College savings plan fails in down market
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Dear Mr. Berko:
We saved and saved for our son’s college education and for 11 years carefully selected the best recommended mutual funds. We invested between $250 and $350 a month, and our investments totaled close to $42,000. Well, as of the first of the year, those college savings of $42,000 are worth $16,632.78. We made a bad mistake. Our son will graduate from high school this May, and we don’t have the savings to send him to the University of Florida, his chosen school where his two best buddies attend. Our combined 401(k) savings plans are worth $67,000, and they too took a big hit in the market. So we are thinking either of taking a mortgage on our home (we built it without borrowing money), co-signing a note at the credit union or cashing in our 401(k) plans for his college money. Or I could take a part-time consulting job. Our question to you is: Do you know any financing sources where we can get the money we need to send our son to college? We’re at wits’ end and need some of your very helpful financial advice as soon as possible. Also, I have 150 shares of Heinz, which I bought at $46 last year, in my independent retirement account. Should I keep the stock, or should I sell? My neighbor has worked for Heinz for 22 years and hears the company could be purchased this year. What do you think?
S.K., Harrisburg, Pa.
Dear S.K.:
I’d be more concerned about adding money to your retirement savings plan than helping your son pay for frat parties, beer, sex and drugs at the University of Florida. I know you want to help your son, but believe me, you are helping him by helping yourself first. You should care more about having enough money to retire in 25 years than spending $100,000 to send him to college for four years.
Most 40-something parents don’t have bupkis in the bank, shinola in a savings account or 50 grand in a 401(k) plan. If you co-sign a credit union note, consider a mortgage on your house or take a part-time consulting job to help pay those exorbitant, gouging and extortionate college costs, then you and your spouse should be vaccinated for stupidity. Most normal 18-year-olds lack the psychological and educational skills to matriculate, so the first two years of a kid’s attendance are a patent waste of money. Frankly, I doubt your son really wants to attend college. I suspect he really wants to party with his buddies, and UF is a great party school.
Here’s my advice: Tell your son to join the armed services, where he’ll mature in a hurry. When he completes his term of enlistment, the government will pay for his college, even if he wants to go to medical school, learn to be a zinc miner or get a Ph.D. Or your kid can live at home, attend a community college in Harrisburg, Pa., and take a part-time job at McDonald’s. If he does well in community college, he can easily find the financial support to earn a bachelor’s or a master’s degree. Sending a recent high school graduate to college is like dropping a puppy in the sea one mile offshore and hoping it will learn to swim back home.
H.J. Heinz Co.’s (HNZ-$33.12) $1.66 dividend yields a fine 5 percent, and a Heinz angel told me that the board will increase the dividend to $1.77 for 2009. The stock is 20 points down from its high price of $53 in September 2008, and rightly so because the shares don’t deserve a price-to-earnings ratio of 19. A P/E of 13 to 15 is reasonable, but 19 is arguably too high.
I became a Heinz aficionado when I tasted my first baked bean in 1944. This $10 billion revenue company makes many of the most popular brands of soups, baby foods, mayonnaise, pastas, ketchups, sauces, frozen potatoes, baby foods, sauces, Mexican cuisine and snacks.
HNZ has one of the best global organizations of any major food company and international revenues accounted for about 60 percent of sales in 2008. In the United Kingdom, the company owns 80 percent of the ketchup market and is a leader in the canned soup and beans business. Heinz also has impressive revenue growth in China, Indonesia and many other countries.
Net profit margins were a healthy 9 percent in 2008, return on shareholder equity was an impressive 40 percent, and common stock represents 75 percent of capital. However, some observers note that HNZ’s overseas business will face serious challenges from a strong dollar and weakening foreign economies. Cecil O. Mumblejoy, a London analyst, believes that HNZ’s overseas revenues “may decline rather modestly and, I say, earnings could be compromised a few pence.” However, Sir Cecil suggests that 2010 will be “a smashing year for management,” and whispers to me that Unilever or Nestle Group might have “an eye on Heinz at $75 American.”
At the current price, I think HNZ can stand solid and that there’s little downside risk to the shares. However, Unilever or Nestle — I also hear Kraft Foods Inc. from one of the lads at UBS — might be forced to wait until the credit markets loosen. I’d keep the 150 shares you bought at $46 and be thankful that there seems to be little additional downside and that you only have a $1,500 loss.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2009 Creators Syndicate Inc.
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