Question:
I own very few international stocks in my portfolio and wondered if you could suggest some good possibilities for individual stocks or a strong fund. I currently own TOT and quite a few large US corporations with extensive international exposure.
Answer:
Total SA (NYSE: TOT) is a good international gas and oil company with a good yield. Other international issues we recommend include Magna International, Inc. (NYSE: MGA), which is a global automotive supplier in the Consumer Discretionary sector; Diageo, plc (NYSE: DEO), a Consumer Staples spirits maker; integrated energy company Suncor Energy, Inc. (NYSE: SU); Bank of Nova Scotia (NYSE: BNS), and both Baidu, Inc. (NASDAQ: BIDU) and SAP AG (NYSE: SAP) in the Technology sector.
You may also consider the exchange-traded fund iShares MSCI EAFE Index Fund ETF (NYSEARCA: EFA) for exposure to stocks in Europe, Australasia and the Far East.
Question:
My 401(k) had to start giving me a letter that outlines the fees a while back. Can I choose a plan that allows me to avoid or lower some of these fees?
Answer:
Defined contribution plans charge both administrative fees, which you cannot control, and investment fees, which you can control to some degree. Administrative fees are basically your cost for participating in the 401(k). These are often determined by the size of your plan and whether or not your employer chooses to pass these fees on to you. You may consider discussing the cost with your HR department. They may not be aware of the fees and might look to redesign the plan.
Investment fees are the operating fees each investment option charges. You can opt to minimize your fees by choosing investments with the lowest annual total expenses, as listed in your plan documents.
If you determine that the fees you are paying are too high, you may choose not to participate in your company’s 401(k) and opt to direct your money into an IRA or Roth IRA, where you can seek out funds with the lowest expense ratios. However, you need to weigh the cost of missing out on an employer match to your investments.
Question:
What is a life settlement? My wife’s mom is considering a life settlement on her insurance policy. We want to meet with our insurance agent before we agree to her mom’s wishes. In the meantime can you give me an overview?
Answer:
A life settlement is when you sell your life insurance policy to a third party for a lump sum that is greater than the policy’s cash surrender value, but less than the death benefit. Generally the person being insured will have a life expectancy of less than 10 years and there is more need for cash today, rather than an eventual death benefit. By selling the policy, you forfeit the death benefit; however, the third party will collect on the eventual death benefit.
The policy holder could opt to borrow against the cash value of the policy, but a life settlement often provides significantly more money that can be spent on anything, such as, a vacation, investments or even a new insurance policy. In the right circumstance, a life settlement can present a viable alternative to just letting an old policy lapse. The funds can be put to better use elsewhere, such as, a long-term care policy or to make lifetime gifts to loved ones.
The life settlement generally results in taxable income. We recommend you talk to a financial adviser rather than an insurance agent in this case. An insurance agent is likely to sell you a new policy, which may not be why your mother-in-law wants the funds from the life settlement in the first place.
Question:
What expenses are included in the annual cost of college?
Answer:
Twice per year the government calculates the cost of attendance at more than 3,000 colleges across the nation. This is used in determining the financial need in the financial aid calculations. Additionally, every college calculates an official budget to detail the average cost for a student to attend the institution for a full year. The figure is adjusted for inflation.
Costs include tuition and fees; books and supplies; room and board; transportation and personal expenses. The actual cost varies from student to student, but this figure can give parents and prospective students an idea as to what their costs may be from year to year.
Question:
I’d like to get a little Small Cap exposure to my overall portfolio, but I just don’t have the time to monitor them like the blue-chip stocks I own. What would you think about a Small-Cap fund like SSDSX?
Answer:
DWS Small Cap Growth (SSDSX) is ranked a 4-star fund by Morningstar. Its five-year track record is better than its peers, and has had no style drift. The fund has a 74% turnover rate, which is below average for a Small-Cap fund. It is a no-load fund that offers a 1.23% yield. However, it has lagged the Small-Cap index exchange-traded funds.
If you are looking for a cheaper alternative, you may consider the iShares S&P SmallCap 600 Index ETF (NYSEARCA: IJR); however, in the current market, an actively managed fund like SSDSX may do better than a passive ETF.
Question:
After listening to your show a few weeks ago I was looking at bonds. I noticed one of the bonds had a coupon yield. Can you explain what this is?
Answer:
The bond’s coupon rate, or yield, is the amount of interest you earn annually. For example, a $1,000 bond may have a coupon rate of 4.5%, meaning it pays $45 in interest a year. The current yield of a bond is the annual interest payments as a percentage of the bond’s market value, which may be higher or lower than par. The yield fluctuates with the moves of the market.
If you buy a bond at par and hold it to maturity, which we generally recommend, the current yield and the coupon rate are the same. If you buy a bond in the secondary market you will either buy it at a premium or at a discount. For example, if you bought the same $1,000 bond for $900, its current yield would be 5%.
At Henssler Financial we believe you should Live Ready, and that includes consulting experts for financial matters you do not understand. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.