Date: Wed, 22 Mar 2006 11:21:48 -0600
From: BreadWithSpam@fractious.net
Newsgroups: misc.invest.financial-plan
Subject: Re: Investing $$ to buy a house: 10 year time horizon
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t.p.bernhardt@sbcglobal.net writes:

> 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

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

> >From what I can tell, their only investment options under the contract
> are actively managed mutual funds, no index funds. Some asset

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.

> 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.

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.

> 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.

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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