Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/5/84; site mot.UUCP Path: utzoo!utcs!mnetor!mot!fred From: fred@mot.UUCP (Fred Christiansen) Newsgroups: net.invest,net.consumers Subject: Re: (summary) best approach for small savers? Message-ID: <456@mot.UUCP> Date: Mon, 18-Nov-85 13:51:45 EST Article-I.D.: mot.456 Posted: Mon Nov 18 13:51:45 1985 Date-Received: Mon, 18-Nov-85 22:27:07 EST Distribution: net Organization: Motorola Microsystems, Tempe, AZ 85282 Lines: 105 Xref: utcs net.invest:873 net.consumers:3389 the original posting was for suggestions on how to save, oh maybe, $1000/yr for the kids' eduction. about half of the responses were requests for a summary, so here goes: ------------------------------------------------------------------------------- From: ihnp4!hound!ganns (Rich Ganns) Right now, I think tax exempt bond funds are much better than CDs or savings bonds (which yield fully taxable income); you'll have to consider your marginal income tax rate and the effects of inflation, but I bet you'd be much better off getting into a TEBF such as the ones run by Dreyfus Corp., which are currently yielding around 8% (federal income tax-exempt; some are California and NY state tax exempt as well). Call 1-800-645-6561 for Dreyfus. Their funds require an initial 2,500 $ to open an account, and subsequent minimum deposits of 100$, but this is typical. They are very easy to deal with, and you can track performance of all funds by calling an 800 number which gives a daily-updated recording of yields and prices per share for funds. What I do is watch interest rates, and shift funds (by merely making a toll-free phone call) between my money market account (which generally yields nearly same as most intermediate-term CDs) and the tax exempt bond fund; in the last year or so, the TEBFs have been out-performing the money market; this could possibly change, but is easy to see if you simply keep track of interest rates for the funds -- takes about 5 minutes a week to do this. ------------------------------------------------------------------------------- From: ihnp4!cbnap!mvh (Mark L Vonder Haar) I have several suggestions 1) Do not ignore taxes. 2) If you have trouble saving, consider automatic deductions from your paycheck or checking account. Savings bonds and many mutual funds can be bought this way. 3) If you believe interest rates will not go up very much in the long term, consider zero coupon bonds *bought in a child's name*. Zeros pay no annual interest rate so are bought at a deep discount. But taxes must be paid on interest that is not paid, so they should probably be owned in some tax sheltered account (e.g. IRA, children's name, etc.). 4) Consider no-load no-minimum mutual funds. With mutual funds you get instant diversity. My favorite is Twentieth Century Select. 5) Savings bonds are not bad investments for the following reasons: a) automatic payroll deductions, b) minimum of 7.5% interest, c) pays 85% of the 5 year T-Bill interest rate for the holding period, but at least 7.5%, and d) the interest is earned tax deferred. ------------------------------------------------------------------------------- From: flkvax!philabs!pwa-b!mmintl!franka (Frank Adams) I would recommend that you try to mix long and short maturity instruments. For the short maturity stuff, CD's in the 6 month to 2 year range are your best bet. For longer term stuff, I don't know how CD's compare with savings bonds; fifteen years ago, savings bonds didn't pay nearly as well; today they are much improved. I would make that choice purely on the basis of the real return on your investment. Be sure to keep enough in a money market or equivalent to be able to deal with emergencies. Probably your first $2,000 of savings should go into one of these. If you go with a true money market instead of a bank, make sure it's reputable and reasonably conservative. ------------------------------------------------------------------------------- From: ihnp4!uiucdcs!p.CS.UIUC.EDU!ashby (Steve Ashby) If you are trying to save for your kids' education, you might consider zero coupon bonds. For $100-160 you can get a bond maturing in about 20 years, when your kids will be entering school. These bonds are dirt cheap because they don't pay interest; you get your money when they mature (all bonds mature for $1000). Since your 150 bucks will do better than 1000 if left in safe investments, you might wonder why such a bond should be bought. The reason is this: you can put the bond in the kid's name. This effectively defers income tax on the principle. More importantly, when the kid needs it, the 1000 dollars will be taxed at HIS tax rate, which is bound to be much lower than you. To sum up, here is one plan: First estimate how much each kid will need for one year of school. Say he needs 5K. Then go out and buy 5 bonds each year for four years. After four years you will have bought your kid his education, and you and your spouse can head for Hawaii. Of course, if you have more than one child, or the kid is older, you have to do a little more planning. You can get bonds maturing sooner, but will pay more for them. I suggest you talk to a broker. Go into your local Sears and talk to the Dean Witter folks. They seem to be the cheapest full service brokers around. Good luck. ------------------------------------------------------------------------------- [Semi-related notes in net.invest point out that mutual funds and money-market funds are regularly reviewed in Consumer Reports, Money, and Invest magazines. -FC] -- << Generic disclaimer >> Fred Christiansen ("Canajun, eh?") @ Motorola Microsystems, Tempe, AZ UUCP: {seismo!terak, trwrb!flkvax, utzoo!mnetor, ihnp4, attunix}!mot!fred ARPA: oakhill!mot!fred@ut-sally.ARPA "Families are Forever"