1) Does FNM (Fannie Mae) have a future? Should I sell my holdings? — Thanks, Mark
Yes, of course Fannie Mae has a future. Our entire mortgage industry is dependant on the mortgage securitization process.
Do I want to own Fannie Mae while short-term rates are rising (and mortgage rates are too)? No, this is time to be selling as their earnings power compresses. On top of the bad timing, the "de-leveraging" of their balance sheet is going to happen and that lowers their earnings power some more.
2) I have about $80,000 to invest and I am only 22. I hit it pretty big in a business deal and am curious as to what I should do with my money? What should be my short-term and long-term investment strategy? I have a long time to live; should I be taking a more aggressive, riskier approach? — Thanks, JP (Barrington, IL)
Your short-term investment strategy should include buying a house or condo with some of that cash if you are working while you figure out your next move.
Long-term — baby, you got time, time, time. My advice (if you are not into individual stocks) is to put money to work MONTHLY into the market in a mix of 40% ETF funds that focus on India, China and emerging country investments, and 60% small cap and micro cap U.S. stocks — the fastest growing companies in the U.S. Fast growing industries and countries that outgrow the rest of the world by 200 - 500%, plus time, equals a LOT of wealth for you down the road (as in millions)!
3) Please let me know of some good tax free shelters that are still yielding decent interest rates. Are there any that do not have to be held for over five years without paying a penalty? — Thank you, Elaine
Tax free no penalty income comes only from insured municipal bond funds that own municipal bonds free from federal and state taxes. I would contact a broker who specializes in these muni bonds in your area and put together a portfolio of insured or highly rated bonds that mature in five years.
4) My husband had a sizable 401K that had to be rolled over into an IRA. We decided to get advice from a financial planner; they created a strategy for the money, and we get a fairly good return. My question is about fees...every month there's an "advisory" fee taken out of the account for over $200. I just wanted to know if this is normal. The value of the IRA is almost $90,000, but we already pay a yearly fee for the financial planning service. Are there companies out there that don't charge high fees for IRAs, or any investment for that matter? — Jessie (Chicago, IL)
It sounds like you are in a wrap account, where 2.5% is taken on on a monthly basis. That fee is the norm for that type of account. "Fairly good return" is the key to whether the fee is too high. You can get about 5% risk-free here with long-term bonds and NO fee in a closed-end Ginnie Mae or Fannie Mae bond fund from Vanguard that charges a fraction of that fee. If the return from the managed account is getting you more than 5% NET of the 2.5% fee (ie. 7.5% or more), then the manager is adding value. Otherwise, dump the guy and go to the low fee specialists, Vanguard.
5) I will be retiring next year and I'm looking for some advice on how to get the best return on my savings. Do you have ideas about where I can get 4 to 6% yearly return to keep me above water? — Bernie
My favorite high-income play is EVV Eaton Vance Limited Duration Income Fund. It's yielding about 8%, and the value of the fund goes up as interest rates go up — give it a shot. My other high-income favorite is Provident Energy PVX, with 12% yield that is 85% tax free (its dividends qualify for GW's dividend tax break!) Buy it under $11 and enjoy the high oil and natural gas rates!
Tune in to this weekend our Business Block, Saturday beginning at 10am ET, for more with Tobin Smith and the entire FNC business team.