I have no clue how to decide on 529 plan options. We are pretty much decided on Utah, but after that I give up. And I have yet to open the account due to fear of picking the wrong thing. It is perfectly fine to go with the age based options? She's only 2, but I do want to get it started sooner than later. Thanks.

Jason_Lilly: Excellent question. With so many 529 options it can get confusing real quick. Utah is a great option - low cost, well diversified and Vanguard is a great fund family. I would use the age based - let the experts invest and rebalance the allocation as your child gets older.

Essexcnty1__Guest_: Hello Jason, When the dust settles from this extremely volatile period, I can only assume that I should probably refocus my retirement account that was last adjusted in 2002. What are the major differences in the investment market now as compared to 2002?

Jason_Lilly: As a good rule of thumb you should revisit your allocations within your retirement account at least an annually. That doesn't mean you necessarily change anything but you should certainly examine your holdings - confirm your mix between stocks and bonds is on target.

Jason_Lilly: Since 2002 the stock market was mostly up until the last quarter of 2007. Even with the downturn you may still have more in stocks then bonds. International has done extremelly well through 2007 as well as mid cap and small cap.

Jason_Lilly: The biggest changes are that Financials now account for about 15% of the market versus more than 20 in 2002 and that Energy stocks have doubled in size since that time.

Jason_Lilly: The most important comment I could make is that rebalancing annually will provide a smoother ride and btter results (most likely).

Jason_Lilly: Rebalancing forces a sell high buy low strategy.

recent_homeowner__Guest_: Does all of this economic instability mean I should refinance my mortgage soon? How do I know when the rates hit rock bottom? Do you have any prediction how low a 30-year fixed refi will drop?

Jason_Lilly: Wow! No guesses on where rates will bottom, but I can tell you 30 yr. fixed is low on a historic basis.

Jason_Lilly: I rule of thumb I use is the spread between the 10 yr. treasury and the 30 yr. fixed. Historically that spread has been about 1.6%, suggesting the 30 yr could come down a bit more (currently the spread is close to 2%)

Jason_Lilly: That said, the financial system is obviously in turmoil, so rules of thumb may not apply

JamesJr__Guest_: Hi Jason, As one of millions with my retirement in a mutual-fund heavy 401K, I'm getting killed on value, but liking the dollar-cost averaging aspect. What's the prudent thing to do in light of today's events? Move everything in to bond funds?

Jason_Lilly: One of the main questions I have gotten today is whether now is the time to move all of my investments out of the stock market? The answer simply is no, although the market may decline significantly from here, the benefits of continually investing should win out in the long term.

Jason_Lilly: The short term pain that we are suffering is real and those are quite valid concerns, but if you are optimistic on our country and the benefits of capitalism you should have at least some of your long term assets invested in the stock market to achieve your future goals for retirement.

Jason_Lilly: In a retirement account, dollar cost averaging and periodic rebalancing are excellent ways to build your asset over time and allow you to take advantage of market fluctuations. The decision to move to cash is a very tough one to get right, but it is just as tough to decide when to put your money back in.

Jason_Lilly: Most people don't get it right and sell at the bottom and only go back in and buy after recovery has already happened. It's better just to stay invested for the long haul.

Kaycee__Guest_: Generally speaking, would you say that this is a good time to buy stocks, being able to buy low?

Jason_Lilly: As an internal optimist I think it is a good time, maybe even a great time to buy.

rmor__Guest_: I am 27, working in the arts - where i don't get retirement benefits and likely won't in future - i'm thinking to get started investing in mutual funds, but is this a good or bad time to do that?

Jason_Lilly: This is a great time. You are young with plenty of time until retirement. Regular contribution will help mute market volatility. Use a Roth IRA - you can contribute up to $5,000 (assuming you make that much)

Jason_Lilly: At retirement withdrawals are tax free.

Steve-S__Guest_: Jason, although the market is heading down today, for good reason, aren't most domestic stocks still not at the P/E level that truly indicates a great buying opportunity?

Jason_Lilly: While not fantastically cheap on a trailing P/E basis the market is still trading below 2 points below its 20 year median of 18.2 times earnings. On a forward earning basis ( which is based on projections for next years earnings) the market is trading at its lowest levels since the early '90s.

jon__Guest_: have all of lehman's trading positions been covered?

Jason_Lilly: What we have been told is Goldman Sachs is taking control of Lehman's specialist operation, which is the division that makes markets in stocks. Goldman will also take responsibility for overseeing risk management and clearing the stocks traded. They are not taking over all of Lehman at this juncture.

soothsayer__Guest_: so could you give us the view from 40,000 feet on all the newsheadlines of today? it seems that under the mattress isn't such a bad place to put my money!

Jason_Lilly: Under the mattress gets you 0% return - which is better than the markets this year, but add inflation, which YOY averaged around 5.5% and now you have a negative real return.

Jason_Lilly: Balancing your stock/bond/cash mix based on the size of the portfolio your time horizon, risk tolerance and inflation adjusted spending goal is the key.

Pierre__Guest_: I own Bank of America. Between Countrywide and Merrill Lynch, has this company bought off more than it can chew?

Jason_Lilly: Time will tell, but one thing Bank of America has been very good at squeezing expenses out of their acquisitions. They have a long track record and are among the most capable integrators in the business. While they were certainly early on Countrywide, the purchase of Merrill Lynch does appear to have some very good synergies and will be very profitable assuming the financial markets recover in the next two years

Meg__Guest_: Hi jason. My husband and I both max out our 401(k) programs at work. Is there anything else we should be doing to save for retirement? What kind of investment options are available for us?

Jason_Lilly: Great Job!!

Jason_Lilly: Maxing your 401(k) is no easy task, so excellent. There are no penalties for saving more- just more freedom and flexibility at retirement.

Jason_Lilly: IRAs may be a possibility (it depend on how much you make). Tax managed funds, or index funds are also a great low cost, tax efficient option.

Jason_Lilly: Variable annuities and life insurance are also other options, but are very expensive and can be confusing, so make sure you do your homework if you choose either of those options.

oskantze: at the behest of my Smith Barney financial advisor, I am heavily investedin C, what do you think of this?

Jason_Lilly: I am a big believer in diversification. I would be very wary of any portfolio that had more than 10% exposure to any company no matter how big or successful they have been. It's also a little concerning that your Smith Barney broker (who works for Citigroup) would be advising you to have a large chunk of your assets invested in his/her company.

jretc__Guest_: I have 40,000 in cash what should I invest in that is safe. Is it too risky to consider anything other than CD's or similar investments

Jason_Lilly: The first question I'd ask is when you will need this money? If it's very short term a cd or money market is the safest option. If you can handle some fluctuation in value perhaps a bond fund might be more suitable. The yields will be higher allowing for a better chance to stay on top of inflation (maybe)though a little more risky, and finally if its money for the long term investing in some mix of equities, bonds , and cash would make sense.

Jason_Lilly: Remember though have between a 3 and 6 month cash cushion just in case of unplanned events.

Jason_Lilly: Thank you all for these great questions. I did not have a chance to respond to everyone, but I hope this was helpful.

Jason_Lilly: Best wishes.

Jason_Lilly: Jason Lilly, CFA