Portable mortgage; 401(k); DRIPs
A new portable mortgage offered by E*Trade Financial (www.mortgageonthemove.com ) lets you lock in for 30 years, even if you move to a new housealthough the interest rate may be slightly higher. You can transfer the "mortgage on the move"with the interest rateto the next home that you buy. If you're buying now but plan to move again in a few years, when interest rates will probably be much higher, it's a tempting deal. Only original mortgages qualify, however, so refinancers can't take advantage of it. It's also available for only a limited time.
The average investor had a pension balance of $49,000 at the end of 2002, a drop of 2.5 percent over the previous year, says a study conducted by Hewitt Associates, a consulting firm. Disappointing earnings might have persuaded investors to let their 401(k) plans languish. Only one in six participants made any form of trade in 2002.
In addition, the portfolios of many investors are not well diversified. While the average defined contribution plan offered 13 funds, participants held an average of only 3.6 funds. Financial experts say investors should diversify so they aren't dependent on one type of fund.
Now that the top tax rate on dividends has been cut to 15 percent, companies that let stockholders use their dividends to buy more shares may make sense as a low-cost approach to purchasing stocks. Dividend reinvestment plans, or "DRIPs," will automatically reinvest your dividends for a small service charge, typically up to $5, says the American Association of Individual Investors.
More than 750 US companies offer DRIPs to shareholders. Although many require investors to own at least one share before enrolling in the plan, about 300 will sell individual investors their first shares. To find a list of companies offering DRIPs, or to enroll in a plan, visit www1.netstockdirect.com. You can also find information about the plans at www.dripcentral.com.
Many investors between the ages of 22 and 36 expect to retire in good financial shape, but the slacker generation isn't well prepared to meet the challenge, says a survey sponsored by New York Life Investment Management. While 61 percent of responding investors expect to have a higher standard of living than their parents when they retire, more than half say they don't have enough money to make investments. In addition, nearly a third admit they don't have enough experience to make smart investment decisions.
Most also aren't counting on the government or a pension plan to help them out, either. Roughly three-quarters don't believe Social Security will be much help, and nearly half aren't confident about the financial security of their 401(k) plans.
Yvonne Wollenberg. UPDATE: Focus on finance.
Aug. 8, 2003;80:10.