College trustees weigh change in investment companies


Q. My college administrative board of trustees is considering leaving TIAA/CREF in favor of a locally owned investment company. The local company has a decent reputation working with investments typically associated with such companies.

I’ve been a member of TIAA/CREF for nearly 30 years, and while my portfolio amount is perhaps modest after working all these years in a private liberal arts college, the amount will definitely supplement my Social Security and other investments. What should I (or perhaps we as a faculty/staff) be looking at in terms of this change? Are there any warning signals we should look for? What could be lost in the transition?

Ultimately, the college is looking to save on transaction fees with TIAA/CREF. Will such a thing even be feasible?

A. As you said, the college board is doing this for one obvious reason: They’re trying to save on transaction fees, and that’s not a criminal action. It could also be that they’re trying to get their desired company to give them a better deal.

As to what you can look for, I don’t really know. You said the local company they’re looking at has a good reputation. That is certainly desirable. You’re going to have to do a little investigating to see which one you would want to stay with if there is a possibility of taking your funds or keeping them where they are. That must be explored, at the very least.

I don’t think there is anything sinister happening here. Any organization making substantial investments is going to look for the best deal and results for them.

Q. I am going on 38 years old and single. I’ve owned my home for 10 years now and can pay it off in five years if I want to. My monthly mortgage is $710 with a 3.9 percent interest rate. I make $60,000 a year.

Currently, I have about $67,000 in a savings account, plus a CD making 2 percent. If I put $5,000 a year into the account, in five years I would have about $90,000. When that fifth year comes around, there will be $40,000 left to pay on my mortgage balance.

I was thinking if I have $90,000, I could use $40,000 to pay off the mortgage at 43 years old and still have $50,000 in cash. The $710 a month is about $8,500 a year, but having that extra money is huge to me. I would be free, and it would be easier to pay the taxes and insurance on the house.

I have an IRA that I transferred from a 401(k) from an old job that is riding the market. I have a 401(k) with my current job, and another government retirement account from an old job that makes 7 percent every year guaranteed, but I can’t contribute to it.

Should I pay off the mortgage in five years and enjoy life, or hang onto all of it and keep paying the mortgage?

A. Cutting through your interesting but lengthy letter, you’re coming down to one main question: Should you keep the mortgage at 3.9 percent? On balance, I would probably say yes, but it depends on how much that “extra money” would be earning.

If the “extra money” that you could spend on the mortgage is earning more than 4 percent, by all means, keep it where it is, and you should be shooting for 6 or 7 percent or more. Being mortgage-free is a wonderful feeling, but you’re going to be effectively mortgage-free in five years anyway if you contribute that much money each month to the savings fund. Look at it as a compensating balance.

On the other hand, if you really want to have the free feeling of no mortgage, then go for it! You have been disciplined and saved most of your years. You’ve definitely earned it, but Michael, never underestimate the value of a compensating balance. You’re doing very well.

Send questions to bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided. The Bruce Williams Radio Show can now be heard 24/7 via iTunes and at www.taeradio.com. It is also available at www.brucewilliams.com.

2017 United Features Syndicate

Distributed by Andrews McMeel Syndication for UFS

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