Financial Tip You Should Know
1. Tougher screening for new hiresPersonality tests are raising the bar for job seekers, said Lauren Weber in The Wall Street Journal. The popularity of automated pre-hire tests is surging, with eight of the top 10 biggest U.S. private employers now using them to assess applicants. While earlygeneration tests measured only a “few broad personality traits,” advances in computer modeling and statistical analysis now allow employers to “appraise everything from technical and communication skills to personality and whether a candidate is a good match with a workplace’s culture”—all in a single sitting. Advocates of the billion-dollar testing industry say that “more precisely matching applicants with jobs leads to longer, happier careers.” But critics insist the tests are just another burdensome hurdle in an already challenging job market. If a company requires a personality test, “I just don’t apply,” said Patrick Corbett, a 46-year-old tech support worker. “I don’t feel like wasting another hour of my life for a job I won’t get.”
2. Capitalizing on good credit
Don’t let a good credit score sit idle, said HuffingtonPost.com. Once your score hits 661 for “good” or 781 for “excellent,” you need to put it to “effective use.” For starters, you may be eligible for a zero-percent interest rate on balance transfers, so now’s the time to apply for new cards to more easily pay off old debt. And with home-loan interest rates at historic lows, good credit might also allow you to “lock in a much lower rate” on your mortgage through refinancing. You can also save money on car insurance, as most coverage plans “are actually partially tied to your credit score”—insurers use that data to help “determine the likelihood that you’ll file a claim.”
3. Teaching kids to bank smart
When it comes to kids and money, transitioning from a piggy bank to a savings account is a big step, said Beth Pinsker in Reuters.com. “Financial experts say it is best to start with a trip to a bank.” When choosing which one, don’t bother worrying about interest rates—“you’re not trying to grow their money as much as grow their habits”—but do try to look for low fees. If your child begins earning taxable income, try to move it into a Roth IRA. That $1,000 put away now will have grown to nearly $30,000 when your 15-yearold is 65. Convincing teens to part with their earnings may prove a challenge, but those “teachable moments” will pay off.
4. Wait until 10 a.m. to trade
Mornings might be the “most perilous time of the trading day,” said Dan Strumpf and Corrie Driebusch in The Wall Street Journal. Buying and selling stocks is especially heavy just as the market opens at 9:30 a.m. EST, since many investors have submitted orders the night before. But that’s also when the gap between the price sellers want for a stock—the “ask” price—and what buyers are offering—the “bid”—is biggest. In the first half of the year, the difference between the bid and ask prices of S&P 500 shares was 0.84 percentage point in the first minute of trading, with the gap shrinking to 0.08 percentage point after 9:45 a.m. and staying low throughout the day. The difference amounts to “pennies a share” in added costs for investors, but that can add up quickly in a volatile market. Your best bet? Wait until the day gets underway to trade.
5. Is your 401(k) plan a dud?
Don’t get stuck with a pricey 401(k) plan, said Consumer Reports. Even seemingly small differences in fees can add up, according to a study by the Center for American Progress. Investing in a retirement savings plan with annual costs of 1.3 percent means paying almost $125,000 more over your career than you would in a low-cost fund with fees of just 0.25 per cent. Investigate your fund’s expenses by logging into your online account or looking at the prospectus. The administrator of your 401(k) plan is also required to notify you annually about costs. Anything more than 0.76 per cent can be considered a high-cost plan. Your plan should also offer the choice of investing in index funds, which often have expense ratios of less than 0.2 per cent, much less than actively managed funds.
6. Don’t count on an inheritance
“It turns out inheritances barely move the needle when it comes to retirement readiness,” said Kelli B. Grant in CNBC.com. Current retirees are expected to transfer $12 trillion to their heirs in coming years, but even after factoring in those inheritances, 51.6 percent of U.S. households are still at risk of falling short on retirement savings, according to the Center for Retirement Research at Boston College. “If those inheritances weren’t in play, 52.4 percent of households would be at risk. In other words, receiving an inheritance has been a retirement-saver for less than 1 percent of households.” The bottom line: “Don’t count on inheriting your way out of this problem,” said Alicia Munnell, the center’s director.
7. Robo-trading hits the big time
Now that Charles Schwab has gone robo, said Jason Zweig in WSJ.com, “the fledgling industry of automated investment advice is going mainstream.” The discount brokerage giant launched its Intelligent Portfolios service last week, replacing some traditional brokers with “robo-advisers” programmed to “generate and monitor a portfolio of exchangetraded funds,” automatically rebalancing your investments when the market moves. It’s true that “having a machine manage your money isn’t for everyone,” but robo-advisers do have some advantages over their human counterparts: They stick to the investment plan that you select, won’t panic during a crash, and won’t be tempted to try “timing or outsmarting the market.” Plus, they’re cheap, costing anywhere between .04 and .48 percent, compared with the 1 or 2 percent typical of a flesh-and-blood adviser.
8. How to claim old tax breaks
If you missed out on a tax credit last year, it might not be too late to claim it, said Kimberly Lankford in Kiplinger.com. “You have up to three years after the date you filed your original return to file an amended return and get a refund for the extra credit.” And with some discounts—such as the American Opportunity Credit, which is worth $2,500 per student for each of the first four years of college—it’s clearly “worth the effort.” You need to file a 1040X form for each tax year you are amending, along with any tax forms that are affected by the change. It can take a while—up to 16 weeks—for amendments to be processed, but “reducing your federal tax bill could also lower your state income tax,” so the savings are probably worth the wait.
9. Small caps’ big gains
If you want to hit it big in the market, think small, said Brett Arends in MarketWatch.com. A new study shows that over a 50-year period, a portfolio of “small cap, high quality” stocks has outperformed the overall market by nearly 5 percentage points a year, “an absolutely stunning performance.” But not all small caps are created equal. The key, say the authors, is quality—investing only in small companies that show “balance-sheet strength, profitability, stability, and growth.” Of course, coming off 50 years of gains, it’s possible these stocks may soon show weaker returns, but the advantages have proven “persistent over a long period of time” both in the U.S. and abroad. “Could it really be this easy?”
10. Goldman’s consumer loans
Wall Street powerhouse Goldman Sachs is looking for Main Street clients, said Michael Corkery and Nathaniel Popper in The New York Times. After 146 years building a reputation serving “the powerful and the privileged,” the financial services firm plans to offer consumer loans to ordinary Americans via an online lending unit. Though Goldman requires a minimum balance of $10 million to become one of its private wealth clients, its new unit will offer consumers loans of $15,000 to $20,000. The loans would not be backed by collateral like a home or automobile, allowing Goldman to charge higher rates. The effort will be based on startups like Lending Club and Prosper, which have been disrupting the $840 billion consumer loan business.
11. Shielding heirs from taxes
“Your death could be more taxing than you imagine,” said Jonathan Clements in The Wall Street Journal. If you die owning traditional retirement accounts like a 401(k) or IRA, your heirs still have to pay the income taxes owed on withdrawals. These accounts are typically the second-largest asset owned by families approaching retirement age. To protect your heirs, “you might shelve the standard advice for retirees,” which is to tap taxable accounts first. That’s because the value of an asset like a stock that has appreciated in value will automatically rise to its current value at your death for tax purposes, which could eliminate a capital gains–tax bill. Or you might convert part of your traditional retirement accounts to a Roth IRA, where it will grow tax-free.
12. Home makeover bargains
Pay attention to the calendar if you’re thinking about redecorating, said Cameron Huddleston in Kiplinger.com. If you are in the market for furniture, sales often come in January and July, since new furniture models tend to be released in February and August. Retailers like IKEA and Overstock.com cut prices as much as 70 percent over February’s President’s Day weekend. For mattresses, Memorial Day sales offer the biggest discounts—as much as 80 percent—and the best selection. “If price is more important than quality,” Thanksgiving week is a great time to buy an off-brand high-definition television. You can also scoop up steeply discounted prior-year models in the run-up to the Super Bowl. For patio furniture, “rock-bottom” prices can be found in October and November, when retailers are trying to clear out their summer inventory.
13. Murky tech investments
Mutual funds “have been loading up” on shares of high-growth startups like Uber, Dropbox, and Airbnb, said Kirsten Grind in The Wall Street Journal. But with fears of a second tech bubble looming, the Securities and Exchange Commission is beginning to question money managers about how funds are valuing these hard-to-price holdings. Shares in private startups aren’t traded publicly, so mutual fund firms must estimate what those shares are worth, frequently reporting different prices for the same company. Millions of investors are now exposed to these unpredictable startup shares, with Fidelity, T. Rowe Price, and BlackRock among the biggest money managers investing in private tech companies. The good news: Funds are only allowed to hold 15 percent of their assets in hard-to-sell securities, which include private-company shares.
14. Remixing portfolio rules
“Years ago, managing your investment portfolio was pretty simple,” said Jeff Reeves in USA Today. Invest 60 percent in stocks, 40 percent in bonds, and rebalance once a year. But more and more, financial advisers believe the old 60/40 formula isn’t just outdated, “but downright dangerous.” Historically low interest rates have pulverized bond yields, and Americans’ lengthening life spans demand more robust performance to fund a decadeslong retirement. Advisers “differ greatly on what the proper mix is,” but some suggest broadening the definition of “bonds” to include other income-producing investments, like dividend-paying stocks. In general, having more exposure to stocks, even in your 50s and 60s, increasingly looks like a smart move.
15. Scrounging up a down payment
“Home prices are on the rise, making it harder for buyers to cobble together a 20 percent down payment,” Kathryn Vasel said in CNN.com. In order to secure the average fourbedroom, two-bathroom home—today worth $302,632—buyers need to pony up $60,526, and that’s before closing costs. But there are options for homebuyers without enough savings in the bank. The FHA backs mortgages that require as little as 3.5 percent down for borrowers with good credit. The Department of Veterans Affairs guarantees loans for former service members, and the Department of Agriculture has a loan program to aid home ownership in rural areas. If you borrow from a retirement account, “use caution to avoid paying penalties.”
16. Paying off credit cards
It’s called the snowball strategy: paying off smaller debts first, to motivate yourself to dig out of credit card debt faster, said Kelli B. Grant in CNBC.com. A 2012 study of debtpayoff strategies from Northwestern University’s Kellogg School of Management found that consumers using this strategy were more likely to eliminate their entire debt than those employing other approaches. But beware: Experts say snowballing “is a potentially dangerous strategy for the wrong consumer.” Paying off cards with the highest interest rates first reduces the amount paid in interest overall, saving money needed to whack away at debt. “Knocking out a small balance can also generate false optimism,” making people with a spending problem feel they can incur more debt. The average American with credit card debt owes more than $15,000, so any strategy should start with cutting up those cards.
17. Slacking on school supplies
Back-to-school shoppers “seem to have hit their limit,” said Brad Tuttle in Time.com. The amount of money parents spent on back-toschool shopping has increased 42 percent over the past decade, according to the National Retail Federation. But this year, the average household with school-age kids is expected to spend only $630, down from $669 a year ago. Roughly a third of parents are also waiting to shop until after the school year starts, up 5 per cent from 2014. Whether they’re procrastinating or not, “there’s some strategy behind the refusal to buy in advance.” Clearance sales start after Labor Day, as stores make room for Halloween and even Christmas merchandise.
18. Mostly paperless mortgages
“Anyone who has purchased a home knows how stressful the closing of a mortgage loan can be,” said Ann Carrns in The New York Times. Closings can take hours and involve signing stacks of jargon-laden documents. But now some lenders are starting to automate the process using paperless “e-closings.” Crucial closing documents are provided electronically to borrowers in advance, with only the mortgage note signed on paper. An encouraging pilot program conducted by the Consumer Financial Protection Bureau, involving seven lenders and some 3,000 consumers, found that borrowers who used e-closings felt more empowered and showed a better understanding of the mortgage process. “Overall adoption of electronic closings remains low,” but it can’t hurt to ask your lender if it’s available.
19. PayPal’s deceptive credit program
PayPal just got smacked with a $25 million penalty for its “malicious” credit service, said Josh Lowensohn in TheVerge.com. The Consumer Financial Protection Bureau says PayPal signed up users for the service, which fronts money for purchases, without their permission; “deceptively advertised its benefits”; and mishandled billing in a way that “raked up late fees and extra interest charges.” The agency alleges that, in some cases, customers learned about their PayPal Credit accounts for the first time from debt collectors. PayPal denied any wrongdoing, but the company will have to pay $15 million in reimbursements to affected customers, along with a $10 million fine to the CFPB’s Civil Penalty Fund. PayPal will also be required to be clearer about when customers are being enrolled in the program.
20. How to handle an inheritance
If you are bequeathed money in a will, first “buy a nice bottle of Champagne and toast your benefactor,” said Kira Brecht in US News.com. But then it’s time to think seriously about how that windfall contributes to your “long-term financial security.” Put the money aside while you make a detailed plan. First, list your financial goals. Next, fund your emergency account; most advisers recommend having three to six months of living expenses set aside. “The next priority is outstanding debt,” including student loans, credit cards, and mortgage debt. Then, if you haven’t been contributing the maximum to your retirement account, now is the time. Finally, it’s OK to spend 5 to 10 percent to “have a little fun,” but not before you “lay the groundwork for a more secure future.”
21. What not to buy online
“Shopping online certainly has its advantages,” said Cameron Huddleston in Kiplinger.com, but there are good reasons to buy some things in person. Quality and fit are easier to judge; large items are expensive to ship, and even costlier to return. Bicycles, for instance, should be researched online but purchased in person, since local dealers are better for warranty repairs. Kids’ shoes are better purchased in the store so you can have someone properly measure their feet, and local florists remain considerably cheaper for bouquets than online shops. Warehouse clubs still beat the likes of Amazon on grocery prices. High-end musical instruments, home décor, mattresses, and swimwear are also purchases worth doing in person.
22. Beware phony IRS calls
An “alarming” number of Americans are being targeted by a dangerous tax scam, said Brianna Ehley in FiscalTimes.com. The Treasury Department says nearly 300,000 people in the past two years have been contacted over the phone by callers claiming to be agents of the IRS. The agent says you owe unpaid taxes and you must pay now, through a prepaid debit card or payment voucher, or face arrest, deportation, or the loss of your driver’s license. Around 3,000 taxpayers have fallen prey to the scam calls, paying a collective $14 million. Remember: “The IRS always contacts people by mail if they owe taxes” and “never asks taxpayers to pay using a prepaid debit card or wire transfer.”
23. Negotiating your first salary
“Asking for more money when you’re just starting out can be intimidating,” said Kristin Wong in Lifehacker.com. But negotiating your first salary is crucial, because future employers will use that figure “as a benchmark.” One tip to ensure a successful negotiation is to “think like an employer,” especially when your work experience is thin. “Without a proven track record of your abilities, you’ll have to work harder to show the potential employer that you can provide value.” Emphasize your skills, and do some research to know how much you should ask for and what the company can afford. If it can’t match your dollar figure, “think beyond salary.” Cash is just one part of your compensation package, so consider negotiating over title, schedule, time off, and other benefits.
24. Weighing your nest egg
When should you start shifting your retirement accounts out of stocks? asked William J. Bernstein in The Wall Street Journal. A series of bull markets over the past two decades led Americans to grow “ever more comfortable with stock-heavy portfolios.” But if recent history tells us anything, it’s that these market runs will end. So when should you “stop playing” the stock game with your nest egg? Simple: “When you’ve acquired enough assets to provide your basic living expenses for the rest of your life.” Add up your basic annual expenses plus taxes you’ll owe, and then subtract Social Security and, “if you’re lucky, pension checks.” The amount left over is your residual living expenses (RLE). “A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70.”
25. Fraudsters target TurboTax
TurboTax users should be on alert, said Laura Saunders and Liz Moyer in The Wall Street Journal. Intuit, publisher of the tax preparation software, recently suspended e-filings of state tax returns for 24 hours after a “surge of fraudulent” filings, apparently submitted to get bogus refunds. The company has advised customers, even those who haven’t yet filed their taxes this year, to check that their TurboTax account information is accurate. “One red flag is a change in your direct-deposit account information.” If you do find signs of fraudulent tax filings in your name, Intuit has promised to provide identityprotection services and free credit monitoring. You should also contact the three major credit-reporting firms—Equifax, Experian, and TransUnion—to place fraud alerts on your credit files.
26. Why flying isn’t getting cheaper
Air travel is less comfortable than ever, said Steve Hargreaves in CNN.com, so why isn’t it getting any less expensive? Blame airline consolidation. “Four carriers control 87 percent of the domestic market,” says William Swelbar, a researcher with MIT’s International Center for Air Transportation. “That has given the airlines pricing traction, without question.” Airlines say even though they’ve returned to profitability, they are investing those profits in “new planes, new terminals, new runways, and better software” to make your experience more enjoyable. Just “keep that in mind the next time you’re crammed in on a $500 commuter flight with no food.”
27. Keep your 401(k) from shrinking
It’s time to plug the leaks in your 401(k) account, said Emily Brandon in USNews.com. Retirement account “leakages,” like early withdrawals and loans, can cost you big-time down the road—reducing your retirement wealth by as much as 25 percent, according to a new report from Boston College. To shore up your savings, keep “an emergency fund outside of your retirement account” so you won’t be tempted to dip into your 401(k) when times are tough. If you switch jobs, consider rolling the balance over into an IRA rather than cashing out. Loans “are typically the least damaging way to access your retirement savings early,” since they’re not taxable and must be repaid. But remember: “If you lose or leave your job, the loan suddenly becomes due” and will be considered an early withdrawal if it’s not repaid.
28. Trading Twitter’s favorite stocks
Twitter users’ stock-picking chops could soon be put to the test, said Eric Balchunas in Bloomberg.com. Market Prophit, a data analytics firm that tracks social media chatter about the stock market, is in talks to create an exchange-traded fund based on its Social Media Sentiment Index. Market Prophit’s index tracks the 25 most-tweeted-about stocks, using algorithms to analyze each stock’s “sentiment factor”—essentially, whether people are tweeting good or bad things about a company. The index, which is reconstituted quarterly but rebalances daily, then goes long or short “based on sentiment from the Twitterverse.” So far, the index is up 7 percent this year. It holds some big-name companies, like Apple, Amazon, and Microsoft, but also smaller firms often mentioned in tweets, like GoPro, Tesla, and Baidu. “And yes, it also holds Twitter.”
29. Misjudging mutual funds
Don’t be so quick to ditch that losing fund in your 401(k), said Gail MarksJarvis in the Chicago Tribune. Appearances can deceive, especially after rocky periods like this year’s third quarter. If your mutual fund invests in large U.S. stocks like Apple and Walmart, you probably lost money to the tune of about 7 per cent. But if your mutual fund invests in U.S. government bonds, your balance probably grew by about 3 per cent. The stock fund may look like “an idiotic choice” right now, but holding a variety of funds is still your best bet over the long term. It’s better to “compare your fund to the average fund like it.” If your fund took a hit similar to that of the rest of its peers, “you don’t have a loser.”
30. Don’t be a credit ‘revolver’
It doesn’t just matter if you pay your bills, but how you pay them, said Liz Weston in Reuters.com. Some credit reports now show whether you regularly pay your credit cards in full every month, and lenders increasingly use that information to decide your rates, terms, and whether to lend to you at all. Borrowers are classified as either low-risk “transactors” who pay their balance in full, or higher-risk “revolvers” who carry a balance. Revolvers are three times more likely to default on new credit cards and auto loans, and five times more likely to default on current cards, a study by credit bureau TransUnion found. The three major credit bureaus—Equifax, Experian, and TransUnion—added payment patterns to credit reports about two years ago and sell that data to lenders who create their own custom scores.
31. Check your teeth before retirement
A trip to the dentist should be on your to-do list before retiring, “before your dental insurance disappears,” said Mark Miller in Reuters.com. Retirees “are often surprised to learn” that routine dental care isn’t covered under Medicare. Only 40 percent of people 65 and older have dental benefits of any kind, meaning “most seniors just pay for dental care out of pocket.” The average annual expense for seniors was $870 in 2012, but more complex procedures can be pricey. “The average cost of a crown in New York City is $2,500; a periodontal procedure in Los Angeles costs $1,700.” Private plans can be affordable, at around $15 per month. “But individual coverage is not as robust as group dental plans,” and often comes with waiting periods for major procedures and low dollar caps.
32. How to pay overseas
Plenty of Americans are traveling abroad this summer, thanks to a strong dollar, said Sandra Block in Kiplinger.com. But “stealthy fees and bad deals on exchange rates” can drive up the cost of an overseas vacation. Savvy travelers should “use plastic whenever possible.” Credit cards have better rates than ATMs and exchange bureaus. And while many credit cards charge foreign-transaction fees, the number of no-fee cards is growing. “Capital One, Discover, HSBC, and Pentagon Federal Credit Union don’t apply foreign-transaction fees to any of their cards.” For cash, use your debit card at bank ATMs, which offer better rates than foreign exchange bureaus. ATMs owned by your bank or its overseas partners can also help you avoid out-of-network fees. Check your bank’s ATM locator before leaving the U.S.
33. Surprises lurking in your 529
Moving your teen into a dorm room is “not the time to find out that your 529 college savings account has plummeted by 20 or 30 percent,” said Ilana Polyak in CNBC.com. Many families saw their accounts take a sharp dip in 2008 and 2009, “just as they needed to pay for college,” because they weren’t watching their asset allocation before high school graduations. Take time to “look under the hood” of your plan. Age-based funds taper their exposure to the stock market over time, while static asset-allocation funds never veer from their initial mix of stocks and bonds. If your account takes a hit, resist tapping it if you have money elsewhere. Your 529 can still be used for graduate school, or even for another family member, once it recovers.
34. Protecting kids from fraud
Identify theft is a big problem, said Ron Lieber in NYTimes.com, even for little kids. And because youngsters don’t normally check their credit reports, “thieves may not get caught for years or even decades.” A 2011 study revealed that up to 10 percent of U.S. children may have had their Social Security number used by someone else. One way to protect your kids is to “put a freeze on their credit reports.” That way, any new creditor can’t open an account without your knowledge. Trouble is, not all credit bureaus are on board, because freezes are a “giant roadblock in their business of peddling our information.” But laws are changing in several states to make the process easier. In the meantime, don’t post kids’ birthdays on social media sites and keep Social Security cards “at home under lock and key.”
35. Tax shelters for investments
If you were just hit with a hefty tax bill on your investment portfolio, said Jonathan Clements in WSJ.com, “forget trying to do better over the next year, and instead think about the next few decades.” Sure, selling off losing stocks and holding on to winners for more than 12 months can reduce your near-term tax burden, but to really protect your assets, “stick investments that generate big tax bills into your tax-deferred retirement account.” That way, you won’t get hit with annual taxes on “tax-inefficient investments” such as real estate trusts. And be sure to load up your taxable account with stocks you’d “be happy to hold not for 12 months, but until death do you part.” Under current law, if you own investments with unrealized capital gains when you die, “the embedded tax bill disappears.”
36. Storm-proof your home
There’s more to spring-cleaning than just clearing out a few closets, said Kimberly Lankford in Kiplinger.com. Insurance data shows that storm-damage claims peak from March through May. Luckily, “some simple steps can make a big difference in protecting your home.” This year’s rough winter weather was probably hard on your roof, so now’s the time to “repair any missing shingles” and make sure your gutters are clear and “still draining properly.” As the trees start to bud, it‘s a good time to “remove dead branches that could become projectiles.” If you live in an area prone to hurricanes, installing storm shutters can “give you an insurance discount of up to 25 percent.”
37. The challenges of new charities
Launching a charity is a noble endeavor, said Veronica Dagher in The Wall Street Journal. But passion and ambition will get you only so far. Many people underestimate how long it will take to receive tax-exempt status. Registering with state authorities and the IRS can take as long as six to nine months, and accepting donations during that time is complicated. Another big mistake is putting family members on the board, “just because it’s easy” or seems fun. It’s smarter to find outside board members with legal or fundraising skills who can advance the organization’s work and mission. And, most crucially, do your homework first. “Find out if there are charities with similar missions, and research them thoroughly before deciding there is always room for one more.”
38. The latest workplace perk
Student loan assistance is becoming the new 401(k) match, said Shelly Banjo in Qz.com. As competition for highly skilled workers heats up, companies are increasingly offering to help workers and prospective employees pay down college debts. Student loan repayment programs now appear as a perk in thousands of postings on job search site Indeed.com. Global consultancy Pricewaterhouse Coopers announced a student loan forgiveness program last week, providing junior employees with as much as $1,200 a year for up to six years toward their student loans. Credit Suisse has teamed up with online lender SoFi to offer a 0.25 percent interest rate reduction to employees who refinance their student loans. This benefit “attracts employees to the bank,” said Elizabeth Donnelly, a global HR managing director at Credit Suisse.
39. How to help kids invest
It used to be that parents could put gift money in a savings account “to teach their children about the magic of compound interest,” said Sandra Block in Kiplinger.com. But in our era of zero percent interest rates, “you’ll want to find other ways to invest the money.” First, set up a custodial account through a brokerage firm or mutual fund. You can invest in anything from stocks to ETFs, as long as you meet the firm’s investment minimums. Some companies, like TD Ameritrade, offer custodial accounts with no investment minimum and lots of no-transaction-fee funds. But “watch out for taxes.” The first $1,050 of interest, dividends, and capital gains is tax free; the next $1,050 is taxed at the child’s rate. Anything above $2,100 is taxed at the parents’ rate.
40. Beware employer stock for 401(k)s
It’s time to take company stock off the 401(k) menu, said Ron Lieber in The New York Times. While such arrangements are less common than they used to be, 39 percent of companies in 2013 offered their stock as an option in workers’ retirement plans, and 12 percent made their matching contributions in firm stock. But peddling company shares through 401(k)s—instead of, say, offering them as stock grants or bonuses—“is incredibly risky.” That’s because “when you’re getting your income from an employer—and your livelihood literally depends on that company—it makes little sense to make a big bet on the company stock with money that you’ll need if you ever want to stop working.” So, consider offloading that stock as soon as you can. That way, if the company goes under, you won’t lose your paycheck and your retirement fund.
41. Financing a vacation house
It might be time to snap up a second home, said Anya Martin in The Wall Street Journal. Vacation-home sales jumped more than 50 percent last year and “are expected to continue climbing,” because of a healthy stock market and the aging generation of Baby Boomers. Lenders are taking note. Today, many have reduced the down-payment requirement on second-home jumbo mortgages to 20 percent and offer interest rates that match those on primary homes. But buyers should know that “credit-score requirements may be higher when financing a second home,” and they will need to prove they can handle both mortgage payments. Owning a second home can pay off in the long run, though, since the mortgage interest “is tax-deductible up to the first $1 mil lion of financing.”
42. How to resist impulse buys
It’s easier than ever to spend money on the fly, said Vera Gibbons in MarketWatch.com, thanks to mobile payment systems and sites that store your credit card info. So if you want to “keep more money in your pocket,” you have to “identify—and eliminate—triggers.” Be aware of your habits, such as whether you tend to make impulse purchases when you’re happy or sad. Be wary of retailers’ tricks, including sales and even “how the store smells, the music that’s playing, and the location of certain items.” And try being patient. If you see something you like, “make yourself wait.” Take a walk and see how you feel about it in 20 minutes when your “emotions have cooled and you’re thinking more rationally.”
43. New tools to fight elder fraud
Some states are giving financial professionals more power to guard older clients from fraud or financial abuse, said Matthias Rieker in The Wall Street Journal. Missouri recently joined Delaware and Washington by shielding brokerages from liability for delaying questionable transactions involving older investors. Advisers say they often feel “hamstrung by strict rules” requiring speedy execution of trades and withdrawals, even if they suspect an elderly client has dementia or is falling victim to a fraudster. In Missouri, firms can now stop a transaction for up to 10 days for clients 60 or older and contact family members with their concerns. The “thorny trade-off” is that legitimate deals might be delayed because of stereotypes about elderly clients. After all, “grandmothers can be savvy investors, too.”
44. Why stocks are so expensive
“The $100 Stock Club is getting less exclusive,” said Jennifer Kaplan in Bloomberg.com. The stock prices of nearly a quarter of the companies in the S&P 500 have surpassed triple digits, four times the number in 2010. One reason is that stock splits are increasingly rare. Splits peaked in the 1990s, when companies sought to make their shares more affordable for individual investors cashing in on “the biggest bull market since the 1920s.” But the institutional investors and exchange-traded funds that dominate today’s market “don’t care about the absolute price of a share.” Instead of splits, companies have been rewarding shareholders with buybacks and dividends. Nor does the $100 price tag matter as much to most ordinary investors, who have an array of investment options, from retirement plans to brokerage accounts.
45. The benefits of buying a rental car
Buying a rental car is so easy, “you may not mind getting a car that dozens have already had their mitts on,” said David Muhlbaum in Kiplinger.com. Hertz, Avis/Budget, and Enterprise all sell retired vehicles from their fleets at no-haggle prices, some of which are significantly lower than the Kelley Blue Book Fair Purchase Price. Despite the stigma of driving off in a rental car, fleets receive frequent inspections and regular service, meaning buyers are typically getting a pretty good car at a substantial discount. Hertz and Avis/Budget allow an extensive test drive from many of their locations, and Enterprise will even buy a car back within seven days if you don’t like it.
46. Kick-starting an emergency fund
It’s time to start building that emergency savings fund, said Suzanne Woolley in Bloomberg.com. Having six to nine months’ worth of cash in a contingency fund provides an important buffer against a long list of possible emergencies. First, set up an account where you can’t easily get at the money. Use automatic paycheck deductions or account transfers for a set amount of money each month. Or set small goals, like a “dollar per week of the year approach; in week 1, you save $1; in week 13, you save $13; and so on.” Contributing to a Roth IRA is also smart. “You can save for retirement but also use it without penalty in case of emergency.”
47. Upgrades to save on heating bills
Cheaper fuel prices and warmer weather should mean smaller heating bills this year, said Ann Carrns in The New York Times. But no one wants to pay more than necessary or “wake up to a cold house on a frigid morning because the furnace failed.” Heating system tune-ups generally cost $50 to $100, far less expensive than emergency repairs. It may also be time to upgrade to a newer, more efficient furnace, which can save money over the long term. Heating systems installed before 1975 are typically 60 percent efficient. Newer systems range from 85 to 95 percent efficiency. The Environmental Protection Agency estimates homeowners can save more than $115 on their annual energy bills by upgrading to high-efficiency heating and cooling equipment.
48. What would Warren Buffett do?
“Can you pick the guys who pick the guys who pick the best stocks?” asked Jason Zweig in WSJ.com. Some mutual funds and exchange-traded funds try to mimic leading investors, like Berkshire Hathaway’s Warren Buffett or activist hedge fund manager William Ackman. But “imitating great money managers can be risky.” The Global X Guru Index, which tracks several prominent hedge funds, handily beat the market by returning an average of 21.2 percent annually over the past three years. But Guru lost 11.7 percent in the third quarter of 2015, as its gurus’ bets on drug companies like Horizon Pharma and Depomed took a beating, as did any fund that followed Ackman’s bet on the embattled Valeant Pharmaceuticals. Don’t forget: What looks like greatness can also be luck. “Leaning on someone else’s smarts doesn’t exempt you from the responsibility of doing your own thinking.”
49. Facebook’s lending plans
Who your Facebook friends are could soon determine your creditworthiness, said Susie Cagle in Pacific Standard. Facebook recently filed a patent for a tool that would enable lenders to use the credit ratings of your Facebook friends as a factor when deciding whether or not to make a loan. That means “you could be denied a loan simply because your friends have defaulted on theirs.” The tool tracks how users are networked together, based on evidence that “shows we’re more likely to seek out friends who are like ourselves.” But the fear is that such technology could be used to make discriminatory lending decisions. Nor is the data foolproof, since networks are “clogged” with exes, old co- workers, and people we’ve met once or not at all. The consequences of approving loans via Facebook could be “completely unpredictable.”
50. Tax tips for inherited 401(k)s
Inheriting a retirement account from anyone but a spouse used to come with a substantial all-at-once tax hit, said Bill Bischoff in MarketWatch.com. Current rules now allow beneficiaries a way to defer taxes by rolling over the distribution into an IRA. “But you must follow the proper procedure to get this taxpayer-friendly outcome.” That means setting up an IRA specifically to receive an inherited retirement plan’s distribution. This must be accomplished by a direct trustee-totrustee transfer of the funds; a check can’t be made out to you personally. Doing this, “you can effectively accomplish a tax-free rollover.” Once the money is in the receiving IRA, you also must start taking the required minimum withdrawals each year.
51. Downsizing for retirement
“A smaller home can cut your costs and your cares,” said Cybele Weisser in Money. Among retirees who move, nearly half opt for a smaller place. They should do their due diligence first. Moving costs, including broker fees, can add up to 10 percent of the price of an old home. Depending on where they move, tax bills may shrink, but home insurance premiums could grow. Condos are generally cheaper than single-family homes, but come with maintenance fees and homeowners association rules. Renting is also an option, especially if retirees want to add the proceeds of a home sale to their retirement portfolio. It’s also a good idea to move sooner rather than later. It’s easier to downsize in your 60s than in your 80s.
52. The health benefits of saving
We all know savings are important for your financial health, said Dan Kadlec in Time.com. But a “sleeper benefit” might be better physical health, too. A survey conducted by global financial services firm Aegon found that 75 percent of habitual savers “rate their health as excellent or good.” Only 62 percent among those who do not save regularly said the same. It might have something to do with “the lower stress that comes from being financially secure.” Of those reporting “excellent health,” 77 percent said they expect to “live comfortably in retirement,” compared with just 49 percent of respondents who reported poor health.
53. Home insurance should-haves
Will your homeowner’s or rental insurance policy adequately cover your costs should disaster strike? asked Cherice Chen in USA Today. It’s a good idea “to dust off” your policy once a year to make sure. Two-thirds of houses in the U.S. are underinsured, and 60 percent of renters don’t have insurance at all. Standard policies typically cover basics like “fires, explosions, and theft,” but experts recommend add-ons to cover common gaps. Flood insurance, for instance, averages $650 per year. It can cover the structure of your home up to $250,000 and its contents up to $100,000. Sewer backup coverage can be added for $40 to $50 a year. Replacement cost coverage can help you pay for damaged or stolen property at today’s prices, without depreciation. Finally, umbrella liability can protect you from lawsuits. A $1 million policy averages $150 to $300 per year.
54. Managing Medicare costs
Medicare’s premiums, deductibles, and coinsurance can add up, said Emily Brandon in USNews.com. But there’s “a lot you can do” to keep costs manageable. Pay close attention to enrollment dates to reduce your premiums over the long term. Medicare Part B’s initial enrollment period is “a seven-month window” that starts three months before your 65th birthday. After that, Part B premiums increase 10 percent for each 12-month period you were eligible but didn’t sign up. Supplemental insurance, known as a Medigap policy, can help pay costs Medicare doesn’t cover. The initial enrollment period is the first six months you are older than 65 and enrolled in Medicare Part B. After that, you may be denied Medigap coverage “or charged significantly higher premiums.”
55. How accidents hike premiums
Even a simple fender bender can cost you big bucks, said Karen Damato in WSJ.com. A new study commissioned by Bankrate found that “a low-risk driver who injures a person or causes property damage in an accident can see her insurance bill jump more than 40 percent.” A bodily-injury claim can cost more than twice that, hiking premiums more than 80 percent in states like California or Massachusetts. Drivers who have been in such accidents can end up facing high rates, typically for three to five years. “One option when hit with a rate hike is to shop around,” since competing insurers will often offer a lower rate even in the wake of an accident.
56. Lenders offer free FICO scores
Several lenders will now make it easier for you to whip your credit back into shape, said Michelle Singletary in The Washington Post. Credit card issuers including JPMorgan Chase, Bank of America, USAA, the State Employees’ Credit Union, Ally Financial, and Discover are slowly rolling out programs to provide free FICO scores to their customers. “The move by these companies and others is a monumental one,” since it will help consumers assess their own creditworthiness—a key metric when applying for loans or credit cards. But be careful. If your lender starts offering free credit scores, keep in mind that not all scores are created equal. “Even the scores under the FICO brand can vary,” since the California credit rating giant has “updated its scoring model several times,” and not all lenders are using the latest versions.
57. Talk to your kids about money
Quit protecting your kids from the reality of your paycheck, said Ron Lieber in The New York Times. It’s not uncommon for parents to “push our children’s money questions aside, sometimes telling them that their queries are impolite” or perhaps shielding them “from a topic many of us find stressful or baffling.” But trying to protect kids “from the realities of everyday financial life makes little sense anymore, given the responsibilities their generation will face.” Financial transparency doesn’t mean you need to overwhelm your offspring with copies of your tax return, but “coming clean about income and assets” and teaching children about household budgets is one way to start “building their knowledge” and fostering financial responsibility.
58. Advocating for a better 401(k)
Is your company’s 401(k) not cutting it? asked Liam Pleven in The Wall Street Journal. “High fees and the absence of low-cost index funds” can be a real drag on your savings. “Yet pushing for change can put workers in the uncomfortable position of confronting their employer.” So how can you lobby tactfully for better 401(k) options? First, “pick your battles.” Fight for better fees or fund choices, but don’t hold your breath over a more “generous match for employee contributions, because the added cost could be substantial.” Once you know what you want, “be professional and diplomatic.” Gauge the office culture—does the company promote “open dialogue?”—and try approaching HR with a letter or recruiting colleagues, since there can be strength in numbers.
59. When is political activity protected?
With campaign season coming up, you might want to check your politics at the office door, said Alina Tugend in The New York Times. In many states, private-sector employees have “no protection from being fired for something [they’ve] said, either in the workplace or outside of it,” like on social media. Federal laws protect workers from firing because of things like race, religion, or gender, but “there is no such protection for political affiliation or activity.” A few states—including New York, California, Colorado, North Dakota, and the District of Columbia—do protect private workers’ political activity, and public employees and union members are generally safe. “But if you don’t fall into any of those categories, you don’t have a lot of rights.”
60. AmEx upping its fees, perks
Some American Express cardholders are about to enjoy more perks—but at a price, said Ken Sweet in the Associated Press. The credit card company said last week it will raise the annual fee on several of its most popular cards, including its Gold Card and Premier Rewards Gold Card, from $125 and $175 a year to $160 and $195, respectively. The new fees will take effect June 1, along with a few new benefits. Premier Rewards Gold cardholders will receive “a $100 credit for incidental airline fees such as baggage” and have their foreign transaction fees waived. AmEx also said it would be raising interest rates on a “small percentage” of its cardholders, as the lender looks for “new sources of revenue since it announced last month it would be ending” an exclusive merchant deal with Costco.
61. When store credit cards make sense
“U.S. retailers dangle enticing bait to sign up for store-branded credit cards,” said Mitch Lipka in Reuters.com, “but biting could be a costly decision for consumers.” The average credit card has a 15 percent interest rate, but store-branded cards average more than 23 percent, according to a recent analysis by CreditCards.com of 64 retail-branded cards. That doesn’t mean they can’t be helpful when used prudently. “Store-branded cards definitely can work for you,” says Matt Schulz, CreditCards.com’s senior industry analyst. Since many stores offer up to 20 percent discounts for cardholders, savings can add up, but only if your balance is paid in full each month. For large purchases, general-purpose credit cards are usually a better option, with better rates and better rewards.
62. Obamacare bargain hunting
“Obamacare shopping is more important than ever” this year, said Margot Sanger-Katz in The New York Times. Rising premiums across the country are presenting consumers with a “tough choice”: Stick with the plan they have and pay more, or switch in order to save. About 8 in 10 returning customers on HealthCare.gov can find a cheaper option by switching during the open enrollment period, which runs from Nov. 1 to Jan. 31. The average returning customer who chooses the best deal in the same category as his old plan could save as much as $610, say analysts for the Department of Health and Human Services. Such annual shopping may become commonplace. Since customers can pick a new plan every year, the thinking goes, insurers will have to work to keep their prices low or risk losing customers. In the last enrollment period, about half of all returning customers shopped around before settling on a health plan—and a full quarter switched.
63. Few changes for 401(k)s and IRAs
Retirement accounts aren’t changing much in 2016, said Emily Brandon in USNews.com. You won’t be able to save more in a 401(k) or individual retirement account—the contribution limit will stay at $18,000 for 401(k)s and $5,500 for IRAs. However, workers will be able to earn slightly more in 2016 and still contribute to a Roth IRA. Singles with a gross adjusted income of $117,000 per year and married couples with $184,000 can make the full Roth contribution. Also, income caps for the saver’s credit will be higher: $30,750 for singles and $61,500 for married couples.
64. When it’s OK to hurt your credit
It’s smart to keep your credit score high, said Geoff Williams in USNews.com, but on occasion, it’s “OK, reasonable, or even smart” to make financial decisions that will cause your score to drop. In some scenarios, taking a hit to your score can actually contribute to the “greater good” of your overall financial health. Applying for multiple loans, for instance, will lower your score by a few points, but it can also provide more options for favorable financing. When you’re starting a new business, taking on credit card debt might be unavoidable. However, a small score drop that helps you save money in the long run is likely worth it. Joining a debt management program will also hurt your score, but if it helps you get control of your finances, it’s better than hitting rock bottom.
65. Assessing muni bonds
With Puerto Rico unable to pay its $72 billion debt, and state and local budgets falling short across the U.S., are municipal bonds still a safe bet? asked Tara Siegel Bernard in The New York Times. Individual investors hold more than two-thirds of the $3.7 trillion invested in municipal bonds, either directly or through mutual funds. But despite the troubling headlines, those investments are mostly safe. Default levels remain “exceedingly low and are not expected to rise meaningfully.” The default rate of the S&P Municipal Bond Index was 0.17 percent in 2014 and about 0.11 percent in 2013. But there are “some basic lessons that bear repeating.” Invest in a diversified portfolio of municipal bonds and know what you own. Some 52 percent of municipal-bond mutual funds contain Puerto Rican debt, but the exposures range from less than 1 percent of the fund’s assets to nearly half.
66. Don’t forget about your IRA
“Too many investors view IRAs simply as parking accounts for their rollover 401(k) money,” said Ruth Davis Konigsberg in Time.com. As a result, most IRAs go untouched. Less than 9 percent of investors with an IRA contributed to it in 2013, according to a study by the Investment Company Institute. Other studies put that number even lower. It’s true that IRAs don’t offer the same benefits as 401(k)s, but it’s still a chance for your money to grow tax-deferred. The annual contribution limit, at $5,500 (or $6,500 for those over 50), is lower than the $18,000 allowed for a 401(k), but even that amount “can make a sizable difference to your retirement security.”
67. How your savings stack up
“Some good news on the retirement front,” said Donna Rosato in Time.com. The average 401(k) balance has reached a record high, hitting $91,800 in the first quarter, “up 3.6 per cent from a year ago.” A report from Fidelity also showed that a record 23 percent of workers increased their contributions last year, bringing the average savings rate, including employer contributions, to 12.5 percent. Sadly, “it may not be enough.” Many of the balance gains “are owed to the bull market, which will eventually fade.” Plus, the averages are likely skewed by high-income workers. To ensure you’ll have enough for your golden years, “you need to save consistently over a long term,” with a goal of setting aside 10 to 15 percent of income each year.
68. Negotiating financial aid offers
The families of high school seniors across the country are currently weighing financial aid packages for college, said Ann Carrns in NYTimes.com. But if the financial aid offer at your student’s preferred school isn’t what you had hoped, it doesn’t hurt to ask the school for a review, especially if your finances have changed since the application was filed. Appeal procedures differ from college to college but “in general, writing a letter—rather than an email—or asking for an appointment is best.” And be sure to distinguish between “need-based aid, which depends on your financial situation, and merit aid,” which is based on the student’s academic promise. If you’ve lost a job or faced a medical emergency, be sure to provide documentation. And if you think your child’s credentials merit more money, you shouldn’t be afraid to negotiate, so long as “you’re polite about it.”
69. New ways to save
Finding it tough to save money? asked Cameron Huddleston in Kiplinger.com. There’s an app for that. Digit links to your bank account and “analyzes your income and spending habits to figure out how much you can afford to set aside,” then automatically transfers a handful of dollars into an FDIC-insured Digit account every few days. The account isn’t interest bearing, but you can withdraw funds at any time without paying a fee. Another new tool, called Acorns, rounds up credit and debit card purchases to the nearest dollar, then invests that “spare change” in a diversified portfolio of index funds, with typical returns of 4 to 9 percent. There is no commission, but you will get hit with a small monthly fee.
70. A pre-retirement checklist
Is 2015 your retirement year? asked Tom Lauricella in The Wall Street Journal. Before you pack up your desk, get to work on making sure your finances will run smoothly. First, seriously consider putting off claiming Social Security. “Waiting until age 70 will bring monthly payouts equal to 132 percent of the regular monthly benefit” available at 66. But don’t delay in signing up for Medicare at 65, even if you are still working, or you’ll “risk higher premiums” down the road. Finally, assemble a budget. Some retirees may “have to tighten their belts,” while others “are in better shape than they thought.” Consider taking your retirement budget for a test drive and living on it for at least six months before you leave work “to see if it’s realistic.”
71. Making airline miles count
Frequent fliers, beware, said Allison Schrager in Businessweek.com. Thanks to everchanging rules about how and when you can redeem air miles, “reward points, it turns out, are a lousy investment.” Fortunately, there are a few ways to get the most mileage out of your miles. First, “stop hoarding.” As airlines consolidate and offer fewer flights, the value of your points will only dwindle over time. Avoid airline-branded credit cards, which offer huge sign-up bonuses but can be used only on that carrier. Instead, use cards or rewards programs that let you transfer or convert points more freely. Also, “watch the exchange rate.” Spending points on airfare will typically give you a better deal than exchanging them for cash. And finally, like any investment, check your goals. If you fly frequently, racking up points for upgrades may be worth it. But once your habits change, it may be time to switch up your strategy.
72. The savvy way to return a rental
Avoid getting dinged on your next car rental, said Christopher Elliott in DailyFinance.com. For travelers in a hurry, it’s not uncommon to drop off a rental after hours. Usually, the vehicle “sits on the lot without incident,” but there are cases where renters can get slapped with hefty fees “for damage that may have occurred after the drop-off.” To be on the safe side, renters should “avoid returning a car when a car rental location is closed.” It’s critical to document the car’s condition before you even take it off the lot. That means conducting a walk-through inspection and taking several “before” and “after” pictures to prove any dings and dents didn’t come from you.
73. Simpler mortgage disclosures
Home loan offers are getting “easier to decipher,” said Lisa Prevost in The New York Times. New rules that took effect Oct. 3 require mortgage lenders to provide consumer disclosure forms that explicitly break down the costs and terms associated with a loan. Borrowers will receive just two disclosures, unlike the previous four. The new forms, created by the Consumer Financial Protection Bureau, “are much easier to understand.” The initial Loan Estimate shows the loan amount and interest rate, the borrower’s monthly payment, estimated taxes and insurance costs, and how much cash is required to close. The Closing Disclosure, outlining the financial transaction, must now be provided at least three business days before the closing date.
74. Health insurance for Fido
“As pets live longer and have access to more life-saving—and expensive—treatments, you might be considering health insurance,” said Martha White in Time.com. But as with humans, pet health insurance comes with plenty of fine print. For healthy pets, premiums paid over the animal’s lifetime often add up to more than out-of-pocket costs. But for serious health issues, insurance can drastically reduce vet bills. First, consider the type of plan. There are medical plans, which cover injury and illness, and wellness plans that cover routine care like vaccinations and flea and tick medication. “Some plans cover hereditary conditions; most do not.” Some plans have a per-incident deductible, “which could get pricey if Snoopy likes to eat plastic toys.” It’s also typical for pet insurance policies to carry lifetime maximums.
75. Credit cards get a makeover
The small computer chip you may have noticed on the front of your new credit card is a big upgrade from the cards in most Americans’ wallets, said Ben Steverman in Bloomberg .com. So-called EMV chips—named after Euro pay, MasterCard, and Visa—“can’t be copied and counterfeited the way a magnetic strip can.” New credit card industry rules are prodding retailers into stepping up their rollout of the new technology, which is the standard for most of the world. As of Oct. 1, retailers that haven’t upgraded to EMV point-of-sale terminals are liable for fraud that occurs at their stores. Card issuers are also liable for any fraud on cards that don’t have the new technology. If you don’t have a chip card yet, don’t fret. You should receive one from your credit card company, but it might take a year or two.
76. Saving for special needs
“Planning for family members with special needs can be overwhelming,” said Tara Siegel Bernard in The New York Times. For starters, your retirement savings budget might need to account for an extra person. You should take precautions, for instance, “that money set aside for your child won’t be consumed by longterm care expenses for you or a spouse.” Medicaid can provide some help; while “it is often regarded as a program solely for the poor,” it also covers “health care for people over 18 with disabilities.” A new tax- advantaged plan, called ABLE or 529A accounts, allows families to contribute up to $14,000 in annual savings for a person with disabilities, without disqualifying the person from Medicaid or other government benefits. The accounts are “expected to be easier and far less costly to set up than special-needs trusts.”
77. Choosing a college bank account
New college students should be careful about picking their bank, said Karen Damato in WSJ.com. Convenience can cost you. Many schools “have an exclusive relationship with one financial institution” that offers easy-to-use benefits, such as college IDs that double as debit cards. “But easy doesn’t mean cheap,” and a new study says many of these accounts have serious drawbacks, like “abusive overdraft policies.” Students and parents should guard against these pitfalls by shopping around at other banks and opting out of overdraft provisions, which allow customers to use debit cards to make purchases even when they don’t have the funds in exchange for steep service fees.
78. Scoring a coveted credit card
Great credit cards aren’t just for people with perfect credit, said Gerri Detweiler in Credit.com. While consumers with top-notch cred it histories typically have their pick of the cards with the most options and best perks—including rewards programs, sign-up bonuses, low interest rates, and higher spending limits—it “doesn’t mean you can’t get one if you don’t fall into that category.” Lenders have the ability “to adjust for risk by offering a range of interest rates,” so while it may cost you more, you still have a chance of getting that coveted plastic. But “you don’t want to waste time, or create unnecessary credit inquiries,” applying for cards that are unrealistic. Instead, “do your homework” and use an online credit- card comparison tool to shop around and find the best fit.
79. Domestic partnerships in limbo?
“A national right to marry calls into question the fate of domestic partner benefits,” said Tara Siegel Bernard in The New York Times. Some large employers—including Delta, IBM, and Corning—rescinded domestic partner benefits in states that legalized same-sex marriage before the Supreme Court’s recent decision, replacing them with spousal benefits. Some couples are worried that other firms will follow suit now that same-sex marriage is legal throughout the U.S. Domestic partner benefits can be complex to administer, as workers may be taxed on the benefits’ value, which companies have to calculate and withhold from paychecks. Roughly two-thirds of Fortune 500 companies offer the benefits to employees with same-sex partners.
80. Investors stay close to home
Where you live might determine how you invest, said Barry Ritholtz in BloombergView.com. Data from OpenFolio, a website that allows investors to compare their portfolios to those of other users, shows investors often have a bias toward local industries. West Coast portfolios, near the tech hubs of Silicon Valley, are overweighed with technology by about 9.5 percent. Investors in the Northeast are overexposed to finance by 9 percent, and Midwesterners to industrial companies by 11.8 percent. The biggest home bias? Southerners have 13.7 percent more energy holdings than the rest of the country. This looks to be a regional version of “home country bias,” which affects most investors and increases a portfolio’s risk and volatility. The best course is to try to correct for the bias, so you don’t get a “drag on performance.”
81. Passive funds pay off
There’s yet more evidence that expensive portfolio managers stack up poorly against cheaper index funds, said Jonnelle Marte in The Washington Post. A new study by investment-research firm Morningstar found that actively managed funds lost out to passive funds “in nearly every asset class” between 2004 and 2014. There was only one category where active management paid off: U.S. mid-cap stocks. Despite the mounting evidence that passive investing is a better bet than actively managed funds, financial advisers typically recommend using both, with index funds making up the bulk of a portfolio and active funds used for niche markets “where the wits and instincts” of a smart portfolio manager might still boost returns.
82. Making the case for a raise
“Corporate America has been slow to bump workers’ pay, so you need a strategy to nudge your boss along,” said Daniel Bortz in Money. The average raise is expected to be a paltry 3 percent next year, with many companies focusing on one-off bonuses and other temporary perks. To nab a better pay bump, “find ways to make your long-term value more visible.” Use data and other hard evidence in your pitch, such as the value of sales you personally closed. If your work isn’t measured in dollars, you can still find numbers to showcase your performance. Maybe you boosted traffic to the company website, or figured out how to make meetings more efficient. “The onus is on you to know your numbers and highlight the ones that are most compelling.”
83. What not to buy this holiday
There are plenty of holiday sales on right now, but it’s worth holding off buying some big-ticket items until after Christmas, said Cameron Huddleston and Andrea Browne in Kiplinger.com. Try New Year’s Eve for buying a new car, when dealers are scrambling to make room for new models and “in the mood to haggle.” Furniture stores tend to hold clearance sales after Christmas with discounts of up to 50 percent on discontinued styles. January is a great month to look for steep discounts and clearance sales at big-name retailers on items like bedding, winter apparel, and holiday decorations. Take advantage of the off-season for travel, too. Cruise lines pile on discounts through March, before the spring break rush.
84. Protections for cohabitants
Whether marriage is in the cards or not, unmarried couples who live together should take steps to protect themselves financially, said Tracy Craig in Time.com. Living together confers couples almost no legal rights “when it comes to making medical, financial, or legal decisions on each other’s behalf.” So consider signing a cohabitation agreement, permitted by many states, which outlines each partner’s financial responsibilities, including what happens to property in the event of a death or a breakup. A will can also guarantee your significant other will inherit any property. Without one, assets typically go to parents or siblings. Give your partner durable power of attorney for health care and he or she will be able to make medical decisions should you become incapacitated. A durable power of attorney can also grant your partner the right to make legal and financial decisions for you.
85. No need to retire all at once
More Americans are opting for “phased retirement” instead of a “cold-turkey withdrawal from the workforce,” said John Wasik in The New York Times. Many near-retirees are negotiating work arrangements that include fewer hours, off-site work, or special projects, with the flexibility to take extra time off for leisure. Nearly half of human resource professionals surveyed by the Society for Human Resource Management said they “offered reduced hours or part-time positions to older workers.” Employees considering a phased retirement should start by determining whether they can afford to live on a reduced income. Taking Social Security before the full retirement age of 66 will mean receiving lower payments. Also consider that Medicare doesn’t start until age 65. A phased retirement could mean higher health insurance premiums, too.
86. Tuition insurance for college students
“No family wants to envision a child withdrawing from school,” said Danielle Douglas-Gabriel in The Washington Post. But with college costs soaring, a growing number of parents are buying tuition insurance, just in case. Many colleges reimburse a portion of tuition and on-campus housing costs if a student drops out within the first few weeks. Tuition insurance policies offer added peace of mind, because they cover an entire semester. Allianz, which offers plans in 10 states, provides 100 percent coverage up to $50,000 if a student has to withdraw for a mental health condition, illness, or death, and 50 percent for other reasons except drug use and expulsion; the price is 6 percent of the total cost of school.
87. Byzantine wireless plans
“We may be hitting peak complexity with phone plans,” said Brian X. Chen in The New York Times. Carriers are increasingly moving away from the standard two-year plan, but the contract-free options that have replaced it are hardly simple or straightforward. “Never before has the pricing been so complicated with all the carriers,” according to Toni Toikka of research firm Alekstra. The new plans typically have four costs, which can shift over time: the price of the data plan, the cost of the device spread over monthly installments, an activation fee, and the monthly cost for each phone line. When shopping, calculate the total price for both types of plans over two years. “There is no one-size-fits-all phone plan,” so it pays to do your homework.
88. The fine print on cash advances
You may have taken a cash advance from your credit card company without realizing it, said Catey Hill in MarketWatch.com. Many credit card agreements contain “sneaky fine print” that says certain transactions—such as legal gambling costs, wire transfers, and money orders—are automatically treated as cash advances. The same goes for those “convenience checks” that credit card companies sometimes hand out. The fees that come with these cash advances can be hefty. They’re also common. A recent study by CreditCards.com found that 98 out of 100 cards examined came with a cash-advance fee, “typically 5 percent of the total amount or $10, whichever was greater.” Interest rates also tend to kick in immediately—no 30-day grace period—and are often higher than the normal rate.
89. Buying an overseas home
The strong dollar is leading more Americans to think about buying a house abroad, said AnnaMaria Andriotis and Laura Saunders in The Wall Street Journal. But the complications of foreign markets could make them “appreciate the comforts of home.” Buyers looking for mortgages on overseas properties often need to make larger down payments than in the U.S., and may have less time to pay off the loan. In the Caribbean, for instance, loans typically need to be repaid in 15 to 25 years. Then there are the tax implications. If you’re renting out a home in another country, that income must be reported to the IRS, and in some cases, it counts as a foreign financial asset. Be sure to do your research before buying that dream beach house.
90. A healthy dose of health-care stocks
“Would you rather have a new BMW or two more years of life?” asked Steven Goldberg in Kiplinger.com. Your answer explains why health care is the market’s “best all-weather sector.” Because people generally cut back on other expenses before they do on medical treatments, health-care stocks held up surprisingly well during the recession. Over the past 25 years, the sector has returned an annualized rate of 12.3 percent, compared with 9.6 percent for the S&P 500. Not that buying in is cheap. Many biotech and drug companies have seen share prices “rise too far, too fast,” and some are indeed overvalued. But our aging population means “future growth in health-care spending is inevitable.” Health care is 15 percent of the S&P 500. That seems like “a sensible allocation” for most portfolios.
91. What to do after the Anthem hack
A major cyberattack on the nation’s secondlargest health insurer means consumers should take steps to safeguard their data, said Tara Siegel Bernard in The New York Times. Hackers made off last week with “names, Social Security numbers, birthdays, addresses, emails, and employment information for as many as 80 million people,” including Blue Cross and Blue Shield customers. Anthem has vowed to “provide free identity repair services and credit monitoring for up to a year” for anyone whose information was compromised. But because the attackers obtained so much data, you’re better off taking more steps. “Ask your financial institution (or any other account provider) to attach a secret word or code to your accounts,” and consider requesting a “security freeze” on your credit reports to prevent thieves from opening new accounts.
92. TurboTax rolls back upgrade fee
TurboTax is backtracking on a controversial change that caused an uproar among customers this year, said Laura Saunders in WSJ.com. Intuit, the publisher of the tax-preparation software, apologized last week after it failed to disclose a change to TurboTax’s desktop and downloadable versions that forced some users—specifically those who needed Schedule C, D, E, or F forms—to update from Turbo Tax Deluxe to versions that cost as much as $30 more. “Intuit’s reversal means that next year TurboTax Deluxe desktop software will once again include Schedules C, D, E, and F.” In the meantime, Intuit has vowed to waive the upgrade fee for this year’s filers and issue partial refunds to existing customers.
93. When to be a cheapskate
They say “you get what you pay for,” said Gerri Detweiler in Credit.com, but sometimes, “going the cheap route makes perfect sense.” While I wouldn’t recommend skimping on toilet paper—“you really do want thicker and softer”—there “are some instances in which you can pay less without sacrificing quality.” Groceries nearing their sell-by dates, for instance, are often marked “way down” and are perfectly safe as long as you freeze or cook them right away. Inexpensive dishes and glassware “hold up just as well as the expensive ones,” and it’s “less traumatic when they get broken.” Children’s clothes are another place to save, since they “will be outgrown before long” anyway, and you’ll need the savings to buy more outfits.
94. The rise of ‘divorce loans’
What happens when an acrimonious separation leaves one half of a wealthy couple broke? asked Paul Sullivan in The New York Times. Increasingly, the penniless partner will turn to a so-called divorce funding company during a protracted court battle to help pay for living expenses and legal fees. The firms work by loaning less-moneyed people quick cash so they can pursue court settlements against their deep-pocketed former partners. In most cases, they “lend around 20 to 25 percent of the value of an expected settlement,” which tends to be at least $1 million. Most firms charge 12 to 18 percent interest a year, while others take a double-digit percentage of the final settlement. The firms justify the high rates by arguing that they “level the playing field against the moneyed spouse who can otherwise force the one without money to settle.”
95. The pros and cons of Helocs
Now might be the time to tap your home equity, said AnnaMaria Andriotis in The Wall Street Journal. With interest rates likely to rise in the coming months, several major banks are promoting home-equity lines of credit, known as Helocs, with temporary fixed rates. These loans can be used to finance home renovations or even unrelated expenses like college tuition, and borrowers pay interest only on the amount they withdraw. But the loans typically have rates that fluctuate, which isn’t always good for borrowers “who value predictability.” The latest offers have a fixed rate that can last “from 12 months to many years” and can be a money-saving option for anyone who plans “to pay back the money before the fixed-rate period ends.”
96. A deluge of card offers
Credit card companies are clamoring for your business, said Hadley Malcolm in USA Today. A new report from credit bureau Equifax shows that in December consumer credit card debt reached its highest level in five years thanks “almost entirely” to shoppers “taking out new cards.” Issuers are “taking note”— one research firm says card companies increased direct-mail offers 12 percent between November and December. If you received one of those offers, this might be a good time to sign up, since “consumers are also getting more out of rewards cards.” So far this year, credit card companies have been “25 percent more generous” in handing out rewards points and frequent-flyer-mile sign-up bonuses than they were for all of last year.
97. Startup investing goes Main Street
Small investors will now get their shot at trying to find the next Twitter, Instagram, or Uber, said Marcy Gordon in the Associated Press. Starting in mid-2016, startups will be able to sell stock in their companies online, under new crowdfunding rules just finalized by the Securities and Exchange Commission. Investors with annual income or net worth less than $100,000 will be allowed to invest up to $5,000 annually; those who make more can invest up to 10 percent of their annual income. Previously only “accredited investors” who met strict wealth requirements were allowed to fund startups. Startup investing is risky, with about half of all small businesses shuttered within the first five years. To protect investors from scams and shady businesses, crowdfunding securities offerings can be made only through brokerage firms or funding platforms registered with the SEC.
98. ‘Starter accounts’ for retirement
Workers who don’t have a 401(k) or other retirement plan through their jobs have a new, government-backed option to help them get started on their savings, said Charisse Jones in USA Today. The Treasury Department’s “myRA” savings program officially launched last week with free, no-risk retirement accounts for Americans earning less than $131,000 a year, or $193,000 if married and filing taxes jointly. The myRA accounts, to which workers can contribute from their paychecks, bank accounts, or tax refunds, “cost nothing to open and have no fees,” and savers can put in as little as a dollar. The plans follow the same rules as a Roth IRA, but the money is invested in a government security that’s guaranteed not to lose value.
99. With this debt, I thee wed
Is it worth going into debt for a wedding? asked AJ Smith in Yahoo.com. With the average wedding costing just over $30,000 in 2014, many couples are turning to personal loans to pay for their nuptials. Like most other personal loans, wedding loans generally range from $2,000 to $35,000. These loans also typically have better rates than credit cards, especially for borrowers with good credit. The appeal is being able to host a dream wedding without emptying a savings account. But most financial experts warn against such borrowing when it’s possible to either cut expenses or save up for the big date. The real question for couples: “Are you sure this one-day event is worth taking on a large amount of debt?”
100. Refinancing student loans
A growing number of private lenders are refinancing student loans, said AnnaMaria Andriotis in The Wall Street Journal, and “borrowers stand to save tens of thousands of dollars.” One of the biggest lenders, Social Finance, offers from 1.9 percent to 5.19 percent interest for variable-rate loans or 3.5 percent to 7.24 percent for fixed-rate, potentially lower than many Stafford or federal Plus loans. The move makes most sense for borrowers with high credit scores and good jobs; lenders are generally looking for FICO scores no lower than 660. Borrowers who can’t make that cutoff are “generally better off sticking with their existing loans,” especially if they have federal loans that provide flexible repayment plans for those who are struggling financially.
101. Monthly pension or lump sum?
If you’re lucky enough to have earned a pension, you don’t want to waste it, said Ian Salisbury in Money. When the time comes, it may be hard deciding whether to opt for monthly payments or taking the pension as a lump sum. Enormous checks “are tempting,” but a monthly pension is usually the better deal. Not only does the money last for life, but you can typically opt for slightly smaller monthly payouts, so your spouse can continue to receive benefits after your death. Though taking the lump sum and investing it may seem like a smart bet, you’re still likely better off with the monthly option, “even if you are the next Warren Buffett.” The calculus really only changes if you’re in poor health and unmarried, or in dire financial straits. Then “the math favors the lump sum.”
102. The rise of the ETF
It’s the “investment equivalent of a puttering hatch back” overtaking “a gleaming Porsche,” said The Economist. Exchange-traded funds are now a bigger business than hedge funds. ETFs had $2.971 trillion in assets at the end of June, $2 bil lion ahead of the hedgies’ $2.969 trillion. Fifteen years ago, ETFs were less than a 10th the size of hedge funds. But “in a world of reduced returns, the low costs of ETFs are more attractive.” ETFs trade like stocks, but hold a mix of assets that track the performance of a particular asset class, like the S&P 500, gold, or real estate. They often have extremely low fees, which can make them appealing to investors who already gravitate toward traditional index funds. Barring a “calamitous collapse,” they’re likely to keep growing.
103. Taking a retirement test run
From a distance, retirement might seem “like a slice of heaven,” said Pamela Sams in MarketWatch.com. But transitioning into your golden years comes with its share of challenges. “The longer you prepare, the easier it will be to attain your goals.” For many, simply moving from full-time work to fulltime leisure can be stressful. If you’re able, consider taking a month or two off the year before retiring. “If you find yourself a little blue or listless, take this as a red flag.” Not cashing a regular paycheck will also have a big impact on your spending habits, so before taking the leap, look at your income and assets to develop a postretirement budget. If you find you can “live happily within your anticipated means,” the good life awaits.
104. Passing on a vacation home
Owning a family vacation home “can create beautiful memories,” said Vickie Elmer in Kiplinger’s Personal Finance. But “without careful planning, you may find yourself embroiled in bitter battles over the home’s future.” The key is creating “a detailed plan for succession.” Start by sitting down with your adult children and their spouses to discuss whether to keep the home in the family or sell it outright. Both options have advantages, but it’s essential to know what everyone’s needs and desires are. If you decide to keep the house, “draw up a written plan you all agree to” for covering expenses, maintenance, and a schedule for using the house. When it comes to “passing it on,” be sure to consult with an estate-planning lawyer “to figure out the gift- and estate-tax implications of a transfer.”
105. Social Security worries mount
Americans increasingly see Social Security as a key part of their retirement, said Glenn Ruffenach in WSJ.com. Thirty-six percent of American adults who are not yet retired “expect to rely on Social Security as a major source of income” when they retire, 10 percent more than a decade ago. Yet even though the best way to maximize those benefits is to delay claiming them until age 67 or older, fully 73 percent of retirees are receiving reduced benefits due to early claims. These stats “come at a time when the Social Security program itself is straining to meet demands.” The trust fund is scheduled to run out in 2033, after which Social Security recipients could receive just 75 percent of their expected benefits.
106. The case for leasing a car
If you’re looking for a new set of wheels, consider leasing, said Jessica Anderson in Kiplinger’s Personal Finance. Some drivers who own their cars outright can “come out ahead financially,” especially if they pay cash or keep their car past the loan payoff date. But for those who always have a car payment—because they trade in their cars often or finance with long-term loans—“leasing is a good choice.” Your payments will be lower, since “you’re paying for a car’s depreciation only over the term of the lease.” And since “the majority of leases are written for three years,” a leased car “is almost always under warranty.” Take the 2015 Chevy Malibu. Leasing for three years will leave you “more than $4,600 richer” than if you bought the car with a five-year loan and sold it after 36 months.
107. In Illinois, a push to save
A new law in Illinois aims to help residents save for retirement, said Josh Barro in The New York Times. Employed residents who don’t already have a retirement plan at work will be automatically enrolled in individual retirement accounts, which will be funded through a 3 percent deduction from their paychecks. The program, called Secure Choice, is voluntary—workers can opt out or adjust their deductions to save more than 3 percent. The program aims to fill the gap for workers who lack access to employer-based savings plans, which “is one of the reasons middle-income Americans tend to have not saved enough for retirement.” If the program is successful, “it may end up being a model for other states and the federal government.”
108. Beat the post-holiday shopping trap
Beware of the post-holiday sales season, said Liz Weston in Bankrate.com. Though afterholiday clearances can be tempting, you don’t want to blow your budget before the year has really begun. Since quitting cold turkey after the holiday spree can be tough, “set aside some cash or set a dollar limit to take advantage of a sale or two.” But “once the money’s gone, shopping stops.” You might also make “a no-spend pledge” and limit your purchases to nonessentials, such as groceries or gas, for a certain period. Consider unsubscribing from deal sites and retailers’ newsletters to remove temptations. And before purchasing what you think is a must-have item, try “giving yourself at least a three-day ‘cooling-off period.’” That can “help you figure out if the purchase is worthwhile or just a passing fancy.”
109. How credit affects your love life
“You’ll never look at ‘credit unions’ the same way again,” said Luke Kawa in Bloomberg Businessweek. A Federal Reserve working paper has found that people tend to form romantic relationships with individuals who have similar credit scores. People with higher credit scores are also more likely to be in committed relationships, and stay in them longer, while couples with mismatched credit scores are more likely to break up. The results “have both practical and intuitive underpinnings.” Couples with similar credit histories, for example, are more likely to take on a mortgage together, thus raising the “transaction cost” of a breakup. Beyond finances, economists hypothesize that credit scores hint at a person’s “underlying trustworthiness.” In other words, if you can’t meet your financial obligations, “your wherewithal to stay current with someone else’s life is also probably suspect.”
110. Lapsing long-term care insurance
“Buying long-term care insurance has always been a dicey proposition,” said Dan Kadlec in Time.com. The coverage—meant to pay for lifetime care through a nursing home, assisted living facility, or in-home assistance—is expensive and may never become necessary. But new data from the Center for Retirement Research at Boston College show that a third of people who buy the coverage let it lapse, many at exactly the wrong time. In 23 percent of the cases studied, those who let their coverage lapse needed long-term care within four years. The study found little evidence that seniors let the insurance lapse on purpose; most drop it because of financial hardship or because they develop cognitive impairment.
111. Make $1,000 before Christmas
“With some simple strategies,” there’s plenty of time between now and the holidays to raise $1,000 for gifts, said Stacy Rapacon in Kiplinger.com. One way is to change your tax withholding to take home more money next payday. Three out of four workers get a tax refund, at an average of about $3,000, so you’ve probably banked a healthy refund for 2016 by this point in the year. Another option is to sell your unwanted electronics, using resale sites. NextWorth will pay up to $170 for an iPhone 5S. Ride sharing can also “turn your car into a moneymaker.” Uber estimates that its drivers earn about $19 an hour on average. Finally, don’t forget to redeem your credit card rewards. Around $4 billion in annual rewards goes unused, according to CardHub.com.
112. Default on debt, lose your license
Should people who fall behind on student loans have their driver’s licenses revoked? asked Natalie Kitroeff in Bloomberg.com. Littleknown laws that do just that are on the books in 22 states. But efforts to repeal them are gathering steam. Montana legislators are considering whether to repeal a state law that revokes occupational and driver’s licenses for anyone who defaults on a student loan; a similar bill is pending in Iowa, where hundreds of student debtors have had their licenses suspended. In Tennessee, at least 1,500 people—including nurses’ aides, teachers, and EMTs—have lost their professional licenses for failing to pay back loans. Debt collectors argue that these laws are “valuable tools for extracting longoverdue payments,” but advocates for repeal say suspending borrowers’ licenses has “real consequences” that make it harder for debtors to pay back loans.
113. Tax-exempt status: Too simple?
Uncle Sam may be going too easy on wouldbe charities, said Patricia Cohen in The New York Times. The Internal Revenue Service is facing a surprising backlash from tax lawyers, state agencies, and even nonprofits themselves after introducing a new, “strippeddown application, called a 1023EZ form, for small groups seeking taxexempt status. Charities have long complained about the IRS’s 26page taxexemption application, with its onerous documentation requirements, but they warn that the 2½page replacement “goes too far in the opposite direction.” The new form—which only applies to charities that earn $50,000 or less—doesn’t ask applicants anything about “governance, conflicts of interest, or function,” making it “too easy to commit fraud.”
114. A ‘faster lifeline’ for small firms
Smallbusiness owners who need quick cash have a new “lifeline” in online lenders, said Stacy Cowley in The New York Times. Companies like Fundbox, BlueVine, and Kabbage specialize in offering small, speedy loans “to companies too new or too risky to interest banks and traditional lenders.” Within an hour of signing up with Fundbox, Yaniv Liron, founder of a small New York City–based web design firm, had a $2,500 line of credit. But business owners should be careful. Because these firms make up just “a sliver of the overall market for business credit,” they’re often able to get away with charging “far steeper” interest rates and fees.
115. Rental car insurance isn’t worth it
Buying rental car insurance might feel like a “prudent, adult move,” but it usually isn’t, said Joseph Stromberg in Vox.com. If you own a car, your insurance plan likely covers the two most common types of protection offered by rental companies: a loss damage waiver, which covers damage to the vehicle, and liability insurance, which covers damage to other cars and drivers. Additionally, most credit card companies automatically offer collision insurance for vehicles rented with their cards. You can also pass on personal accident insurance and theft protection, which ought to be taken care of by your health and homeowners insurance. Bottom line: Consult all your options “before you get to the rental counter.”
116. Retiring with a robo-adviser
“Robo-advisers” that provide computergenerated financial advice are catching on with retirees, said Eleanor Laise in Kiplinger.com. The automated advisers are cheaper than their human counterparts, who typically charge 1 percent or more of assets, but there are trade-offs. Some robo-advisers only build new portfolios from cash, meaning investors will have to sell off some of their current holdings, potentially triggering capital gains taxes. Investors should also investigate the range of investments recommended. Retirees looking for advice on drawing down their accounts “will find big differences” among the automated services. Some will craft a customized drawdown strategy, but others “can’t even handle IRA-required minimum distributions.”
117. When HSAs trump 401(k)s
“When it comes to saving for retirement, there may be a better place for your next dollar than your 401(k),” said Katie Lobosco in CNN.com. A health savings account, offered with most high-deductible health insurance plans, provides many of the same benefits as a traditional retirement account. Like a 401(k), the money in an HSA can be invested in stocks and bonds, and companies will often make contributions to your account. Contributions for HSAs are tax-free, and so are withdrawals. You can also withdraw from your HSA at any time without penalty, as long as the money is used for medical expenses. Contribution limits are lower, however; a family can contribute up to $6,650 a year. But with couples spending an average of $220,000 on health care in retirement, an HSA can be a smart way to save for future health costs.
118. Life insurance’s broken ‘taboo’
Your life insurance rates may be about to go up, said Chris Matthews in Fortune.com. Though “it’s taboo in the industry for insurers to raise rates on policies previously sold,” tens of thousands of Americans who bought universal life insurance policies will likely face higher rates next year. Nearly a decade of historically low interest rates has made the policies more expensive for insurers to maintain. As a result, some insurance companies have decided they have no choice but to raise rates, and industry analysts “expect the trend to gain steam.” The extra annual charges can range from $15 per year for a policy worth $250,000 to hundreds of thousands of dollars for policies worth upwards of $10 million.
119. The ‘barbell’ investing strategy
“Should you invest in last year’s beaten-down stocks, or should you stick with the winners and put even more money there?” asked Simon Constable in USNews.com. The answer is simple: “Do both.” An analysis of 25 years of data shows that investing in last year’s 10 worst- and 10 best-performing subsectors of the S&P 500 “is historically a winning strategy.” This “barbell approach”—which bets that winning sectors will consolidate their gains through a bandwagon effect, while battered stocks will recoup their losses—beats the index’s overall performance 68 percent of the time. Only in 1997 and 2008, both years with a serious stock market crash, did the strategy fail to beat the overall market. Still, no investing approach is foolproof, so “it may make sense to limit your exposure to this strategy to a fixed percentage of your portfolio.”
120. Why gadget warranties are a rip-off
Unless you’re an incurable klutz, you probably don’t need a warranty for that shiny new gizmo, said Geoffrey Fowler in The Wall Street Journal. Unlike your house or your health, the pain of repairing even pricey consumer electronics “is still relatively limited” and sometimes cheaper than the warranty itself. For instance, Apple will repair an iPhone 6 screen in its stores for $109, but AppleCare costs $99 up front, plus a $79 screen deductible. Then there’s the likelihood something will actually go wrong. Only 15 percent of buyers got a new phone because the old one broke, and only 2 percent because it was lost or stolen, according to data from Consumer Reports. A better idea: Put the money you’d spend on a warranty into a rainy day fund you can spend on anything, gadgets included.
121. Retirement planning for homemakers
“Stay-at-home spouses may be the financial industry’s most underserved segment,” said Dan Kadlec in Time.com. But homemakers can—and should—save for retirement. Only 21 percent of homemakers say life insurance is part of their retirement plan, according to a study by the Transamerica Center for Retirement Studies. If the family earner dies, the life insurance policy should be big enough to pay off any debt, cover tuition for children, and provide enough income for basic living expenses. Homemakers who file a joint tax return with their spouse can also open a spousal IRA in their own name. This can be funded by a spouse’s earnings, as long as total annual contributions don’t exceed the taxable income reported on the joint return or a maximum contribution of $5,500 apiece—or, past age 50, $6,500—whichever is smaller.
122. Help for low-income homebuyers
Fannie Mae is revamping its mortgage program for low- to moderate-income households, said Lisa Prevost in The New York Times. Under the HomeReady program, set to relaunch in December, lenders can qualify borrowers based on income generated by nonborrowers living in the household and on income from non occu pant co-borrowers, such as parents. The move is meant “to better accommodate today’s financial and familial realities.” More people are sharing homes and finances with extended families, including about 19 percent of African-American households and 24 per cent of Hispanic households. The program, formerly known as My Community Mortgage, will also no longer require borrowers to be first-time homebuyers. By expanding eligibility, Fannie Mae hopes to also help homeowners who lost home equity when property values plummeted in the housing crash.
123. Why everyone needs a will
“If you think estate planning is for only the elderly or wealthy, think again,” said Peter J. Creedon in Yahoo.com. Everyone owns something. And without the proper documents, state law will determine what happens to your property if you die. List your beneficiaries where you can; retirement accounts usually require this anyway. Set up a TOD (Transfer on Death) designation for your bank and investment accounts. For emergencies, a Health Care Proxy form will allow someone to make health-care decisions for you if you cannot, and a Durable Power of Attorney form will allow someone to take over your personal affairs.
124. Airlines ground bargain hunters
Airlines keep finding new ways to slow down customers hunting for cheaper fares, said Drew Harwell in The Washington Post. Lufthansa, Europe’s largest airline, recently announced it’s adding a 16-euro fee (about $18) to tickets booked through third-party travel sites like Expedia and Kayak. “America’s biggest airlines haven’t gone that far,” but they have their own ways of discouraging discount seekers. Delta has pulled its fares from Trip Advisor and dozens of other smaller sites; American briefly removed fares from Orbitz last year. Airlines remain determined to drive ticket buyers to their own sites, where consumers don’t have the option of side-by-side fare comparisons. A recent study found that restrictions on the data shared with third-party sites could cost passengers $6 billion a year.
125. Advice for expat retirees
Retiring abroad? “It’s essential to prepare for financial challenges before you step off American soil,” said Rachel L. Sheedy in Kiplinger .com. Establish online access to your investments, bank accounts, and other financial resources before the move. No matter where you relocate, “Uncle Sam will be your traveling companion.” You still have to file a U.S. tax return, and in some cases you may be subject to double taxation. But U.S. tax breaks like the foreign earned income exclusion and the foreign tax credit can help reduce your bill. Get in touch with fellow expats in your destination country through message boards and Facebook pages. They can help you navigate the financial landscape of your new home, including where to find a tax preparer.
126. Echoes of the housing bubble
“A big payment shock” is on the way for homeowners who borrowed against their property during the height of the housing boom, said AnnaMaria Andriotis in The Wall Street Journal. Millions of borrowers took out home-equity lines of credit, known as Helocs. Many now face the end of a 10-year period of interest-only payments. Borrowers who took out a Heloc in 2004 are already behind on some $1.8 billion worth of outstanding balances. “The good news” is that borrowers near the end of their interest-only period have several options to change their payments before principal payments kick in, including refinancing. Some banks will also rework the terms of the Heloc to extend the repayment period or lower the monthly payments to make them more manageable.
127. Basic rules for financial success
“Smart money moves aren’t more complicated than you think,” said Brett Arends in The Wall Street Journal. “They’re simpler.” Just follow a few “simple, bedrock” strategies, and your finances will stay healthy. First, ignore the so-called experts. “Stocks that Wall Street experts like most generally fare no better than those they like least—or stocks picked at random.” Keep your investment strategy basic; “a simple, diversified portfolio of low-cost index funds, rebalanced yearly, will do just fine—if not better” than anything a portfolio manager can do for you. Put most of your long-term portfolio into equities, because they “generally produce the best long-term returns.” Invest globally. Buy insurance. Contribute as much as possible to your 401(k) plan. And “plan for a long life,” which means reducing your debt and saving early—and a lot.
128. Apps for bargain hunters
Discount shoppers, rejoice, said Kristin Wong in Bankrate.com. “Couponing is now as simple as swiping your screen.” Dozens of apps now help bargain hunters “navigate sales, compare prices, and even get money back on some of the items” they buy. RedLaser and ShopSavvy allow shoppers to scan an in-store item’s bar code and then “tell you how much that item costs at different online retailers” or whether “there are special deals on the item at nearby stores.” Coupon Sherpa lists coupons from “hundreds of retailers and restaurants,” and RetailMeNot lets you know which nearby stores have deals and coupons available. Price Jump includes a feature that “tells you exactly where to find the best price in each of three categories: local, Amazon, and online.”
129. Financing options for homebuyers
Several new programs could help cashstrapped homebuyers, said Tara Siegel Bernard in The New York Times. Fannie Mae and Freddie Mac recently introduced programs that permit middle-income borrowers to pay as little as 3 percent as a down payment, and the Federal Housing Agency, which requires at least 3.5 percent down, lowered its annual mortgage premium, making its process “a bit more competitive.” Some of these programs only apply to first-time buyers, and the added mortgage-insurance fees can make putting less down up front far more expensive than a typical mortgage. Prospective buyers should crunch all the numbers, because “they may ultimately come to the realization that it actually pays to wait and save a bit more.”
130. Credit agencies agree to overhaul
Major changes are coming to consumers’ credit reports, said Tara Siegel Bernard in NYTimes.com, and for once it’s good news. Following a nearly three-year investigation by New York State Attorney General Eric Schneiderman, the three main credit bureaus— Experian, Equifax, and Trans Union—have agreed to overhaul the opaque, often frustrating automated system that consumers must endure to fix errors on their credit reports. “Specially trained employees” will now review all disputes. The three companies will also “establish a sixmonth waiting period before reporting medical debts,” which will give consumers more time to resolve problems or have their insurance payments issued. The next challenge: “making sure the credit bureaus comply with the agreement.”
131. Smart savings for seniors
Not all senior discounts are created equal, said Cameron Huddleston in Kiplinger .com. In fact, money-savvy seniors may sometimes be better off taking advantage of “deeper discounts for the same goods and services available to the general public.” Take banking. A recent study from the Pew Charitable Trusts found that some “senior” checking accounts “actually cost more than basic accounts unless the customer maintains a high balance.” And while many hotels offer attractive discounts for travelers 62 and over, simply defaulting to those discounts may lead seniors to “miss out on better rates offered by discount travel websites and apps.” Retirees who really want to cash in on their senior status would be wise to look for standard discounts that “can be paired with a senior discount to score even bigger savings.”
132. Opening an IRA for kids
Want to help your kids get ahead this summer? asked Bill Bischoff in MarketWatch.com. Persuade them to “use their summer earnings to invest in an IRA.” I’ll admit that asking teenagers to wait four or five decades to reap the rewards of their labor might be a “tough sell,” but even a modest contribution now can add up to substantial savings down the line. All that’s required to open an IRA is earned income, and an investment of $1,000 a year for the next three years could net nearly $40,000—assuming a 6 percent annual return—by 2060. “Not bad for mowing a few lawns.” Plus, the lifelong lessons about basic investing are much more likely to stick “when it’s their hard-earned dollars on the line.”
133. When brokers get the blues
“Bad weather isn’t good for investors,” said Charlie Wells in The Wall Street Journal. Gloomy conditions outside can trigger “mild depression” in brokerage analysts, a new Stanford University study has found, making brokers slower to respond to earnings announcements. Analysts working in bad weather were 9 to 18 percent less likely to issue buy or sell recommendations following such announcements. Late reports “can mean missed opportunities for investors large and small.” “In behavioral finance, we like to think in terms of humans as completely rational beings,” said Stanford accounting professor Ed deHaan. “But we’re learning from psychology that, obviously, humans are very affected by all sorts of stimuli.”
134. Dubious warnings on money trackers
Big banks “wary of hacking risks” are trying to scare customers away from apps and websites that help users track their spending, said Liz Weston in Reuters.com. JPMorgan Chase and Capital One, among others, have warned customers against sharing their account passwords with third-party services like Mint.com, saying individual users could be liable for any fraud on their accounts. “The banks’ warnings, however, are off base.” Federal banking rules “sharply limit” customers’ liability for unauthorized transactions as long as they report fraud promptly. Even negligence, such as writing a PIN on a debit card, does not increase a customer’s liability. Critics say that banks are likely just as worried about competition from account aggregators as they are about hacking.
135. How to stress test your portfolio
“While most of us think we’re comfortable with risk, it’s often not true,” said Ryan Derousseau in USNews.com. To really get a sense of what you’re willing to endure in a downturn, give your portfolio a stress test. Financial advisers can provide detailed analyses of how your portfolio will react in different scenarios, like an interest rate hike or a 10 percent drop in the stock market. These hypotheticals can help investors cut back on their risk if they’re taking on too much, or avoid the temptation to sell when the market hits turbulence. Stress testing can also reveal the impact of fees, which can ultimately hurt a portfolio more than any downturn. To get a comprehensive analysis, go through your adviser. Hidden Levers.com also offers free software for stress testing based on your portfolio allocation.
136. Buying auto insurance for teens
Putting a teenager on the family’s auto insurance policy is pricey, but it’s less expensive than buying a separate policy, said Ann Carrns in The New York Times. Eighteen-year-old drivers add an average of 77 percent to their parents’ auto insurance premiums, according to a recent study by InsuranceQuotes .com. “While that’s a big increase,” 18-year-old drivers will pay an average of 18 percent more if they buy an individual policy, rather than staying on their parents’ plan. In some states, the cost of individual coverage can be even steeper. In Rhode Island, 18-year-olds pay an average 53 percent more for a separate policy. “The good news is that a teenager’s premiums should decrease gradually each year if he or she keeps a clean driving record.” By the time the driver is 19, that individual policy will cost only 9 percent more than family coverage.
137. Child-care costs on the rise
The surging price of child care is eating into parents’ budgets, said Michelle Jamrisko in Bloomberg.com. Married couples who put an infant in a day-care center last year spent 7 to 15 percent of their income on full-time care, according to Arlington, Va.–based Child Care Aware of America. Weekly nursery and preschool expenses for children 5 and younger rose almost 50 percent between 1990 and 2011, after adjusting for inflation, according to government data. The soaring costs may even be keeping some parents out of the workforce. Some 29 percent of mothers with children under 18 didn’t work outside the home in 2012, up from 23 percent in 1999. Child care is “taking up more and more of a family’s paycheck,” said Anna Carter of Child Care Services Association.
138. Obamacare penalty to increase
The penalty for not having health insurance is going up, said Kimberly Lankford in Kiplinger.com. If you didn’t have insurance this year, the cost come tax time will be $325 per adult and $162.50 per child under 18 (with a total family maximum of $975), or 2 percent of your annual household income, whichever is higher. In 2016, the penalty jumps again, to $695 per adult and $347.50 per child, or 2.5 percent of annual household income, whichever is higher. Experts say next year may be the “tipping point” at which your money is better spent on a policy than on a penalty. Open enrollment for individual health insurance runs from Nov. 1 to Jan. 31 for 2016 coverage.
139. Paying less for car insurance
If you want a cheaper auto insurance bill, “just ask,” said Kelli B. Grant in CNBC.com. Despite deals to be had, only 16 percent of consumers have asked their insurance company about “common breaks like low-mileage rates or good-student discounts.” Most people assume the rate is set. “That’s a mistake that can leave big money on the table.” For example, in California, if you drive 5,000 miles per year, well under the state average of 15,000, you might be able to cut your insurance bill by up to 25 percent with a low-mileage discount. Discounts vary by state and insurance carrier, but the trick is to ask what is available and ask often. “Alert your agent when you have a life change,” because marriage or a new job might qualify you for a better deal.
140. The how-to’s of family loans
It’s a “nice sentiment” to want to give a cashstrapped family member an interest-free loan, said Bill Bischoff in MarketWatch.com. But by doing so, you could face “unfavorable and complicated tax rules.” To avoid the complications that come with below-market loans, charge an interest rate equal to or more than the “applicable federal rate,” available on the IRS website. Luckily, these rates are extremely low at the moment, starting at 0.43 percent for “short-term loans” of up to three years. Also, be sure to have the loan in writing so that the IRS will know the deal is a loan, not a gift, which comes with its own tax rules. Beyond the tax consequences, charging relatives even a small amount can help keep the deal on “a business-like footing.”
141. A savings account that pays
It’s not impossible to earn meaningful interest on your rainy-day fund, said Michelle Singletary in The Washington Post. Average interest rates on checking and savings accounts are “pitifully low” at 0.06 percent and 0.10 percent, respectively. But higher-yielding accounts are out there. Bankrate.com’s “2015 High-Yield Checking Survey” found 20 checking accounts at U.S. banks and credit unions that yield 2 percent or more. Most come with requirements like direct deposit and online bill payments, but nothing out of the ordinary. The biggest hurdle may be geography. Although many accounts are available nationwide, the bank with the highest yield—3.25 percent—only serves Louisiana and parts of southeast Texas. A 2 percent yield may not sound like much, but it allows you “to keep pace with inflation or even beat it.”
142. Get approved for the cards you want
“Rejection stings,” said Jason Steele in Credit.com, not least when it’s for a new credit card. Luckily, there are a few tricks to maximize your chances of getting approved. The “single most important factor,” of course, is maintaining a high credit score by paying your bills on time and carrying as little debt as possible. You also want to “space out your credit applications.” Lenders “view multiple recent applications for new credit cards as a warning sign of financial trouble.” If you are rejected, call and ask for your application to be “reconsidered,” and if that doesn’t work, take the lesson to heart. Creditors often send a rejection letter that will explain why you were denied, so “you can take targeted steps to remedy the problem” next time.
143. Paid family leave for federal workers
The White House is making a big push for more parental leave, said Steven Mufson and Juliet Eilperin in WashingtonPost.com. President Obama signed an order last week instructing federal agencies to give workersix weeks of paid family leave to care for a new child or ill family members. In an article posted on career site LinkedIn, Obama senior adviser Valerie Jarrett said the president will also call on cities and states to adopt similar paid leave policies and will provide funds to conduct feasibility studies. “Only three states—California, New Jersey, and Rhode Island—offer paid family and medical leave,” Jarrett wrote, even though studies have found that providing paid sick and parental leave improves workplaces without hurting companies’ economic output.
144. The case for online savings accounts
“Americans are not known as great savers,” said Ann Carrns in The New York Times, but 2015 offers the chance to turn over a new leaf. This year, “an improving job market and plunging fuel prices” may allow consumers to start saving more. Unfortunately, “anemic interest rates” don’t appear likely to budge soon; the average annual yield for a savings account hovers around 0.17 percent, meaning you’d earn just $1.70 this year on $1,000. A better option is to save your money with online banks, which typically “offer better interest rates and charge lower fees” because they don’t have the cost of maintaining physical branches. GE Capital Bank’s online savings account and MySavingsDirect both offer 1.05 percent. That’s “hardly a life-changing” yield, but it’s better than nothing.
145. Buy stock at the grocery store
Shoppers can now buy Apple shares “along with their apples,” said Robin Sidel in The Wall Street Journal. Retailers like Kmart, Office Depot, and Safeway have begun selling gift cards for small amounts of stock in companies like Coca-Cola, Facebook, and Berkshire Hathaway. The cards, which have been approved by the Securities and Exchange Commission, are the creation of Stockpile, a Palo Alto, Calif.–based startup and licensed broker-dealer. Only about 14 percent of American families own stock directly, and the gift card industry is booming. Shoppers spent $93.9 billion on retail gift cards last year, up from $51.8 billion in 2005. Stockpile’s cards are redeemed on its website, where they can be sold or swapped for other stock. “But aspiring hedge fund managers, beware: Any buy or sell transaction costs 99 cents.”
146. Medicare drug premiums going up
This year’s Medicare open enrollment brings “some unpleasant news” for seniors, said Mark Miller in Reuters.com. Rising drug costs are driving up premiums for many Medicare prescription-drug insurance plans for the first time in several years. Premiums for the 10 most popular Medicare Part D prescription drug plans—which cover more than 80 percent of all enrollees—will rise an average of 8 percent next year, according to consulting firm Avalere Health. A “key question” for consumers looking to shop for a new plan will be whether to buy a basic plan, with lower premiums but gaps in coverage, or a more expensive, enhanced plan. Shoppers should carefully examine a plan’s “formulary,” or list of medicines, to see if their prescriptions are covered and whether any special rules apply.
147. Invest by industry, not country
Investors should care less about a company’s mailing address and more about what the company actually does, said Conrad de Aenlle in The New York Times. That’s the finding of a new study by Morningstar Investment Management. While it’s become popular to spread out risk by buying into funds focused on regions or single countries, Morningstar says it’s better to buy into a broad mix of industries. The reason: Globalization has made it less relevant where a company is based or where its stock is listed for trading. With certain sectors performing better during bear or bull markets, having a broad mix “is vital for achieving diversification.”
148. Overhyped investing newsletters
Odds are you’ve received a few investment solicitations over the years trumpeting outsize returns and easy millions, said Kathy Kristof in Kiplinger.com. In case you’ve been tempted, know that it’s wise not to abandon your “com paratively bland investment strategy.” Unlike heavily regulated mutual funds, investment newsletters “have a lot of freedom to highlight figures that cast them in the best possible light.” Some tout figures that are impossible to verify or are taken wildly out of context. Others simply lie by omission. For example, a 63.8 percent return doesn’t mean much if the broad market index earned 62 percent during the same time period. Or perhaps the author fails to state that the $485,000 gains he’s advertising required an initial $1.8 million stake. “As the old Wall Street adage says, don’t confuse a bull market with genius.”
149. Some losses are lose-lose
“When American taxpayers suffer a financial loss, they can often take comfort that they’ll at least be able to get a tax write-off,” said Dan Caplinger in DailyFinance.com. But that’s not always the case. Losses on the sale of a personal residence, for example, “provide no relief for struggling taxpayers.” The rules on capital losses are more generous. Up to $3,000 in capital losses can be used to offset other types of income. You’re allowed to write off losses caused by natural disasters as well as criminal activity, but not below the first $100. You also have to reduce the amount of the claimed loss by 10 percent of your adjusted gross income. Gambling-related losses can only be used to offset winnings and only as an itemized deduction.
150. Be wary of life settlements
Selling your life insurance policy shouldn’t be done lightly, said Eleanor Laise in Kiplinger.com. Life settlements, in which a policyholder sells his or her policy for a lump-sum cash payment, are growing in popularity with seniors, but they often bring in just a “small fraction” of the policy’s face value. The amount of cash you can receive depends on your remaining life expectancy, your annual premiums, and your death benefit, as well as the rate of return the buyer demands. In most cases, sellers receive far less than the death benefit. The life settlement is also taxed, unlike a death benefit, which is paid out to beneficiaries tax-free. In addition, there are transaction costs, such as broker fees, adding up to as much as 20 percent.
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