— M.J.B., Laguna Niguel, Calif.
A: For the time being amid the financial-market meltdown, cash is king.
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There is a distinct difference between bank accounts and money-market funds, however, since the latter does not carry FDIC insurance, Birkhofer says.
While money-market funds are generally extremely safe, they often consist of overnight loans among companies, adding some volatility. The highest yields, and highest risks, come from a corporate-tied money-market funds. “Stepping down to a government-backed money-market fund is a wiser move,” says Birkhofer.
Another option, he says: short-term Treasury notes and bills. These can be bought directly from the U.S. Treasury at treasurydirect.gov, but the process can be cumbersome. As an alternative, mutual funds made up of these government-backed IOUs are readily available to the public and can be sold quickly.
Repayment of Treasuries is backed by the “full faith and credit” of the U.S. government. For security, it doesn’t get any safer than that.
U.S. Savings Bonds also carry that pledge. But Birkhofer sees them, along with government-issued TIPS – Treasury Inflation Protected Securities – more as long-term positions than an investment you can access immediately.
Another tactic for investors seeking safety is to build a portfolio of bank CDs covered by the FDIC, says Rita Cheng, a certified financial planner in Bethesda, Md. She would vary their duration, buying one that matures in, say, three months, another in six months, and a third in a year.
According to Bankrate.com, CD shoppers can find rates as high as 4.07 percent on a six-month certificate and 4.35 percent on the 12-month version. Money-market accounts are paying as high as 3.9 percent.
Get legal advice when selling land
Q: My husband and his brother want to sell 200 acres of land they own. We do not want to develop it and have been leasing it for grazing rights for the past five years. No house or improvements are on the land. What or how is the best way to sell the land with the least tax consequence? We’ve been told several things (must live on it two years in past five) and whom to contact: real estate lawyers and a CPA. (My financial planner directed me to a real estate lawyer who wants a retainer and then $185 an hour to answer my question.)
M.G., via e-mail
A: It sounds as if there could be a lot of money at stake here. It also appears to Gary Schatsky, a fee-only financial adviser and attorney in New York, as if $185 per hour for expert advice on valuable assets is a steal.
The real question that needs to be addressed is whether the retainer is merely a deposit against hourly billings or an additional charge. You need to clear that up. But don’t fall into the penny wise, pound foolish category on getting the help you need.
Otherwise, Schatsky notes the tax exemption of $250,000 of the capital gain (two-years-out-of-five rule) applies when the property was your primarily residence. It is not clear if there is any residence, let alone a primary residence, and it also seems as if the only purpose the property has served has been a business one – leasing of grazing rights.
Under this scenario, at least, that loophole won’t be available, he says.
Is this a good time to build a small home?
Q: I want to build a simple home. Is this a bad time? How much should a contractor make on a $70,000 home?
E.G., via e-mail
A: It might be a good time to build a home because the market is slow, and contractors are eager for work. But given the cost of labor and materials, it could be tough to find a qualified contractor to take on a relatively small project, says Bedda D’Angelo, a fee-only financial planner in Durham, N.C. A contractor should be able to make a net profit of at least $15,000 to $20,000.
Got a question? Submit it to Steve Dinnen at money@csmonitor.com. Dinnen’s Financial Q&A column appears the first and third weeks of each month.
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