Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Dr. Don's top 10 tips for the new year

1. Protect yourself from identity theft.
2. Review and refine your financial goals.
3. Put together a monthly spending plan.
4. Make an investment list, check it twice.
5. Rebalance your portfolio.
6. Fund retirement accounts earlier in the tax year.
7. Build a rainy-day fund.
8. Look at refinancing your mortgage -- again.
9. Know how your finance professional gets paid and what you're paying in fees.
10. Give of yourself. Literally.

Take some simple steps to protect yourself against identity theft.
There are no guarantees, but these steps will help protect you against identity theft. Even if you don't face much financial risk, and most readers won't, this is one area where an ounce of prevention is worth a pound of cure.

Opt out from receiving pre-approved credit card offers by calling (888) 567-8688. Choose between having your name removed from these lists for two years or permanently. I suggest permanently because you can always decide to call and reinstate your name.

This call removes your name from the prescreened lists maintained by the three national credit-reporting agencies and Innovis Data solutions. You'll still get offers from credit card companies that use other methods to obtain your name, but it will slow these offerings from a flood to a trickle. When you want to go shopping for a new credit card, use Bankrate's Credit Card Search feature.

Buy a shredder, and use it on trash that has personal information about you.

Don't leave letters with signed checks in your mailbox for the postman to pick up. Take them to a mailbox or a post office. Or, better yet, look into using an online bill paying system and skip the mail part of the equation altogether.

Review the information on your credit reports at least once every two years. Bankrate provides the contact information for all three consumer-reporting agencies.

I can't see paying the credit reporting agencies for a credit-monitoring service. Experian and Equifax allow you to request a 90-day security alert on your credit file for free. All three agencies offer free longer-term solutions intended for the victims of identity theft. This Bankrate feature has more information about protecting yourself against identity theft.

Review and refine your financial goals.
Two common goals are retirement and a college education for your children. Changes in the tax code last year make it easier to invest more in tax-advantaged accounts for both of these goals, but wishing won't make it so. Compare what you have invested in these accounts to what you'll need when it comes time to spend the account balances.

The college savings calculator at Savingforcollege.com will let you see if you're on track with junior's college fund, including current tuition rates at most public and private U.S. universities.

The retirement calculator at US News can walk you through your retirement needs. You're likely to be more discouraged by the results from this calculator than the college savings calculator. Don't throw up your hands in despair. Take it as a wake-up call that you have to get serious about investing for your future. Then talk to the folks down at HR to see what your firm is doing to help you finance your retirement.

A recently released AARP survey showed that 21 percent of Americans aged 50 to 70 that have lost money in the stock market over the past two years and not yet retired have postponed retirement because of those losses. Ten percent of retirees with stock market losses are back in the workforce because of those losses.

Put together a monthly spending plan.
Don't call it a budget; call it a monthly spending plan. People hate to diet and they hate to budget. Maybe if we call it a monthly eating plan, changing how we eat won't seem so bad either.

A monthly spending plan lets you see what demands for cash you'll have during the month. The best first step toward investing for the future is to start living within your means, and a monthly spending plan will help you do that.

Review your expenses to see if you can reduce your monthly nut. For example, staying connected in today's world is expensive, but there are ways to economize. Review your cellular plan, your landlines and your cable bills to see if there are places where you can save money.

Pay yourself first by setting up automatic contributions to your retirement accounts, college savings plans or investment accounts. Include any planned charitable contributions as part of your monthly spending plan, too.

Investment returns over time help you reach your financial goals, but adding principal to these accounts on occasion really increases the odds that you'll reach your financial goals.

Financial software like Microsoft Money or Quicken is inexpensive and widely available. Using these packages in conjunction with your financial institution's online banking will bring you into this millennium with a vengeance and make balancing your accounts a snap.

Make an investment list, check it twice.
Do you maintain a list of all of your investments, life insurance policies, will, living will, etc., in a place where a friend or family member could readily access the information if they needed to?

I think most of us don't like to dwell on our mortality, so we ignore the problems our loved ones will face trying to piece together this financial puzzle. Making a list isn't that hard to do, so get it done. Don't have a will? It's time to make one. This Bankrate feature can help.

Rebalance your portfolio.
Your investments are likely to be split between stocks, bonds, cash (money market) and real estate. Take a look at how your wealth is allocated to these asset classes. A diversified portfolio will have some exposure to all these asset classes.

Remember that it's all your money. If you've got a rainy-day fund sitting in cash and a retirement account that's completely invested in stocks, what really matters isn't the account allocation but your overall asset allocation. It's hard to find an asset allocation calculator that includes real estate, so you'll need to decide what percentage of your wealth you want to invest in real estate and then divide the balance up between stocks, bonds and cash.

Don't abandon the stock market completely just because it's had three losing years in a row. We're at or near the end of a Fed easing cycle so the bull market in bonds should be at the end of its run. Money market rates are so low that some money market mutual funds net of fees are near 0 percent returns.

And real estate isn't the easy choice to replace stocks in your portfolio. People typically have more money invested in their homes than all their other investments combined. Diversification across asset classes will reduce the volatility of your portfolio's returns.

Take a look at municipal bonds as an investment for your taxable investment accounts. Munis haven't fully participated in the bond market rally and you may, depending on your marginal tax rate and your state's tax code, be able to find low risk municipal investments with tax equivalent yields three-quarters of a percent to 3 percent over comparable U.S. Treasury yields.

The composite bond yields on Bondsonline show how munis stack up against treasuries for investors in high federal income tax brackets. (Talk to your tax professional before investing in municipal bonds.)

Fund retirement accounts earlier in the tax year.
Don't wait until the end of the year to fund your IRA, Roth IRA or other tax-advantaged account. If you wait until April 15 of the following year, you've given up more than a year's worth of investment returns. For a $3,000 investment earning 8 percent that equates to $300 in investment earnings that you're leaving on the table by investing in April 2003 vs. January 2002. See IRS Publication 590 for more details on investing in individual retirement arrangements.

Build a rainy-day fund
Financial experts typically advise that you have three to six months of living expenses set aside in liquid investments. That's sound advice. The problem with the advice is that ideally you won't need to touch this money, so sentencing it to low money market returns over the years just doesn't make sense.

Consider using CDs or savings bonds as a place to invest your emergency funds. While you'll face penalties for early withdrawal with both types of investments, you're not risking principal, just reducing return.

Savings bonds can't be redeemed in the first six months after purchase, so you would want to stage these investments so you have at least part of the fund available to you while the savings bond purchases age past six months.

If you later use the savings bonds for your children's education, the Savings Bonds in Education program allows redemptions used to pay eligible college expenses to be tax-free.

This Bankrate feature has more on investing emergency fund money in CDs, while the Bureau of Public Debt's Web site provides information about the restrictions on redemption of savings bonds and the Savings Bonds for Education program. Look at the Series I bonds as a way of keeping pace with inflation.

Everyone recognizes that living paycheck-to-paycheck is the wrong way to run a household. Well, it's just as problematic not to have a little money held in reserve. Regardless of how you choose to invest this money, make it a goal this year to start an emergency fund.

Look at refinancing your mortgage -- again
Mortgage rates are bouncing around at the lowest rates that we've seen for decades. If you haven't already refinanced your home then you should consider it. It's easy to figure out if refinancing makes sense by shopping rates in your market and then using that rate in Bankrate's Refinancing Calculator to figure out how many months it will take to break even. Bankrate's new mortgage decision tools will help you decide how to structure your next mortgage.

Keep in mind that refinancing doesn't always make sense. If you don't plan on being in the house for long or your current rate is low enough that the expected break even on a new loan would be years away, then just say no to refinancing.

Know how your finance professional gets paid, and know what you're paying in annual fees or expenses on your investments.
Don't get me wrong, I'm all for finance professionals getting paid. A fee-only financial planner, for example, will charge you directly for the service provided. If you buy mutual funds with sales loads you're paying the finance professional by commission. If you buy stocks, you're also paying by commission. With bonds the commission is built in to the price of the bond, except for new issues where the issuer pays the sales commissions.

Financial advisers are by some means being paid for the service they provide to you, and you knowing how they get paid helps you to make better financial decisions.

Are your mutual fund fees in line for the type of fund you're investing in? The salesperson's argument that you pay higher fees to have your money managed by better mutual fund managers just doesn't hold water. There are great mutual fund managers out there working for funds with low annual expense ratios. (They make it up on volume.)

Annual expenses create a drag on portfolio returns. When the stock market was providing blistering returns during the '90s investors didn't quibble over high annual expense ratios. Low yields in money market investments and bonds, along with the negative returns in the stock market, drive home the point that high fees slow portfolio returns.

Give of yourself. Literally.
I've always had some reservations about being an organ donor. After reading Anna Quindlen's piece in Newsweek on the topic, I changed my mind and am becoming an organ donor. I also fell out of the habit of regularly donating blood, and I'm going to make it a habit again.

Too squeamish for those ideas? Give of your time instead to one of dozens of volunteer organizations in your neighborhood that need your help. Everybody wants to live in a great neighborhood. Build some momentum in your neighborhood by being a great neighbor.

-- Posted: Dec. 27, 2002