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Investing for the future
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October 30, 2000: 8:09 a.m. ET
Build with money markets, short- and long-term bond funds and stock funds
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NEW YORK (CNNfn) - Want to start the retirement plan that will make you kick back and relax by the time you're 65?
New York-based certified financial planner Madeline Noveck, of Novos Planning Associates, suggested investing in international and small/mid-cap funds as a steady way to build a strong retirement nest egg.
Noveck appeared recently on CNNfn's Your Money and also answered some questions via e-mail for CNNfn.com.
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Madeline Noveck answers questions on Your Money's Viewer Mail segment recently.
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Nixys writes: My parents recently sold their lake property for $190,000. They are each approaching their 70th birthdays and now have $235,000 in cash just sitting in the bank. I have been given the task of helping them to invest. I have recently been looking into annuities as a safe investment to make seven percent on their money. Their current income with pension and Social Security is approximately $2,000 a month. Any suggestions?
I suggest that a portion of the money be put in a money market fund as a cash reserve for unexpected needs -- perhaps $25,000 to $35,000 -- whatever makes them comfortable. Then put some in a short-term bond fund. That's the next level of liquidity if funds are needed, and in the meantime the return should far exceed that of a money market fund. Then allocate a portion to long-term bonds, either a fund investing in high-quality corporate bonds or a general, total-return bond fund such as those by Harbor or Pimco.
The rest can go into stock funds to provide for growth. If your parents are in good health, they are likely to have many years ahead of them and need to protect their purchasing power from inflation. A large company stock fund such as TIAA-CREF Growth & Income may be all you need, but you might also consider putting 25 percent of the stock allocation into an international fund and 15 percent into a fund that invests in small and midsize companies.
I suspect the fixed annuity you're looking at guarantees the seven percent rate for only one year. Then the rate is likely to go down. In addition, if your parents need some of the money, a penalty will be charged for withdrawal. If you want to use an annuity, use it for only part of the money and look for one with a rate guarantee that matches the withdrawal penalty period. That may be hard to find these days. Another good use would be for income supplement, if it is needed. Do an immediate annuity that will pay a monthly amount for life, and the rates are locked in.
Bonnie writes: I am 59 and a self-employed social worker. All I have for retirement is $50K in a tax-deferred annuity. I finally do have some money to invest each month (maybe $400 to $500). How can I make the most of it to retire at 65?
With $50,000 growing in a fixed annuity, your monthly investments can go into stock funds. The fund suggestions mentioned above would work for you, too, but I would urge you more strongly to use international and small/mid-cap funds along with the large company fund. Investing a monthly amount is the ideal way to go into the stock market. Don't worry about the market -- just keep investing. You'll get lower prices when the market is weak and that will be to your advantage. Don't plan on selling these investments when you retire. You may well live into your nineties if you're healthy today, and you will need to have assets that grow with the growing economy to keep up your purchasing power in the years to come.
You'll need to do some planning as to just when you can afford to retire. Since I don't know your expenses, social security expectations or family situation, I can't comment on that at this time. 
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