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Ask The Expert

About Richard Barrington, CFA & MoneyRates.com Senior Financial Analyst
Richard Barrington

Richard Barrington, CFA, is the primary spokesperson and personal finance expert for MoneyRates. He is a 20-year veteran of the financial industry, including having served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. He earned his Chartered Financial Analyst designation in 1991 with the Association for Investment Management and Research (AIMR). Richard has written extensively on investment topics, including investments, money market accounts, certificates of deposit, and personal finance as it relates to retirement.

Richard has been quoted by numerous media publications such as The New York Times, The Wall Street Journal, and Pensions & Investments magazine.[...] Read more Richard can discuss economic and market history in detail and is well respected for his ability to relate to a broad audience from a personal financial standpoint. Richard approaches financial topics with an understanding that fresh perspectives are often more valuable than mainstream consensus. He has written for over 50 financial Web sites, such as Investopedia, Yahoo, MSN, Allbusiness, and Encarta, and is most sought after by members of the media for his niche expertise in these topics: Certificates of Deposit, Money Market and Savings Accounts, Saving for Retirement, Housing and Mortgage Meltdown, Interest rates, Investments, Macro Economic and Government Policy Issues, Historical Financial Events, Discerning Long Term Implications

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Is silver better than gold as a retirement investment?

January 27, 2016

| MoneyRates.com Senior Financial Analyst, CFA

Q: With gold getting so beat up, do you think silver is a good investment for retirement savings?

A: Though they don't always perform the same way, gold and silver have similar problems as retirement investments. That does not necessarily mean you should rule them out entirely, but if you invest in them you should view them only as a small part of a very broadly-diversified portfolio.

Both gold and silver prices peaked around 2011, and since have been in a long descent. That may not be such a bad thing - buying on the way down is certainly better than buying at the peak. Still, the bear market in these metals that lasted for several years illustrates some of the problem with these kind of commodities.

Problems with investing in commodities

There may be certain issues with investing in commodities like gold, including:

Irregular income

Investing in commodities, whether it be metals like gold and silver, foods like grains or energy sources like oil, is very different from investing in savings accounts, bonds or stocks. They produce no regular income like savings accounts, bonds and dividend stocks, nor do they produce regular earnings like stocks to form a basis for future prices. They simply represent an asset that can be bought or sold. Depending on whether or not the price goes up, you will either profit, break even or lose money.

Volatility in value

This makes them highly speculative, and thus subject to large swings in value. Between their volatility and lack of income production, they are often not very suitable for retirement investment portfolios in which the owner needs to count on redeeming value from the assets at regular intervals.

May be hard to predict in market

Again, commodities in general tend to by highly speculative, but metals like gold or silver may be especially prone to speculation, because unlike grains or oil, they are not completely consumed when used. Metals, especially in the form of jewelry, can largely be recycled, so supply and demand is less subject to normal market dynamics.

Commodities as an inflation hedge

A popular reason for investing in commodities is as a hedge against inflation. However, keep in mind that at any given time, inflation might be driven by a particular part of the commodities market. Thus, an investment in silver or any other particular commodity may not mirror the general move in inflation. This is why, if you want to invest in commodities as an inflation hedge, it is advisable to do so via a well-diversified basket of commodities. Even so, if inflation turns out to be driven by wage pressure rather than commodities prices, your inflation hedge might not work out.

Unless you have some particular knowledge of the gold and silver markets, there seems no particular reason to favor silver over gold. Both are already well into a sustained price slump, but given the history of these commodities, those slumps can last a long time. To be fair, the low inflation environment has not favored investments that are often viewed as inflation hedges. However, keep in mind that there is no guarantee that they will respond as expected if inflation heats up.

Comment: Do you invest in metals like gold and silver? Do you feel like it's enough for retirement income?

More from MoneyRates.com:

Which investments perform best against inflation?

Is gold safer than CDs and money market accounts?

Should I buy silver for my portfolio?

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What should I do if I can't direct deposit money into savings accounts?

January 12, 2016

| MoneyRates.com Senior Financial Analyst, CFA

Q: What should I do if my bank only allows direct deposits into checking rather than savings accounts?

A: It may be time to look for another bank, or at least reassess how much your current bank is worth to you.

To be sure, savings banks are not meant to be heavily transactions-oriented. In fact, Federal Reserve regulations limit them to no more than six withdrawals a month, but the key thing here in your situation is there is no such limitation on the number of deposits. So, there is no regulatory reason to forbid direct deposits into a savings account, even if the nature of your work (e.g. someone with multiple employers) is such that you receive frequent paychecks over the course of a month.

Absent any regulatory issue, one has to assume refusing to accept direct deposits in savings accounts is a matter of your bank's policy. Ordinarily, banks would be keen to attract deposits and unlikely to put up barriers to prevent people from sending money their way, but these are not ordinary times. A combination of low interest rates, a lackluster lending environment and new accounting regulations have made some banks feel they already have more deposits than they need. This may explain your bank's policy, but you do have alternatives.

3 ways to get around checking-only direct deposits

If you have restrictions on deposits into savings, here are three alternatives:

1. Transfer money after each payday

One alternative is to get into the habit of transferring money from checking to savings every time you get paid. This would depend on getting yourself on a regular schedule to make these transfers. Though, it might help if your employer gives you a pay stub or other notification of payment to serve as a reminder. It would also help if your bank has online features that would allow you to make these transfers from a computer or mobile device.

2. Switch to a new bank

Even if these transfers can be done efficiently, having to make them in the first place does create extra work for you, so you have to decide how much your bank is worth to you in other ways. For example, since your the savings account is causing extra effort, ask yourself whether that savings account compensates you with highly competitive interest rates. These days these would be something in the 0.75 to 1.00 percent range. If not, it might be worth it to switch to a new bank.

3. Make transfers between banks

On the checking account side, free checking has become scarce enough that having it might be sufficient incentive to stick with your current bank. Of course, you could still move your savings account to another bank and make transfers between banks, unless the savings account balance is helping you to qualify for free checking.

Your bank's fees and interest rates may well be competitive enough to make it worth your while to make these regular transfers between checking and savings yourself, but you won't really know how competitive those fees and rates are until you make some comparisons with other banks. In short, it seems likely that this particular policy of your bank will cause you to take a look at what some of their rival banks have to offer.

Comment: Does your bank have all the checking and savings account features and rates you want?

More from MoneyRates.com:

How do I deposit cash into an online bank account?

Free checking account and credit card offers - what's the catch?

Direct deposit into savings or checking?

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How do I deposit cash into an online bank account?

December 29, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: How do I deposit cash into an online bank account?

A: Different online banks have different procedures for handling this. Overall, it is perhaps the one distinct disadvantage of online banking versus traditional, branch-based banking, but it is a disadvantage you might be able to minimize.

Making deposits several ways

For most types of deposits, banks with online savings accounts operate much the same way as traditional banks, and are probably more technologically up-to-date. This means that you can make deposits via wire transfers from other institutions, direct deposits of paychecks, or often via electronic imaging of paper checks.

Cash, however, is more difficult to deposit. Some online banks accept cash deposits via participating ATMs, while others leave you no option but to mail cash in.

Disadvantages to online bank cash deposits

These limitations on cash deposits leave you with certain disadvantages. For one, putting cash in the mail or into an ATM lacks the certainty of handing the money to a bank teller and leaving the bank with a receipt in hand.

For another, mailing in cash will cause a delay in when the deposit is reflected in your account. That delay could be inconvenient if you need to write checks against the deposit, and it also could cost you a few days' worth of interest.

To some extent, these disadvantages could be reduced by special mailing of your deposit, such as registered mail for security or express mail for timing. However, that would cost you every time you wanted to make a deposit.

How to deposit cash into an online bank account

Here are five options for dealing with the problem of depositing cash into an online account:

1. Minimize cash receipts. This may depend on what you do for a living, but if possible, encourage payment via check rather than cash.

2. Choose an online bank that accepts ATM deposits. These are at least a little better than mailed deposits, but not all online banks accept deposits via ATM.

3. Consolidate deposits to make special handling worthwhile. The costs involved in registered or express mail become smaller as a percentage of a large deposit. If you can stay away from several small deposits in favor of the occasional large one, it may be more worthwhile - as long as this doesn't entail the risk of leaving large amounts of cash sitting around.

4. Stick with a traditional branch-based bank. Online banking may not be feasible if you have regular cash income.

5. Split your banking for transactions and interest-earning purposes. In other words, maintain a traditional bank checking account, but accumulate savings in an online savings, money market account or certificate of deposit (CD) to reap the interest rate advantage online banks often offer.

Generally speaking, online banking offers consumers several advantages, including advanced technology, low-cost checking and higher interest on deposits. However, the awkwardness of handling cash is a difficulty if you need to make regular cash deposits. This illustrates that there really isn't one banking solution that is best for all people, but that choosing a bank comes down to matching a bank's features and capabilities with your needs.

Comment: Do you prefer an online or traditional bank for your deposits? Why did you choose your current financial institution? 

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How can I get my paycheck directly deposited into the bank?

Free checking account and credit card offers - what's the catch?

Direct deposit into savings or checking?

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How do I invest when I'm 2 years away from retirement?

December 3, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: I am 60 years old and plan to retire at 62. Because Social Security would not be enough to live on, I plan to invest some money from my 401(k) in order to have some extra income. Could you advise on an investment product?

A: Your question touches on two key issues that go a long way to determining what type of investment product you should consider: time horizon and withdrawal rates. In addition to looking at those considerations, it might also be worth revisiting your Social Security strategy.

Time horizon

It is easy to assume that being two years from retirement equates to a fairly short investment horizon. However, before you retreat completely to certificates of deposit (CDs) or savings accounts, keep in mind that your actual time horizon is probably closer to 25 years than two years. This is because your probable life span means you should be investing for a long time to come. It might be wise to keep some growth element in your 401(k) plan, perhaps in a balanced stock/bond portfolio, especially since that plan is complementing Social Security payments, which effectively have the characteristics of an income investment.

Withdrawal rate

If you plan to withdraw money from your 401(k) at a low percentage rate - say 4 percent or less - you should be able to sustain your balance without rapidly drawing it down. This would allow you to assume a longer time horizon and invest more aggressively. However, a higher rate of withdrawal is likely to draw your balance down more rapidly. This effectively shortens your time horizon, pointing you towards more conservative investments for liquidity reasons. The problem is, with rates on savings accounts near zero and even 30-year Treasuries barely yielding 3 percent, this will greatly lower your return potential.

One other thing about withdrawals - if you regularly draw a fixed dollar amount from retirement savings and start to draw your total balance down, that dollar amount will become a larger and larger percentage of your remaining balance. This in turn will hasten the drawing-down process.

Social Security strategy

One final thing to consider is whether you should delay drawing on Social Security to receive larger payments in a few years. If you can continue to work, it would also give you a few more years to build up retirement savings, and fewer years over which you will have to draw on those savings.

When putting this all together, keep in mind that as your money leaves your 401(k) it will become taxable. Try to withdraw no more than you will need from year to year, so you don't incur taxes any sooner than is necessary. For that reason, the first step in your process might be to formulate a retirement budget, to see how much money you will need to live on.

From there, you can figure out the rate of withdrawals you'll be taking from your 401(k) plan, and that in turn should give you an idea of how aggressively you can afford to invest.

Comment: Are you close to retirement age? How do you plan on investing your money?

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6 big excuses retirement savers need to stop telling themselves

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What's the best way to invest $12,000 in my 40s?

November 23, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Q: What's the best way to invest $12,000? I am 46 years old.

A: The mid-40s is a tricky age for investing because you might find yourself torn between short-term and long-term goals. There is no way to responsibly give you a definitive answer without knowing the specifics of your situation, but there are some key questions that will help guide you to the right decisions.

Here are three questions that should help, discussed in the context of an investor in your age group:

1. What are you trying to accomplish?

In your mid-40s, you are far enough along in your career that you should definitely be building up a retirement nest egg, but you might also be facing shorter-term financial obligations like mortgage payments or sending kids to college. These goals require very different investment approaches. If you are just focused on retirement, at your age you should have a long-term time frame and thus be invested primarily for growth.

As growth investments can be volatile, diversification is important, but generally speaking with 20 or so years to retirement, a stock-bond mix with an emphasis primarily on stocks would be appropriate. However, if home payments or college create more immediate demands, you may need to be much more conservative. For those needs, try to match certificate of deposit terms with when those payments are coming due, and get the best CD rates you can within those terms.

2. Where does this money fit?

In deciding how to invest this money, you need to look at what other assets you have. For example, you may be juggling short and long-term goals, but already have money allocated to more immediate needs. That would allow you to take a longer-term approach with this $12,000.

Conversely, if you have a solid pension plan to look after your retirement needs, you might want to invest this money in CDs, savings or money market accounts where it can be more available for short-term needs. If you want to pursue both retirement saving and shorter-term goals, it would clarify things if you divide this $12,000 between the two and invest those two pools separately, rather than try to take a middle-of-the-road approach that serves neither goal properly.

3. What is your personal comfort level with risk?

On paper, it is likely that someone your age should own stocks, but that also depends on whether you have the risk tolerance for the possibility of losing money. Just keep in mind that at the other end of the spectrum, deposit vehicles like savings accounts have had trouble keeping up with inflation in recent years, and that loss of purchasing power is also a form of risk.

People your age are usually close to their peak earnings years. That also means that these should be your peak years for saving money. So, beyond the question of what to do with this $12,000, you should be asking yourself what you are doing to continually save money and add to that $12,000.

Comment: Are you in your 40s and have investments? What are you putting your funds toward?

More Ask the Expert questions:

Where should I store money while waiting to invest?

Can I turn $100,000 into $1 million by the end of the decade?

Do I lose 401(k) retirement money if I leave my employer?

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