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Train your brain, And gain as you age

Randy Burnham — 2008-05-09T09:00:00+00:00

What fun is retiring well-off if you're not all there to enjoy the ride?

Anyone unfortunate to have witnessed the ravages of Alzheimer's certainly understands. But almost all of us have experienced some kind of preview of diminished capacity to come -- glasses "lost" perched right atop our brows; forgetting whether or not you just took that vitamin; mentally misplacing long-burned-in info, like your mom's birthday. It starts earlier than most of us want to admit.

There's good news, in the form of research showing the brain has more plasticity than previously thought. In laymen's terms, our aging brains can likely benefit from regular exercise, to help stave off what was previously written off as inevitable, age-induced, mental atrophy.

Send your brain to the gym by doing fun and challenging stuff like:

- playing chess
- doing Sudoku and crossword puzzles
- balancing your checkbook without a calculator
- learning or regularly playing a musical instrument
- learning a foreign language, or diving deep into some other new-to-you subject
- reading a book while holding it upside down
- playing Bridge
- writing a novel or short story
- adding up a column of stock prices (you gain even if your portfolio loses)
- memorizing numbers in your everyday life - credit cards, etc.

If you're techie at heart, the Times story suggests looking at Nintendo's Brain Age 2 for DS ($19.99); PositScience's Brain Fitness Program ($395); MindFit ($149); Luminosity.com; Happy-Neuron.com.

Just do it. So you can enjoy it, later.

Randy Burnham is a Westport, CT-based clinical psychologist and co-founder of My Next Phase (www.mynextphase.com), a consulting firm expert in non-financial planning products and processes.

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Naked Truth Investing: Watch out for these signs on the road to financial perdition

Dan Solin — 2008-05-05T17:30:00+00:00

Filed under: Retire

This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

The are many minefields for investors who want to save for retirement. Fortunately, the warning signs are clear. If you see any of these signs, you are driving on the road to financial perdition. Stop. Turn around and go in the opposite direction:

1. "This mutual fund has a 5-star Morningstar rating." It still is unlikely to beat an index fund with a comparable risk over the long term.

2. "We provide alpha." "Alpha" is a fancy word that brokers love to use. It means that a stock or mutual fund has performed better than would have been expected given its volatility. There is no evidence that brokers can provide "alpha" over the long term. There is a lot of evidence that brokers add cost and subtract value.

3. "We think this is a good time to get back into the market." There is no evidence that anyone can time the market successfully over the long term with any more consistency than you could attribute to luck.

4. "We think this is a good time to get out of the market." See #3.

5. "The target price for this stock is $___." It doesn't matter what the dollar figure is. The stock is already efficiently priced.

6. "We have a lot of confidence in this fund manager." There is little likelihood that a successful fund manager will repeat her success in the future.

7. "Our analysts think ......" It doesn't matter what the rest of that sentence is. There is precious little evidence that the stock picks of analysts are of any value.

8. "Just sign the Account Opening Statement here. Don't worry about the mandatory arbitration clause." All investors who open an account with a broker who is a member of FINRA give up their right to access to the Courts and to a trial by jury. Instead, they get an arbitration administered by FINRA, the largest non-governmental regulator for all securities firms doing business in the United States. There are several studies (including one I co-authored) that cast serious doubt on the fairness and impartiality of these industry arbitration panels. This means you can't do business with any broker in the United States...but maybe that is not such a bad idea!

What's an investor to do?

Focus on your asset allocation. Use low cost index funds in your portfolio. Open up an account directly with a major fund family like Vanguard, Fidelity or T. Rowe Price... but do not let them talk you into anything other than a globally diversified portfolio of index funds.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Help wanted: Support groups for the newly retired

Michael Burnham — 2008-05-02T18:30:00+00:00

Filed under: Retire

I love Norm Brodsky's long-running "Street Smarts" column in Inc. It got even better for me a couple of years ago, when he turned it into a diary chronicling the sale of his business. Having sold one myself, I couldn't wait to see what was in store.

Brodsky didn't disappoint. The ups, the downs. The starts, stops and re-starts of getting a deal done. The thrill of the payout. All in this refreshingly blunt, first-person way that somehow made it OK for Brodksy to brag, because he'd tell you he was doing just that.

I just finished his May column, where Brodsky wears on his sleeve his struggles six months after the sale -- struggles that have zero to do with money. He doesn't sound at all like the same, master-of-his-domain kind of guy. I'm writing this somewhat spooked, because he wrote about precisely what I experienced after my sale: the misery, the weight of trying to figure out what to do next.

"I don't have a clear idea of what I'm doing or where I'm going anymore," he writes. Been there, felt that.

Earlier on: "I'm not bored....I'm unsettled." Check. Felt it to my core.

To wit: "I'm still getting paid - but the money is a consulting fee, not a salary. That's a big adjustment, and I haven't finished making it." Norm, you're preaching to the choir.

You don't need to be a successful entrepreneur to feel what Brodsky is feeling. It hits new retirees every day, this problem of transitioning from your longtime work to something else.

While he may feel out to sea, Brodsky is luckier than most, simply because he's aware he's in the middle of a big life change. He is starting to understand how his career structured his time and gave him a sense of worth beyond his paychecks. And how his identity became so entwined with the leadership of his business. His awareness will lead to action. (His very writing about it is proof.)

The trick: recognizing retirement for the major transition that is before you get there, and having the self awareness and plans in place to get through it.

Retirement is a major life transition, on par with marriage, the birth of a first child, divorce, even the passing of a loved one. But each of those life changes comes with a support network. Engagement ring, registry, bridal shower - you drowned in advice, but were glad you got it. Your mother-in-law never looked so good, sleeping on the couch, changing those 4 a.m. diapers. A close relative passes on, you're surrounded by those who love and care about you.

Retirement, on the other hand, is a solo passage. When was the last time you heard of someone moving in with a brand new retiree for a few weeks, helping him or her "get through the early stuff." Say yes, and I have a nice polygraph for you.

There's no quick fix for a rudderless, early-stage retiree, as Brodsky has found. But I have every confidence he'll emerge stronger and renewed, and I'd bet deeply engaged in something he doesn't even know is out there right now. He's aware, and that's step one.

Michael Burnham is CEO of My Next Phase, a consulting firm offering non-financial retirement planning products and services (www.mynextphase.com).

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Naked Truth Investing: 401(k) plans: Making lemonade from lemons.

Dan Solin — 2008-04-29T10:30:00+00:00

Filed under: Extracurriculars, Retire, Saving

This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Question: I have quit my job and taken my retirement monies, but I still need to leave my 401K alone for 4 more years. I can leave it there and let it ride, or with your suggestions I could switch it over to one that is doing better than my current one with Safeway Corp.

Answer: Since I don't know the investment options available in your current plan, I cannot evaluate whether you would be better off keeping your funds with that plan or rolling it over into an IRA. However, as a general matter, I can tell you that most 401(k) plans do not offer appropriate low cost index funds for their employees. If this is the case with your current plan, you might be better off rolling it over to an IRA.

If you decide to pursue this option, here is my advice:

First: Determine your asset allocation by taking an asset allocation questionnaire. You will find many on the internet, including one on my web site.

Second: Open an account with Vanguard. There are other excellent fund families you could consider, like Fidelity and T. Rowe Price. However, Vanguard has historically been the leader in offering low cost index funds.

Third: Invest 70% of the amount of your funds allocated to stocks in the Vanguard Total Stock Market Index Fund (VTSMX), and the balance of 30% in the Vanguard Total International Stock Index Fund (VGTSX). Invest 100% of the funds allocated to bonds in the Vanguard Total Bond Market Index Fund (VBMFX).

Fourth: Once or twice a year, rebalance your portfolio to be sure that your asset allocation remains intact.

This simple portfolio has historically outperformed 95% of all professionally managed money over the long term. In your case, if you intend to withdraw the money in four years, it may or may not outperform the investments in your current 401(k) plan.

If you are in a 401(k) that does not offer these options, this is a way to make lemonade from lemons.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Naked Truth Investing: Is now a good time to invest?

Dan Solin — 2008-04-24T18:02:00+00:00

Filed under: Retire, Wealth, Investing

This is part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

This is a very common question: How do you know when to invest? Have the markets bottomed out? Or are we in for a precipitous decline?

Here is the answer: No one knows.

Here is what we do know:For the 36-year period from January, 1970 through December, 2006, missing only a relatively few days in the market resulted in a dramatic difference in returns.

During this period, the annualized compounded return of the S&P 500 index was 11.23%. But if you missed the 25 best return days, your returns were only 7.82%.

Missing only the 10 best return days in a given year can wipe out all of the market gains for that year.

It would be great if someone could time the markets and tell us when to be in and when to be out. That is what market timing newsletters attempt to do. They are not very good at it.

Studies of the performance of market timing newsletters demonstrate that following their recommendations caused investors to under-perform the markets. Given this dismal track record, it is not surprising that one study of over 15,000 predictions by 237 market timing investment newsletters from June,1980 through December, 1992 found that 94.5% of the newsletters had gone out of business!

What's an investor to do?

Determine your asset allocation by taking an asset allocation questionnaire. You can easily find one on the internet.

Invest in a globally diversified portfolio of low cost index funds consistent with your investment objectives and tolerance for risk. You can find a good selection of index funds from reputable fund families like Vanguard, Fidelity and T. Rowe Price.

Maybe it is more important to tell you what you shouldn't do.

Don't use a broker or advisor who tells you she can "beat the markets." This would exclude practically all brokers and most advisors.
Don't try to time the markets.

You should always be invested -- the right way!

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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A personal finance writer who made it refreshingly personal

Michael Burnham — 2008-04-23T12:30:00+00:00

Filed under: Retire

I was sad to learn Jonathan Clements was leaving The Wall Street Journal, not to write at another media outlet, but to work at Citigroup. (Though I was far from shocked; the Murdoch-era editorial cleansing rages on, just today claiming top editor Marcus Brauchli.) Make that, I'm happy Clements is pursuing something new, different -- hopefully, stimulating and lucrative, too. I'm sad because he was the rare personal finance writer who indeed understood the personal, going beyond raw dollar signs to keep financial planning in perspective.

Clements made his last column unabashedly about the personal, lifting the editorial curtain to expose his feelings about the endgame for all this financial engineering. "What is the real reason for all this saving and investing?" he asked. "The short answer is, you save now so you can spend later. But what will you spend your money on? People dream of endless leisure and bountiful possessions. Unfortunately, after a few months, endless leisure often seems like endless tedium."

He went on to cite three key things wealth can - should -- do for us, noting their relevance to the fat of wallet and modest savers alike: (1) If you have money, you no longer should worry about it; (2) Money can give you the freedom to pursue your passions; (3) Money can buy you time with friends and family.

Clements went three for three, hitting it clear out of the park his first two times up. No longer worrying about money, even if you have lots of it can take real work. The problem starts when the paycheck stops. Even if a salary isn't really needed, it's a big, psychological leap from the end of accumulation to the start of depletion. Behind the numbers is the validation a paycheck provides, as a marker of our value to something bigger than ourselves.

Money's power to free us to pursue our passions: so big, you can't quantify it. Clements didn't mean taking up skydiving, tackling Class Five rapids or other Branson-like pursuits. He meant more of the things we already genuinely enjoy, mixed with some new, or lapsed interests; writ large, solo and shared activities that can sustain us for a full, final third of our lives, and provide a sense of purpose. Note that he wrote passions, plural, and for good reason: too much of only one good thing often turns toxic.

Finally, how money buys time with friends and family. Absolutely, but with one caveat: you can choose your friends, but not your family. For some, more time spent with grandkids and other dear family is a natural next step, while for others who already felt they had enough time with family during their busy working lives...that well may still be enough time in retirement. Don't feel bad if you find yourself more drawn to your comrades than your long lost cousin after calling it quits; feel good about being honest with yourself.

I wish Clements the best. His replacement has big shoes to fill.

Michael Burnham is CEO of My Next Phase, a consulting firm offering non-financial retirement planning products and services (www.mynextphase.com).

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Naked Truth Investing: Beware of facts omitted

Dan Solin — 2008-04-22T17:00:00+00:00

Filed under: Extracurriculars, Retire, Saving

This is part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

You are supposed to be able to trust and rely upon your broker or advisor, right? The securities industry spends hundreds of millions of advertising dollars to convince you that your reliance is justified.

The legal obligation of these "investment professionals" is very clear.

They cannot fail to disclose any fact "material" to your decision to make an investment.

Every day brokers recommend actively managed mutual funds to their clients. When making these recommendations, they do not disclose:

1. Only 1 in 3 of these funds will equal or exceed their benchmark in any year;

2. Over a 10-year period, less than 5% of actively managed funds will equal or exceed their benchmark;

3. Index funds will equal their benchmark (less low expenses) every year;

4. The cost of index funds is anywhere from 300% to 1000% less than the cost of actively managed funds.

If you knew these facts, would you buy the more expensive, under-performing, actively managed fund? Would you consider these facts to be "material" to your decision making process?

Why do "investment professionals" fail to disclose these critical facts?

Because it is in their financial interest--but not yours--to do so.

Caveat emptor!

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read. Visit his website at Smartestinvestmentbook.com.

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Naked Truth Investing: Has anyone looked at the markets lately?

Dan Solin — 2008-04-21T16:30:00+00:00

Filed under: Extracurriculars, Retire, Saving

This is part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

If you are investing for retirement, you should be focused on the long term. Your primary concern is the amount of money you will accumulate for your retirement.

It is easy to lose this focus when the steady drumbeat from the financial media if rife with predictions of financial doom and gloom.Our economy has serious problems. I have no idea whether the markets are headed for a precipitous decline or major gains. Nevertheless, given all the news about how terrible the markets have been, it might be helpful to have a reality check.

A reasonable asset allocation for many investors is 60% stocks and 40% bonds. This is the allocation used by most trust and pension funds.

If you had a globally diversified portfolio of low cost index funds with this asset allocation, you would have incurred a loss ranging from 1.5% to 2% year-to-date, depending on the mix of your funds. Not great, but certainly not worthy of all of the hand wringing about markets collapsing.

What if you held that portfolio for the previous five years? Your returns would have been between 12% and 13% on an annualized basis. You could well afford the losses you have incurred so far this year.

If you go back 10 years, you would have had an annualized return between 8% and 9%.

Investors would be well advised to look at market returns in historical context. If you have the right asset allocation, you can ignore short term volatility and focus on achieving your retirement goals.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Naked Truth Investing: Ask me about retirement planning

Dan Solin — 2008-04-21T12:20:00+00:00

Filed under: Ask WalletPop, Retire, Investing

Retirement expert Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008).

Ask him your questions in the comments box and he will answer as many as he can. You can visit his website at Smartestinvestmentbook.com.

Read his most recent "Naked Truth" posts here. This column is designed to provide information about investing for retirement that will be relevant to a large group of readers. If you require legal service or other expert assistance, please seek the services of a competent professional.

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Naked Truth Investing: The prediction scam

Dan Solin — 2008-04-18T16:00:00+00:00

Filed under: Real Estate, Retire, Recession, Investing

This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Want to make a lot of money in a down market? Write a book predicting a financial meltdown.

It worked for Howard Ruff. He racked up huge sales with his book, How to Prosper During the coming Bad Years, written in 1979.Ditto for Ravi Batra. He wrote The Great Depression of 1990. It was a best seller when it was written in 1987.

Remember all those books that told you how to make a fortune in real estate? It was so simple. You didn't even need a down payment.

Now that times are tough, there seem to be no end of books advising investors how to prosper when the "inevitable" financial meltdown hits.

Investors are told to liquidate their U.S. stocks. To invest in precious metals. To buy foreign stocks only on foreign stock exchanges and to hedge against the declining dollar. Maybe they are right and maybe they are wrong. I don't know.

But that is precisely the point. They don't know either, but they make a great living by pretending that they do.

One seminal study found that the predictions of economists about the future of the economy were worthless. You would think that their training would give them some meaningful insights about "turning points" in the economy. There is no data indicating that this is the case.

So what should investors do in these troubled times?

They should not rely on the predictive powers of self-styled "experts" who are no more than financial astrologers.

Instead, they should determine an asset allocation appropriate for them and implement that allocation with a globally diversified portfolio of low cost index funds, passively managed funds or Exchange Traded Funds.

Here is my prediction:

Based on historical data, investors who follow this advice will be in the top 5% of all professionally managed money over the long term.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Ask the Dolans: How can we increase our retirement savings late in life?

Ken and Daria Dolan — 2008-04-18T15:00:00+00:00

Filed under: Debt, Retire, Saving, The Dolans

Ken and Daria Dolan, America's First Family of Personal Finance, answer your money questions every Friday.

Dear Ken and Daria,

My husband and I are 62. We are debt- and mortgage-free. Our savings, however, are not as high as we'd like. What can we do to make sure we still have money for when we retire in a few years?

Joyce

Ken and Daria Dolan offer advice on all of your retirement questions and concerns at Dolans.com.

Click here to ask Ken and Daria your question.

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Naked Truth Investing: Would you go to a heart doctor who couldn't identify the aortic valve?

Dan Solin — 2008-04-14T19:00:00+00:00

Filed under: Extracurriculars, Retire, Saving

This is part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

I am sure you wouldn't entrust your health to a medical professional who didn't have a complete knowledge of her area of expertise.

Yet millions of investors rely on "investment professionals" who can't define risk, much less measure it. If you don't know the risk of your portfolio, you can't invest intelligently for retirement.
Long term returns are determined by your asset allocation. Your asset allocation is a function of your capacity for risk. How do you determine your risk capacity?

Take an asset allocation questionnaire. There are many of them on the internet, Or you can find one on my web site.

Compare the asset allocation indicated by the questionnaire to your present asset allocation. If they are not comparable, consider changing it.

Next, find out the risk of your current portfolio. This is the tricky part. Start by asking your "investment professional" how she measures risk (let's give her the benefit of the doubt and assume she actually does measure risk. Most brokers and advisers in my experience don't).

There is only one right answer to this question: standard deviation. Standard deviation is a statistical measurement of the historical volatility of your portfolio. Ask her to compute your three-year standard deviation.

For conservative investors, the standard deviation should be no more than 8%. For very aggressive investors it should be no more than 20%.

If you can't get your standard deviation, assume your broker has a sign around her neck reading "I am incompetent."

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Naked Truth Investing: Hedge funds are for stupid rich people

Dan Solin — 2008-04-14T18:03:00+00:00

Filed under: Retire, Saving, Investing

This is part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

An overriding concern of investors is saving for retirement. Yet the data indicates that, when you consider the ravages of fees, inflation and taxes, the average equity investor actually loses money.

These investors would have been better off not investing at all.

The first rule of intelligent investing is not to lose your money. Here is one suggestion: Don't invest in hedge funds.

I have never understood the underlying premise of these funds. We know that only a small percentage of traditional mutual funds equal or beat their benchmarks over the long term. Is it really possible that hedge fund managers have some special insight that has eluded the best and brightest on Wall Street?

Not according to the data.

One study showed that on average every major category of hedge funds provided lower risk-adjusted returns than the S&P 500 from 1995-2003.

Another study demonstrated that, after fees, 80% of the hedge funds studied provided no added value.

As if that was not bad enough, a recent study concluded the huge fee structure of hedge funds could attract "mediocre managers and con artists" to the market.

Recently, we have seen a number of large hedge funds implode. More are sure to follow.

When investing for retirement, don't be seduced by the promise of excessive returns made by hedge fund promoters. They come at the price of high risk. In addition, there are added problems of lack of liquidity, lack of meaningful regulation and lack of transparency.

My advice? Just say "no."

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Naked Truth Investing: What If Alan Greenspan was your broker?

Dan Solin — 2008-04-14T15:01:00+00:00

Filed under: Extracurriculars, Retire, Saving

This is part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Good news! Alan Greenspan has agreed to help you invest for retirement.

How fortunate you are! You have so many questions. Like "is this a good time to be in the markets?" and "are we headed for a recession"?

It gets better. Alan has agreed to moonlight on your account while serving as the Chairman of the Federal Reserve Board. This gives him access to inside information that no one else knows about the economy.

Alan calls you late one night after a hard day's work at the Board. He whispers that he is very concerned about the markets. He says something about "irrational exuberance" and "meltdown."

Quick action is obviously required. You call your broker and sell all of your stocks. You are now safely invested in bonds. You sleep great that night.

If you had listened to these predictions when Alan made them in 1996, you would have missed out on a three-year market boom where the S&P 500 doubled in value.

If the most knowledgeable person in the world about the U.S. economy could be so wrong, what are the chances that your broker or advisor has more reliable information? Yet, every day, millions of investors call their brokers and advisors and ask their advice about market timing, stock picking and mutual fund selection.

As Dr. Phil would say, How is that working for you?

Not very well.

One study found that market timers in stock mutual funds lost 3.29% per year on average.

If you are investing for retirement, relying on your broker or advisor for market timing advice is a really bad idea. It is unlikely that she knows more than Alan Greenspan.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Naked Truth Investing: Why yes, you do need another column about retirement

Dan Solin — 2008-04-10T16:30:00+00:00

Filed under: Extracurriculars, Retire, Saving

This is the first in a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Is there really a need for another financial column that answers your questions about retirement planning?

Here's the naked truth.

"Stock picking skill" is an oxymoron. A few people get lucky. Don't confuse luck with skill.

Market timing fares no better. One study looked at the results of twenty-five market timing newsletters over a 10-year period. Their average return significantly underperformed both the S&P 500 index and the Wilshire 5000 index.

Fund manager picking is also a negative sum game. Over an 11-year period, only 14% of the top fund managers in one year were able to repeat their performance in the following year.

If the "experts" can't pick stocks, time the markets or pick mutual funds that will beat the markets, why should you pay attention to them?

You shouldn't.

Focus on whether you should be exposed to any market risk. Many investors should invest only in FDIC insured Certificates of Deposit or Treasury Bills.

If you can tolerate market risk, you should determine your asset allocation -- the division of your portfolio between stocks, bonds and cash. Then you should limit your investments to a globally diversified portfolio of low cost index funds, passively managed funds or exchange-traded funds.

When it comes to investing for retirement, this can be very difficult to do. Retirement planning for most people is their 401(k) plan. These plans make a fatal assumption: Every employee is qualified to be her own Chief Financial Officer, even if she doesn't know the difference between a stock and a bond.

It gets worse.

Most 401(k) plans are loaded with Porky Pig fees and a bewildering selection of high expense ratio, under performing, actively managed funds, It is practically impossible for employees to make intelligent investment choices.

So, why a column that will give you the straight talk on retirement planning?

Because the naked truth is all that stands between retirement with dignity and being out in the cold.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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Mortgage Confidential: Should I pay off my mortgage or invest?

David Reed — 2008-04-09T18:30:00+00:00

Filed under: Ask WalletPop, Borrowing, Real Estate, Retire, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. Leave your questions in the comment section of this post.

Q: I am 54. I currently have a 15-yr mtg. 10 yrs left as of this month. Should I consider refinancing to a 30 yr and using the 700+- to invest else where? 5 yrs to have enough equity in house vs. vs 45k in cash to invest in 5 yrs-
thanks. -Steve

A: Two things I noticed: Your current note is five years old, meaning you obtained your current mortgage in 2003 when 15 year rates were in the 4's. Second, in ten years you'll be close to retirement age. Without knowing anything else about your financial picture and assuming you're going to retire in that house, I would hold off from refinancing into a 30 yr mortgage, you'll be paying on that note until you're 84.

If you continue to pay off your current note and retire mortgage free that's like giving yourself an automatic "raise" when you retire. Instead, consider an equity loan on your current property and invest that. That's my take.

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

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Charitable annuities: For that warm and fuzzy feeling in retirement

Josh Smith — 2008-04-08T17:30:00+00:00

Filed under: Budgets, Retire, Tax, Charity, Investing

For most people, the benefits received from a charitable donation are simply the "warm fuzzies" and a tax deduction. However if you happen to be sitting on some extra cash earning a paltry 3% in a CD then an annuity could net you an even greater return!

A charitable gift annuity is a vehicle for giving to charity which also provides income for life to the donor and their spouse based on a set rate tied to your age. While this may sound too good to be true, charitable gift annuities have been around for many years and are used by many respectable charities.

Charitable gift annuities can be set up with almost any charity and will provide payments back to the donor on either a quarterly, annual or semi-annual basis. These payments don't fluctuate with the market and will last your entire life, even if the return surpasses your original gift amount.

The rate for charitable gift annuities is set every year in July based on the discount rate and the longer you've been living the higher your interest rate is. Currently a 55-year old can earn 5.5% for life while an 85-year old can net a 9.5% return on the principle donation. These rates are based on a one-life annuity and will be slightly lower on a two life plan.On top of the return you receive from the annuity, there are numerous other benefits. An annuity provides several tax benefits including an initial deduction for the gift which sets up the annuity. Part of the income you receive each year will also be tax free, netting you even more cash for your retirement days.

Other benefits will vary between charities and on the amount of your gift and range from scholarship naming, donor recognition or a visit with the president.

The rates for charitable gift annuities will drop at the end of June by 8/10ths of a point thanks to Mr. Bernanke, so if you are interested in using one as a vehicle for retirement and charitable giving you should act soon. Many charities require a minimum gift to set up an annuity with an industry standard of $10,000, however other charities will go lower to $5,000.

A gift annuity is easy to set up and shouldn't cost you anything as the fees will be paid by the charity you set the gift up with. The rates are the same from charity to charity so the only reason you need to shop around is to find the charity which matches your interests and makes the best use of your dollars.

Several other charitable gifts can provide income or pass wealth on to your heirs including Charitable Remainder Annuity trusts (CRAT), Charitable Remainder Unitrusts (CRUT), and Lead Unitrusts. Each of these provides different benefits requiring higher contributions, lawyers and complexity. The additional benefits include a fixed dollar return(CRAT), a variable return tied to the performance of the trust (CRUT), and the ability to skip a generation and pass on wealth to your grandkids (Lead Unitrust).

So if you need to provide for yourself or you don't trust your children but still want to provide for your grandkids the best place to invest for retirement may be with your favorite charity.

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Good financial chicken soup - for newlyweds and long-marrieds alike

Michael Burnham — 2008-04-07T14:00:00+00:00

Filed under: Retire, Career, Relationships

MSNBC recently posted some good advice for engaged couples about transitioning to a new financial life together. It has good tips on how and when to initiate a discussion about money, on budgeting, understanding one another's spending and saving patterns, setting goals and on getting outside advice.

Long-married couples and partners can benefit from advanced versions of this kind of advice. Far too often, couples with even the most solid financial plans hit serious potholes when the main breadwinner(s) retires. To those accustomed to a healthy direct deposit landing in the bank account every two weeks or so, the transition from accumulation to depletion can be a tough (if for some, only psychological) pill to swallow.

Dealing with money as retirees is a whole new ballgame. Everything can come into play, from who keeps the checkbook, to how (and by whom) income will get generated, if need be. The net, unexpected effect of not acknowledging these changes, or of not addressing them, is serious friction -- a kind of pressure in direct odds with the automated relaxation response most expect when work ends, and a leading reason even some well-heeled retirees cite for having a less than fulfilling retirement.

Often, one half of a couple has taken primary responsibility for their investments and financial retirement planning. The move to retirement is a great opportunity to get the less knowledgeable partner more involved, for a raft of good reasons. First and foremost, to create or enhance understanding of the relationships among income, expenses and discretionary spending, and how they may change when the primary earner retires. For some, this will bring a sigh of relief, knowing that the life as they've pretty much known it will go on. For others, it may be a wake up call for modification.

The more knowledgeable partner needs to think about the best way to initiate this kind of talk. Whether it's in the kitchen over a cup of coffee, or at a longtime financial advisor's office, or in some other way, one needs to balance their ability to explain their finances with an understanding of how their partner processes information, and of the overall dynamic at work in their relationship every day. A good start: create a detailed, one-page listing of important assets including all financial accounts, and where to locate vital papers.

It's simply the responsible thing to do, too. No one wants to think about life without their partner. But the truly loving course of action is to empower the less financially involved team member with the information and understanding they need to live their best life if and when circumstances make them the survivor.

Like all retirement-related discussions, it is better to start sooner than later. Early boomer and near-boomer retirees cite financial strain as one of the chief reasons they are choosing to separate or divorce within a few years of retirement, and in alarming numbers. That's not the retirement we envisioned, or deserve.

Michael Burnham is CEO of My Next Phase, a consulting firm offering non-financial retirement planning products and services (www.mynextphase.com).

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Ask the Dolans: Can I write my will myself?

Ken and Daria Dolan — 2008-04-04T10:00:00+00:00

Filed under: Banks, Insurance, Retire, Saving, The Dolans

Ken and Daria Dolan, America's First Family of Personal Finance, answer your money questions every Friday.

Dear Ken and Daria ,

I want to bypass my husband in my will (with his permission!) to leave everything to my three children. Can I write a will myself? Can I change it?

Darlene

Ken and Daria Dolan offer advice on all of your estate planning questions and concerns at Dolans.com.

Click here to ask Ken and Daria your question.

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Beat the cost and limitations of obits

Tom Barlow — 2008-04-03T16:00:00+00:00

Filed under: Retire, Ripoffs and Scams, Saving, Technology

Writing yesterday about new options for the ashes of departed loved ones caused me to remember how shocked I was to learn of the cost to run an obituary in my hometown newspaper. I naively thought that these commemorations were news, covered by the paper as part of its service. Not so.

My local, the Columbus Dispatch, charges $5.73 per line per day, M-Sat, and $8.21 per line on Sunday. An additional $30 charge is added to each to extend the obit to the Internet, via the site Legacy.com. Legacy.com is a web site owned by a group of newspapers. A typical 50-line obit in the Dispatch running twice during the week would cost $603. A one-timer in the Sunday edition would set you back $440.50. This is typical of other papers, indexed against circulation.

One look at Legacy.com shows just how primitive the newspaper obit is, and why it won't last much longer. Online, the information can be accessed anywhere, any time, in perpetuity, and length is only a matter of electrons. More importantly, richer content, such as photos, movies, and recordings can be added to the memorial with a mouse click. This site also offers readers the opportunity to contribute their memories and tributes.

The only added-value feature newspaper obits can offer is lamination.

While Legacy.com is only available as a part of newspaper obits, there are other sites that offer similar services without this requirement. With the advent of Googlepages and Facebook, though, anyone with a modicum of design sense can put together a free tribute site with all the family links and rich content imaginable.

When I die, I've instructed my wife that my newspaper obit is to read "See TomBarlowisdead.com for details." That should fit on one line.

Addendum: In my research for this piece, I ran across an announcement for the 10th Great Obituary Writer's International Conference. If my career counselor had only told me about this...

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