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Requesting Tips from Econ & Finance folks

by Jeffersonian Democrat Mon Feb 4th, 2008 at 12:02:03 PM EST

Ok, this is the deal.  I am not dumb enough to request financial tips off the web, but I am dumb enough to lose a lot of money and comfortable future if I do not use it right.  So what I am asking for, if you are so inclined to give advice, is a list of things to take to a financial advisor (I bank at Merril Lynch in the US and Sparkasse here in Germany)


From what I hear, my pension is on the verge of being upgraded.  It is a US Veterans Administration disability compensation, to be exact.  The question now is whether it goes back to 2002 or 2004 and whether it is 70% or 100%.

This means a range of 45k -90k Euro in one tax-free lump sum and around 2,500 USD tax-free per month for life.

The question is, what do I do with it?  Since I live in Germany, and Jerome has stated that the German economy is well suited to weather the coming storm, that I should perhaps invest in short-term FRG bonds and wait until the smoke clears to start investing in companies.

That is my plan at the moment.  But if anyone has other ideas that I can take to a financial advisor and discuss, well, that is what I am asking for.  Because I may not know what is out there to invest in or how safe it may be in the coming months or years.

Thanks to all who may have an opinion.

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"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"
by Jeffersonian Democrat (rzg6f@virginia.edu) on Mon Feb 4th, 2008 at 12:03:18 PM EST
Is there any reason why you have a financial adviser? Do you have enough other assets that getting professional advice (or management) is worth the fees?

If you are planning on living off this windfall as part of your current income and want it to last then you need to invest it in a low risk instrument with a steady return. I don't know if you are covered by US or German (or both) tax laws, so how to best shield the income from taxes will require the advice of someone who is an expert.

The rule of thumb is that you can withdraw 4% of the amount from a fund a year with a very low probability of it running out before you die. If you can find something that earns slightly more than this (say a long-term bond at 5%) then your capital will also have a small amount of cushion against inflation.

Anyone who gives you advice for money can only recommend something riskier and/or eat up part of your returns. You can, for example, buy US treasuries directly from the treasury for no fees and they will send you a check on a regular basis.

Advisers tend to charge a percentage of the amount under management as a fee even though the work involved has no relationship to the total capital involved. It's a scam.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Mon Feb 4th, 2008 at 12:26:26 PM EST
before I was a poor grad student, I had a decent military pay and afterwards worked for a major pharmaceutical company with the initials BMS.  So my advisor came with the account (ML).

Now, I don't have so much in assets.

I know that my windfall isn't a lot in the scheme of things, but reading here and elsewhere I am more concerned with keeping it than making money.

With the US, it is totally tax-free, but I am not sure about Europe once I transfer the funds.

Maybe then, I should speak to a person at the bank about long-term rather than short-term bonds.

In any case, I do not know how to do it myself, therefore I was looking at an advisor at a bank.

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Mon Feb 4th, 2008 at 12:54:28 PM EST
[ Parent ]
I think anyone here will be loath to give you advice in case they get it wrong - you seem understandably risk averse and anything other than some fixed interest product therefore looks risky.  The problem is that with increasing inflation and declining dollar your real return on such products is likely to be zero or even negative - and that is after you pay advisor's and arrangement fees which are often a major rip-off..

What I would do - because I always was a bit of a risk taker - is pick some shares with good long-term prospects, and spend at least part of the money on that.  You only pay a very small brokers commission and capital gains are usually taxed less that income/dividends.

Of course the shares will go up and down, but over the long term stocks always tend to do better that bonds/deposits.  Spread the shares over different countries/sectors/markets to reduce risk - and some bigger companies are well diversified anyway.  Stock market prices are at historic lows and so unless the World economy goes into real melt down (ask Jerome), the prospects over 5 years+ should be ok.

Some stock broker sites provide free advice but you can buy directly on-line if you want reduce costs further.  I use a free advice service from Goodbody.ie for Irish shares for my little nest-egg which is a long term investment for my children, so I am less concerned with short term market volatility.  The key is to pick some well managed companies that can outperform even in difficult times or which are currently undervalued because market sentiment is against them.

The main thing is make sure your "adviser" is upfront with his charges and that he declares whatever commission he gets for the products he sells you.  A lot of these products are like buying a new car.  They are worth a lot less the moment you buy them because "commissions" have "depreciated" your investment from day one.

Hope that helps.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Feb 4th, 2008 at 03:44:42 PM EST
Thanks Frank,

That makes sense and I am risk adverse at the moment because of the economies.  I wasn't really looking for the new-hot-company type of tip, but I just do not know what investment vehicles are out there and when I do go to speak with someone at the bank, I just want to be able to produce a list and ask about those things that perhaps someone mentions here or elsewhere.  In fact it was here that I heard about German bonds, so that is one thing I intend to ask about, the ins-and-outs of them, with a bank before I park my cash there.

I just do not want to keep it under the mattress and the dollar evaporates, or stick it in a simple savings account and gain negative interest vs. inflation, or something similar.  Nor do I want to stick it in high risk areas either, I just do not know what is high risk anymore.

"Schiller sprach zu Goethe, Steck in dem Arsch die Flöte! Goethe sagte zu Schiller, Mein Arsch ist kein Triller!"

by Jeffersonian Democrat (rzg6f@virginia.edu) on Tue Feb 5th, 2008 at 05:03:51 AM EST
[ Parent ]
Jeffersonian Democrat:
That makes sense and I am risk adverse at the moment because of the economies.

And so is everyone else, which is why markets have plunged.  The question is whether the remaining risk for companies (in a recession) has been fairly priced into the market, and whether the balance of risk is now on the upside rather than on the downside.  If I could answer that question I wouldn't be here!  

Don't forget that whoever sells you an investment product has to assess the same risks, add a margin for their (often hugely inflated) costs, and make a profit - so the "price" he charges you will have to reflect that.  

All they can do, which you can't do, is spread their risks over a far wider range of shares, bonds, commodities, gold etc. - none of which helps all that much if the whole market is down due to Global recession.  We ave already seen the risks that hedge funds take to try and beat those odds...

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Feb 5th, 2008 at 05:20:34 AM EST
[ Parent ]
I should have added a PS.

I am not a banker or financial adviser etc. - so what I have said above is an amateur rather than a professional view - so please treat accordingly!!!

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Feb 5th, 2008 at 05:24:10 AM EST
[ Parent ]
How about buying long-dated inflation-indexed government bonds in a combination of USD and EUR?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Mon Feb 11th, 2008 at 08:11:18 AM EST


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