Mailbag for Friday, February 9, 2007

Chris Farrell answers your financial questions.

KAI RYSSDAL:
Well, as I live and breathe, it's Chris Farrell, our economics editor here to answer your questions. Mr. Farrell, how are you?

FARRELL:
I'm doing well. How are you doing?

RYSSDAL:
I'm all right. Thank you. 877-275-6669 is our phone number. That's 877-ASK-MONY, M-O-N-Y is, I'm obliged to tell you, the way we spell that. I don't know why. Or you can go to our web page. We spell that marketplace.org. And you click on the link that says contact. You send us an e-mail, we'll get you on the radio. Everybody's happy. We go first this week to MARVIN: in Indianapolis, Indiana. Hey, MARVIN:, how are you?

MARVIN:
Fine. How about yourself Kai?

RYSSDAL:
I'm all right. Thanks. So, I have to say go Colts right?

MARVIN:
Say twice. Go Colts. Go Colts.

RYSSDAL:
Say it twice. All right. Listen, tell us a little bit about yourself, would you?

MARVIN:
Right. I'm a professor at a local university. I don't know if I should give the name. Well, I will. Butler University and I teach sociology. I've been a college president. I've run for political office and I've done a few things in my lifetime.

RYSSDAL:
And now you need some help, I guess, from us.

MARVIN:
Yes. After reading Money Magazine I need a lot of help.

RYSSDAL:
What's on your mind?

MARVIN:
Well, I was looking in the February edition and I turned to page 80 where they talk about stock funds. And I looked at the ratings, or at least the rankings. I noticed that one of them had a return, an international one, international value A of 34.7 percent per year and that's been sustained over four years. Is this believable? And how does it work?

RYSSDAL:
Well, MARVIN:, let me ask you, what do you want to save this money for? What's the investment?

MARVIN:
It's for my son's prep school education. My other children had a chance to go to prep school and I just think they're invaluable in the educational system. But it's extremely expensive and I'm trying to get this little money that I have to become impregnated and just have lots of other dollar bills appear.

RYSSDAL:
Let's back up here for one second and talk about, you know, you see funds that are rated as growth or value. Let's . . . what does that mean?

FARRELL:
Let's just divide it very simply. One, growth stocks are glamour stocks. These are technology, biotechnology. There's the ones that you can spin a story because they have something new that consumers are going to need or going to want. A value stock - all right, that's an automobile company, they're nitty gritty. Typically, however, they have a decent dividend. Glamour stocks tend not to have a dividend. And because, you know, all of us are seduced by fashion, value stocks tend to - and pun intended - tend to have more value and you get that decent dividend and over time, by the way, that dividend can really make a difference.

RYSSDAL:
With 34 percent return, possibly, does that also bring an equally likely chance of a big loss? I mean is there volatility here?

FARRELL:
Well, that's the risk. This is not like an interest payment on a bond. It's not like you're buying a bond and you're getting a 34 percent rate of interest on it. And I know sometimes I sound like a broken record but I do talk about diversification. You should have some of your equity portfolio exposed internationally. I'm a big believer in the international index equity funds just because I just don't - you know I don't know. Is Europe going to be hot? I can't figure out the European economies no matter what. So you know what, I'd index it. But even if you don't like the indexing route, you want to take a little more risk, take a little more targeted investment. Put a portion in international but also as part of an overall diversification.

RYSSDAL:
All right, Marvin, there you go.

MARVIN:
Thank you.

RYSSDAL:
Talk to you later. Bye-bye now.

MARVIN:
Bye-bye.

RYSSDAL:
877-275-6669 is our phone number. Or you can go to our web page, it's marketplace.org. Just look for that link that says contact. We do have an e-mail now from Helen in New York City, Chris and here's what she says. And this is actually a great, great question on a really fine point. She has been listening to us for a while, followed your advice on iBonds or what she thought was your advice on iBonds.

FARRELL:
Right.

RYSSDAL:
She lost some money though in an iBond mutual fund and didn't discover until it was too late the difference between a bond, any kind of bond and a bond fund.

FARRELL:
All right. First of all, iBonds - these are savings bonds, just like your classic series double D that most people have heard from except for it's called an iBond because it protects you against inflation. IBonds you own as an individual. They are not part of a mutual fund.

RYSSDAL:
Got it.

FARRELL:
In the mutual fund, what they're buying are what are called treasury inflation protected securities or in a vernacular, because we like to throw out the vernacular, TIPS. Now TIPS are like any other bond. It's a government bond, but all bonds fluctuate in value. Let's say your optimistic about inflation. You think, you know, well inflation's not going to be a problem, but these treasury bonds might be offering a pretty decent rate, so you rush in there, you buy a lot and so the value will fluctuate, reflecting optimism. But then all of the sudden, let's just say, people get pessimistic and they flee these bonds. Well then they're going to fall in value. So there's a lot of buying and selling that goes on. And with the mutual fund, because they own these treasury inflation protected securities, will fluctuate in value on a daily basis. And that's what she sees. She didn't actually - my guess is she didn't lose money, the only reason she would have lost money is if she sold it.

RYSSDAL:
Right.

FARRELL:
Let's say she bought it for $100, this mutual fund and then if it went down to $90 for some reason, then she sold, well of course you would have lost $10. But most of us, will look at it, the value, she bought it for $100, and the value's at $90, but it's still compounding. You still got your interest payments. You ride through this period of time. There's still value there. You know, buy and hold with treasuries can make a lot of sense because treasuries are really cheap to buy. I mean you can just go right to the treasury and say, hey, sell me some of your debt. And by the way, we have a lot of it.

RYSSDAL:
Yeah.

FARRELL:
There's no problem with inventory here.

RYSSDAL:
Oh man. Marketplace.org is our web site if you want to know more about bonds and bond funds. Or you can give us a call, 877-275-6669, that's 877-ASK-MONY, which as it happens is the number that LISA: in Eugene, Oregon dialed. Hey LISA:, how are you?

LISA:
I'm doing great.

RYSSDAL:
So what's on your mind today?

LISA:
I have $11,000 from social security that doesn't belong to me.

RYSSDAL:
OK, how's that a problem? No, I'm just kidding. Obviously it's a problem when the government sends you money because in my nightmare scenario what happens is that in five years, they come back to you and say, not only do you owe us $11,000 but you owe us tax and interest and all that stuff, right?

LISA:
Exactly.

RYSSDAL:
How'd you get the $11,000?

LISA:
My husband is on social security disability and he does work part time. And he got a notice from them and they had gone back to 1997 and said that he owed $40,000 because he worked too many hours.

RYSSDAL:
While he was getting disability?

LISA:
Correct.

RYSSDAL:
OK.

LISA:
And then we got that straightened out because it wasn't true. So all the dust settled from that, which was, you know a horrible panic. But that settled down and about - I'd say about six weeks later I went to check my bank account online and I had $11,000 in there that I didn't expect to have. And we had developed a nice personal relationship, believe it or not, with the local social security people here. And I called the supervisor down there and said hey, there's this money here and I want to come down and write you a check, it's not mine. And he said, I can't do that. We can't take the money back.

RYSSDAL:
This is . . . I don't even know what . . . how to describe this. So you have $11,000 you're looking to get rid of and the government won't take it?

LISA:
Exactly. He told us to go ahead and put it in a money market account and wait for the social security administration to ask for the money back and that's what we've done.

RYSSDAL:
Chris, what do you think about this idea of sticking it in some savings account. Don't touch it and let it just sit there?

FARRELL:
I think that's exactly the right thing to do.

RYSSDAL:
There you go.

FARRELL:
You're going to have the money there, avoid the temptation, which we all have when a bill comes due, got a little extra money - maybe spend some of it. Because eventually they're probably going to come after it. Here's what I would do. I would get everything in writing. If you have a diary, write down what you've done. You really want to create a paper trail about what you've done so if they come after you and say, hey, you know you owe us so much in penalties because of this, you can say, no wait a second. Here's my diary. And I've made this call and I had this conservation. And you know, it's legitimate to recall the conversation, the person's name, what he said. But then I followed with a letter to the local social security office. Here's what I've done. You may even consult a lawyer, very cheaply, I mean they probably wouldn't even charge you anything to sort of get some something from them too. In this kind of issue, you want to deal with letters, not phone calls.

RYSSDAL:
Let me ask you something though Chris. I mean this could take years. We don't know if it'll take two years or eight years, but at some point, let's assume that social security is going to come to her and say, we want our $11,000 back plus interest. How much interest are they going to ask for and what's a way for LISA: and her husband to make sure that they have at least that much interest sitting there so that they are not out of pocket when the social security department tries to fix its mistake.

FARRELL:
Well I think that's why the letters are so important. Because, you know, the interest you put into money market mutual funds, you'll rate some sort of interest there. What you're really concerned about penalties and what's going to be the penalty rate that the social security administration might charge you, but I think you can make a very strong case that there should be no penalty rate. And you can make a very strong case that the penalty actually should be imposed on the social security administration, not on, you know, not on the person who's gotten this money. So you may be able to say to them, here's your $11,000 back and by the way, we're not going to adjust for inflation. You gave us 11, here's 11 back.

RYSSDAL:
Right. LISA:, what do you think about this idea of just leaving it in a money market? Do you have the discipline to not spend this money?

LISA:
Oh yeah. I mean it's not mine. You know I figure if I bought a car with it, I'd probably wreck or something. I mean it's - I mean you know, just that the best thing they would forget all about it and when I was like 70, I would you know go on a round-the-world . . .

RYSSDAL:
I think that's what you do. If this money's still there when you're 70 and you've been collecting interest for how ever many years it is, you go to town and have a big party, and by the way, we want an invitation. All right?

LISA:
You got it.

RYSSDAL:
All right LISA:. Good luck to you.

LISA:
Thank you very much. Bye-bye.

RYSSDAL:
877-275-6669 is the number that Lisa dialed. It's 877-ASK-MONY. Or you can go to our web page if you want to send us an email about your financial problems, or any other kind of problems. We don't care. It's Marketplace.org. Look for that link that says contact. This is Marketplace Money from American Public Media.

RYSSDAL:
Chris, last email of the day comes from Eric in Vienna, Virginia. It's a little detailed here, and I'm going to paraphrase. Bear with me. Here's the thing: His 60-year-old mother-in-law just moved from Armenia to the states this past December. OK, has no job, but does take care of Eric's kids during the day. They want to get her some kind of health insurance. Private insurance since she's not employed, right? Which is monumentally expensive, and she doesn't qualify for Medicaid for another coupe of years. Here's what he wants to do: He's been reading Virginia state law pretty closely, and it's his understanding that domestic partnerships, one way to define them, can be as economic units. And his point is that the mother-in-law contributes to the economic unit that is that family by caring for the kids, thus letting him and his wife go to work. Wants to know if he can then convince his employer to provide her health benefits as a domestic partner. I'm going to go to you now and say what do you think.

FARRELL:
Two word answer: good luck. It is stunning. If you go back to 1990, only about a half dozen major corporations had domestic partner benefits, and that's now expanded exponentially from there. Still the way most companies - employers have a lot of leeway how they define domestic partners. But typically, the way they define it is that it is a same sex couple living together. They may or may not have children. Or it's not same sex, but they're living as if they're married and they come under domestic partners. There is a tiny set of companies that will also extend the benefit to non-romantic partners, which might include this situation, so you can get a sibling or an aging parent onto the employer's health insurance. Very rare. At this point, I think the sort of common sense view of what a domestic partners is the prevailing . . .

RYSSDAL:
Yes, it's not a mother-in-law who watches the kids, right?

FARRELL:
No.

RYSSDAL:
Yeah. Well, all of that said, how can he go about most effectively finding her some kind of private health insurance?

FARRELL:
The only way that I can think about it is what we talked about before. And I've been critical about them, but this is - as a national policy. But you start thinking about a health savings account. It is getting better to search online and find a good policy for her, what you call a high deductible policy. It will protect her and him if there's a catastrophic event. And there are some savings components so he can pay her a salary, and she can build up some tax deferred savings if, knocking on wood, her health holds up. You know what the other thing is? Ask your employer. Ask your human resources.

RYSSDAL:
It's worth a shot, right?

FARRELL:
It really is because you don't know. Perhaps they are reading it the same way. But remember, your employer has a lot of leeway how they define who they're going to give benefits to.

RYSSDAL:
As employers always do. Our phone number is 877-275-6669 if you want to be on the program for next week. Because you can hear by the music that we are done. Or you can go to our webpage, which is Marketplace.org. Click on the link that says contact, and you'll send us an email. We'll call you and help you solve your problems. Chris, we'll talk to you later.

FARRELL:
All right, thanks a lot, Kai.

RYSSDAL:
You're listening to Marketplace Money from American Public Media.

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