Tackling investment fraud against seniors; cracking down on equity-index annuities

Regulators and politicians seem to be paying a lot more attention these days to the problem of investment fraud involving seniors.

Should federal securities law have higher penalties when the those who violate the law prey on older people? That's what U.S. Sens. Herb Kohl and Bob Casey think. Here's a press release about their bill, which would add $50,000 to civil fines when securities law violations involve someone 62 or older. Of course, there has to actually be a federal investigation for that to apply and the perpetrator has to have some money to pay the fine.

The SEC also is looking more closely at one one of the biggest problems: the sale of equity-index annuities. The commission has proposed this rule, which would classify many of these annuities as securities, subject to securities regulation. These annuities are highly complex products with lengthy surrender penalties and are a subject of frequent investor complaints.

Kohl also is concerned about the use of misleading designations that create the appearance of adviser competency even though they involve very little work. He previously introduced the Senior Investor Protection Act (S2794), which involves grants to states to reduce fraudulent and misleading investment marketing to seniors.

Help! My annuity paid zero interest last year

Q: I went to a seniors seminar on investing and bought an annuity from Alliance, and put it in S&P 500. This year I received no interest on my money. Is there a way that I can get out of this annuity? And should I put my money in another annuity?  I am a single 67 year old woman and other than Social Security, I have no other income.

A: Your annuity contract will describe the rules for getting out of your annuity and the price for doing so. Many annuities have a surrender charge that extends for five or six years or even longer. The charge declines as you get closer to the end of the penalty period. However, you usually can take a certain percentage of your money out each year without penalty. You will have to decide whether getting out is worth paying the penalty.

My opinion: It is NEVER a good idea to put all your money in any one investment, whether it's the Standard & Poor's 500 Index or a jumbo CD and it is NEVER a good idea for a retiree to buy a variable annuity with a surrender charge. An exchange for a better, lower-cost annuity can be appropriate if you don't want to cash out because of a big built-up tax liability. However, it doesn't sound as though that's your situation. If you decide to stick with your annuity, you should diversify your investments so you don't have everything riding on the S&P 500 index. 

The great debate continues: Indexing yes or no?

You can't beat the low costs of index funds, but you can beat their performance....if you're lucky and pick the right funds. Index funds simply aim to replicate the performance of a particular index, such as the Standard & Poor's 500 Index. When the index goes up, so do they. And when it goes down...well, that's the problem. Many investors are convinced they can beat the indexes if they choose the right active money manager, so they keep trying. That's the triumph of hope over experience, Vanguard Funds founder Jack Bogle, the father of index investing, once told me in an interview.

St. Petersburg Times readers include investors on both sides of the fence, avid indexers and proponents of active management. Here's what some of them had to say.

My column today is about a very active approach to investing--trying to pick the hot IPOs (initial public offerings). Scott Sweet of Lutz has been doing it for 25 years and now runs IPO Boutique.

We're putting a spotlight on local companies

The Times is making some major changes in its business coverage, both in print and on the internet. The biggest change in print is that we will no longer be printing a comprehensive table of stock and mutual fund listings. (If you've got a stock you want to track, you can look it up through the Times Web site or many other financial sites on the Internet.) However, without the stock pages, we won't have enough pages to create a separate business section except on Sundays. Each day we will be printing a market report that focuses on stocks of local interest and the largest mutual funds. In addition, we are creating a new online focus on companies headquartered in the Tampa Bay area. We are starting with the 10 largest companies by revenue but will be expanding to include others.

Sunday's paper features a special report on local companies, including some commentary by business editor Bob Triguax and yours truly.

Florida Prepaid College Plan wins kudos

College savings plan guru Joe Hurley likes the Florida Prepaid College Plan, but isn't so enamored with its younger sibling, the Florida College Investment Plan. Hurley gives the prepaid plan four out of five caps on his Web site, SavingforCollege.com, meaning he thinks it is "an excellent program with many benefits for the participant and positive investment attributes. If it has any significant weaknesses then it also has some particularly good things to recommend it." The caps are little mortar boards. The investment plan only gets three caps, meaning "a very good program that offers valuable benefits but may have some limitations or concerns that investors need to be aware of." But then Hurley is pretty picky. Florida residents can buy an investment-style plan from another state, but there aren't any that rate Hurley's five caps for out-of-state residents.The closest are Illinois' Bright Start College Savings plan (the direct-sold version, not the broker-sold), the Michigan Education Savings Plan, the College Savings Plan of Nebraska , the South Carolina Future College 529 Savings Plan and the Virginia Education Savings Trust, all of which get 4.5 caps for nonresidents. Here's his full list of ratings and here's the Web site for the Florida plans.

Will your money last as long as you do?

That's the question facing retirees who don't have a traditional pension. Naturally, the financial services industry is coming up with ideas on how to answer it. The latest is a new offering Vanguard introduced today. Fidelity Investments also offers a set of income replacement funds. And, of course, there is the option of the traditional life annuity. Today's New York Times has a story on the money management challenge facing retirees.

Is gold a buy or a sell? How about the dollar?

Gold: buy or sell? was the question of the week this past week and I found Times readers seriously divided. (Read some of their opinions here.) Friday gold was trading at $915 an ounce and silver at around $18, both off from their all-time highs. Gold and silver have been great investments for those prescient enough to buy at the right time, but mediocre to lousy for those whose timing was off. I wouldn't want to be the person who paid $800 an ounce for gold back in the 1980s. This site offers historical charts that provide some perspective. My view is that gold is better considered an economic safety net than an investment. I don't think you should have more than 10% of your investment assets in precious metals.

Gold, of course, is a hedge against inflation and a store of value when the dollar is declining. EverBank in Jacksonville has managed to capitalize on both trends, as I wrote in Sunday's column. The bank's specialty is currency-linked bank accounts that allow you to profit or lose money on big movements in the dollar. (Transaction costs mean small movements aren't profitable.) The bank also sells gold. If you're the trader type, you'd be better served by a currency-linked ETF, such as these created by CurrencyShares.

Should some fraudulent insurance sales practices be a crime?

Florida CFO Alex Sink wants to make it a felony for insurance agents to forge signatures on insurance and annuity documents or trick people into swapping one annuity or insurance policy for another. But, as my colleague Jennifer Liberto wrote today, Sink blames Metropolitan Life for trying to block the bill's passage. In the story, Rep. Clay Ford expresses concern about sending more people to prison, claiming "we already have prisons filled with people who commit white-collar crimes." I'd call that statement extremely doubtful. The armed robber who steals $10 from someone on the street is far more likely to go to prison than the insurance agent who steals someone's life savings. So far no insurance agents have even had their licenses revoked for selling the EISA fraud.

Senate Bill 2082 also increases the penalty-free cancellation period on policies from 10 to 14 days.

Here's your chance to ask an expert your financial questions

The Florida Institute of CPAs is celebrating "Financial Fitness Friday" Friday, April 18, by volunteering to answer your financial questions.So here's your chance to ask that question you always wanted to know but were afraid to ask me :)

Call the FICPA Financial Fitness Hotline toll-free at (800) 342-3197, ext. 554, between 9 a.m. and 5 p.m. Friday.

More information about financial topics is available at the American Institute of CPAs' "360 Degrees of Financial Literacy" Web site. 

Ouch! Wachovia cuts dividend

There are more signs that troubles in the financial sector aren't over yet and this one is really going to hurt investors. Wachovia Corp. said today it is cutting its quarterly dividend from 64 cents to 37.5 cents a share, seeking a $7-billion capital infusion and cutting 500 jobs. Wachovia blamed bad timing in its acquisition of Golden West, expanding its mortgage business at exactly the wrong time.  Of course the dividend cut is also the wrong time for investors who have seen their CD income plummet.

Want to learn more about money? Here are some good places to start

There's so much information out there, it can be overwhelming to know where to start. I came across some recommendations today that I think would benefit anyone who wants to learn more.

Here are RETIREMENT PLANNING RESOURCES, available for free online and in some cases by mail.

Here are INVESTMENT BOOKS recommended on the Vanguard Diehards' forum.

Scam State: Series warns readers about fraud

Some of you may have noticed that the Times has been running an occasional series about financial fraud to educate readers about how they work. Here are the ones we've published so far:

Ponzi schemes, Lottery and Sweepstakes Scams, Pump and Dump Schemes, Tips to Avoid Becoming a Scam Victim

Do you have a scam you'd like to suggest for this series? Each scam we highlight needs to be illustrated with an example that has a Tampa Bay connection. The Lou Pearlman case is obviously an example of a Ponzi scheme, although I used a different example here so people wouldn't get the impression it's the only Ponzi scheme around. In fact, the majority of investment frauds are a variation of a Ponzi scheme.

On a related note: Tonight's Dateline program (7 p.m., NBC) turns a spotlight on the highly questionable sales pitches insurance agents use to sell annuities to older people.

How safe is your brokerage account?

The problems at Bear Stearns and other brokerages have left many investors wondering: What about my brokerage firm? Would my money be safe if it went broke? The answer thank goodness, is usually yes. Your money would be safe thanks to the Securities Investor Protection Corp. In my column Sunday, I talk about what's covered and what isn't. Here are some steps you can take to be sure you are covered:

• Look for the words “Member SIPC” when dealing with a brokerage.
• Make checks payable to the SIPC member company, not to other companies or the broker.
• Keep copies of trade confirmations and of recent statements.
• Check statements to be sure nothing is amiss.
• Call if you fail to receive a statement.

How do you get started with a Roth IRA?

Q: My son is 30 and wants to start a Roth IRA. Where should he put his $1,000 and how does he begin to do it? We won't hold you responsible with the outcome. It is our responsibility, but we are not knowledgeable like you about such things.

A: Getting started with an IRA is a three-step process: 1. Opening an account with an IRA trustee, such as a bank, brokerage firm or mutual fund company. 2. Putting money in the account (you have until April 15 to make a contribution of up to $4,000 for 2007 plus an extra $1,000 for those 50 and older). and 3. Choosing the investment.

The type of investment you want will influence where you open the account. For example, if all you want is a bank CD, then your best bet is to simply open an IRA with a bank that offers CDs with above-average yields. How much money you plan to invest also matters since a fund company or brokerage may have a minimum account size or charge fees that make a small account unfeasible. In some cases you can get around an account minimum by signing up for monthly transfers from your checking account to your IRA, such as this program from Fidelity.

Since your son has a long time to go until retirement, I'd recommend a mutual fund that invests in stocks or a combination of stocks and bonds. He should choose only one fund to get started, which can be overwhelming because there literally are thousands of fund choices out there. The important things are to choose a fund that's broadly diversified rather than focused a particular area such as small stocks or health care and to choose one that has reasonable expenses. I don't recommend any particular funds, but I will give two examples of funds you can buy directly from fund companies with $1,000 minimums for IRAs: T. Rowe Price Retirement 2045 Fund and Vanguard STAR Fund. Another approach is to open an IRA account with a low-cost brokerage firm and buy funds available through that firm with no transaction fees.

Kudos to University of Tampa student investors

Students in an applied investment management class at the University of Tampa apparently know their stuff. They more than doubled the performance of the Standard & Poor's 500 Index last year and, as a result, won first place in a recent global money management competition.

The students managed real money, the Bailey Student Investment Fund, a $150,000 investment portfolio established five years ago with a $100,000 gift from the Bailey family. They earned a 14.62% return for 2007, compared to a 5.49% return on the Standard & Poor's 500 Index. Half the portfolio was invested in exchange-traded index portfolios to get broad domestic and international exposure to the markets and half in individual stocks and funds selected by the students. Ten percent of the portfolio was invested in stocks or funds that provide exposure to alternative asset classes such as real estate, commodities and private equity.

The best investments for 2007: iShares MSCI Brazil ETF, Apple Inc and iShares MSCI Canada ETF. The worst: iShares Cohen & Steers Realty ETF, Gamestop Inc., Vanguard Emerging Markets ETF.

The group placed first in the graduate division for core-style portfolios in the Redefining Investment Strategy Education 8th Annual Global Student Investment Forum held at the University of Dayton last week.

"This is a huge recognition," said Marcus Ingram, the fund's faculty adviser. "UT competed strongly with large schools that manage funds in the millions of dollars and which have unlimited resources and direct access to assistance from Wall Street firms."

Then again, maybe this is a sign that assistance from Wall Street firms isn't necessarily a good thing.

How can I replace my 7% annuity?

Q: I have a fixed-term IRA annuity yielding 7 percent that ends in July. What can I invest this in? I am 80 years old and need this income to live on. My health so far is good.

A: I'm afraid the days of 7 percent returns are long gone for the type of investment you have now. Consider instead an immediate annuity that will pay you a monthly income you can’t outlive. You’ll get the largest payment if you choose the option with nothing for your survivors.

You also could create your own annuity with CDs and money market accounts, withdrawing both income and principal to meet your income needs. Of course you run the risk of running out of money with that option. A third option is a reverse mortgage if you own your home.

What in the world happened to my stock?

Q: I own shares of Wachovia Corp stock that were worth $57,113 in August and are now worth just $29,811. Can you tell me what would be the cause of this?  I read about Wachovia acquiring all these banks, trying to become the largest bank in the nation. How can this be when its own stock is dropping in value?  Would I not be better off collecting the dividends now instead of reinvesting them?

A: Pretty much everybody invested in the financial sector shares your pain. You may have seen an article or two about problems in the credit markets. The problem is not just people defaulting on their mortgages, but the fact that the future doesn't look especially rosy for financial services right now. Further writeoffs of bad loans are likely and we have to figure a way out of this mess without further damage to our markets. Then, assuming we do, banks simply aren't going to be making the same kind of profits on mortgages and home equity loans that they did in the past. One analyst says Wachovia could become a takeover target. Stock prices have fallen so much that some people think financial stocks may represent a buying opportunity. However, that's only something we'll know in hindsight. You have to be brave to stick your neck out.

This problem points once again to the importance of diversification. Having a lot of eggs in one basket doesn't work out so well when something happens to basket.

Inflation, interest rates and saving pennies

Retirees and other savers are feeling squeezed with inflation heating up and interest rates falling. As the Federal Reserve Board focuses on repairing the credit markets, it runs the risk of making inflation worse. My story today looks at this issue. In addition, my colleagues have written about why food prices are going through the roof and tips on spending less. How are YOU coping as prices rise and CD yields sink? Here's what some readers had to say about lower interest rates.

And speaking of pennies, this week's column is about penny stock fraud. Don't let it happen to you!

[Credit: Stock.xchng]

What's the safest place for our money?

Q: My wife and I are in our seventies and we are not to diversified. Most of our retirement is in CDs, money markets and two homes.  Everything is paid for. We have , I think, enough money to get us through our retirement if someone dosen't take it away from us. What in your opinion is the safest place for our money?  I worry about the banks.

A: In my opinion, banks still are the safest place. Put your money in a well-capitalized bank or credit union (Look up bank safety ratings here.) and stay within deposit insurance limits.

Dow 18,500? That's what Morningstar analyst says

Need cheering up? How's this: Morningstar analyst Jeffrey Ptak predicts the Dow Jones Industrial Average will be at 18,500 within three years. "The Dow hasn't looked this cheap to us since Septemer 2002," he says. The valuation is based on a bottoms-up analysis of individual stocks rather than as top-down economic view.

Municipal bonds may be worth a look

The problems in the credit markets have wreaked havoc for municipal bond insurers and issuers but may be creating some opportunities for investors. As I wrote in my column today, it's become crucial to go back to the old way of looking at munis. That means evaluating the credit of the underlying issuer rather than relying solely on the "enhanced" AAA credit of a municipal bond insurer. The issues in the market have called into question whether bond insurers really are AAA.

High-quality municipal bonds (general obligation bonds and revenue bonds backed by water and sewer fees) are very unlikely to default. However, they do carry other risks. If you sell before maturity, you can lose money. They rise and fall in value based on fluctuations in interest rates and changes in the credit outlook for the issuer. They also can be called early for redemption (check the terms of each bond issue), which creates a risk of loss if you pay more than the face value of the bond. In addition, bonds are bought at one price and sold at another price, so if you have to sell, you get the lower price. Bonds are sold through brokers. You can get information about interest rates at BondsOnline.   

Regulators look at how brokers do business with older investors

How should brokerage firms relate to older investors? Securities regulators said today they plan to compile ideas and best practices from the industry, then publicize them and encourage other brokerages to use them. They are looking at marketing and advertising to seniors; account opening; product and account review; ongoing review of the relationship and appropriateness of products; surveillance and training.

They say they don't intend to impose new regulatory requirements, so it remains to be seen how effective the effort will be. But it's good that they're paying attention to the issue. Other parts of the initiative include enforcement actions and the "free lunch" report highlighting abuses involving investment seminars.

Is a recession the time to get out of stocks?

No, says Larry Swedroe, author of numerous books, including Wise Investing Made Simple. The time to get out of stocks is well before a recession. Stocks go down in anticipation of a recession, but once it actually starts they do better. He looked at the 11 recessions since 1945 and found the average return on the S&P 500 was 7.1%. The actual returns ranged from a loss of 17.9% to a gain of 27.6%.

Since the likelihood of timing the market is small, Swedroe recommends regular rebalancing to keep the same percentage of your portfolio in stocks. That way you sell when stocks are high and buy when they are low.

Here's the list of the recessions:February 1945-October 1945, November 1948-October 1949, July 1953-May 1954, August 1957-April 1958, April 1960-February 1961, December 1969-November 1970, November 1973-March 1975, January 1980-July 1980, July 1981-November 1982, July 1990-March 1991, March 2001-November 2001. Source: BusinessWeek, February 4, 2008.

How about investing in the Iraqi dinar?

Question: A customer asked me about investing in the Iraqi Dinar, stating that once the Iraqi War has ended, the Dinar would skyrocket, earning you thousands. I for one, believe this to be a scam; or at least an unwise investment. Can you shed some light on this topic?

Answer: I'm with you.  Dinars do not trade on regular currency exchanges. Rather, they are sold through eBay and other Web sites, which makes buying them more like buying a collectible than a currency investment. Who knows what will happen when the Iraqi War ends? What's to stop the government from printing lots more dinars? What's to stop counterfeiters from doing it? Money magazine editor Walter Updegrave offers some commentary on this.

Where are gold prices headed?

When Wachovia economist Mark Vitner was in town this week, he offered his opinion on everything from the economy (headed up in a few months) to Chinese stocks and gold (both headed down). In fact, when it comes to gold, Vitner says he's putting his money where his mouth is--he plans to sell the $20 gold pieces he bought years ago. "Gold prices are a measure of fear," he said. He said in two or three years he thinks gold will be back around $300 to $400 an ounce.

I have no idea where gold prices are headed, but the only gold I ever buy is in jewelry.

Fed cuts rates, wild day on Wall Street

Talk about a crazy day. The Fed delivers the biggest interest rate cut in more than 25 years and the traders who dominate Wall Street can't decide whether to buy or sell. The Dow is down 400-plus points in one moment and then only down 40 something at another.

Stock investors generally like rate cuts, but their happiness that the Fed is taking action is tempered by the news that the Fed economists apparently think that recession warning lights are going off like crazy. The good news is that as rate cuts work their way through the economy, they make it less expensive for businesses to borrow money to expand or just stay afloat and for consumers to handle their credit card debt and home equity loans. Of course not everybody has good enough credit to qualify for a loan and take advantage of the good rates. However, if you've got an adjustable rate mortgage that's getting ready to reset, this is really good news for you.

The bad news is that every rate cut increases concern about inflation, reduces income for retirees who depend on CDs and money market accounts and hurts the dollar.

Today's Supreme Court ruling is a setback for burned investors

The Supreme Court ruled today that investors have no right to sue those who "aided and abetted" securities fraud but were not the primary perpetrators. This is bad news for investors looking for "deep pockets" as a source of recovery after fraud is discovered.

While I am not a lawyer, it would seem to me that in the Lou Pearlman case, this ruling would hurt investor attempts to recover from banks that Pearlman used to hold or transfer funds or from lawyers and other third parties with whom Pearlman did business. So far as I can tell, it does not apply to situations in which investors dealt directly with lawyers or sales agents who advised them to purchase the fraudulent investment.

Some other takes on this story: Washington Post, Christian Science Monitor

 

Have you lost track of an investment? Here's help

Have you got an old stock certificate and no idea whether it's worth anything? Wondering about that old bank statement or passbook that shows money you can't remember withdrawing? Can't find those savings bonds you thought you tucked in a drawer?

Today's column offers some advice for tracking down investments. Of course merely having posession of a security or bank book doesn't mean you're entitled to the money. You'll also have to prove that you own it or that you are the legitimate heir or representative of the estate.

Bonds were the winners in 2007

Bonds were big winners in 2007, according to a Morningstar report issued today. Here's a look at how the major asset classes performed.

2007 returns:
Large-Company Stocks returned 5.5%, compared to 15.8% in 2006.
Small-Company Stocks were down 5.2%, compared to 16.2% in 2006.
Bonds returned 9.9%, compared to 1.2% in 2006.
Cash returned 4.7%, compared to 4.8% last year.
Inflation was 4.6%, up from 2.5% in 2006.

Beginning of 1926 through 2007 (last 82 years) average annual returns:
Large-Company Stocks (S&P 500) returned 10.4% per year (unchanged from 2006).
Small-Company Stocks (bottom 20% of companies by market cap on the NYSE and companies of similar size on the NASDAQ and AMEX) returned 12.5% per year (compared to 12.7% from 1926 through 2006).
Bonds (long-term government) returned 5.5% per year (compared to 5.4% from 1926 through 2006).
Cash (30-day T Bill) returned 3.7% per year (unchanged from 2006).
Inflation was 3.1% per year (compared to 3.0% from 1926 through 2006).

These numbers are not adjusted for inflation and assume reinvested dividends.
Source:  © 2008 Morningstar, Inc.

Jack Bogle weighs in with the Bogleheads

They're buzzing over at the Bogleheads investment forum today because The Man himself, Vanguard founder Jack Bogle, signed on to offer some personal comments. The forum, formally the Vanguard Diehards Investment Forum, is a great place to learn and discuss sound investment principles. Like their hero, the Diehards are big believers in low costs, indexing and taking the long-term view.

Bogle describes himself as "unusually risk averse," but it hasn't prompted him to change his asset allocation. This is how he says he's invested: "My year-end statement from Vanguard (the only time I peek) shows about 63% bonds and 37% stocks, and--for a conservative, fairly well-to-do investor like me--I'm comfortable doing nothing. (In fact, I've made no changes in my asset allocation for 7 or 8 years.)"

Which is better: a Roth IRA or a CD?

Question: I am a retired school teacher, aged 58, with a good pension.  I have recently been putting money (about $40,000.) into CD's that average about 5% interest. Is a Roth IRA a better way to go with this money?  I probably will never need to use it, but would like to leave it for my companion of 20 years, who has a small pension plan, and is 13 years younger than me.

Answer: You have to have earned income to contribute to an IRA. If your friend is still working, you could open a Roth IRA on his/her behalf and invest the money in a CD. A regular or Roth IRA is a tax-deferred wrapper for your investments, with CDs one of many investment options. You have until April 15 to make a 2007 contribution (up to $4,000 for those under 50: $5,000 for 50 or older) plus you can make a 2008 contribution (up to $5,000 for those under 50; $6,000 for those 50 or older).

How will you invest in 2008?

The eve of a new year is always a time for both hope and uncertainty. None of us can say for sure what 2008 will bring. Nevertheless, we all have to make decisions both about our lives and our money. Are you planning to change your investment strategy in 2008 or will you simply stay the course?

For two pieces in Sunday's Times, I asked for opinions from money managers, economists and market researchers and from Times readers. As you can see, there is no consensus other than that things are likely to be volatile. I'm a "stay the course" person myself, continuing to add to my 401(k) and IRA. I believe in keeping a mix of stocks, bonds and cash.

Tell us what you are doing. 

State fund feels the pinch of mortgage market problems

Florida's State Board of Administration says it has almost no direct exposure to subprime mortgages, but its short-term investment portfolio is still taking a hit from problems in the mortgage market. Investors now shy away from asset-backed securities even when the borrowers for the underlying debt have good credit. The result: The board said Wednesday that some of its its debt holdings have been downgraded, including $2.2-billion worth of short-term debt that is now rated below the initial purchase requirements. Here's the SBA Report for those interested in the details. The downgrade means the debt is worth less if the SBA were to try to sell it--some securities have dropped 5 to 10 percent in value. The SBA said it expects to be able to redeem two of the positions at their maturity and is working to restructure other positions. The SBA manages $187-billion in government funds, including the $138-billion pension fund for state and local government employees.

CFO Alex Sink had asked for the report, but I couldn't reach her to comment on it Wednesday. After the meeting, Gov. Charlie Crist said "we're concerned, but we're also hopeful."

Should I take a buyout offer from my siblings?

Question: I recently retired at 58. My only debt is a $65,000 mortgage. My mother just passed away and left her home worth $200,000 (no mortgage) to her five children in a trust. It is currently rented for $1,000 per month. I have a chance to be bought out by my brothers and sisters. I would use this money to pay down my mortgage. Would being closer to being debt-free be a good decision versus remaining one-fifth owner of a rental house?

Answer: Being one-fifth owner of a rental house is fraught with peril. If a new roof is needed, you may be called upon to put up a fifth of the money. If the house is vacant for a while, you may experience outgo rather than income. And you and your siblings could have disagreements over the best way to handle these and other issues that may arise. Keep in mind also that rent is not all profit. You will be paying for insurance and taxes as well as repairs. In addition, whichever sibling does the work involved in managing the property should be entitled to compensation. As long as it's a reasonable price, I'd say take the buyout offer.

Whether to pay down a mortgage is a separate issue. What's best depends on the return you would earn on your investment alternatives. How would you invest this money if you did not pay down your mortgage? There also are psychological considerations. Paying off your house is a conservative approach, one that many people find gives them peace of mind.

What a surprise: My stock has been sold

Question: I had hundreds of shares of TXU stock in my TD Ameritrade IRA account and had done very well with it. Then I checked online and saw that my shares had been sold and the proceeds placed in a money-market account. TXU is no longer listed. When I searched for information, I found out that they had been bought out. I knew about the negotiations, but assumed any buyout would mean conversion of TXU shares for shares in the new company, not merely a cash transaction. Clearly I was wrong.

I'm a cautious 79-year-old seeking income. If this was not in an IRA, I'd yank the money out and put it in a CD, but now I'm stuck in a money market account unless I am willing to take some risk. Do you have any comment on my experience?

Answer: My first comment is that investors should not buy individual stocks unless they are prepared to follow them more closely than you did this one. I think you are fortunate that this episode turned out as well for you as it did. When you know a deal is pending, it is best to do some research rather than assuming that it will take a particular form. Here's the story of how the buyout worked.

If you want a CD, there is nothing stopping you from getting one. You can buy CDs and other fixed-income investments at TD Ameritrade. Or, if you haven't already done a rollover involving this account in the last year, you can withdraw the money from your IRA brokerage account and roll it over to an IRA at a bank. Just be sure you get the rollover accomplished in 60 days so it's not a taxable transaction.

Do you remember black Monday?

Do you remember Oct. 19, 1987, the day the Dow Jones Industrial Average lost 23% of its value? I am interested in hearing from some people in the Tampa Bay area about their memories of that day. What were you doing? How did you feel when you heard the news? What happened to your own investments? What did you do in reaction? Did it affect your investing for years to come? Could it happen again?

Update:

Here's the story I wrote about Remembering Black Monday.

When it comes to investment fraud, crime keeps paying

When regulators crack down on fraudsters, what do they do? Ignore them, in many cases, according to this interesting recent article in Investment News. One of the cases mentioned is that of Steve Rodd, who was barred from the securities industry by the SEC for selling a pay phone scam and ended up selling Lou Pearlman's Trans Continental Investment scam through Churchill Financial Inc. But he has plenty of company. One of the problems cited by Investment News and my own stories has been the lack of communication among various regulators. Rodd might have been banned from the securities industry, but he remained licensed to sell insurance. The more attention this problem gets, the better.

Money question of the week: Where's the dollar headed?

The dollar has been in a steep decline against many of the world's currencies. The Canadian dollar reaching parity for the first time in more than 30 years and anyone who's been to Europe in recent years knows the exchange rate is grim.

Do you think the dollar will keep sinking or are you looking for a rebound? Has the decline in the dollar had any impact on you?

My column in Sunday's paper points out some of the opportunities and pitfalls of trying to cash in on currency movements. Here's a CFTC consumer alert about foreign currency fraud.

Please include your first and last names and cities if you would like your comments considered for pubication in the Times.

[AP Photo]

Women say Raymond James discriminates, retaliates

Three women who worked at units of Raymond James Financial Inc. have filed this lawsuit against the company in federal court in Chicago.They accuse Raymond James of discriminating against them based on gender, age and race by denying them opportunities for training and advancement, paying them less than men for comparable work, subjecting them to sexual harrassment and retaliating when they complained. The plaintiffs, Beverly Beren, Bernadette Seprish and Pahoua Lee, worked for Raymond James in Atlanta and in St. Petersburg, but they want the suit to be declared a class action including many if not most of Raymond James' women employees.

The suit was filed by Stowell & Friedman, a Chicago law firm noted for bringing discrimination lawsuits against brokerage firms.

A library visit that's better than free

A visit to the St. Petersburg Public Library this Sunday could pay big dividends. Investor Education @ Your Library looks like a worthwhile program for those who want to learn more about investments, planning for college or retirement or planning for income in retirement. The free program is from 1:30 to 4:30 p.m. with registration at 1:15 p.m. at the main library, 3745 Ninth Ave. N, St. Petersburg.

Participants will each receive the following booklets and guides:

  Five Keys to Investing Success

  Getting Help With Your Investments

  The Six Strategic Steps: Your Roadmap for Investing Wisely 

You can get more info here or by calling the library at (727) 893-7724.

[Florida Office of Financial Regulation photo]

How can I cash in my Krugerrands?

Question: My mother left me 10 one-ounce gold Krugerrands.  I see gold is more than $700 an ounce. Is this a good time to cash in and how does one do that?

Answer: Yes this is a good time. However, I cannot tell you whether there will be a better time later if you hold onto them. The way to cash in your Krugerrands is to take them to a coin dealer. The most efficient way to do this is to make a list of dealers, call them and ask them how much they will pay for your stash. For each coin you can expect to receive $10 to $15 less than the current price of gold. (If you buy, you pay about $10 more than the current price--the difference is the dealer's take.) Naturally you want to deal with someone who has been in business for a while. However, you don't have to worry about finding someone who is a coin expert since you are not dealing with a rare coin. A Krugerrand is a commodity coin with its worth based on its gold content, not on its rarity or beauty. 

(Photo credit: St. Petersburg Times)

How can I buy General Electric stock without using a broker?

Question: I want to buy stock directly with General Electric. Do you know how I can do this? I heard you set up an account with their bank which is in New York. I tried emailing them and got nowhere.

Answer: You can invest directly in General Electric and many other companies through this Web site.

What if you want to invest in a company that isn't on the site above? First, check this Web site to see if you find the company listed.

Still not there? Here is another site with a list of companies with direct purchase plans. Try clicking on the company name, which will take you to the company Web site. From there go to "investor relations." Don't see anything about a direct purchase plan? If you go back to your starting point and click on the stock symbol, you will take end up at Sharebuilder, which is a brokerage that specializes in automatic investing plans.

Buying stock directly on a regular basis is a way to build a stake in a particular company. However, it does have some drawbacks, including the need for scrupulous record keeping to avoid tax problems when you sell. In addition, if you aren't careful, you can end up with a bunch of small holdings and no overall investment plan. You need to keep your goals, your risk tolerance and the need for diversification in mind when you assemble an investment portfolio.

(Photo credit: Getty Images)

Are you ready for a rate cut?

The Federal Reserve Board is expected to cut the target rate for Federal Funds Tuesday for the first time since 2003, when the rate fell to 1%. (Here's a chart showing the rate history.) The rate has been 5.25% for a little more than a year. Everybody seems to expect at least a quarter of a point cut, with some hoping for half a point.

Here's what a rate cut is likely to mean for investors and savers:

*Expect a pullback in those juicy CD and money market yields. Rate cuts are always bad news for short-term income investors.

*Interest rates will decline on home equity credit lines, which are directly tied to short-term rates. That's good news if you already have a credit line or if you're in the market for one.

*Adjustable rate mortgages aren't quite so straightforward. Depending on the terms of your mortgage, you may be locked in at your current rate. If your mortgage is approaching reset, your new rate may be better than it would have been. However, it's still likely to be higher than the teaser rate that got you into the loan in the first place.

*Fixed mortgage rates are not directly tied to short-term rates. They're affected by what happens in the broader bond market. Those rates could go lower if the economy continues to slow. However, right now rates are low, so this is a good time to lock in a rate if you're thinking of refinancing.

Money question of the week: Have you ever attended an investment seminar

Have you ever attended an investment seminar? Tell us what it was like and how you fared if you bought an investment as a result. Include your first and last names and city so your comment can be considered for publication next Sunday.

(Photo credit: Getty Images)

If you've been considering a CD, you might want to act Monday

The Federal Reserve is widely expected to drop short-term interest rates when it meets Tuesday, which means banks are likely to follow the downward trend. Unfortunately for consumers, savings rates drop faster than borrowing rates. That means this probably is a good time to lock in a slightly longer-term rate. You might consider a CD ladder, buying CDs with varying maturities (one year, two year, three year).

You can check rates on sites such as bankrate.com  and Quicken.com. Certainly you shouldn't settle for a rate of less than 5%. You can go to FDIC.gov to check whether a bank has FDIC insurance.

Where can I find out about investment adviser designations?

Question: You mentioned that some of these investment seminars are put on by persons that use dubious professional designations that require no meaningful training, but suggest expertise and mislead investors. How do I as a senior know what these designations stand for? And which designations are meaningful and which are not?  What do the designations CSA and CLDP stand for? Can you email me a list that will answer some of my questions?

Answer: Here's the best source I have found for professional designations used by investment advisers. You have to pull down the drop-down box and hunt for the one you're looking for. I have never heard of CLDP and don't see it on the list. CSA is "certified senior advisor," which is one of the more dubious designations. Some credentials I consider of particular value are CFP, CFA, ChFC and PFS (for people who already are CPAs). For those who are interested, here is a column I wrote on the subject and here is some commentary on the proliferation of designations from author Errold Moody.

Susan Antilla takes on Phillip Wasserman and "the # 1 retirement income planning firm in the nation"

A Tampa Bay insurance agent/financial executive is getting some national attention today from Bloomberg columnist Susan Antilla, but it isn't exactly complimentary. Phillip Wasserman, chief executive of Phillip Roy Financial Services in Clearwater, is described as a bully who is currently being investigated by both the Florida Department of Financial Services and the Florida Office of Financial Regulation. On its Web site the company says it speaks to 40,000 seniors a year through investment seminars. Wasserman is a former lawyer who resigned from the Florida Bar after being suspended. The St. Petersburg Times covered his dispute with the bar back in 1995 and 1996. I called his office and asked for his comment on her column, but he wasn't available.

Update: Wasserman's attorney, Anthony Battaglia, said the state has a "personal vendetta" against his client and Wasserman has filed formal complaints with the office of the inspector general regarding the conduct of the investigations. Wasserman called Antilla's column false, biased and unfair.

Another update: Wasserman called me to tell me more about his company. He said more than 800 representatives are now affiliated with him and that he's now a multi-millionaire and a major charitable donor.

Don't become an investment victim

Older investors are the prime target for most investment advisers, whether they're selling stocks, bonds and mutual funds, annuities or high-risk promissory notes. Fraud is the biggest concern, but an investment doesn't have to be a total scam to be bad for you. It might just be unsuitable for someone in your circumstances. It might be misrepresented in terms of the promised return or in failure to mention the risks and drawbacks - or both.

Learning more about investments and the sales pitches unscrupulous advisers use is your best defense. Here are some tips from the SEC regarding investment seminars. Here is yesterday's report on the problems regulators found in investment seminars aimed at seniors..

To check out an investment adviser or investment offering in Florida call 1-800-848-3792.

To get someone to give a presentation on investment fraud to your group contact Florida Seniors Against Investment Fraud (FSAIF).

To learn more about safe investing, here's a new Web site with helpful articles and advice for older investors and for military personnel. Here are some tips from the AARP and additional info from the SEC and the North American Securities Administrators.

Two places to get a referral to a fee-based financial adviser are the National Association of Personal Financial Advisors (888-333-6659) or the Institute of CPAs with personal financial specialist designations ((888) 999-9256).

(Photo credit: Getty Images)

There is no free lunch

"Free" lunches and dinners targeting seniors are a marketing staple for some investment advisers, but they can cost the unwary investor plenty. Securities regulators released a scathing report today of seminars as they are being conducted in Florida and six other states. St. Petersburg Times story. Here are some findings:

*100% of the seminars were sales presentations, even though many are advertised as "educational" or promise "nothing will be sold."

*50% featured exaggerated or misleading advertising claims, such as "how to receive a 13.3% return" and "how $100,000 can pay $1-million to your heirs."

*23% involved possibly unsuitable recommendations, such as risky investments to investors with conservative objectives.

*13% appeared to be fraudulent, including possible liquidation of accounts without customer knowledge and sales of apparently fictitious investments.

Next up for review: the use of dubious professional designations that mislead investors and pre-retirement seminars.

Update: I have received quite a few requests for names of the firms included in this examination and how they performed. The regulators would not release this information.

(Photo credit: Getty Images)

What happens to my FDIC insurance if my bank merges?

Question: I have a $100,000 CD with Crown Bank and another $100,000 CD with Fifth Third. I have since been informed that Fifth Third Bank has bought out Crown Bank. Will I still have FDIC coverage on my Crown CD even though it puts me over the limit?

Answer: Yes. Your Crown Bank CD will continue to be insured separately until it reaches maturity. That's how it works when two insured banks merge. For other types of accounts (such as checking, savings, money market), there is a six-month grace period during which separate FDIC insurance continues. You can even extend coverage if a CD comes due during the grace period and you renew it for the same term. For details, check page 29 of Your Insured Deposit.

If you have other questions about FDIC insurance, call 877-275-3342 toll-free.

Money question of the week: How are you managing your income in retirement?

Making your income last as long as you do is one of the greatest challenges facing retirees. There are inevitable tradeoffs--the more you spend now, the more likely you won't have enough later to maintain your lifestyle. But being too conservative exacts a price as well. In my column in today's Times, Gail Bruckner of Franklin Templeton gives her recommendations. This report from Fidelity talks about the potential role of annuities.

I want to know how you are managing your income in retirement. Do you have any tips to share with others? If so, I'd like to hear them.  Please give your first and last names and your city so we can consider your comments for publication in the St. Petersburg Times.

(Photo credit: Getty Images)

Currency trading for dummies?

Books about money and investing come across my desk every day. Yesterday it was The Naked Truth About Your Money and the newest Dummies book, Currency Trading for Dummies. Although the first one has no naked pictures whatsoever, it does use bright colors and consumer-friendly language to try to appeal to the young and clueless. I found the mere existence of the Dummies book pretty shocking. One interpretation of the title might be that any casual investor who takes up currency trading is a dummy. I can just picture some guy reading the book, thinking he knows how it all works and being quickly separated from his money. However, I can assure you that no actual dummy could possibly understand this book. Other topics in the same vein include Futures & Options for Dummies and Hedge Funds for Dummies. Then again maybe those hedge fund gurus at Bear Stearns would have done better had they read the Dummies book first.

(Photo credit: Dummies.com)

Don't like your electric bill? Maybe you'd like the stock better