Taking Stock Of Your Assets

The Keesee family has built a significant investment and real estate portfoli0. Now they plan to safeguard it.

recommends that the Keesees keep at least $45,000 available in cash savings. They have about $20,000 (outside of the children’s savings accounts). They should put away $500 to $1,000 per month until they reach the $45,000 goal. About 50% should be invested in money market funds and 50% in short-term securities such as Treasury Bills or CDs. “This will allow them to boost their return without sacrificing liquidity,” he adds.

Freeman’s other recommendations for the Keesees:

Diversify real estate holdings. The Keesees’ properties are all in Virginia. “You can’t assume that there will always be someone who will pay you more than what you paid. Real estate is subject to the same forces of supply and demand as most other investments,” warns Freeman. The Keesees should also see if any of their properties would be a good candidate for a Section 1031 Exchange, which allows you to “exchange” one type of real estate for another. “The gain on their residential rentals will be tax-deferred. Capital gains are not recognized until they actually sell the new property,” adds Freeman.

Reallocate portfolios. Freeman suggests the couple look into building a tax-free bond portfolio, including purchasing bonds from municipalities in Virginia. He recommends the Vanguard High-Yield Tax Exempt Fund (VWAHX). “This is a low-cost municipal bond fund, which currently has a yield of about 4.2%.” Another high-yield bond fund the Keesees should consider is the BlackRock Debt Strategies Fund (DSU). “This fund is a taxable bond fund that currently sports a yield of about 8.9%,” says Freeman. The Keesees currently have about 15% of their equity exposure in international stocks. They should look to increase this exposure to as much as 20%, as foreign markets will continue to exhibit higher rates of growth than the U.S. for several years to come, Freeman says.

Cut back on employer stock. Of the nearly 63% of Leon’s equities that are in the healthcare services sector in his employer plan, more than 60% of that is Pfizer. Freeman recommends Leon reallocate: 10% Pfizer stock, 30% T. Rowe Price Value fund, 15% Fidelity Mid-Cap Stock fund, 15% Fidelity Low-Priced Stock fund, 20% Fidelity Overseas fund (International), and 10% T. Rowe Price Fixed Income fund.

Build up Terri’s Roth IRA. She should contribute 3% of her pay, but no more than 6% since there’s no employer match. “Where Terri can really make a difference in her retirement is through her Roth IRA. For 2006 and 2007, she can contribute up to $4,000 per year,” says Freeman.

Open 529 college savings plan for Ph.D. The Keesees should take the $2,000 contest winnings and start a 529 savings plan for Leon’s doctoral degree. He has expressed a strong desire to teach on the college level. “He really feels like this will be a way for him to give back to the black community,” says Freeman, who likes the CollegeAmerica 529 Savings Plan, which is sponsored by the Commonwealth of Virginia.

Financial Snapshot: Keesee Family

HOUSEHOLD INCOME

Gross Income $150,000
ASSETS  
Primary residence $600,000
Savings and checking accounts 23,000
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