Why are my insurance rates going up?

Safety first
I will be receiving a settlement in the next couple of months. This money will be enough to place around 1 million in the bank, and to purchase a small house, with some extra left over. My question is: I want a safe investment, I am thinking of placing the entire 1 million in certificate of deposits at 10 different banks, for 5 years. I also want to have the interest paid out either monthly or quarterly so that at that time I can choose to either re-invest the money or to use it for bills. Is this a good ideal?
Lee M. -- Palmdale, CA

It’s an excellent idea, for several reasons. First, it’s simple and requires very little work on your part. Second, as you’ve probably already determined, by dividing the money up, each account will be insured for maximum $100,000 by the Federal Deposit Insurance Corporation. Lastly, you’ll have a steady, reliable source of income to pay your bills.

But once you get settled in your new home, and find out what your new living expenses are, you may want to consider other alternatives. The safety of CDs comes at a price: you’ll give up a chance for higher returns from other investment like stocks or bonds. Since you think you may want to invest some of the money, your original plan may turn out to be a bit too secure for the long term.

More security sometimes means less flexibility. As you get comfortable with your millionaire status, you may find yourself to reading up on investments and getting more comfortable with the idea of putting a toe in the water. (By all means, learn for yourself and don’t fall victim to the many pitches you’ll likely encounter when word gets around of your good fortune.) So you may want to spend an hour with a good financial planner (who doesn’t earn a living from commissions – the most important question you need to ask) to get some ideas.

To increase that flexibility, you may want to consider “laddering” the maturities or your CDs – so that some expire in 2, 3, or 4 years. That way, as they come due, you can decide whether to roll over to more CDs or invest in other higher-yielding or higher-growth investments.

You should also try to put together a budget. How much do you need to live on? How much would you like to spend on “extras” that you can now afford? If you don’t need all that income from CDs, you might want to consider investing the remainder in stocks or bonds.

And don’t forget that inflation is eating away at those CDs all the time. Unless you can get a rate of return higher than inflation, you’ll be spending principal – not interest – for living expenses. Depending on your budget, that could shrink your nest egg faster than you think.

Gains made simple
How do you calculate capital gains on investment real estate? Do closing costs and realtor commissions reduce capital gains?
Sue H., Port Charlotte, FL

Yes. To compute capital gains on any investment, you start with the price you get for selling it, then deduct the price you paid – plus any other “investment costs.”

Those costs include any fees paid for the closing -- of both the purchase and sale -- and realtor commissions. But don’t forget to include any other costs related to the investment: advisory fees, tax consulting, etc. If you owned the real estate as an investment property, any improvements you made are also subtracted from your gain.

If we’re talking about more than a few thousand dollars, it pays to have this handled by a good accountant. The list of what can and can’t be included as “investment cost” gets a little , and you should really have a professional look over your specific situation.

Short answer
Is energy cost due to the fact that President Bush and Vice-President Dick Cheney were connected to the energy industry? Am I the only one that is suspicious?
Mario -- Austin, Tex.

No. And no.

MORE FROM ANSWER DESK View the archive Check out answers to earlier reader questions. Or click on a topic below for more specific questions and answers: Accounting 101 Credit and debt Economic explanations Energy enigmas Home sweet home Miscellaneous mysteries On the job Saving and investing Small business Taxes

MORE FROM ANSWER DESK

Answer Desk Section Front

U.S. debt could push interest rates higher Answer Desk: Adding up bank bailout losses Repairing consumer credit  Jobless benefit bedlam Who needs overpaid bankers? Who gets extended jobless benefits Easing job losses point to wobbly recovery Long-term jobless face frayed safety net GDP growth overstates case Recession over? Readers don't believe it Answer Desk Section Front   Add Answer Desk headlines to your news reader: