| Sargent & Lundy Savings Investment Plan |
| THINKING AHEAD |
| The following excerpts are from an article in the Friday,
June 12, 1998 "Chicago Tribune." The opinions of the author,
Jonathan Clement, may or may not reflect those of the SIP Committee.
One step forward, two steps back... This particular dance is all too common among investors. They think they are making a smart financial move, but they don't consider all the ramifications. Following are problems that can arise from making investment decisions in isolation and ignoring the big picture: * If you buy the biggest house possible, you will find it tougher to pay for your kids' college. If you send your children to private schools, it will be more difficult to retire early. * Investors often parcel out their dollars, without comparing the likely return from different investments. Homeowners, for instance, sometimes make extra payments to pay off their mortgage more quickly, even as they continue to carry much more costly credit-card debt. Similarly, investors will fund a tax-deductible individual retirement account, while ignoring their employer's 401(k) plan, which offers not only a tax deduction but also a matching company contribution. * Anxious about college costs, many parents sensibly save as much as possible. But because they invest in their kids' names, they end up hurting their chances of receiving financial aid. * "People will change jobs for a higher salary," says Dallas financial planner John Gay. "But they ignore the benefits," which may be far less attractive at their new employer. In addition, it may take time for their new company's retirement plan and health benefits to kick in. * "Clients will want to buy a large house, largely because of the tax advantages," Gay says. "But they don't realize all the other expenses that come along with that," including higher home-insurance costs, heftier real-estate taxes and bigger home-maintenance bills." * A lot of employees load up on company stock because they receive stock options, they can buy shares at a discount or they can purchase stock through the company retirement plan. "The danger is, if the company gets into financial difficulty, you not only lose a lot of your net worth, but you could also lost your company's stock, you ought to consider diversifying into other investments." * Parents will buy life insurance, to provide for their children in the event of their death, without considering estate taxes. If you buy life insurance on your own life, the proceeds are subject to estate taxes. But if the policy is owned by, say, an irrevocable life-insurance trust, the insurance proceeds are tax-free. * Whenever they buy a house or an investment, many couples instinctively purchase the assets jointly with right of survivor-ship. That means the assets go directly to the surviving spouse upon the death of the first spouse. That might seem attractive, because you can leave an unlimited amount to your spouse without triggering estate taxes. But if you do that, you waste your $625,000 unified credit, which is the amount you can leave tax-free to other heirs. |
This page updated on 6/22/98