Keep inheritance far away from fixed-income securities
Dear Mr. Berko: My wife and I, who are 45 and 48 now, got thrown off the turnip truck, according to my brother in Florida.
We inherited $491,000 and a house. We took $51,000 and got a new pickup, paid off our credit cards, and when the house sells we are moving to Florida to be with my brother and my sister-in-law.
We gave them $10,000 of our money. We got introduced to a stockbroker who seems to give good advice and took us to lunch at a club.
I have put his advice in the mail with this letter. It gives us $19,780 a year forever and that looks real good.
The wife doesn’t like this man and can’t say why and wants to wait till Florida before we do something, and a neighbor told her to write you.
This broker calls us every day and he gets pushy-voiced. I don’t like that. But he can get us $19,780 a year forever, and I like that.
Please write us your advice. – T. and P.S., Oklahoma City
Dear P.S. and T.: Please take this letter to the lawyer who settled the inheritance and ask him to read it to you.
I’m very glad you wrote. Frankly, at your ages, you good people will make a very bad mistake putting the remaining $430,000 in a U.S. Treasury bond mutual fund, a preferred stock mutual fund, a corporate bond mutual fund, a mortgage-backed security mutual fund, a Ginnie Mae mutual fund and $200,000 in a lifetime fixed annuity.
I understand how exciting that $19,780 annual income must be from all those high-quality investments. But I’m sorry you met that rapacious, self-serving juice-bag broker, and, suffice it to say, he’s going to fancy himself an $11,500 commission on the five mutual funds plus a $20,000 commission on the fixed-income annuity. That’s a $31,500 payday for a couple of hours of work plus lunch.
Some brokers think they have a license to steal from unsophisticated, trusting, wonderful folks like you, but that subhuman is using his license to suborn. He has no more conscience than a fox in a hen house.
I told readers some seven months ago that interest rates would begin to rise. I was right too soon. But I’d rather be right too soon than right too late.
Well, interest rates are rising now, and the 10-year, as well as the 20-year, Treasury bond rates could easily double in the next couple of years. Most professionals think this is a very real scenario, and, if they are right, the values of those investments will collapse by a very significant amount and you’ll be left holding the short end of a burning candle. That’s one reason to keep a long distance between your cash stash and fixed-income securities.
The second reason is income. The income on your portfolio may be $19,780 per year, but you have my personal guarantee it won’t be $19,780 for the rest of your life.
And while $19,780 will buy lots of stuff and things today, I will give you a written assurance that in 15 years, when you are 63, inflation will overwhelm your income just like the Red Sea swallowed the Egyptian chariots 3,500 years ago.
In 15 years, $20,000 might only buy $10,000 — maybe less — of goods, services, stuff and things. So you need investments that will increase their income a little bit every year and not one investment that brokester would have you buy can do that.
P.S.: I think you should call that brokester and tell him you won’t be doing business with him. Tell him to call me if necessary. You folks need an understanding and wise professional who will give you suitable advice.
So when you move to Florida, please write me again. I’ll find someone in your city to help you.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at firstname.lastname@example.org.