Reader Mailbag: Questions and Answers

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Refinancing and personal challenges
2. Winning the lottery?
3. Investing with little money
4. Showing kids what they have
5. Family business and money
6. Energy drinks
7. REIT investment question
8. Collectibles with low value
9. Vanguard changes?
10. Cash gifts for adult children?

First, a few notes about the mailbag from recent reader questions:

For starters, I get way more than twenty questions a week. I simply do not have the space or the time to answer the sheer volume of questions I receive from readers in the mailbag columns.

So, why not start a third mailbag column each week? The mailbags are the hardest columns I have to write by far. Many of the emails I get are from people who are really hurting. Some are in genuinely desperate situations. Often, I can’t get through a mailbag prep without getting upset enough to have to take a rather long break from preparing the article.

How do I choose which ones to include? I try to choose a mix of “light” and “heavy” questions within each mailbag, so that it doesn’t become bogged down with too much personal finance detail and with too many “downer” stories from people. Aside from that, I tend to pick questions that just stand out to me for some reason, whether it’s the story being told or how strongly I feel about answering the question publicly.

Q1: Refinancing and personal challenges
My question, should I refinance? I owe $150,000 on a house the taxman values at $300,000. It is a 1500 square foot house on one of the most scenic drives in our metro area. This area is beautiful and in the middle of the city and the location offers so much. I pay 5.25 percent on a thirty year mortgage with 28 years to go. My credit score and FICO are almost perfect. I am 64, getting about $65,000 a year in secured pension (Fed Gov pension and social security). I have about $114,000 in a TSP account I have not touched. I have no credit card debt. Well, I do charge but pay off the balances every month.

Part of me wants to get a small apartment and try different things like traveling. But, I have a 20 year old who lives at home and is doing so well on his job which earns about $9.00 an hour plus tons of bonuses for his good work. Tough adolescence with him. He is super smart but eschews college for many (good) reasons. He is finding his way. My son has never missed a day of work and he loves this house.

My 25 year old son is autistic and savant, incredibly smart, lives in a group home and comes to my house a lot and would just be very upset if I sold this house. (Autistic folks do not like change, even like a chair moved 6 inches) When I even talk about a house sold in the neighborhood he gets very upset. He loves this house. And so do I but I wish it were smaller (and it is not big). And I wish the house did not mean so much to him. He is happy in his group home which actually is nicer than my house for him.

I have done all the right things about supplemental needs trusts and my will, by the way. I even have long term care insurance. But I simply love my children the most But, I no longer want the responsibility of a house. I am tired.
– Jill

This is really a conflict of personal values, much more than a financial question.

At some point, your children will no longer be able to call your house “home,” regardless of what you decide. You will pass on at some point, a fact that you’ve already dealt with thanks to the estate planning, and you’ll likely be forced to move out and sell the home before then in your final years.

Your real question is whether the cost to your children of moving that date earlier is worth the benefits to you, personally. I can’t answer that for you. You really have to decide that for yourself.

What I can say is that there is no wrong answer here. There’s no question that you care about your children. The question is whether or not a secondary benefit to them trumps a larger benefit to you personally, and that really comes down to you.

Q2: Winning the lottery?
What would you do if you won the lottery?

– Andrea

I don’t play the lottery, so let’s assume I found a winning ticket in a trash can somewhere.

The first thing I’d do is invest every dime of it. I would not immediately spend even a cent of it. If the lottery jackpot was large at all, the income from those investments would quickly generate more than enough money for me to spend.

Let’s say I won $10 million in a lottery. I would contact an accountant, make sure all taxes were taken care of on the money, and invest every dime of the proceeds. I’d likely invest most of it in a wide diversity of dividend-paying stocks, with some of the money in bonds and foreign assets. From that point forward, I would live solely off the dividends. I would avoid selling even a single share of that stock, and I’d buy more if the dividend income exceeded what I could spend. If those investments returned even 2% a year, I would be bringing in $200,000 a year.

Upon my death, every single one of my descendants would get an equal share of my holdings – children, grandchildren, great-grandchildren. The money for the younger ones would be put in a trust until they were old enough to make responsible decisions about the money on their own.

Q3: Investing with little money
I’ve been an investor with T. Rowe price since graduating college. When I started investing with them they did not have a minimum investment required if you agreed to their asset builder program which took automatic monthly withdrawals from your checking account. This year was an expensive one for me as I got married and bought a house. The good news is I was financially prepared for these expenses, the bad news is it didn’t leave me with a lot of leftover cash on hand afterwards. Recently my wife and I discovered we are expecting our first child in February. My wife hopes to be a stay at home mom and after looking over our finances we realized it was possible so long as we didn’t have a vehicle payment. Having a pretty decent amount in my T. Rowe price account I withdrew some money from a few accounts to pay off our vehicle loan. Unknown to me, T. Rowe recently changed their minimum investment criterion and they closed my accounts that I withdrew down below $1000. (When I called them on this matter they informed me the details were in the fine print when I took money out of the accounts. I guess I’m guilty as charged for not reading them) Furthermore they will not let me invest automatically in my old accounts without a minimum $2500 dollar investment. Since I emptied 3 different fund accounts to pay the vehicle off this is no small sum of money to get back in. So I said all that to ask this: I’ve had a great experience with T. Rowe, but their new policies basically preclude me from investing with them. Do you know of any other companies out there with low minimum investments requirements that also offer discount broker rates on par with T. Rowe? I did a quick google search and didn’t see a whole lot.

– Roger

Every brokerage and investment firm out there offers some advantages and disadvantages to investors.

Some, like Sharebuilder, offer great tools for beginning investors with little money, but charge high fees. Others, like Vanguard, offer great investments for very little fees but have limited choices for investors. Still others offer almost infinite choices and great tools, a group I’d put T. Rowe Price in.

Most investment houses that offer relatively low fees and a lot of investment freedom tend to have minimum account balances. My suggestion to you would be to save up your money in a savings account until you have the freedom to sign up with the best investment house available to you. With such a relatively small amount of money, you’re not going to be missing out on life-changing investment income.

Q4: Showing kids what they have
Quite often, I find myself thinking that my kids take for granted all of the blessings they have in their life. What can I do to show them that they have many, many advantages in life and that other children don’t have all of their advantages? Without doing something crazy, of course.

– Jill

Our children are pretty grounded. They give a portion of their allowance to charity and are as mindful of the situation of others as I could hope from a set of young children.

Still, Sarah and I have talked over this issue before and we’ve thought about how we would handle such a situation. Our best idea is to simply turn charity volunteering into more of a family activity.

We already do this. We’ve delivered groceries to shut-ins during the holiday season, among other things. However, if we started to get the sense of entitlement from our children that you were getting, we would ratchet this up more than we already do. Most of our giving is in financial form because our time is limited, but we would make significant effort to find more time, not just for the charity, but for our family.

Q5: Family business and money
My dad has built a business that he really enjoys. It started off as a side job and after 10-15 years, he was able to quit his main job and do it full time. During this time, he never had a website, it was strictly word of mouth for new clients. When he went full-time he never even thought of a website. But after he struggled to get more clients he asked for a site, so last year I made him one as a gift.

The problem is that since then, and with his permission, I’ve added a small drop-shipping business using his name and the website. While it is not making a lot of money, I can usually make $50-100/month. My siblings feel that I should give that money to my dad since I operate under his name and his website, but I feel as it is mine since I went and found the suppliers/drop shippers and run the web business. My dad does not care since it isn’t affecting his business, and he is even one of my “customers” since my prices to get wholesale are lower than what he used to pay. Plus the active website is bringing in more clients for my dad so he wants to keep the website running and active.

I started a second website to move the drop ship business over to it, but I haven’t made a sale since it doesn’t have the same history behind it that my dad’s business does (same design, same prices). It just looks like someone running a retail website, not a small business owner trying to expand his business.

Any thoughts that I could try to smooth things over with the siblings?
– Richie

I don’t think there is an easy way to “smooth things over” here that would satisfy both you and your siblings.

While I don’t see a problem with what you did given that your father was okay with this, I can also see why your siblings are frustrated. Your father’s business provided all of your customers to you, and by not giving your father at least a cut of this side business, I can understand the perception that you’re basically taking advantage of your dad.

My suggestion would be that you should give your father a “finder’s fee” for each new customer you earn because of his site, but I would guess that this would make you unhappy unless the fee is small and wouldn’t make your siblings happy unless the fee is large.

Q6: Energy drinks
Like you, I’m a parent of three with a demanding career and other life responsibilities. A while back, I started drinking energy drinks to get through the eighteen to twenty hour days and now I find that I feel terrible without them. I am really stuck on what to do. These drinks just eat away at our money, but breaking the habit is really, really hard. Any suggestions?

– Mike

I’ve done this myself, and I have a lot of suggestions.

Cut back slowly. Count how many you drink on an average day, then limit yourself to that number minus one per day for the next few weeks, then cut back one more, then one more. Do it slowly, even if it takes months.

Drink tons and tons of water. You’re going to get headaches as you cut back. Water is the best cure there is for a headache. Just drink up.

Eat lots of fresh fruits and vegetables so that you’re getting the most balanced micronutrients that you can as you recover from your addiction.

Finally, get plenty of sleep. Start going to bed earlier and sleep until you naturally wake up. If an alarm is waking you up, everything in life becomes harder.

Q7: REIT investment question
What do you think about investing in REIT’s right now? The REIT I am considering are single tenant buildings built by Singleton. They are buildings including Walgreen’s CVS, banks, etc.

– Bill

For those unaware, REIT stands for real estate investment trust, which is basically a way to invest in a particular real estate collection. I usually think of it as a mutual fund of land rather than of stocks or bonds.

My experience has been that real estate is very much a local thing. There are some areas where real estate is spiking right now, and other areas where you practically can’t give it away.

I don’t have any objections to REITs, but I’d want to know what they are investing in and I’d want a sense as to the history of the REIT. I would diversify with other investments, too.

Q8: Collectibles with low value
My aunt has several crates full of old Beanie Babies in her attic. She bought them thinking they would be an investment of some kind, but they don’t seem to be worth much of anything at all. What should we do with them?

– Geoff

Has your aunt given up on the idea of any return on these Beanies? (She probably should have.) Giant lots of these things go on eBay for about $1 per Beanie Baby, which isn’t much of a return.

I’m not familiar with the Beanie Baby market, but my quick research into it tells me that only the rarest of the rare have much value at all.

If I had a big box of these things, I would offer them to local children’s charities. Perhaps the pediatric ward at a local children’s hospital could use them to give to the young patients. There’s a lot more value than $1 in a stuffed animal that a sick child can hold.

Q9: Vanguard changes?
I was curious as to your thoughts on Vanguard’s change of index fund benchmark changes? Nothing to see here or cause for concern?

– Brian

I don’t think there’s much cause for concern.

For those unaware, a “benchmark” is a standard against which mutual fund performance is measured. For example, a broad-based index fund might use the S&P 500 as a benchmark. In order for a company to publicly use a benchmark when providing information to investors, they have to pay whoever generates those benchmarks. So, if a company wants to compare their fund to the S&P 500, they’d have to pay Standard and Poors for that privilege.

Essentially, Vanguard just felt that some of the companies were charging too much for their benchmarks compared to the value those benchmarks provided for their customers, so they switched to different benchmarks.

Q10: Cash gifts for adult children?
All of my children are grown, out of the house, and have lives and jobs of their own, leaving me and my husband at home with an empty nest. We’ve always loved getting them Christmas gifts since they were little kids, but now we are really struggling as to what to get them. They don’t need the kinds of inexpensive toys we once got them. We’ve talked to them about it and they just say they don’t really need anything at all.

Is a cash gift a good idea in this situation? What would you do in our situation?
– Margaret

If it’s appropriate for the relationship you have at this point, then it’s fine.

However, speaking personally, I don’t like receiving cash or gift cards as a gift. I’d far rather receive a batch of cookies that cost $3 in ingredients as a gift than a $20 bill in an envelope.

Gift cards and cash as gifts seem really cold and impersonal to me, but that’s just a personal perspective.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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