Financial fix: We're scared to look at the portfolio

blake.top.jpgKris and Steve Blake, with their daughter Kelly. For more families getting a financial fix, click here. By George Mannes, senior editor


(MONEY Magazine) -- In 2006, Kris and Steve Blake were struggling under the weight of the $65,000 in debt they'd racked up buying cars, real estate, and an RV. And they were clashing over Steve's weakness for grownup toys boats, motorcycle gear, even a tricked-out golf cart.

Then, inspired by anti-debt guru Dave Ramsey, they repaid that debt in three years (their home is mortgage-free, too), and reached a financial truce: Steve can play with half his overtime pay while Kris manages the rest of the family's money.

blakes_portfolio.gif

Despite their cleaned-up balance sheet, the Blakes are at a loss when it comes to the logical next step: investing for the future.

Their dream is to leave work by 62 and build a home on 10 acres they own in northern Florida. They have a quarter of a million saved, but Kris, who has tried unsuccessfully to get Steve more involved with their finances, struggles to understand what they own.

When stocks took a dive, she was too afraid to touch the portfolio. Post-recovery, she's just as afraid she'll mess up.

The extra cash they once used to pay down debt helps support their 21-year-old daughter, Kelly, who's training to be a firefighter, and funds a home renovation. But soon they'll have savings to invest.

THE STATS

Age: Kris, 49, and Steve, 50

Occupation: Closed-captioner (Kris) and guidance system assembler (Steve)

Location: Largo, Fla.

Income: $105,000

Assets: $250,000 in retirement savings: 10 acres of Florida land worth $65,000

Goals: Retire by age 62 in a newly built home

THE PROBLEM

Not only do the Blakes not know what they own, but they also have a poor handle on how much investment risk they can handle, says Jacksonville planner Carolyn McClanahan.

Case in point: On the risk-tolerance questionnaires she asked the Blakes to fill out, both said they could stomach a 12% loss, but both also said they couldn't live with a $120,000 loss in a $1 million portfolio -- also a 12% loss.

Regardless, the Blakes are clearly more risk-averse than their current 71% stock/29% bond portfolio indicates. Happily, the couple don't need such a risky mix because they've proven they have the willpower to save.

Steve puts 10% of his pay in his 401(k), Kris contributes 4% to her plan, and they will be able to set aside another $2,300 a month about a third of their income in total.

"They're very motivated," says McClanahan. "They had a choice of spending or reaching for their goal of financial independence. And that's what they chose."

THE ADVICE

Reduce the risk: Shift to a 50/50 stock/bond mix in Steve's 401(k) and Kris's 403(b). With their high savings rate, they could still build a $790,000 nest egg by retirement.

A key move: Sell the 35% of Steve's 401(k) that's in company stock. "There's no need to invest more with a company you're already so invested with," says McClanahan.

Keep saving strenuously: First, says McClanahan, the Blakes should max out Roth IRAs. They'll want to hold on to the Roth money the longest for tax reasons, so she suggests using it for aggressive investments such as the Vanguard Small-Cap ETF (VB).

The rest of their savings should go into a money-market fund earmarked for their next home; in 10 years it should be worth $222,000.

"I feel a lot less stress now," says Kris, "because I really thought we were a lot further behind." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.29%4.30%
15 yr fixed3.23%3.29%
5/1 ARM3.33%3.45%
30 yr refi4.26%4.27%
15 yr refi3.20%3.26%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,912.11 -70.48 -0.42%
Nasdaq 4,442.70 -2.21 -0.05%
S&P 500 1,969.95 -8.96 -0.45%
Treasuries 2.46 -0.03 -1.16%
Data as of 1:47am ET
Company Price Change % Change
Frontier Communicati... 6.79 0.85 14.31%
Windstream Holdings ... 11.83 1.30 12.35%
AT&T Inc 36.59 0.94 2.64%
CenturyLink Inc 39.90 2.19 5.81%
Bank of America Corp... 15.34 -0.16 -1.03%
Data as of Jul 29

Sections

McDonald's may be liable for worker lawsuits, not just franchisees, in a government ruling that could change the fast-food business. More

Amgen is the latest to continue corporate America's cost cutting strategy, even as the economy is supposedly on the mend More

Bunch o Balloons allows multiple water balloons to be filled at once. Parents are loving it -- to the tune of $645,000. More

Steve Mason, a pastor from California, inherited more than $100,000 in student loan debt when his 27-year-old daughter died suddenly in 2009. With interest and late penalties, the debt has since ballooned to $200,000. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.