Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, September 20, 1993 TAG: 9309180052
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Or maybe that much money arrived as an inheritance or grew through diligent lifetime saving. It might be the payout on a retirement plan at work.
Regardless of its genesis, it's a sum that generally represents a family's security. It must be protected because it's a windfall, a once-in-a-lifetime event. For many people, that much money may not be replacable.
Besides protecting the nest egg, someone who suddenly has $100,000 to invest must consider how rapidly market conditions change. And he or she has to remember that inflation will eat away at the value of the capital unless it is invested to provide for some growth.
How would you invest $100,000 for the long-term in today's world of low interest rates and volatile markets?
Five investment advisers in Roanoke offered as many plans for allocating the money.
But they agreed on one great principle: You need to diversify. A sum as large as $100,000 must be divided for protection against inevitable changes in market conditions.
Here is their advice for investing that much money:
Lindsey Quesinberry of J.C. Bradford & Co. would put 90 percent in stocks and keep 10 percent in cash. The latter might be an emergency fund or "opportunity money" for possible future investment, depending on the person's other resources.
He would avoid bonds because their value fluctuates inversely to interest rates, which he believes cannot fall significantly lower. In today's market, he said, bonds have become more risky than stocks.
Quesinberry would split the stock investment three ways: one-third each in large established companies, small companies and foreign companies.
If people did this in the past, he said, they made money in every five-year period.
Over the last four years, American companies have outperformed those overseas. He thinks the latter may start to catch up.
And the stocks of small companies have recently outperformed the blue chips. Of the 100 best-performing companies since 1987, he said, 75 are small companies founded in the 1970s and 1980s.
The odds of slow growth are quite high, Quesinberry said, so investors should seek companies in niches with good growth prospects.
Richard Wertz, vice president at A.G. Edwards & Co., assumed the investor was an older person in a higher income-tax bracket.
Based on that, he would put 40 percent in a growth and income fund. The person would have the choice of taking the dividend income or allowing it to compound, depending on the need for current income.
The other 60 percent would go into individual Virginia municipal bonds for current income or a mutual fund of Virginia tax-free bonds. He would let the latter compound.
Virginia bonds are free of state tax as well as federal tax.
Anyone interested in individual bonds, he suggested, might look at a recent issue by Roanoke for the addition at Roanoke Memorial Hospital.
The 40-60 plan would "keep it simple," a method he believes older investors prefer. And it allows the option of receiving income or going for growth.
A widow in her 50s, he said, can easily live for 30 more years and must opt for at least some growth.
A widow older than that, on the other hand, might be in a low tax bracket and need income despite owning an asset of $100,000. In such a case, he said, he might recommend purchase of an annuity. That would sacrifice growth.
Wertz stressed the importance of talking to the investor to determine his or her tolerance for risk before allocating the money.
William Nash, manager at Scott & Stringfellow Investment Corp., would put 40 percent into a mutual fund with a portfolio of terms of five to 10 years in conservative bonds.
If the investor is in a high tax bracket, he said, the fund should be composed of tax-free municipals.
For anyone in a lower bracket, he recommended a portfolio of government, Ginnie Mae, Fannie Mae and similar low-risk bonds.
Nash would put another 50 percent into stocks, but he would choose high-quality and well-known companies paying dividends of 3 to 5 percent. He advised buying undervalued stocks of good companies because he is "cautious on the market now."
He would ease into the stocks, not buying all of them at one time.
If people are leery of buying individual stocks, Nash recommends investing the 40 percent in a conservative stock mutual fund.
The balance of 10 percent would remain in cash deposits, even for the long term.
John C. Parrott II, a certified financial planner with Wheat First Securities, would split the money between income and growth investments.
For the income side, he would "ladder" bonds. That means buying staggered maturities so that some bonds are maturing every year for reinvestment at a different - and, one hopes, higher - interest rate.
He would stagger at levels between one and eight years at the most.
In the alternative, he would buy a mutual fund of bonds with short maturities.
For growth, he would buy undervalued stocks of known companies with a reasonable dividend.
A stock with a high dividend, Parrott said, is a good long-term value.
With $50,000 to invest in stocks, he said, a person could get diversity through buying shares of several companies.
Some people might put the money into stock mutual funds to avoid buying shares at today's high prices.
But in view of the economy, Parrott said, "I would prefer to pick and choose my own situations now."
Michael T. Morrissett, vice president and regional manager of trust and investment sales for the First Union Capital Management Group, recommended a balanced approach because of a shorter time horizon. He said anyone who has amassed $100,000 is likely to be interested in both capital preservation and appreciation.
First Union's current recommendation for balanced accounts is 60 percent stocks and 40 percent bonds. Morrissett also suggested use of mutual funds.
He said there are two ways of achieving a balanced portfolio of funds.
The first way is to deploy the entire amount in one balanced fund. These are funds that are balanced between stocks and bonds.
He said the First Union balanced fund boasts an outstanding track record and is currently 60 percent invested in stocks.
Other fine funds include Fidelity Income and Growth Fund and Income Fund of America, he said.
The alternative is to design a portfolio by selecting several mutual funds.
Morrissett said an investor could use the above-recommended funds along with some exposure to small stocks and international stocks.
Morningstar, which is kept at the public library, provides information on these and other funds, he said.
If an investor desires tax-exempt income, he said, a Virginia municipal fund could be used in combination with a mixture of equity funds to arrive at an asset allocation of 60 percent in stocks and 40 percent in bonds.
Morrissett said his bank recently launched a Virginia tax-exempt mutual fund.
by CNB