Q: In May I made a seven-figure deposit with a large wealth-management firm. They invested 60 percent in equities and 40 percent in their...

Share story

Q: In May I made a seven-figure deposit with a large wealth-management firm. They invested 60 percent in equities and 40 percent in their intermediate bond fund.

I protested when I saw the intermediate bond fund and forced them to exit it. As an alternative, I bought 90-day Treasury bills earning 3.2 percent. I did not want to be in a fund with rising interest rates.

These Treasury bills have now matured, and I do not know where to put the funds. In addition, I can’t afford to pay them 1 percent to manage Treasury bills. Can you show me some alternate choices?

I could handle a blend of AAA corporate bonds and possibly some preferred stocks.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks

A: One of the best tools for your situation is a “ladder,” a sequence of fixed-income securities that will mature on a regular schedule.

When each security matures, it is replaced with a new security at the long end of the ladder. The net result is that you will eventually have a portfolio with the yield of the longest maturity but an average maturity that is much shorter.

Better still, if you have a need for cash, some part of the portfolio is maturing every year.

You can structure your ladder so that securities mature every six months. You can also build a much longer ladder, say, out to five, six or seven years. In most markets this would increase your interest income substantially. It won’t today.

One guideline for creating such portfolios — particularly for people who have reached the age of required minimum distributions from tax-deferred accounts — is to commit enough in each year to provide the cash for your distribution. Again, it will work to reduce your risk — cash will be there when you need it.

If you keep this account separate, you won’t have to pay the 1 percent fee, which is much too high for fixed-income management.

Q: My brother will retire next year after 33 years working for the city of Memphis, Tenn. He says that unlike corporate pensions, his pension is “bulletproof” because it is a municipal obligation.

He says they must honor it. I say nothing is bulletproof. What are his risks?

A: Tell your brother he needs to watch “The Godfather” again, with particular attention to the scene where Al Pacino notes that if history has proved anything, it is that anyone can be killed.

Nothing is “bulletproof,” including public-sector pensions.

When private and public pension funds are compared, public pension funds tend to be less well-funded than private pension funds. This happens because city and state governments make even more generous promises than General Motors, but seldom provide the necessary funding.

Your brother can be somewhat more relaxed than a private-sector employee because private pensions are funded with corporate earnings, while public pensions are funded with tax revenue.

When a corporation has no earnings, it has trouble funding its pension and may seek bankruptcy protection. When a city or state has trouble funding its pension, it can raise taxes until taxpayers pick up and move.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.