Issue date: December 10, 2000

10 Sure-fire Money moves to make now

Market jitters? year-end angst? Let USA WEEKEND's Finance Expert jean Sherman Chatzky help you maximize your assets with these up-to-the-minute tips.

IT HAD TO HAPPEN. After five years of gains of more than 20% in the S&P 500 (including some whopper years like 38% in '95 and 33% in '97), you're not sure to get a double-digit gain in your portfolio under this year's tree.

What does that mean for America's 76 million investors? Certainly not that you should shy away from the markets. It means that now is a good time to be certain you're making the most of your money. That was a lesson hammered home to me as I researched my book, Talking Money: Everything You Need to Know About Your Finances and Your Future (Warner, $24.95), out next month. I learned profits aren't the only thing that counts. Here are 10 other aspects of your financial life to consider now:

Safety comes first. Harold Evensky of Coral Gables, Fla., is one of the country's most well-respected financial advisers. So you might expect him to spout advice on which investments to turn to in such volatile times. Nope. Safety was his first thought. "It doesn't matter if you manage to earn an extra percent or two on your investments," he says. "If you have a vacation cottage in North Carolina and someone slips and breaks their neck, it can wipe you out completely. Likewise, if you don't have flood insurance or if your home isn't insured to 80% of its value." Evensky is talking about property casualty coverages: homeowners insurance, renters insurance, auto insurance and umbrella liability. The first step is to get fully covered. The next, not to overpay. So look closely at your deductibles. Increasing them to $500 or $1,000 can slash your premiums by 20%.

Safety also comes second. In addition to protecting your property, protect yourself. That means getting personal insurance policies: life and disability. It's not enough to simply have insurance, you need the right policies. "That's the single most important thing in financial planning," says Evensky. "Unfortunately, it's something few people ever do." So grab a piece of paper and figure out how much you or your family would need to live on if you died or were disabled. Include the cost of paying off the mortgage or college tuition if that's important to you. (If you're single with no dependents, focus on disability; unless you've got large debts, you don't need life insurance.) Most insurance agents can help you run these calculations. Be sure to get enough. For most people, that means buy cheaper term coverage rather than pricey whole life. But for people who feel they'll always want to have some life insurance, whole should be a part of the package.

Protect your family in other ways. Once you ensure that your family would have enough to live on if something happened to you, then make certain that money gets into the proper hands. You can do that in four steps. First, get a will: If you have children, it should name guardians to take care of them if you can't. Second, grant someone durable power of attorney for finances, giving he or she the ability to write your checks, trade your stocks and handle your other money matters. Third, make a living will, which tells a doctor or hospital whether or not you want life support. And finally, set up a durable power of attorney for health care, granting someone the right to make your medical decisions if you're incapacitated. You can get these from your attorney, or do them yourself using software (check out nolo.com). The latter two are also bundled in an easy-to-understand booklet, "The Five Wishes" living will at www.agingwithdignity.org for $5.

Share those thoughts with your parents (and your kids). The decisions you made in order to protect your family aren't ones you ought to keep to yourself. Notes Fairfax, Va., financial planner Ric Edelman, author of The Truth About Money (HarperCollins, $25): "Most financially successful families share information about how much they have, where it's invested, who the heirs are, even how much they earn and how much they spend." That isn't always easy, particularly for Depression babies who were raised in an era when money was never discussed. "But they have to get past that," Edelman stresses. "And the sooner, the better." One suggestion: If you can't get your parents to share their financial details with you, share yours first. Often that will open the floodgates. If not, bring in a compassionate financial planner or therapist who specializes in money issues to facilitate.

Take advantage of your losses. If you have investment losses this year, use them to cut your taxes. You can use investment losses to offset capital gains in an unlimited amount, dollar for dollar. If you don't have capital gains to offset, you can write off a maximum $3,000 loss this year and carry forward the rest for future tax years. What if you're still high on a particular investment even though it's lost money for you? "Sell it and replace it with something similar," Edelman advises. "That will enable you to take the loss, but preserve your portfolio strategy."

Maximize your other tax opportunities. There are other ways to lower your 2000 tax bill -- but note, you need to act before Dec. 31. Among the options to consider: Make your January mortgage payment in December and deduct the mortgage interest this year. Defer some income. If you're expecting a year-end bonus, ask your employer to put off writing the check until January so it doesn't count toward this year's pay. Finally, don't forget to use up the money you set aside in your flexible spending accounts for health and child care. No pending bills? It's time to buy those new glasses you've been eyeing, get your teeth whitened or make a deposit on day camp for summer 2001.

Sit back and ponder your portfolio. Take time to figure out where your money is, then compare that to where it should be. "Ask most people about asset allocation and they say, 'I don't know, I don't think I have one,' " says Evensky. Figure out what mix of stocks, bonds and cash investments is most appropriate for your age and for the amount of risk you're comfortable taking. Plenty of Web sites will help you run these calculations (just about every financial site has an asset allocator). If you're at a loss, use Evensky's default: 60% stocks, 40% bonds. How does he arrive at those numbers? First, he says, that's where most pension plans end up. Second, studies that look at how to make a portfolio last the longest number of years often end up with those numbers as well.

Shuffle around your savings. Are you losing money by saving it? A new study from the Consumer Federation of America says maybe so. The CFA has figured that consumers could earn an extra $30-$50 billion each year by moving the $1 trillion they now have in low-yielding savings accounts into higher rate, but still safe, savings vehicles. Even if you only sock away $100 a month, moving your money from a 2% passbook savings account to a certificate of deposit or money market account or money market fund paying triple the interest could result in an extra $100,000 over a lifetime of saving. To find the best rates on CDs and money market accounts, check out the Web site of the Bank Rate Monitor at bankrate.com. For the best money market fund rates, go to imoneynet.com.

Max out your retirement accounts. My dad (like yours, probably) loves to say, "There's no free lunch." He's right, with this exception: retirement account matching dollars. If your employer is willing to match the money you pour into a 401(k), 403(b) or other retirement plan, you're turning your back on a very good thing if you don't take advantage. Even if you don't get matching dollars, it makes good financial sense to take advantage of any government-sanctioned opportunities for money to grow tax-deferred until withdrawal (or in the case of the Roth IRA, tax-free). That means putting the limit into IRAs, Roth IRAs (where, in fact, the money is taxed before you put it in, not upon withdrawal), and for the self-employed SEPs, Keoghs and SIMPLEs. If each year around this time you're wondering where you'll come up with the money, sign up for an automatic investment plan. Next year, you'll be set.

Stick with your program. If this year in the stock market has taught us anything, it's to listen to history. For years, the pundits have been telling us it's impossible for the markets to consistently return 20%, even 30% a year. Through the Net stock run-up, many of us didn't believe them. Now that stocks have fallen to earth, we can see they're right. That's why Edelman is telling his clients not to stretch for such incredible returns. Instead, target a consistent return of 10% or 12%. Then go about trying to make that happen. "The biggest mistake we're seeing people make is that they're changing their strategy because of what's happening in the market right now. They're selling stocks and moving money to cash and treasuries. They're buying Internet stocks low, on the mistaken belief that they're going to return to their mysterious highs." Don't make investment decisions based on what's happening in the+ marketplace now; make them based on your goals. How much money do you need your portfolio to return and when? Then stick with your program.

Contributing Editor Jean Sherman Chatzky is an editor at large for Money magazine.

Photo by Brad Trent