||Ask Dr. Don
Dr. Don's top 10 tips for the
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
6. Fund retirement
accounts earlier in the tax year.
7. Build a rainy-day
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.
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.
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.
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.
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.
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
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
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.
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
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
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.
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.)
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
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.
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
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
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.
I've always had some reservations about being an organ donor. After
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