Continuing the week-long series of Special Reports, Carmen and her team of experts took more of your questions Thursday night to help manage all the fear and confusion out there. Here’s what they had to say:
Q. Our mortgage is with WaMu. If the company goes bankrupt, will we have a chance to pay off our mortgage or will the bank take it with them?
Your mortgage won’t go anywhere no matter what happens to WaMu or whatever bank it is with. If the bank sells its mortgage division, the loan will still stay the same, it just might come from a different company. The terms will not change either, even if the bank goes bankrupt. The best thing you can do is keep good records of all transactions and payments so you have a paper trail to protect you if anything happens.
Q. With the markets losing steam, should I reduce my 401(k) contributions and place the difference in CDs? The CDs offer stability and a better return.
401(k)s are pretax and you don’t want to give that up. If you’re not about to retire, keep contributing to the 401(k) no matter what happens in the market. Remember, these things are built for the long haul and you don’t want to miss out when the market rebounds.
Q. In the same bank can you have $250K in IRAs and $100K in regular CDs that are protected under regular investments? If you have more than 100K in the bank, exactly how can you structure those accounts so they are protected?
CDs fall under the FDIC cash regulations, so they are protected up to $100,000. According to Alexis Martin Neely, a specialist in estates, wills and trusts, people who want added coverage should look into payable on death accounts (PODs) or living trusts. PODs establish and name beneficiaries and give them access to your bank accounts upon your death. These aren’t as good as living trusts, Neely says, which allow for better control by giving each qualifying beneficiary another $100,000 in coverage.
Q. I just got out of debt and want to know what I can do to start saving money for retirement. Give the recent markets, where should I invest to be safe?
Q. With everything going on, I’m wondering if I should convert all my investments to bonds?
No. Stay with 401(k)s and IRAs if you have them and diversify whatever other investments you have. John Gannon, vice president of the Financial Industry Regulatory Authority (FINRA), added the importance of the tax benefits and employee contribution perks of many retirement accounts. There is no reason to give these up for the safety of bonds. Remember, bonds will lose you money when the market comes back.
Q. We have all our monthly income checks automatically deposited into WaMu. If WaMu fails, I fear what will happen to our direct deposits if we have to wait and bear the mistakes that may occur when automatic deposits are changed from one bank to another.
Joe Ridout of the watchdog group Consumer Action explained that when California thrift IndyMac failed earlier this year, there were very few reported problems of customers not getting their money back quickly. In fact, he said, the bank went belly up Friday and almost all customers had their holdings back Monday. If you’re really bothered by the thought that your bank could fail and it might take time to see your money, Carmen says you can consider moving it to another FDIC-insured institution.
Q. My 403(b) is losing a lot of money. What should I do? Take it out? Diversify?
403(b)s, which are retirement accounts for government employees, should be treated just like normal retirement accounts. Leave them alone as much as possible. If you’re close to retirement, you can check what your 403(b) is invested in and diversify if something is holding it down. Never have more than 20% of your holdings in one stock or fund or sector.
Q. All my investments are with Morgan Stanley. Understanding the unstable future of MS, what do you think about my money's stability?
Morgan Stanley doesn’t actually "have" your money, it just holds it. Think of them as the middle man. The real risk comes from what you’re invested in, not who is managing your investments. If the brokerage you use goes under, that’s when the Securities Investor Protection Corporation (SIPC)steps in by making sure its customer accounts are transferred back quickly and seamlessly, a step it’s doing with Lehman Brothers right now. Stephen Harbeck of SIPC reminded that brokerages cannot use your assets – cash or securities - in their business, so you don't have much to worry about if they are teetering, unless, of course, if you hold their stock.
Q. My parents have well over the FDIC insured about in their retirement fund. Should they be allocating their funds to $100,000 per lender? Will this keep their money safe?
Alexis Martin Neely recommended getting parents the power of attorney to make sure all their assets are in a living trust and in the name of that trust. That way, as a successor trustee you are protected and can step in if something happens where they become incapacitated.
Q. Are there any additional risks to having a margin accounts with a brokerage versus a cash account?
Margin accounts are when you borrow money from a brokerage to purchase securities. Any cash in a margin account is treated like a cash account, Stephen Harbeck explains. But if you borrow stock on margin, there is a complication: If the brokerage fails, you have to pay the amount due on margin to the SIPC. If you can’t afford to do so, the SIPC will sell some of your shares to cover the amount you owe.
Q: I'm wondering how I can buy gold since it went up; is it possible to actually buy gold and not take delivery of it?
There are myriad ways to buy gold and other commodities without actually buying said commodities, specifically through ETFs or index funds. But gold is not exactly at a bargain right now. FINRA’s John Gannon warned against the extreme volatility in the gold market and said to keep the long-term fluctuation in gold prices in mind when making any investments. Gold is a classic “flight to safety” investment, meaning it tends to go up when the market goes down and down when the market goes up. Remember that for when the market will inevitably rebound.
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