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WE PICK THE BEST BANKS
PERSONAL
FINANCE
Where
to Invest
Now
p 26
Sebastien Page,
of T. Rowe Price,
offers his take on
where to invest
when everything is
expensive. p 50
➛
p 46
n
n
n
n
Stocks to buy
Bonds: Sit tight
Europe rebounds
Why the high-priced
stock market hangs
tough
PLUS
If you get bumped p 42
The joy of decluttering p 36
Stress-busting
vacations p 62
JULY 2017
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-Owen D., Brooklyn, NY
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D R I V I NG MATTER S
®
CONTENTS
KIPLINGER’S PERSONAL FINANCE
FOUNDED 1947
VOL. 71 NO. 7
■ MYRNA OLIVER IS
GLAD SHE BEGAN HER
EARLY RETIREMENT
DEBT-FREE (PAGE 72).
41 TECH The lure of virtual reality, by KAITLIN
PITSKER.
13
TOPIC A: Hide your browsing habits from nosy
ISPs . . . Pay by the month to enjoy high-end items
. . . Knight Kiplinger on money and ethics.
18
OPENING SHOT Investments you can live
without, by JAMES K. GLASSMAN.
22 SUCCESS STORY Get the scoop in
Seattle, by PATRICIA MERTZ ESSWEIN.
24
MONEY SMART WOMEN Charitable giving
may be in your genes, by JANET BODNAR.
43
ASK KIM When you crash a rental car,
by KIMBERLY LANKFORD.
42 MORE ABOUT MONEY Your rights if an
airline bumps you (42). How to navigate four
sticky travel situations (44). Nanny-tax rules (44).
Tips for bank online bill-paying (45).
| INVESTING |
62 STRESS-BUSTING VACATIONS Wellness
retreats let you use diet, exercise and meditation
to improve your mental and physical well-being.
68 MORE ABOUT HEALTHY LIVING Kaiser
Health News (68). From the Experts (71).
WHERE TO INVEST NOW Returns have
blown past our January predictions. But a slowdown may be coming, and savvy investors should
stay nimble and be willing to venture overseas.
| IN EVERY ISSUE |
54 INVESTING WITH A CONSCIENCE The
8 FROM THE EDITOR We pick the best banks.
Parnassus funds produce dazzling results while
promoting a socially conscious agenda.
10 LETTERS Car insurance caveat.
26
THE BEST BANK FOR YOU We picked
banks and credit unions that are making all the
right moves to win satisfied customers.
| HEALTH Y LIVING |
70 TO YOUR HEALTH A genetic test to spot
health risks, by NELLIE S. HUANG.
46
| MONE Y |
58 MORE ABOUT INVESTING New fund share
classes (58). News of the Kiplinger 25 (59).
The Costco advantage (60). Fund rankings (61).
36
DOWNSIZE YOUR STUFF If the goal is to
lighten up, you may need help deciding what
to toss—or sell or donate.
53 INVESTING FOR INCOME When everything
is working, sit tight, by JEFFREY R. KOSNETT.
72
40 GAME PLAN Can I count a second home
as a residence for tax purposes?
57 PRACTICAL INVESTING How one bad year
can wreck results, by KATHY KRISTOF.
ON THE COVER: Photograph by Poon WatcharaAmphaiwan. Grooming by Susan Heydt
2
KIPLINGER’S PERSONAL FINANCE
07/2017
THEN AND NOW Thriving after an early
retirement.
MELISSA VALLADARES
| AHEAD |
T. Rowe Price
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selected and managed.
• 75 years of investment experience
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• Automatic portfolio rebalancing
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Experts on your side. So you can take care of what matters most.
Get started now: troweprice.com/activeplus
Investments in the T. Rowe Price ActivePlus Portfolios are subject to the risks associated with investing in mutual funds,
which may result in loss of principal. T. Rowe Price does not guarantee the results of our investment management, or that
the objectives of the funds or the portfolios will be met.
The T. Rowe Price® ActivePlus Portfolios is a discretionary investment management program provided by T. Rowe Price
Advisory Services, Inc., a registered investment adviser under the Investment Advisers Act of 1940. Brokerage services
are provided by T. Rowe Price Investment Services, Inc., member FINRA/SIPC. Brokerage accounts are carried by
Pershing LLC, a BNY Mellon Company, member NYSE/FINRA/SIPC. T. Rowe Price Advisory Services, Inc., and T. Rowe
Price Investment Services, Inc., are affiliated companies.
KIPLINGER.COM
LOG ON & EXPLORE
FEATURED
HOW DO YOU RANK AS
A TAXPAYER?
Our updated calculator, using the latest IRS
data, reveals how your income and tax burden
stack up with those of your fellow Americans.
Know where you stand.
kiplinger.com/links/rank
ALWAYS ON KIPLINGER.COM
KIPLINGER’S ECONOMIC OUTLOOK
Stay ahead with exclusive forecasts to guide
your portfolio and business.
• Business spending • Trade deficit
• Interest rates
• Inflation
• Energy
• Retail sales
• Housing
• GDP
kiplinger.com/outlooks
| QUIZ YOURSELF |
| INTERAC T |
TOP STOCK PICKS FROM BIG
INVESTORS Daren Fonda shares
the best ideas for your portfolio
from the annual Sohn Investment
Conference.
HOW SOLID IS YOUR ESTATE PLAN? Take our
new quiz to see how much you really know about
protecting and sharing your assets with your
heirs.
kiplinger.com/links/estateplanning
kiplinger.com/links/sohn
DAREN FONDA @Kiplinger
MOST POPULAR
SOCIAL SECURITY CONTENT
ON KIPLINGER.COM
| TOOL |
CUT YOUR INCOME, FUND A ROTH
Kim Lankford offers seven ways
to reduce your modified adjusted
gross income to be eligible to contribute to a Roth IRA.
kiplinger.com/links/roth
CALCULATE YOUR RISK OF AN IRS AUDIT
Your worries about filing your tax return on time
have been replaced by worries about an audit.
Answer two simple questions to determine your
odds of hearing from the IRS.
kiplinger.com/tools/audit
KIM LANKFORD @Kiplinger
GET KIPLINGER’S FRESHEST MONEY-MAKING
and money-saving advice in your in-box every
weekday—free! Sign up for our Kiplinger Today
e-newsletter at kiplinger.com/links/ktoday.
FACEBOOK: KiplingerPersonalFinance
TWITTER: @Kiplinger
| ONLINE STORE |
RETIREMENT PLANNING GUIDE 2017
Our experts show you how to make the most of
your 401(k), get the biggest benefit from Social
Security, save on health care, build a secure
retirement and more.
kiplinger.com/go/retire
HOW TO REACH US: Subscriptions. For inquiries about ordering, billing or renewing a subscription, or to report address changes, please
have your mailing label handy to reference your account number and visit us online at kiplinger.com/customer-service or call 800-5440155, Monday through Friday between 7 A.M. and midnight, Saturday between 8:30 A.M. and 7 P.M., and Sunday between 10:30 A.M. and 7 P.M.
You can also write to Kiplinger’s Personal Finance, P.O. Box 62300, Tampa, FL 33662, or e-mail us (personalfinance@customersvc.com).
Reprints. PARS International Corp. (212-221-9595, ext. 237; e-mail, jennifer.eclipse@parsintl.com). Content licensing. E-mail licensing@
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may be of interest to you. If you would rather not receive such solicitations, send your mailing label to P.O. Box 62300, Tampa, FL 33662
and instruct us to exclude your name.
1. Quiz: Test Your Social Security IQ
kiplinger.com/links/ssquiz
2. 10 Things to Know About Social Security
kiplinger.com/links/socialsecurity
3. Why Your Social Security Benefits May
Be Smaller Than You Expect
kiplinger.com/links/smaller
4. How to Limit Taxes on Social Security
kiplinger.com/links/sstax
5. 5 Keys to Your Social Security Benefits
kiplinger.com/links/keys
4
KIPLINGER’S PERSONAL FINANCE
07/2017
SOURCE: BASED ON TRAFFIC ON KIPLINGER.COM,
1/1/17 – 4/30/17
CLOCKWISE FROM TOP: ISTOCKPHOTO.COM (2), LISE METZGER (2)
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MAG17
UP FRONT
Janet Bodnar
FROM THE EDITOR
We Pick the Best Banks
8
KIPLINGER’S PERSONAL FINANCE
07/2017
for outstanding special services, such
as access to a financial adviser plus
wealth seminars and other private
events. Thanks to his years of experience in the business, company president Mike Moebs was able to add
personal observations of his own.
A former Navy pilot, Moebs still
makes it a point to stay in touch with
service members and ask them about
their banking habits. One insight:
They often prefer to use prepaid cards
because they move around frequently
and aren’t tied to one bank.
Size matters. Because of the sheer num-
ber of financial institutions in the U.S.—
nearly 12,000—we weren’t able to rank
every one. Moebs divided the country
into four regions; a national bank was
defined as one that had at least 15% of
its deposits in a second region beyond
its core location and had more than
$25 billion in assets. We counted
a total of 18 national banks overall.
Regional banks needed to have more
than $10 billion in assets, and there
were 35 of those. We also ranked 22
credit unions with nationwide access.
By definition, this eliminated small
community banks and credit unions
with limited affiliated membership.
It’s likely that those small institutions
offer far less in the way of technology
and online access, but they can often
make up for it in personal service.
“They tend to be the kind of bank that
will go less by the numbers or credit
score if you’re applying for a loan or a
mortgage,” says Mark. “Chances are
they work with someone from your
Technology isn’t
the whole story.
Branches still matter.
family or know you from Kiwanis.”
In fact, although a bank’s ability
to harness technology figured in our
rankings, that’s not the whole story.
As the authors write, “Branches, and
the personal touch, still matter. Overall satisfaction among customers who
visited a bank branch is higher than
for those who did all their banking
digitally, according to a recent J.D.
Power survey. That’s why we gave
extra weight to banks with a higher
number of branches when we picked
the best institutions for our high-networth and retiree profiles.”
And that’s why branches won’t disappear even as their numbers shrink.
Whatever is important to you—low
fees, high rates, convenience—our
choices will help you decide how your
bank measures up or whether it makes
sense to move on. ■
janet bodnar, editor
follow janet’s updates at www.twitter
.com/janetbodnar.
LISE METZGER
A
mericans have a love-hate
relationship with their bank.
Intimacy is built in because of
the very nature of personal financial
transactions, yet customers are often
dissatisfied with the fees they pay and
the service they receive.
On page 26, you’ll find Kiplinger’s
first-ever rankings of banks that do
right by their customers. Our list of
the best national and regional banks
and credit unions with national access
was four months in the making, spearheaded by a dedicated team led by senior editor Mark Solheim, along with
contributing editor Lisa Gerstner and
staff writer Miriam Cross. They vetted
a half-dozen data providers before
finding a fit with Moebs Services,
in Lake Forest, Ill., which has been
analyzing and advising financial institutions since 1983. (Coincidentally,
Moebs was one of my trusted sources
when I covered banking for Kiplinger’s
a number of years ago.)
To choose the winners and runnersup, Moebs used its own methodology,
customized for Kiplinger’s. “We sifted
through 70-some criteria for every
single bank—literally thousands of bits
of data in a very complex industry,”
says Mark.
To personalize our list even further,
we applied our own criteria to identify
the best institutions for each of six
profiles: high-net-worth families, retirees, frequent travelers, millennials,
students and members of the military.
For example, Citibank won top honors
for high-net-worth families, because
with $200,000 in assets clients qualify
4.95
$
Fidelity cut the price of trades
to give you even more value.
Online U.S. Equity Trades
FIDELITY
TD AMERITRADE
SCHWAB
E*TRADE
Online U.S. equity† and option trades
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Online options (per contract rate)
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Leader in displaying price improvement
on trades
Yes
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OPEN AN ACCOUNT GET 500 FREE TRADES§
Visit Fidelity.com/AlwaysBe or call 800.Fidelity
Where smarter investors will always be.
Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). Trades are limited to online domestic equities and options and must be
used within two years. Options trades are limited to 20 contracts per trade. Offer valid for new and existing Fidelity customers opening or adding net new assets to an
eligible Fidelity IRA or brokerage account. Accounts receiving $100,000 or more will receive 500 free trades. Account balance of $100,000 must be maintained for at least
nine months; otherwise, normal commission schedule rates may be retroactively applied to any free trade executions. See Fidelity.com/ATP500free for further details.
Fidelity reserves the right to modify these terms and conditions or terminate this offer at any time. Other terms and conditions, or eligibility criteria may apply.
†
$4.95 commission applies to online U.S. equity trades in a Fidelity retail account only for Fidelity Brokerage Services LLC retail clients. Certain accounts may require
a minimum opening balance of $2,500. Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). Other conditions may apply.
Employee equity compensation transactions and accounts managed by advisors or intermediaries through Fidelity Clearing & Custody SolutionsSM are subject to separate
commission schedules. See Fidelity.com/commissions for details.
Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read
Characteristics and Risks of Standardized Options, and call 800-544-5115 to be approved for options trading. Supporting documentation for any claims, if applicable, will
be furnished upon request.
There is an Options Regulatory Fee from $0.04 to $0.06 per contract, which applies to both option buy and sell transactions. The fee is subject to change.
††
4.00% rate available for debit balances over $1,000,000. Fidelity’s current Base Margin Rate, effective since 5/01/2017, is 7.075%.
Among listed competitors, Fidelity is the only broker to display price improvement. Price improvement details provided for certain domestic stock and single-leg option orders
entered during market hours after the primary opening, provided there is a National Best Bid and Offer (NBBO) at the time the order is placed. Price improvement details are
provided for informational purposes only and are not used for regulatory reporting purposes. See Fidelity.com for more details.
Commission comparison is based on published website commission schedules for retail accounts, as of 03/13/2017, for E*Trade, Schwab, and TD Ameritrade for online
U.S. equity trades. For E*Trade: $6.95 per trade for 0 to 29 trades per quarter and $4.95 per trade for 30 or more trades per quarter. For TD Ameritrade: $6.95 per market or
limit order trade for an unlimited amount of shares. For Schwab: $4.95 for up to 999,999 shares per trade, though orders of 10,000 or more shares or greater than $500,000
may be eligible for special pricing. Employee equity compensation transactions and accounts managed by advisors or intermediaries through Fidelity Clearing & Custody
SolutionsSM are subject to different commission schedules. Commissions are subject to change without notice. See each provider’s website for any additional information
and restrictions.
1
Barron’s, March 20, 2017 and March 19, 2016 Online Broker Surveys. 2017: Fidelity was evaluated against 15 others and earned the top overall score of 35.6 out of a
possible 40. The firm was also named best online broker for Long-Term Investing (shared with 2 others), Best for Novices (shared with 1 other), and Best for Investor
Education (shared with 2 others). Fidelity was also ranked 1st in the following categories: Trading Experience & Technology (shared with 2 others), Mobile (shared with
1 other), Research Amenities, and Portfolio Analysis and Reports (shared with 2 others). 2016: Fidelity was evaluated against 15 others and earned the top overall score
of 34.9 out of a possible 40.0. Fidelity was also named Best Online Broker for Long-Term Investing (shared with one other), Best for Novices (shared with one other), and
Best for In-Person Service (shared with four others), and was ranked first in the following categories: trading technology; range of offerings (tied with one other firm);
and customer service, education, and security. Overall ranking for both years based on unweighted ratings in the following categories: trading experience & technology;
usability; mobile; range of offerings; research amenities; portfolio analysis and reports; customer service, education, and security; and costs.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2017 FMR LLC. All rights reserved. 791958.5.1
§
LETTERS
Part D slipup. When I signed
Car Insurance Caveat
Q
I’ve been a State Farm customer for more than 50 years
and receive numerous discounts (“Cut Car Insurance
Rates,” May). When I checked
to see how much I’d pay to
insure my car if I switched
to USAA, the initial savings
came to several hundred dollars. But I would have paid
much more for homeowners
insurance and also for my
umbrella policy, which are
linked to the car coverage.
So my total cost would have
ended up about the same.
And because I have guaranteed renewal on my auto
insurance, I decided to remain with State Farm.
Richard Slawson
Portland, Ore.
10
KIPLINGER’S PERSONAL FINANCE
07/2017
READER
POLL
Do corporate
behavior and social
and environmental
issues affect your
investing decisions?
40%
No
60%
Yes
To learn more about socially conscious investing, turn to page 54.
up for Medicare, I did not
sign up for Medicare Part D
prescription-drug coverage
(“Your Medicare FAQs,”
May). At the time, I didn’t
have drug coverage through
an employer or retiree
health benefits, either. So
now I am paying a penalty
every month for not signing
up for Part D.
Peter Lahti
Kensington, Calif.
EDITOR’S NOTE: For a discussion
of how to avoid the Medicare
Part D penalty, go to kiplinger
.com/links/partd.
Good call. We keep our back
issues of Kiplinger’s and like
to reread them. Your article
“10 Great Stocks for the
Next 10 Years” (Dec. 2016)
deserves a gold-dollar-sign
award. Among the stocks
you listed was Panera Bread
(symbol PNRA), recommended by money manager
David Yepez. The share
price in the magazine was
$195. On April 5, 2017, it was
announced that European
ONLINE
CHATTER
JANE BENNETT CLARK’S
column on the pros and cons
of moving near the grandkids
drew these thoughtful comments (“Rethinking Retirement,” May):
“The only thing I am sure of
is that moving near the kids
won’t be as wonderful as we
imagine. But it could still be
a good thing. We like to use a
travel trailer, and getting a
spot near the grandkids for
a few months might be a
good trial run.”
“Excellent article and one
that I will be sharing with my
retirement-coaching clients.”
holding company JAB
would buy Panera for
$7.5 billion, take it private
and pay each shareholder
$315 per share. Wow!
L.G.
Solon, Ohio
●● UPDATE
Sprint Unlimited has modified its promotion (“Scoop
Up These Deals,” June).
Under a more recent offer,
you’ll pay $80 to $120 for
two to four lines for unlimited calling, texting and data
through June 30, 2018.
LETTERS TO
THE EDITOR
Letters to the editor may be
edited for clarity and space,
and initials will be used on
request only if you include
your name. Mail to Letters
Editor, Kiplinger’s Personal
Finance, 1100 13th St., N.W.,
Washington, DC 20005, fax
to 202-778-8976 or e-mail
to feedback@kiplinger.com.
Please include your name,
address and daytime telephone number.
SOURCE: POLL SURVEYED 324 KIPLINGER’S READERS.
Apples and oranges. I think
James Glassman used
flawed logic in a recent column (“Opening Shot,” May).
He says: “A curious fact
about human nature is that,
as consumers, people will
rush to buy items marked
down 40% by a clothing
shop or an airline, but, as
investors, they will shun
stocks that have fallen in
price.” If I buy an item of
clothing at 40% off, I have
that item in hand. But if I
buy a stock at 40% off, it
could still fall a lot more.
Rita Faye Smith
Dallas
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© 2017 Hennion and Walsh. Securities offered through Hennion & Walsh Inc. Member of FINRA, SIPC. Investing in bonds involves risk
including possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise. If sold or called prior to maturity the amount received may be less than the amount
paid, and the yield received may be less than the yield calculated at purchase. Past performance is not guarantee of future results.
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ART
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SENIOR ASSOCIATE EDITORS
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Manuel Schiffres SENIOR EDITOR, MONEY/LIVING Mark K. Solheim
EXECUTIVE EDITOR
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AHEAD
TOPIC A
HOW TO HIDE YOUR
ONLINE FOOTPRINT
Check your internet provider’s privacy policy
and look for encrypted sites. BY SANDRA BLOCK
PRATIKA APPAIAH
IF YOU SPEND ANY TIME AT
all online, you’re probably
used to targeted ads. Google
the price of a pair of galoshes
or an iPhone charger, and
before long, you’ll see ads
for boots and smartphone
accessories.
Most of us have grown
accustomed to these ads,
even if we sometimes find
them intrusive. But a recent
move by Congress to roll
back privacy rules for internet service providers has
raised concerns that deeply
personal information—
not just our taste in boots—
could be repackaged and
sold to the highest bidder.
The rules, which were
approved by the Federal
Communications Commission last October, would
have barred ISPs, such as
Verizon, AT&T and Sprint,
from collecting and selling
information about your online activities without your
consent. Congress voted to
repeal the changes before
they took effect, so technically, nothing has changed.
But privacy advocates
worry that the rollback
will encourage ISPs to
ramp up efforts to sell their
customers’ browsing history
to advertisers and thirdparty data brokers.
The ISPs argue that they
simply want to do what
Google and Facebook have
been doing for years. If you
use those services, they
argue, the horse has already
left the barn, and it knows
your birthday, your dog’s
name and your favorite
rock band. Supporters of
the now-defunct FCC rules
counter that although you
can choose to stay off Facebook and to use a search
engine that doesn’t track
you, such as DuckDuckGo,
you’re pretty much stuck
with the ISP you use at
home. “A huge part of the
country has only one option
when it comes to broadband
internet,” says Amul Kalia,
an analyst with the Electronic Frontier Foundation,
which advocates for internet privacy.
A Georgia Tech study
shows that is changing,
however, as the number
of internet-connected
devices increases. The
study found that the average internet user has six
connected devices, many
of them mobile and served
by multiple ISPs, so any one
ISP has access to a limited
amount of information.
Still, if you’re concerned
about privacy, check an
ISP’s privacy policy. Some,
such as Verizon, allow you
07/2017
KIPLINGER’S PERSONAL FINANCE
13
AHEAD
14
KIPLINGER’S PERSONAL FINANCE
07/2017
INTERVIEW
SKIRTING THE
SALARY QUESTION
Instead of divulging your earnings history,
focus on your skills and expectations.
Rosemary Haefner is an
employment expert and
chief human resources
officer at Career Builder,
a job-hunting website.
Massachusetts, New York City
and Philadelphia have prohibited employers from asking job
applicants about their salary
history. Why? These laws
are trying to even the
playing field. Asking
candidates to disclose
their previous salary
has the potential to
pigeonhole them.
If you start your
career earning less
than your peers,
it’s virtually impossible to catch
up. For experienced workers,
there’s the concern
that the company
may hire someone
more junior rather
than pay a premium
for your expertise.
Should you still be ready
to answer the salary question? Although other
places may pass similar legislation, it’s
likely to remain a
common topic. So you
should be ready with
two or three bullet
points about your expectations and what
matters most to you.
How should you prepare for the
conversation? It takes practice,
but you can state your parameters without sounding
inflexible. There’s a lot of
fluidity in compensation,
but most organizations pay
within a range for a specific
position. Sites where people
share their salary can help
you identify those numbers,
but working your personal
network is more valuable.
Ask people with a similar
background about their experience at a similar point
in their career or what their
company’s range is for
someone whose role is similar to the one you applied
for. For your salary to be
as high as possible in that
range, you need to articulate what you bring to the
table. Also think in terms
of the whole compensation
package, including incentives and benefits. For example, if you value flexible
hours or paid time off, you
can share that and suggest
that a competitive program
might encourage you to
be more flexible on
your salary.
What else is changing
in the job search and
interview process?
Worlds are colliding. Employers are trying
various ways
to communicate
with job seekers
and applicants.
Some are using text
messages to schedule
interviews. Others are
using social media platforms to find applicants.
If you are savvy about
your social media use
and mindful of privacy
settings, social media
can be a shortcut to your
next career opportunity.
KAITLIN PITSKER
JAMES FOSTER
to opt out of having your information collected and sold
to third parties.
When searching for information you’d prefer to keep
to yourself, make sure the
website you’re visiting is
encrypted. You’ll see a small
lock in front of the address,
followed by https (versus
http for an unencrypted
site). Most sites for financial
institutions, hospitals and
other sources of sensitive
personal information are
already encrypted, and the
Georgia Tech study estimates that 70% of internet
traffic will be encrypted
soon. The Electronic Frontier Foundation offers a free
“HTTPS Everywhere”
browser extension that will
force your browser to use
encryption (www.eff.org).
For more-comprehensive
protection, consider installing a virtual private network. When you use a VPN,
your internet traffic goes
through the VPN’s servers,
so an ISP can’t even see the
domain name you’re visiting. If you use public Wi-Fi,
a VPN will also help protect
you from identity thieves.
Since Congress scrapped
the FCC rules, interest in
VPNs has increased, and
some are aggressively marketing their services. Be
aware, though, that your
VPN will have access to
your browsing history, so
make sure you choose a provider you can trust, says
Jules Polonetsky, chief executive of the nonprofit Future
of Privacy Forum. Look for
a VPN that has been around
for a while, and review policies and practices carefully
to make sure it won’t sell
your information.
INVESTING
BEWARE
FAKE STOCK
NEWS
THE PHENOMENON OF “FAKE
WHAT’S THE DEAL?
LIVE LARGE ON A
SUBSCRIPTION PLAN
These new services let you pay by the month
to enjoy the latest luxury goods.
ALWAYS WANTED TO DRIVE
COURTESY GENERAL MOTORS
a new Caddy? Or carry the
latest handbag, or stretch
out on satiny cotton sheets?
New subscription plans
make it easier to treat yourself to such indulgences.
General Motors has introduced a subscription service
called Book by Cadillac
(www.bookbycadillac.com).
For $1,500 per month (after
a one-time fee of $500), subscribers gain access to one
of four Cadillac models and
may swap for a different car
as often as 18 times a year.
EXCERPT FROM
The Kiplinger Letter
COMING SOON:
VIRTUAL REALITY
Insurance and registration
costs are included, along
with unlimited mileage.
The service is currently
available only in New York
City, but Cadillac plans to
roll it out in other cities
soon. A potential selling
point: Unlike a car lease, you
may cancel or reinstate your
subscription at any time.
More interested in stylish
accessories than in luxury
wheels? With Ivory Clasp
(www.ivoryclasp.com), you
pay $45 per month for a new
purse hand-selected for you
and delivered to your door
every 30 or so days. The
best part: You get to keep all
the bags, some of which retail for nearly $200. Among
the brands the company
offers are Vicenzo, Lucky
Brand and Cole Haan.
If you are an eco-conscious consumer, home
textile company Coyuchi
(www.coyuchi.com) has
started a subscription service, Coyuchi for Life, that
saves you 15% on the company’s 100% organic cotton
sheets, duvet covers and
towels and promises to recycle the used linens. You
keep the linens for six, 12 or
24 months, then trade them
for new ones. Prices range
from $5 per month for a
24-month towel subscription to $42 per month for
a six-month duvet or sheet
plan. THOMAS H. BLANTON
Potential applications for virtual and augmented reality are endless.
Spend an afternoon with a relative who lives across the country with a
3-D video chat, view concerts from the front row without having to travel
to a packed arena, or make remote business meetings incredibly lifelike.
Augmented-reality glasses can guide mechanics doing complex repairs
or show doctors exactly where to make incisions. Virtual-reality-grade
internet is headed to many U.S. cities over the next few years. See “Tech,”
on page 41. (www.kiplingerbiz.com/ahead/virtual)
news” has infected some
well-known investing websites. The Securities and
Exchange Commission has
brought civil fraud charges
against 27 companies and
individuals involved in stockpromotion schemes that
played out on popular sites,
such as Benzinga, Seeking
Alpha and Wall Street Cheat
Sheet. The SEC alleges that
public companies used intermediaries to pay writers to
post bullish articles without
disclosing that they were paid
for. More than 250 such articles “specifically included
false statements that the
writers had not been compensated by the companies
they were writing about,”
says the SEC.
To avoid being duped by
phony advice, investigate
before you invest. If a writer
claims to be an investment
professional, search on
Investor.gov to view his or her
credentials, says Lori Schock,
director of the SEC’s Office of
Investor Education. And even
if you trust the author, says
Schock, thoroughly research
any stock you’re considering,
especially thinly traded
“penny stocks,” which are
more susceptible to promotion schemes. The SEC’s
Edgar database (www.sec
.gov/edgar/searchedgar/
companysearch.html) provides free access to corporate
filings, such as quarterly and
annual reports. RYAN ERMEY
KIPLINGER’S PERSONAL FINANCE
15
AHEAD
BANKING
BANKS ROLL OUT
CARDLESS ATM ACCESS
Enhanced mobile apps let you withdraw cash
with a smartphone.
MOBILE BANKING HAS
expanded its reach. Wells
Fargo recently enabled
cardless use of its 13,000
ATMs across the U.S. Bank
of America and Chase are
following suit, with the former offering cardless access
at more than half of its cash
machines. Chase is testing
the technology in a pilot
program.
Wells Fargo customers
who want to withdraw
money using their phone
must log in to the bank’s
mobile banking app and
request a one-time-use,
eight-digit code to plug in
along with the card’s PIN.
Bank of America users open
their digital wallet and hold
it over a card reader to activate the ATM, using their
PIN to finish the transaction. Like the Wells Fargo
app, Chase generates an
access code, but no PIN is
needed.
One reason banks are
adopting this new technology is to counter rampant
skimming fraud at ATMs.
The number of compromised
debit cards at ATMs and
retailers rose 70% in 2016,
according to credit-score
provider FICO, although
bank ATMs are generally
safer than non-bank cash
machines. Still, cardless
access has its own pitfalls.
A criminal could hack your
phone and change the bank
settings to access your information. Bottom line:
“Diligently protect your
phone as you would any
other financial product,”
says Randy Vanderhoof,
director of U.S. Payments
Forum. RIVAN STINSON
MONEY & ETHICS // KNIGHT KIPLINGER
Should Minor-League Ballplayers
Get a Big Pay Raise?
In a free-market economy, businesses may legally pay their
employees as little as they wish, as long as they obey federal
wage and hour laws. The contention of the minor-leaguers’
class-action lawsuit, with which I agree, is that Major League Baseball is not abiding by those laws and should be held accountable.
Legality aside, Major League Baseball—a $10 billion-a-year
industry in which the lowest-paid big-leaguer earns a minimum of
$535,000 a year and the average player makes $4.4 million a year—
should be ashamed of exploiting the more than 6,000 players in its
“farm system,” who are paid directly by the 30 major-league teams.
And the major-league players’ union—which should be showing
solidarity with its poorly paid colleagues in the minors—is complicit
by its silence. Its weak-kneed position on the lawsuit is that it supports the right of all workers to organize.
What it should do, as the professional hockey players’ association
A
16
KIPLINGER’S PERSONAL FINANCE
07/2017
has done, is welcome the minor-leaguers and bargain collectively
on behalf of all its members at every level of the pro game. Top-level
minor-league hockey players are paid a minimum of $45,000 a year
plus $72 a day for expenses on road trips—not a princely sum, but
several times the average pay in the baseball minors, where more
games are played. And the minor-league ballplayers aren’t even paid
for spring training, just a six-month regular season.
Major League Baseball says the minimum-wage law doesn’t apply
because its minor-league players are not real employees, just “shortterm, seasonal apprentices.” But whoever heard of apprentices signing seven-year exclusive contracts, as minor-leaguers typically do?
Seasonal work? Pro ballplayers must keep their bodies and skills in
shape 12 months a year, and all should be paid accordingly.
HAVE A MONEY-AND-ETHICS QUESTION YOU’D LIKE ANSWERED IN THIS COLUMN? WRITE TO
EDITOR IN CHIEF KNIGHT KIPLINGER AT ETHICS@KIPLINGER.COM.
LISE METZGER
Q
I’ve been reading that professional baseball players
on minor-league teams are paid, on average, less than
$8,000 a year—not even half what a minimum-wage
worker earns in a year. What do you think about this?
THE BUZZ
LIBRARIES
BRANCH OUT
CALENDAR
07/2017
You may find sports gear, a canoe
or even a karaoke machine to rent.
IN AN ERA WHEN PRINTED BOOKS AREN’T
always enough to lure readers, many public
libraries are, well, branching out. Most will
allow you to check out e-books online. But
if you stop by in person, you may go home
with more than a summer beach read.
Eclectic loaners. From musical instruments
ISTOCKPHOTO.COM (2)
to sports gear to screwdrivers and gardening tools, many libraries offer rental gear
for hobbies and household projects. Some
even venture into the wild to offer kayaks,
canoes and camping equipment. Having a
party? You may be able to borrow a cottoncandy maker or karaoke machine to make
it special.
Classes. Whether you’re looking to brush
up on basic computer skills, learn to code,
try yoga or improve your diet, you’ll likely
find classes or workshops at a nearby library. Recently, more than 1,000 libraries
throughout the country offered personal finance
programs as part
of Money Smart
Week. And
libraries are
even offering free or
low-cost
workspace
to business
start-ups.
SATURDAY, JULY 1
CEO Elon Musk says the final unveiling of the Tesla Model 3 will come
sometime this month. The success
of this rollout is key if Tesla is to
become a mass-market automaker.
▲ SUNDAY, JULY 23
TUESDAY, JULY 4
Independence Day sales are all
about keeping you cool. Look for
markdowns on air conditioners,
fans and thermostats, as well as
discounts on designer swimwear.
FRIDAY, JULY 14
Give yourself a midyear tax checkup.
If you received a big refund for 2016,
reduce the withholding from your
paycheck. If you wrote a check to
Uncle Sam in April, you could boost
contributions to an IRA or 401(k).
3-D printers.
Hundreds of
libraries across
the country will
let you give 3-D
printing a try. You may
be required to take a class before using
the machine and pay a few dollars for
materials. KAITLIN PITSKER
and insurance premiums over a
year or two plus the deductible
come close to the value of the car—
it’s probably safe to drop collision
and comprehensive coverage.
TUESDAY, JULY 18
July is National Vehicle Theft Protection Month. Are you covered? To
check your car’s value, go to kbb
.com. If your car is unlikely to be
stolen (go to www.nicb.org to see
a list of the most-stolen cars)—
Summertime means plentiful local
produce. Consider joining a community-supported agriculture (CSA)
group. For an average of $400 to
$700 a year, you receive a share
of the bounty weekly. The assortment of farm-fresh food will feed
two to five people. RYAN ERMEY
* DEAL OF THE MONTH
Use your credit card perks to
unlock your inner athlete. For
instance, MasterCard holders
may become “members for a
day” at an elite private golf
course (www.priceless.com/
golf). With a Citi Private Pass
(www.citiprivatepass.com),
you can get discounted access
to a sports camp taught by
your favorite pro.
07/2017
KIPLINGER’S PERSONAL FINANCE
17
AHEAD
JAMES K. GLASSMAN
Opening Shot
Investments You Can Do Without
T
his column, like most articles
about investing, usually tells you
where to put your money—which
stocks, bonds, sectors or asset classes
are likely to yield superior returns in
the future. What the pundits typically
ignore is where not to put your money.
Which investments should you shun?
But I take up the challenge and identify
four categories that you should avoid.
High-fee funds. Stay far away from mutual funds that charge exorbitant fees.
A recent study found that 92% of mutual funds that focus on large U.S. companies failed to beat their benchmark,
Standard & Poor’s 500-stock index,
over the 15-year period that ended in
2016. The common media take on this
story ran along the lines of “Index
Funds Beat Managed Funds” or “Algorithms Vanquish Humans.” The real
lesson is simpler: Because relatively
few actively managed funds can top
the benchmark (especially in the area
of large-capitalization stocks), and because it’s difficult to guess which active
funds will win, you should invest in
funds that require you to forfeit the
least for the privilege of owning them.
On average, actively managed largecap U.S. stock funds charge 1.19% annually for expenses. But many good
ones are considerably cheaper. Two of
my longtime favorites in that category
are DODGE & COX STOCK (SYMBOL DODGX),
which charges 0.52%, and MAIRS & POWER
GROWTH (MPGFX), which charges 0.65%.
(Both are members of the Kiplinger 25;
see page 59.) Another solid fund, PRIMECAP ODYSSEY STOCK (POSKX), charges 0.67%. FIDELITY CONTRAFUND
(FCNTX), which I have called the best mutual fund on the
planet, charges 0.68%.
The past is not necessarily predictive, so it is hard to
decide whether an expense ratio of 0.6% or 0.7% is worth
it. But the effect of fees on returns over time is sobering.
Vanguard uses a calculator to illustrate this on its website
(https://personal.vanguard.com/us/
insights/investingtruths/investingtruth-about-cost). In plugging in numbers, I assumed Fund A charges 1.2%
and returns 8% before expenses annually. Over 10 years, expenses devour
25.8% of total returns. Over 25 years,
you give up 36.4%. By comparison,
Fund B, which charges 0.6% and earns
the same amount before fees, consumes
10.8% of profits in 10 years and 16.3% in
25 years. An index fund that charges
0.05% (again, with the same return)
will eat up only 0.9% in 10 years and
1.5% in 25 years.
My own preference is to put some,
but not all, of my portfolio into low-fee
actively managed funds. What is clear
is that high-fee funds of any sort are
disastrous investments.
Precious metals. Gold, silver, platinum
and the like may be precious metals,
but they aren’t precious investments.
It’s fine to wear them but not to rely
on them for retirement. The case for
gold, in particular, is that it’s a good
hedge against market and political
turmoil and inflation. The yellow
metal filled that role admirably in
2008, when it rose about 5% as the
S&P 500 was sliding 37%. But most
of the rest of the time, gold has been
a lousy investment. Between June 30,
2009, when the Great Recession ended,
and April 30, 2017, iShares Gold Trust
(IAU), a low-expense exchange-traded
fund that owns bullion, gained a total
of 34%. Over the same period, the S&P
500 returned 206%. (Unless otherwise
indicated, all returns are through April 30.)
When you buy commodities, you are betting on things.
But when you buy shares in a software developer or a
restaurant chain, you are betting on the human imagination, which is the force that has added value to companies
(and their shares) for centuries. A commodity sitting in a
vault adds no value at all. Its price may rise with inflation,
18
KIPLINGER’S PERSONAL FINANCE
07/2017
LISE METZGER
Pundits typically
ignore where not
to put your money.
But I take up the
challenge and
identify four
categories that
you should avoid.
Independent
advisors are
accountable.
How do you measure accountability?
Investors trust independent advisors
with over $4 trillion of their money.
The reason is simple. Independent
Registered Investment Advisors
are professionals held to a fiduciary
standard. They exist to serve, not sell.
That’s why we support independent
advisors. And why we think it’s worth
your time to learn more.
FindYourIndependentAdvisor.com
Damon W. | Independent financial advisor since 2009
Charles Schwab is committed to the success of over 7,000 independent financial advisors who are
passionately dedicating themselves to helping people achieve their financial goals.
Source of industry size: Charles Schwab Strategy estimates February 2016. This content is made available and managed by Charles Schwab & Co., Inc. (“Schwab”). The purpose
of this information is to educate investors about working with an independent Registered Investment Advisor (RIA). The RIAs and their representatives featured here use
Schwab Advisor Services™ for custody, trading, and operational support. Inclusion should not be construed as a recommendation, an endorsement, or a sponsorship by
Schwab. Many independent RIAs and other financial services professionals receive compensation for services in a variety of ways. Registration does not imply a certain level of
skill or training. It is the responsibility of each investor to determine which method of compensation offers the lowest total costs and best serves the interests and needs of
the investor. ©2017 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0416-F1LX) (ADP92135-00) (06/16)
AHEAD
Gold, silver,
platinum and the
like may be precious
metals, but they
aren’t precious
investments. It’s
fine to wear them
but not to rely
on them for
retirement.
Bad actors. Readers may remember that
I recommended the shares of the four
largest U.S. banks in the October 2016
issue. Almost immediately, reports surfaced that one of them, Wells Fargo
(WFC, $54), had been involved in a massive scandal involving the creation of
2 million fake accounts. At the start,
Wells handled the matter horribly, abusing whistle-blowers and firing more than
5,000 employees, many of whom had
been under intense pressure to commit
fraud in the first place. Right after the
initial reports, I withdrew my endorsement of the stock. If I had owned it, I
would have sold it.
Wells stock has actually risen since news of the scandal
emerged, but only by about 8%. Its three peers, led by Bank
of America (BAC, $23), are up by a lot more. Short-term
increases, however, aren’t the point. “Mistakes and individual misbehavior, I can tolerate,” I wrote on Kiplinger
.com after the scandal broke, “but systemic fraud, I can’t.
It’s rarely an isolated event. Why own this tainted company when there are so many good ones out there?” (For
another take on Wells Fargo, see “Investing With a Conscience,” on page 54.)
The stock market is not a courtroom. Investors don’t
have to prove a company guilty in order to pronounce sentence. I have zero patience with companies that deceive
shareholders, government officials or the general public.
You should cut such miscreants loose immediately.
■ GOLD MAY SHINE
OCCASIONALLY, BUT OVER
THE LONG HAUL, YOU’RE
BETTER OFF BETTING ON
HUMAN CAPITAL.
20
KIPLINGER’S PERSONAL FINANCE
07/2017
Airlines. In 1994, Warren Buffett was
asked why he had invested in USAir. He
answered, “Temporary insanity.” He went
on to explain: “There’s no worse business
of size that I can think of than the airline
business. You’re selling a commodity product with ... huge fixed costs. It’s a terrible
business.” He reiterated the point in the
1996 letter to shareholders of his company,
Berkshire Hathaway (BRK.B, $165). He
wrote: “I have an 800 number now which
I call if I ever get the urge to buy an airline
stock. I say, ‘My name is Warren. I’m an
air-aholic,’ and then they talk me down.”
The big problem with airlines is competition—not just among the incumbents but
from potential new entrants, which have
low barriers to getting into the game. “You
really couldn’t create another railroad,”
Buffett’s partner, Charlie Munger, has said,
but “you could create another airline. And
that’s what I don’t like about it.”
Airlines, like gold, are commodity products. They’re
all pretty much the same, with consumers buying seats
almost completely on the basis of price. The risk is that,
to grab customers, airlines have to keep trying to undercut
competitors. Profits depend mainly on factors largely outside the control of the companies, such as the cost of jet
fuel. In general, you should avoid highly competitive industries, including discount retailing, chemicals and steel.
Look instead for companies that have some kind of moat—
patents or a process that’s hard to copy or a powerful
brand or reputation—to protect them from rivals. Examples of companies with moats that I like include AMGEN
(AMGN, $163), COCA-COLA (KO, $43) and FACEBOOK (FB, $150).
As it turns out, it has been a decent decade for airline
stocks. One big factor was the drop in oil
prices. Also, as the economy has recovered, the airlines have resisted the urge to
add more planes; the result has been fuller
flights. Airline shares returned an annualized 8.7% over the past 10 years, about
1.5 percentage points per year more than
the S&P 500. But, of course, rising stock
prices can be a signal to stay away. Buffett, however, could not resist. He fell off
the wagon last year and bought between
7% and 8.4% of the outstanding shares of
three airline stocks: Delta (DAL, $45),
Southwest (LUV, $56) and United Continental (UAL, $70). Go figure. ■
JAMES K. GLASSMAN IS A VISITING FELLOW AT THE AMERICAN
ENTERPRISE INSTITUTE. HIS MOST RECENT BOOK IS SAFETY NET:
THE STRATEGY FOR DE-RISKING YOUR INVESTMENTS IN A TIME
OF TURBULENCE. HE OWNS NONE OF THE STOCKS MENTIONED.
ISTOCKPHOTO.COM
but good businesses can boost their
prices, too. “All that glisters,” wrote
Shakespeare, “is not gold.” Human
capital glitters a lot more.
He saw the moon as
just the beginning.
VISIONARIES NEVER GO OUT OF ST YLE
We’re marking the 100 th anniversary of JFK’s birth with a new
JFK Presidential Library and Museum
exhibit, JFK 100: Milestones and Mementos, opening May 26.
Columbia Point, Boston, MA
Visit to experience the man behind the vision.
JFKLibrary.org
AHEAD
SUCCESS STORY
Get the Scoop in Seattle
She uses local ingredients in her ice cream and offers generouss benefits to employees
employees.
shop, rather than in one
big commissary. Ice cream
delivered in trucks melts
and refreezes, which leads
to icy ice cream.
WHO: Molly Moon Neitzel, 38
WHERE: Seattle
WHAT: Founder and CEO, Molly
Moon’s Homemade Ice Cream
Why ice cream? I worked in
an ice cream shop in my
hometown of Boise, Idaho,
and at one in Missoula,
Mont., in college. For most
of my twenties, I was executive director of a political
nonprofit that I founded,
but eventually I burned out
on asking people for money.
When I whined to my mom,
“What will I do with my
life?” she said, “Why not
open an ice cream shop?”
I opened my first shop in
Seattle in 2008, and immediately there were lines
around the block.
What’s special about your
formula? Our ice cream
is 19% butterfat. The milk
and cream come from local
dairy farms, and they are
hormone- and antibioticfree. Our ice cream has
some of the lowest sugar
content in town, and we
use only non-GMO cane
sugar. When we started,
it was hard to find
local organic ingredients, such as strawberries, in commercial
quantities. It’s still not
easy, but it’s easier.
[See Molly’s blog at
www.mollymoon.com.]
22
KIPLINGER’S PERSONAL FINANCE
07/2017
shortage of vanilla beans,
a gallon of organic vanilla
costs us $420. We’re doing
some testing to decide
whether we need to use
vanilla in as many flavors.
How did you fund your start-up?
What’s your biggest seller?
Cookie dough—oatmeal
chocolate-chip dough in
a nutmeg-and-cinnamon
ice cream. But spring garlic
and cheddar cheese were
two that bombed.
How much do you charge?
We charge $4.25
a scoop and $9.50
for an 18-ounce
“scooper’s pint.”
Because of a
global
I knew people in my network who had money to
invest, including a Silicon
Valley venture capitalist,
and soon raised $220,000.
One of the people I asked
was a former
boyfriend,
Zack Reinig. He invested
$50,000, and his parents
invested, too. Zack and
I later married, and we
have a beautiful daughter,
February Moon Reinig.
To open our second shop
quickly, I raised money a
second time in exchange
for equity. Since then, we’ve
financed growth through
cash flow and a bit of debt.
How have you grown? Our
revenues in 2008 were
almost $400,000. In 2016,
they were nearly $6.6 million, and we expect to hit
$7.9 million in 2017. We
have eight shops now,
and we’ll add another shop
this year and two more
next year. We have 100 to
120 employees year-round,
and we hire seasonally,
so we’ll have about 212
employees this summer.
What’s your greatest satisfaction? Creating jobs and
building a company that
is a leader in labor practices.
Every new shop creates
20 jobs. We pay 100% of
medical premiums for employees and their children,
and we offer a family-leave
plan. This past spring, we
launched a 401(k) program.
We’re matching employees’
contributions up to 1% of
their income in 2017, and we
expect to raise the match to
2% in 2018 and 3% in 2019.
PATRICIA MERTZ ESSWEIN
STANTON STEPHENS
Where do you make the ice
cream? We make it in every
PROFILE
Diminishing supply.
Rising demand.
Geopolitical chaos.
It’s time you invested in silver.
For capital appreciation, for protection in a financial
crisis, for a hedge against inflation...owning silver has
many advantages.
And now there’s a perfect storm of opportunity to invest
in it.
Worldwide supply of silver is shrinking.
Since 2000, 86% of a 2.1 billion ounce surplus of silver
has evaporated. Reserves are all but gone. Governments,
banks and corporations are hoarding silver, anticipating a
long-term supply crisis. At the same time:
Demand grows ever stronger.
Expanding industries like electronics, solar, defense, and
transportation couldn’t exist without silver. Their need is
accelerating. Demand is outstripping supply and exerting
extraordinary upward pressure on the price of silver.
In the first quarter of 2017, silver has already doubled
the return of stocks. But that’s not all:
Every one of these argues in favor of taking a position
in silver. Because in times of crisis, silver historically is
a safe haven, a tangible, rock-solid asset that retains its
value, even soars in price, while paper-based assets
can disintegrate.
Make silver part of your investment strategy.
At Lear Capital, we make it safe and easy to add silver to
your portfolio. We specialize in a variety of silver bullion
coins and bars, as well as some of the most sought-after
premium coins.
You can even include physical silver in your IRA.
Our FREE Investment Kit has all the details. Just call
1-800-764-0549 or visit www.learsilverkit.com to
get yours. For a limited time, you’re eligible to receive
up to $600 in silver coins. FREE!
Enjoy the financial protection and peace of mind that
silver affords you. It’s time.
Today’s world is a dangerous and divided place.
Nuclear threats. Terrorism. Unpredictable leaders. Relentless wars. Economic instability. Political gridlock.
Call 1-800-764-0549 for Your FREE Report,
Investment Kit and up to $600 in Silver Coins.
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AHEAD
JANET BODNAR
Money Smart Women
Charitable Giving May Be in Your Genes
M
arlo Thomas says that her father,
comedian Danny Thomas, never
explicitly prepared her to take
on the task of supporting St. Jude Children’s Research Hospital, the institution he founded in Memphis. “Dad made
it clear to all of us kids that we didn’t
have to pick up the torch,” Thomas told
me recently in an interview. So after he
died, she figured she’d get on with her
career as an actress and author.
But it turns out that her father was
“psychologically brilliant.” The first
time she visited the hospital after his
death, she says, she caught the St. Jude
fever and elected to carry on his legacy.
“It’s in my DNA.”
Thomas, who is now the national outreach director for St. Jude, shared her
inspiring story at a symposium sponsored by Auburn University’s Women’s
Philanthropy Board. The board has
raised more than $635,000 to date
to support the university’s College of
Human Sciences. Through its program
on gender, wealth and philanthropy,
the college hopes to cultivate future
generations of women philanthropists.
That’s an achievable goal. Women
increasingly have the wherewithal to
give—and the inclination to give it.
Research at the Women’s Philanthropy
Institute, located at the Lilly Family
School of Philanthropy at Indiana University, shows that
single women at all income levels are more likely to give
to charity than single men, and that they contribute more.
“Women are socialized early in life to take care of others,
so they’re more motivated by empathy and altruism,” says
Debra Mesch, director of the institute. “And they tend to
spread their giving among a number of causes.”
Men are more likely to have personal and practical
reasons for giving—to get a tax deduction, for example.
They’re also more likely to focus their giving on fewer
causes and to write a check. Women tend to get involved.
Thomas says she notices those differences in her fundraising efforts for the hospital. “Men ask financial questions
about how much goes to administration and research, and
women want to know how we counsel
families,” she says.
Among married couples, about 75%
make joint decisions regarding charitable giving. But that proportion drops
to about 50% in high-net-worth households, where women are more likely
to make their own decisions and to be
more strategic.
Make an impact. Surveys also find that
women investors are more interested
than men in doing well by doing good.
At the Parnassus funds, which emphasize socially conscious investing (see
page 54), women make up more than
70% of visitors to the firm’s website.
So how can women make the most
of their giving? First off, remember that
charity begins at home—or, as Thomas
puts it, “you need to get your life in
order before you can afford to give to
others.” Keep track of your giving, and
take advantage of tax breaks. If you
want to entrust your retirement savings
to a socially conscious fund, pick one
with a top track record, such as Parnassus Mid-Cap or Vanguard Health Care,
members of the Kiplinger 25, our favorite no-load funds.
To ensure your giving has a more
direct impact, consider opening a donoradvised fund with a company such as
Fidelity, Schwab or Vanguard. You donate cash or other assets to the fund and decide later which charities to support.
Or do what my cousin Pauline Nist did and join a giving
circle. Pauline, who retired last year as a general manager
with Intel, belongs to a group of about 50 Silicon Valley
women, each of whom contributes $1,000 a year to Hope
to Health, which is affiliated with the El Camino Hospital
Foundation, in Mountain View, Calif. Every year, the
women vote on how to spend the money; this year’s focus
will be on mental health programs. “Some people really
want to be active” in a charity, says Pauline. “But if all
you want to do is write the check, that’s okay, too.” ■
24
KIPLINGER’S PERSONAL FINANCE
07/2017
JANET BODNAR IS EDITOR OF KIPLINGER’S PERSONAL FINANCE MAGAZINE.
LISE METZGER
In high-net-worth
households, women
are more likely to
make their own
decisions about
where to donate.
America’s oldest
and most trusted
online bank
AWARD WINNING
Bank of Internet USA has been
named a top bank by Kiplinger’s. We
are extremely proud to be recognized
as a banking leader in two categories:
•
Best Bank for College
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• Best Internet Bank
Runner Up
Find out What Everyone is Talking About
www.bankofinternet.com/talk • 888-237-0831
MONEY
The Best Bank
These stellar banks and credit unions are making all the right moves to win satisfied
customers. BY MIRIAM CROSS, LISA GERSTNER AND MARK SOLHEIM
BANKS ARE ON A MISSION TO CUT COSTS
and raise revenues, and customers are
getting caught in the cross fire. Fees on
basic checking and the requirements to
avoid them have been steadily increasing,
and interest-bearing checking accounts
tend to load on so many fees that the
paltry rates they pay hardly matter. In the 2016 Bankrate survey of
checking accounts, the average yield ticked up to 0.06%, and the
average balance required to avoid a monthly fee surged to $7,037.
But some institutions are making all the right moves to win satisfied
customers. To identify the crème de la crème, Kiplinger is introducing
its list of best banks and credit unions. We’ve picked a first-place
26
KIPLINGER’S PERSONAL FINANCE
07/2017
winner and runner-up (except in the case of a tie) among national
banks, nationally available credit unions and internet banks, plus the
best bank in each of four regions. To make our choices more personal,
we’ve also named a top institution and runner-up for each of six
wide-ranging profiles: high-net-worth families, retirees, frequent
travelers, millennials, students and military service members.
To gather the thousands of bits of data necessary to rank the
winners, Kiplinger turned to Moebs Services, an economic research
firm in Lake Forest, Ill., that advises financial institutions (for more
details on our methodology, see the box on page 35). The top institutions on our list have a mix of no-fee and low-fee basic and interest
checking, plus competitive yields on savings, money market deposit
accounts and certificates of deposit. They often reimburse ATM fees,
k for You
ILLUSTRATIONS BY VIDHYA NAGARAJAN
07/2017
KIPLINGER’S PERSONAL FINANCE
27
MONEY
and some offer special perks for students and seniors. And they
tend to do digital well, with easy-to-navigate websites and responsive social media teams.
Technology that allows you to bank with your smartphone has
made banking services more convenient. It’s also disrupting the
traditional (and high-cost) brick-and-mortar-branch model. So it’s
no surprise that a number of our top picks for the profiles are internet
banks or credit unions that have harnessed technology most effectively. Branches are closing at a rapid pace, and of the nearly 12,000
banks, thrifts and credit unions in the U.S., only half will remain a decade from now, says Mike Moebs, CEO of Moebs Services. The institutions that can hold down expenses while attracting depositors will
be the winners. “The best banks are going to be the ones that
can handle as much information as possible and clearly present it
to their customers,” says Moebs.
But branches—and the personal touch—still matter. Overall satisfaction among customers who visited a bank branch is higher than
for those who did all their banking digitally, according to a recent
J.D. Power survey. That’s why we gave extra weight to banks with a
large branch network when we picked the best institutions for our
high-net-worth and retiree profiles.
Use our choices as a starting point to see how your bank or credit
union stacks up. You may discover that you’re satisfied where you
are—or you may find a better deal elsewhere.
Best for
HIGH-NET-WORTH FAMILIES
With their wealth-management and private-banking offerings, a
lot of banks are courting clients with significant assets. We looked
for banks that don’t require you to be a multimillionaire to take advantage of generous benefits for keeping a high deposit or investment balance. Our top picks host a broad range of no-fee accounts
and services, and they have wide networks of branches.
redeemable for travel, cash back and other items—for having a
monthly direct deposit and meeting other requirements.
Citigold is especially attractive for international travelers. You’ll
pay no foreign-exchange fee on debit card transactions, and you
can make free transfers from your account to other Citibank accounts in certain countries.
★ CITIBANK ★
Runner-up: BANK OF AMERICA BofA has several tiers of wealth
management and private banking services. Merrill Lynch Wealth
Management is dedicated to those with assets of $250,000 to
$10 million and comes with guidance from a financial adviser. U.S.
Trust, Bank of America Private Wealth Management focuses on clients with $3 million or more in investable assets seeking
advice on such issues as trust and estate
planning and philanthropy. But for
those who keep as little as $20,000
in bank and investment accounts,
BofA’s Preferred Rewards program offers benefits. The mostgenerous perks go to those
with a balance of $100,000
or more: unlimited ATM fee refunds; a 75% bonus on cash back
or points earned with eligible bank
credit cards; free checks; the ability
to hold up to four checking and four
savings accounts with no monthly
fees; discounts on loans; a 20% rate
boost on a money market deposit
account; and up to 100 free stock
trades monthly in a
Merrill Edge investment account.
With its Citigold package, Citibank rolls out the red carpet for
those who keep a combined $200,000 or more in deposit, investment and retirement accounts with the bank. Citigold
customers have access to a banking relationship
manager and a financial adviser, as well as to
wealth-management seminars, outlook
events on the markets and the
economy, and private dining,
sporting and concert events.
Citigold perks include the
option to open multiple free
Citigold checking accounts
(0.03% interest rate); unlimited
refunds of out-of-network ATM
fees; free standard checks,
cashier’s checks and money
orders; a free or discounted
safe-deposit box; increased interest rates on savings accounts;
discounts on mortgages and other loans;
$4.95 online stock trades with Citi’s
investing services; and a waiver of the
standard $75 annual fee on an investment account. Citigold members
can also earn the highest level
of ThankYou rewards points—
28
KIPLINGER’S PERSONAL FINANCE
07/2017
★ BEST ★
NATIONAL BANKS
TD BANK and
U.S. BANK (tie)
Thanks to their ability to
raise money in capital markets, larger banks have a lot
of resources at their disposal. As a result, national
banks typically offer a wide
range of services and tools,
and they have the ability to
present them to customers
through strong websites
and mobile applications.
Two banks rose to the
top, and they were so close
in total number of points
that we declared a tie.
Canadian-owned TD BANK,
whose network of U.S.
branches extends down
the East Coast, emphasizes
convenience and customer
service with its “Bank Human” campaign. Customers
who want face-to-face interaction, for example, are
well served by about 1,300
branches that are open
more hours per week—including Saturdays, Sundays
and some holidays at
many locations—
than any other national bank we
surveyed.
TD is also
friendly to
customers
who keep low
balances on deposit. It offers
a basic checking
account that requires
a minimum of just
$100 to avoid a
monthly fee, a basic
savings account
with a $300 minimum, and certificates of deposit
with a mini-
mum of $250. Or, with the
Premier checking account,
keep a $2,500 balance and
you’ll pay no monthly fee
and get refunds of all outof-network fees. TD offers
free checking for students
and a low-minimum checking option if you’re age 60
or older. Customers who
have $750,000 or more in
investable assets or a net
worth of at least $3 million
(excluding a primary residence) can tap into TD’s
private bank services for
personalized wealth management and financial planning help.
U.S. BANK has an even bigger footprint than TD Bank,
with more than 3,000 banking offices in 25 states. The
Minneapolis-based bank
has something for just about
everyone. It offers several
checking accounts, including the Silver package, with
which you can open a
money market savings account, too. If you have both
Best for
RETIREES
Banks like having retirees as customers because they tend
to keep a lot of cash on deposit. So banks often offer special
accounts or perks to older customers. Our top picks have
senior-friendly accounts, offering rewards that include no-fee
checking accounts that earn interest, as well as access to a
range of savings, retirement and investment accounts. Bonus:
They don’t impose penalties for traditional bank perks, such
as paper statements, and even offer free checks.
★ U.S. BANK ★
For those 65 and older, U.S. Bank waives the monthly maintenance fee on its Premium Checking account, which yields
from 0.01% to 0.02%, depending on the balance (other customers must maintain a $5,000 balance to avoid the fee).
Standard checks, paper statements, money orders, cashier’s
checks, and copies of checks and statements are all free, and
a safe-deposit box is half-price. Plus, U.S. Bank won’t charge
Premium account customers for using an ATM outside its network, although the machine’s owner may levy a fee. U.S. Bank
offers seniors a variety of savings products, including a retirement money market account that earns interest within one
of the bank’s IRAs (you can also use CDs in an IRA).
If you want a deeper relationship with the bank, it also offers
a suite of investment and wealth-management services. Members of the Private Client Group, for customers with investable
assets of $100,000 to $3 million, get a dedicated relationship
manager and access to services such as trust administration.
Runner-up: FIDELITY CASH MANAGEMENT
ACCOUNT Fidelity’s Cash Management account
doesn’t come from a bank, per se, but it has the perks
of a great checking account: no monthly fee or minimum balance requirements and a 0.07% interest
rate, a debit card, free checks and paper statements, and reimbursement of all ATM fees. You
aren’t required to have an investment account
or other ties to Fidelity to use Cash Management,
but you do have to be comfortable using an online
checking account. Other pluses: You can safeguard up to $1.25 million in deposits with Federal
Deposit Insurance Corp. coverage (well beyond
the standard $250,000 limit per individual account
holder) thanks to a cash-sweep program, which moves
balances higher than the FDIC limit to accounts with partner banks. If you use the Fidelity Rewards Visa credit
card, you’ll get 2% cash back on all purchases if
you deposit the earnings into your account.
07/2017
KIPLINGER’S PERSONAL FINANCE
29
MONEY
Best for
FREQUENT TRAVELERS
Travelers can save a bundle with free checking accounts that
don’t charge ATM or foreign-transaction fees.
★ CHARLES SCHWAB BANK ★
If you open Charles Schwab’s High Yield Investor Checking account, which is part of Schwab’s online banking arm, you’ll get
refunds of all ATM fees worldwide, including fees levied by the
ATM owner, and you won’t pay foreign-transaction fees when
you use the debit card. You’ll need to open a Schwab One brokerage account along with the checking account, but both accounts are free to open and maintain, even if they sit empty. The
checking account pays a smidgen of interest (recently 0.13%),
and Schwab’s no-fee savings account yields 0.3%. The mobile
app helps you stay on top of your accounts while you travel,
with bill pay, mobile check deposit and monitoring of your
transactions. If you lose track and overdraw your account, the
overdraft or insufficient funds fee is $25, but Schwab will also
transfer funds free from a linked account to cover overdrafts.
If you run into problems while you’re traveling, you can
get live help by phone or online chat around the clock, or you
can use Schwab’s two Twitter feeds (@SchwabService and
@CharlesSchwab) and Facebook page.
Runner-up: CAPITAL ONE 360 The online-only subset of Capital One offers several appealing features for travelers. Withdrawals from Allpoint and Capital One ATMs are free, and
360 waives the fee at ATMs worldwide (but you may still be
charged a fee by the ATM owner). You won’t pay transaction
fees when you make purchases with your debit card in the
U.S. or abroad. The free checking and savings accounts
both pay interest: 0.2% or more for checking, depending on the balance, and 0.75% on all savings
balances. You’ll have to enroll in overdraft coverage
if you don’t want your card declined; fees for insufficient funds are a low $9. You can also link a line of
credit or secondary account free to cover overdrafts
automatically.
With its strong fraud-alert systems, you no longer
have to inform Capital One of your travel plans to
use your debit card away from home. You can
also temporarily lock your debit cards online,
and use the Wallet app to receive real-time
notifications of purchases. In case of trouble, you can speak directly with Capital One
reps by phone or online chat seven days a
week. The social media teams are also
active seven days a week.
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KIPLINGER’S PERSONAL FINANCE
07/2017
accounts, you’ll avoid a
monthly fee if you have a
monthly direct deposit of
$1,000 or a $1,500 combined
account balance. (The Silver
package also qualifies you
for one year’s membership
in the Start Smart program,
through which you set up
automatic transfers from
checking to savings and
earn bonuses.) The Gold
package checking account is
free if you have a qualifying
U.S. Bank credit card, loan
or line of credit. Savers can
choose among money market deposit accounts, savings accounts and CDs with
varying interest rates, including CDs with promotional interest rates that
were recently as high as
2.05% on a 59-month term,
depending on location
($1,000 minimum deposit).
U.S. Bank also caters to
specific groups. Current
and former members of the
military can use any of the
bank’s checking accounts
with no monthly fee, and
the bank also offers free
accounts for students and
seniors (see the box on page
29). And for 10 years running, U.S. Bank has been
the most trusted bank for
privacy and data security,
according to surveys of
bank customers from the
Ponemon Institute, a research firm.
★ BEST ★
CREDIT UNIONS
LANGLEY FEDERAL
CREDIT UNION
Credit unions are nonprofit
institutions owned by their
members—meaning they
tend to offer accounts and
services that are more customer-friendly than those
of large national banks.
Many credit unions limit
membership to people who
live in the region or work
for eligible employers, but
some open their doors to
any U.S. customer who joins
a qualifying organization.
Virginia-based LANGLEY
FEDERAL CREDIT UNION got
its start in 1936, when
members of the National Advisory Committee for Aeronautics
(the predecessor to NASA)
chartered it. Later, Langley
expanded its reach, opening
membership to Air Force
civilian and military personnel in the Hampton
Roads area. Today, anyone
can take advantage of Langley’s attractive suite of accounts by paying a fee of as
little as $5 to one of several
Virginia causes.
Members can choose
among four checking accounts, three of which
Best for
MILLENNIALS
Millennials value strong mobile and
digital features, as well as an active social
media presence. Instead of banks with
lots of branches, we focused on ones
with no- and low-fee checking accounts,
as well as savings and money market accounts that pay decent yields.
★ ALLY ★
Ally Bank, which also tops our ranking of
internet banks, is a stellar option for millennials. Its menu is limited to a single
checking, savings and money market deposit account. There are no hidden fees,
and the savings account yields 1.05% no
matter what your balance. The money
market deposit account yields 0.85% on
all balances and comes with a debit card
and free checks. Even the checking account
pays 0.1% on balances under $15,000 (and
0.6% on deposits above that). Withdrawals from any ATM in the Allpoint network
are free, and Ally will rebate up to $10 per
month in surcharges from other ATMs.
You can link your debit card to Apple Pay,
Android Pay or Samsung Pay. Ally also
offers Popmoney (the service that allows
you to send or receive money using someone’s mobile number or e-mail address).
You can link your checking account to a
charge no monthly fee.
Langley also offers a free
money market deposit account that yields up to 0.5%,
certificates of deposit that
yield from 1% on a one-year
term to 2.02% on a fiveyear term ($1,000 minimum
deposit), and a variety of
no-fee savings accounts,
including one that pays interest of 1.61% on balances
of up to $1,000. (Langley is
also our runner-up pick for
millennials; for more details
on its accounts, see the box
savings or money market account to cover
shortfalls. If you don’t set up an overdrafttransfer service, your transaction may be
declined if you overdraw your account, and
you may be penalized $25. Live customer
service is available by phone or online chat
24/7. Ally is responsive on social media as
well; you can expect an answer to most
Facebook messages within a few hours.
With the mobile app, you can deposit
checks remotely, pay bills and even check
your FICO score. Or enroll in “text banking”
to check your balance or review transactions by sending simple text commands.
Langley debit cards are compatible with
Apple Pay, Android Pay and Samsung Pay.
Runner-up: LANGLEY FEDERAL CREDIT
UNION Even if you don’t live or work in the
Hampton Roads area of Virginia, where
Langley is based, you can still become a
member by joining one of several local
associations. Langley offers a varied
menu of no-fee checking accounts
and savings accounts. On the
checking side, if you want to earn
interest on your money, the free
LangleyPays checking account
yields 1.61% on the first $1,000 in deposits and pays 10 cents every time you
swipe your debit card. On the savings
side, the Langley Saves account
earns 1.61% on the first $1,000 but
only 0.05% on higher balances. If
you’d like a stricter way to keep track
of your spending, you can use Langley’s
Spend Card, a prepaid card that is completely fee-free. (Langley is also ranked
number-one among credit unions; for
more details on its offerings, see the
accompanying story.)
above.) You can use the
more than 55,000 ATMs in
the Allpoint network free
and link your checking account to a savings account
or line of credit in case of
an overdraft without paying
a fee to make the transfer.
Customers also have access
to investment, tax-preparation and insurance services.
Runner-up: CONNEXUS CREDIT
UNION For high yields on
checking and savings, Connexus is a top contender.
(Connexus is based in
Wausau, Wis., but extends
membership to anyone
who makes a $5 donation
to charitable organization
Connexus Association.)
With its free Xtraordinary
Checking account, you get
up to $25 a month in outof-network ATM fees reimbursed and earn 1.75%
interest on balances of up
to $25,000 if you meet certain monthly requirements,
including making 15 debit
card transactions and
having a direct deposit.
(Or get a 1.35% yield with
the MyRewards account
by meeting fewer requirements.) Connexus’s savings options include a
free money market deposit
account, with rates ranging
from 0.5% to 1.15% if you
meet checking account
activity requirements
($1,000 minimum to earn
interest), and CDs with recent rates of 1.5% for one
year and 2% for three years
($5,000 minimum).
07/2017
KIPLINGER’S PERSONAL FINANCE
31
MONEY
★ BEST ★
INTERNET BANKS
Best for
MILITARY PERSONNEL
Service members, who may have to move frequently and
face sudden and extended deployments, value no-hassle
accounts with friendly policies for those who do their banking
around the country and the world.
★ NAVY FEDERAL CREDIT UNION ★
Open to current and former members of all military branches,
Navy Federal has a strong mix of accounts. Active-duty personnel with a qualifying military direct deposit can use a free
checking account that yields 0.05% interest and reimburses
up to $20 per statement cycle in out-of-network ATM fees.
All of the credit union’s checking accounts—including one that
yields up to 0.45%—come with free checks and free transfers
from a savings account to checking in case of an overdraft.
The no-fee basic savings account yields 0.25%, and a free
money market deposit account pays a rate of up to 0.55%
(depending on the balance). Plus, Navy Federal offers the
Go prepaid debit card, which has no monthly fee and is usable
anywhere that accepts Visa debit cards. Both the prepaid
card and standard debit cards from Navy charge a reasonable
1% fee on transactions abroad made in foreign currencies.
Navy Federal has 298 branches worldwide (often on or
near military bases), including locations in 30 U.S. states.
It also offers a host of military-specific resources and advice,
such as free financial seminars around the U.S.
Runner-up: ANDREWS FEDERAL CREDIT UNION Andrews
Federal is centered in a few East Coast states and caters to
the local military community, with branch locations on and
near Joint Base Andrews, in Maryland, and Joint Base
McGuire-Dix-Lakehurst, in New Jersey. But anyone in
the country can become a member by paying a $5 fee
to join the American Consumer Council. The credit
union offers a free, no-strings checking account (as
well as an interest checking account that yields 0.1%
on balances of $5,000 or more), plus a free savings
account with a rate of 0.31% on balances of $100 or
more. Members can use ATMs in the CO-OP network,
with nearly 30,000 machines, free of charge, and
Andrews doesn’t charge a fee to customers who use outof-network machines (ATM operator charges may apply).
Andrews also offers a no-fee Visa prepaid debit card.
Especially for service members living in Europe,
Andrews has some attractive features, including
the ability to pay bills online in the local currency
and branch locations at military installations in
Belgium, Germany and the Netherlands.
32
KIPLINGER’S PERSONAL FINANCE
07/2017
ALLY
If you’re comfortable banking online or by smartphone, internet banks hold
plenty of attraction. With
no costly branches to staff
and maintain, they can pass
along lower fees, higher interest rates and friendlier
overdraft policies. Features
such as remote check deposit, ATM-fee rebates and
around-the-clock customer
service make it easier to
manage your money without a branch.
Our winner, ALLY BANK,
simplifies online banking by
offering one checking, one
savings and one money market deposit account. (Ally is
also our top pick for millennials; see page 31.) None of
the accounts charge a fee or
require you to keep a minimum amount on deposit.
The checking and money
market accounts come with
free checks, and if
you’re not comfortable using
the mobile app
to make deposits,
you get free
postage-paid
envelopes
to mail
them in.
Ally offers
a no-penalty CD (0.9%
to 1.1% for 11
months, depending on
the opening deposit) and an
IRA savings
account that yields 1.05%.
Ally customers can use
Allpoint network ATMs
free, and the bank rebates
up to $10 per month in ATM
fees when you go outside of
the network. Ally also offers
auto and mortgage loans,
and it recently debuted Ally
Invest, a low-cost trading
platform and robo-adviser.
Runner-up: BANK OF INTERNET
Bank of Internet offers a
range of no-fee checking
accounts that cater to a variety of customers (BofI is
also our top bank for students; see page 34). For
example, both the no-frills
Essential Checking account
and CashBack Checking,
which rewards customers
with up to 1% cash back on
debit card purchases, offer
free ATM withdrawals anywhere in the U.S. The Platinum Checking account,
which delivers a flat rate of
0.71% on balances of $5,000
and above, reimburses you
up to $8 per month on domestic withdrawals. Overdraft transfers from linked
accounts are free. The
savings account pays 0.61%,
and the money market deposit account yields 0.75%—
with no fees or minimumbalance requirement. A
60-month CD ($1,000 to
open) earns 1.5%. You can
bank online, by phone or by
text. The mobile app allows
you to review account history, transfer funds, deposit
checks remotely and more.
Another nice perk: You can
get up to 15% cash back
from retail partners when
you use your debit card to
shop. Live customer service
is available by phone 24/7
or via online chat.
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MONEY
★ BEST ★
REGIONAL BANKS
Some regional banks rival
national ones in size and
reach, and they offer their
customers similar resources.
But many also strive to invest in the communities
they serve. Here we highlight the top banks in four
major regions in the U.S.
EAST
PEOPLE’S UNITED BANK
People’s United Bank was
founded in Connecticut in
1842 as a bank for the middle class. The bank’s first
employees worked for no
pay—perhaps not surprising
for a bank with a populistsounding name. Nearly 175
years and several mergers
and acquisitions later, People’s United operates nearly
400 branches in six northeastern states.
The bank’s menu of checking accounts includes the
basic Plus Checking account,
which requires a direct deposit or a $1,000 daily balance to avoid a monthly fee;
the ePlus Checking account,
which waives the monthly
fee if you receive e-statements and make at least 10
electronic bill payments
monthly; and Advantage
Checking, which requires
a combined balance of at
least $7,500 in deposit,
retirement, investment
and loan accounts to waive
monthly fees but reimburses
out-of-network ATM fees
in the U.S. and offers free
standard checks and creditreport monitoring.
People’s United has some
handy features on its mobile
app: You can switch your
debit card on and off, for
34
KIPLINGER’S PERSONAL FINANCE
07/2017
one. The bank’s debit cards
are compatible with mobile
wallets Apple Pay and Samsung Pay. The bank also
offers wealth-management
and investing services.
MIDWEST
FLAGSTAR BANK
Flagstar Bank has earned
a national reputation as a
mortgage lender, but its
home base is Troy, Mich.,
a suburb of Detroit, and
it has 99 branches throughout mid Michigan. Its nofrills and interest-bearing
accounts offer flexible ways
to avoid monthly fees, especially if you hold money in
more than one account.
For checking, you can
choose the free basic account or one that offers
additional perks and earns
a bit of interest. For example, SimplyPlus+ Checking
earns an unspectacular
0.03% to 0.05%, depending
on your balance, but it
eliminates monthly fees
for those 50 and older and
waives two out-of-network
ATM fees per cycle. (If
you’re younger than 50, you
can avoid the $10 fee if you
maintain an average daily
balance of $1,000—or
$5,000 in a combination of
Flagstar deposit accounts.)
Savings and money market
deposit accounts aren’t
super generous, either, but
they’re fee-free as long
as you have a checking account at Flagstar. The basic
savings option earns 0.1%
on all balances, and
the money market account
pays 0.15%
for balances
of $10,000
and above.
Michigan-based customers
can qualify for preferred
rates on CDs ($500 to open).
For example, when you hold
more than $5,000 in checking, savings and money
market accounts, you receive a rate of 0.95% on a
12-month CD—a 0.65 point
bonus. Customers also get a
0.25-percentage-point rate
reduction on personal and
home-equity loans or lines
of credit.
SOUTH
TRUSTMARK
NATIONAL BANK
Trustmark has 200 branches
in Alabama, Florida, Mississippi, Tennessee and
Texas. The bank sealed its
reputation as a community
builder after Hurricane
Katrina, when it waived
late-payment fees and
offered special rates on
loans and deposit accounts
in areas impacted by the
hurricane. It later opened
more branches on the Mississippi coast.
Trustmark offers six
checking accounts that
cater to a wide spectrum
of customers, from students
to the 50-plus set. The basic
Smart Choice Banking account eliminates monthly
fees if you keep $1,000 or
more in the account, actively use your debit card
or receive a direct deposit
of at least $100 per cycle.
If your combined balance
for all Trustmark deposit
accounts or loans exceeds
$25,000, the $20 monthly
fee is waived for Relationship Banking, and you
earn 0.1% on your checking
balance and up to 0.2% on
a money market account,
depending on where you
live. Plus, the bank comps
fees for overdraft transfers
and out-of-network ATM
withdrawals.
Best for
STUDENTS
The ideal bank for students
will also appeal to parents
who want to open an account alongside their child
for quick and easy money
transfers. Our picks don’t
have many (or any) branches,
but they charge low (or no)
fees to maintain an account
and withdraw cash, and
they have strong mobile
and digital features to make
branchless
banking
more
seamless.
★ BANK OF INTERNET ★
Free, no-frills Essential Checking
is a good choice for students
and parents who want to bank
together. There is no fee to open
the account, no monthly maintenance fees, and no fee for withdrawals at any ATM in the U.S.
or to transfer funds from a linked
account or line of credit to cover
overdrafts. Otherwise, Bank of
Internet covers overdrafts on a
case-by-case basis, but it doesn’t
charge a fee when it does.
Parents can transfer funds
between joint BofI accounts
instantly or send money via Popmoney, a payment app offered
by a number of banks. At BofI,
standard delivery (three business
For customers with deeper
pockets, Trustmark offers a
suite of wealth-management
services, including financial
planning, retirement planning and investment advice.
WEST
BANK OF THE WEST
Bank of the West got its
start in 1874 as a San Jose,
Calif., bank that issued paper currency backed by gold
reserves. Today, the bank
has more than 600 branches
and offices spread throughout the western U.S. But,
true to its ties to Silicon
Valley, investing in technology is a key component of
its mission. It was the first
bank in the U.S. to offer the
Quick Balance feature on
its mobile app, which allows
customers to see account
balances and recent transactions without logging in.
The bank’s credit and debit
cards work with several
days) is free. Students (and parents) can also open a High Yield
Savings account, which charges
no monthly fees and yields a generous 0.61%. (Bank of Internet is
the runner-up internet bank; for
more details on its accounts, see
the accompanying story.)
Runner-up: ALLIANT CREDIT
UNION If you don’t live near one
of Alliant’s 12 branches located
in five states, you and your family
can bank using Alliant’s strong
online and mobile banking features. (You can join Alliant if you
make a $10 donation to its partner charity, Foster Care to Success.) Kids between 13 and 17 are
eligible for a free Teen Checking
mobile wallets, including
Apple Pay and Samsung Pay.
Javelin Strategy & Research
recognized Bank of the
West in 2016 as an online
banking leader for innovation and personalization.
The bank’s basic Easy
Checking account offers
flexible options to avoid
a monthly fee: maintain
a $1,000 balance, receive
a $250 monthly direct deposit per statement cycle
or use your debit card for
at least 10 purchases each
statement cycle. If you
can keep a higher balance
in a checking account,
choose one of the relationship accounts. Premier
Checking provides reimbursement of out-of-network ATM fees worldwide,
discounts on loans, free
standard checks and no
monthly fee if you keep
at least $25,000 in deposit,
retirement and investment
account, which yields 0.65%
as long as they receive e-statements and have one electronic
deposit per month—a direct
deposit, monthly ATM deposit
or transfer from another bank.
Once your teen turns 18, the
account automatically converts
to a no-interest Free Checking
account, or your teen can switch
to High Rate Checking (0.65%
yield) by meeting requirements
similar to the teen account. Alliant covers the $5 fee to open the
mandatory regular savings account, which pays 1.05% on daily
balances of $100 or more. Overdraft fees are a reasonable $25,
and covering an overdraft with
funds from a savings account
accounts. Premier customers also get other perks,
including 15 commissionfree online stock trades per
month and a free retirementplanning checkup (wealthmanagement services are
available, too). Choose from
a number of savings accounts and CDs, including
a money market deposit account that recently yielded
up to 0.25%, depending on
your balance and relation-
ship with the bank. (Account terms may vary by
state; the ones listed here apply to California residents.)
If you live in Hawaii,
consider First Hawaiian
Bank, owned by Bank of
the West’s parent company,
BancWest (a subsidiary of
French banking company
BNP Paribas). It offers a
free basic checking account,
as well as several attractive
account packages. ■
HOW WE PICKED THE TOP BANKS AND CREDIT UNIONS
Kiplinger used data from Moebs Services, a Lake Forest, Ill., economic research
firm, to rank national and regional banks and thrifts, credit unions, and internet
banks. We used the results to name a first-place winner and runner-up (among regional banks, we name only one top bank). The process to select the best started
with all 11,831 U.S. depositories as of year-end 2016. To identify the soundest financial institutions, Moebs applied screens for asset size (to ensure sufficient resources), excess fees, high expenses and sufficient capital. The resulting universe
included 18 national banks (institutions with more than $25 billion in assets and at
least 15% of deposits in two or more regions); 35 regional banks with more than
$10 billion in assets, assigned to four regions and then ranked; 22 all-access credit
unions (which allow anyone in the U.S. to join) with more than $500 million in assets; and 14 internet-only financial institutions. For each profile, we started with
top financial institutions identified by the Moebs rankings but then drilled down,
adding our own research and judgment, to find banks, thrifts and credit unions
with accounts and features most appealing to each group.
costs $3 per day an overdraft is outstanding.
Circumventing ATM
fees is easy: More than
80,000 ATMs in several
networks are available free to Alliant
members, and
out-ofnetwork
ATM
charges
are reimbursed up to $20
per month. The mobile
app offers a budgeting
tool and in-app secure
messaging, as well as
account tracking and
check deposit.
07/2017
KIPLINGER’S PERSONAL FINANCE
35
MONEY
HOME
Downsize
Your Stuff
Don’t let these common but misguided notions derail your goal
to declutter and lighten up. BY PATRICIA MERTZ ESSWEIN
WE SPEND THE FIRST HALF OF
our lives accumulating stuff
and the latter half trying
to get rid of it, says Barry
Izsak, a professional organizer in Austin, Texas. If
you’re in the second phase,
we’ll help you make the
tough decisions about what
to toss and offer suggestions
on where to sell your stuff.
Still too daunting? We also
tell you when it’s time to
call in the pros. But first,
you need to get over these
often-untrue truisms.
I just need to
get organized.
That’s probably a good bet,
but first you need to figure
out what to toss. And many
baby boomers face a special
dilemma: After decades of
accumulating their own
possessions, they want to
simplify their lives even as
their parents are dying and
leaving behind a tidal wave
of stuff, says Julie Hall, director of the American Society of Estate Liquidators. At
the same time, their millen36
KIPLINGER’S PERSONAL FINANCE
07/2017
nial kids are leaving home
and leaving behind many of
their possessions. The solution? Dispose of as much as
you can, then organize
what’s left.
Think of the disposal process as “right-sizing” your
stuff, meaning you should
have the right amount of
stuff at the right time in
your life, says Izsak. He advises clients to keep only
what they find useful or
beautiful and to sell, donate
or toss the rest. (For our
take on the decluttering
philosophy that powered
a best-selling book, see
the box on page 39.)
The kids may need
it someday.
“News flash! Your kids
grew up with too much
stuff and don’t want any
of yours,” says Bonnie Kallenberg, owner of Finders
Keepers Consignments,
in suburban Atlanta. Millennials value mobility
and experiences, not stuff.
Tastes have changed from
formal to informal, from
traditional to contemporary
and from cluttered to clean.
Mid-Century Modern
furnishings and decor are
hot, and “brown furniture”
(traditional styles in dark
stains or woods) and big,
heavy pieces (china hutches
and entertainment centers)
are not. Many twenty- and
thirtysomethings don’t like
furniture upholstered in
floral, plaid or paisley fabric. They don’t want to
clutter their space with
Hummel figurines or other
tchotchkes. They tend to
live and entertain informally
and don’t want anything
they can’t wash in the dishwasher, so they’ll probably
take a pass on the crystal,
china and silver.
Ask your children what
they would like to have,
accept their answers, and
don’t pressure them into
taking more than they want.
As for another issue faced
by many empty nesters—
serving as Mom-and-Pop
Storage Inc.—if you like,
ILLUSTRATIONS BY PUSHART
agree to store your adult
children’s belongings until
they get settled, but give
them a deadline for pickup.
My cookie jar
collection must
be worth a fortune!
Mass-produced collectibles
such as Beanie Babies and
Dickens’ Village pieces are
“dead, period, everywhere,”
says Kallenberg. Older collectors, who amassed large
arrays of stuff, are passing
away, and younger collectors value quality over
quantity. They will want
only the best of your 50
cookie jars or the rarest of
your Disney figurines.
Fine collectibles are a different matter (see the box
on page 38). In hastily filled
trash bags in the home of a
client’s parents, Hall found
antique fountain pens that
sold for more than $1,000,
three $20 gold coins that
were worth $1,300 apiece at
the time, and a turn-of-thecentury Louis Vuitton trunk
filled with memorabilia
from World Wars I and II.
The trunk sold for about
$5,500 and its contents for
about $2,000.
To begin identifying what
you have and get a sense of
its value, search eBay.com’s
listings of sold items. Old
appraisals (done more than,
say, three to five years ago)
may prove helpful for identification but are useless for
valuation. It’s best to hire a
personal-property appraiser
or an experienced estate
liquidator (see below), who
may also be certified as an
appraiser, to visit your home
for a few hours to identify
potentially valuable items
and give you a ballpark esti-
mate of their fair market
value. (A written appraisal
report may be needed only
for insurance or estate tax
purposes or if you claim a
tax deduction for donation
of property worth more
than $5,000.) The appraiser
can tell you where to sell
your items or can broker
items to private buyers,
dealers or auction houses
for a commission (the
higher the estimated sale
price of the item, the lower
the commission).
You can find personalproperty appraisers at the
American Society of Appraisers (www.appraisers
.org), the Appraisers Association of America (www
.appraisersassociation.org)
and the International Society of Appraisers (www
.isa-appraisers.org). Appraisers’ fees often range from
$125 to $300 per hour.
I can sell things
fast online.
Maybe, but it takes more
time and effort than most
people expect. However,
you could try to sell at least
some stuff yourself.
Put it on Craigslist. You can
list items free on one of its
415 local sites in the U.S.
Or use a neighborhood listserv, if you have one.
Auction it online. On eBay
.com, you can list up to 50
items a month free and pay
30 cents per item thereafter
(unless you have an eBay
store). When you get paid,
eBay takes a 10% cut of the
sale (up to a maximum of
$750 per sale), and PayPal
takes 2.9% plus 30 cents per
domestic transaction to
07/2017
KIPLINGER’S PERSONAL FINANCE
37
MONEY
process payments. You can
print eBay labels with shipping discounts of up to 24%
on Priority Mail and up to
37% off FedEx rates.
To simplify your life, enlist eBay Valet to sell your
items for you. Mail them to
the Valet with a postagepaid label, or drop off your
stuff at a FedEx location.
The greater the sale price,
the more you earn, from
25% of the sale for items
that go for less than $25 to
80% for items that sell for
$500 or more. If an item
doesn’t sell within 60 days,
the Valet will return it to
you, free.
Consign it. Consignment
shops often specialize in a
certain type of merchandise, such as clothing, furniture, electronics or sporting
goods. Call ahead to verify
that a shop wants what you
have. For example, it may
not accept clothing or holiday decorations out of season. Ask if you can e-mail
or text a photo of items, or
if you need to schedule an
appointment.
Resale shops like to advertise “nearly new or
barely used,” says Adele
Meyer, executive director of
NARTS, the Association of
Resale Professionals (www
.narts.org). Plus, “if clothing
looks like 1990—and not in a
cool way—or the color isn’t
popular now, nobody will
want it,” says Kallenberg.
KipTip
Selling Your Treasures
If you have valuable collectibles, such as coins, fine art, historical
artifacts, timepieces or wine, an auction house is the best way
to attract deep-pocketed enthusiasts. Estate liquidators and
appraisers can refer you to auction houses, or you can search for
auctioneers by location and specialty at www.auctioneers.org.
Collectors have a variety of reasons for selling, says Greg
Rohan, president of Heritage Auctions, based in Dallas, the thirdlargest auction house in the world, after Sotheby’s and Christie’s.
A collector may lose interest or be pressured by a spouse to
downsize the collection. Or a collector may want to avoid burdening his family after he dies. “Way too many times, I’ve seen
a collection left to a spouse with no interest or expertise who
has said, ‘If he wasn’t already dead, I’d kill him for leaving me
with this,’ ” says Rohan.
Heritage conducts live auctions in several locations in the
U.S. and abroad, as well as online auctions, in 40 categories.
It will provide free “auction estimates” of your items, recommend which of its formats will work best for you and promote
your collection to its more than 1 million registered bidders
worldwide. Heritage requires a minimum fair market value of
$5,000 per collection, regardless of the number of pieces. It
charges a commission of up to 20%, but for high-value items,
the company may charge you nothing because it will charge
the buyer a premium of 12% to 25% of the buyer’s winning bid.
38
KIPLINGER’S PERSONAL FINANCE
07/2017
The faster you make up your
mind to sell something you
will never wear again (such
as a mother-of-the-bride
dress), the more money
you’re likely to make on it,
she says.
Shops typically allow a
total of 45 to 60 days for
an item to sell and begin to
mark down the price after
30 days to keep merchandise from getting stale, says
Meyer. They typically take
a 50% to 60% commission
from the final sale price.
They’ll ask you to pick up
your unsold items at the
end of the term, or they’ll
donate them.
Estate sales are
for the rich.
Whether your house is a
bungalow or a mansion,
if it’s full of stuff that you
need to dispose of quickly,
an estate liquidator can
help. Before you hire one,
you and your family should
take what you want. But
don’t donate or trash anything else, lest you fail to
meet liquidators’ typical
minimum estimated sale
value of $5,000 to $10,000.
During a walk-through,
liquidators will estimate
the value of the sale overall
and identify any high-value
items that would sell for
more at auction. Maria
Masse, an appraiser and
owner of Capitol Estate
Services, in Olympia, Wash.,
says items show and sell
best in a home, but limited
parking or community
restrictions may necessitate holding the sale at a
warehouse or elsewhere.
Ask companies how far
in advance they book up;
summer slots typically fill
faster than winter ones.
The liquidator will sort,
price and photograph the
home’s contents for online
marketing and sales, and
it will advertise the sale on
a site such as www.estate
sales.net. Pricier items, such
as jewelry, that might attract sticky fingers will be
displayed in one case or
room, watched over by a
staff member.
Estate liquidators typically charge a commission
of 35% to 40% of the sale.
They may charge additional
fees, including an initial deposit of, say, $250, to cover
their up-front expenses;
a penalty fee if you remove
things after signing the
contract; and an hourly fee
to donate, trash and recycle
any leftovers and leave the
house swept clean. You’ll
typically receive your final
payment, including a refund
of any deposit, within a
week to 10 days after the
sale. To find an estate liquidator, visit www.aselonline
.com and search by zip code.
And here’s a bonus: If
you’re planning to sell the
home, an estate sale can
serve as a kind of open
house. Not only will you sell
your stuff, but you might
also get a purchase offer
on the house—the ultimate
estate sale, says Masse.
Another option is to get
help from a member of the
National Association of Professional Organizers (www
.napo.net) or the National
Association of Senior Move
Managers (www.nasmm
.org). They typically charge
an hourly rate from $35 to
more than $100 and may
offer various packages of
time and services. ■
The KonMari Method
Can Tidying Up Change Your Life?
Can a strategy for decluttering
change your life? Marie Kondo, a
Japanese organizing consultant and
author of the best-selling book The
Life-Changing Magic of Tidying Up:
The Japanese Art of Decluttering
and Organizing (Ten Speed Press),
claims that it can, and many of her
fans agree.
Kondo says she offers more than
just a set of rules for decluttering;
her method is also a guide to acquiring the right mind-set for creating
order and establishing the lifestyle
you want. People who have followed the KonMari Method say they
have not only dramatically reorganized their homes but also quit jobs,
launched businesses, increased
their sales at work, avoided a
divorce (or obtained one) and—this
one really caught my eye—lost 10
pounds. I was skeptical, but I’m an overweight baby boomer drowning in stuff,
so I was willing to give it a try.
Kondo says tidying involves two actions:
discarding and deciding where to put things
away. And discarding must come first. She
calls storage a “booby trap” because you
probably don’t need most of the things
you’re stowing and concealing. And it can
get expensive if you’re buying crates or bins
at the Container Store or renting a storage
unit. She emphasizes that you must undertake the discarding process “intensely and
completely.”
To begin, sort your stuff by category. Because we often store the same type of item
in multiple locations, we don’t realize what
or how much we have or that we have multiples of the same item. Choose one category
at a time, and spread out everything in that
category on the floor (or some other staging
area, such as the dining-room table or your
bed). To hone your culling skills, begin with
easy categories, such as clothes and books.
Save for last items that have sentimental
or emotional ties, such as photographs and
mementos.
Sparking joy. Kondo’s advice struck me as
perfectly practical at first, but then she began to get a little woo-woo: “Take each item
in one’s hand and ask, ‘Does this spark joy?’
If it does, keep it. If not, dispose of it.” Also:
“By exposing [your things] to the light of day
and jolting them alive, so to speak, you’ll find
it surprisingly easy to judge whether they
touch your heart.” Okaaay ...
Still, I persisted. I began with my clothes,
which I extracted from a chest of drawers
and two closets (a third holds vintage pieces
to which I’m sentimentally attached, so
they’ll have to wait). I worked through each
subcategory—tops, bottoms, socks and so
on. I touched each piece and asked myself if
it sparked joy. Many times, the answer was
no—not if I never liked it and avoided wearing
it, nor if it no longer fit and probably never would again.
I found myself talking to my
clothes. “Yes, blouse, I love your
color, and I always enjoy wearing
you!” or “No, I’m sorry, I don’t love
you, but someone else will!” After
about four hours, I had eliminated
75 items—clothing, shoes and accessories—that I will donate. Using
ItsDeductibleOnline.com, I estimate that I can take an itemized
deduction of $696 on my 2017 tax
return. I even emptied some space
in our walk-in closet that my husband can use if he likes.
I’d heard of Kondo’s method for
folding clothes, which I had poohpoohed. But I tried it and discovered that it was brilliant! (Fold
each item into a rectangle about
the same height as the drawer and
arrange the folded items side by side.) I could
view them like the spines of books on a bookshelf and remove what I wanted without
ransacking a stacked pile of clothes.
Next, I tackled books, which proliferate in
our home like mushrooms after a rain. Kondo
says the most common reason to keep a
book is that you might read or study it again
someday, and she points out—rightly, in my
experience—that that’s unlikely. She says
there is no meaning in books just sitting
“dormant” on your shelves. As she suggested,
I asked myself, Does this book fall into my
“personal Book Hall of Fame”? In a few
hours, I let go of 98 books—many that had
collected dust for years—that we will donate
for someone else to enjoy. I even identified a
few titles (using www.bookfinder.com) that
may have value in the used-book market.
I haven’t lost any weight, but I do feel
somewhat lighter. And I plan to apply the
KonMari Method to the rest of my family’s
belongings. PATRICIA MERTZ ESSWEIN
07/2017
KIPLINGER’S PERSONAL FINANCE
39
MONEY
live in New York. If I
Q Ibuy
a second home
in Florida, can I count
Florida as my residence
for state tax purposes?
number of days you spend
in each state during the
year, says Tim Steffen, director of financial planning
for Robert W. Baird. In the
past, snowbirds could use
plane tickets to show they
were gone more than six
months, but that may no
longer suffice, says Terry
LaBant, senior wealth strategist for Calamos Wealth
Management in Naperville,
Ill. State tax auditors may
MAYBE, AND CLAIMING THE
Sunshine State as your
permanent residence could
save you a lot of money. Florida has no state income tax,
whereas New York has a top
income tax rate of 8.92%.
But you can’t just tap your
heels together to make it
happen. And tax officials
in states that are home to
a lot of snowbirds—New
York and Minnesota in particular—have become more
aggressive about going after
people they consider taxpaying residents.
State laws vary, but in
general, you need to be
able to prove that you intend to make the low-tax
state your permanent home,
says Rocky Mengle, a senior
analyst for CCH, a division
of Wolters Kluwer. The
easiest way to do that is
to sell your place up north
and move down south. Of
course, for many retirees,
it’s not that simple. You may
want to keep the northern
home in your family or return there during the summer months. If that’s your
plan, be prepared to keep
meticulous records that
40
KIPLINGER’S PERSONAL FINANCE
07/2017
will demonstrate your devotion to your new state.
Prove it. First, you’ll need to
show that you spend more
than half the year—183
days—in the state you claim
as your domicile (that is,
the place you consider your
permanent home). That’s
the basis for most state definitions of residency for tax
purposes. But don’t expect
state tax auditors to take
your word for it. Keep a
diary or log showing the
claim that such tickets only
show where you were the
day you left New York for
Florida and the day you
returned, but not all of the
days in between, he says.
Next, take steps to show
that you’re committed to
your new state. Register
to vote and, if you receive a
jury summons, perform your
civic duty. Apply for a library card, and change your
driver’s license and car registration. You’ll strengthen
your case if you hook up
with health care providers
in your new location.
Open an account at a local
bank, and keep receipts of
ATM withdrawals, LaBant
says. Shopping locally is
also a good idea: State tax
auditors sometimes review
credit card records to determine where you were
during the year. One of
LaBant’s clients, who had
homes in New Jersey and
Florida, was questioned
by New Jersey tax auditors
about purchases his wife
made from a retailer in
New Jersey. Fortunately,
the client was able to produce records that showed
the items had been ordered
and shipped to the couple’s
Florida home.
In some cases, your adopted state will help you
prove residency. You can
show your intent to live
in Florida, for example,
by filing a Declaration of
Domicile with your local
county court.
As you take steps to establish residency in a new
state, you should also start
to cut ties with the old one.
Avoid taking advantage of
benefits that are limited
to state residents. For
example, if you claim a
homestead exemption for
property taxes on your first
home, state tax officials
could use that to show that
you’re still a resident and
thus owe state taxes. Even
checking the “resident” box
on a state fishing license
could be used as proof that
you didn’t really intend to
leave your northern home
for good. SANDRA BLOCK
DAVE URBAN
GAME PLAN
TECH
The Lure of Virtual Reality
It lets you go places without leaving home. But you may not want to
pay up for the privilege just yet. BY KAITLIN PITSKER
ISTOCKPHOTO.COM
REMEMBER THE VIEW-MASTER
you had as a child that let
you see Disney characters in
3-D? A virtual reality headset is like a View-Master for
the 21st century. But now
the headset may strap on
like a pair of goggles. And
instead of inserting a wheel
of images, you use a phone,
PC or other device to
stream content.
The magic isn’t just in the
headset. VR content is created either by stitching a
series of images into a 360degree video or by presenting slightly different images
to each eye and creating the
illusion of depth. Both aim
to trick your brain into believing that you’ve been
transported to a different
place than the space your
body currently occupies.
Video gamers are already
using the technology to enhance their experience of
games such as Minecraft.
But you don’t have to be a
gamer to take advantage
of VR. With a headset and
apps such as Google Street
View and YouVisit, you
can sneak a peek at the site
of an upcoming vacation.
There are also apps that let
you see places you won’t be
visiting anytime soon—say,
Mars or the ocean floor.
You can even help an aging
family member visit or
revisit a place of their
dreams.
Several major news organizations, including the
New York Times and USA
Today, are using virtual reality to tell stories and offer
short live-action documentaries (available via the
NYT VR and USAToday
apps, respectively). And
some real estate agents are
using the technology to help
house hunters remotely tour
properties. Want to make
some DIY home improvements? Lowe’s has started
rolling out in-store VR
demo areas to teach you
how to make, say, a redo of
your shower tile a reality.
Getting started. VR headsets
range from large, clunky
and pricey models to lightweight, affordable versions
powered by your smart-
phone. But with virtual reality still firmly in its youth,
it makes sense to hold off
spending hundreds of dollars for one of the high-end
models, such as the Oculus
Rift ($500) or HTC Vive
($800), unless you’re an avid
gamer and already own a
robust PC to power your
VR experience.
The easiest and cheapest
way to try out VR is GOOGLE
CARDBOARD ($15 in the
Google Store). The headset—which really is made of
folded cardboard, with a
pair of plastic acrylic
lenses—is more of a VR appetizer than a main course.
To use Cardboard, you insert an Android phone or
iPhone with a screen size of
4 to 6 inches into the box
and secure it with the Velcro strips. Using Google
Cardboard’s app (or search
Google Play or the Apple
App Store for “Google Cardboard” to find other compatible apps), you’ll be able
to choose from thousands
of options that let you, for
example, play Pong in space,
watch YouTube’s 360° channel or use your phone as a
VR camera to take panoramas of your surroundings.
The SAMSUNG GEAR VR ($130)
is a solid option if you already
own one of the latest Samsung phones, such as the
Galaxy S8 or S7 Edge. The
headset includes a handheld
controller that allows the unit
to respond to hand movements and makes navigating
menus easier. You can select
from a variety of apps, such
as Polyrunner VR for racing,
NextVR for sports, concerts
and other live events, and
Discovery VR for immersive
documentaries. ■
07/2017
KIPLINGER’S PERSONAL FINANCE
41
TRAVEL
Your Rights on Flights
Airlines are experiencing turbulence over overbooking policies. Here’s
what you need to know when your flight is oversold. BY KAITLIN PITSKER
WHEN IT COMES TO AIR TRAVEL,
long lines, delays, lost baggage and bumpy flights
happen. So do overbooked
flights. But no one expects
to suffer physical harm
when they balk at giving
up their seat.
The airline industry—
and United Airlines in
particular—is still dealing
with the repercussions
of the April incident on a
United flight from Chicago
to Louisville. Several passengers were involuntarily
bumped, but one of them,
Dr. David Dao, refused to
give up his seat. He had
to be hospitalized after
he was dragged off the
plane by airport security.
United was slow to apologize, but other airlines
were quick to assure passengers that no lawfully
seated passengers would
be forcibly removed.
How bumping works.
Airlines routinely sell
more tickets for a flight
than the number of seats
available. Most travelers
who are turned away
(but not all) volunteer
to give up their seats in
exchange for incentives
offered by the airline.
Relinquishing your
spot on an overbooked
flight can be lucrative
if your travel plans are
42
KIPLINGER’S PERSONAL FINANCE
07/2017
flexible and you fly at least
a few times a year. An airline’s opening bid typically
starts with a seat on the
next available flight and
a travel voucher for a few
hundred dollars—but that
figure may climb to lure
volunteers as boarding time
nears. United recently announced that it will offer
up to $10,000 in vouchers
to customers who volunteer
to give up a seat. Delta has
increased the maximum
amount volunteers may receive to $9,950 in vouchers.
You may also be offered
meal vouchers and a hotel
room if you’ll be delayed
overnight. If there aren’t
many volunteers, you may
be able to negotiate a better
offer—maybe a day pass for
the lounge or a seat upgrade
on your new flight. If too
few volunteers step up, the
airline must decide who gets
bumped. The way airlines
make those decisions varies.
You can minimize your
chances of being bumped if
you choose a seat in advance,
check in online as soon as
you can and arrive at the
gate on time.
If you’re involuntarily
denied boarding despite
a confirmed reservation,
the airline must offer an
alternative that’s scheduled
to deliver you to your destination within one hour of
your original arrival time
or compensate you according to rules issued by the
Department of Transportation. The airline is required
to pay you twice the price of
your original one-way fare,
up to $675, if your arrival
is delayed between one and
two hours for domestic trips
or one and four hours for
international travel. If your
arrival is delayed by more
than two hours on a domestic
flight or more than four on
an international flight—or
the airline doesn’t make
alternative arrangements
for you—the airline owes
you four times the price
of your one-way fare, up
to $1,350. You also have the
right to insist on a check
rather than a voucher.
But you’re on thin ice
if you don’t follow the
airline’s rules. When
you book a flight, you
agree to the rules in the
airline’s contract of carriage, which can’t be
negotiated. “If you do
something that offends
or upsets them, or fail
to follow the directions
of the flight crew, you
can be denied boarding
or removed from the
plane,” says Arthur Wolk,
a Philadelphia-based
aviation lawyer. For
more details about your
rights, check the Department of Transportation’s consumer guide
to air travel at www
.transportation.gov. ■
PRATIKA APPAIAH
MONEY
KIMBERLY LANKFORD
Ask Kim
When You Crash a Rental Car
I BUY THE COLLISION DAMAGE
worth $70,000 when she died, the basis
is $45,000 ($10,000 from your half of
the original basis and $35,000 from
half of the value when she died). If you
sell the shares for $75,000, you’ll be
taxed on a gain of $30,000. If you live
in a community-property state, however, the entire basis will be stepped
up to the value at her death (see IRS
Publication 555 at www.irs.gov).
waiver when I rent a car because I
don’t want my insurance company to
know if I’m in an accident. What if I
hit another vehicle and it’s my fault?
G.T., Albany, N.Y.
The collision damage waiver (CDW)
covers damage to the rental car, but it
doesn’t cover liability if you injure
someone or damage another car or
property. The rental car company may
automatically provide a small amount
of liability coverage. But if it’s not
enough, your own auto insurance will
generally cover you up to your policy’s
liability limits if you rent a car in the
U.S. or Canada (but usually not in other
countries), says Bill Wilson, an insurance educator and founder of Insurance
Commentary.com, an industry blog. If
you don’t want your insurer to cover an
accident that’s your fault, you will have
to buy supplemental liability coverage
from the rental car company in addition to the CDW. For example, Enterprise charges $10 to $15.50 per day for
$1 million in coverage.
Many renters turn down the CDW,
which can cost $9 to $25 per day, because their own policy covers damage
to the rental car and many credit cards
pay the deductible. But buying the CDW eliminates the
hassle of filing a claim with your insurer (which could lead
to a rate hike). It also covers costs your insurer or credit
card company may not pay, such as loss of use and diminished value charges.
Fixing your Social Security record. Two
years of earnings are missing from my
Social Security earnings statement. How
can I fix the error?
R.B., St. Paul
If you cause an
accident, your auto
insurance will
generally cover you
up to your policy’s
liability limits in the
U.S. or Canada.
Stocks after a spouse dies. My wife passed away, and I want
LISE METZGER
to sell some stock that we held jointly. How will the gains be
taxed when I sell the shares?
D.M., Newark, Del.
In most states, half of the investment’s tax basis is stepped
up to its value on the date that a spouse dies. For example,
if you and your wife bought stock for $20,000 and it was
Call Social Security at 800-772-1213
and be prepared with a copy of your
W-2 form, tax return or pay stub as evidence of the earnings. If you can’t find
those documents, the Social Security
Administration may be able to help you
track down the information. Provide
the name of your employer, the dates
you worked and the name you used
then (if you were married or divorced
and used a different name), and an estimate of how much you earned. You can
see your earnings statement by setting
up a My Social Security account at
www.ssa.gov/myaccount.
Medicare and home care. My father’s health is not good, and
he needs someone to come to his home to help him out a few
hours each week. Does Medicare cover home care?
A.B., Leesburg, Va.
Medicare has very strict criteria for covering home care.
For example, you can get coverage for custodial care (such
as help with bathing or eating) only if you also have a need
for skilled nursing care or for physical, occupational or
speech therapy. You must be considered “homebound,” and
your doctor must create a plan of care. See www.medicare
interactive.org for more information. ■
GOT A QUESTION? ASK KIM AT ASKKIM@KIPLINGER.COM. KIMBERLY LANKFORD ANSWERS MORE
QUESTIONS EACH WEEK AT KIPLINGER.COM/ASKKIM.
07/2017
KIPLINGER’S PERSONAL FINANCE
43
MONEY
MONEY
MANNERS
HOUSEHOLD HELP
Don’t Forget
This Tax Bill
How to navigate four sticky situations when you travel. BY MIRIAM CROSS
MORE THAN TWO DECADES AGO, THE FIRST
PATRICK GEORGE
Can I ask a passenger to switch places
with me so I can sit next to my son on our
flight? You can ask, but the etiquette of such
a request depends on what you give in return—and whether your son is old enough to
be comfortable sitting away from you. “Aisle
seats are typically prime real estate,” says
Karen Hickman, owner of Professional Courtesy, an etiquette consultancy in Fort Wayne,
Ind. So asking a passenger to swap his or her
aisle seat—and especially one in a roomy
bulkhead or exit row—for your middle seat
might not go over well. But if you sweeten
the deal by offering a better (or equal) spot,
your trade is more compelling. If the passenger says no, don’t press it. Rather, seek out
a flight attendant for help if you need to sit
next to a child (or an elderly parent).
I like to work during long train rides. What
are the rules for making phone calls from
my seat? Keep calls short and unobtrusive.
Even better, try to find a more private place
in the car to speak. One-sided gabfests on a cell phone
can be irritating or distracting to fellow passengers in a way that person-to-person chatter is not. Preferably, you should get as much
work as possible done by text or e-mail, and
leave phone calls as a last resort.
Before starting a conversation, alert the
people nearby, says Sue Fox, author of Etiquette for Dummies. Say, “I have some business calls to make. Would that bother you?”
Above all, avoid private or heated discussions.
When I overhear travelers discussing
inappropriate subjects in confined spaces,
I bristle silently. How can I amicably ask
the offender to change topics? Defining
“inappropriate” is tricky because there is
only so far we can go to control other people’s
conversations, says Hickman. If contentious
political or religious opinions are grating on
your nerves, change seats or slip on some
headphones. But if vulgar language or overly
personal topics are bothering you—and
likely, others within earshot—you can speak
up. To avoid provoking the offender, speak
calmly and clearly, and lower your voice.
Say “Do you mind speaking more softly? Your
conversation is making me uncomfortable,”
suggests Fox.
How can I politely (and safely) redirect
my taxi driver if my navigation app
suggests he’s taking an indirect
route? Instead of accusing the driver
of taking you for a ride, assume it
could be an honest mistake (or
your app’s mistake)—or that
he knows a better route. First
ask if you’re on the quickest
or most direct route, which
leaves you an opening to
point out the alternate
route your GPS shows. ■
44
KIPLINGER’S PERSONAL FINANCE
07/2017
woman nominated to be U.S. attorney
general withdrew her nomination
when it was disclosed that she failed
to pay taxes for a household employee.
This year, two of President Trump’s
picks for top jobs had the same problem. One ultimately withdrew his
name; the other is now running the
Office of Management and Budget.
Although called the nanny tax, this
isn’t just about those who take care
of children. It covers any household
employee, such as a housekeeper,
gardener or caregiver for your spouse
or elderly parent. If the worker is provided through an agency or is selfemployed, you’re off the hook. But if
you hire the person yourself and control how the work is done, you’re likely
an employer in the eyes of the IRS.
In that case, if you pay him or her
more than $2,000 in wages during the
year, the nanny tax applies. That means
at tax time next year, you’ll need to include a Schedule H and pay the 15.3%
Social Security and Medicare tax on
the wages you paid. That tax is supposed to be split evenly between you
and your employee (7.65% each). But
whether or not you withhold the tax
from your employee’s wages, you’re
on the hook to pay the full amount
when you file your 2017 return.
That’s not all. If you pay more than
$1,000 to an employee in any calendar
quarter of 2016 or 2017, you will also
owe the federal unemployment tax.
And you’ll probably owe a state unemployment tax, too. Contact your
state tax authority to find out. Keep
careful records. You’ll need them to
prepare a W-2 form—for the employee
and the IRS—showing wages paid and
taxes withheld. KEVIN McCORMALLY
TOP-YIELDING DEPOSIT ACCOUNTS
No-Fee Interest Checking
Minimum balance may be required
Annual
yield as of
May 9
Balance
range†
Website
(www.)
1.99%
$0–$500
gtefinancial.org
0–1,000
0–250,000
0–250,000
langleyfcu.org
mymemorybank.com
GTE Financial (Fla.)#
BANKING
Online Bill Paying
Isn’t Foolproof
USING YOUR BANK’S BILL-
payment service is convenient: Enter a payee into the
system, and the bank transfers funds from your checking account electronically
or mails a check. No stamps
to buy, no envelopes to address and mail. But the process isn’t a slam dunk.
First, be certain you understand the bank’s definition of the payment date so
that your payment arrives
Kiplinger.com
RATE UPDATES
For the latest savings yields
and loan rates, visit kiplinger
.com/finances/yields.
on time. “Is it the date the
bank is going to begin processing your transaction?
Or is it the date your payment will be delivered?”
says Justin Jackson, a
vice president at financialtechnology company Fiserv.
Some banks ask you to select the date that the payment must reach the biller,
and the system calculates
when it needs to initiate
the transaction. If the bank
prompts you to choose a date
to start processing the payment, it may indicate when
the biller will receive it. If
not, choose a date a week in
advance of the due date so
that the bank has ample
time to send the payment.
Banks also have differing
schedules for when they
remove money from your
account. Wells Fargo, for
example, withdraws funds
the business day after
the date you choose to initiate the payment, even if
it is mailing a paper check.
When Bank of America
sends a check, however, the
money doesn’t leave your
account until the recipient
deposits the check. Monitor
your balance closely to be
sure you have enough in
the account when the bank
withdraws the money.
Finally, check that you
are submitting the correct
information. That may seem
like a no-brainer, but user
errors are common. Customers may, for example,
enter their cell number
rather than the account number when setting up payments for a smartphone bill.
Pull up a recent statement
to reference as you enter the
details. LISA GERSTNER
Month- Yearago
ago
YIELD BENCHMARKS
Yield
U.S. Series EE savings bonds
0.10%
0.10%
0.10%
U.S. Series I savings bonds
1.96
2.76
1.64
Six-month Treasury bills
0.99
0.91
0.40
Five-year Treasury notes
1.82
1.92
1.28
Ten-year Treasury notes
2.28
2.40
1.83
SOURCE FOR TREASURIES: U.S. Treasury
As of April 30, 2017.
● EE savings bonds purchased
after May 1, 2005, have a
fi xed rate of interest.
● Bonds bought between
May 1, 1995, and May 1, 2005,
earn a market-based rate
from date of purchase.
● Bonds purchased before
May 1, 1995, earn a minimum
of 4% or a market-based rate
from date of purchase.
Langley Federal Credit Union (Va.)# 1.61
MemoryBank (Ky.)*
1.50
EverBank (Fla.)*
1.11
everbank.com
0.13%
NATIONAL AVERAGE
Must meet activity requirements‡
Annual
yield as of
May 9
Balance
range†
America’s Credit Union (Wash.)#
5.00%
$0–$1,000
youracu.org
Northpointe Bank (Mich.)
Consumers Credit Union (Ill.)#
La Capitol FCU (La.)#
5.00
4.59
4.25
0–5,000
0–20,000
0–5,000
northpointe.com
myconsumers.org
NATIONAL AVERAGE
1.82%
High-Yield Checking
Savings
Annual
yield as of
May 9
Min.
amount
Website
(www.)
lacapfcu.org
Website
(www.)
BankPurely (N.Y.)*
1.30%
none
bankpurely.com
DollarSavingsDirect (N.Y.)*
1.25
none
dollarsavingsdirect.com
PurePoint Financial (Calif.)*
1.25
$10,000
purepoint.com
Incredible Bank (Wis.)*
1.21
none
incrediblebank.com
NATIONAL AVERAGE
0.18%
#Must be a member; to become a member, see website. *Internet only. ‡To earn the
maximum rate, you must meet requirements such as using your debit card several times
monthly and receiving electronic statements. †Portion of the balance higher than the listed
range earns a lower rate or no interest. SOURCES: Bankrate, DepositAccounts.
TOP-YIELDING CERTIFICATES OF DEPOSIT
Annual
yield as of
May 9
1-Year
Connexus Credit Union (Wis.)#
Min.
amount
1.50%
1.46
Andrews Federal Credit Union (Md.)#† 1.45
Banesco USA (Fla.)*†
1.45
Virtual Bank (Fla.)*
Website
(www.)
$5,000
connexuscu.org
10,000
10,000
1,500
virtualbank.com
andrewsfcu.org
banescousa.com
0.54%
NATIONAL AVERAGE
5-Year
Annual
yield as of
May 9
Min.
amount
Website
(www.)
MutualOne Bank (Mass.)*
2.53%
$500
Utah First FCU (Utah)#
2.40
500
Popular Direct (Fla.)*
2.35
10,000
populardirect.com
Synchrony Bank (Utah)*
2.35
25,000
synchronybank.com
NATIONAL AVERAGE
1.48%
mutualone.com
utahfirst.com
#Must be a member; to become a member, see website. *Internet only. † CD Bank and
Everbank offer similar yields. SOURCES: Bankrate, DepositAccounts.
LOW-RATE CREDIT CARDS
Rate
as of Annual Late
May 9* fee
fee
Issuer
Lake Mich Credit Union Prime (P)# 7.00%
Website
(www.)
none
$27†
lmcu.org
simmonsbank.com
Simmons Bank Visa (P)
8.00
none
27†
First Command Bank Visa (P)
8.75
none
27† firstcommandbank.com
RETAIL REBATE CREDIT CARDS
Issuer
Rate
Rebate
as of Annual
earned
May 9*
fee Store/Other
Web site
(www.)
Amazon Rewards Visa
14.99%
none
3%/1% ‡
amazon.com/rewards
Costco Anywhere Visa
15.99
none §
Sam’s Club MasterCard
15.40
none §
2/1^
1/1∂
samsclub.com
costco.com
Rates are adjustable. *If you do not qualify for this interest rate, the issuer will offer a higherrate card. (P) Platinum. †$37 if late more than once in 6 months. #Must be a member of the
credit union; to become a member, see website. ‡5% at Amazon.com with a Prime membership;
2% at gas stations, restaurants and drugstores; 1% on all other purchases. § Must be a member.
^4% on gas (up to $7,000 spent annually; 1% thereafter); 3% on travel and dining; 2% on
Costco purchases; 1% on all other purchases. ∂5% on gas (up to $6,000 spent annually; 1%
thereafter); 3% on travel and dining; 1% on all other purchases. SOURCE: Bankrate. Banks
may offer lower introductory rates.
07/2017
KIPLINGER’S PERSONAL FINANCE
45
INVESTING
Where to
Invest Now
Corporate America is firing on all cylinders, but share prices are high
and so are risks. BY ANNE KATES SMITH
46
KIPLINGER’S PERSONAL FINANCE
07/2017
ILLUSTRATION BY NICK RADFORD
BULL MARKETS BECOME TRICKIEST
not surprising that many Wall Street analysts
to navigate just when they start to look easy.
have raised their year-end targets for the
Lately, this one has been a breeze. Investors
S&P 500 as the index has surged past their
in U.S. stocks have gotten more than a year’s
previous forecasts–and we’re raising ours, too
worth of gains in six months, with Standard &
(more on that below). But we’re raising some
Poor’s 500-stock index returning 12.5% since
yellow flags as well. Returns from here to
last November’s election, far ahead of the
year-end are likely to be tepid and harder to
long-term annual average of 10%. Moreover,
come by. Stocks could continue to tread water
the ride couldn’t have been smoother, with
for a while, but the market’s tranquillity can’t
volatility levels at a multi-decade low, despite
last forever. // Corrections, typically defined
a load of political uncertainty in Washington
as downturns of between 10% and 20%, occur
and geopolitical tensions worldwide. // It’s
about every two years. The last one, which
07/2017
KIPLINGER’S PERSONAL FINANCE
47
INVESTING
shaved 13% off the S&P, ended in
February 2016. But pullbacks of 5%
to 10% occur every seven months or
so, which means we’re overdue. As you
look toward the end of 2017, it’s crucial
to take stock of your investments—
what you need to earn and, yes, what
you can stand to lose—and to tweak
your portfolio accordingly.
OUR FORECAST
In our January issue, we said the
S&P 500 could generate a total return,
including dividends, of 6% in 2017.
In the first four months of the year,
it delivered 7.2%. Now, a return of 9%
to 11% for the year, including about two
percentage points of dividend yield,
seems more like it, with the S&P ending 2017 between 2400 and 2450. That
suggests a rise in the index of 1% to
3% from its recent close of 2384 and
a year-end target for the Dow Jones
industrial average of about 21,600, up
from 20,941. (Current prices, returns
and yields are as of April 30.)
The impressive gains at the beginning of the year portend subpar results
for the second half. “You can’t put lipstick on a pig,” says Burt White, chief
investment officer of LPL Financial
Research. “Stocks aren’t cheap. For
the second half, being disciplined and
buying on dips will be the strategy to
employ.” Think beyond a portfolio of
U.S. stocks and bonds. Investors who
will do best in this market will be nimble, discerning bargain hunters and,
above all, willing to venture overseas.
At eight years and counting, this
bull market will become the longest
ever, surpassing the great technologyfueled advance of the 1990s, if it remains intact until September 2018.
Although stretched by any measure,
the market has been remarkably resilient, and for good reason. Investors
today can benefit from a rare period
of sustained, synchronized economic
expansion across the globe. “Growth
is picking up in the U.S., Europe and
in Asia, the first time we’ve seen all
three major global regions rising at
the same time,” says Richard Turnill,
global chief investment strategist at
BlackRock Investment Institute, the
investment firm’s research arm. The
International Monetary Fund forecasts world economic growth at 3.5%
in 2017, the fastest rate in five years
and up from 3.1% in 2016.
In the U.S., a pro-business agenda
in Washington that calls for lower
corporate tax rates and less regulation
has lifted animal spirits. The Conference Board’s quarterly survey of CEO
confidence and the National Federation of Independent Business’s Small
Business Optimism index are both at
their highest levels since 2004. Busi-
ness spending on workspaces and
equipment, missing for much of the
economic recovery, is sure to follow,
says Tobias Levkovich, chief U.S.
stock strategist for Citigroup. “Capital spending is stronger than people
think,” he says. Lack of spending in
the beleaguered energy sector has
been the biggest drag, but exploration
and production companies expect to
spend 40% more this year than last
year, Levkovich says, and tech companies that Citi tracks say their capital
spending will be up 16%.
Consumer confidence measures
are also the highest since the early
2000s, which bodes well because consumer spending accounts for roughly
70% of the U.S. economy. At 4.4%, the
unemployment rate is at the lowest
level since May 2007, and wages are
ticking higher. “Consumers have been
very disciplined coming out of the
financial crisis, saving money and repairing their own balance sheets,” says
Ameriprise Financial strategist David
Joy. “They have the capacity to provide steady support to this economy,
without overspending, for a few years.”
The current U.S. expansion, which
began in June 2009, has been much
longer than usual. That’s because it
has been punctuated by “rolling recessions” that roil industries one at a time
instead of plunging the overall econ-
The Case for Stocks
WHY A HIGH-PRICED MARKET HANGS TOUGH
Valuations are high…
…but interest rates remain low…
25
3-month T-bill yield
7%
S&P 500 price-earnings ratio
(based on year-ahead earnings)
20
15
10
2002
2007
2012
2017
10-year Treasury yield
KIPLINGER’S PERSONAL FINANCE
07/2017
$30
6
25
5
20
4
15
3
10
2
5
1
0
0
–5
2002
2007
Through April 30. SOURCES: FactSet, Federal Reserve Bank of St. Louis, S&P Dow Jones Indices.
48
…and corporate profits are improving.
2012
2017
S&P 500 quarterly
earnings per share
2002
2007
2012
2017
omy into a downturn, says economist
Ed Yardeni, of Yardeni Research.
The energy industry, for example, fell
into a severe recession from mid 2014
until early 2016 as oil prices plunged.
More recently, the recession has rolled
into brick-and-mortar retailers, as
department stores struggle against
incursions from online merchants and
warehouse clubs (see “Surviving Amazon,” on page 60). With March vehicle
sales down more than 10% from December 2016 and car-loan delinquencies rising, the auto industry may be
next in line for hard times, Yardeni
says. Yet the overall economy remains
buoyant, if not ebullient: Kiplinger
expects gross domestic product to increase by 2.1% in 2017, up from growth
of 1.6% in 2016.
Central bank policies, here and
abroad, remain supportive of economic
growth. In the U.S., the Federal Reserve
is raising rates, but oh-so-gradually
and with an eye toward not upsetting
the stock market (see the interview on
page 50). Look for the Fed to hike its
key short-term interest rate two more
times this year (including a boost expected in June), bringing the total increase for the year to three-fourths
of a percentage point. The yield on the
benchmark 10-year Treasury bond
will end the year at 2.7%, up from the
current yield of 2.3% and still providing little competition for stocks. (For
more on the prospects for income investors, turn to page 53.)
Corporate earnings—an important
determinant of share prices—are
having a growth spurt. “We’re in
one of the strongest earnings seasons
we’ve seen in many years,” says Turnill. First-quarter profits for S&P 500
companies increased by nearly 15%
from the same period in 2016, the fastest growth rate since the third quarter
of 2011. For all of 2017, Wall Street analysts predict earnings growth of more
than 11%, a big improvement from 2016,
when earnings were flat compared
with the previous year. Look for the
biggest earnings gains in the energy,
materials, financial and tech sectors,
Fear Gauge
TOO CALM?
Low volatility is a sign investors may be
underestimating stock market risk.
80
70
60
CBOE Volatility Index
50
40
30
20
10
2007
2009
2011
2013
2015
2017
Through April 30. SOURCE: FactSet
according to a survey of analysts’ estimates from Thomson Reuters.
Little wonder confidence is through
the roof. The question is whether investors have crossed the line from confidence to euphoria. Levkovich doesn’t
think so. “We’re not seeing excessive
enthusiasm that would indicate people
getting over their skis. If we did, I’d
become a little more nervous,” he says.
AN EXPENSIVE MARKET
Still, stock prices in relation to earnings, sales and other measures of
corporate performance are sky-high.
At nearly 18 times expected earnings
for the coming four quarters, stocks
are trading above the five-year average P/E of 15 and the 10-year average
of 14, according to FactSet Research.
“When stocks have relatively low P/E
ratios, investors can absorb some disappointments,” says James Swanson,
chief investment strategist at MFS
Investment Management. Today,
stocks are priced for perfection, and
risks abound. “One of the biggest risks
is that investors aren’t pricing in risk.
There’s a lot of complacency,” says
Lance Humphrey, manager of global
multi-asset portfolios for USAA Investments (see the chart above).
Consider some of the bleaker scenarios that could derail the market.
Economic data over the coming
months might fail to justify the sharp
improvement in sentiment. Or, says
Turnill, “the anti-growth part of
President Donald Trump’s agenda
(protectionism) could win out over
the pro-growth part (deregulation
and tax cuts).” Tax reform will be a
challenge in any case, facing opposition from Democrats as well as from
Republican deficit hawks, with the
potential for adverse investor reaction
high if it fails. A misstep by the Federal
Reserve—tightening monetary conditions too aggressively or failing to
adequately telegraph policy changes—
could choke off economic growth and
slam markets. Finally, there’s the risk
of escalating conflict in Syria or North
Korea. But as scary as that sounds,
history has shown that geopolitical
crises tend not to have a severe or
long-lasting impact on stock markets.
The takeaway for investors, especially those with a long-term view:
Don’t shy away from the market based
on short-term concerns. If you’re skeptical of that advice, talk to someone
who shunned stocks after Britain’s
vote to exit the European Union last
year or in the wake of surprise U.S.
election results—and thereby missed
huge subsequent gains. “Could we
have a correction?” asks Robert Doll,
chief stock strategist at Nuveen Asset
Management. “Sure. But the next sustainable move in my view is up.”
Nonetheless, investing wisely for
the rest of 2017 may require you to
step outside your comfort zone. Most
investors have a home-country bias,
and U.S. investors, on average, hold
almost 80% of their stock portfolios
in U.S. shares. That strategy has paid
off handsomely in recent years. Now,
investors should aim to have 30% of
their stock holdings in foreign shares,
with at least one-third of that amount
in emerging markets, says Brian Nick,
chief strategist at TIAA Investments.
You might have to steel yourself.
Stocks in Europe, in contrast to U.S.
holdings, have stagnated, with the
MSCI Europe index returning a mere
0.4% annualized over the past 10 years.
07/2017
KIPLINGER’S PERSONAL FINANCE
49
INVESTING
But the tables have already started
to turn in Europe’s favor, says USAA’s
Humphrey, who sees more opportunities on the Continent than in Japan.
The index has gained 11.2% so far this
year. “Valuations are attractive, earnings are picking up and, on the economic front, more positive data are
coming from Europe,” he says. Corporate earnings growth in Europe is
expected to be twice that in the States,
coming in at 22% for 2017, while stocks
in the MSCI Europe index are trading
at just 15 times expected earnings.
The risks in Europe center on politics and a populist movement that
could weaken the European Union,
hampering trade and economic
growth. For now, after the victory of
the moderate candidate in the French
election in May, growth expectations
outweigh political uncertainty, with
years of economic recovery still to
play out and corporate profits well
below peak 2007 levels. “The earnings
trajectory makes Europe more interesting,” says Vincent Montemaggiore,
manager of FIDELITY OVERSEAS FUND
(FOSFX). He seeks top-quality companies
that are out of favor or underpriced. The
fund has 67% of its assets in Europe
(including the United Kingdom), with
an emphasis on financials, industrials
and health care stocks. Top holdings
include multinational giants Nestlé,
Unilever and Bayer. (For more on
Montemaggiore, turn to page 59.)
Investors who prefer exchangetraded funds can explore VANGUARD
FTSE EUROPE ETF (VGK, $54), which invests
in companies of all sizes across 15
developed-market countries and
charges just 0.10% annually. If you’re
worried about dollar appreciation
eroding your overseas gains, consider
WISDOMTREE EUROPE HEDGED EQUITY ETF
(HEDJ, $65), which takes currency
swings out of the investing equation.
The dark clouds hanging over
emerging markets in recent years—
falling commodity prices, a rising
dollar and fears of a sharp slowdown
in China—have parted, say strategists
at J.P. Morgan Asset Management.
50
KIPLINGER’S PERSONAL FINANCE
07/2017
Q&A WITH SEBASTIEN PAGE
What to Own in an
Expensive Market
Sebastien Page is the head of asset
allocation for T. Rowe Price Group.
He and his colleagues determine the
investment mix for the company’s
multi-asset mutual funds, including
target-date funds.
Kiplinger: How do you feel about the
stock market for the rest of 2017?
Page: First, I should say that T.
Rowe Price does not have a “house
view.” In the Asset Allocation Committee, we are somewhat bearish,
but not too bearish. We have been
reducing our exposure to stocks
relative to bonds. For investors with
a long time horizon who are saving
for retirement, stocks are crucial.
But as we look toward the end of the
year and early next year, we’ve been
reducing our exposure slightly. If
a portfolio normally has 60% in
stocks, for example, now we’d have
58.5%. We do things incrementally;
we’ll see how things unfold.
Why lighten up now? As of April 30,
Standard & Poor’s 500-stock index
is up 7.2% year to date, 18% in the
past 12 months and 90% in the past
five years—that’s 13.7% annualized.
The market is close to an all-time
high. Price-earnings ratios are
higher than they have been 90%
of the time over the past 20 years.
No matter how you look at it, share
prices are expensive as you stare
down the barrel of an eight-yearlong bull market.
Why is the market so resilient? I’ll
identify two reasons, with a caveat.
The first is extraordinarily accommodative central-bank policies all
over the globe. That has kept interest rates low and driven asset values
up, with surprisingly little inflation
resulting. In the U.S., the path toward higher rates is being managed
very carefully. This isn’t said explicitly, but the Federal Reserve doesn’t
want to surprise the market with
unexpected hikes that might lead
to a downturn in stocks. The second, more recent factor is increasing
confidence. The U.S. election played
a role, but even before, earnings for
U.S. companies had started to recover from a downturn in late 2015
and the first half of 2016. Consumer
and CEO confidence are at their
highest levels since 2008. But it remains to be seen whether hard economic data will justify this confidence, which is why we’re taking
some risk off the table.
How can investors cut risk? For doit-yourself investors, it’s important
to maintain a long-term perspective
and a healthy allocation to stocks
in line with their tolerance for risk.
For now, as investors add funds to
their portfolios, they might want
to add a bit more to bonds and other
asset categories, such as international stocks. Or, as they withdraw
from portfolios, they might withdraw a bit more from stocks.
What should investors expect? Be■ PREPARE FOR A
tween now and the end of the year,
a lot can happen. I think it’s more
likely than not that we’ll see a
downturn at some point in stocks,
which will give investors the opportunity to get back in if they have dry
powder in their portfolio. The central scenario for the stock market
is tepid returns with some fragility,
given the risks we just mentioned.
PULLBACK, BUT
DON’T GIVE UP ON
STOCKS, SAYS
SEBASTIEN PAGE,
OF T. ROWE PRICE.
Where should investors put their
money? The problem is that every-
POON WATCHARA-AMPHAIWAN
What are the biggest risks for stocks?
There’s clearly political risk in terms
of policy coming out of Washington
and the threat of protectionism in
different countries. This is against
a backdrop of geopolitical issues,
North Korea in particular. Energy
prices are another risk. We think
the world is oversupplied with oil,
which could lead to another drop in
oil prices that could hurt returns
for stocks. And there’s always a risk
that the Fed will raise interest rates
too quickly, or unexpectedly, causing a slowdown in economic growth
and a bad investor reaction. Those
are known risks. We don’t know
what we don’t know, and those risks
are the most worrisome and unpredictable by nature.
thing’s expensive. We’re talking
about an eight-year bull market in
stocks, but we’ve just been through
a 30-year bull market in bonds. Valuations are stretched across markets.
But stocks in Europe and Japan
are cheaper relative to U.S. stocks.
Central-bank policies in those areas
are also more accommodative than
in the U.S., and those regions are
earlier in the economic cycle, with
more room for recovery and expansion. In the U.S., we recommend a
flexible bond-market strategy, and
we prefer growth stocks to value
stocks, although we do like financial stocks, which generally fall into
the value sector. After the election,
value stocks, including energy and
materials companies, performed
very well, but since the beginning
of 2017 we’ve seen a rotation back
to shares of faster-growing companies, such as technology stocks.
Emerging markets are slightly attractive in terms of value, but factors
that could play against them include
rising U.S. interest rates, a stronger
dollar, more protectionism and the
potential for another down leg in oil
prices. Also, we have recently been
looking at frontier markets, which
include countries, such as Kuwait
and Pakistan, that don’t qualify yet
as emerging markets.
07/2017
KIPLINGER’S PERSONAL FINANCE
51
INVESTING
Emerging economies should grow at
a brisk 4.5% this year and 4.8% next
year, compared with 4.1% in 2016, according to the IMF. In the meantime,
many countries have adopted probusiness reforms, says Michael Kass,
manager of BARON EMERGING MARKETS
FUND (BEXFX), a member of the Kiplinger
25. “We’re in the middle innings of a
notable earnings recovery across virtually all emerging markets,” he says.
Kass favors high-quality, fast-growing
companies and finds India an especially promising hunting ground.
Bond investors should check out
FIDELITY NEW MARKETS INCOME FUND
(FNMIX), a Kip 25 fund that specializes
in emerging-markets debt. Yielding
5.4%, it holds a mix of government and
corporate bonds, with large stakes in
Mexico, Brazil and Venezuela.
In the U.S., decisions should be about
what to avoid or where to trim, as much
as about what to buy. Shares of utilities,
producers of staples (such as food and
toothpaste) and real estate trusts have
been prized for their dividend yields,
but investors can find better buys elsewhere, says TIAA’s Nick. Income investors might consider trimming outsize stakes in junk bonds, as their
premium yields have moved closer to
those of investment-grade debt.
As for what to buy in a bond market
Stocks
Five to Buy Now
■ It took most of a decade for BANK OF AMERICA (SYMBOL BAC, $23) to put the financial
crisis behind it. Now, streamlined operations and implementation of more-conservative
lending standards are paying off. In 2016, BofA borrowers had an average FICO credit score
of 750, some 50 points higher than the average American’s. Revenues from trading, investment banking and credit cards are strong. Federal Reserve interest-rate hikes should
boost interest income by 7% this year, says research firm CFRA. Brokerage firm Credit
Suisse sees profits rising by 20% this year and 17% in 2018. (Prices are as of April 30.)
■ Media conglomerate CBS (CBS, $67) has spun off its radio and outdoor ad businesses
to focus on faster-growing and more-profitable lines, including global TV syndication,
licensing fees from pay-TV operators and fees from stations for the rights to CBS programming. The company has made digital inroads with subscription access to NFL games
and content—including The Good Fight and the upcoming Star Trek: Discovery—that is
available only online. Midterm elections will boost ad sales in 2018. Brokerage UBS sees
earnings growth of 9% this year and 15% in 2018.
■ CUMMINS (CMI, $151) makes diesel and natural gas engines, power-generation systems,
and engine-related components. The company is benefiting from increasing demand in
China, a recovery in the energy sector, and favorable prospects for infrastructure spending and emissions controls here and abroad. CFRA sees Cummins’s earnings rising by 18%
this year and 13% in 2018 and calls the stock a “strong buy.” The shares yield 2.7%.
■ European bargains include Germany’s BAYER (BAYRY, $124), a drug and crop-science
company, and French pharmaceutical firm SANOFI (SNY, $47). Worries about the prospects
for Sanofi’s diabetes franchise are pressuring the stock, but the company’s reach in
emerging markets is promising, says Vincent Montemaggiore, manager of Fidelity Overseas Fund. He also says that Bayer’s pending $66 billion acquisition of Monsanto should
lead to steadier earnings, helping to offset the perennial problem of patent expirations
in Bayer’s drug business.
52
KIPLINGER’S PERSONAL FINANCE
07/2017
in which everything is expensive
and so much is in flux, pay extra attention to funds that have the flexibility
to buy debt instruments in all kinds
of markets. Let a pro shift gears based
on how much rising rates would eat
into a bond’s price, how a tax cut
might dim prospects for municipal
bonds, or how currency gyrations
could affect foreign bonds. PIMCO
INCOME (PONDX), another Kip 25 fund,
has a global reach and a defensive
mind-set. The fund yields 3.7%. Kip
25 selection METROPOLITAN WEST TOTAL
RETURN (MWTRX) has a conservative
profile and yields 2.0%.
Within the stock market, shares that
are bargains in relation to earnings,
sales and other criteria have lagged
their faster-growing counterparts
this year, after so-called value stocks
sprinted ahead following the presidential election. “Value is down, but not
out,” say strategists at Bank of America Merrill Lynch. Value investing
tends to do well when the economy
is growing, rates are rising, and corporate profits are powering ahead.
Mark Finn, manager of Kip 25 member T. ROWE PRICE VALUE (TRVLX), recommends health care giant JOHNSON &
JOHNSON (JNJ, $123), which is benefiting
from an aging population; insurer
CHUBB (CB, $137), which has a global footprint and strong growth prospects; and
semiconductor maker BROADCOM (AVGO,
$221), which sells at a relatively modest
15 times expected year-ahead earnings.
In general, stocks that thrive when
the economy is improving, including
financials, tech and industrials, should
perform well in the second half. You
can also find buys in health stocks,
which have been buffeted by concerns
about insurance reform and controls
on drug pricing. ETFs worth exploring include FINANCIAL SELECT SECTOR
SPDR (XLF, $24), VANGUARD INFORMATION
TECHNOLOGY (VGT, $139) and GUGGENHEIM
S&P 500 EQUAL WEIGHT HEALTH CARE (RYH,
$164). All are members of the Kiplinger
ETF 20 (see kiplinger.com/links/
etf20). For more stocks to buy, see
the box at left. ■
JEFFREY R. KOSNETT
Income Investing
When Everything Is Working, Sit Tight
P
recisely three years ago, I began
this column by identifying 10 income categories that were defying
a tide of pessimism and showing positive year-to-date returns. The list of
losers? A blank space. Fast forward to
today. As that eminent market strategist Lawrence “Yogi” Berra might have
said, it’s déjà vu all over again.
Look at 2017 returns and you’ll see
green everywhere. Through April 30,
the Dow Jones utility average delivered
a total return of 6.7%. The Bloomberg
Barclays index of triple-B-rated corporate bonds showed a profit of 2.6%,
and Standard & Poor’s medium-term
municipal index was up 2.5%. S&P’s
broad gauge of preferred stocks gained
6.5%. Treasury debt with maturities
from 30 days to 30 years was profitable.
I could go on, but you get the point.
The worst strategy was keeping your
money in the bank (or under a mattress)
due to fear. In truth, six months ago
I could understand income investors’
angst. Donald Trump’s election created
expectations that giant tax cuts,
growth-oriented legislation and “animal spirits” would quickly wrest control of the markets and the economy
from bondholders and dividend clippers and transfer it to bankers and beneficiaries of enormous infrastructure
spending. Municipal bonds, at special
risk from a massive income tax cut,
plunged for a few weeks in November
and December. The jig was also thought to be up for
utilities. Investment advisers chased after stuff able to
withstand a spike in interest rates. So stocks of lenders,
builders, makers of materials, and transportation companies went wild.
But it is senseless to invest, reinvest or disinvest on
hopes, wishes and unformed story lines. The government’s
tax and economic ideas are fluid and incomplete. Investors
seem to understand that, and markets have reverted to
reacting to reality, not pipe dreams.
All of this is good news for investors of all stripes, and
for income investors in particular.
The bull market in U.S. stocks remains
intact, and the worst you can say for
bonds and other income investments
is that their prices are moving in a narrow range. Consistently high demand
for yield-oriented investments of all
sorts is keeping prices up.
Plenty of pluses. It’s true that many
stock-oriented income categories are
expensive relative to profits and other
key measures. But the big picture looks
bright. Banks are sound. The dollar is
strong. The Federal Reserve is at peace
with current inflation and employment
readings. The world’s other important
economies aren’t about to crater and
take us down with them.
I recently ran my thesis past several
money managers who specialize in
income investments. To a person, all
agreed that the benign state of affairs
is likely to last far longer than most
people think and that chances of a
2008-like bonfire are remote. All
agreed that there’s no reason to disturb
a diversified portfolio of high-quality
assets or to radically reduce bond maturities in anticipation of higher interest rates (bond prices and rates move
in opposite directions).
Kiplinger’s economic forecast buttresses the case for sitting tight. We expect gross domestic product to increase
by 2.1% in 2017, roughly in line with the
growth rate since the Great Recession ended in 2009. And
we see the benchmark 10-year Treasury bond, which currently yields 2.3%, rising to only 2.7% by year-end. That
kind of environment is just fine for income investors. No
wonder municipals, preferred stocks and both mortgageowning and property-owning REITs are doing great again.
There’s a good chance that someday I’ll be able to use the
introduction to this column a third time. I sure hope so, because it will mean that we’re in excellent financial shape. ■
LISE METZGER
The big picture
looks bright.
Banks are sound.
The dollar is strong.
The Federal Reserve
is at peace with
current inflation
and employment
readings.
JEFF KOSNETT IS A SENIOR EDITOR AT KIPLINGER’S PERSONAL FINANCE.
07/2017
KIPLINGER’S PERSONAL FINANCE
53
INVESTING
MUTUAL FUNDS
Investing With
a Conscience
THE SWEEPING VIEW FROM
the offices of Parnassus
Investments, in the heart
of San Francisco’s bustling
financial district, could
easily grace the pages of a
coffee-table book. The San
Francisco Bay panorama
encompasses the historic
Ferry Building terminal,
with its imposing clock
tower, and the stately suspension towers of the Bay
Bridge, stretching across
steel-blue water to Yerba
Buena Island and on to
Oakland.
The dazzling view is
fitting for a mutual fund
company that has dazzled
investors with its returns
while investing with a social
conscience. Few fund operators have combined principles and performance with
as much success as Parnassus, and its brand is resonating with investors. Assets
have soared to $23.5 billion,
up from just $1.5 billion in
2008. But continued success
depends on delivering solid
returns, even as a management transition looms.
The bar is high. Parnassus Core Equity (symbol
54
KIPLINGER’S PERSONAL FINANCE
07/2017
PRBLX), with the lion’s
share of assets at more than
$15 billion, beat its peers
in nine of 10 calendar years
through 2016 and did so
with less volatility. Through
April 30, Parnassus Endeavor (PARWX), which focuses
on, among other things,
corporate workplace policies, was the third-best
large-company mutual fund
over the past 10 years, number five over five years and
number 11 over three years.
Parnassus Mid-Cap (PARMX) is
a member of the Kiplinger
25, the list of our favorite
no-load funds.
Uncertain bet. Parnassus’s
success is rooted in humble
beginnings, dating back to
the early days of an investing movement that now
claims $1 out of every $5
under professional management in the U.S. The firm
began as an experiment by
Jerry Dodson, a Harvard
MBA who, working out of
his Bay Area home, launched
Parnassus Fund (PARNX)
in 1984. “The premise under
which I founded the company was that if you bought
companies that were socially responsible and that
were undervalued, you
would have excellent returns,” says Dodson, 73.
“But I was not confident—
there was no evidence to
prove that was correct.”
Dodson struggled to reach
a break-even point, then estimated to require $30 million
in assets. After the 1990 bear
market, “there was a question in my mind whether
Parnassus was a viable entity—I was starting to run
out of money,” says Dodson.
But in 1991, Parnassus Fund
soared 53%, crushing Standard & Poor’s 500-stock index by 22 percentage points.
By 1992, assets were up to
$100 million, and by 1995,
the company had two more
funds and an office in a
swanky skyscraper with
a view of the Bay.
Parnassus will soon begin
a new chapter, with Dodson
slated to step down as CEO
in 2018 and, at some point,
as comanager of Parnassus
Fund. He will continue to
run Endeavor and will serve
as a consultant to Ben Allen,
who is a portfolio manager,
Parnassus’s current president and the person who
will step into the CEO role
at the employee-owned firm.
“One of Dodson’s strengths
is his ability to develop
strong teams, which should
ensure Parnassus’s continued success,” says Morningstar analyst Wiley Green.
Most of Parnassus’s key
employees wear more than
JEFF SINGER
Few fund operators have combined principles
and performance with as much success as
Parnassus. BY ANNE KATES SMITH
■ PARNASSUS FOUNDER
JERRY DODSON, RIGHT,
AND BEN ALLEN, WHO IS
SLATED TO BECOME THE
FIRM’S CEO NEXT YEAR.
one hat—portfolio managers
are analysts, too—and share
a common stock-picking
philosophy. Not surprisingly, many of the funds’
top holdings overlap. Still,
the process is easy to understand but tough to execute,
says Green. So, with Endeavor in particular, manager succession remains a
question mark.
Nine portfolio managers
run six funds under the
Parnassus umbrella. Parnassus Asia (PAFSX), which
debuted in 2013, invests
in companies of all sizes in
both developed and emerging countries in the region.
Parnassus Fixed Income
(PRFIX), a taxable, intermediate-term bond fund,
is the lone disappointment
in the lineup. Its returns
lagged those of the Bloomberg Barclays U.S. Aggregate Bond index in seven
of 10 calendar years through
2016, although the fund
squeaked past its benchmark in the first four
months of 2017.
What they avoid. All of the
funds shun securities of
companies that manufacture weapons. They also
bar firms that make alcohol
or tobacco products, are
involved in gambling or
nuclear power, or conduct
business in the Sudan. Parnassus Fund and Endeavor
also screen out businesses
involved with fossil fuels.
But Parnassus’s focus on
environmental, social and
corporate-governance policies (or ESG, in the vernacular of sustainable investing)
is more than a simple process of elimination. The
initial exclusionary screens
rule out less than 10% of the
market. “Where we add real
value is in how we use our
ESG sensitivity after we’ve
done the exclusionary
screens,” says Allen, who
comanages Core Equity.
Companies are assessed
on five core ESG principles,
the importance of which
vary from industry to industry. Environmental impact
might be the paramount
consideration for industrial
companies, but corporategovernance policies, including compensation practices
and the caliber and composition of the board of
directors, might be more important for financial firms.
Having an innovative, employee-friendly workplace,
a third barometer, is crucial
for attracting talent and fostering productivity in the
tech industry, but it is increasingly important more
broadly, says Allen. Finally,
Parnassus also seeks to
measure companies on engagement within their communities and on how they
treat their customers.
For some companies, “it’s
obvious that the extent to
which the company is considered an ethical corporate
citizen matters to the brand,”
says Allen. VF Corp. (VFC,
$55), a clothing manufacturer whose brands include
The North Face and Timberland, is a good example.
Parnassus owned close
to 3% of VF’s outstanding
shares at the end of 2016.
(Unless otherwise indi-
cated, share prices and
returns are as of April 30.)
For other companies, the
socially responsible equation
is more nuanced. Although
Parnassus trimmed its stake
in Wells Fargo (WFC, $54)
early this year, the firm at
last report held shares of
the banking giant in three
funds, including a 4% position in Core Equity. The
bank continues to deal with
the scandal resulting from
news last September that
millions of accounts were
opened without customers’
knowledge or permission.
“Believe me, we heard a
lot about it from our shareholders, some of whom were
not happy that we continue
to own Wells Fargo,” says
Allen. “But from our point
of view, the board has acted
responsibly and held the
management team accountable.” He notes that Wells’s
board replaced the CEO,
who resigned; ousted several other top managers;
and reduced, withheld and,
in some instances, “clawed
back” bonuses and other
compensation.
Shortly after Tim Sloan
took over as the bank’s CEO
last October, Parnassus
managers walked over to
Wells’s nearby headquarters
to meet with him and advocate for the values of their
firm and its shareholders.
“That’s how we do it,” says
Allen, who says he coaches
his daughter’s softball team
(and basketball and soccer
teams) with a similar philosophy. Throw the bat once
and you get a warning; do it
twice and you’re out of the
game. Says Allen: “Mistakes
are okay, so long as you
don’t make the same one
07/2017
KIPLINGER’S PERSONAL FINANCE
55
INVESTING
tal. Says Allen: “We own
companies that don’t pay
dividends and companies
that pay very high dividends. We have companies
that engage in a lot of mergers and acquisitions and
some that don’t. We evaluate
where we think companies
have the best opportunities,
then make sure that matches
up with what management
is doing.”
The key to the process
is estimating the value of
a company using standard
measures, such as share
price in relation to earnings,
sales and other yardsticks.
A stock is a buy only if it
is trading for at least onethird less than Parnassus’s
estimate of the company’s
true value. That gives the
funds more of a value bent
than other growth-oriented
funds. “Being able to buy
when the stock is out of
favor is probably more important to our performance
over and over again. Wells
Fargo has absolutely learned
from its mistake.” The question is whether investors
will be so forgiving. Since
news of the scandal broke,
Wells shares have risen
8%, compared with 25% for
SPDR S&P Bank ETF (KBE,
$43), which tracks an index
of bank stocks.
In the end, though, Parnassus’s secret sauce has as
much to do with evaluating
stocks in terms of standard
financial, business and
share-price criteria as it
does with social considerations. Analysts and managers start by looking for companies with a competitive
advantage, or “moat”—the
wider, the better. Next comes
relevancy: Are the company’s products or services
becoming more relevant to
customers’ daily lives? The
third pillar is management,
including how executives
allocate the company’s capiBy the Numbers
SOCIAL INVESTING PAYS OFF
Aided by market-beating results during the Great Recession, all of
Parnassus’s U.S. stock funds topped the S&P 500 over 10 years.
Annualized
2007–09
total return
bear
Exp.
1 yr.
5 yrs. 10 yrs. market* ratio
STOCK FUNDS
Symbol
Parnassus Fund
PARNX 22.0%
Parnassus Asia
PAFSX 23.3
15.0%
9.5%
–52.4%
0.84%
—
1.25
—
—
13.5
9.1
Parnassus Endeavor PARWX 26.4
16.8
12.2
–47.5
0.95
PARMX 18.5
13.0
8.8
–49.7
0.99
Parnassus Core Eqty PRBLX 14.0
Parnassus Mid-Cap
–40.9
0.87
BOND FUND
Parnassus Fixed Inc
1.6%
1.7%
3.7%
3.0%
17.9%
13.7%
7.2%
–55.3%
0.8
2.3
PRFIX
0.68%
INDEXES
S&P 500-Stock
Bloomberg Barclays Agg Bond
4.3
7.2
Through April 30. *Cumulative return. —Fund not in existence for the entire period.
SOURCES: Parnassus Investments, Morningstar.
56
KIPLINGER’S PERSONAL FINANCE
07/2017
than ESG,” says Dodson.
When Parnassus pulls the
buy trigger, it usually does
so with a high degree of
conviction. Its stock funds
own relatively few firms—
Mid-Cap has the most, with
41—and holding periods
typically last several years.
Minimizing pain. A disci-
plined, value-oriented approach has served the funds
well in down markets. In
2008, for example, when
the S&P 500 plunged 37%,
Core Equity lost just 23%;
Endeavor lost 30%, and
Parnassus Fund, 34%. MidCap fell 29%, far less than
the 41% drop in the Russell
Midcap index.
Eight years into a bull
market, however, the managers say bargains are hard
to find. “Endeavor Fund
has only 30 stocks,” says
Dodson. “I’d much rather
have 40 or 45.” Mid-Cap
comanager Matt Gershuny
agrees. “There aren’t a
helluva lot of places for us
to park money safely in this
environment.”
Still, even these discriminating managers see pockets
of opportunity. Some health
care stocks are attractive,
including Gilead Sciences
(GILD, $69), a battered biotech that is a top holding in
four of the five stock funds.
The stock has fallen more
than 45% over the past two
years because a shrinking
pool of new hepatitis C
patients is hurting sales of
Gilead’s blockbuster drugs.
Investors have overreacted,
says Allen, given the outlook
for the company’s hep C and
HIV franchises. “We think
Gilead is a contrarian idea
that will pay off,” he says.
Within Mid-Cap’s outsize
stake in industrial firms,
Fortive Corp. (FTV, $63) has
a technology twist, says comanager Lori Keith. Spun
off from Danaher Corp. in
2016, Fortive provides monitoring, testing and other
equipment crucial to internet-connected industrial
processes. Another Mid-Cap
favorite: Motorola Solutions
(MSI, $86), which provides
radio handsets for firefighters and police officers.
Parnassus managers
are patient. The firm first
bought shares in Whole
Foods Market (WFM, $36)
in 2014, after the stock had
sunk from $65 a share to the
mid $30s due to concerns
about increased competition
in the natural foods segment. After the purchase,
the stock mostly languished.
But since late March, the
shares have surged 29%,
helped in part by the disclosure that an activist investor had amassed a nearly 9%
stake in Whole Foods and
reports that Amazon.com
(AMZN, $925) had mulled
a bid for the grocer last year.
Dodson is philosophical
about the game of waiting
for stocks to make good—
or not. “There’s always uncertainty in the market, and
you have to live with that,”
he says. He is less on the
fence about prospects for
the company he founded 32
years ago: “I never dreamed
we’d be at $23 billion in assets; I never dreamed we’d
be at $1 billion. But if we
keep putting up good returns and ESG investing
keeps being accepted by the
public, then I would imagine that we’d continue to
grow. I certainly hope so.” ■
KATHY KRISTOF
Practical Investing
How One Bad Year Can Wreck Results
W
hen evaluating a mutual fund’s
performance, I’ve always focused on year-by-year results.
In doing so, I have typically brushed off
a bad year here and there, as long as the
fund did better than the market (or an
appropriate index) in most years.
But managing the Practical Investing
portfolio has made me realize the folly
of my approach. That’s because I’ve
seen firsthand how one especially rotten year can sink long-term results and
make it difficult to catch up. Moreover,
what looks like a relatively minor difference in annualized returns caused
by an occasional bad year adds up to
far more than you’d expect when you
look at results on a cumulative basis.
The math is pretty simple. And yet,
if I had not been forced to compare my
own portfolio’s returns with a market
index, I don’t think I would have examined my results closely enough to take
stock of the damage.
Dig into the data with me to get a better sense of the problem. My portfolio is
with Vanguard’s brokerage arm. By using the “balances over time” feature, I
calculated year-by-year results for my
portfolio, as well as for my small position in Vanguard Total Stock Market
ETF (symbol VTI), the exchange-traded
fund that serves as the portfolio’s bogey.
In all but one year of the portfolio’s 5½-year history, its
performance has been relatively close to that of the index.
In the first four months of 2017, for example, my portfolio earned 9.7%, compared with 6.8% for the ETF. In 2016,
my investments earned 16.7%, and the ETF gained 12.8%.
In 2014, I netted 16.0%, versus 12.5% for the index. In 2013,
both the index and I gained 33.4%. And in 2012, the year I
gradually finished filling out my portfolio, I earned 10.1%;
the ETF’s return for a comparable period was 13.0%.
The outlier. You may have noticed that I haven’t said any-
performed abysmally in 2015. It lost
20.0%, while the overall market essentially broke even. Because of that miserable year, the portfolio’s annualized
return through April 30, 2017, stood
at 10.3%, compared with 13.5% annualized for the benchmark. Not great,
but not a disaster, either.
But the impact of my 2015 setback
becomes far more dramatic when you
look at cumulative results. As of April
30, my portfolio had gained a total
of 74.1%—a shocking 31 percentage
points less than the ETF.
How did one 20% loss land me 31
percentage points behind? The short
answer is compounding. At the end of
2014, my portfolio and the index were
neck-and-neck. The actively managed
part of my portfolio had earned a
cumulative 69.8% and was worth
$322,640 (compared with an initial
stake of $189,998), while the ETF was
up 69.7% and was worth $18,430 (versus an initial investment of $10,863).
But by the end of 2015, the value of
my portfolio had shrunk to $258,382.
And that meant I needed to earn 25%
in 2016 to simply restore the portfolio’s end-of-2014 value. Instead, I
earned 16.5%. That was not a bad
year’s work, but my investments were
still worth less than they were on
December 31, 2014. As for overtaking my benchmark, the
chances of that happening anytime soon are remote, even
if I can beat it by three to four percentage points per year.
So why bother to buy individual stocks at all? I can’t
speak for others, but a few things make it worthwhile for
me. Investing a small portion of my net worth this way
helps keep me abreast of valuations, both on an individual
and a market-wide level. That knowledge helps me stay
calm when one of my stocks or the overall market stumbles. Besides, I suspect that the humility engendered by
comparing my results with the index is good for the soul. ■
thing about 2015. Thanks to a few awful picks—as well
as my bent toward value stocks, which hurt during a year
when large growth companies led the way—my portfolio
KATHY KRISTOF IS A CONTRIBUTING EDITOR TO KIPLINGER’S PERSONAL FINANCE AND
AUTHOR OF THE BOOK INVESTING 101. YOU CAN SEE HER PORTFOLIO AT KIPLINGER.COM/LINKS/
PRACTICALPORTFOLIO.
LISE METZGER
My 2015 setback
has had a dramatic
impact on my
cumulative returns.
On that basis, I trail
my bogey by 31
percentage points.
07/2017
KIPLINGER’S PERSONAL FINANCE
57
INVESTING
MUTUAL FUNDS
Alphabet Soup
Funds introduce two new share classes in response
to the fiduciary rule. BY NELLIE S. HUANG
YOU MAY HAVE HEARD OF A, B,
C and other classes of mutual fund shares. Now, get
ready for T shares and
“clean” shares, the industry’s answer to a new government rule that requires
brokers to act in their
clients’ best interests.
The so-called fiduciary
rule, which was issued by
the Department of Labor
and was set to take effect
in June, applies to anyone
giving investment advice
concerning a 401(k) or individual retirement account.
If you manage your own
retirement account, you’re
probably buying no-load
mutual funds, so little of
this applies to you. But
investors who work with
brokers have traditionally
purchased a load fund’s
Class A shares and compensated the brokers by paying
front-end commissions.
Investors in A shares also
paid annual 12b-1 fees to
provide extra, ongoing compensation to brokers.
The DOL decided that
the traditional fee structure
poses a potential conflict,
in part because the charges
vary widely with the type
of fund. For example, the
average load for broker-sold
stock funds is 5.47%, while
the average for brokersold bond funds is 3.75%.
The difference, says Aron
Szapiro, director of policy
research at Morningstar,
might influence a broker to
recommend a stock fund for
a client when a bond fund
might be more appropriate.
The new Class T shares,
many of which have yet to
launch, level the playing
field by setting the load and
C U S T O M E R R AT E D
12b-1 fee at a uniform 2.5%
and 0.25%, respectively,
across all funds and firms.
Szapiro expects most funds
with Class A shares to issue
T shares. But T shares may
be “a transitional” solution,
he says, because they’re a
form of the old commissionbased pay structure, which
is a business model in flux.
And that’s where clean
shares come in. Some fund
firms that charge loads will
issue shares—their designation will vary from firm to
firm—that don’t levy a load or
a 12b-1 fee. Your adviser will
still charge you for advice, but
that charge will be separate
from your purchase of any
fund shares. Szapiro says
this fee “unbundling” gives
investors a clearer picture
of what they’re paying for. ■
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THE KIPLINGER 25 UPDATE
A Fidelity Manager
Takes a Break
ONE OF THE PERKS OF
running a foreign-stock
fund is that you get to see
the world on the boss’s
dime. But for most of the
second half of 2017, Jed
Weiss, manager of FIDELITY
INTERNATIONAL GROWTH , will
foot the bill himself as he
takes a five-month sabbatical and spends family time
visiting Europe, Asia and
Africa. While Weiss is away,
Vincent Montemaggiore,
who runs Fidelity Overseas,
will manage International
Growth. Both funds focus
on large foreign firms with
superior growth potential.
We’re jealous of Weiss,
but we’re not worried about
International Growth in his
absence. Since Montemaggiore took over Overseas
in early 2012, the fund has
beaten the MSCI EAFE index, which tracks shares of
large foreign companies, by
an impressive 3.9 percentage
points per year, on average.
More important, Weiss
and Montemaggiore share
similar investment philosophies. Both favor firms that
Annualized total return
Added to
Kip 25
1 yr. 3 yrs. 5 yrs. 10 yrs.
have a competitive edge in
their industry—particularly
those that can raise prices
for products without reducing demand, a trait
that Weiss says can buoy
a business in rough times.
Both managers are valuesensitive, too, but Montemaggiore says he is more
willing than Weiss to invest
in a lower-quality company
if the stock is cheap enough.
However, Montemaggiore
says he has no plans to
change things at International Growth during this
five-month stint. “The plan
is to keep the ship moving
in the direction Jed has
set,” he says.
Lineup change. Another
foreign-stock fund in our
fold, FMI International,
has closed to new investors.
We applaud the policy of
shutting a fund as assets
swell, but it means we must,
as is our policy, find a replacement for it in the Kiplinger 25. Readers who hold
shares in FMI International
should stick with it. The
fund returned a cumulative
19.2% since we added it
to the Kip 25 in early 2015,
double the 9.6% return
of the MSCI EAFE index.
We’re replacing FMI
with OAKMARK INTERNATIONAL ,
a value-oriented fund with
a terrific long-term record,
reasonable fees (1.00% per
year) and, in comanager
David Herro, a seasoned pro
who has been with the fund
since its 1992 launch. We’ll
tell you more about him and
the fund in next month’s
issue. NELLIE S. HUANG
REACH YOUR GOALS: TO SEE PORTFOLIOS
USING THESE FUNDS, GO TO KIPLINGER
.COM/LINKS/PORTFOLIOS.
Specialized/
Go-Anywhere Funds
Annualized total return
Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs.
Added to
Kip 25
5.9% May 2008
Vanguard Health Care
VGHCX
May 2016
12.1
8.3
May 2014
Vanguard Wellington‡
VWELX 11.5
8.4
12.9
9.7
May 2012
MPGFX 11.9
8.6
13.2
8.1
Jan. 2013
Bond Funds
Annualized total return
Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs.
Added to
Kip 25
PARMX 18.5
10.7
13.0
8.8
Aug. 2014
DoubleLine Total Return N
DLTNX
1.9%
3.1%
3.4%
—
May 2011
T. Rowe Price Blue Chip Growth TRBCX 22.9
13.8
14.5
9.1
May 2016
Fidelity Intermed Muni
FLTMX
0.0
2.4
2.4
3.7%
May 2004
T. Rowe Price Dividend Growth PRDGX 14.7
10.9
13.1
7.4
Oct. 2016
Fidelity New Markets Income FNMIX 13.4
6.8
6.0
7.6
May 2012
T. Rowe Price QM US Sm-Cp Gro PRDSX 21.8
11.4
14.0
10.3
May 2015
Met West Total Return Bond M MWTRX 1.1
2.4
3.4
5.6
May 2016
T. Rowe Price Sm-Cap Value
PRSVX 26.2
8.8
12.1
7.5
May 2009
Pimco Income D
8.9
5.7
7.9
8.8
May 2016
T. Rowe Price Value
TRVLX 15.5
8.1
13.9
6.6
May 2015
Vanguard High-Yield Corporate VWEHX 9.7
4.8
6.2
6.3
May 2016
Primecap Odyssey Growth
POGRX 25.2
13.7
16.4
9.3
May 2017
Vanguard Sh-Tm Inv-Grade
1.9
2.0
3.2
May 2010
Vanguard Equity-Income
VEIPX
9.3
12.8
7.3
Jan. 2017
U.S. Stock Funds
Symbol
Dodge & Cox Stock
DODGX 25.2% 10.1% 15.5%
Fidelity New Millennium
FMILX
17.2
7.6
Homestead Small-Co Stock
HSCSX 17.9
Mairs & Power Growth
Parnassus Mid Cap
14.4
PONDX
VFSTX
Indexes
International
Stock Funds
Symbol
Baron Emerging Markets
BEXFX 19.0%
Fidelity International Growth FIGFX
Annualized total return
Added to
Kip 25
1 yr. 3 yrs. 5 yrs. 10 yrs.
3.3%
6.6%
—
1.7
7.3
9.7
6.8
17.9% 10.5% 13.7%
7.2%
Oct. 2016
RUSSELL 2000 INDEX*
25.6
9.0
12.9
7.0
Feb. 2016
MSCI EAFE INDEX†
11.3
0.9
6.8
0.9
19.1
1.8
1.5
2.5
0.8
2.7
2.3
4.3
4.2
7.5
Oakmark International
OAKIX 24.4
3.3
11.0
4.7% July 2017
MSCI EMERGING MARKETS INDEX
T. Rowe Price Intl Discovery
PRIDX
7.7
10.9
5.4
BARCLAYS AGGREGATE BOND INDEX#
May 2017
May 2016
Annualized total return
1 yr. 3 yrs. 5 yrs. 10 yrs.
S&P 500-STOCK INDEX
11.0
17.0
—
7.8% 11.8% 17.7% 10.5%
Through April 30. ‡Open to new investors if purchased directly through Vanguard. *Small-company U.S. stocks. †Foreign stocks. #High-grade U.S. bonds. SOURCE: © 2017 Morningstar Inc.
07/2017
KIPLINGER’S PERSONAL FINANCE
59
■ AT A TIME WHEN MANY
RETAILERS ARE UNDER
PRESSURE FROM THE
INTERNET, COSTCO IS
THRIVING. ONE REASON:
LOYAL CUSTOMERS.
STOCKS
Surviving Amazon
Warehouse giant Costco continues to prosper despite the
growth of internet retailing. BY DAREN FONDA
TAKING ON AMAZON.COM (SYMBOL AMZN) Add it all up and the warehouse club’s
“mousetrap” looks well protected
seems foolhardy these days. The comagainst Amazon, Barclays says.
pany is expanding so fast that it could
Groceries are just the bait, though.
gobble up more than half of online
retail sales in the U.S. by 2021, up from Many customers also fuel their cars
one-third in 2016, according to broker- with Costco’s discounted gasoline or
purchase other items that catch their
age firm Needham & Co. Yet even
eye. “You go in for tires and wind up
with Amazon raking in sales, some
buying a generator,”
big retail chains are
says David Marcus,
flourishing. One of the
COSTC0 WHOLESALE
manager of Evermore
most successful is
Share price: $178
COSTCO WHOLESALE (COST).
Global Value Fund,
Market value: $78.1 billion
Appealing to millenniwho views Costco as
Annual sales*: $121.2 billion
als and baby boomers
one of the few retailers
Annual profit*: $2.4 billion
alike, the warehouse
that can fight off onPrice-earnings ratio†: 30
club has homed in on
line competitors.
Yield: 1.1%
a surprisingly effective
Granted, Amazon
Share price and related figures are as
way to keep Amazon at
is pushing into the
of April 30. *For the past 12 months.
†Based on estimated earnings for the
bay: selling food.
food business. Its gronext year. SOURCES: Yahoo, Zacks
Investment Research.
Although Costco’s
cery delivery service,
lineup spans everyFresh, offers more
thing from jewelry to appliances, more than 500,000 items, including perishthan 80% of its members go specifiables and prepared meals. Amazon is
cally for the groceries, according to a
testing robots and automation in Fresh
recent survey by investment firm Barwarehouses to lower labor costs, says
clays. Customers pile in to buy houseBarclays, and it could deploy “robot
hold goods in bulk, at prices that are
vans” for home deliveries. A decade
tough to beat online. Costco also sells
from now, Barclays estimates, Fresh
fresh meats, produce and baked goods. could reach 15% of U.S. households.
60
KIPLINGER’S PERSONAL FINANCE
07/2017
Yet Amazon and Costco should be
able to coexist. Costco members shop
on Amazon mainly for electronics,
books and clothing, with groceries
accounting for just 25% of their purchases, says Barclays. That could
change as Fresh expands. But Costco
may still beat or match Amazon’s
prices because shoppers who buy
in bulk already get deep discounts.
Costco offers a grocery delivery service through Instacart.com, available
in 24 states and Washington, D.C.,
and is testing another delivery service,
Shipt, in Florida. Moreover, Fresh costs
$15 a month, on top of the $99 annual
membership for Amazon Prime. One
other advantage for Costco is that it
sells things you still can’t find on Amazon, such as prescription drugs, vacation packages and car rental services.
Profit boost. Costco members tend to
be loyal, too, renewing their annual
memberships at a roughly 90% rate.
An increase in annual fees was slated
to take effect in June, generating cash
that will go straight to the bottom line.
Membership fees, in fact, account for
72% of pretax profits, and the increase
in fees will add 42 cents to earnings
per share over the next two years,
about a 7% lift, estimates UBS. Another avenue for growth: Costco continues to expand worldwide, opening
new stores this year in Korea, Taiwan
and other locales.
For investors, the major drawback
is Costco’s pricey stock. It trades at
30 times estimated year-ahead earnings, well above the 10-year median
price-earnings ratio of 22 and the
stock market’s overall P/E of 18.
But analysts argue that Costco
deserves a rich valuation because it’s
one of the few retailers that can thrive
in the age of Amazon. Costco is also
doling out hefty cash payouts to try
to keep shareholders happy. The
company was set to pay a “special
dividend” of $7 per share on May 26,
on top of the regular quarterly dividend, which it recently hiked from 45
to 50 cents per share. ■
ISTOCKPHOTO.COM
INVESTING
CONVERTIBLE FUNDS Ranked by one-year returns
FUND SPOTLIGHT
A Convertible Fund
for the Risk-Averse
This fund has scored solid gains by focusing on
the right securities for different kinds of markets.
Annualized
total return
Rank/Name
Symbol
1 yr.
Max.
sales Exp.
5 yrs. charge ratio
1. Lord Abbett Convertible A
LACFX
21.1%
9.0%
2.25%
1.06%
PACIX
PCONX
TNFAX
MCPAX
FISCX
MCOAX
ANZAX
CCVIX
19.8
17.4
16.1
16.1
15.6
15.3
14.5
14.2
9.5
8.7
—
—
9.7
9.6
8.7
6.6
5.75
5.75
4.50
5.75
5.75
5.50
5.50
2.25
1.13
1.09
1.30
1.49
0.85
1.01
0.99
1.15
13.9
—
none
1.44
14.3%
7.7%
2. Columbia Convertible Securities A
3. Putnam Convertible Securities A
4. 1290 Convertible Securities A
5. Miller Convertible Plus A
6. Franklin Convertible Securities A
7. MainStay Convertible A
8. AllianzGI Convertible A
9. Calamos Convertible A
10. Direxion Indexed CVT Strategy@
DXCBX
CATEGORY AVERAGE
IF YOU’RE FEELING SKITTISH
about this never-say-die
bull market but you’re worried about missing out on
future stock gains, here’s
an idea: Take convertibles
for a spin. These hybrid
securities combine elements
of bonds (or preferred stocks)
and common stocks.
To keep things simple,
we’ll focus on convertible
bonds. They pay interest
at a fixed rate and mature
at face value. But investors
have the option to exchange
their bonds for a predetermined number of shares of
the issuer’s stock. Whether
it makes sense to convert
depends on the stock’s
price. A key element of convertible-bond behavior is
that the bonds tend to trade
like stocks if shares of the
issuer trade at a high-enough
price for conversion to make
sense. But if the stock’s
price is well below the level
at which the investor wins
by converting, the convert
will trade more like a regular bond, reacting heavily
to swings in interest rates.
Convertible returns are
“asymmetrical,” says Al
Kurtz, comanager of LORD
ABBETT CONVERTIBLE FUND, a
top performer in the group.
By that, he means the bonds
tend to track share prices
more closely in a rising
market than they do when
stocks are sinking. So he
and his team add morestocklike convertibles when
they’re bullish on stocks
and focus on converts that
are more likely to trade like
bonds when they’re cautious about the market.
Balanced approach. The fund
typically holds about twothirds of its assets in stocklike converts. The managers
boosted their allocation to
such bonds last year, snapping up issues whose underlying stocks they believed
were undervalued because
of concerns about the election. They’ve since sold
some of their most stocksensitive converts in favor
of safer bonds. The fund’s
sector weightings also reflect a “more balanced approach,” says Kurtz. At last
check, defensive health care
and utility bonds accounted
for the largest chunks of the
portfolio, followed by converts issued by industrial
companies and retailers,
two more-volatile sectors.
The fund’s Class A shares,
which yield 1.4%, levy a
2.25% sales charge, but they
are available without a load
at several online brokers.
RYAN ERMEY
20 LARGEST STOCK MUTUAL FUNDS Ranked by size
Annualized Max.
Assets† total return sales
Rank/Name
Symbol (billions) 1 yr. 5 yrs. charge
1. Vanguard Total Stock Market Idx Inv VTSMX $483.0 18.5% 13.4% none
2. Vanguard Total Intl Stock Idx Inv
3. Vanguard 500 Index Inv
4. American Growth Fund of America A
5. American EuroPacific Growth A
6. Fidelity 500 Index Inv
7. Fidelity Contrafund
8. American Balanced A
9. American Income Fund of America A
10. American Capital Income Builder A
11. Vanguard Wellington‡
12. American Washington Mutual A
13. American Capital World Gro & Inc A
14. American Fundamental Inv A
15. American Invstmt Co of America A
16. Franklin Income A
17. American New Perspective A
18. Vanguard Mid Cap Index Inv
19. Dodge & Cox Stock@
20. Dodge & Cox International Stock@**
S&P 500-STOCK INDEX
MSCI EAFE INDEX
VGTSX
VFINX
AGTHX
AEPGX
FUSEX
FCNTX
ABALX
AMECX
CAIBX
262.7
250.1
159.4
137.0
118.5
110.7
110.0
105.2
103.6
13.7
17.8
20.7
14.7
17.8
18.6
11.0
10.6
7.6
5.6
13.5
14.2
7.0
13.6
13.1
10.1
9.0
7.2
none
none
5.75%
5.75
none
none
5.75
5.75
5.75
VWELX
AWSHX
CWGIX
ANCFX
AIVSX
FKINX
ANWPX
VIMSX
DODGX
DODFX
99.1
90.3
90.0
86.0
85.3
82.6
66.5
65.9
65.5
60.1
11.9
15.9
14.6
18.9
15.8
14.2
16.5
17.4
26.4
21.7
17.9%
9.8
12.7
9.8
13.6
13.2
7.3
11.0
13.1
15.6
8.4
13.7%
none
5.75
5.75
5.75
5.75
4.25
5.75
none
none
none
11.3%
6.8%
Through April 30. @ Only share class. Unless otherwise indicated, funds come in multiple
share classes; we list the share class that is best suited for individual investors. †For all
share classes combined. ‡ Open to new investors if purchased directly through Vanguard.
**Closed to new investors. MSCI EAFE tracks stocks in developed foreign markets.
SOURCES: Morningstar Inc., Vanguard.
Kiplinger.com
RETURNS FOR
THOUSANDS OF
FUNDS ONLINE
Use our Mutual Fund Finder
to get the latest data and see
the top performers over one-,
three- and five-year periods.
Research a specific fund, or
compare multiple funds based
on style, performance and
cost. And view details including
volatility rank and turnover
rate. To use this tool, go to
kiplinger.com/tools/fundfinder.
EXPLANATION OF TERMS
Annualized total return assumes
reinvestment of all dividends and
capital gains; returns reflect ongoing
expenses but not sales charges.
Maximum sales charge A figure
without a footnote means the commission is deducted from the money
you send to the fund. A figure with
an r is the maximum redemption
fee charged when you sell shares.
Funds that charge both sales and
redemption fees are footnoted with
an s next to the front-end load.
Expense ratio is the percentage
of assets claimed annually for
61
operating a fund.
HEALTHY LIVING
STRESSBUSTING
VACATIONS
A wellness resort can help you relax, get fitter,
eat healthier—and have fun, too. BY SANDRA BLOCK
FOR NEARLY THREE DECADES, NEMACOLIN WOODLANDS RESORT,
in western Pennsylvania, has provided a scenic getaway for people who
want to golf, ski, dine at its five-star restaurant, and indulge in a massage or
facial at the resort’s well-appointed spa. Guests can also hike the 2,000-acre
property, which in the early 1900s provided a fashionable hunting and fishing
retreat for Pittsburgh’s industrial chieftains. // But in recent years, Nemacolin
has launched an ambitious effort to appeal to people who want more from
their vacations than a respite from the daily grind. In 2014, the resort turned a
building previously used for conferences into a Holistic Healing Center, where
guests can take advantage of acupuncture, meditation classes, stress-relief
62
KIPLINGER’S PERSONAL FINANCE
07/2017
COURTSEY NEMACOLIN WOODLANDS RESORT
■ Nemacolin, a resort in
western Pennsylvania, has
bolstered its wellness
offerings with acupuncture,
meditation classes and
stress-relief therapy.
07/2017
KIPLINGER’S PERSONAL FINANCE
63
HEALTHY LIVING
A RETREAT FOR EVERY STYLE
If you’re intrigued by the idea of a
wellness vacation, you have a huge
number of choices, both in the U.S.
and overseas. Wellness is a broad term,
encompassing everything from meditation to pool Pilates, and wellness
retreats can be pricey. We found resorts that will fit a variety of budgets,
personalities and goals—which could
include weight loss, stress reduction,
digital detox or some combination.
Structured. These types of retreats ap-
peal to people who want a break from
the stress of making a lot of decisions,
says Katlyn Hatcher, Nemacolin’s
spa and wellness director. “It’s hard
enough for people to find the time to
devote to themselves,” she says. “It’s
great when it’s already laid out.”
In 2015, Nemacolin began offering
four-day fitness retreats four times a
year; it also offers a three-day workshop on diet and nutrition, and a
weekend retreat for yoga and meditation. You can take yoga and fitness
64
KIPLINGER’S PERSONAL FINANCE
07/2017
classes throughout the week.
Nemacolin’s four-day Fitness Adventure Retreat typically starts at 7:30
A.M. with a 90-minute upper-body
strength-training class. After a group
breakfast, participants embark on a
one-hour fitness scavenger hunt, followed by two hours of free/spa time.
The day concludes with a two-anda-half-hour nutrition workshop. The
remaining three days are similarly
structured, depending on the season.
Activities include yoga, hiking, more
strength training, and gymnastics.
The program is offered in June, November, February and April. The price,
which covers breakfast and all activities for the four days, ranges from
about $1,400 to $1,730, depending
on the accommodations.
Some structured programs are even
more rigorous. A typical day at the
Ranch Malibu, in Malibu, Calif., begins at 5:30 A.M. with Tibetan chimes.
After a morning stretch, guests have
breakfast, then embark on a fourhour hike. After lunch and a one-hour
nap, participants take a low-impact
strength-training class, followed by
yoga. Dinner is at 7, and bedtime is
at 8:30. The cost for one week, which
covers all programs, meals, a room
in a private guest cottage and a daily
massage, is $7,200.
A structured program could encourage you to try a new activity that you
might not attempt on your own, says
Jessica Matthews, professor of integrative wellness at Point Loma Nazarene
University, in San Diego. It’s also a
good option for people who need some
extra motivation, says Kate Hamm,
a fitness instructor who has designed
wellness retreat programs. “If you have
the option of either lying down or
taking a fitness class and you struggle
to take the fitness class, then a structured program is for you,” she says.
Unstructured. If your life is already overscheduled, you may prefer a retreat
that gives you the freedom to choose
your own activities.
Rancho La Puerta, in Baja Califor-
nia, Mexico, offers more than 70
fitness classes, along with classes
in nutrition, meditation and organic
gardening. Guests of the 4,000-acre
resort, founded in 1940, typically stay
from Saturday to Saturday and can
sign up for as many classes and sessions as they want, says Chandler
Taylor, a spokeswoman for the resort.
“Some guests just like to come for the
spa or to lie by the pool or go to cooking classes,” she says. The cost for a
one-week fitness package, which includes meals and most activities,
ranges from $3,550 to $5,750, depending on the room and the time of year.
Canyon Ranch, which has locations
in Tucson, Las Vegas, Lenox, Mass.,
and Kaplankaya, Turkey, also allows
guests to create their own wellness
regimen. At its Tucson location, a recent daily lineup listed dozens of alternatives, including a 6 A.M. five-hour
hike, meditation, wallyball, a golf
COURTESY RANCHO LA PUERTA
therapy and metabolism testing,
among other things. Nemacolin’s
94-year-old founder, Joe Hardy, visits
the center regularly for massages and
acupuncture treatments.
Hardy’s daughter, Maggie Hardy
Magerko, who took over the business
from her father in 2002, decided to
create a center dedicated to health and
wellness after visiting Canyon Ranch
in Tucson, Ariz. Founded in 1979,
Canyon Ranch is one of the oldest and
best-known “healthy vacation” destinations in the U.S. These days, though,
it has a lot of competition. Revenue
from wellness tourism grew by 14%,
to $563 billion, between 2013 and 2015,
according to the Global Wellness Institute, a research organization. Faced
with rising health care costs, many
baby boomers have adopted healthier
habits, and they don’t want to abandon
them when they go on vacation, says
Anne Dimon, founder of Travel to
Wellness, an online magazine that has
covered wellness travel since 2004.
clinic, a water workout, desert drumming, yin yoga and bingo. The cost for
a one-week stay ranges from $7,600
per person for a room with a king-size
bed to more than $12,800 for a luxury
suite. The rate includes all meals, daily
activities, classes and presentations,
plus unlimited access to spa and fitness facilities.
help participants “find silence in daily
life,” says marketing director Andrew
Keaveney. The resort, opened in 2011
on the site of a former transcendental
meditation center, also offers workshops on meditation, philosophy and
mindfulness in a rustic setting. Accommodations range from hotel rooms
with full- or king-size beds, a TV
■ Rancho La Puerta, in
Baja California, Mexico,
offers classes in organic
gardening as well as
fitness and meditation.
Escapist. The world is getting louder
all the time, so it’s not surprising that
“silent spas” and resorts that encourage
guests to turn off their devices are
among the fastest-growing segments
in the wellness business. Many of these
resorts are on the sites of former monasteries, which encourages a contemplative, bare-bones experience. It’s also
a more affordable way to reduce stress.
The Art of Living Retreat in North
Carolina’s Blue Ridge Mountains offers
four-night silent retreats. The goal of
the program, which includes yoga, nature walks and vegetarian meals, is to
and a small refrigerator to simply
furnished rooms with twin beds in
a dormatory-style setting. Rooms have
Wi-Fi, but guests are encouraged to
put away their cell phones—and reception in the mountains isn’t very good
anyway, Keaveney says. Rates for a
four-night silent retreat that includes
vegetarian meals start at $795 per
person in a room with two other individuals to $1,135 for a single room. All
rooms have private baths.
At Eremito, an eco-retreat located in
an ancient monastery in Umbria, Italy,
a gong sounds at 8 p.M. every evening
to announce that it’s time for a silent
dinner of rustic vegetarian food.
There’s no cell-phone service, Wi-Fi
or TV, but there is wine with dinner
(it’s in Italy, after all). The retreat also
offers yoga classes and massage. Rates,
which include meals and access to the
spa area, start at about $195 a night.
Guests at Le Monastere des Augustines, in Quebec, Canada, a spa and
wellness center set in a 17th-century
monastery, begin the day with a silent,
contemplative breakfast of yogurt,
fruit, breads and herbal tea. The center
offers yoga, sleep therapy and massage,
and at dusk guests can go to the chapel
and hear the nuns sing Vespers. Rates,
which include breakfast, start at about
$76 per person for a double-occupancy
room. There are no TVs or phones in
the rooms, but there is free Wi-Fi.
Budget-friendly options. If a high-end
resort such as the Ranch Malibu or
Canyon Ranch is out of your price
range and the monastic life isn’t your
thing, you still have plenty of choices.
New Life Hiking Spa, in Killington,
Vt., offers a five- to 10-night “Jump
Start Getaway” for $259 a night ($239
for double occupancy). The price includes accommodations, meals and
snacks, a hiking program, all exercise
classes, and one massage or facial for
every three-night stay.
As the industry has grown, more
resorts are offering shorter programs,
too, Hamm says. Ranch 4.0, a fourday retreat at the Four Seasons Hotel
in Westlake Village, Calif., is a shorter
version of the seven-day Ranch Malibu program. The price is $3,800 per
person.
If you have more time and want to
explore somewhere new, you can find
a wellness retreat just about anywhere
in the world. Bali and Sri Lanka are
among the places that have experienced
a lot of growth in wellness travel, says
Dimon, of Travel to Wellness. Santani
Luxury Wellness Resort, located on
a former tea plantation about an hour
from Kandy, Sri Lanka, offers a slate
of yoga, meditation and fitness classes,
07/2017
KIPLINGER’S PERSONAL FINANCE
65
HEALTHY LIVING
along with a spa facility. The cost of a
seven-night wellness package, which
includes a room with a mountain view,
all meals, spa treatments and group
activities, ranges from $2,961 to $5,544,
depending on the room (single or
double) and the time of year. A travel
agent who specializes in wellness
retreats can search for one that fits
your budget. You can also search for
retreats at www.spafinder.com.
VETTING A WELLNESS RESORT
Some vacation destinations, eager to
attract health-conscious boomers,
have adopted the wellness nomenclature but are short on specifics. To help
you determine whether the resort fits
your goals, look for itineraries of daily
activities and read online reviews.
■ The Art of Living Retreat in
North Carolina’s Blue Ridge
Mountains specializes
in silent retreats. Stress
reduction and vegetarian
meals are also on its menu.
Food. If a resort claims that its meals
Staff credentials. One of the benefits
of a wellness retreat is that you’ll get
to work with top yoga instructors and
personal trainers. Check the resort’s
website for instructors’ backgrounds;
if the information isn’t provided, you
may want to give the resort a pass.
Cost. Make sure you understand what’s
covered by the fee. Most wellness retreats include accommodations and
meals in the daily rate, but they may
charge extra for certain activities or
classes. Some don’t cover all meals. ■
66
KIPLINGER’S PERSONAL FINANCE
07/2017
Healthy Bonus
Wellness for a Weekend
You may be able to book a healthy weekend retreat at a hotel near you, in a city you’d
like to explore or as a bonus on your next business trip.
Even slackers will feel compelled to work out at the Even Hotels, a division of IHG.
At the Rockville, Md., location, a sign in the front lobby invites guests to “Jog with the
general manager” at 6:30 A.M. Just down the hall is the hotel’s exercise studio, which is
open 24 hours and is outfitted with treadmills, elliptical trainers, a rowing machine, free
weights and TRX straps. For guests who prefer to sweat in private, every guest room is
equipped with a designated workout area, a cardio ball, strength bands, a yoga mat and
19 workout videos.
Most of the hotel’s customers are business travelers, but Even Hotels are getting a
lot of weekend bookings from leisure travelers, too, says Jason Moskal, vice president of
lifestyle brands at IHG. “More and more people are making wellness part of their everyday
life,” he says. In addition to Rockville, Even has hotels in New York City, Norwalk, Conn.,
and Omaha, and plans to add seven more in the U.S. by 2018.
Westin Hotels’ “run concierges” lead guests on jogs around the city. Some Westin
Hotels also offer rooms equipped with a treadmill or stationary bike. Element Hotels,
part of the Starwood chain, lend guests free bikes and helmets.
KATIE BASILE (2); FOOD BY ANDREW KEAVENEY
are “organic” or “healthy,” that doesn’t
tell you much. Don’t be afraid to ask a
lot of questions because food “is a central part of the wellness experience,”
says Matthews, the Point Loma Nazarene professor. Some retreats publish
their menus online, along with calorie
counts. You should also be able to find
out whether the retreat offers vegetarian, vegan or gluten-free options. If
the food is healthy but unappetizing,
you may spend your vacation craving
a deep-dish pizza. Check to see if the
retreat serves alcohol; not all do. If
you’re interested in changing your
eating habits, look for a resort that
offers cooking and nutrition classes.
99 Tips to Make Your
Retirement More Comfortable
from New York Times best-selling
author Ken Fisher
■
Yours
FREE!
Successful Retirement Doesn’t Just Happen
It takes thought, planning and action. To help you get ready
for retirement or make your retirement even better, we’ve
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navigating the transition from work to retirement.
Retirement Is More Complicated
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more in investible assets, will help you better understand the
concerns and issues that retired people face. Please claim
your copy today, at no cost or obligation, and take a step
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Determine how much you can
take from your investment
portfolio without risking
running out of money. (Tip #10)
■ Why selecting a benchmark,
something few people do, can
help you maintain and grow
your portfolio over time in bull
and bear markets. (Tip #19)
■ Why paying down your
mortgage before you retire
might not be a good idea.
(Tip #26)
■ How to estimate what your
taxes are going to be and look
for ways to reduce them in
retirement. (Tip #40)
■ Why, if you are close to
retirement or already retired,
you’ll probably live longer
than you think. (Tip #12)
About Fisher Investments and Ken Fisher
Fisher Investments is a respected money management firm
serving over 30,000 successful individuals as well as large
institutional investors.* We have been managing portfolios
through bull and bear markets for over 30 years. Fisher
Investments and its subsidiaries use proprietary research
to manage over $77 billion in client assets.* Ken Fisher,
Executive Chairman and Co-Chief Investment Officer,
is the author of 11 finance books, 4 of them New York
Times bestsellers.
■ How not to get caught in the
inflation trap and the fallacy of
most asset-allocation advice.
(Tip #13)
■ What you should tell your adult
children about your finances.
(Tip #23)
Call Now for Your FREE Report!
Toll-Free 1-888-322-5748
©2017 Fisher Investments. 5525 NW Fisher Creek Drive, Camas, WA 98607.
Investments in securities involve the risk of loss.
Past performance is no guarantee of future returns.
*As of 3/31/2017.
HEALTHY LIVING
Brain-Healthy Diets
Eating certain foods could sharply lower your odds of developing
Alzheimer’s disease. BY JUDITH GRAHAM
A GROWING BODY OF RESEARCH
suggests that a diet rich in
the nutrients found in vegetables, whole grains, beans,
nuts, vegetable oils and fish
could help lower the risk
of developing Alzheimer’s
disease.
Two diets show promising results, based on studies
that show links between
people’s diets and brain
health. The CANADIAN BRAIN
HEALTH FOOD GUIDE , created
by scientists in Toronto, is
associated with a 36% reduction in the risk of developing Alzheimer’s disease.
The MIND DIET, which comes
from experts at Rush University Medical Center in
Chicago and the Harvard
T.H. Chan School of Public
Health, lowered the risk
of Alzheimer’s by 53%. Researchers will launch clinical trials to study both diets
this year.
It’s not yet well understood how nutrition affects
the brains of older adults.
But a poor diet can increase
the risk of developing hypertension, cardiovascular
disease, obesity and diabetes, which can compromise
an individual’s cognitive
function. A good diet that
reduces the risk of chronic
illness is beneficial to the
brain. Also, what people eat
appears to influence brain
cells and how they function.
68
KIPLINGER’S PERSONAL FINANCE
07/2017
Foods that help the aging
brain. The diets differ in
several respects, reflecting
varying interpretations of
research regarding nutrition’s impact on the aging
brain. The MIND diet recommends two servings of
vegetables and at least three
servings of whole grains
every day, plus five half-cup
portions of berries and one
serving of seafood each
week. The Canadian diet
calls for five servings of vegetables and four servings of
fruit each day and suggests
that seafood be eaten three
times a week (it doesn’t
make a specific recommendation for whole grains).
Martha Clare Morris, a
nutritional epidemiologist
at Rush University Medical
■ VEGGIES
AND FRUITS
ARE KEY
TO BRAIN
HEALTH.
Center and originator of the
MIND diet, says several nutrients have been shown to
have biological mechanisms
critical to brain health. One
is vitamin E, a powerful antioxidant found in oils, nuts,
seeds, whole grains and
leafy green vegetables. It’s
associated with slower cognitive decline, a lower risk
of dementia and reduced
accumulation of beta amyloid proteins—a culprit in
Alzheimer’s disease.
Also on her to-eat list
is vitamin B12—found in
meat, eggs, cheese and
fish—and vitamin B9 (folate), found in green leafy
vegetables, grains, nuts and
beans. Aging affects stomach acids that assist in the
absorption of B12. A defi-
ciency can lead to confusion
and memory problems,
while folate deficiency is
associated with cognitive
decline and an increased
risk of dementia.
Omega-3 fatty acids
(found in fish and nut oils),
especially DHA (docosahexaenoic acid), are highly
concentrated in the brain,
where they are incorporated in cell membranes
and play a role in the transmission of signals between
cells. Because maintaining
healthy blood vessels to the
brain is so important, brain
health recommendations
are similar in many ways to
heart health recommendations, says Carol Greenwood, professor of nutrition
at the University of Toronto
and a key force behind the
Canadian diet.
Foods to avoid. For the
most part, the Canadian
and MIND diets concur
on the types of foods you
should avoid or limit to once
a week: sweets, butter, red
meat, fried and processed
foods, and saturated fats,
found in pastries.
Studies promoting the
cognitive benefits of drinking tea or eating blueberries
have garnered headlines,
but what really matters is
dietary patterns and the
ways components of various
foods interact to promote
brain health. The bottom
line: Concentrate on eating
an assortment of foods that
are good for you. ■
Kaiser Health News (www.khn
.org) is a health policy news
service that is part of the nonpartisan Henry J. Kaiser Family
Foundation.
ISTOCKPHOTO.COM
KAISER HEALTH NEWS
When you give,
bonds grow stronger.
Few things in this life are as important as family. That ’s why your gifts to The Salvation Army
make such a vital difference. Thanks to you, we don’t just help families with emergency food,
housing, and utility assistance. We also strive to keep the family together, growing closer and
stronger, all through their recovery. Give today at 1-800-SAL-ARMY or salvationarmyusa.org.
Alcohol & Drug Rehabilitation
Family Counseling
Food Pantry After School Programs
HEALTHY LIVING
NELLIE S. HUANG
To Your Health
A Genetic Test to Spot Health Risks
The 23andMe test
provides results
for five diseases,
including late-onset
Alzheimer’s and
Parkinson’s.
70
KIPLINGER’S PERSONAL FINANCE
07/2017
disease (which is not part of the
23andMe test), “you almost certainly
will get it,” says genetic counselor
Susan Hahn. But that’s not the case
with Parkinson’s. “Direct-to-consumer
genetic testing can help to identify who
is at risk for developing Parkinson’s
but cannot predict who will be diagnosed,” says John Lehr, CEO of the
Parkinson’s Foundation.
The same is true of Alzheimer’s.
That’s one reason the Alzheimer’s Association discourages genetic testing,
says Keith Fargo, director of scientific
programs and outreach. “It’s not going
to answer the question most people
have: Will I get Alzheimer’s or not?”
Get counseling. Nevertheless, some people
are “information seekers,” says Hahn.
And information can be powerful. It
could push some people to adopt healthier habits, a major factor in staying well.
If you choose to get a genetic test for
health risks, seek counseling from a
genetic specialist or a doctor, who can
help you understand your test results.
Genetic counseling is not included in
23andMe’s Health and Ancestry kit.
But the firm’s website provides resources that help connect customers with counselors.
Without that filter, you might misinterpret the results.
Just ask Jamie Tyrone. Seven years ago, she learned in
a scientific study that she had a 91% chance of getting
Alzheimer’s after age 65 because she had inherited a gene
associated with Alzheimer’s from her mother and her
father. Tyrone, now 56, became depressed and was diagnosed with post-traumatic stress disorder. “I went into
a deep, dark hole,” she says. Had she gotten genetic counseling, she would have learned that she might not develop
Alzheimer’s at all. “The APOE gene is not sufficient nor
is it necessary to cause the disease,” says Hahn.
Tyrone is now an advocate for genetic counseling. “Get
counseling ahead of time, get prepared, and get as much
information as you can,” she says. ■
NELLIE S. HUANG IS A SENIOR ASSOCIATE EDITOR OF KIPLINGER’S PERSONAL FINANCE MAGAZINE.
LISE METZGER
S
cientists first mapped the human
genome 14 years ago. Since then,
they have learned a lot about genetics, and someday that wisdom may
lead to a cure for many diseases. But
we’re not there yet. There’s “a ton we
don’t understand,” says Lawrence
Brody, director of the genomics and
society division at the National Human
Genome Research Institute. Keep that
in mind if you take advantage of the
first “direct to consumer” genetic test
for health risks.
That test became available in the
spring, when 23andMe, a DNA testing
firm, was the first company to win
approval from the Food and Drug Administration to sell directly to consumers—without a prescription—a genetic
test that screens for certain health
risks. Here’s how it works: You pay $199
to order a Health and Ancestry kit online from 23andMe.com. When it arrives, you spit into a tube and mail it
back. Two months later, you can view
your results in your online account.
The 23andMe test currently provides
results for five diseases, including lateonset Alzheimer’s and Parkinson’s.
Genetic results for more health conditions will come later,
says a 23andMe spokesperson.
Tests like this aren’t new, but in the past you could typically get one only if your doctor ordered it. And often it was
to screen you for a specific condition, such as the BRCA
genes, which put you at higher risk for breast and ovarian
cancer. The results were then shared with a doctor, who
interpreted them for you. By contrast, the 23andMe test
puts the results in the hands of the consumer, much like
a home pregnancy, cholesterol or HIV test.
Should you get one? Before you do, consider your motive.
What kind of information are you looking for, and what are
you going to do with it? After all, some of the diseases for
which 23andMe has been authorized to provide genetic
reports—Alzheimer’s, for instance—have no cure.
Also keep in mind that having the gene for a certain
disease doesn’t mean you’ll get the disease. There are exceptions, of course. If you have the gene for Huntington’s
FROM THE EXPERTS
Snacking Before Exercise
■ A WELL-TIMED
SNACK CAN HELP
FUEL YOUR
WORKOUT.
ISTOCKPHOTO.COM
From Tufts University’s Health &
Nutrition Letter.
IF YOU START EXERCISE LOW
on fuel, you could end up feeling
weak and run out of steam. Or
you may simply feel hungry,
making it hard to focus on your
workout. However, unnecessary
snacking before exercise may
make you feel uncomfortable
and add calories you don’t need,
counteracting the calorie burn
of your physical activity.
“I think there’s a misconception that you need to eat a snack
before exercise, but this is generally only necessary if it’s been
at least two to three hours since
your last meal,” says Jennifer
Sacheck, PhD, an associate professor at Tufts’ Friedman School
who specializes in physical activ-
ity research. “If you eat lunch at
11 A.M. and are going to the gym at
5 P.M., or you exercise first thing in
the morning, you’ll need to refuel.”
Timing snacks. Munching a
snack while you head to the gym
may not give you the benefits
you’re seeking. Your snack won’t
have time to be digested and absorbed, so its energy won’t reach
your working muscles during exercise. Blood flow will be diverted
to your gut instead of increasing
to arm and leg muscles to fuel
movement. Plus, undigested food
sitting in your stomach may cause
discomfort and interfere with
more intense cardiovascular
(aerobic) exercise.
On the other hand, a welltimed snack can help fuel exercise. According to the American
College of Sports Medicine, when
you consume a carbohydrate-rich
snack one to four hours before
exercise, it can help replenish liver
and muscle glycogen—the stor-
age form of glucose, which is the
main fuel for working muscles.
It also can stabilize blood sugar
levels, which helps fuel the brain
and central nervous system.
Choosing snacks. Carbohydraterich foods should be the main
focus of pre-exercise snacks but
should be balanced with protein
and fat. “Including a bit of protein,
fat and/or fiber in a carbohydraterich snack helps with satiety and
helps prevent a big blood sugar
spike followed by a drastic fall
during exercise,” Sacheck says.
The addition of protein to snacks
eaten before resistance exercise
(strength training) also may
promote muscle recovery after
your workout.
“In general, the closer you
are to your workout time, the less
you should eat and the more you
should limit fat, protein and fiber,
so the snack will be more quickly
digested and absorbed,” Sacheck
says. Fruit is a good choice; it’s
high in water, so it also contributes to hydration. Skip sugary
sports drinks; opt for water to
hydrate before exercise.
For more information about Tufts’
Health & Nutrition Letter, visit
www.nutritionletter.tufts.edu.
Workout Menu
Munchies to Mix & Match
The closer it is to your workout, the less you should eat. For a 50to 100-calorie snack 30 minutes before exercise, choose a carbohydrate option, such as one small whole fruit, one cup of fresh fruit,
¾ ounce whole-grain pretzels or 1 ounce whole-grain crackers.
For a 100- to 200-calorie snack (at least one hour before exercise),
choose a carbohydrate option from the list above plus a protein/
fat option, such as 6 ounces low-fat plain yogurt, 2 tablespoons
nuts, ¼ cup hummus, ½ cup low-fat cottage cheese or one light
string-cheese stick. For a 200- to 300-calorie snack (two or more
hours before exercise), add something extra to the carb and protein/fat options, such as ½ cup of non-sugary cold cereal, 8 ounces
low-sodium veggie juice, or tuna from a 3-ounce pull-top can.
07/2017
KIPLINGER’S PERSONAL FINANCE
71
THEN & NOW
75
● A paid-off mortgage gave Myrna
Oliver the freedom to retire early
and travel around the world.
Does it make sense to pay
off my MORTGAGE early?
T
AMANDA FRIEDMAN
■ Myrna Oliver: Being
debt-free left her free to
travel and volunteer.
hat depends on
your interest rate
and your timing.
Paying down a 6% mortgage
is the equivalent of earning a
6% taxable return on your
money. You should be able
to beat that return by investing your money elsewhere,
especially when investing for
the long term. “If you have a
very low interest rate on your
loan and know that you can
earn a higher return with additional money you have to
invest, it’s okay to keep the
mortgage,” says Los Angeles
CPA Michael Eisenberg.
Investing outside your
mortgage also gives you easier access to your funds be-
cause you don’t have to
borrow against your home
equity to get your money.
Paying more toward your
mortgage can reduce the
total interest paid, and you
might pay off your loan earlier. But it doesn’t lower your
payments, and if you’re still
in the early years of the loan,
you might not see the difference for a decade or more.
Your priorities may be
different, however, if you’re
nearing retirement and your
mortgage is close to being
paid off. In that case, making extra payments can
speed up the payoff, lowering your expenses after you
leave your job. In Eisenberg’s
experience, “most people
don’t want to have debt
when they retire.”
Paying off the mortgage
early made sense for Myrna
Oliver, 64, who worked at
the Los Angeles Times for
more than 30 years. When
Oliver was in her mid fifties,
many of her colleagues were
getting buyout offers. She
wasn’t ready to retire yet,
but she wanted to be able
to jump at a good offer if
one came her way. To do that
she needed to cut her postretirement expenses—especially the mortgage on her
condo in downtown Los
Angeles. “I didn’t want the
mortgage payments to figure into my retirement
spending,” says Oliver.
So Oliver began making
extra payments toward her
7.5% loan whenever she
got a raise, a bonus or extra
money from some other
source. At age 60 she paid
off the loan—eight years
early—and shifted the money to her 401(k) plan to take
advantage of catch-up provisions for contributors who
are 50 or older. This year
employees in that age range
can kick in an extra $5,000,
on top of the $15,500 that
all workers may contribute.
When Oliver got a buyout offer last year, she had
only three weeks to make
a decision, but it was a nobrainer. “Having the mortgage paid off gave me the
freedom to take early retirement,” she says—and to
take a year off to travel.
— KIMBERLY LANKFORD
SHOULD I SAVE
FOR COLLEGE OR
RETIREMENT?
Retirement should always
be your top priority. Start
with your 401(k) and contribute at least as much
as your company will
match. Then scout out
state 529 college-savings
plans. If your state offers
a tax deduction for contributions, your state
plan is probably your
best bet (for our choices,
see kiplinger.com/links/
state529). Kick in as
much as your budget will
allow—or encourage family members to contribute.
I’VE MAXED
OUT MY 401(K).
NOW WHAT?
Contribute to a Roth IRA
if you’re eligible (your
income doesn’t exceed
$114,000 if you’re single
or $166,000 if you’re
married). What if you
earn too much? Consider
making nondeductible
contributions to a traditional IRA and converting
to a Roth in 2010, when
income limits for conversions disappear. Or invest
in taxable accounts.
MY PROPERTY
TAXES ARE
TOO HIGH
You typically have 60 to
90 days after you receive
your notice to file an appeal based on a mistake
or an inequity in the
assessment. Check the
math and the recorded
dimensions of the house
and land, and note any
overlooked defects, such
as a wet basement or
pest problem, that could
reduce your appraisal.
Research current values
for comparable homes
online at your local assessor’s office or at sites
such as Zillow.com. Most
appeals win some tax
reduction.
2007
THEN: When we featured Myrna Oliver in
the December 2007 issue of Kiplinger’s, she
was 64 years old and had met her goal of
retiring the mortgage on her downtown Los
Angeles condo before she retired from her
job. Oliver had paid off her 7.5% loan eight
years early, when she was 60, and then
boosted her 401(k) contributions. After
she received a buyout offer from the Los
Angeles Times at age 63, she took a year
off to travel. “Having a paid-off mortgage
gave me the freedom to take early retirement,” she said.
NOW: Oliver, 74, is glad she was debt-free—
she also paid off her retro red Thunderbird—
before retirement and boosted her 401(k)
contributions in her last few years at the
Times. She received one year’s salary and
benefits from the buyout, and she never
went back to work. “I was offered a couple
72
KIPLINGER’S PERSONAL FINANCE
07/2017
of jobs, but I didn’t need the stress,” she says.
Instead, she has been able to spend time
traveling, volunteering and mentoring
young journalists. She walks to the central
branch of the Los Angeles Public Library,
where she conducts tours and runs book
sales, and her condo is also within walking
distance of top-notch medical care.
Oliver loves to travel—most recently to
Cuba with a college alumni group—and she
frequently visits friends in England (including
a pen pal she’s had since she was 12). She also
serves on the Media School Council at her alma
mater, Indiana University. Oliver received the
school’s distinguished alumni award in 2015
for her pioneering journalism career: She was
one of the first women to cover the courts
for Los Angeles newspapers, reporting on
the Charles Manson and other high-profile
trials and the Robert F. Kennedy assassination. She later shifted to writing obituaries;
Gene Autry was one of her favorites.
Oliver was surprised at the cost of Medicare after she turned 65 and started paying
premiums for Part B, plus a medigap policy
and Part D drug plan. But having the supplemental coverage was a godsend. After suffering a fractured skull in a fall, she spent
eight days in the hospital. “I saw the bill for
$165,000, and I paid not a cent,” she says.
She’s grateful that she has retirement
income from a pension, Social Security
and savings. But without a cost-of-living
adjustment to her pension, she has had to
use more money from her savings each year
to cover her expenses. Oliver waited until
she had to start taking required minimum
distributions before touching her 401(k). “I
learned to live on less until then, but at 70,
I started spending more freely,” she says.
“I’m getting older, and I might as well enjoy
life.” KIMBERLY LANKFORD
PHOTOGRAPH BY MELISSA VALLADARES
INSET PHOTO: AMANDA FRIEDMAN
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