I must preface this with: THIS IS HORRIBLE ADVICE! Do the exact opposite of what they advise here, and you'll be doing great  :wink:

Time to stop playing it safe

Once frightened that terrorism would crash the market, this couple is set to get back into stocks

NEW YORK -- When Kim and Gil Kerkbashian think about investing for the future, they can't stop worrying about the past.

Since Sept. 11, 2001, Kim, 43, a flight attendant with the same airline for 17 years, has suffered two 10 percent pay cuts and has seen her pension slashed from an estimated $4,000 a month to little more than $300.

Time to stop playing it safe

The Kerkbashian's Assets
Cash Savings: $418,000
Taxable Accounts: $29,500
401(k): $107,000
Roth IRA: $9,500
 
Concerned about a housing bubble, the Kerkbashians sold their home in Northern California last fall and moved with daughter Grace, 2, to a Twin Cities suburb near Kim's family.

But they didn't buy - instead, they rent a two-bedroom apartment and keep the bulk of their assets, over $400,000, in savings accounts.

Gil, 40, a mortgage broker, explains that although he didn't lose much in the last bear market, the terror attacks and subsequent economic downturn have left him wary of stocks. "I'm worried that we're going to get hit again," he says, "and I don't want to get my clock cleaned."

Where they are now
As they struggle to cope with events that are out of their control, the Kerkbashians have managed to create their own world of uncertainty. They aren't sure how long they will stay in Minnesota, and Gil, who has just started an online mortgage business, thinks he might also want to get an advanced degree in information technology or go to business school.

Yet with everything up in the air, the couple are also feeling pressure to get a long-term plan in place.

The loss of Kim's pension has left them with just the $107,000 in Kim's 401(k), a small Roth IRA and a few thousand dollars in a mutual fund as their only retirement savings.

"At 40 we're starting everything that a lot of people already started at 30," says Kim. "How are we going to fund college and retirement too?"

What they should do
The first step toward increasing the Kerkbashians' sense of security: getting an estate plan in place, says Greg Zandlo, a financial planner in Coon Rapids, Minn.

Right now Gil and Kim hold only $110,000 in life insurance between them. "That does not replace the income that either will make for the next 20 years," Zandlo says.

For less than $120 a month they can get a $600,000 term life insurance policy for Kim and a $1 million policy for Gil, who eventually expects to earn $100,000 a year from his business.

They also need a will that names a guardian and trustee for Grace, plus advance health-care directives and durable powers of attorney. Once that's set, Zandlo has other ideas for safeguarding the Kerkbashians' retirement.

Manage the cash stash Clearly, the Kerkbashians have too much languishing in savings accounts. But given that Gil's business will require about $120,000 in start-up costs and they don't know when they'll buy another home, the couple feel strongly that they need to keep about $300,000 in the bank for now.

To maximize the return, Zandlo suggests they spread it over three-month, six-month and one-year certificates of deposit, which typically pay higher interest rates than savings accounts.

This year Gil and Kim should each put $4,000 (the maximum allowed in 2006) of the remaining cash into a Roth IRA and invest the rest in a taxable account. Over time, they can move more of their savings into the Roths, where the money will grow (and later be withdrawn) tax-free.

Invest aggressively Since the Kerkbashians have such a large percentage of their assets in cash, Zandlo recommends that they go for maximum return on their remaining investment money by keeping almost all of it in stocks.

He also suggests that in their taxable account and Roth IRAs they put 60 percent into domestic-stock funds, 25 percent in international stock funds, and 15 percent in Cohen & Steers Realty (CSRSX).

In her 401(k), Kim should add to her international holdings, as well as swap her employer's stock fund for the Fidelity Balanced fund (FBALX), which is a blend of large-cap stocks and bonds.

Go for the state 529 Gil and Kim have $25,000 saved for Grace's college tuition in the USAA First Start Growth fund.

Zandlo recommends that they transfer the funds to Minnesota's 529 state college savings plan since it is far less expensive, and since they are eligible (as state residents for now) for up to a $300 match on their contributions.

Commit to a plan Right now the Kerkbashians' indecision may be the greatest threat to their future, says Zandlo. "The more time they have to grow their money in stocks, the more opportunity they have to give themselves a retirement lifestyle that mirrors how they live now," he says.

As soon as Gil starts drawing a salary from his business, they should invest most of their remaining cash - with the goal of paring it down to just three to six months' living expenses.

Though Kim is still nervous about their retirement prospects, Gil is optimistic about their plans. "It's a big risk, but I have to take a shot at it," he says. "I can't be a scaredy-cat."