Personal Finance

August 15, 2000

Marshall Loeb answers your questions about personal finances and how to invest your money wisely in an unstable stock market.

Page 1 of 5

CBSMarketWatch: Welcome to the CBS MarketWatch.com Personal Finance chat. Your host is MarketWatch correspondent Marshall Loeb. Welcome to the chat, Marshall!

Marshall Loeb: I'm delighted to be with you. I'm always stimulated by your questions. I believe all of us should take charge of our personal finances to make the most of what we have, and I think we can do it.

Lsolo-2: How would you recommend investing $125,000 in cash if you are planning on buying a house in the next 6-12 months and will need it for a down payment?

Marshall Loeb: This is money that you absolutely need, and quite soon, so don't take any chances with it. This is not money to be invested in the stock market or mutual funds. Find the highest short-term interest rate that you can, and put the money into that. You quite possibly will find your best deals with money market funds or bank certificates of deposit.

IRS-phobic: So much paper out there.receipts for everything it seems. For my personal tax needs, what should I keep?

Marshall Loeb: The basic rule is save for at least three years anything that is involved with your income taxes. That's because the IRS can audit your accounts for up to three years after you have filed your federal income taxes. If the IRS believes that you are under reported your income by 25 percent or more, then it can audit you up to six years after you file your income taxes. In most cases, you are safe holding your documents involved with taxes for three years, but if you want to be super safe, then hold your documents for at least six years. Some documents, of course, should be held forever, such as your receipts of your stock market transactions, so that when you ultimately sell your stock or your heirs sell your stock, you will be able to declare the most accurate basis for your stock. Also, save permanently, anything involving transactions with IRA rollovers or movements of your other tax deferred investments. My own view is, "If in doubt, do not throw out." Remember, at tax time, packrats always pay less.

Fred: I invested heavily in tech stocks and recently lost quite a bit of money. Where do I go from here to recoup some of my losses?

Marshall Loeb: If you really believe that the stocks you hold are good, then you are probably wise to hold on to them. I personally believe that many of the high technology companies will do very well in the future. The only stocks to sell would be those that had very high price earnings ratios and very low earnings, or no realistic prospect for earnings at all. Do not panic and sell good stocks at fire sale prices.

MinorDomo: In this volatile market, are bonds a good choice? How do bonds work?

Marshall Loeb: It is often said that stocks enable you to live well, but bonds enable you to sleep well. Bonds tend to be more stable and less volatile than stocks. But if you want to invest in bonds, you are probably safest to buy bonds that you will hold until they mature or come due. That's because if interest rates go up, the price of your bond will go down. Consequently, bonds are do not come without risks. That said, it's wise to have some bonds in your well-balanced portfolio. Generally, the older you are the larger proportion of bonds you would have in your portfolio. The 'classic' allocation of investments recommended by many professional advisors is 55 percent stocks, 35 percent bonds, and 10 percent cash. But one size does not fit all, and you probably would be well advised to put less money into bonds if you are young and confident of the future and more into bonds if you are older and will need your money for retirement. Most individual investors should stick with bonds that are AA or AAA rated. They offer the most security and the best protection against default. If you want to be super safe, buy US Treasury Bonds, which are backed by the full faith of the US government.

Page 1 of 5