The Jones family is in need of financial advice in a major way. InvestmentNews wants to know how you would advise this made-up 30-somethings couple, the first case study of a four-part series on lifestage investing. Please review their story below,
and offer your advice here.
Editor's note: On Monday, March 8, InvestmentNews will launch the first of a four-part series called Lifestage. The series will look at four demographic segments of the investment advice market. The first installment. Lifestage I, will focus on young investors. Other parts of the series, which will run throughout the year, will focus on middle age, the retirement years and advanced age.
Couple: John Jones, 35; Jenny Jones, 34
Children: Jenna, 9, and James, 6
b>Income: John, assistant director, human resources, computer software company - $135,000; Jenny, accountant - $70,000 (returned to work force last year after a five-year hiatus)
Major Assets:
House: Single family house, bought in 2005 for $425,000; now worth $375,000
Retirement: John now contributes $5,000 annually to 401(k) plan, receives a 50% match, although it was suspended last year because of the
recession. John has $40,000 in his account, invested in mutual funds: 50% S&P Index fund; 25% international and 25% bonds; Jenny just started contributing to her 401(k) and has $3,000 in her account, all of it invested in an S&P Index fund.
College savings: $25,000 invested in an S&P Index fund (money invested sporadically)
Bank money market fund: $10,000
Major liabilities: Mortgage balance: $380,000, 30-year fixed, 6.5%; monthly payment (plus taxes and insurance): $2,951
Car loans: $575 a month on a 2-year-old BMW (three years to go); $350 a month on a 1-year-old Jeep (four years to go)
Credit cards: $15,000 on various cards
Insurance: John has term life policy through work with a death benefit of $675,000 for which he contributes $1,200 a year; Jenny has a term life policy with a death benefit of $350,000 for which she pays $600 a year.
Challenges: With Jenny returning to work after taking five years off after the birth of her second child, the Joneses would like to ramp up saving for college and retirement. Ideally, they would like to save at least half of Jenny's salary (in addition to their 401(k) savings).
When Jenny was not working, the couple was not able to save much and in fact, ran up their credit cards to help furnish their new home.
The couple is not sure where to invest their money after the ‘08 market crash and all the talk about the last “lost” decade when the market either lost money or had paltry returns.(John's 401(k) dropped $20,000 in ‘08, although he made up about $10,000 of that last year). They are still invested in the market, primarily because they don't know where else to put their money for growth.
Additionally, Jenny's grandmother just died and she is due a $50,000 inheritance. They have no idea what to do with that money. The couple is also concerned about the value of their home as they currently owe more on the mortgage than the home is worth. Values in their neighborhood have stabilized and they expect the home's value to rebound eventually, but aren't sure how long it will take. They don't want to move if they don't have to. They have never worked with an adviser or financial planner before but would appreciate input from a professional both on the state of their finances and direction on how to achieve their long-term goals.
What would you do? Advise the Jones family here.
