DEAR BRUCE: About three years ago, we invested $52,000 in energy stocks. We were getting around $300 monthly in dividends. Gradually, the stocks went down in value and eventually the money for our monthly payment started coming from the stocks themselves.As we watched the gradual loss of our money, we waited for a call from our broker. Eventually, my husband called him and he talked us into sticking with our plan. Finally, last week we gave up and cashed out, receiving $14,500.
For the future, when should we have given up? Our broker wanted us to continue with him and said he could make us $10,000 a year to recoup our losses. Shouldn't he have been making us $10,000 a year from the beginning, if that was possible? — K.B.
DEAR K.B.: You certaintly have my sympathy. You went from $52,000 to $14,000. That's an extraordinary loss! Your husband should have called a lot quicker than "eventually" when you started seeing a negative return. That was the time to make a judgment.I am not going to say you shouldn't have stuck with the plan or maybe you should still be in the plan. But I would have very little confidence in a broker who said he could make you $10,000 a year on $14,500 after losing almost $40,000 in principal.
Of course, some of that was returned to you in monthly dividends, but nonetheless, the broker did you no favors. On the other hand, while you'd already taken that much of a beating, maybe you should have talked to the broker about what he intended to do and how he was going to actually make this $10,000 a year to recoup your losses.
From now on, when you see your investment drop to a certain point (perhaps 8 percent or 9 percent in value), seriously consider getting out. Good luck.
DEAR BRUCE: My father wants to purchase a $50,000 life insurance policy. He is 72 years old. The AAA policy doesn't require an exam or medical history except a few basic questions.
My question is, if and when he gets approved for the policy, when will it be active? Right away or is there a waiting period? Also, is a $50,000 policy worth $134 a month? — Mike
DEAR MIKE: You're asking some good questions, but unfortunately, you've come to the wrong place for specific answers.
When the policy becomes active depends on the guidelines of the policy. You'll have to read it to find out or call the agent who's selling it and ask. Many policies, particularly for older folks, are becoming active and payable immediately upon approval. Others have a one- or two-year waiting period with a severely reduced benefit.
I can't comment on the policy price without knowing if you shopped around and found it's reasonable. It sounds like a term policy at $134 a month, or $1,600 a year. Whether it's worth the expense is another question. You didn't mention why your father wants to get this policy. Is it to pay off debts, provide a cushion for you, etc? In other words, its worth depends on what your father wants it for and how well it would meet that need.
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