The contract requires monthly investments over a 15 year time horizon.
It is not an insurance company product. Front end loads have been even
higher than 3.5%. There is no getting out without very stiff penalties.


There are options within the contract, one of which is FFVTX. I am
looking for advice on if this is a doable option for someone in this
situation, having a goal of purchasing a house in about 10 years. Is
FFVTX too agressive for a 10 year time horizon?

What mix of equities and fixed income investments is appropriate for a
10 year time horizon? How should that mix change over time?
Thanks for your thoughts.

t.p.bernhardt[at]sbcglobal.net writes:

- quote -

Can you tell us a little more about this account? It sounds
to me like an insurance contract. More details would help.

- quote -

If it's a typical variable annuity, he may be able to make
what's called a "1035 exchange". A 1035 may be used to exchange,
tax-free, one variable annuity for another variable annuity.

That would perhaps get him into a VA which has better investment
options. Sounds like the options he's got stink.

- quote -

It's actually not a horrible fund. The expense ratio is only about
0.6% - on the very low side for an actively managed fund (though
it's not clear if that 0.6% is on top of the funds that are
used internally for this - if so, then your total expense ratio
is more like twice that - still not horrible, but not great).
It does have a 3.5% load, but that's money under the bridge-
he's already paid that and it's simply gone.

- quote -

Well, it's going to get more conservative as 2015 approaches. In
2015, it's targetted to be 20% equities, 40% investment grade bonds
and 40% cash/short-term. It'll be a little volatile over the next
ten years, ramping down towards the end, but with a 10 year time
horizon, it should do quite well.

I wouldn't add any more to the fund - he can buy similar funds
without paying loads and without getting stuck in an insurance
contract. But it may be reasonable to leave it as it is, if
the insurance contract wrapper isn't ripping him off along
the way. That's the real question - what do you mean by
"contract with an investment company"?


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"Sandra Loosemore" <sandra[at]frogsonice.com> wrote in message
news:m3u0a2897l.fsf[at]localhost.localdomain...

- quote -

If you take care in finding good property managers, the pain can be
eliminated. My wife and I have owned as many as 6 properties at a time in
the USA and Canada, some being 3000 miles away from out personal residence,
for 20 years or so, and have had little or none of the troubles that the
nay-sayers of long distance landlording often emphasize. I think some
financial-planning professionals like to discourage real estate investment
so they can get people to buy the mutual funds they sell. To overlook the
advantages of real estate investment is unwise and unprofitable.

A REIT will defeat the purpose if the investor want to buy a home
later. There is no real leverage and no ability to manage the hedge the
appreciation risk. REITs are a yield play rather than a way to gain
full exposure to the possible appreciation.

Long distance landlording is an issue. An issue that does have
solutions. Your comments appear to imply that the owner has to be
involved in the repairs. It is not a requirement but a choice. Some
investors choose to let others get on with the repairs.

Many successful RE investors manage their own properties and do their
own repairs.

A second group makes their money by finding good deals and hiring out
the other aspects. They take the view that property management is a
cost center and not a way to generate profits.

I stand by the idea I have suggested. The important point is the
investor gets direct exposure to the RE market with the benefit of
leverage and may be able to keep up with prices so they can later buy a
home. Any cash based investment (stock or REIT shares) will limit the
leverage, miss the tax benefits and not directly track the RE
appreciation.

John

"John" <john.corey[at]gmail.com> writes:

- quote -

But then you have to deal with being a long-distance landlord. Been
there, done that, was a pain in the butt. :-( It seems like an
especially bad idea for someone in the military who is moving around
all the time and who may not be able to take time off at the drop of a
hat to deal with the inevitable repair crises. If you want to invest
in real estate simply as an investment in a particular asset class,
buy some shares of a REIT fund, and you'll sleep a lot easier at night.

-Sandra the cynic

A point about investing in RE and maybe something to consider.

While I agree that a military family that moves a lot might not want to
buy a home now, investing in a house (not a home) could be very
practical and a good idea.

A home is where the family comes together. A house is a structure and
a piece of RE. An owner occupied house would be called a home in this
model.

What could be a very wise move is to purchase 1 or more houses as an
investment with the idea that after a few years the investments could
be sold or refinanced when the time is right to purchase a home.

Think of the risk management aspects. If house prices are generally
rising and falling with the economy then having some exposure to the
sector will help the family hedge the risk of being priced out of the
housing market later.

To take this out of the military context I will use the following
example.

When I lived and worked in Silicon Valley a number of people who wanted
to buy a home found they could not afford the local house prices. One
alternatives considered and implemented by a few was to buy a house
where they could afford (and where the rent would cover the cost of
ownership) while renting a home in a location in Silicon Valley that
made sense for living/commuting.

t.p.bernhardt[at]sbcglobal.net wrote:
- quote -

T.P. Bernhardt:

Can you give the name of the company and the mutual fund
(and other) alternatives to FFVTX that this company offers?
How much, if any, is this couple obliged to contribute each
year to this savings plan managed by this company?

One thing that bothers me is the huge front load (3.5%) on
FFVTX. My general reading indicates that, for loaded funds
vs. non-loaded funds, the better bet is no-load funds, even
if they're actively managed.

Apart from the load, and at first blush and based on my
experience, the 60-40 asset allocation (shifting more to
fixed income with each year) looks okay for a ten-year
horizon. Not fabulous; just okay, because it's targeted not
really for a cash-in at 2015 but five-ten years later.
Still, I'd experiment with some of the free online asset
allocation tools at
http://home.earthlink.net/~elle_navorski/id4.html to
reinforce the thinking here. Set the time horizon to ten
years or so; compute what allocation is most likely to
succeed for these folks' risk tolerance; etc. Look for
no-load, low expense ratio mutual funds to fill their needs.

It seems to me giving this company's name is only going to
help other folks in the military, as Will implied, if you
get my drift. Will is right that there has been serious
gouging of military personnel in recent years; some legal;
some at least questionable. It's very serious.

Elle
20+ year plain vanilla stock, bond, and mutual fund
individual investor

Well, yes, they are tied up with such a company, but have no choice but
to continue until the contract expires. I do hope that some folks here
will be able to give particular advice on the question of
saving/investing for a home purchase. Thanks for the concern.

t.p.bernhardt[at]sbcglobal.net wrote:
- quote -

<snip
- quote -

There's been a lot of news recently about some of these investment
companies are taking advantage of military families. The bad ones have
extremely high expenses (particularly in the form of up front loads) and
crappy investment choices. I hope that your family has not gotten
involved with one of these disreputable firms, but if so, don't let them
put in more money than they have to by contract. And they should try to
get out of the contract as soon as possible. There may be legal
remedies through the military as well.

Good luck,
-Will

I am trying to advise my family on the best strategy to invest saved
money to buy a house. They are currently in the military, with about 10
years to go in the service. They move a lot now, so home buying is not
in the immediate future.

They entered into a contract with an investment company that requires
them to stay with that company until about 2011. They will transfer
their money out when they can do so penalty-free. They want to use the
money in this account (currenty containing about $14K) for a down
payment on a home when they may leave the military in about 2015. They
continue to contribute monthly.

- quote -

allocation funds are available, aimed at various years to retirement.
For example, FFVTX is targeted for investors retiring around the year
2015. This fund is currently about 60% in stocks, 40% fixed income, and
becomes increasingly conservative as it gets closer to 2015.

Do you think this is a good option for them, or should they be even
more conservative? Perhaps you have some general words of advice for me
to send them regarding investing savings for a time horizon of ten
years. Your thoughts on this will be most appreciated.
Thanks! Tom