Hiring a good adviser is the best way to manage new portfolio

Dear Mr. Berko:

Please don’t use my initials or city, because my comments might encourage the local school board to fire me. A dear aunt passed away last March, leaving me two pieces of property, which I sold for $620,000. I am in my 40s and finally have the means to quit my stinking teaching job, which I’ll do in June. I and most other teachers feel betrayed by our union, our state Legislature, our school board and especially our students’ parents. I am a darn good teacher and will be moving to another state, where I’ll enjoy teaching at my choice of several private schools.

I need this $620,000 to produce about $2,000 in income a month. I have little knowledge about investing, though I have $23,000 in three Fidelity funds you recommended in 2014. Please tell me which stocks and mutual funds I should own. Or should I go with my brother-in-law, who is a broker with a big firm in another city and is pushing us to be his client? Finally, do you think my teacher’s pension will be available when I’m 65?

– XX, Illinois

Dear XX:

At the end of fiscal 2017, your state’s Teachers’ Retirement System had an unfunded liability of $73 billion. That’s equal to the gross domestic product of Cuba — enough cash to build six fully equipped nuclear-powered aircraft carriers. But yes, Illinois will have some of the pension plan money for you when you reach that magic age. The wonderful politicians in the state Legislature (whose pensions are assured) and union officials (whose pensions will get preference) are working to help teachers retain 40 to 60 percent of their promised pension at 65. However, this will require higher state taxes. Illinois’ individual state income tax was recently raised from 3.75 percent to 4.95 percent, a thumping 30 percent increase. And that amount may double in the coming decade. The sales taxes on merchandise and services range from 6.25 percent to 11 percent and may have to grow by 40 or 50 percent. Then the state’s property tax, at 2.32 percent, the second-highest in the country, could be increased by the state Legislature to 3.32 percent. So yes, many believe that you should get no less than 40 percent of your promised pension. However, if Illinoisans continue moving to lower-tax states — such as Florida, Nevada, South Carolina, Texas and Tennessee — Illinois will have a bigger problem, and that’s scary.

Please don’t give that money to your brother-in-law. Never ever do business with family members, especially if they’re relatives! That’s unwise and dangerous. You’d most likely end up owning a mishmash and hodgepodge of high-commission proprietary products, annuities and mutual funds. Employing a family member as a stockbroker often ends up as a family crisis. Meanwhile, it doesn’t make a tinker’s dam of difference which brokerage firm you use; it’s the broker you choose who becomes important in your investment life.

I can recommend a portfolio of pale blue chips and no-load mutual funds that should give you the income, income growth and principal growth you need. Suitable investments would be AT&T, IBM, PepsiCo, Caterpillar, Southern, the Fidelity New Millennium Fund and General Mills. Some, including me, say those should be held forever. But you need to establish a comfortable working relationship with an experienced and proven investment professional. Such an adviser could counsel you regularly as your life’s circumstances and needs change. Even though I believe that investors can own the above issues forever, things change, and your professional should be there to advise you and discuss alternative options.

Ask a friend, your lawyer and your accountant for the name of a broker they like. Call each for an appointment. Visit each in his or her office and discuss your goals. Ask each to give you a general idea of how he or she would invest your money. It’s important that you take good notes for comparison purposes. After you’ve interviewed those names, email me with your impressions, and we’ll discuss which of them you should employ and why.•

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or email him at mjberko@yahoo.com.  The opinions expressed in this column are those of the author.

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