Covering All the Bases
By Amir Zaman,
WEA Insurance
employee benefits specialist
November 1997
New choices in TSA funds offer flexibility
Saving money for retirement has never been an easy task. But these days,
even if you do decide to save, you have so many decisions to make about
how to save effectively that you may be tempted not to save! The WEA Tax
Sheltered Annuity Trust can help.
Unlike other companies that offer tax-sheltered annuities and are in
the business to make money, the Trust is a not-for-profit fiduciary with
a responsibility to ensure that your money is invested in a prudent manner.
The Trust’s mission isn’t to enrich you overnight, but rather
to provide you with the tools to save for retirement effectively and safely.
A long-term strategy
Starting November 1, the WEA TSA Trust will offer a new set of mutual
funds that you can use for investing your tax-sheltered annuity dollars.
These new funds were chosen to allow members to use an investment strategy
known as asset allocation, a time-proven method of effectively managing
investment risks over the long term. In very simple terms, asset allocation
means spreading your money into distinctly different investments so, if
disaster strikes one, the others continue to work for you.
To understand how this strategy works with the Trust’s new funds,
you need some information about the new funds. Basically, the funds are
divided into two categories — Core Equity funds and Specialized Equity
funds.
The Core Equity funds invest in the stocks of larger companies, and are
at times referred to as “large capitalization” stocks or just
“large cap,” and sometimes as “Blue Chip” stocks.
These stocks are familiar household names such as McDonald's, Coca-Cola,
IBM, Microsoft, and so on. They are considered strong companies with little
likelihood of going out of business.
While the perception is that such companies are relatively safe investments,
these stocks, and the mutual funds that hold them, certainly can drop
in value. Of the new funds, the Vanguard Institutional Index and the Domini
Social Equity Fund, are considered Core funds.
The Specialized Equity funds do not necessarily invest in the stock of
large companies. These mutual funds were chosen as part of the asset allocation
mix specifically because they do not invest in the same type of companies
as the Core Equity funds. Of the new funds, T. Rowe Price International,
T. Rowe Price New Era, and the T. Rowe Price Small-Cap Value would fall
under the Specialized umbrella.
While the stock market has been doing quite well, it’s probable
that some day the type of stocks that fall under the Core Equity category
will drop in value (though there is virtually no chance they could become
worthless so long as there is a meaningful U.S. economy). At such times,
it’s prudent to have some money invested in funds that do not necessarily
react to economic conditions the same way that these Core Equity funds
do. That’s where the Specialized funds come in. Since it is not possible
to predict when these times will occur, if ever, it’s safer to allocate
your investment assets to mutual funds from both categories when investing
for the long-term.
In the conventional wisdom of the investment world, when one type of
investment (or asset class) “goes out of favor” or loses value,
other types of investments may come into favor or gain value. Asset allocation
is generally considered a good strategy for managing unpredictable, changing
economic dynamics.
By putting several categories of stocks together with a safe and secure
guaranteed account, under one roof, the Trust provides members the ability
to design an effective strategy to manage investment risks while saving
for retirement. Alternatively, members may invest only in the guaranteed
account that pays a fixed rate of interest — traditionally, one of
the highest rates available to public school employees.
For more information on the new funds being offered by the Trust, or
to learn more about asset allocation, call the TSA program at 1-800-279-4030.
WEA TSA Trust to lower its fees
If you currently have a tax-sheltered annuity account with the Trust
or plan to start one, you’re in luck. The Trust is reducing its fees
again as of January 1, 1998. Here are the new, lower fees:
Contribution Fee: Zero
(It was 0.8% on every contribution.)
Annual Administration Fee: 0.30%
(It was 0.33%, or 0.025% monthly.)
Annual Fee Cap: $175
(It was $250.)
The interest rate paid on the Guaranteed Account is 7.3% for 1997 and
will be 7.4% for calendar year 1998.
Posted October 27, 1997