TheState.com: Stretching Your Paycheck: Investing

Know options before hiring adviser

Wed, 07 Jan 2009 12:10 EST

Before the turbulent economy sends you running into the arms of a financial adviser, make sure you know all your options.

In addition to the various types of financial advice on the market, there are myriad ways advisers get paid for their services. Among them: commissions, hourly or flat rates for one-time help, asset-based fees for ongoing money management, or some combination thereof.

As you start your search, re-member that �financial adviser� is a catchall term and doesn�t mean that the person has obtained any specific training. You�ll want to understand the different professional designations you may en-counter and be mindful of potential fee structures.

FREE SERVICES: Many financial advisers, whether they work for a large brokerage or operate independently, offer free initial consultations that usually last about a half hour or more. But don�t expect to walk out with a detailed list of ideal investments. What the meeting should give you is a sense of how your adviser plans to approach your portfolio. One way to guide the discussion might be to ask what issues he or she thinks need to be addressed most urgently.

FEES VS. COMMISSIONS: Some advisers work on a �fee-only� basis, meaning they charge a predetermined amount for their services. Others, however, may also earn a commission from a third-party for selling financial products. If you�re going to a stock broker, for instance, the prospect of earning a commission may influence him to suggest a particular mutual fund or an annuity, said Samantha Macchia, a principal of Summit Financial Strategies Inc. Financial advisers are required to disclose whether they get any outside money from third parties.

You can extend FDIC insurance past first $100,000

Wed, 07 Jan 2009 12:10 EST

OK, more likely than not, you don't need easy access to $50 mil-lion in FDIC insurance.

But some banks are promoting a one-stop banking solution for small-business owners, nonprofit organizations, retirees and others who demand FDIC insurance when they invest huge sums in certificates of deposits.

Michigan-based Flagstar Bank is running ads: "Have it all. One bank. One rate. One statement. And access to $50 million in FDIC insurance for your CDs."

After federal regulators seized California-based IndyMac Bank in July, retirees and other savers with serious money are increasingly concerned about the safety of their savings above $100,000.

"We're not really seeing customers concerned about Flagstar Bank, but they are concerned about other relationships," said Trenton Hancock, Flagstar assistant vice president and product manager for retail banking.

Banks expected to raise customer fees after mergers

Wed, 07 Jan 2009 12:10 EST

If your bank is buying the competition or selling out to them, you may want to add the words �higher� and �fees� to your banking vocabulary.

Financial institutions will likely �use this as an opportunity to raise everybody�s fees,� said Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group. �This wave of mergers will result in bigger banks, and all our studies have shown that bigger banks have bigger fees.� In September, Charlotte-based Wachovia � South Carolina�s largest based on deposits � was bought by Citigroup in a deal brokered by federal regulators.

While such fees can range from charges for replacing a lost ATM card to returning your paper checks, one big one to watch out for, said experts, is fees levied against your account when you bounce a check or when the bank covers overdrafts � purchases, withdrawals or payments you make with not enough money in your account to cover them.

Consumers pay at least $17.5 billion a year in such overdraft fees, said Jean Ann Fox, director of financial services for the Consumer Federation of America, which is �big money� and the amount of those fees has been �steadily increasing.� The average high is $37.50, up 15 percent from 2005, according to a federation survey of overdraft fees and practices.

What she said consumers should also know:

Understanding annuities for retirement

Wed, 07 Jan 2009 12:10 EST

Looking for a relatively safe tax-deferred or tax-free retirement saving plan? An annuity offers one possible option.

An annuity is a long-term retirement contract between an individual and an issuer, namely an insurance company.

A person contributes to a fund over time, which the issuer later provides back to the individuals in payments during retirement years.

The decision to establish an annuity and which type to go with requires careful consideration. If you�re interested in this retirement income vehicle, you might want to visit one of these sites to learn about the pros and cons of different annuities:

AARP (www.aarp.org/money/financial�planning/sessionsix/variable�annuities.html): Examines annuity types, and benefits and risks involved with a variable annuity.

Guidelines to navigating mutal funds

Wed, 07 Jan 2009 12:10 EST

If you�re in the market for a mutual fund, you�ll want to make sure to pick the right one.

There are hundreds of funds to choose from. So how should you go about investing in the right one? Here are some guidelines from Daniel Jimenez of Bankrate.com that you�d be wise to follow:

Set long-term goals

It�s important to know what your timeline is. If you don�t need the money for 20 years, you can af-ford to be more aggressive in your fund choice. You could potentially invest in a riskier sector like emerging markets. A shorter time horizon means you�ll want to stick with a more conservative fund.

Look for a well-managed fund

Understanding your pension fund

Wed, 07 Jan 2009 12:10 EST

It seems that fewer and fewer businesses offer a company-sponsored pension fund for their employees these days.

Yet, for those that still do, the news is a bit brighter for workers. Under the Protection Act of 2006, employers that offer pensions must fully fund a company�s plans.

If you�d like to learn about pensions, how they work, and even how to track down an unclaimed pension several Web sites offer a wide range of information.

Here are a few good places.

Investopedia: www.investopedia.com/articles/retirement/07/how � pensions � work.asp Article that breaks down how pensions work, and employee and company perspectives on pensions.

Navigating markets mined with pitfalls

Wed, 07 Jan 2009 12:10 EST

A week was all it took for one of Wall Street's most sophisticated risk managers to see its market value go from $8.2 billion to a tiny fraction of that.

If you're an individual investor trying to hang on to your portfolio, the sudden collapse of Bear Stearns Cos. was a chilling moment. But even in the scariest of markets, there are things you can do to find both safety and value for your investments.

No one knows how bad things will get as the credit crunch widens. Other investment banks now face scrutiny, and the economy is widely believed to be heading into recession � if it isn't in one already. Throw in roughly $106-a-barrel oil and a sinking dollar, and it's not a pretty picture.

The Dow Jones Industrial Average is down 9.9 percent so far this year. Rates on 10-year Treasury notes, meanwhile, sank to just 3.31 percent Monday from 3.42 percent Friday as investors sought the safety of government bonds.

Panic isn't a smart option in a financial crisis. But what options exist? Where can an investor go to find opportunities, to find yield, or simply to find safety in unsure times?

Best retirement strategy? Save, save, save

Wed, 07 Jan 2009 12:10 EST

When you envision your retirement, do you dream of playing golf and catching up on missed time with friends, or starting a new career?

A recent AARP survey found that 57 percent of American adults may have to keep dream-ing, because they have less than $25,000 in savings, are ill-prepared for retirement and have a false sense of security about their financial futures.

�Most people make a financial plan once, but then the kids come, and the house, and college,� says Carolina Lazzari, a certified financial planner at Commonwealth Financial Network in Schenectady, N.Y. �The plan goes out the window, and they forget about it.�

If your financial plans have fallen by the wayside, or you're worried your current financial strategy might not meet your goals, there's still time to fix it. We asked financial experts how to start a strategy � or jump-start an old one. Here are some tips that are compiled from interviews with Terry Jandreau of A.G. Edwards and Son in Albany, N.Y.; Leonard Valetta, Albany Financial Group; Bradley Konopaske and Paul Paska, Empire Asset Management, Albany; and Caro-lina Lazzari, CommonWealth Financial Network, Schenectady:

-- Set goals: The balancing act required by families who have the difficult task of juggling mortgages, car loans and other bills while saving for college expenses and retirement could make an acrobat dizzy.

Younger investors: A time to take risks?

Wed, 07 Jan 2009 12:10 EST

When investor Joe Cohen checked his portfolio on-line last week, he thought there was a typo: Down 10 percent to 15 percent since the last time he checked � what happened?

Now Cohen, who considers himself an aggressive investor, is trying to figure out an investment strategy that might take him safely through the current market turbulence, perhaps a somewhat more defensive stance. Still, he's leaning toward equities because unlike many investors, Cohen's got plenty of time: He's only 27.

"When the market goes down 10 percent, it's a percentage, it's abstract," says Cohen, who led a real-estate investment company in Florida before starting as a student at Harvard Business School. But he said it's different when 10 percent of your money is gone: "That's more money than some of the jobs I'm looking at are offering."

When the stock market careens, investors approaching retirement fret about the declining value of their portfolios, which often become their primary source of income when they're no longer earning a salary. But despite having decades to work and watch their investments grow, investors in their 20s, 30s and 40s also sit up and wonder whether to adjust their financial holdings.

Young investors can afford to take risks with money they won't touch for years. Market declines can present opportunities, such as buying stock at cheaper prices � a move financial advisers are encouraging. But every investor has his own risk tolerance and not all young investors want to ramp up their exposure to equities and other volatile asset classes. Even investors who describe themselves as aggressive or don't plan to touch their investments for years can feel woozy when they lose money.

5 ways to stay focused while the market see-saws

Wed, 07 Jan 2009 12:10 EST

Calling all smart, long-term investors: It's time for a refresher course in stock market history.

Stocks go up. Stocks go down. But over time, stocks go up a lot more than they go down.

Sound too simple? Well, yes, that is the simplified version. But it's accurate. That's how it's been for decades, and that's how financial advisers expect the market to work for decades more to come.

Here are five things you can do to make sure you and your portfolio stay smart.

1. DON'T BE RASH

Wachovia offers new savings incentive

Wed, 07 Jan 2009 12:10 EST

With the nation's personal savings rate in negative territory and banks on the hunt for low-cost deposits, Wachovia Corp. has introduced a way for customers to save a little money every time they spend a little money.

And the nation's fourth-largest bank will reward them up to $300 a year to do so.

The special savings account, called Way2Save, is similar to a program offered by rival Bank of America Corp.

For customers who enroll, Wachovia will transfer $1 from a customer's checking account into the Way2Save savings account each time that customer makes a purchase with their check card or makes an online payment.

Wachovia will also contribute a 5 percent annual bonus in the first year the account is open and a 2 percent annual bonus in each of the next two years, up to $300 each year.

How IRAs can ease the bite of taxes

Wed, 07 Jan 2009 12:10 EST

Q. I'm in my 40s and work for a company that went private last year. I had been buying stock in the company, and because of the deal, I ended up with a lot of cash. I'm worried about what this will do to my taxes. Is there anything I can do about it? I have been saving for retirement, but with a re-cession, I wonder if it would be dangerous to invest the cash I have now. Should I just spend it?

A. There isn't much you can do now to reduce taxes, because the 2007 tax year has ended. Before the end of the year, you might have been able to sell a mu-tual fund or other investment that had declined in value. Then you would have been able to offset at least some of the gain on the stock with the loss on the other investment.

Perhaps you already did sell something at a loss. If so, that would cut the taxes you owe on the stock. The one tool you have left to reduce your overall taxes would be to open a tax-deductible individual retirement account, or IRA, for the 2007 tax year. You can do this at a mutual fund company, broker or bank and deposit up to $4,000 by April 15 (the day taxes are due). If you have a spouse, he or she might be able to open an IRA with another $4,000 by April 15. Together, you might be able to deduct $8,000.

You have to have income from a job to do this. Depending on your gain on the stock, opening an IRA might not do much to help your overall tax bill. But you can see the effect by running the online �tax estimator� at turbotax.intuit.com//tax-tools. Not everyone is entitled to take a tax deduction for an IRA. There are income limits and rules that can stand in the way if you or your spouse have a pension or retirement savings plan � such as a 401(k) � at work.

If you have such a plan at work, your adjusted gross income must be no higher than $62,000 if you are single or $103,000 if married for 2007. In 2008, the limits are $63,000 and $105,000. If you don't have a pension or retirement plan at work, you can plunge into an IRA without concern about your income. But there are rules that apply to couples, so check them and income limits at IRS.gov, in Publication 590.

CD rates fall after Fed cuts

Wed, 07 Jan 2009 12:10 EST

The days of 5 percent yields on three-year bank certificates of deposit rates appear to be over for now.

That's disappointing news for consumers who like the insured safety of CDs and can afford to lock up part of their savings that long. The decline isn't unex-pected, however, in the aftermath of a series of interest rate cuts by the Federal Reserve late last year.

Still, CD rates aren't dropping as quickly as the Fed has trimmed rates. In three rate cuts since September, the Fed has sliced a total of 1 percent. CD rates are down only a half-percent or so, said Greg McBride, senior financial analyst for Bankrate.com.

�CD rates have fallen like a feather rather than dropping like a rock,� McBride said.

The reason for the slower downward path of CD rates? In a word, competition.