Make your money work for you

Dear Dave,
I’m a recently retired widow, and my husband always took care of most of our finances. We never had any debt, but after starting to learn a little bit about how money works, I’m worried that there may be too much of it invested in CDs (certificates of deposit). The total nest egg is a little over $1.5 million, with $300,000 of that in CDs. There’s also a $317,000 annuity, a 403(b) and around $900,000 in IRA mutual funds. I also have two homes and a new car that are paid for. How do you think I should handle things going forward?
Joan

Dear Joan,
I’m really sorry to hear about your husband, but you two did a fantastic job with your finances. You’re worth at least $1.5 million, and you have no debt. You’re set for life, but you’re wise to want to be careful.
The CDs give you some stability, but obviously they’re not earning much of anything. I think of them as money kicked up in a hammock—it’s not working for you. You both worked hard for that money, so personally I’d like to see it working hard for you now. If you’ve had good luck with a variable annuity, that’s fine. You’ve also had very good luck with your mutual fund investing. So, with all this money in different areas, you’re definitely diversified. It’s just a matter of wrapping your arms around it all and developing a deeper understanding of things going forward.
At this point, I would urge you to find an investment professional in your area with the heart of a teacher—someone who’s not trying to sell you stuff. You want to learn, Joan, and I’m really impressed by that. It’s a smart and necessary thing. Every time you see an investment person, whoever it may be, your goal should be to leave the room smarter and with more understanding than you had before.
Dave
 

Dear Dave,
My wife and I are 31 years old, and we have no debt except for our home. We also have an emergency fund and college savings in place for the kids. Over the last several months we’ve saved $22,000 for a newer car, but we’re also worried about retirement. We’ve been putting 15 percent of our income toward retirement, and we’re concerned that maybe we shouldn’t spend the whole $22,000 on a car. We make around $100,000 annually and have $50,000 in our nest egg. What do you think, Dave?
Brandon

Dear Brandon,
In your situation, a $22,000 car is not unreasonable at all. You guys are both 31 years old, and you’re going to be in great shape for retirement if you just keep doing what you’ve been doing. On top of all that, you’ve got your emergency fund in place, in addition to a nest egg and car savings. If I’m in your shoes, I’d go out and find the best car $22,000 can buy.
You’re doing all the right stuff. Your kids can go to school debt-free, and you’re going to have the house paid off in no time. In short, you’re going to retire multi-millionaires at the rate you’re going—as long as you keep on keeping on.
Think about this, too. As a general trend, most people’s incomes go up throughout their lifetimes. That being the case, chances are you’re going to make and invest even more money in the years ahead. You and your wife could easily retire with $5 million to $10 million sitting there.
You’ve done a great job together, Brandon. Keep up the good work, and enjoy that car.
Dave