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Kiplinger's Personal Finance - December 2017

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YOUR EQUIFAX
HURRICANE
OUR TOP
DEFENSE
DISASTER RELIEF DIVIDEND PICKS
p34
PERSONAL
DECEMBER 2017
FINANCE
p24
p50
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CONTENTS
KIPLINGER’S PERSONAL FINANCE
FOUNDED 1947
VOL. 71 NO. 12
■ STAFF WRITER
MIRIAM CROSS AMID
THE FALLOUT FROM
HURRICANE HARVEY.
PAGE 24
AHEAD
9
TOPIC A: Make the most of your donor
dollars . . . the risks of cryptocurrencies. . . Knight
Kiplinger on money and ethics.
14 OPENING SHOT A dozen ways to cash in
on China, by JAMES K. GLASSMAN.
18 SUCCESS STORY She helps launch future
leaders, by PATRICIA MERTZ ESSWEIN.
20
34 YOUR EQUIFAX DEFENSE After the
credit bureau’s massive data breach, take
these steps to minimize the threat of ID theft.
38
is no slam dunk, by JANET BODNAR.
MONEY
FELIX SANCHEZ
24
SPECIAL REPORT: DISASTER RELIEF
We visited Houston after the floods to see how
Harvey’s victims were rebuilding their homes
and finances. Our guide can help you deal with
a natural disaster no matter where you live.
20 update (54). Kiplinger 25 update (56).
Mutual fund spotlight (57).
TRIM YOUR TAX BILL These year-end
moves can slash what you’ll owe next April.
LIVING
41
58 COVER STORY
ASK KIM Charitable giving is a family affair,
by KIMBERLY LANKFORD.
37 MORE ABOUT MONEY Money Manners
(37). Are your bank accounts at risk? (42).
CROWDSOURCING What’s the best piece
of financial advice you ever received?
22 LIVING IN RETIREMENT Health coverage
54 MORE ABOUT INVESTING Kiplinger ETF
INVESTING
44
THE RIGHT PRICE FOR ADVICE Overwhelmed by the marketplace of investment
advisers? We can help.
THE BEST LIST Our annual potpourri of
stocks, bonds and funds, rewards credit cards,
and deals on phone plans, cars and tech.
70 TO YOUR HEALTH Help navigating
the medical system, by NELLIE S. HUANG.
IN EVERY ISSUE
4 FROM THE EDITOR We’re here to help.
50 THE KIPLINGER DIVIDEND 15 For income
6 LETTERS Advice by the bucketful.
investors, we unveil the list of our favorite
dividend-paying stocks.
72 TAKEAWAY Save on holiday shopping.
49 PRACTICAL INVESTING Why I think Apple
is a bargain, by KATHY KRISTOF.
ON THE COVER: Typography by Joel Felix
12/2017
KIPLINGER’S PERSONAL FINANCE
1
GET MORE ADVICE FROM KIPLINGER
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GUIDE TO STATE TAXES
Updated for 2017, the Kiplinger Tax Map breaks
down how each state taxes your income, your
property and everything you buy.
kiplinger.com/links/taxmap
BEAR MARKETS QUIZ
We don’t think this bull market is ready to quit
yet, but what goes up must eventually come
down. Take our new quiz to prepare yourself
for the next bear market.
kiplinger.com/links/bearquiz
To order, visit www.KipGift.com
USED-CAR VALUES
When it comes to buying used, depreciation can
be your friend. We reveal quality used cars that
have depreciated faster—and will cost you
less—than their peers.
kiplinger.com/links/used2017
Investing for Income
In 2016, Kiplinger’s Investing for Income editor Jeff Kosnett
put his decades of experience reporting and writing about real
estate investment trusts to work to create what he called a
Super Payouts. Swell Total Return. What’s the Catch?
REIT Dream Team. In the October 2017 issue, Jeff revealed the
F
performance of his 10 picks: an average total return of
Of 20 closed-end funds
with income-only yields
13.4%, close to double the average REIT return
in double digits, we
identify the top three.
over the same period. Three of his selections
’S TEN PICK
returned more than 30% for the year.
F
F
SEPTEMBER 2017, VOL. 6, NO. 9
Investing for Income
Strategies to Boost Your Cash Yield
13.4%
RETURN
3
Fed or no Fed, and inflation
atio or no inflayield are up
tion, two- and three-year yields
sharply. Give yourself a raise..
Ask Jeff
6
Questions about BulletShares for income,
a volatile closed-end fund, and a reader asks
if 7% is a reasonable dividend target.
Warren Buffett invests in a little-known
jo him.
REIT. You might want to join
4
After regulators give the green light,
l
many
banks boost their payouts 50% to 100%.
You can count on even more.
5
August isn’t as wild as it sometimes
mes
ess gets.
g
Some winners, some losers—but no drama.
What’s New in Cash
7
Treasury bonds are still a haven, nuclear
utilities stiff the shareholders, and gigantic
corporate bond offerings make headlines.
Rates and Yields
7
Model Portfolio: Tax-Exempt Income
8
Tax-free bonds extend their comeback
from last winter’s losses as Congress
crawls toward individual tax-rate cuts.
B
average
total return
IT
3
RE
Timely Tactic of the Month
Kiplinger’s 25 for Income
continued on next page ...
Unless otherwise noted, prices and data are as of August 18, 2017
U
These Interest Rates Have Really Risen
Banks Are Gushing Dividends Again
gain
•
Inside This Issue...
S
More recently, oil-and-gas
trusts and partnerships made the
grade. From 2009 through 2014,
a barrel of crude cost $90 or more
most of the time. BP Prudhoe Bay
Royalty Trust (BPT) and a few
other oil-and-gas pass-throughs
yielded as much as 15%—and
their shares held value or grew.
ew
As regular readers know, BPT’s
PT
payouts tanked as the price
pr of
oil broke. You can still buy BPT
for $20 and collect nearly $2 in
annual dividends, but the oversupplied oil market raises the risk
that BP will trim output from the
Alaska oil fields that feed the
trust’s cash flow.
Shares of high-interest-rate
lenders, business development
companies and mortgage real
estate investment trusts have had
their time in the sun, too. During
the financial crisis of 2008
08 and
2009, Medallionn Financial, then
trading with the symbol TAXI,
sustained
ed its near-10% yield and
steady share
h price around $10
while banks and finance companies
n went bust all around. The
secret: TAXI had a perfect niche.
It lent against the medallions required to operate New York City
taxicabs, whose rich owners endured the Great Recession even as
their fares were as likely to travel
to bankruptcy hearings as to posh
•J
E
would lose one-fifth of their value,
devouring seven years of interest.
We still like bonds, especially taxexempts. But a taxable yield of
2.8% until 2047? Forget it.
U
ALMOST DO
or a change of pace, let’s
go on a treasure hunt.
Imagine the perfect
high-income investment. It starts
with a distribution close to or
above 10% that’s covered by cash
flow or sustainable trading profits.
If it’s a lender or a fund that
invests in debt, you want a low
duration so that if interest rates
climb unexpectedly, your principal won’t get clobbered. Add
liquidity and a respected, experienced sponsor or manager. And,
of course, you can get it for a fair
price, not an exorbitant premium
to net asset value or an excessive
multiple of income and earnings.
Does such a magnificent
creature exist? And if it does,
wouldn’t it be so popular that
the queue to invest would extend
from sea to shining sea?
To assure you that we’re not
searching for a unicorn, join us for
a quick trip down memory lane.
A couple of generations ago,
Treasury bonds fit the bill. In February 1982, with inflation easing
from its 15% peak, the Treasury
issued 30-year bonds at 14.8%.
Anyone who bought and stayed
put stomped stocks over the next
30 years—with no credit risk.
Today, of course, the longest-term
Treasuries are no treasure. Besides
paying a paltry 2.78% current
yield, a 30-year T-bond lugs a duration of 19.7 years. If the rate on
new 30-year bonds were to ascend
one percentage point, the 2.8s
Copyright 2017 • The Kiplinger Washington Editors, Inc. • 1100 13th Street, NW • Washington, DC 20005-4051 • www.kiplingerincome.com
LE
THE
AV E R
AG
E
To see all of Jeff’s picks,
plus his analysis, visit:
kiplinger.com/go/reitpicks
We’ll e-mail you a PDF of the story,
plus a special offer for new subscribers
to Kiplinger’s Investing for Income.
Today
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2
KIPLINGER’S PERSONAL FINANCE
12/2017
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UP FRONT
Mark Solheim
FROM THE EDITOR
We’re Here to Help
I
n late August, as we were putting the
finishing touches on the November
issue, Hurricane Harvey unleashed
a deluge of biblical proportions on
Houston. After the rains stopped and
the floodwaters receded, officials reported that of the more than 100,000
homes flooded by Harvey, some 80%
weren’t covered by flood insurance.
The personal toll on those affected
by the flooding—especially the families without flood insurance—is hard
to fathom, and I figured that this
was a time for Kiplinger to step up
and offer the best financial advice we
could. We sent staff writer Miriam
Cross to Houston to see up close how
families whose homes had flooded
were drying out, digging out and, most
important, dealing with the financial
devastation, and we hired a local photographer to accompany her.
Contributing editor Kim Lankford,
who reported a similar story in 2008
after flooding in Wisconsin and
Iowa, interviewed a raft of insurance
experts about strategies to get the
most from a flood insurance claim
and, for those who are now thinking
about buying coverage, how to shop
for the best deal. Kim and Miriam
added reporting on how victims with
and without flood insurance can apply
for FEMA grants as well as the best
options for borrowing. Senior editor
Sandy Block wove it all together.
“Disaster Relief,” the special report
that starts on page 24, focuses on
Houston but is also a guide for victims
of Irma and Maria and anyone caught
in future natural disasters.
4
KIPLINGER’S PERSONAL FINANCE
12/2017
A credit disaster. As we were creating
the shooting script for that huge effort,
another crisis rocked the world of
personal finance. On September 7,
Equifax, one of the three major credit
bureaus, announced that hackers had
broken into its website, potentially
putting the sensitive data of almost
146 million consumers into the
clutches of ID thieves. Contributing
editor Lisa Gerstner spent the next
three weeks following the drama
(which culminated in the resignation
of Equifax CEO Richard Smith) and
produced the article on page 34.
We know from reader polls and
your feedback that ID theft is one of
your top financial worries. That one
of the gatekeepers of this sensitive
data let down its guard—in fact, could
have prevented the breach had it been
more diligent—is appalling. I recently
wrote about my own struggle with
ID theft in the September issue (see
“I Thwarted ID Thieves”). I found the
credit bureaus to be unresponsive, and
getting in touch with a real person
was nearly impossible.
My solution (and the one we are recommending for you, too) was to freeze
all of my files, which means no new
creditor can review my history unless
I unfreeze my accounts. Unless you
produce a police report showing you
were a victim of ID theft, in most
states you’ll pay each bureau to freeze
your files—often $10 a pop—and you’ll
pay again to unfreeze them. If you and
a spouse are freezing your accounts at
all three bureaus, you could pay $60—
plus fees to unfreeze at least one
This was a time for
Kiplinger to step up and
offer the best financial
advice we could.
account when you apply for credit.
In the case of Equifax, you are paying
the company that exposed your data
to lock it up again (Equifax is offering
free freezes through January 31).
Credit bureaus are loosely regulated, and we have very little control
over our own information. However
you feel about government regulation,
this is one situation in which the government needs to come to our aid. A
number of state attorneys general are
investigating, and legislation has been
proposed in Congress to make credit
freezes free. I believe we should be
able to freeze and unfreeze our credit
reports without a fee. If you agree,
write to (or e-mail or Facebook or
tweet) your representatives. ■
mark solheim, editor
msolheim@kiplinger.com
twitter: @marksolheim
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LETTERS
ROBERT E. HOFFLER JR.
MCLEAN, VA.
Airport shortcut? Miriam
Cross recommends upgrading from TSA PreCheck to
Global Entry to speed
through U.S. Customs
(“Ahead,” Oct.). But I’ve
found that with TSA PreCheck and a smartphone
loaded with the Customs
and Border Protection app
(https://mobilepassport.us),
you can skip the Global Entry kiosk and scan the phone
at customs. This service is
now available at more than
20 airports nationwide.
Advice by the Bucketful
Q
Kudos to the writers of “Get
Income for Life” (Oct.). For
years I have been trying to
understand how to put the
“bucket method” of managing retirement income into
practice, and your article finally explained it in enough
detail that I can do it.
DAVE DAUM
FAIRBANKS, ALASKA
Satisfied with Ally. I have
been a TradeKing (now
Ally) client for nearly 10
years (“We Pick the Best
Online Brokers,” Oct.). The
reduced $3.95 commission
for trades applies not only to
clients who make at least 30
trades per quarter, but also
to those who maintain at
6
KIPLINGER’S PERSONAL FINANCE
12/2017
READER
POLL
How have you
limited your
chances of
ID theft?
Reviewed free credit report(s)
34%
Enrolled in ID monitoring service
26%
Froze my credit reports
20%
None of these
16%
To learn more about how to
minimize your chances of ID
theft, turn to page 34.
RITA GLICKMAN
VIA E-MAIL
MIRIAM CROSS REPLIES: Although Global Entry and Mobile
Passport are both good alternatives to standing in the regular
line, I still think Global Entry is
the better option. It costs only $15
more than TSA PreCheck, is available at more airports than Mobile
Passport and allows you to skip
the in-person interview with a
customs officer. There is no harm,
however, in loading the free Mobile
Passport app. If there’s a long line
at the Global Entry kiosk, you can
try Mobile Passport.
Long-term-care options. Janet
Bodnar raises good points
about discussing money
matters with women
(“Money Smart Women,”
Oct.). My job once included
counseling male and female
employees on the risks of
going without long-termcare coverage. Among the
strategies I suggested: If
two policies are not affordable, why not insure just
one spouse? That still leaves
joint assets largely intact
for the remaining spouse.
Deciding who gets the insurance can depend on family longevity, health and
preferences of the couple.
State incentives and tax
credits can help underwrite
the cost of coverage. For example, New York State has a
20% long-term-care credit
that applies annually to mitigate the costs of two policies or a single policy.
CHRIS CORBETT
ALBANY, N.Y.
Thanks, as always. I’ve been
a reader for about 25 years,
and I can always count on
at least one tip I can use per
issue. In October, the tip was
in the “Ahead” interview on
the dangers of oversharing
your cell-phone number. I
have a Google Voice number
that I had never used. Now I
use it for rewards, purchases
and app data. The number is
free and eliminates the need
to pay for a second phone.
MELISSA STOCK
DENVER
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 361 KIPLINGER’S READERS.
least a $100,000 average
daily balance. That means
I don’t have to trade frequently to benefit. Also, I
sometimes find it helpful to
speak to someone directly,
and there’s no additional
commission or fee for making a broker-assisted trade
over the phone.
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EXECUTIVE EDITOR Anne Kates Smith
MANAGING EDITOR Frederic Fane Wolfer
SENIOR EDITORS Eileen Ambrose, Sandra Block, Jeffrey R. Kosnett, Barbara Hoch Marcus
EDITOR AT LARGE Janet Bodnar
SENIOR ASSOCIATE EDITORS Daren Fonda, Nellie S. Huang, Marc A. Wojno (research)
ASSOCIATE EDITOR Patricia Mertz Esswein
STAFF WRITERS Miriam Cross, Ryan Ermey, Kaitlin Pitsker
CONTRIBUTING EDITORS Lisa Gerstner, James K. Glassman, Kathy Kristof, Kimberly Lankford
OFFICE MANAGER Glen Mayers
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COPY EDITORS
ART
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AHEAD
TOPIC A
MAKE THE MOST OF
YOUR DONOR DOLLARS
After a series of disasters, demand is intense.
Here’s how to give wisely. BY SANDRA BLOCK
ROSE BLAKE
THIS YEAR’S SEEMINGLY
endless string of natural
disasters has inspired
countless acts of heroism
and generosity. But as the
year-end giving season
begins, some philanthropy
experts worry that a phenomenon known as donor
fatigue could affect individuals’ willingness to support
other worthwhile causes.
Many global crises don’t
get much news coverage in
the U.S. For example, shortly
after hurricanes Harvey and
Irma inundated Texas and
Florida, flooding in Southeast Asia killed more than
1,200 people and affected
more than 40 million people,
according to GiveWell, a nonprofit that supports underfunded charities. There are
also long-term crises that
get little attention, such as
child hunger in developing
countries. If you have a
group of charities you regularly support, don’t short-
change them because you
donated to hurricane victims, says Daniel Borochoff,
president of CharityWatch,
a watchdog organization.
“There are times in this life
when you need to step up
and do more, and this is one
of them.”
Make a plan. Talk with your
family and decide which
charities you want to support—not only before yearend (which locks in a tax
break for itemizers for 2017)
but also in the new year.
Eileen Heisman, chief
executive of the National
Philanthropic Trust, which
provides advice to foundations and financial institutions, suggests devoting a
large percentage of your
charitable-giving budget—
say, 80%—to the charities
you’ve selected and setting
aside 20% to respond to
disasters and other shortterm events.
If you really want to
help—and this applies to
more than disaster relief—
consider committing to a
monthly or quarterly donation. Recurring gifts provide a predictable source of
funding, which helps charities budget for long-term
projects. In addition, charities with a predictable
source of funding don’t have
to spend as much on fundraising, Heisman says.
If your investment portfolio has performed well
this year, consider giving
appreciated stock or mutual
funds instead of cash. You’ll
help the charity and reduce
your tax bill (see “Trim
Your Tax Bill,” on page 38).
12/2017
KIPLINGER’S PERSONAL FINANCE
9
AHEAD
Watch out for scams. Shortly
after Harvey hit, the Department of Homeland Security
warned that e-mails seeking
donations could be fraudulent phishing expeditions or
efforts to direct individuals
to malware-infected websites. This scam is easy to
avoid: Don’t click on a link
in an e-mail seeking charitable donations, even if it
looks legitimate, Heisman
says. If you think the cause
is worthwhile, close the
e-mail and go to the charity’s website. To learn more
about a charity, go to the
websites of charity watchdogs, such as Charity Navigator and CharityWatch.
Legitimate charities,
such as DonorsChoose
.org, use crowdfunding to
raise money, but be wary
of appeals from individuals
on websites such as GoFund
Me.com. Some of these requests are scams. And even
when the appeal is legitimate, there may be other
victims with more-pressing
needs. “The person who
is the best marketer isn’t
always deserving of the
most aid,” Borochoff says.
10
KIPLINGER’S PERSONAL FINANCE
12/2017
INTERVIEW
KNOW THE RISKS OF
CRYPTOCURRENCIES
Some investors have made a lot of money,
but losses can be painfully real.
Christian Catalini is a professor at MIT’s Sloan School
of Management and a partner in MIT’s Digital Currency Initiative.
What are cryptocurrencies,
and why should investors care
about them? Cryptocurren-
cies are virtual coins that
behave very much like a
digital form of gold. Both
are scarce and can be transferred between people
without going through
traditional financial intermediaries. Transactions are
verified not by banks
but by computers
that have access to
a universal ledger.
But unlike gold,
which is used for
jewelry and has
industrial uses,
cryptocurrencies have no
intrinsic value.
They derive
and retain
their worth
from investor
demand alone.
That demand has
grown steadily in
the past couple of
years, and early
investors in some
of the most popular cryptocurrencies, such as
Bitcoin and
Ethereum, have
made a lot of money.
What risks come with investing
in cryptocurrencies? Crypto-
currencies are highly volatile and speculative assets.
As with gambling, investors
wanting to buy them should
invest only what they can
afford to lose. There are
currently hundreds of different cryptocurrencies.
In 10 years, many of them
probably won’t be around
anymore. It’s hard to predict which have long-term,
mainstream potential.
What can investors do to minimize the risk? I think many
people are rushing to invest in cryptocurrencies
without appreciating their
complexity. It’s important
to research the technical
abilities of any currency’s
founders, much as venture
capitalists do before investing in start-ups. Investors
should also realize that if
they don’t use robust passwords and other security
measures to protect the online accounts they use to
buy cryptocurrencies, those
accounts may get hacked and
their funds may be stolen.
Do you think cryptocurrencies
that stand the test of time
will become more widely
embraced? I think we’ll
see more of a coexistence
between regular currencies and cryptocurrencies, which I do think
come with some advantages. For example,
with digital money,
if you want to wire
money abroad, you’d
likely be able to do so
at a lower cost. I think
countries or financial
institutions will eventually adopt the underlying digital-ledger
technology that powers cryptocurrencies,
called blockchain,
to speed up or lower
the cost of transactions. THOMAS H. BLANTON
TONY LUONG
Most large charities accept
donations of securities. If
you want to contribute to
smaller organizations that
aren’t set up to accept contributions of securities, consider a donor-advised fund.
With these funds, you can
make a charitable contribution of cash or other assets,
take the tax deduction on
your 2017 tax return, and
decide later how to distribute the money (see “Ask
Kim,” on page 41, for more
on how to choose a donoradvised fund).
UNDERWATER
WATCH OUT FOR
FLOOD-DAMAGED CARS
A used vehicle with a superlow price may have
been submerged in the recent hurricanes.
IF A USED-CAR DEAL LOOKS
too good to be true, you
should do more than kick
the tires. The vehicle may
be one of the estimated
500,000 flood-damaged
cars that could hit the market after hurricanes Harvey
and Irma (see “Disaster
Relief,” on page 24).
Flood-damaged cars
enter the market in two
ways: via auto auctions
and disreputable sellers.
If the owner has comprehensive coverage and the
insurance company declares the vehicle a total
loss, the car is often given
a salvage title, which means
repairs cost more than the
car is worth. After that, the
vehicle is usually sent to be
sold at auction, where it can
end up in anyone’s hands.
As long as sellers disclose
that the car has a salvage
title, the sale is legal.
However, there are
always people looking to
make a quick buck, says
Frank Scafidi, of the National Insurance Crime
Bureau. Some sellers may
dry out and clean a flooded
car without disclosing the
damage. Others may manipulate the car’s title—called
title washing, which involves
selling the car in another
state with looser title laws.
An extremely low price
5 SIGNS THAT
A CAR HAS
2
FLOOD
A water line around the
DAMAGE
1
RYAN COX, ISTOCKPHOTO.COM
A visible water line
on the headlights
and taillights.
engine or excessive rust
under the hood.
compared with prices for
similar vehicles is the first
tip-off—especially if the car
is listed on Craigslist or is
for sale at a shady-looking
used-car lot. To see used-car
prices, go to www.kbb.com
and select “Car Values.”
CarFax recently rolled
out a free flood-check tool
(www.carfax.com/flood).
To use it, you’ll need a vehicle’s identification number.
You can also check a vehicle’s
flood history at VINCheck,
run by the National Insurance Crime Bureau. Or spring
for a full vehicle history report at CarFax ($40 for one)
or KBB’s AutoCheck ($25).
If you don’t uncover a
history of flood damage but
are still suspicious, sniff for
a telltale odor of mildew,
and turn on the radio to
see if it sounds distorted.
Inspect the instrument
panel for trapped moisture.
Better yet: Hire a trusted
mechanic to do a full
inspection. RIVAN STINSON
3
Rust on exposed screws
under the dashboard.
4
Upholstery that is new,
frayed or doesn’t match.
5
Mold on the
seatbelt.
CHECK IT OUT
LOVE TO
READ?
THIS APP
IS FOR YOU
With Libby, the latest app
from digital-content distributor OverDrive, readers get free,
on-the-go access to a trove of
titles from multiple libraries.
All you need is a smartphone,
a reading device and a library
card (or three).
For several years, OverDrive
has helped bookworms borrow and download content
from their local library on their
e-readers. Libby incorporates
the same features, including
a ledger to place holds on
unavailable titles, and adds
some new ones. Libby allows
access to multiple library
systems if you have a valid
card for each—if, say, your
main residence is up north but
you spend winters in the Sunbelt. And soon, you’ll even be
able to get a new library card
through the app if you live
within a participating
library’s area of service.
Libby is available for
Apple and Android devices.
Select your local library when
prompted, enter your card
number and then browse
what’s available. Step four:
Get lost in an e-book.
THOMAS H. BLANTON
12/2017
KIPLINGER’S PERSONAL FINANCE
11
AHEAD
FIGHTING AMAZON
RETAILERS GET
CREATIVE
Competition from online merchants forces
stores to cut prices and expand offerings.
APPLE AND BEST BUY HAVE
long used airport vending
machines to sell headphones, chargers and gadgets. Now you can also buy
items from Benefit makeup,
CVS Pharmacy and Japanese clothier Uniqlo at com-
pany-branded vending machines in airports, public
transit stations and other
high-traffic areas. Other
brick-and-mortar retailers
are turning to new tactics
to reach customers, too.
Nordstrom recently opened
a new store that doesn’t
sell merchandise. Shoppers
who visit the new West
Hollywood, Calif., location,
which has a 3,000-squarefoot footprint (compared
with 140,000 square feet
for the typical Nordstrom
store), can meet with a personal stylist, pick up online
orders or make returns. The
store features manicurists
and tailoring services,
and you can
c even stop
p
beer
at the ba r for
o a bee
or a glasss of wine or,
if you preefer, a non-alcoholicc beverage.
g
Other retailers are fending off competition the
old-fashioned way—by cutting prices. After Amazon
bought Whole Foods in
August, it signaled that it
would play hardball by lowering prices on some items,
including organic avocados
and organic large brown
eggs. Within days, Target
announced that it would
reduce prices on thousands
of household sttaples
rranging
g g from
pap
ccereal to p
per
towels.
AITLIN
towe
s. KA
PITSKE
S ER
MONEY & ETHICS // KNIGHT KIPLINGE
ER
Should ethics determine
who you do business with?
A
I’m fine with it—as long as your friend recognizes that making
these decisions in a consistent, comprehensive way could
end up being a full-time job. (The same goes for ethical investing,
but so-called socially conscious mutual funds try to make this easier.)
I can understand consumers wanting to punish Wells Fargo and
Volkswagen for the deceit practiced by some of their employees
and executives, or shunning aggressive Silicon Valley firms (such as
Uber) for their harsh corporate cultures. But here are some questions
that consumers need to ask themselves:
„ Are your choices simply reactions to negative revelations?
Or are you also going to find out more about the regular business
practices of all the major companies you patronize—their employee
relations, environmental records, compensation levels, social stances,
offshoring of U.S. jobs or whatever you care about most?
„ If you avoid buying the products of a closely held company
because you don’t agree with the politics of the company’s owner,
are you taking the trouble to learn more about the politics and social
12
KIPLINGER’S PERSONAL FINANCE
12/2017
attitudes of other business owners whose firms you patronize?
„ Are you willing to pass up products that are deemed to be the
best in their class—of high quality and well priced—because of something you don’t like about the maker?
„ If you’re a passionate bargain hunter, are you aware that the
makers and sellers of cheap products and services might be firms
that squeeze their employees and vendors?
„ In addition to boycotting companies you don’t like, are you tilting
your patronage toward firms that have hard-earned reputations for
business ethics (say, Costco, Lyft and Whole Foods)?
„ Are you taking the time and trouble to tell the now-shunned
company why you are no longer a patron?
„ Is your blacklisting forever, or can a company’s response to its
crisis—restitution, firing the CEO—get it back in your good graces?
A lot of thorny issues to consider here.
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 have a friend who refuses to patronize prominent
businesses after they are discovered to have acted
unethically. What do you think about this?
CALENDAR
12/2017
GAMES SCHOOLS PLAY
COLLEGES SLASH
STICKER PRICES
But lower published prices may
not save you money.
THE COST OF ATTENDING COLLEGE USUALLY
FRIDAY, DECEMBER 8
FRIDAY, DECEMBER 15
Celebrate International Lost
and Found Day by tracking down
forgotten bank accounts, neglected
insurance policies and uncashed
paychecks. State and local governments hold $40 billion of such
unclaimed property. For more information, go to kiplinger.com/links/
forgotten.
Open enrollment for coverage
through the Affordable Care Act
ends today, a month and a half
earlier than in previous years. Visit
www.healthcare.gov for more information or to begin an application
for a plan in your state.
COURTESY DREW UNIVERSITY/LYNNE DELADE
MONDAY, DECEMBER 11
Today has been designated
“Green Monday” because it’s
one of the most lucrative days of
the year for online retailers. Some
will celebrate by temporarily cutting
prices on popular items—look for
tech and other deals at BestBuy
.com and Walmart.com. (For more
ways to save on holiday shopping,
see “Takeaway,” on page 72.)
TUESDAY, DECEMBER 12
ISTOCKPHOTO.COM
moves in one direction: up, and often
quickly. Over the past decade, the published
cost of tuition and fees has increased 27%
at private not-for-profit four-year colleges
and 41% for in-state students at four-year
public colleges. But a growing number of
colleges have been reversing the trend by
slashing their sticker prices.
More than three dozen mostly small and
midsize private colleges have announced
tuition cuts since 2011. This fall, Drew
University announced that it would reduce
the cost of tuition for the 2018–19 academic
year by 20%, and Birmingham-Southern
College cut its sticker price by more than
50%. Look for more schools to announce
similar price cuts as states, such as New
York, pursue programs to make public college tuition-free for in-state students, says
David Warren, president of the National
Association of Independent Colleges and
Universities. Many schools
hope the change will
make them appear
more affordable
and will attract more
applicants.
But a cut
in tuition
or other
published
costs may
not save
you much
money. Often,
the reduced
sticker prices are
closer to what many
students were already
paying after factoring in financial aid. The
main beneficiaries will be families that
qualify for little or no aid. KAITLIN PITSKER
The Federal Reserve Board
meets for the last time in 2017.
We expect the board to announce
a quarter-point rate hike, followed
by two more quarter-point hikes
in 2018.
▲SUNDAY, DECEMBER 31
Planning trips for 2018? Before
booking, apply for one of our favorite
travel credit cards (see “The Best
List,” on page 58). Each offers a hefty
sign-up bonus for spending a certain
amount on the card in the first few
months—which will be easier if you
use the card to book airfare and accommodations. THOMAS H. BLANTON
* DEAL OF THE MONTH
Keep an eye out for discounts
on gift cards. Many retailers
offer a $100 iTunes gift card for
$80, or 20% off. It’s also not
uncommon to see clothing
stores and chain restaurants
offer a free $10 gift card with
the purchase of a $50 gift card.
12/2017
KIPLINGER’S PERSONAL FINANCE
13
AHEAD
JAMES K. GLASSMAN
Opening Shot
A Dozen Ways to Cash In on China
C
hina’s stocks have turned around.
From the start of 2010 through
2016, SPDR S&P China (symbol
GXC), a popular exchange-traded fund,
returned an annual average of a little
more than 2%. So far in 2017, the fund
has returned 42.7%, about three times
as much as the U.S. market. (Prices and
returns are as of September 29.)
China’s sparkling performance comes
despite having been a prime target of
President Trump, who has criticized
China’s trade practices and its $347
billion surplus with the U.S., China’s
largest export market. Chinese stocks
began their dramatic rise late last year,
shortly after Trump was elected. Investors must believe either that the Trump
administration will not erect trade
barriers or that the action won’t have
much effect.
Or maybe the Chinese stock market
is simply playing catch-up. Investors
were spooked when China’s economy
began to decline in 2011 from a doubledigit annual growth rate to between
6% and 7% now. They worried that
domestic unrest would increase if the
economy faltered and failed to absorb
enough new workers. But unemployment is just 4%, and according to the
Economist, China will grow 6.8% this
year—the second-fastest rate (after
India) among the 57 countries the magazine tracks. Next
year’s projection for China, 6.5%, puts the country again
at number two. Inflation is under control at less than 2%.
Still, pessimism about Chinese economics and politics
troubles investors, and so do a lack of transparency and
a surfeit of government intervention, both in the economy
(especially banking) and in financial markets. In June, index provider MSCI announced that starting next summer
it would include mainland China stocks in its regional,
global and sector indexes, which determine the composition of popular exchange-traded funds such as iShares
MSCI Emerging Markets (EEM). But as evidence of its
concern about the integrity of China’s markets, MSCI is
moving warily, including only the largest and most liquid
mainland stocks and weighting them
at just 5% of their market capitalization
(shares outstanding times price) rather
than 100%.
Economic powerhouse. You should be
wary, too. But you would be nuts to ignore China. It has created the most successful economic revolution the world
has ever seen, and it still has room to
grow. Taking currency exchange rates
into account, China’s gross domestic
product trails that of the U.S., but in
purchasing-power parity (what local
currency can actually buy), China’s
GDP is the largest in the world, at $21.4
trillion for 2016, compared with $18.6
trillion for the U.S. On a per capita basis, China’s output is about $15,000, or
about one-fourth that of the U.S. Just
imagine if China could raise its GDP
per capita to the level of, say, Turkey,
at nearly $25,000. That would certainly
occur if modern manufacturing and
service industries in China become
more successful, attracting more rural
workers and thereby boosting their
productivity. Currently, 28% of China’s
labor force is in agriculture, compared
with less than 1% of American workers.
China deserves a place in your portfolio, but which stocks? U.S. politicians
are obsessed with China’s manufacturers
that ship abroad, but I prefer to buy innovative businesses
in the service sector that target the gigantic domestic market, which has more consumers than the U.S., Europe and
Japan combined. Companies that sell to an adolescent
economy growing at 6.5% are more attractive than those
that sell to mature economies growing at 2%. In addition,
since 2007, China has slowly been decreasing its astronomical savings rate. Perhaps feeling more comfortable about
the country’s future, consumers are more willing to spend
than hoard. Many service companies are increasing their
revenues 20% annually or more, at a time when U.S. companies rejoice at sales rises in the high single digits.
I have limited my list of individual stock recommendations to companies that trade on U.S. exchanges and so
14
KIPLINGER’S PERSONAL FINANCE
12/2017
LISE METZGER
China has created
the most successful
economic revolution
the world has ever
seen, and it still has
room to grow.
The
SPENDER
PORTRAIT OF A FASHION AFICIONADA
A
fan of the finer things in life,
she enjoys living in the moment.
But now she’s trying something new:
a safe, secure, high-yield savings product
from Live Oak Bank. Because a little
saving never hurt anyone’s future.
Start today at liveoakbank.com/spender
AHEAD
years ending in February 2018 and 2019.
Another company in the same business,
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP
(EDU, $88), also a longtime favorite of mine, is
older, larger and solidly profitable. For the
fiscal year that ended in May 2017, student
enrollment jumped 33% and revenues increased 22% over the previous 12 months.
Unlike the two education stocks, CHINA
MOBILE (CHL, $51), a company with a $200 billion market cap, has been stagnant in 2017.
China Mobile is huge—it has nearly 874
million mobile telecom customers—but
revenues have stalled for the past couple of
years. I think the company will get moving
again, but even if it doesn’t, you can benefit
from a hefty 5.5% dividend yield.
By contrast, TENCENT HOLDINGS (TCEHY, $44) is on a tear, up
58% in the past year. Tencent provides online gaming,
payment and entertainment services, and it sells advertising. Tencent owns China’s popular social messaging app
WeChat. ALIBABA GROUP HOLDINGS (BABA, $173) is China’s leading
e-commerce firm. It resembles Amazon.com but is even
broader, offering storefronts for agricultural products,
wholesale goods, travel services and more. Alibaba’s revenues for the June quarter rose 56% over the same
period last year. The company is nicely profitable.
Don’t ignore a smaller online information provider,
SINA (SINA, $115), founded 20 years ago. SINA also owns a
46% share in Weibo, a Twitter-like company. Despite
a price run-up this year, SINA’s valuation appears low,
with the shares trading at 27 times estimated 2018 earnings. Also consider JD.COM (JD, $38), an e-commerce firm
that specializes in electronics, auto parts
and home appliances and has established
■ CONSUMERS
7,000 delivery stations throughout China.
ARE FUELING
Among funds, MATTHEWS CHINA (MCHFX) and
CHINA’S GROWTH.
MATTHEWS CHINA SMALL COMPANIES (MCSMX) are
among the few that lean toward Chinese
companies that focus on the domestic market. The big China index ETFs, such as SPDR
S&P China and iShares China (MCHI), have
about one-fourth to one-third of their assets
in Tencent and Alibaba. Those are great
companies, but the ETFs are also loaded with
bureaucratic Chinese behemoths in banking
and energy that are not worth holding. Oberweis China Opportunities (OBCHX) has
an excellent portfolio, but it carries a hefty
1.99% expense ratio. My preference is either
Matthews fund or the stocks themselves. ■
JAMES K. GLASSMAN IS THE AUTHOR, MOST RECENTLY, OF SAFETY NET:
THE STRATEGY FOR DE-RISKING YOUR INVESTMENTS IN A TIME OF
TURBULENCE. YOU CAN REACH HIM AT JGLASSMAN@KIPLINGER.COM.
16
KIPLINGER’S PERSONAL FINANCE
12/2017
ISTOCKPHOTO.COM
I prefer innovative
businesses that
target China’s
domestic market,
which has more
consumers than
the U.S., Europe and
Japan combined.
must meet the higher reporting standards of both our exchanges and the U.S.
Securities and Exchange Commission.
With the waning of totalitarianism,
the Chinese became free to move about,
and the travel industry is booming. CTRIP
.COM INTERNATIONAL (CTRP, $53), based in
Shanghai, increased its revenues by 45%
in the second quarter of 2017 compared
with the previous year. The firm profits
by satisfying the Chinese penchant for
packaged tours. Another travel stock is
CHINA LODGING GROUP (HTHT, $119), which I
recommended in February 2015 at $23.
The company, which operates more
than 3,000 hotels, is still attractive.
Private health care companies have
proliferated in China, and one of the best is IKANG HEALTHCARE GROUP (KANG, $13), which owns more than 100 medical
centers in 33 Chinese cities, offering such services as medical examinations, cancer screening, dental care and acupuncture. The company expects revenues to rise by as
much as 27% in the fiscal year ending in March 2018; but
iKang’s shares have fallen by one-third in the past 18
months as earnings have disappointed because of rising
expenses and interest charges from a heavy debt load.
The stock carries risk, but also opportunity.
TAL EDUCATION GROUP (TAL, $34), which provides after-school
tutoring and online learning tools for students in China,
was the best performer among my 10 stock picks for 2016,
more than doubling in a year. The rally has continued
through 2017, and analysts see revenues rising more than
50% and earnings rising even more briskly in the fiscal
Active Matters
in taking care
of the ones who
matter most.
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When it comes to managing our funds, we share the same active philosophy.
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Request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and
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*157 of our 332 mutual funds had a 10-year track record as of 6/30/17 (includes all share classes and excludes funds used in insurance products).
134 of these 157 funds (85%) beat their Lipper averages for the 10-year period. 215 of 317 (68%), 183 of 225 (81%), and 149 of 180 (83%) of T. Rowe Price
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T. Rowe Price Investment Services, Inc., Distributor.
AHEAD
SUCCESS STORY
She Helps Launch Future Leaders
This retired Navy pilot teaches her civilian clients how to take command.
PROFILE
WHO: Karen Baetzel
WHERE: Arlington, Tenn.
WHAT: Leadership development
consulting
What exactly do you do? I teach
and speak about leadership
development and consult
with clients in the corporate, government and nonprofit worlds. My clients
have included Microsoft,
Domino Sugar, AmeriCorps
and the departments of
Defense and State.
You were a career Navy pilot? I
retired as a captain in 2008
after 16 years of active duty
and 14 years in the reserves
while I was raising my two
children. I qualified to fly
helicopters and propeller
and jet aircraft.
called me, with great reverence, the Old BattleAxe—
meaning an older (check),
married (check), protective
(check), sharp-tongued
woman (check). I didn’t
see anything about that
description I didn’t love,
so I embraced it. My motto
is “Sharpening leaders.”
What lessons do you
teach? People come
to me and say,
“I want to develop more
confidence.”
I say, “Stop
trying to
develop
confidence
and work
on devel-
oping competence.” Confidence is a lagging indicator
of competence. Get good
and you will feel good.
There’s no hack to this.
How did you launch the business?
I knew I wanted to build
a solo practice with complete control over my time,
travel and client list. I took
a job as a subcontractor
for a couple of years,
read a lot of books
and joined Toastmasters to refine
my speaking
ability and
presentation.
I also joined
a speakers bureau, Women
Veteran
Speakers. I spent between
$15,000 and $20,000, which
included the cost of my
website [www.truebattle
axe.com], promotional materials, 21st-century equipment to replace my old PC
and dial-up modem, and a
business coach.
Any missteps? I built a horrible website and a terrible
one-page promotional fact
sheet to market myself.
Then I hired a marketing
and graphic design firm,
which took my money and
didn’t do a good job. What
I needed was a competent
coach with a proven track
record who knew my business. Once I hired the right
one, he helped me improve
my marketing materials and
price myself properly.
You were charging too little?
I did a lot of community and
nonprofit work while I was
raising my family, and I realized that the civilian world
was desperate for the management, leadership and
“followership” principles
that I had spent 30 years
learning. That is, in the
military, we’re groomed to
lead but expected to follow,
too, and we’re taught how.
Why is BattleAxe your brand?
As I became more senior
and in charge of training
initiatives, my colleagues
18
KIPLINGER’S PERSONAL FINANCE
12/2017
Yes. My coach said, “Are
you crazy? People with far
fewer credentials than you
are making 10 times what
you’re charging.” Now I
charge $5,500 for a onehour keynote speech. But
I also do pro bono work
for veterans’ groups.
Do you foresee a third act?
My husband, Bernie, and
I were just blessed with our
first grandchild. I want to
be an exceptional, if not
extraordinary, matriarch.
PATRICIA MERTZ ESSWEIN
pesswein@kiplinger.com
KAREN PULFER FOCHT
What inspired your second act?
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AHEAD
CROWDSOURCING
What’s the Best Piece
of Financial Advice
You Ever Received?
We got a resounding response to our first “Crowdsourcing” question asking you about the
best financial advice you ever received. Themes that showed up repeatedly: Pay yourself
first. Invest early and often. Live within your means. Parents (particularly dads) and first
bosses were often cited as the source of the advice, but so were other inspirational figures.
(Note that all comments appear here with the names supplied online.)
If you can’t pay cash, you
can’t afford it! Matthew
Keep investing costs low. Higher costs
over a lifetime will kill you. Tim Anderson
My high school business teacher showed us that you don’t actually have to
take on hundreds of thousands of dollars in debt to get a good education.
I’m definitely remembering that this year as I pick a college. Megan Billing
A quote from Albert Einstein:
“Compound interest is the eighth
wonder of the world. He who
understands it, earns it. He who
doesn’t pays it.” James Trimble
My father was an accountant. He
taught me that all credit isn’t bad—
that as long as I was making more
in interest than I was paying out
in interest, I should just pay the
minimum due on the loans. tgrilli
“Big hat, no cattle” comes
to mind. I’ve always wanted
the cattle. Jill Hurley
From my dad: Don’t depend on a
man to support you. Learn to support
yourself. kcgauss
I love John Wesley’s sage advice from
more than 250 years ago: “Earn all you
can, give all you can, save all you can.”
I have found that a solid, consistent
savings plan brings peace of
mind, and a solid, consistent
giving plan brings a richness
to life that money can’t
buy. Jill Gaynor
Learn from your investment mistakes.
Consider any loss to be an educational
expense. Adam Weisman
My dad told me about Social Security when I was a teenager. It went something
like this: Social Security was designed so that some poor shmo who worked all
his life and couldn’t save a dime could still put beans on the table.
If, when you’re retired, you want to be able to take vacations, visit
your family, own a house or go out to a nice meal, you’d better
have something more than Social Security. Bob Sizoo
A crow shouldn’t fly like
a swan. Translation:
Know your limits and live
within your boundaries.
Atul Bhankharia
Appreciate relationships and experiences more than things. SCsunshine
From Malachi 3:10 (paraphrased): Give the Lord His 10% and He will pour out a great
blessing. I know because 87 years ago I was born into a sharecropper’s family. I just
completed a charitable remainder unitrust for almost $3 million to provide
lifetime payments to members of my family. At their passing, their part will
be transferred to a donor-advised fund that will total almost $6 million to
fund our Jewish and Christian charities in perpetuity. Jim Storey
20
KIPLINGER’S PERSONAL FINANCE
12/2017
How can a dual-income couple
merge their finances while
still maintaining financial
independence?
To share your answer, go to
kiplinger.com/links/crowdsourcing
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AHEAD
JANET BODNAR
Living in Retirement
Health Coverage Is No Slam Dunk
Nugget No. 1: Check your employer’s
rules. I knew that I was covered by my
employer’s health insurance until the
end of July, the month in which I retired. So I figured I also had until the
end of July to use money in my flexible
spending account. I found out just in
time that I had to spend the money by
my actual retirement date, July 7. So on
July 6, I made a beeline for my optometrist to buy a pair of prescription sunglasses and empty my account.
Nugget No. 2: Start early. For me, signing
I hadn’t reckoned
on some obstacles
along the way—
especially when it
came to signing up
for Medicare Part B
and medigap.
up for Medicare Part B turned out to be
unexpectedly time-consuming. I knew
I had eight months after leaving my job
to sign up for Part B, which covers
doctor visits and other non-hospital expenses, without paying a penalty. But I wanted coverage
to begin about a month after I retired. (I had signed up
for Part A, which covers hospital costs, several years earlier when I turned 65, but because I was still working then
and covered by my employer’s health insurance, I was able
to delay Part B.) What I didn’t realize, and found out almost by chance, was that I should sign up six weeks to two
months in advance of the month in which I wanted coverage to begin—in my case, August 1—to get the paperwork
through the system.
I was already at the six-week mark, so I hotfooted it
down to my local Social Security office to submit my
22
KIPLINGER’S PERSONAL FINANCE
12/2017
application. I was handed a receipt
dated June 21 and assured that my
coverage would take effect on August 1.
In the meantime, I was told, I’d receive
a letter of enrollment in the mail so I
could begin looking for a supplemental
plan to fill the gaps in Medicare (see
“Your Medicare FAQs,” May 2017).
When I got home, I opened an account
at MyMedicare.gov. And then I waited.
And waited. No letter of eligibility. No
enrollment notice in my online account.
On Friday, July 28, I made another
visit to the Social Security office. I was
assured that I was “in the system.” But
without proof of some kind, I couldn’t
sign up for a supplemental plan. And
I worried that after July 31, I’d have
no proof of coverage if I needed care.
Finally, on August 2, a confirmation
notice appeared in my online account.
The physical letter, dated August 7,
arrived the following week. My husband’s application didn’t take as long,
and perhaps I needn’t have worried.
But to avoid feeling adrift in the bureaucratic void, start the process at
least two months in advance.
Nugget No. 3: It’s complicated. While
I was waiting for my Part B confirmation, I began researching coverage to
supplement Medicare and pay for prescription drugs. The links at Medicare
.gov and other sites were helpful but not
conclusive. I spent hours poring over plan details to decide
whether to sign up for a medigap plan (and which one) or
go with Medicare Advantage.
My colleague Manny Schiffres, who recently retired as
Kiplinger’s executive editor, summed up the experience
neatly: “I can’t believe how complicated this stuff is.”
(We later found out that a friend of ours had hired an
insurance consultant to handle his Medicare sign-up.)
Your experience may be easier—but you can’t count
on it. Be prepared, and give yourself plenty of time. ■
JANET BODNAR IS EDITOR AT LARGE OF KIPLINGER’S PERSONAL FINANCE MAGAZINE.
YOU CAN REACH HER AT JBODNAR@KIPLINGER.COM.
LISE METZGER
W
hen I was editor of this magazine, I read every story—usually more than once. So when
I was planning my retirement as editor
earlier this year, I thought I had everything under control. Imagine my dismay when I learned that, well prepared
though I was, I hadn’t reckoned on
some curveballs along the way—especially with regard to Medicare and
health insurance—or how labor-intensive it would be to iron out all the devilish details. So I’d like to share a few
nuggets of wisdom to smooth the way
for future retirees.
MONEY SPECIAL REPORT
Disaster
Relief
Mopping up—and drying out—after the hurricanes
was only the first challenge. Now the victims have
to repair their homes and rebuild their finances.
BY MIRIAM CROSS and KIMBERLY LANKFORD
PHOTOGRAPHS BY FELIX SANCHEZ
■ CHER AND RON HAYES, OF KATY,
TEXAS, NEVER THOUGHT THEIR AREA
WOULD FLOOD AND DIDN’T HAVE
FLOOD INSURANCE. THEY APPLIED
FOR FEMA ASSISTANCE AND OTHER
GRANTS TO HELP COVER THE COST
OF REPAIRING THEIR HOME.
24
KIPLINGER’S PERSONAL FINANCE
12/2017
HURRICANE HARVEY, WHICH PUMMELED TEXAS IN LATE AUGUST, AND HURRICANE
Irma, which blew through the Caribbean and Florida two weeks later, both took a heavy
toll. Harvey caused more than 80 deaths and nearly $100 billion in losses. Irma claimed
more than 60 victims and caused more than $50 billion in losses. But in some ways
Florida residents got off easier because most of the property damage there was caused
by wind and was covered by insurance. In Houston and nearby areas hit by Harvey,
most of the damage was caused by flooding from up to 50 inches of rain that poured
down on the region for five days—and only about 20% of the flooded homes were
covered by flood insurance. (In Puerto Rico, huge numbers of Hurricane Maria victims
12/2017
KIPLINGER’S PERSONAL FINANCE
25
had neither homeowners nor flood
insurance.)
Damage caused by wind, winddriven rain and water that comes into
your home through the roof, windows,
doors or holes in the walls is usually
covered by homeowners insurance.
But damage from flooding or water
that rises from the bottom up—from
the overflow of a body of water, for
example, or a storm surge—isn’t covered. For that, you need a separate
flood insurance policy.
Millions of homeowners around
the country live in neighborhoods
that are vulnerable to flooding from
hurricanes, tropical storms and heavy
downpours. And as thousands of
Houston residents have learned, if you
don’t have flood insurance, you may
26
KIPLINGER’S PERSONAL FINANCE
12/2017
not be covered for your losses.
In many Houston neighborhoods,
the flood insurance haves and havenots live (or lived) next door to one another. We visited one quiet cul-de-sac
in Conroe, Texas, where Mike and
Nichole Bartlow had purchased a
home on August 1; their flood insurance policy kicked in on August 16.
Their next-door neighbors, Douglas
Gana and Diane Gallo, bought their
house in 2013—before the area’s flood
maps were redrawn in 2014 and put
their house just barely in the flood
zone. They didn’t buy a policy because
they didn’t think they were at risk.
On August 28, the day after the
Bartlows and their two daughters
evacuated to Mike’s parents’ home, he
returned to his house to retrieve some
valuables. Water had just soaked into
the yard. But by the next day, “our
yard was a big lake,” he says, and the
water inside his home came up to his
waist. Most of the Bartlows’ appliances were destroyed or contaminated
with bacteria-laden floodwaters, although the toilet still worked and one
TV was mounted high enough to survive unscathed. When the water receded, the Bartlows had to act quickly
to rip out the bottom 4 feet of drywall
and insulation in their single-story
home. When they were finished, only
the wooden beams remained.
Before they received an advance of
$50,000 from the company that underwrote their flood insurance policy, the
Bartlows paid for initial repairs using
their emergency fund and a one-time
cover with their savings. When the
repairs are finished, they plan to rent
out their home and move to an area
that’s less likely to flood in the future.
Making an
insurance claim
■ NICHOLE AND MIKE BARTLOW
MOVED TO THEIR CONROE, TEXAS,
HOME ABOUT THREE WEEKS BEFORE
HURRICANE HARVEY STRUCK. THEIR
FLOOD INSURANCE POLICY SHOULD
COVER THE ENTIRE COST OF REPAIRS.
bonus from Mike’s employer that
equaled two weeks’ pay. Their mortgage lender allowed them to defer
three mortgage payments without
harming their credit, which helped
free up cash for initial fixes.
The Bartlows expect to move back
in by the end of the year. Their insurer
assured them they would get enough
money to redo their home, as long as
they provided proof of costs. “This
gave us the confidence to make a down
payment to the general contractor
without knowing what we will ultimately get,” says Mike.
Next door, Douglas Gana, who owns
a construction business, is overseeing
the repairs himself. He estimates that
he and Diane will have to spend at
least $90,000, which they’ll be able to
After a hurricane, it’s important to
contact your insurance agent or company right away—even if you can’t
gain access to your home yet—to start
the claims process and get in line to
meet with an adjuster. Depending on
your coverage, you could end up meeting with several adjusters—one for
your homeowners insurance, another
for flood coverage and maybe a third
if you had to buy a separate windstorm
policy (see the box on page 31).
In a disaster the size of Harvey or
Irma, adjusters are not only spread
thin but may have trouble even getting
to homes because of flooding and
downed trees. When cell-phone and
internet service became unavailable
after Hurricane Harvey, insurers set
up mobile claims units to meet with
homeowners throughout the damaged
areas of Texas.
Some insurers even used drones to
do an initial inspection of homes that
were inaccessible. For example, one
homeowner called Chubb and said
he knew there was 1 to 4 feet of water
in his area, but he couldn’t get to his
house to verify the damage. “Within
a few days, we were able to fly a drone
in there, and using the camera we
could see the height of the water on
the door and how high the water was
in the house,” says Tim Blake, an adjuster who is vice president and claims
leader for Chubb. The adjuster and
homeowner couldn’t meet at the property until September 16, but because
the legwork was done in advance,
Chubb was able to pay the claim just
two days later.
When the Bartlows were able to get
back to their home, they received conflicting advice about whether they
needed to hang on to their belongings
long enough for the adjuster to inspect
them or whether photos would suffice.
Here’s what insurance experts recommend: Walk through the house with
your smartphone and take a video of
each room with a running commentary about the damages before you do
anything to the house. Open closets
and drawers to show the damage to
your possessions, too.
Next, take steps to prevent the situation from getting worse. Homeowners
should make temporary repairs, such
as covering broken windows or holes
in the roof, to prevent further damage,
says Jerry Hagins, of the Texas Department of Insurance. “But don’t
make permanent repairs until an adjuster has seen the damage and authorized them,” he says. Keep receipts for
the temporary repairs, which may be
reimbursed by your insurer. Ask your
insurer if you can dispose of any destroyed possessions before the adjuster
arrives; the requirements can vary.
While you wait for the adjuster,
start to gather receipts for valuable
items, either from any salvaged files
or online. “We don’t expect a detailed
spreadsheet,” Blake says. He suggests
asking relatives for pictures of family
gatherings at your home in case you
see items in the background that you
forgot about.
Try to be at the house when the adjuster arrives; it can help if your contractor comes, too. Take careful notes
of your meetings with each adjuster.
You’ll need them if you have any claims
problems later, says Robert Hunter, director of insurance for the Consumer
Federation of America and a former
Texas commissioner of insurance. He
recommends documenting all contacts
with your insurance companies, starting as soon as you file a claim.
When claims are paid. Depending on the
type of insurance you have, you could
ultimately get three types of payouts:
one for living expenses, one for building damage and one for possessions.
The first check you’ll receive is usually
for living expenses, assuming that’s
covered by your policy. If the damage
12/2017
KIPLINGER’S PERSONAL FINANCE
27
MONEY
is extensive, the insurer may give you
an advance payment to cover the cost
of a hotel or rental while you’re out
of your house. As you submit receipts,
additional payouts should follow.
Some insurers provide debit cards
for these expenses, and they may continue to cover such costs for a given
time period while you’re out of your
house—often up to a year, or until
the expenses reach 20% of your total
dwelling limit.
In the wake of Harvey, the National
Flood Insurance Program (NFIP)
made advance payments of $5,000 to
$20,000, sometimes even before insurance adjusters arrived, with higher
payments to people who provided records of a significant loss. Those advance payments will be subtracted
from the final payout.
NFIP policies don’t cover living
expenses while your home is being
repaired. There are other limitations
as well: The policies cover possessions
at their depreciated value rather than
their replacement value, and they provide limited coverage for finishing and
property in a basement. (For more details, search for the “Summary of Coverage” at www.fema.gov.)
After the adjuster submits the report assessing the extent of the damage, you’ll eventually get a payout for
the damage to the building (minus any
advance payments), based on local
building-cost estimates. Those costs
may surge after a storm, but not all insurers take that spike into consideration when setting the price.
You’ll usually get a separate payout
for personal property. “That’s the
most difficult part to wrap up with
the claim because you have to tell the
adjuster what was lost,” says Mark
Hanna, spokesman for the Insurance
Council of Texas, an association of insurers. Depending on your coverage,
the insurer may pay you to replace the
items with new ones, or the payout
may be for the depreciated value of the
items based on their age and condition.
The Bartlows kept good records of
their possessions but ran into some
28
KIPLINGER’S PERSONAL FINANCE
12/2017
snags. A desk drawer containing receipts for big purchases floated away
in the flood. Nichole ended up hunting
down old receipts online and by calling Apple, Best Buy and other companies she found on credit card statements. In the future, the Bartlows
plan to photograph receipts and serial
numbers for every major purchase and
save them in the cloud—which may be
the only safe place in a flood. They
will also keep a spreadsheet recording
the date of purchase and cost.
It takes longer for insurers to pay
claims after a major disaster because
everyone is stretched so thin. After
Harvey, people with smaller claims
weren’t expected to know whether
they would have claims problems until
mid October, says Hunter. Those with
larger claims can expect longer waits.
If your insurer offers much less than
you expected or denies your claim, ask
why. If the type of damage was excluded from coverage (for example, it
was clearly caused by flooding but you
didn’t have flood coverage), there may
be little you can do. But if the insurer
seems to be lowballing a covered claim
payout or dragging its feet, complain
to a manager in the insurer’s customer
relations department, says Hunter.
If that doesn’t help, go to your state
insurance department (see www.naic
.org/map for contact information).
The insurance department can contact
the insurer with questions, which
could help move the claims process
along. Many insurance departments
also set up special mediation programs after disasters. The Texas
Department of Insurance hasn’t done
so yet for Hurricane Harvey, but, says
Hagins, “We’ll be flagging any complaints related to Harvey as highpriority cases.”
When insurance
doesn’t cover you
Many homeowners in Houston didn’t
think they needed flood insurance—
and mortgage lenders didn’t require
them to buy it because the flood maps
■ HARVEY MARKED THE FOURTH
TIME THAT MICHAEL WADLER’S
HOME IN SOUTHWEST HOUSTON
HAS FLOODED SINCE HE AND HIS
WIFE BOUGHT THEIR HOUSE 21
YEARS AGO. THEIR FLOOD POLICY
COVERS $210,000 IN REPAIRS TO
THEIR HOME AND $52,000 FOR
THEIR POSSESSIONS.
were out of date. “The majority of
people in Houston were in zones that
weren’t expected to flood for 100 years,”
says Teressa Adrian, an independent
insurance agent in Spring, Texas.
Cher and Ron Hayes, who live in
Katy, a western suburb of Houston,
were told not to bother with flood insurance when they bought their home
18 years ago. “This area is not supposed to flood,” says Ron. After
stanching the trickle of water seeping
into their home with towels and fans
on August 27, they thought they had
dodged the worst. But after authorities
released the Barker Reservoir, nearly
2 feet of water surged into their home
and they needed to be evacuated.
Hurricane victims who don’t have
flood insurance may need to raise
money from a variety of sources
to cover the cost of repairing their
homes and replacing their possessions.
And even homeowners who have insurance will likely have out-of-pocket
costs for living expenses (which aren’t
covered by the NFIP), deductibles
and expenses that exceed insurance
payouts, such as for tree removal.
Call your mortgage lender and any
other financial institutions where
you have loans to find out whether
you can delay payments or receive
any other help.
Where to start. Register with FEMA for
disaster assistance at www.disaster
assistance.gov, or call 800-621-3362,
or visit a FEMA disaster recovery
center (www.fema.gov/drc).
You may qualify for a grant of up
to $33,000 to repair damage to your
home that wasn’t covered by insurance. Even if you had insurance, you
may qualify for some assistance, such
as a small grant to help with temporary lodging. For more information
about the procedure for receiving
FEMA assistance, see www.fema.gov/
individual-disaster-assistance.
You may find other sources of help
at a FEMA disaster recovery center—
from the Red Cross or Salvation Army,
say. The Red Cross, for example, provided emergency-assistance grants of
up to $400 for applicants in 39 counties affected by Hurricane Harvey. You
can get more information from your
state’s emergency-management agency
(see www.fema.gov/emergencymanagement-agencies for links).
The Hayeses applied for FEMA
assistance on August 28. The inspector didn’t come until September 19, but
two days later, they received a deposit
of $9,000 for home repairs.
Low-cost loans. After applying for
FEMA aid, you’ll likely be directed
to apply for a disaster loan from the
Small Business Administration. (Taking a loan doesn’t exclude you from
FEMA grant money.) You can apply
online at https://disasterloan.sba
.gov/ela, or you can visit a disaster
recovery center. If the idea of taking
12/2017
KIPLINGER’S PERSONAL FINANCE
29
MONEY
How to Shop for Flood Insurance
If you live in a flood zone, particularly one that’s high-risk, your mortgage
company may require you to get flood insurance. But even if you aren’t
considered to be in a high-risk area, the coverage may be worthwhile.
More than 20% of flood claims in the U.S. come from properties outside
of high-risk flood zones. Most homeowners can get coverage through
the National Flood Insurance Program (NFIP), unless they live in one of
the few communities that don’t participate in the federal program.
■ YOU CAN BUY FLOOD
INSURANCE EVEN IF YOU
AREN’T IN A HIGH-RISK
AREA. PREMIUMS CAN
RUN AS LITTLE AS $450 A
YEAR FOR THE MAXIMUM
COVERAGE.
Shopping around can lower your rate, too. When Mike and Nichole
Bartlow bought their home in Conroe, Texas, and started looking for
flood insurance, four major companies gave them quotes for policies
priced at $5,000 per year. But after doing some research, an independent
agent determined that the Bartlows could be grandfathered into the
previous homeowners’ policy and pay the old premium of $500 per year.
That included coverage for $100,000 for contents, $250,000 for structural rebuilding and a $1,250 deductible.
The NFIP is in the midst of redrawing flood maps, and some
lower-risk areas may become higher-risk—and more expensive.
Many of the changes aren’t just on the coasts but also in areas
where new development can increase runoff after rainfall,
which adds to the risk of flooding. You can find out whether
FEMA plans to redraw your area’s flood map by looking up your
address at the FEMA Flood Map Service Center (www.fema.gov).
PRIVATE OPTIONS. More private insurers have started to offer
Ask your homeowners insurance agent about your options; most sell
NFIP policies, and some sell private coverage, too. If your agent doesn’t
sell flood coverage, you can visit www.floodsmart.gov or call 800-4274661 to find one that sells the NFIP policies.
The cost is generally based on your home’s location and the amount
of coverage. Policies in low-risk areas can cost as little as $450 a year
for the maximum $250,000 in dwelling coverage and $100,000 for contents. People are often surprised at the areas that are priced as a lowrisk. Mark Rindom, an independent insurance agent in Delray Beach, Fla.,
has clients who live on the Intracoastal Waterway yet are considered to
be in a low-risk flood zone and pay preferred rates.
Mari Adam, a certified financial planner in Boca Raton, Fla., pays
$600 a year for NFIP coverage on her house just two blocks from the
shore in Vero Beach, Fla.—and would have paid even less if it wasn’t her
second home. “There is protection available to everyone through insurance,” says Adam, who recommends that all of her clients consider the
coverage to protect their assets.
In high-risk areas, such as beachfront neighborhoods in Miami–Dade
County, insurance can cost $1,200 to $2,000 or more a year, Rindom says.
About 5% of policies in high-risk areas cost $3,000 or more per year. Having flood vents and other flood-mitigation features can reduce your rate.
30
KIPLINGER’S PERSONAL FINANCE
12/2017
flood insurance in Florida and other states over the past few
years. Some of Rindom’s clients became interested in private
policies as Hurricane Irma was heading toward Florida because
they wanted to avoid the 30-day waiting period required with
the NFIP policy. (Private insurance policies have a shorter waiting period—as little as three days in some cases—and higher
limits than an NFIP policy.) Some chose to get the same limits
that they had on their homeowners insurance.
The price can vary significantly by insurer. Rindom says the private
flood policies he sold tended to cost about $100 more per year than an
NFIP policy with similar coverage limits—about $550 for $250,000 of
dwelling and $100,000 of contents coverage. But unlike NFIP coverage,
private policies provide living-expense payments and coverage for possessions at replacement value rather than depreciated value.
Some insurance companies offer “excess flood coverage” on top of the
NFIP limits. A few, such as Chubb, provide separate private flood policies
(instead of the NFIP coverage), which have the benefit of convenience:
One adjuster comes and assesses the damage for both homeowners and
flood-insurance claims.
Teressa Adrian, an independent insurance agent in Spring, Texas, had
one client whose home was damaged who had both homeowners and
flood coverage with Chubb. The home was considered to be in a low-risk
area, and the premium was less than $700 per year for $915,000 in coverage on the house, $600,000 in contents and up to $107,000 in additional living expenses. When the adjuster came out about a week after
the storm hit, he had to walk a half-mile, and he found 2 feet of water in
the house. “Everything was floating in the house, and the floor was coming up,” says Adrian. “There was so much muddy water that the adjuster
almost walked into the pool.” Their claim was paid three weeks later.
on debt during a time of financial
hardship seems unwise, note there are
no application fees, and you can cancel
the loan at any time without penalty.
After you apply, a cost estimator or
“loss verifier” will call you to discuss
damage and lost property, room by
room. SBA lends homeowners a maximum of $200,000 to restore a primary
residence, plus another $40,000 to
homeowners (and renters) to repair
or replace personal property. The loan
term is typically 15 or 30 years, with
the first payment deferred for 11
months. “We try to make the payment
fit the borrower’s budget,” says Richard Jenkins, of the SBA’s public information office. There are no fees to
originate, close or prepay the loan. Interest rates are fixed at 1.75%, or 3.5%
for applicants with higher incomes
or significant assets. About 90% of
applicants receive the lower rate, says
Jenkins.
After the loan is approved, you’ll receive an initial disbursement, typically
$25,000, to get started on repairs. As
your contractor completes work and
sends you the bills, you’ll receive the
money to pay them. (Save receipts of
any work you had done before your
loan was approved to get that reimbursed, too.) The loan is flexible. You
can draw down as little as you need to,
or ask your case manager to raise your
amount if you find the initial estimate
falls short.
Carolyn Cooper (we changed her
last name at her request) and her husband, three children and dog floated
out of their neighborhood in Katy on
the morning of August 29—and found
themselves with no vehicle and no
place to live. She submitted her online
application for FEMA assistance
and an SBA loan the next day. It took
two and a half weeks to be officially
approved for the SBA loan. The damage to their home was assessed at
$320,000, so they were approved for
the maximum loan of $240,000. They
also had to purchase flood insurance.
If you go the SBA route, keep all
receipts documenting your repairs
because the agency audits some borrowers. Also, note that the SBA never
charges for its services, including
home inspections.
Tapping your retirement accounts is
another option, but that should be a last
resort. The IRS has temporarily relaxed
rules regarding hardship withdrawals
from 401(k)s and other retirement
plans. For now, residents of eligible
counties (and certain relatives who
live elsewhere) can skip the usual red
tape necessary to withdraw funds (assuming the plan allows it). You can
look up eligible counties at www.fema
.gov/disasters. Withdrawals will still
be taxed, but Congress has waived the
10% early-withdrawal penalty for hurricane victims younger than 59½. The
penalty has also been waived for withdrawals from traditional IRAs, but
they’re still subject to taxes. You can
withdraw contributions to a Roth IRA
at any time, tax- and penalty-free.
Taking a loan from your 401(k) or
other employer-sponsored retirement
plan is better than a withdrawal,
assuming you can repay it on schedule.
A 401(k) loan will likely also be quicker
and easier to obtain than a disaster
loan. You make monthly payments to
yourself, typically at a rate of prime
(recently 4.25%) plus one or two percentage points.
Carolyn and her husband considered
borrowing from his 401(k), but they
decided to use the SBA loan instead.
Their damage was extensive enough
to merit a repayment period of 30
years at a 1.75% rate.
Other sources of help. Some forms of
assistance may not have to be repaid.
The Greater Houston Community
Foundation received more than
$78 million for the Hurricane Harvey
KipTip
You May Need Windstorm Coverage
If you live in a high-risk area for hurricanes, you may have special coverage rules for windstorms. Until a few years ago, many homeowners in coastal Florida could get coverage
only from Citizens Property Insurance, a company created by the Florida legislature as an
insurer of last resort for high-risk homes after Hurricane Andrew devastated the state in
1992. Over the past few years, more Florida residents have been able to get homeowners
insurance from private companies, says Chris Heidrick, an independent insurance agent
in Sanibel, Fla. But homeowners insurance companies typically require a much higher
deductible for windstorms in high-risk areas—sometimes as much as 5% of the insured
value of the home. The typical windstorm deductible in Florida is 2%, which means that
if you have $500,000 in coverage on your home, you’ll have to pay $10,000 out of pocket
for windstorm-related damages before your insurance kicks in.
In Texas, residents near the Gulf Coast who have been denied coverage by at least one
private homeowners insurance company can get windstorm coverage from the Texas
Windstorm Insurance Association. Deductibles can range from $100 to 5% of the insured
value. The TWIA provides coverage only for wind and hail; policyholders usually have
separate homeowners insurance coverage for fire and other perils (and in certain flood
zones, you may be required to get flood coverage before you can get TWIA coverage).
You can add coverage for possessions and additional living expenses.
If you live in a high-risk area, you can get significant discounts on homeowners insurance or windstorm coverage by installing impact-resistant glass or storm shutters and by
using certain roofing materials. Heidrick recommends getting a wind-mitigation inspection before buying a house in a high-risk area, in addition to a standard home inspection.
Some of his clients have cut their insurance premiums in half after replacing the roof and
installing hurricane shutters.
12/2017
KIPLINGER’S PERSONAL FINANCE
31
MONEY
■ TWO WEEKS AFTER
THE FLOODWATERS
RECEDED, PILES OF
WATERLOGGED
POSSESSIONS
STILL BLIGHTED
KATY, TEXAS.
Relief Fund, which will be distributed to local nonprofits that are
directly helping hurricane victims.
See www.ghcf.org for a list of relief
resources. Go to www.cof.org/
community-foundation-locator
for links to local community foundations. The United Way of Greater
Houston’s 211 Texas/United Way
Helpline (call 2-1-1 in Texas) and After
the Storm disaster resource guide (www
.unitedwayhouston.org) help connect
people not only with emergency relief
aid but also with resources likely to
be in demand for a while, such as
legal, counseling and financial services. Military families may qualify
for emergency disaster grants
through their armed forces emergency relief organization for their
branch of the service.
In mid September, Cher Hayes,
who is a special education teacher in
Katy, applied for two grants through
the Texas Retired Teachers Founda32
KIPLINGER’S PERSONAL FINANCE
12/2017
Auto Insurance
Flooded Cars
May Be Covered
Damage to your car caused by flooding is
covered by your insurance policy if you
have comprehensive coverage. Many cars
with flood damage are declared a total
loss by the insurer because of wet electrical systems and computers. The Insurance Council of Texas estimates that
about 250,000 insured vehicles were
damaged by Hurricane Harvey, and about
80% of them were totaled, says the
council’s Mark Hanna.
If your car is declared a total loss, you’ll
usually get the “actual cash value” for the
vehicle, which is the value of a car of the
same age and condition, minus the deductible. (For tips on how to spot a flooded
used car, see “Ahead,” on page 9.)
tion. She received one grant of $1,000
at the end of the month. She also
received $400 from the Red Cross.
Michael Wadler, his wife and his
two daughters, whose home in Willow Meadows (a neighborhood in
southwest Houston) was flooded,
received assistance from the Jewish
Federation of Greater Houston and
Jewish Family Service, including
cleaning and packing supplies, as well
as a $1,000 grant Wadler could use toward tuition for one of his daughters.
Don’t underestimate the kindness
of strangers, either. Wadler’s younger
daughter, Maya, lost a prized makeup
collection. After he called an executive of Estée Lauder and spoke with
her secretary, the company sent over
a box of cosmetics. When Cher and
Ron Hayes shopped for new appliances at Lowe’s, Cher asked about
additional discounts for flood victims.
The staffer at Lowe’s offered her an
extra 10% off. ■
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ID THEFT
Your Equifax Defense
A gatekeeper of your credit data let down its guard. Odds are
your information is at risk for ID fraud. BY LISA GERSTNER
DATA BREACHES HAPPEN SO OFTEN
these days that it’s tempting to shrug
your shoulders and hope for the best.
But when Equifax announced in early
September that it had exposed the
names, Social Security numbers, birth
dates, addresses and, in some cases,
driver’s license numbers of consumers—
affecting as many as 146 million people
in the U.S.—the news ignited an unprecedented outpouring of outrage
and prompted investigations by members of Congress, the FBI, the Federal
Trade Commission, the Consumer
Financial Protection Bureau and the
attorneys general of many states.
As one of the three big credit agencies, Equifax is a gatekeeper of the
sensitive personal data of a huge swath
of people. The breach touches almost
three-fourths of those who have a
credit report on file, according to the
National Consumer Law Center. “This
is the mother lode of data for identity
thieves,” says Chi Chi Wu, staff attorney for the NCLC. The bits of information compromised are the keys
crooks need to open new credit and
loan accounts, file tax returns, or even
apply for jobs or receive medical care.
Hackers also accessed the credit card
numbers of about 209,000 consumers,
as well as “dispute documents” (presumably from those who challenged
inaccuracies on their credit reports)
containing the personal information
of about 182,000 people.
A FUMBLED RESPONSE
The breach began May 13 and lasted
through July 30, but Equifax waited
34
KIPLINGER’S PERSONAL FINANCE
12/2017
until September 7 to own up to it publicly. Hackers found a way into an
Equifax web application because the
company failed to apply a security update that became available last March.
(Equifax’s security chief retired soon
after the announcement.) That’s all
troubling, but the company also fumbled its initial response to the fallout.
It was “the epitome of everything
you shouldn’t do,” says Adam Levin,
founder of identity-protection service
CyberScout and author of Swiped:
How to Protect Yourself in a World
Full of Scammers, Phishers, and Identity Thieves.
Equifax seemed unprepared for the
onslaught on its system from worried
consumers. Reaching the call center
was nearly impossible, and the tool
Equifax set up for consumers to check
whether they were affected was widely
reported to be unreliable. The company offered an identity-theft protection and monitoring service free to all
U.S. consumers for a year, but those
who tried to sign up jumped through
hoops and endured delays to finalize
enrollment.
The Equifax breach shines a bright
light on the limited control consumers
have over their personal information.
Like TransUnion and Experian, the
other two major credit agencies, Equifax collects mountains of data on consumers (whether they like it or not)
and sells it to lenders and other entities. Ironically, the companies also
sell monitoring services designed to
help you spot theft related to that data.
Public outcry spurred Equifax to offer
NEIL WEBB
MONEY
free credit freezes on Equifax credit
reports until the end of January and
to waive an arbitration clause in relation to the breach. Shareholders exacted a toll, too. With the closing price
of Equifax stock dipping as much as
35% in the wake of the scandal, Equifax CEO Richard Smith retired in late
September.
At this point, it’s wise to assume
at least some of your personal information has been exposed, whether
through the Equifax incident or some
other breach. It’s also wise to assume
that the potential for you to be the
victim of ID theft will linger for years
to come. The primary type of information stolen “does not have a shelf life,”
says Mike Litt, consumer advocate
for the U.S. Public Interest Research
Group. Unlike a credit or debit card
number, which is easy to change, your
Social Security number and birth date
are permanent pieces of your profile
that a thief could use years from now
to snatch your identity.
MONITOR YOUR CREDIT
Make a habit of visiting www.annual
creditreport.com, where you can get
a free credit report from each of the
three major credit agencies every 12
months. You can get all three reports
at once—and in response to the Equifax breach, that’s probably what you
should do, says Litt. In the future,
you could collect one report every
four months, allowing you to watch
for problems throughout the year. It
doesn’t hurt to check your free annual
report from Innovis, a fourth credit
agency, at www.innovis.com.
Review the reports for anything you
don’t recognize—for example, an inquiry from an unfamiliar lender, a credit
card or loan account you never opened,
a collection account for a debt you
didn’t rack up, or an incorrect address.
If you do spot an issue, the credit agency
may have made an error, or an identity
thief may be at work. If you believe
you’re a victim of identity theft, visit
www.identitytheft.gov for an outline
of steps to take. You can also call the
Identity Theft Resource Center at
888-400-5530 for free help.
Consider signing up for a service
that regularly scans your credit reports
and alerts you by e-mail or text message
if a notable change crops up. Equifax’s
own TrustedID Premier product, which
is free for a year, monitors your credit
reports from all three major credit
agencies, offering more complete detection than a service that monitors
only one or two reports. You’ll also get
access to your Equifax credit report,
the ability to “lock” and “unlock” your
Equifax report (see the box on page
36), monitoring of your Social Security
number on black-market internet sites,
and insurance to reimburse certain
expenses if you become an identitytheft victim. You have until January 31
to enroll at www.equifaxsecurity2017
.com. TrustedID does not require
payment information, so the service
will not automatically renew for a
fee after a year.
If you prefer not to use a service
from Equifax, given its track record,
you have other options. Many paid
identity-theft services offer creditreport monitoring, among other features. CreditKarma.com offers free
daily monitoring of your Equifax and
TransUnion credit reports. Plus, by
logging in to Credit Karma, you can
see a list of the accounts included in
your credit reports and a VantageScore credit score from each of the
two agencies. Some credit card issuers, banks, insurance companies and
employers offer free credit monitoring
or identity-theft protection services,
too. Discover credit card holders, for
example, can sign up for free alerts
when a new account appears on their
Experian credit report.
CONSIDER A CREDIT FREEZE
Monitoring detects identity theft
only after it has already happened. A
credit freeze is the strongest measure
you can take to prevent thieves from
opening new credit accounts in your
name. That’s because when you freeze
your reports, new creditors cannot
view them to evaluate your eligibility
for a credit card, loan or other product
that requires a credit check. “We are
telling people to strongly consider a
credit freeze,” says Eva Velasquez,
president and CEO of the Identity
Theft Resource Center. If you need
More Fallout
Other Ways Your
Identity Is at Risk
Identity thieves could use Social Security
numbers and other information exposed
in the Equifax breach for other forms of
ID theft:
Tax returns. Crooks could file fake
tax returns and collect refund checks.
Typically, you have to be a victim of taxrelated identity theft to get an IP PIN, a
code that affected taxpayers must provide to verify their identities when they
submit their federal tax returns. If you
can’t get the PIN, your best bet is to file
your tax return as early as possible to
beat thieves to the punch.
Medical records. Someone could use
your SSN or insurance policy number to
get medical care in your name. Check all
explanations of benefits you receive to
ensure they include only appointments
and services you’ve used, and be on the
lookout for calls from collection agencies
attempting to recover medical debts in
your name.
Credit card and bank statements.
Watch for unauthorized purchases on
your existing accounts. See whether you
can set up text-message or e-mail alerts
with your bank and credit card issuers—
say, when your bank account dips below
a certain threshold or when a payment
higher than an amount you specify goes
through on your credit or debit card. Keep
an eye out for small transactions, too—
a criminal may test your card by making
a purchase of just $1 or so.
12/2017
KIPLINGER’S PERSONAL FINANCE
35
MONEY
to apply for credit, you can temporarily lift the freeze while you shop.
Even if you already have a relationship with a lender, it will be blocked
from checking your credit report in
response to an application for a new
account when a freeze is in place, according to Experian (but the lender
can review your report in relation to
your existing accounts). So if you have,
say, a mortgage with Chase, a crook
who applies for a Chase credit card in
your name shouldn’t succeed.
For the most complete protection,
place a credit freeze on all your reports. You must contact each credit
agency individually (for links to each
bureau, see kiplinger.com/links/
freeze). You’ll receive a PIN, which
you’ll have to supply when you want
to temporarily lift or permanently
remove the freeze. If you froze your
Equifax credit report prior to the
breach announcement or in the first
several days after, check your PIN.
Equifax long generated PINs based on
the date and time they were issued—
not exactly a complex code. If your
PIN follows the old formula, it’s not
a bad idea to call Equifax at 866-3495191 to get a new one. Equifax will
refreeze your account and send you
a new PIN in the mail.
If you’re a victim of identity theft
and submit documentation such as a
police report, a credit freeze is usually
free. (If your personal information has
been compromised in a breach but a
criminal has not made fraudulent use
of it, you are not considered a victim.)
Some states also provide free freezes
for seniors and military members.
Otherwise, both placing and lifting
a freeze often incur a fee, typically
$5 to $10, depending on the state.
Before you pull the trigger on a
credit freeze, you may want to take
care of some other housework. Although a freeze diminishes the likelihood that an imposter will open new
credit lines in your name, a creditmonitoring service can still be useful
to identify errors on your report or,
say, collection accounts resulting from
36
KIPLINGER’S PERSONAL FINANCE
12/2017
a thief who used your identity to pile
up medical bills. But you may not be
able to get through the registration
process for a third-party monitoring
service while a freeze is in place.
Credit Karma says its service will continue working uninterrupted if you
place a credit freeze after you sign up.
A credit freeze will also prevent you
from creating a Social Security Administration account online. If you
have frozen your credit reports, you
need to thaw only the Equifax report
to complete SSA registration online
(once you’ve signed up, you can refreeze
the report). If you visit a local Social
Security office to verify your identity,
you won’t have to lift the freeze. It’s
a good idea to register for an account
at www.ssa.gov/myaccount even if retirement is years away so that thieves
can’t open an account in your name
and sign up for benefits. Landlords,
utilities and wireless-phone companies may also require a credit check.
Instead of a freeze, you can place a
free initial fraud alert on your credit
reports even if you’re not an ID-theft
victim (when you set up an alert with
one of the three major agencies, it will
notify the other two). The fraud alert
notifies lenders that they should take
extra steps to verify your identity, such
as calling you at a phone number you
provide, when someone applies for
credit in your name. If the lender doesn’t
follow through, however, you’re out of
luck. Plus, an initial alert lasts for just
90 days, so you’ll have to keep renewing the fraud alert. Identity-theft victims qualify for a free extended fraud
alert, which lasts seven years.
With other sensitive online accounts,
use two-factor authentication whenever possible. For example, you may be
able to have your e-mail program send
you a text message with a code anytime someone tries to log in from an
unrecognized device. Use strong and
unique passwords for each account,
and consider using a password organizer such as LastPass to generate and
store them. For other ways to protect
your identity, see the box on page 35. ■
YOU CAN REACH THE AUTHOR AT LGERSTNER@KIPLINGER.COM.
Credit Band-Aid
Why a Freeze Beats a Lock
As an alternative to a credit freeze, the three big credit agencies offer the ability to “lock”
your credit report to bar new creditors from viewing it and to “unlock” the report when you
need to apply for credit.
Equifax said that by January 31, it would allow all consumers to lock and unlock their
Equifax reports free of charge for life. Equifax’s TrustedID Premier monitoring service
(free for one year) also comes with the lock/unlock option for your Equifax credit report.
Experian charges $10 a month for the option with its IdentityWorks Plus service, and
TransUnion lets you lock your TransUnion report via its free TrueIdentity. If you must enter
your credit or debit card number when you sign up for any “free” service, that’s a sign you
may be charged after a free trial.
The lock appears to serve the same purpose as a freeze, and it may be simpler to use.
But the lock often lasts only as long as you’re enrolled in the program offering it. A credit
freeze remains until you remove it (except in Kentucky, Pennsylvania and South Dakota,
where a freeze expires after seven years).
Freezes are governed by state laws, and in some states, you may be able to sue in
court over a violation of the law, says Chi Chi Wu, staff attorney for the National Consumer
Law Center. The TransUnion and Experian services mentioned above both include arbitration clauses. Bottom line: A freeze may require more money and effort, but it rests on
firmer ground than the lock.
MONEY
MANNERS
PATRICK GEORGE
How to tip, handle gift gaffes and work the office party. BY MIRIAM CROSS
How do I tip everyone who helped me
throughout the year without blowing my
budget? Compose a list of people who do
work for you or provide you service on a regular basis, such as your kids’ babysitter or the
newspaper deliverer, and prioritize end-ofyear gratuities based on your relationship
and the frequency and quality of the service.
Then stock up on gift cards or crisp, uncrumpled bills.
You can find suggestions for holiday tips
in 16 categories at kiplinger.com/links/
holidaytips. For a service provider who is hard
to track down in person, such as your trash
collector, you could prominently tape an envelope to the top of the bin (check the rules
first on what public employees can accept).
When your tipping budget runs low, get
creative with packages of homemade treats.
No matter what you give, include a handwritten card specifying in a few sentences
how the person has had a positive effect on
your life. Emphasize the you, such as, “Your
personal training has kept me on
track more than I can describe,” says Mary M.
Mitchell, author of several etiquette books.
I’m not a party person. Do I have to attend
my office’s holiday festivities? Yes, even
if that means forcing yourself off your couch
on a chilly Saturday night. “Think of this as a
business event,” says Cathi Fallon, executive
director of the Etiquette Institute of Ohio. To
make the evening more bearable—and give
your career a boost in the process—plan to
arrive on time (when the scene is calmer),
stay for an hour (unless it’s a sit-down dinner,
of course) and network with new faces. To
really nail a good impression, Fallon suggests
thanking the organizer and top management
for hosting the festivities, by handwritten
note as well as in person, if possible.
STATEMENT OF OWNERSHIP,
MANAGEMENT AND CIRCULATION
Publication title: Kiplinger’s Personal Finance
Publication number: 5817-30
Filing date: September 30, 2017
Issue frequency: Monthly
Number of issues published annually: 12
Annual subscription price: $23.95
Address of office of publication: 1100 13th Street, N.W.,
Suite 750, Washington, DC 20005
Headquarters address of publisher: 1100 13th Street, N.W.,
Suite 750, Washington, DC 20005
Publisher: Knight A. Kiplinger, 1100 13th Street, N.W.,
Suite 750, Washington, DC 20005
Editor: Mark K. Solheim, 1100 13th Street, N.W.,
Suite 750, Washington, DC 20005
Managing Editor: Frederic Fane Wolfer, 1100 13th Street, N.W.,
Suite 750, Washington, DC 20005
Owner: The Kiplinger Washington Editors Inc., 1100 13th Street, N.W.,
Suite 750, Washington, DC 20005
Names and addresses of stockholders owning or holding
1% or more of total amount of stock: Knight A. Kiplinger,
Washington, DC; Marital Trust Under Will of Todd L. Kiplinger, Washington, DC; Class A Voting Stock Trust, Knight A. Kiplinger Trustee,
Washington, DC; The Dana S. Kiplinger Revocable Trust, Bethesda,
MD; Ann M. Kiplinger, Washington, DC; The Cameron Todd Kiplinger
Revocable Trust, Bethesda, MD; Paige Wilson Thompson Irrevocable
Trust, Dallas, TX; Daphne L. Kiplinger, Washington, DC; Brigham
C. Kiplinger, Washington, DC; Sutton E. Kiplinger, Massachusetts;
Austin H. Kiplinger Living Trust, Washington, DC; A. Rawleigh Morse,
Connecticut; Dana Tyler Constanda, Connecticut; Ashley Wilson
Irrevocable Trust, Corsicana, TX; Boy Scouts of America Circle 10
Council, Dallas, TX; First Unitarian Church Dallas, Dallas, TX
Known bondholders, mortgagees, and other security holders
owning or holding 1% or more of total amount of bonds,
mortgages or other securities: None
Tax Status: Not applicable
Publication title: Kiplinger’s Personal Finance
Issue date for circulation data below: September 2017
Average No. of Copies
Each Issue During
Preceding 12 Months
Extent and Nature
of Circulation
My aunt asked me how I’m enjoying
the Tiffany-style lamp she gave me last
year. It just wasn’t me, so I gave it away.
Can I lie about how much I love it? No,
but you can start with a vague compliment
to her (“That was such a thoughtful gift!”)
and try to change the subject. If that doesn’t
work, you may need to come clean with a
tactful explanation and reinforce how much
you appreciate her generosity. Then move
on because “we tend to overcommunicate
when feeling awkward,” says Mindy
Lockard, founder of a leadership
program for young women.
When special thought goes into
the gift selection, such as a oneof-a-kind painting, consider
keeping it even if you find it
hideous. And avoid returning items from local boutiques in case word travels
back to the buyer. ■
mcross@kiplinger.com
Actual No. of Copies
Single Issue Nearest
to Filing Date
Total number of print copies
(net press run)
692,346
686,753
Paid, outside-county print
subscriptions (mailed)
599,726
598,058
15,544
18,000
615,270
616,058
1,440
700
9
8
Sales through dealers and carriers, street
vendors, and counter sales (not mailed)
Total paid print distribution
Free or nominal rate outside-county print
distribution (by mail)
Free or nominal rate print distribution outside the mail (by carriers and other means)
Total free or nominal rate print distribution
Total print distribution
1,449
708
616,719
616,766
75,627
69,987
Total print copies
692,346
686,753
Percent paid (print)
99.77%
99.89%
Print copies not distributed
9,442
9,800
624,712
625,858
Total print distribution + paid electronic
626,161
626,566
Percent paid (both print and electronic)
99.77%
99.89%
Paid electronic copies
Total paid print + paid electronic
I certify that all information furnished on this form is true and complete. I understand that anyone who furnishes false or misleading information on this form
or who omits material or information requested on the form may be subject to
criminal sanctions (including fines and imprisonment) and/or civil sanctions
(including civil penalties).
Denise Elliott
Senior Vice President and Chief Operating Officer
The Kiplinger Washington Editors Inc.
12/2017
KIPLINGER’S PERSONAL FINANCE
37
TAXES
Trim Your Tax Bill
Some of these year-end moves will be even more compelling
if lower rates arrive in 2018. BY SANDRA BLOCK
THE OUTLOOK FOR TAX REFORM IS STILL
uncertain, but this much seems clear:
Tax rates are unlikely to go up in 2018,
and there’s a good chance that they’ll
go down for most taxpayers. That
makes some year-end tax strategies
even more attractive this year than
they’ve been in the past.
For example, many taxpayers make
the bulk of their charitable contributions at the end of the year. But you
may want to disburse some of next
year’s generosity in 2017 because
those deductions will be less valuable
if you find yourself in a lower tax
bracket next year. And even if rates
remain flat, you’ll still get the benefit
of taking a deduction sooner rather
than later.
Don’t limit yourself to cash gifts.
Many large charities accept donations
of appreciated securities. If you’ve
owned a stock or other security for
38
KIPLINGER’S PERSONAL FINANCE
12/2017
more than a year, you can deduct its
value on the day you make the donation. You won’t pay tax on the gain,
and the charity won’t either. Another
option is to donate appreciated securities to a donor-advised fund, which
allows you to take the deduction on
your 2017 tax return and distribute
the funds later (see “Ask Kim,” on
page 41).
Don’t have enough deductions to
itemize? If you’re 70½ or older, you
can donate up to $100,000 from your
IRA directly to charity. The contribution counts toward your required minimum distribution and isn’t included
in your adjusted gross income. That
could qualify you for tax breaks tied
to your AGI and reduce or eliminate
taxes on Social Security benefits.
Speed up deductions, defer income. If
possible, paying your mortgage and
state income taxes due in January by
December 31 is another way to beef
up your 2017 deductions. And there’s
another reason you should pay your
2018 state income tax bill early: The
deduction for state and local taxes—
particularly valuable to people who
live in high-tax states—is in jeopardy.
Key Republican lawmakers would like
to eliminate or reduce the deduction
to offset the cost of lowering income
tax rates. One caveat here: If you’re
subject to the alternative minimum
tax, you can’t deduct state and local
taxes, so there’s no benefit to paying
those bills early, says Tim Steffen,
director of advanced planning for
Baird’s private wealth management
business.
One final incentive for beefing up
your 2017 itemized deductions: If
the proposal by Republican leaders
to double the size of the standard deduction comes to fruition, this could
be the last year that millions of taxpayers benefit from itemizing.
Parents of college students may
want to pay tuition bills due in January before December 31 so they can
take full advantage of the American
Opportunity tax credit. The credit is
worth up to 100% of the first $2,000
spent on qualifying expenses and 25%
on the next $2,000, up to a maximum
of $2,500 for each qualifying student.
Married couples filing jointly with
modified adjusted gross income of up
to $160,000 can claim the full credit;
those with MAGI of up to $180,000
can claim a partial amount.
Deferring income until next year
is another smart strategy because the
income may be taxed at a lower rate
then. Self-employed taxpayers can
send invoices to customers in late December to defer payments until next
year. If you expect to receive a bonus,
ask your employer to hold off on paying it until January. Keep in mind,
though, that if your employer has already announced that it will pay bonuses in December, it’s taxable income
for 2017, even if you wait until next
year to cash the check.
SEAN LOCKE/STOCKSY UNITED
MONEY
Eliminate the guesswork.
Get a clear picture of when to claim Social Security.
At Fidelity, we have the tools and expertise to
help you manage Social Security.
• Determine when to claim and how much you may receive
with our Social Security benefits calculator
• See how Social Security fits into your broader retirement
savings goals in the Planning & Guidance Center
It’s your retirement. Know where you stand.
800.FIDELITY | Fidelity.com/SSCalculator
Investing involves risk, including the risk of loss.
This calculator is for illustrative purposes only.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered financial, legal, or tax advice. Fidelity cannot
guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability
arising out of your use of, or reliance on, such information. Visit www.ssa.gov when you’re ready to learn more about filing and about your personalized Social Security statement and
estimated benefit.
The trademarks and/or service marks appearing above are the property of FMR LLC and may be registered.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2017 FMR LLC. All rights reserved. 812677.1.0
MONEY
Strategies for retirees. With a possible
tax cut on the horizon, retirees who
are 70½ or older should look at the
most tax-efficient way to take their
required minimum distributions from
retirement accounts. If you turned
70½ this year, for example, you have
the option of postponing your first
RMD until April 1, 2018. That may
make sense. If rates decline in 2018,
you’ll pay lower taxes on the distribution, Steffen says. The downside to
this strategy is that you’ll have to take
two RMDs next year—one for 2017
and one for 2018—and pay taxes on
both distributions in the same year.
If you’re older than 70½, you must
take your RMD by December 31 to
avoid a hefty 50% penalty on the
amount you should have withdrawn.
But if you’re thinking of taking more
money out of your traditional IRA
than you’re required to withdraw,
postponing that extra withdrawal
until January could save you money
if your tax rate declines in 2018.
Tax moves for investors. Want to cash
in some of your stock market gains
in your taxable portfolio? If you’re
in the 10% or 15% tax bracket, you
can take advantage of the 0% capital
gains rate to harvest those profits taxfree. In 2017, married couples filing
jointly with taxable income of up to
$75,900 are eligible for the 0% rate,
and singles with taxable income of
up to $37,950 can cash in tax-free.
(Remember, taxable income is after
subtracting deductions and exemptions.) Retirees who have been living
off income from their cash reserves
are good candidates for this maneuver
because their income may be low
enough to fall into the 10% or 15%
bracket. Be mindful that the 0% capital gains rate applies only to the extent
that your gains don’t push you into
the 25% bracket; profit that falls into
that bracket is taxed at 15%. Also, your
state may still tax your profits, even
if the feds give you a pass.
If you don’t qualify for the 0% rate
but own stocks or mutual funds that
40
KIPLINGER’S PERSONAL FINANCE
12/2017
have declined in value, consider selling before year-end. You can use the
losses to offset gains from the sale of
other investments or capital gain distributions from your mutual funds. If
your losses exceed your gains (or you
don’t have any gains), you can use your
losses to offset up to $3,000 in ordinary income. Unused losses can be
carried over to future years.
Another strategy for taxpayers who
don’t qualify for the 0% capital gains
rate is to give appreciated securities to
someone who does qualify, such as an
adult child or elderly parent. The recipient can sell the securities tax-free.
KipTip
How to Write Off
Disaster Losses
If your home was damaged by a hurricane this year, there’s a good chance
you’ll be able to write off losses that
aren’t covered by your homeowners
insurance on your 2017 return.
Ordinarily, you have to subtract
$100 from your total loss and then
subtract 10% of your adjusted gross
income. But in late September, Congress approved legislation that waives
the 10% AGI requirement for victims
of Harvey, Irma and Maria. They’ll
be allowed to deduct all of their unreimbursed losses after subtracting
$500. The bill also allows hurricane
victims who don’t itemize to claim
the deduction.
Because the Federal Emergency
Management Agency designated
counties affected by the hurricanes as
federally declared disaster areas, you
may deduct the loss for 2016 or 2017.
Choose the year that saves you the
most money. If you decide to claim it
for 2016, you’ll need to file an amended
return and get a refund from the IRS.
(To file an amended return, go to www
.irs.gov and search for “Form 1040X.”)
For our special report on dealing with
a natural disaster, see page 24.
In 2017, you can give up to $14,000 in
cash or other assets per person to as
many individuals as you would like
without filing a gift tax return.
More ways to save. Contributing to a
tax-favored account before year-end
is another way to lower your federal
or state taxes.
✔ Retirement plans. Contributions to
a 401(k), 403(b), 457 or federal Thrift
Savings Plan won’t be included in your
2017 taxable income. You can contribute up to $18,000 in your workplace
plan, or $24,000 if you’re 50 or older.
If you want to boost contributions
from your last paychecks of the year,
visit your payroll office ASAP. You
have until April 17, 2018, to contribute
to a traditional or Roth IRA for 2017.
✔ 529 college-savings plans. You can’t
deduct contributions to these statesponsored plans on your federal tax
return, but 34 states allow write-offs
on state returns. For example, a married couple in New York—which has
a maximum state income tax rate of
8.8%—can deduct up to $10,000 in
contributions annually to the state’s
529 plan. Earnings on your savings
are tax-free as long as the money is
used for qualified college expenses.
✔ ABLE accounts. These plans, created
in 2014, allow parents and others to
save for a disabled young person’s
future needs, such as assisted living
and special wheelchairs. Beneficiaries
must have developed a qualifying
disability before age 26. You can contribute up to $14,000 to an ABLE plan
in 2017. As with 529 plans, there’s no
federal tax deduction, but some states
allow you to deduct part of your contribution. Michigan, for example, allows married couples to deduct up to
$10,000 from their state taxes; singles
can deduct up to $5,000. Twentyseven states and the District of Columbia offer these programs. ■
YOU CAN REACH THE AUTHOR AT SBLOCK@KIPLINGER.COM.
KIMBERLY LANKFORD
Ask Kim
Charitable Giving Is a Family Affair
I’D LIKE TO SET UP A DONOR-ADVISED
fund so my family can contribute to
charities as a group. Does one person
have to control the fund, or can several
family members donate to it and get a
tax break for the contributions?
back braces, breast pumps, bandages,
first-aid kits, thermometers, heat and
cold packs, and contact lens solution.
Life insurance with an end date. Is it true
that my “permanent” life insurance policy may
end when I am 100 years old and the insurer
might cash it out? Will I have to pay taxes?
E.G., BALTIMORE
The fund can be controlled by one or
more people. Anyone named on the
account can recommend grants, and anyone can make tax-deductible donations.
Setting up a donor-advised fund is
a great way to get your family involved
in philanthropy, teach your kids and
grandkids about giving, and build a
charitable fund that can last for generations. Some parents start by controlling
the fund themselves but have their children research charities and present
their ideas at a family meeting. Parents
may add the children to the account as
they get older so they can make grants.
You can set up a donor-advised fund
at many brokerage firms, banks and
community foundations. Fidelity requires a $5,000 contribution to get
started; Vanguard’s minimum is
$25,000. You can donate cash, stock
and other assets to get a current tax
deduction, then take as much time as
you want to choose the charities.
J.C., DECATUR, ALA.
A donor-advised
fund is a tax-savvy
way for families to
pool their charitable
dollars and create
the next generation
of philanthropists.
What to buy with FSA money. I still have money in my flexible
spending account that I need to use before year-end. What are the
rules for using it on items in the drugstore? Do I need a prescription?
LISE METZGER
R.P., SILVER SPRING, MD.
You generally can’t use tax-free funds in a flexible
spending account for drugs that have an active medical
ingredient without a prescription (insulin is one of the few
exceptions). But many drugstore items are FSA-eligible without a prescription because they do not contain any active
medical ingredients, says Jeremy Miller, CEO of FSAStore
.com, which specializes in selling FSA-eligible items. For
example, you can use FSA money for sunscreen with an
SPF of 15 or higher, blood pressure monitors, knee and
Many life insurance policies sold before
2004 were based on mortality tables
that ended at age 100. If the policy matures then, you could receive the full
payout—plus an income tax bill on any
gains above the amount paid in premiums. (Money paid out as a death benefit
is tax-free.)
If you or your parents are getting
close to 100, ask your insurer about
your options. Some, such as Northwestern Mutual, are keeping the policies
in force even after maturity, but they
stop charging premiums when the
cash value equals the death benefit.
Or ask your insurer if you can extend
the maturity date. Most policies sold
after 2004—and almost all sold after
2008—mature at age 121.
Marriage and Roth IRAs. I contributed to
a Roth IRA before I got married last summer.
Now, our joint income is above the limit for
a Roth. Will I have to pay a penalty for being over the income limit?
K.M., ST. PETERSBURG, FLA.
If you’re married on December 31, you’re considered to be
married for the full year for tax purposes. If your joint income in 2017 is more than $196,000, you can’t contribute to
the Roth. But you can take the contribution (and any earnings) out of the Roth before the tax-filing deadline, or have
your IRA administrator switch your contribution and
earnings to a non-deductible traditional IRA. You can then
convert that IRA to a Roth. Part of the conversion may be
taxable if you have other money in traditional IRAs. ■
GOT A QUESTION? ASK KIM AT ASKKIM@KIPLINGER.COM. KIMBERLY LANKFORD ANSWERS MORE
QUESTIONS EACH WEEK AT KIPLINGER.COM/ASKKIM.
12/2017
KIPLINGER’S PERSONAL FINANCE
41
MONEY
TOP-YIELDING DEPOSIT ACCOUNTS
Annual
yield as
of Oct. 2
No-Fee Interest Checking
Minimum balance may be required
ID THEFT
Are Your Bank
Accounts at Risk?
THE HUGE EQUIFAX DATA
breach has made consumers
hyper aware of how vulnerable they are to identity
theft (see “Your Equifax
Defense,” on page 34). But
the major credit-reporting
bureaus aren’t the only ones
that track your data. Several
other specialty reporting
agencies also collect consumer information.
Among them is ChexKiplinger.com
RATE UPDATES
For the latest savings yields
and loan rates, visit kiplinger
.com/finances/yields.
Systems. When you apply
for a checking or savings
account, the bank or credit
union may look up ChexSystems’ report on you. You
can retrieve it, too, to look
for errors or fraudulently
opened accounts.
A ChexSystems report
usually includes only negative information associated
with accounts you’ve held.
So if you have a good record, the report should be
clean. But if, say, you overdrew an account and failed
to pay back the debt and
resulting fees promptly,
a black mark may appear.
Such information remains
on the report for five years.
ChexSystems also lists inquiries from banks that
have viewed your report.
You can request a free
ChexSystems report every
12 months at www.chex
systems.com, and you’ll
receive your report in the
mail. If you find a problem,
you have the right to dispute it. And just as with
your credit reports, you
can set up a security freeze
(you may have to pay a fee),
which blocks new institutions from viewing your
report, or a security alert,
which is similar to a fraud
alert. Doing so may prevent
an identity thief from opening accounts in your name.
If you want to go the extra mile, you can also check
your free annual reports
from other bank-account
screening agencies, including Early Warning (www
.earlywarning.com), TeleCheck (www.firstdata.com/
telecheck) and Certegy
(www.askcertegy.com).
Langley Federal Credit Union (Va.)# 1.61%
$0–$1,000
langleyfcu.org
1.50
0–250,000
mymemorybank.com
EverBank (Fla.)*
1.21
0–250,000
everbank.com
Nationwide Bank (Ohio)*
1.15
10,000-plus
nationwidebank.com
NATIONAL AVERAGE
0.14%
Must meet activity requirements‡
Annual
yield as
of Oct. 2
Balance
range†
Website
(www.)
America’s Credit Union (Wash.)#
5.00%
$0–$1,000
youracu.org
First Financial Credit Union (Ill.)#
5.00
0–2,500
firstfcu.org
Northpointe Bank (Mich.)
5.00
0–10,000
northpointe.com
Consumers Credit Union (Ill.)#
4.59
0–20,000
myconsumers.org
NATIONAL AVERAGE
1.85%
High-Yield Checking
U.S. Series EE savings bonds 0.10%
1.40%
none
1.40
none
liveoakbank.com
Popular Direct (Fla.)*
1.40
$5,000
populardirect.com
Salem Five Direct (N.C.)*
1.35
none
salemfivedirect.com
NATIONAL AVERAGE
0.19%
U.S. Series I savings bonds
1.96
1.96
0.26
Six-month Treasury bills
1.20
1.08
0.45
Five-year Treasury notes
1.92
1.70
1.14
Ten-year Treasury notes
2.33
SOURCE FOR TREASURIES: U.S. Treasury.
42
KIPLINGER’S PERSONAL FINANCE
12/2017
2.30
1.60
● 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.
dollarsavingsdirect.com
#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 Oct. 2
Minimum
amount
CD Bank (Tex.)*
1.65%
$10,000
EverBank (Fla.)*
1.62
5,000
First Internet Bank of Indiana (Ind.)*
1.62
1,000
firstib.com
TIAA Direct (Pa.)*
1.62
1,000
tiaadirect.com
NATIONAL AVERAGE
0.61%
5-Year
Annual
yield as Minimum
of Oct. 2 amount
1-Year
Langley Federal Credit Union (Va.)#
2.53%
Utah First Federal Credit Union (Utah)# 2.50
Website
(www.)
cdbank.com
everbank.com
Website
(www.)
$1,000
langleyfcu.org
500
utahfirst.com
United States Senate FCU (D.C.)#
2.49
20,000
GS Bank (Ill.)*†
2.40
500
NATIONAL AVERAGE
1.54%
ussfcu.org
gsbank.com
#Must be a member; to become a member, see website. *Internet only. † Grow Financial FCU,
Popular Direct and Signal Financial FCU offer a similar yield. SOURCES: Bankrate,
DepositAccounts.
TOP CREDIT CARDS
Low-Rate Cards
Rate
as of Annual Late
Oct. 2* fee
fee
Lake Mich Credit Union Prime (P)# 7.25%
0.10%
Website
(www.)
Dollar Savings Direct (N.Y.)*
Simmons Bank Visa (P)
0.10%
Minimum
amount
Live Oak Bank (N.C.)*
First Command Bank Visa (P)
YIELD BENCHMARKS
Annual
yield as
of Oct. 2
Savings
lgerstner@kiplinger.com
As of September 29, 2017.
● EE savings bonds purchased
after May 1, 2005, have a
fi xed rate of interest.
Website
(www.)
MemoryBank (Ky.)*
LISA GERSTNER
Month- YearYield ago
ago
Balance
range†
Air-Miles Cards
Website
(www.)
none
$25
lmcu.org
9.25
none
25
simmonsbank.com
9.25
none
15
firstcommandbank.com
Rate
Miles
as of Annual needed
Oct. 2* fee for ticket
Web site
(www.)
none
40,000 ‡
Barclaycard Arrival Plus
16.99
$89 §
40,000 ‡ barclaycardarrival.com
Chase Sapphire Preferred
16.99
95 §
BankAmericard Travel Rewards 15.99%
40,000&
bankofamerica.com
chase.com
Rates are adjustable. *If you do not qualify for this interest rate, the issuer will offer a higherrate card. (P) Platinum. #Must be a member of the credit union; to become a member see
website. ‡$400 value. § Waived the first year. &$500 value if you book through Chase Ultimate
Rewards. SOURCE: Bankrate. Banks may offer lower introductory rates.
FREE FINANCIAL TOOLS
READY FOR RETIREMENT?
Prepare now with our FREE Retirement Planner and our other free tools.
FREE RETIREMENT PLANNER
FREE CASH FLOW ANALYZER
Find out whether you’re in good shape –
or need to do better.
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and where does it go?
FREE FEE ANALYZER
FREE INVESTMENT CHECKUP
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are lost to excessive fees.
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your recommended target portfolio.
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© 2017 PERSONAL CAPITAL CORPORATION. ALL RIGHTS RESERVED.
PLUS GET OUR FREE
RETIREMENT GUIDE
GO TO: persona
p tal.com/KP12
INVESTING
44
KIPLINGER’S PERSONAL FINANCE
12/2017
THE
RIGHT PRICE
FOR ADVICE
We help you navigate the bewildering world
of financial advisers. BY NELLIE S. HUANG
ON THE TV GAME SHOW THE PRICE IS RIGHT, CONTESTANTS TRY TO GUESS
the correct price of an everyday item. Players whose estimates are closest to the right
price go on to compete for valuable prizes. It’s harder than it looks. // The challenge would
be even greater if the contest centered on the price of investment advice. You might
guess 0.30% of assets for a digital investment plan with a robo adviser, or $2,000 for
ILLUSTRATION BY DEAN GORISSEN
12/2017
KIPLINGER’S PERSONAL FINANCE
45
INVESTING
one year with a certified financial
planner. How about $900 for an
investment-allocation strategy to
implement on your own? A fee based
on assets for ongoing portfolio supervision with a money manager might
be 0.50%, 0.75% or 1.0%.
Turns out, there’s no single right
answer because of the many kinds of
advisory services available; there’s an
adviser for almost everyone at nearly
any price point. It’s nice to have options, but that can make it hard to
choose. And what’s the right price?
The key is to figure out your needs and
find the adviser who best meets them.
We’ll help you do that in this story,
and give you an idea of what you
should pay.
The motley mix of advisory fees and
providers points to shifts under way in
the financial advice industry. Intense
competition from robo advisers, which
use computer algorithms to offer portfolio management at bargain prices,
has been pushing down fees for years.
And the U.S. Department of Labor’s
fiduciary rule, which took effect in
June, is nudging advisers to be more
transparent about charges. “The industry is moving away from fees for
products, toward fee-for-service planning,” says Michael Kitces, a certified
financial planner at Pinnacle Advisory
Group, in Columbia, Md.
That’s all the more reason to pay
only for what you need. Whether you
just need advice about your investment portfolio or want help with
financial issues beyond investing (or
both), defining what services you need
will help guide you to the right kind
of adviser. These days, there are generally four types: robos, brokers,
investment advisers and financial
planners, in order of the breadth of
services offered. There is crossover
among all groups, and many financial
professionals hold multiple credentials. Some firms—Charles Schwab
and Fidelity Investments, for instance—
offer access to all four types of advice.
But typically, what—and how—you’ll
pay varies by adviser.
46
KIPLINGER’S PERSONAL FINANCE
12/2017
For each type of adviser, we list the
range of fees you should expect, what
you’ll get for your money and what
kind of customer the adviser is best
suited for.
ROBO ADVISERS
WHO THEY ARE: Robos are virtual advisers. Answer a few questions online,
and computer programs match you
with an appropriate, diversified portfolio of low-fee exchange-traded funds
tailored to your time horizon and tolerance for risk. The “robots” monitor
and rebalance your investments in
tax-efficient ways throughout the
year, and you never have to talk to
a human being. You’ll find robos at
dozens of firms, such as Betterment
and Wealthfront, as well as discount
brokers such as Schwab, TD Ameritrade and E*Trade. Somewhere along
the way, many people who use robo
advisers yearned for a bit of human
interaction. Some firms, such as
Personal Capital and Vanguard, were
already offering access to a certified
financial planner or investment
adviser in addition to their digital
service. Now others, including Betterment and Schwab, offer access to a
human, too.
tend to cost a little more: between
0.30% and 0.91% of assets per year.
BEST FOR: Robos appeal to investors
who are looking only for portfolio
advice and who are happy with index
funds. Robos initially appealed to investors with small accounts, but many
firms now have clients with sevenfigure portfolios.
BROKERS
WHO THEY ARE: These professionals
work for broker-dealers—firms in the
business of buying and selling securities (stocks, bonds, mutual funds and
other investment products) for customers. We’re talking Schwab, Fidelity, Bank of America Merrill Lynch,
Raymond James Financial and the
like. Some banks also have brokerdealer businesses, such as Wells Fargo
and JPMorgan Chase. Depending on
the firm, brokers are also called registered representatives, financial consultants, stockbrokers, investment
consultants or financial advisers.
THE FEES: The newfangled services
WHAT THEY OFFER: Brokers make trades
and sell financial products. Technically speaking, they don’t provide
investment advice, although at a fullservice firm such as Merrill Lynch,
brokers may make stock recommendations based on in-house research and
reports. You will get guidance and
broad advice on funds or stocks, or
on how to divide your assets among
stocks and bonds given your age and
risk tolerance. Brokers are required
to make “suitable” recommendations
for clients. But the Department of Labor’s fiduciary rule holds all advisers,
including brokers, to a fiduciary standard—your interests must come before
theirs—when they’re advising you
about retirement assets.
charge clients the old-fashioned way—
a percentage of assets under management. The typical robo rate hovers
around 0.25% per year, but it can go
as high as 0.50%. In most cases, that
doesn’t include the expense ratios of
underlying holdings. Hybrid services
THE FEES: You’ll typically pay a mix of
commissions and an advisory fee for
portfolio-management services. Each
firm has its own compensation formula. Your statement will show advisory fees and any transaction costs
WHAT THEY OFFER: Robos deliver investment advice in a few mouse clicks.
Robo-only services won’t give advice
on your 401(k) plan, how to save more
for retirement or how to afford college. But hybrid, robo–human services
can provide some assistance. At most
hybrids, when you need to talk to an
adviser, you get the next available person on the phone line. One exception
is Personal Capital, where you work
with a dedicated adviser.
HOW TO FIND
THE BEST ADVISER FOR YOU
I want
someone else
to manage
my money.
I’m starting
out and
need help
picking funds.
I need advice
about what
funds to buy in
my 401(k) plan.
I’m a smallbusiness
owner and I
just inherited
some money.
I love index
funds,
hate fees.
ROBO
sory units of regional banks, such as
SunTrust in the Southeast, First Republic in California, and at national
banks, such as Wells Fargo. In addition, some brokers have earned the
credentials required to be registered
investment advisers. So-called whiteshoe firms, such as BNY Mellon and
J.P. Morgan Private Bank, serve highnet-worth clients with eight-figure
portfolios. Many investment advisers
work independently.
WHAT THEY OFFER: Ongoing management
BROKER
I don’t trade
much, but I want
high-quality
research.
ADVISER
I have multiple
accounts and
need help
consolidating.
deducted from your account. “Most
of these firms charge a percentage of
assets, but some also use proprietary
products with additional fee layers,”
says Kitces.
All-in fees, including commissions
on investment products, range between 1% of assets per year to as high
as 4% (for annuities, for example), says
Ron Rhoades, an assistant finance professor at Western Kentucky University’s business school. The average total
cost is about 2% to 2.5%. “Most fullservice brokerage firms try to secure
about 1.5% to 2% a year in revenue
from each client,” says Rhoades. Discount firms generally cost 1% or less,
in part because of their lower transaction costs.
Some brokerage firms offer several
tiers of advice and charge accordingly.
At Fidelity, for instance, fees range
from 0.20% to 1.70% of assets, depending on the service you choose (minimums start at $50,000 and go up to
PLANNER
I want to
know if
I’m on
track.
$2 million). At Schwab, to get a dedicated consultant you’ll need at least
$500,000 in your account and you’ll
pay between 0.70% and 0.90% of assets under management.
BEST FOR: Investors looking for investment guidance. If you would also like
ongoing portfolio management, in
most cases you’ll need to meet a minimum in investable assets.
REGISTERED
INVESTMENT ADVISERS
WHO THEY ARE: This category includes a
broad group of people who give investment advice and take a hands-on role
in managing your portfolio. They have
passed certain tests and are licensed
to give investment advice. Registered
investment advisers are also called investment managers, wealth advisers,
wealth managers, asset managers
or portfolio managers, among other
names. You can find them at the advi-
of your portfolio, shifting your money
among assets over time to meet your
goals or in response to market moves.
With a dedicated adviser, you’ll be able
to call anytime you have a question.
And clients who have deep pockets
can generally get access to moresophisticated investments, such as
private equity, real estate and hedge
funds. In addition, many investment
advisers offer advice on other financial issues, including insurance and estate planning. Investment advisers are
required by law to put your interests
ahead of theirs.
THE FEES: Advisory fees are usually
charged based on assets under management, and the bigger your account,
the lower the rate you’ll pay. The typical fee, says Rhoades, is about 1%,
though some charge as much as 2%
per year and others charge less. At bigger banks and trusts that provide services such as succession planning for
small-business owners, fees go up to
3%, says Wei Ke, an analyst with consulting firm Simon-Kucher & Partners.
Very high-net-worth clients can often
negotiate advisory fees, he adds.
BEST FOR: Those who want to build a
relationship with an active manager
of their portfolio. At regional banks,
planning, goal-setting or “get me on
the right track” help is available, too.
At bigger trust firms, the white-glove
service includes estate planning, charitable-giving advice and hand-holding
for all aspects of your financial life.
12/2017
KIPLINGER’S PERSONAL FINANCE
47
INVESTING
FINANCIAL PLANNERS
WHO THEY ARE: Anyone can claim the
title “financial planner,” so look for
one who has been credentialed by the
Certified Financial Planner Board of
Standards. Planners with the CFP designation are required to put their clients’
interests ahead of their own. Many are
also registered investment advisers.
WHAT THEY OFFER: Planners can give you
advice on investments, and some may
offer to manage your portfolio, but
they also work with clients to develop
a long-term financial plan. That can
include strategies for buying a car or a
house, how much life insurance to buy,
and how to save for retirement and college at the same time. “It’s life coaching,” says Sheryl Garrett, who founded
the Garrett Planning Network, a nationwide group of planners who charge
by the hour. It’s also about having an
adviser always on hand for help with
financial questions. “Clients can call
anytime,” says Jeremy Brenn, a Collegeville, Pa., certified financial planner.
THE FEES: Most CFPs are fee-only and
don’t earn commissions. Some charge
Before You Sign
Ask the Right Questions
Finding the right adviser can feel a little like dating. You’re looking for that magic blend
of mutual interests and rapport. And of course, there’s always the small matter of his or
her credentials.
A proper interview process can help you address those issues. There are “15 to 20 questions you need to ask,” says Ron Rhoades, a certified financial planner. Checking to see
that an adviser has a blemish-free record is a vital step and should be done before you
meet. Go to Finra’s BrokerCheck website, www.finra.org/brokercheck. For advisers, search
by firm name at www.adviserinfo.sec.gov for disciplinary information.
The North American Securities Administrators Association, which is made up of state
securities regulators and works to protect investors, has a list of seven questions you
should ask yourself before the interview, and nine you should pose to the adviser (http://
bit.ly/1dsJ6Ty). Among the more important questions: Are you required by law to always
act in my best interests? Will you put that commitment in writing? How do you charge for
your services? Do you receive compensation from other sources if you recommend that I
buy a particular investment product? Will you break out all fees and commissions? “Have
the adviser write out all of the fees in contract form or on a piece of paper,” says Sheryl
Garrett, a certified financial planner and founder of the Garrett Planning Network.
Professional associations can help with the hunt, says Rhoades. Find a fee-only investment adviser through the Alliance of Comprehensive Planners, or the National Association of Personal Financial Advisers. Most of the advisers associated with these groups are
certified financial planners and offer all-encompassing financial planning. But you can
hire them just to help you with your portfolio. Ask for examples of how the planner or adviser has changed clients’ lives. Make sure you feel comfortable with his or her investing
philosophy and strategy.
Finally, plan to meet with at least three (and up to five) advisers. Many advisers offer
a free get-acquainted meeting. “People should take advantage of that,” says Garrett.
Face-to-face get-togethers help, of course, but younger investors may find a video chat
sufficient. And don’t hire someone at the first meeting. “Don’t make a decision while
you are emotional about the person you’re meeting with or the money issues you’re confronted with,” says Rhoades. Instead, take notes during the interview and review them
a week later. If you have more questions, set up a second meeting. “This is a big decision,”
he says, so take your time.
by the hour, typically between $200
and $400, depending on where you
live and the complexity of your finances. Or you might pay a one-time
fee for a single project—a budget, for
example, or an asset-allocation plan.
Other planners charge a fixed annual
fee—often called a retainer or subscription—paid monthly or quarterly. Planners working on retainer typically cost
between $3,500 and $7,500 per year,
depending on the client’s financial
situation and needs, according to SEI
Advisor Network, an advisory group
based in Oaks, Pa. The going rate for
planners who charge a percentage based
on assets is roughly 1%, but it may be
higher or lower depending on the firm
and how much money you have.
Sheila Padden, a CFP in Chicago,
charges between $2,000 and $20,000
a year. Her $2,000 clients are typically
professionals with student loans and
about $100,000 in net worth; her
$20,000 clients may have $5 million
or more and need estate-planning
help. Fees are calculated based on
multiple factors, including income,
net worth and the complexity of a
client’s finances.
BEST FOR: Investors who need financial
guidance beyond investing, on everything from budgeting help and debt
management to when to start drawing
Social Security. For help with a single
issue—say, sorting out pension payment options—find a planner who
charges by the hour. The catch with
an hourly planner, however, is that you
execute strategies on your own. If you
want someone to do the work for you,
or you have more complex needs, build
a long-term relationship with a planner. In that case, a retainer model or a
fee based on assets under management
is more appropriate.
Wherever you go for advice, the right
price may boil down to whether you want
the lowest cost or better service and
more attention. Rapport counts, too—
and it’s difficult to put a price on that. ■
YOU CAN REACH THE AUTHOR AT NHUANG@KIPLINGER.COM.
48
KIPLINGER’S PERSONAL FINANCE
12/2017
KATHY KRISTOF
Practical Investing
Why I Think Apple Is a Bargain
I
first bought shares of Apple for the
Practical Investing portfolio in late
2011, when the stock was reeling after
the death of company cofounder Steve
Jobs. I bought more shares two years
later, when Wall Street solemnly declared that a quarterly earnings report
definitively confirmed dire predictions
about Apple’s future. I bought still more
in January 2016, when the company
telegraphed its first drop in annual sales.
At that point, Mr. Market declared there
was nowhere for Apple to go but down.
Apple (symbol AAPL, $154) is now
the largest holding in the portfolio.
I own 356 shares, which I purchased
at an average price of $56.97 per share.
And if it wasn’t for my commitment to
diversification—Apple accounts for
more than 15% of the portfolio—I
would probably buy more today.
There are two reasons why I bought
in the past and am tempted to buy
now. One is purely mathematical. At
each point in time, I believed that
Apple stock was comparatively inexpensive. My simple formula for
determining whether a stock is selling
for a good price is to look at the stock’s
forward price-earnings multiple (share
price divided by projected year-ahead
earnings) and compare that to its earnings growth rate and dividend yield. By and large, if
the earnings growth rate added to the dividend yield,
expressed as whole numbers, is more than the stock’s
forward multiple, I consider the stock a good value.
Wall Street analysts, on average, expect Apple to earn
$10.92 per share in its 2018 fiscal year, up about 21% from
fiscal 2017, which ended September 30. Sales are also
expected to jump nearly 16% on the back of new product
offerings, including the iPhone 8, the iPhone X, and a new
and more versatile Apple Watch. The company pays a $2.52
annual dividend, which gives the stock a 1.6% yield. Thus,
earnings growth rate plus dividend yield equals 22.6. At
today’s market price, the stock sells for just 15 times projected earnings—a relative bargain. (Prices and other data
are as of September 29.)
LISE METZGER
Apple is now the
largest holding in
my portfolio. And if
I wasn’t committed
to diversification,
I would probably
buy more today.
The other reason I want to own
Apple is its game-changing products,
which I think will continue to fuel sales
and earnings for years. Admittedly,
Apple is more about execution than
innovation. I had an MP3 player long
before I got an iPod Mini, but my workout became far more joyful—and, thus,
longer—when I could carry around an
entire music library in something that
weighed less than an ounce.
Years later, when my kids realized
I couldn’t manage my BlackBerry without a technological consult, they persuaded me to buy an iPhone, which was
intuitive even for the tech-challenged.
A few upgrades later, I stopped lugging
around my camera because the photos
I took on my phone were better.
The bad old days. Speaking of which,
remember when you used to pay extra
for a GPS system in your car? Search
the house for a working flashlight or
buy a separate alarm clock, stopwatch
or video camera? Who misses the days
when you had to pick up a phone while
simultaneously turning down the radio
whenever a call came in? Other phones
have similar features, but I believe the
iPhone’s execution is unparalleled.
When I watched Tim Cook’s newproduct video conference in September, I got a glimpse
of the future: an Apple Watch under the Christmas tree.
(Are you listening, honey?) Not only will this watch track
workouts, it will also allow me to exercise while cordlessly
listening to music and answering the rare, it-better-be-anemergency-if-you’re-interrupting-my-run phone call. And
my new watch will monitor my heart for hard-to-detect
medical problems, such as arrhythmias.
Sure, Apple products are expensive. But given the number
of costly gadgets replaced by my phone and my soon-tobe-purchased watch, I consider them a great value—just
like the stock. ■
KATHY KRISTOF IS A CONTRIBUTING EDITOR AND AUTHOR OF THE BOOK INVESTING 101. YOU CAN
SEE HER PORTFOLIO AT KIPLINGER.COM/LINKS/PRACTICALPORTFOLIO. YOU CAN CONTACT HER
AT KKRISTOF@KIPLINGER.COM.
12/2017
KIPLINGER’S PERSONAL FINANCE
49
INVESTING
KIPLINGER DIVIDEND 15
Our Top Dividend Picks
Every kind of income investor will find something to like in our new list. BY DAREN FONDA
for dividends these days,
and corporate America is
happy to oblige. Profits are
rolling in at such a healthy
clip that companies in Standard & Poor’s 500-stock
index are on track to raise
their payouts by an average
of 8% this year. Analysts
estimate that 2018 will be
even better, with dividends
rising by an average of more
than 9%, according to S&P.
For income investors,
though, finding good dividend-paying stocks isn’t as
easy as selecting a fund that
mirrors the S&P 500. The
index yields just 2%—barely
enough to stay ahead of inflation, which is running at
a 1.9% annual pace.
Yet plenty of individual
stocks yield more than the
market average. And if you
know where to look, you
can find big, blue-chip companies that have raised their
dividends steadily for decades. Other companies
are finding ways to sustain
payouts well above 4%, and
still others are hiking payouts at above-average rates,
giving investors a hefty
raise each year.
Enter the Kiplinger Dividend 15, the list of our favorite dividend-paying stocks.
To make it into our lineup,
stocks had to first beat a
50
KIPLINGER’S PERSONAL FINANCE
12/2017
yield of 2%, the broad-market
average. We then looked
for firms that are leaders
in their industry and that
have solid prospects for
expanding their sales and
profits, while also generating enough cash to pay investors. We aim to avoid
dividend traps—high-yielding stocks with weak underlying businesses and poor
prospects for their shares.
Our picks fall into one of
three categories, depending
on the most salient aspect
of their dividend: stability,
brisk growth or high yield.
Picking some from each
group will give you a mix
of companies with different
income and growth profiles,
and you can customize your
mix to suit your goals. You
might emphasize steady
Eddies if stability is important to you, or high-yield
stocks if you want larger
payouts.
Keep in mind that you’ll
face trade-offs no matter
what you choose. Highyield stocks probably won’t
deliver sizable share-price
gains; stocks with greater
dividend growth (and lower
yields) are likely to produce
stronger price appreciation.
Also note that dividend
stocks often lag in markets
(such as the current one)
that favor growth-oriented
companies, which tend to
pay below-average dividends or none at all. Here’s
a look at each category and
the stocks that made it into
the Dividend 15.
Dividend stalwarts. If you
like sturdy companies that
steadily raise their dividends, consider these stocks.
For this category, we looked
for firms that have increased
their dividends for at least
20 consecutive years.
Industrial conglomerate
3M sells everything from
health care products to
safety equipment to con-
sumer goods under brands
such as Scotch and Thinsulate. Sales growth has been
sluggish for the past few
years. But the firm is boosting its bottom line with cost
savings, stock buybacks,
acquisitions and the introduction of new products.
3M’s free cash flow (the
cash profits a company generates annually after making the capital expenditures
necessary to maintain the
business) is nearly twice
what it pays in dividends,
leaving ample capacity to
keep a 59-year streak of
dividend hikes alive.
CLOCKWISE FROM TOP LEFT: 3M, CVS HEALTH, EMERSON ELECTRIC
COURTESY 3M, CVS HEALTH AND EMERSON ELECTRIC
INVESTORS ARE CLAMORING
Industrial gas supplier
AIR PRODUCTS & CHEMICALS
is expanding in emerging
markets with a new hydrogen plant in India and an
oxygen plant in China (supplying the gas to transform
coal into cleaner-burning
synthetic natural gas).
Much of the company’s
sales are locked in by longterm contracts, creating
steady revenues and boding
well for dividend payments.
And Air Products plans
to invest heavily in its business, aiming to spend $8 billion over the next three
years to secure earnings
growth of at least 10% a
year over the same period.
The firm also says it’s committed to increasing its dividend, which it has raised for
34 straight years.
EMERSON ELECTRIC makes
hundreds of products for
industrial businesses, along
with consumer goods such
as LED lights and thermostats. Sales are rising as the
firm expands into areas
such as valves and controls
for the energy industry, plus
sensors and software that
monitor equipment and
conditions via the industrial
Internet of Things. Analysts
expect profits to climb by
7.6% in 2018 compared with
2017, according to estimates
compiled by Zacks Investment Research. That should
be enough for Emerson to
add to an impressive history
of dividend increases.
EXXONMOBIL has invested
heavily to produce oil and
gas more efficiently in a
world of low energy prices.
The firm is expanding into
chemical processing and
other areas to diversify
from oil-and-gas production
and refining. The stock
won’t be a big winner without more of a rebound in
oil prices. But Exxon’s dividends look as dependable as
they come. When oil prices
collapsed in 2014 and 2015,
the company still managed
to hike quarterly payouts
in both years. Over the
past 35 years, Exxon has increased its dividend at just
over a 6% annualized rate.
With a product line ranging from medical devices
to prescription drugs and
consumer goods such as
baby shampoo, JOHNSON &
JOHNSON possesses one of
the broadest businesses in
health care. Profits are likely
to roll in steadily as J&J
brings new drugs and medical devices to market. A
pristine balance sheet, earning the company one of only
two triple-A credit ratings
bestowed by S&P, gives J&J
flexibility to pursue acquisitions and pay more cash to
shareholders, too.
Boosting revenue growth
is a challenge for PROCTER &
GAMBLE , the giant consumer
goods company whose
brands include Crest,
Bounty, Gillette, Pampers
and Tide. The company is
grappling with an activist
investor who wants a seat
on the board in hopes of
turbocharging growth.
Regardless of the outcome
of that battle, analysts expect P&G to lift profits by
7.4% in 2018. Moreover, few
companies have a dividend
history that compares with
P&G’s: 127 consecutive
years of dividend payments,
with increased payouts for
61 years straight.
WAL-MART STORES may
not be the belle of the retail
ball (that would be Amazon
.com), but Wal-Mart is
plowing billions of dollars
into its internet business,
and the strategy is paying
off. Online sales surged by
60% in the second quarter
of this year compared with
the same quarter a year
earlier. And the closing of
department stores, supermarkets and specialty retailers should benefit the
company. Wal-Mart has
raised its dividend every
year since declaring one in
1974, boosting the payout at
a 5.1% annualized rate over
the past five years.
Dividend growth. For this category we looked for stocks
that we think are likely to
continue a history of robust
dividend hikes. We also focused on businesses that are
delivering growth in revenues and profits, providing
fuel for strong total returns
(a mix of stock-price gains
and dividends).
A series of acquisitions
has made CVS HEALTH one
of the largest drugstore
chains and pharmacy benefit managers in the U.S. The
drugstore business looks
sluggish. But pharmacy benefit revenues are thriving
THE KIP DIVIDEND 15: BY THE NUMBERS
Picking some stocks from each of the groups below will give you a mix
of dividend income and growth.
Company (symbol)
5-year
Consecutive dividend
Share Dividend Annual
years of
growth
price
yield
dividend increases
rate*
DIVIDEND STALWARTS
Companies in this category have raised dividends for at least 20 straight years.
$4.70
59
14.8%
Air Products & Chemicals (APD) 151
2.5
3.80
34
8.2
63
3.1
1.92
60
3.7
6.2
3M (MMM)
Emerson Electric (EMR)
$210
2.2%
82
3.8
3.08
35
130
2.6
3.36
55
6.6
Procter & Gamble (PG)
91
3.0
2.76
61
4.2
Wal-Mart Stores (WMT)
78
2.6
2.04
44
5.1
ExxonMobil (XOM)
Johnson & Johnson (JNJ)
DIVIDEND GROWTH
Companies in this category should continue a history of robust dividend increases.
CVS Health (CVS)
$81
2.5%
$2.00
14
25.2%
Home Depot (HD)
164
2.2
3.56
8
25.1
Lockheed Martin (LMT)
310
2.3
7.28
16
11.7
Texas Instruments (TXN)
90
2.2
2.00
14
24.2
6.5%
$2.16
2
40.1%
5.3
HIGH YIELD
Companies in this category yield 4% or more.
Blackstone Group (BX)
$33
Enterprise Products Ptnrs (EPD)
26
6.4
1.68
18
Realty Income (O)
57
4.4
2.54
23
7.0
Verizon Communications (VZ)
49
4.8
2.36
11
2.8
$49.70
8
9.6%
INDEX
S&P 500-STOCK INDEX
2.0%
As of September 29. *Annualized. SOURCES: Companies, S&P Dow Jones Indices, Yahoo Finance.
12/2017
KIPLINGER’S PERSONAL FINANCE
51
INVESTING
costs, and demand is growing as automakers and other
industrial companies embed
more of TI’s chips in their
products. The company
raised its quarterly payout
by 32% in 2016 and declared
a 24% increase in 2017. Analysts expect earnings to rise
by 9.6% in 2018, and dividends should ramp up, too.
High yield. These stocks all
and should help CVS boost
earnings by 9.3% in 2018,
according to analysts’ estimates. With CVS paying a
meager 34% of its profits as
dividends, it has the leeway
to keep raising its payout.
Strong demand for building materials is bringing
in buckets of cash for HOME
DEPOT. The company’s free
cash flow amounted to
$9 billion in the 12-month
period that ended in July—
more than twice what HD
paid in dividends. Online
competition from Amazon
doesn’t appear to be putting
a dent in HD’s sales. The retailer is expanding abroad
in China and Mexico, and
it is providing services to
professional contractors
with its Pro division. Even
if the housing market heads
south, Home Depot’s dividend is likely to survive:
The company sustained
payments through the real
estate bust from 2007
through 2009.
52
KIPLINGER’S PERSONAL FINANCE
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Defense contractor LOCKHEED MARTIN is prospering as
the U.S. and foreign governments increase spending
on fighter jets, warships,
missile systems and other
defense products. Lockheed
recently announced an arms
deal with Saudi Arabia worth
more than $28 billion. That
should add to a backlog of
$92 billion in awarded contracts and increase revenue
growth. The firm now generates more than $4 billion
a year in free cash flow—
easily supporting dividends
of about $2 billion at the
current payout rate.
TEXAS INSTRUMENTS has
carved out a leading niche
in analog processors, which
are computer chips that
convert real-world sounds
and other signals into digital format. The company
also sells embedded processors—the “brains” of electronics equipment. New
fabrication techniques are
cutting manufacturing
yield at least 4%, our cutoff
to be included in this category. The companies also
possess businesses that we
think will fare well in the
current economic climate.
Our highest-yielding picks—
a financial services firm
and an energy pipeline business—pose greater risks
than our other two choices.
Asset manager BLACKSTONE
GROUP handles more than
$371 billion in investments,
including private equity
funds, mutual funds and real
estate that the firm directly
owns. Blackstone pulls in
huge fees based on the size
and performance of the
assets it manages, and its
fee income should increase
as the firm invests more
capital. The risk is that a
prolonged slump in financial markets would erode
asset values and fees. At
worst, Blackstone could cut
its payout, which would pull
down the stock. For now,
though, Blackstone’s dividends look well supported.
One of the largest energy
master limited partnerships, ENTERPRISE PRODUCTS
PARTNERS runs oil-and-gas
pipelines, processing plants,
storage depots and export
facilities. A drop in oil
prices would pressure the
stock, but investors are
still likely to receive cash
distributions, which Enterprise has increased for 18
straight years. Enterprise
is investing in new pipelines and other projects to
lift its payouts, aiming to
spend more than $6 billion
through 2019. Note: MLPs
issue K-1 forms that may
complicate your tax filings.
Consult a tax professional
before investing.
REALTY INCOME , a real estate
investment trust, owns hundreds of retail properties
leased to major national
companies, such as Walgreens, FedEx and Dollar
General. The firm’s tenants
sign long-term leases averaging 15 years, and they’re
responsible for expenses
such as insurance, maintenance and taxes. That
means that rental income
rolls in steadily, and Realty
shells out most of it (after
the expenses of running the
trust) every month, increasing payouts at a 4.6% annualized rate since the firm
went public in 1994.
VERIZON COMMUNICATIONS
rakes in about $30 billion
every quarter from more
than 109 million subscribers
to its phone, internet and
TV services. Sales aren’t
growing much. But the firm
makes enough money to
support its dividend, which
accounts for 63% of free
cash flow. The payout is
likely to increase moderately as Verizon makes
money from new ventures,
such as internet advertising
and content (through its
AOL and Yahoo brands)
and telematics (GPS tracking for vehicle fleets). ■
YOU CAN CONTACT THE AUTHOR AT
DFONDA@KIPLINGER.COM.
COURTESY HOME DEPOT, ISTOCKPHOTO, COURTESY LOCKHEED MARTIN
CLOCKWISE FROM TOP: HOME DEPOT, VERIZON, LOCKHEED MARTIN
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INVESTING
THE KIPLINGER ETF 20 UPDATE
An Rx for Healthier Gains
EXCHANGE-TRADED FUNDS THAT FOCUS ON
health care stocks tend to tilt toward
the titans—companies such as Johnson & Johnson (symbol JNJ), Merck
(MRK) and Pfizer (PFE). Those stocks
have their merits. But the companies
aren’t growing rapidly. For that, you’ll
need to invest in smaller firms with
more dynamic growth potential.
GUGGENHEIM S&P 500 EQUAL WEIGHT
HEALTH CARE doesn’t play favorites when
it comes to a company’s size. As its
name implies, the fund holds 62 stocks
in equal proportions, each about 1.6%
of the portfolio. Businesses such as
Mettler-Toledo—a precision-instruments firm with a market value of
$16.1 billion—carry as much weight in
the ETF as J&J, valued at $349 billion.
The mix, says Guggenheim, reduces
bias toward the health care giants and
provides more exposure to smaller firms
with potentially superior stock returns.
Equally weighting stocks has been a
winning strategy for the ETF. Mettler,
for instance, has gained a total of 514%
over the past decade—three times as
much as big drug companies such as
J&J (returns are as of September 29).
Stocks such as Mettler have powered
the ETF to an annualized return of
12.6% over the past 10 years, beating
the 10.9% gain of the S&P 500 Health
Care index (which weights stocks by
market value). Impressively, the ETF
has outperformed the index even
though it has a somewhat steep expense ratio of 0.40%.
The ETF does have some drawbacks, one being meager dividends.
Stocks in the fund yield an average of
0.9%, about half the health care industry average and well below what you
can scoop up with a giant such as J&J
(yielding 2.6%) or Pfizer (3.6%).
The ETF may also be a bit riskier
than a health care fund secured by
more weight in large companies. In
2016, the Guggenheim fund lost 4.5%
(including dividends). That compares
with a decline of 2.8% for the Health
Care Select SPDR ETF (XLV), which
ranks stocks by market cap and is
tilted toward the heavyweights.
Overall, health care stocks look
appealing. Many are benefiting from
increased spending on insurance, medical devices and prescription drugs.
That is helping a record proportion
of companies beat analysts’ estimates
for sales and profits. Yet the stocks as a
group still look inexpensive, says Bank
of America Merrill Lynch, which recommends the sector.
The big unknown, of course, is what
to expect from the industry’s largest
benefactor: Washington. Cuts in government spending on health care could
lower revenues for hospitals, insurers
and other firms. Analysts would then
trim their sales and profit estimates,
and the stocks could take a hit.
But even if Congress hits the brakes,
spending growth would slow but not
stop. The medical needs of an aging
population will inevitably push up
demand for health care, a trend that
should make this ETF a long-term
winner. DAREN FONDA
dfonda@kiplinger.com
Returns/Fees/Free Trades
KIPLINGER ETF 20: VITAL STATISTICS
Core Stock Market Funds
Share
Symbol price
Annualized total return
Expense Commissionratio
free trades
1 yr.
3 yrs.
5 yrs. Yield
iShares Core S&P 500
IVV
$254
19.1%
11.4%
14.2%
1.9%
0.04%
F, FT, TD
iShares Core S&P Mid-Cap
IJH
181
18.5
11.9
14.6
1.5
0.07
F, FT, TD
PowerShrs Dynamic Lg Cap Val
PWV
38
21.8
10.3
13.8
2.0
0.56
Vanguard FTSE A-W Ex-US Sm-Cap
VSS
115
18.7
7.5
8.5
2.2
0.13
Vanguard Russell 2000 Value
VTWV
109
21.8
12.5
13.3
1.7
0.20
V
Vanguard Total Intl Stock
VXUS
55
19.2
6.0
7.3
2.6
0.11
V
VTI
130
19.3
11.4
14.2
1.8
0.04
TD, V
Vanguard Total Stock Market
Dividend Stock Funds
Schwab US Dividend Equity
SCHD
$47
14.6%
10.6%
13.5%
2.9%
0.07%
S
Schwab US REIT
SCHH
41
-1.3
9.0
9.0
3.7
0.07
S
Vanguard High Dividend Yield
VYM
82
16.6
10.9
13.4
3.0
0.08
TD, V
WisdomTree Intl LgCap Div
DOL
49
18.3
3.9
6.8
3.4
0.48
E
IBDM
$25
—
—
2.4%
0.10%
Core Bond Fund
iShares iBonds Dec 2021 Corp
1.0%
Strategic Stock Funds
Financial Select Sector SPDR
XLF
$26
37.3%
14.0%
17.5%
1.7%
0.14%
Guggenheim S&P 500 Eq Wt Health
RYH
177
14.0
11.8
18.2
0.5
0.40
96
25.9
16.0
—
1.3
0.15
iShares Edge MSCI USA Moment Fctr MTUM
iShares Global Infrastructure
IGF
45
12.0
5.6
8.4
3.3
0.48
iShares Mortgage RE Capped
REM
47
22.2
11.3
7.0
9.1
0.48
0.56%
Pimco Active Bond
BOND $106
1.8%
3.2%
2.9%
3.2%
PowerShares Senior Loan Port
BKLN
23
3.3
2.5
2.7
3.6
0.66
VanEck Vectors Fallen Angel HY
ANGL
30
10.2
8.9
8.9
4.9
0.35
S&P 500-STOCK INDEX (LARGE U.S. STOCKS)
18.6%
10.8%
14.2%
2.0%
MSCI EAFE INDEX (FOREIGN STOCKS)
19.1
5.0
8.4
3.0
0.1
2.7
2.1
2.6
Indexes
BLOOMBERG BARCLAYS US AGGREGATE BOND INDEX
As of September 29. —Fund not in existence for the entire period. SOURCES: Dow Jones, Morningstar, MSCI, XTF.com.
KIPLINGER’S PERSONAL FINANCE
12/2017
E, S
Strategic Bond Funds
Key: E=E*Trade F=Fidelity FT=Firstrade S=Schwab TD=TD Ameritrade V=Vanguard
54
TD, V
S
INVESTING
KEY DATA FOR OUR MUTUAL FUND PICKS
THE KIPLINGER 25 UPDATE
Emerging Markets
Find Their Mojo
CHINA MAY STILL BE AN
emerging market, but consumers there are ahead
of the rest of the world in
mobile e-commerce. “They
go to restaurants and swipe
their phones to pay,” says
BARON EMERGING MARKETS
manager Michael Kass. He
adds that 70% of consumer
purchases in China are
electronic.
Kass identifies growthoriented themes and
combines them with nittygritty stock picking to run
the fund. He has tapped
into the mobile e-commerce trend with stakes
in two Chinese tech firms,
Alibaba Group Holding
and Tencent Holdings.
The stocks climbed 63%
and 58%, respectively, over
the past 12 months, which
helped lift Baron Emerging Markets by 21.1%. (See
“Opening Shot,” on page
14, for more on investing
in China.)
But the fund fell short
of beating the rise in the
MSCI Emerging Markets
index during that period,
in part because the two
heavyweight tech firms
make up a bigger percentage of the benchmark than
they do the fund. “I’m an
asset manager and a risk
manager, so I tend not to
take a large position in
an individual stock,” says
Kass. He holds between
80 and 100 stocks and has
56
KIPLINGER’S PERSONAL FINANCE
12/2017
a stellar long-term record.
From the fund’s opening
in January 2011 through
this past September 29,
Emerging Markets returned 5.9% annualized,
outpacing the 1.6% return
of the MSCI EM index.
India is another growth
hot spot. Kass says tax and
economic reforms under
way there will lead to a
“multiyear cycle of higher
investment and productivity.” He has invested 15%
of the fund’s assets in
Indian stocks, including
two financial services
firms, Kotak Mahindra
Bank and JM Financial.
Emerging-markets
stocks are in a good groove
these days, says Kass.
Global growth and trade
are steady, China’s economic growth and currency remain stable, and,
for now, President Trump’s
protectionist policies don’t
loom so large. Earnings
growth is strong, too, says
Kass. Analysts expect
12.1% earnings growth
next year in emergingmarkets stocks, which outstrips expectations for
11.5% in the U.S. and 7.3%
everywhere else. Reforms
established in recent years
in developing countries are
starting to produce results,
says Kass, “and that’s exciting to me as a long-term
investor.” NELLIE S. HUANG
nhuang@kiplinger.com
The funds in the Kip 25 are no-load, meaning you can buy them
without sales charges. For more about these funds, see our May issue.
Annualized total return
Added to
1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25
U.S. Stock Funds
Symbol
Dodge & Cox Stock
DODGX 25.0%
9.8% 15.6%
6.6% May 2008
Fidelity New Millennium
FMILX 18.5
8.6
13.0
8.2
May 2014
Homestead Small-Co Stock
HSCSX 23.7
9.7
13.4
10.3
May 2012
Mairs & Power Growth
MPGFX 13.5
9.1
13.1
8.0
Jan. 2013
Parnassus Mid Cap
PARMX 14.5
10.8
13.4
9.1
Aug. 2014
T. Rowe Price Blue Chip Growth TRBCX 28.3
14.2
17.1
9.6
May 2016
T. Rowe Price Dividend Growth PRDGX 16.2
11.0
13.7
7.7
Oct. 2016
T. Rowe Price QM US Sm-Cp Gro PRDSX 20.7
11.5
15.4
10.4
May 2015
T. Rowe Price Sm-Cap Value
PRSVX 24.9
12.5
13.4
8.6
May 2009
T. Rowe Price Value
TRVLX 18.2
8.4
14.4
7.2
May 2015
Primecap Odyssey Growth
POGRX 24.0
13.5
17.5
9.7
May 2017
Vanguard Equity-Income
VEIPX
10.1
13.3
7.7
Jan. 2017
International
Stock Funds
Symbol
Baron Emerging Markets
BEXFX 21.1%
Fidelity International Growth FIGFX
17.4
Annualized total return
Added to
1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25
7.0%
8.2%
—
Oct. 2016
—
Feb. 2016
17.0
7.3
9.0
Oakmark International
OAKIX 34.5
9.4
12.9
6.2% July 2017
T. Rowe Price Intl Discovery
PRIDX
25.3
12.9
13.7
6.1
Specialized/
Go-Anywhere Funds
Symbol
1 yr.
Vanguard Health Care
VGHCX 12.6%
9.4% 17.5% 11.4% May 2016
Vanguard Wellington‡
VWELX 13.7
7.9
Bond Funds
Symbol
1 yr.
DoubleLine Total Return N
DLTNX
1.3%
2.9%
2.8%
Fidelity Intermed Muni
FLTMX
0.7
2.4
2.4
3.8% May 2004
Fidelity New Markets Income FNMIX
7.2
6.7
5.0
7.9
May 2012
Met West Total Return Bond M MWTRX –0.1
Annualized total return
3 yrs.
5 yrs. 10 yrs.
10.1
6.9
Annualized total return
3 yrs.
5 yrs. 10 yrs.
—
May 2017
Added to
Kip 25
May 2016
Added to
Kip 25
May 2011
2.2
2.5
5.5
May 2016
8.9
5.9
6.6
9.0
May 2016
Vanguard High-Yield Corporate VWEHX
8.0
5.9
5.7
6.7
May 2016
VFSTX
1.1
2.0
1.8
3.0
May 2010
Pimco Income D
Vanguard Sh-Tm Inv-Grade
PONDX
Annualized total return
Indexes
1 yr.
3 yrs.
5 yrs. 10 yrs.
S&P 500-STOCK INDEX
18.6% 10.8% 14.2%
7.4%
RUSSELL 2000 INDEX*
20.7
12.2
13.8
7.8
MSCI EAFE INDEX†
19.1
5.0
8.4
1.3
MSCI EMERGING MARKETS INDEX
22.5
4.9
4.0
1.3
0.1
2.7
2.1
4.3
BLOOMBERG BARCLAYS AGG BND IDX#
As of September 29. ‡Open to new investors if purchased directly through Vanguard.
*Small-company U.S. stocks. †Foreign stocks. #High-grade U.S. bonds. —Fund not in existence
for the entire period. SOURCE: © 2017 Morningstar Inc.
SPOTLIGHT: MID-CAP FUNDS
Sized Right for Ample Returns
The managers of Scout Mid Cap aren’t afraid to make big sector bets.
IF SMALL- COMPANY STOCKS
offer the chance to get into
businesses on the ground
floor, and big blue chips
offer world-beating stability, what do shares of midsize companies bring to
the table? Historically,
superior returns. Since
1980, the Russell Midcap
index, which tracks U.S.
stocks with $934 million
to $34 billion in market
capitalization (stock price
times shares outstanding),
returned 12.9% per year,
on average—ahead of the
large-cap Standard & Poor’s
500-stock index (11.7%) and
the small-cap Russell 2000
index (11%).
Patrick Dunkerley, who
comanages the SCOUT MID CAP
FUND, describes mid caps as
a market sweet spot, offering more stability than
small companies (thanks to,
among other things, more-
MIDSIZE-COMPANY BLEND MUTUAL FUNDS
Ranked by one-year returns
Annualized
total return
Rank/Name
1 yr.
1. First Trust AQA Equity A
AQAAX
27.2%
2. Scout Mid Cap@
UMBMX 24.2
3. Thrivent Mid Cap Stock S
TMSIX
4. Catalyst Buyback Strategy A
BUYAX
24.1
—
5. Leuthold Select Industries@
LSLTX
22.9
15.1
6. Invesco Endeavor A
ATDAX
22.8
11.3
7. Royce Dividend Value
RDVIX
22.2
11.3
1.00 r
1.11
8. Miller Opportunity A
LGOAX
21.6
20.1
5.75
1.31
9. Rock Oak Core Growth@
RCKSX
21.1
12.4
none
1.25
—
5.75
1.45
10. Neiman Opportunities A
Rank/Name
seasoned executives) and
better growth potential
than large firms. The fund,
which holds 142 stocks,
aims to eclipse the longterm performance of the
Russell Midcap index.
The managers start with
an overall view, updated
weekly, of the economy
and the broad stock market.
none
1.60%
1.03
17.7
none
0.72
5.75
1.50
Max. 1.50
none
sales
charge 1.34
5.50
The goal, says Dunkerley,
is to develop investment
themes—areas of the market that appear especially
attractive. From there, they
evaluate individual stocks
using a 10-point checklist
that includes a company’s
indebtedness, profitability,
and price compared with
projected earnings, as well
rermey@kiplinger.com
Ranked by size. See returns for thousands of funds at kiplinger.com/tools/fundfinder.
Annualized Max.
Assets† total return sales
Symbol (billions) 1 yr. 5 yrs. charge
18.5% 14.1% none
19.3
7.4 none
3. Vanguard 500 Index Inv
MSCI EAFE INDEX
5.50%
15.5% 12.7%
CATEGORY AVERAGE
1. Vanguard Total Stock Market Idx Inv VTSMX $536.0
2. Vanguard Total Intl Stock Index Inv VGTSX
297.1
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
S&P 500-STOCK INDEX
24.1
—
14.9%
NEOMX 21.1
20 LARGEST STOCK AND BOND MUTUAL FUNDS
STOCK MUTUAL FUNDS
Max.
sales Exp.
5 yrs. charge ratio
Symbol
as whether there is a catalyst that will spark growth
in a company’s business.
The result is a diversified
portfolio in which no single
stock represents more than
4% of total assets currently.
But the managers aren’t
afraid to devote significant
assets to a particular sector.
Much of the fund’s excellent one-year performance
stems from its 19% holding
in technology stocks (compared with a 14% holding
in the benchmark index).
Dunkerley cites top
holding DXC Technology
as a bright spot. The managers owned shares off
and on in the information
technology services company (then called Computer
Sciences Corp.) starting
in 2009. They re-upped
in 2012. The current iteration of the firm was formed
from a merger between
Computer Sciences and
a business spun off from
Hewlett Packard Enterprises; it began trading as
DXC in April. Since then,
the shares have returned
nearly 24%. RYAN ERMEY
VFINX
276.2
18.5
14.1
none
AGTHX
AEPGX
FUSEX
FCNTX
ABALX
AMECX
CAIBX
168.7
154.4
125.8
117.9
116.7
109.0
107.6
19.9
20.2
18.5
23.2
12.5
11.4
10.1
18.6%
15.1
9.1
14.1
14.6
10.4
9.2
7.5
14.2%
5.75%
5.75
none
none
5.75
5.75
5.75
19.1%
8.4%
BOND MUTUAL FUNDS
Rank/Name
1-year
Max.
Assets† total Current sales
Symbol (billions) return yield charge
1. Vanguard Total Bond Market Index Inv VBMFX $153.6
2. Vanguard Total Intl Bd Index Inv
VTIBX
82.5
3. Metropolitan West Total Return Bd M MWTRX
80.0
4. Vanguard Short-Term Inv-Grade Inv VFSTX
63.1
5. Vanguard Interm-Term Tax-Ex Inv
VWITX
55.4
6. DoubleLine Total Return Bond N
DLTNX
53.4
7. Lord Abbett Short Duration Income A LALDX
42.2
8. American Bond Fund of America A
ABNDX
34.3
9. Fidelity US Bond Index Inv
FBIDX
33.0
10. Fidelity Total Bond
FTBFX
30.8
BLOOMBERG BARCLAYS US AGGREGATE BOND INDEX
B OF A MERRILL LYNCH MUNICIPAL MASTER INDEX
–0.2%
–0.8
0.1
1.2
0.9
1.4
2.1
0.6
–0.2
1.6
0.1%
1.0%
2.3%
0.8
1.8
2.0
1.7
3.2
2.1
1.8
2.3
2.3
2.6%
2.3%
none
none
none
none
none
none
2.25%
3.75
none
none
As of September 29. @Only share class. Unless otherwise indicated, funds come in multiple share classes; we list the share class that is best suited for individual investors. rMaximum redemption fee.
†For all share classes combined. MSCI EAFE tracks stocks in developed foreign markets. SOURCES: Bank of America Merrill Lynch, Morningstar Inc., Vanguard.
12/2017
KIPLINGER’S PERSONAL FINANCE
57
LIVING COVER STORY
58
KIPLINGER’S PERSONAL FINANCE
12/2017
TYPOGRAPHY BY JOEL FELIX
We asked our staff to nominate their picks for top financial products and
services, gadgets, and deals—everything from timely mutual funds and ETFs
to the most rewarding rewards credit cards to hidden gems among used cars.
Unlike other best list compilations you may see, our top choices aren’t the best
products and services of the year—they are the best ones available right now,
so you can use our list as a guide for every facet of your financial life.
12/2017
KIPLINGER’S PERSONAL FINANCE
59
LIVING COVER STORY
UTILITIES ETF (FUTY, $35);
the ETF has a 3.2%
yield and a wafer-thin
0.08% expense ratio.
Among phone-service
providers, we recommend VERIZON (VZ, $49)
(see “The Kiplinger
Dividend 15: Our Top
Dividend Picks,” on
page 50).
Hold more bonds
Backed by the “full
faith and credit” of
the U.S. government,
Treasury securities
tend to fare well during periods of market
turmoil. VANGUARD
INTERMEDIATE TERM
PLAY DEFENSE
Bear markets, defined
as drops of 20% or
more from a market
peak, occur nearly
every four years, on
average. The last one
ended in March 2009.
Corrections of 10% to
20% come every 26
months, on average,
and the last one of
those ended in February 2016. Downturns
are part of investing,
but we think it’s time
to play defense:
Rebalance After
years of gains, your
portfolio may now
be tilting excessively
toward stocks. Lock
in profits by selling
some stocks and buying more bonds. Look
for candidates to sell
in the tech and financial sectors.
60
KIPLINGER’S PERSONAL FINANCE
Buy steady Eddies
The shares of big,
stable companies
with steady revenues
and dividends should
lose less than average
in a market downturn. Our top choice
for exchange-traded
funds that focus on
such stocks is ISHARES
stocks, we like GUGGENHEIM S&P 500 EQUAL
WEIGHT HEALTH CARE ETF
(RYH, $175), a member
of the Kiplinger ETF
20 (see page 54). For
TREASURY FUND (VFITX),
currently yielding
1.6%, returned 13.3%
in 2008, when the
S&P 500 fell 37%. An
ETF that should hold
up well is ISHARES CORE
U.S. AGGREGATE BOND
EDGE MSCI MINIMUM VOLATILITY USA (SYMBOL
USMV, $50). Over the
past three years, the
fund has been 18%
less volatile than the
S&P 500, yet it has
beaten the market by
an average of 1.6 percentage points a year.
Own safer sectors
Consider classic defensive health care
companies, phoneservice providers and
utilities. For broad exposure to health care
12/2017
Investors have been captivated by a
quintet of technology stocks known as
the FAANGs: Facebook, Amazon.com,
Apple, Netflix and Google’s parent, Alphabet. The FAANGs may still be strong
performers, but they aren’t the only
way to make money in tech stocks.
A couple of semiconductor chip
makers look compelling: MICRON
TECHNOLOGY (MU, $38) and WESTERN
DIGITAL (WDC, $87). Each has captured
a large part of the global market for
certain types of memory chips (“DRAM”
for Micron and “flash” for Western).
Industry consolidation has resulted in
(AGG), with a mix
of government and
high-quality corporate bonds, and a
yield of 2.2%.
Boost cash reserves
Annual yields on
the most-generous
internet savings
accounts run about
1.4%. Or consider
buying Treasury
bills, which are available through your
broker or directly
from the government
at Treasurydirect.gov
for as little as $100.
T-bills yield about 1%
annualized. That’s
not much, but it’s better than losing 10% or
more in a correction.
GO INTERNATIONAL
U.S. stocks have
trounced their foreign counterparts
over the course of the
current bull market,
strong prices for memory chips. And
both firms benefit from robust demand
for mobile devices, graphics cards and
data centers, says Paul Wick, comanager
of Columbia Seligman Global Technology fund. The shares look reasonably
priced, he adds, and well positioned for
gains. And Western pays a nice dividend:
The stock yields 2.3%.
Analysts expect sales for ADOBE
SYSTEMS (ADBE, $147), which makes software for such creative applications as
graphics, digital media and web design,
to rise 19% over the next 12 months.
Customers are signing up for more of
the firm’s subscription-based software
products and new digital marketing services. Brokerage firm Credit Suisse recommends the stock and expects shares
to reach $170 over the next 12 months.
ISTOCKPHOTO.COM
utilities, we recommend FIDELITY MSCI
but the era of American stock market
dominance began to
wane this year. “For
the first time in years,
we’re seeing a broadbased global ecnomic
recovery,” says Jim
Paulsen, chief investment strategist at
Leuthold Group. And
although the U.S. is
in the late stages of
the recovery, foreign
economies have more
ground to make up—
a boon for stocks in
those countries.
Paulsen favors
stocks from emerging
nations over those
from overseas developed markets, but
he expects both to
outpace gains in U.S.
stocks for the remainder of the bull market.
For broad international exposure,
consider a diversified,
low-cost exchangetraded fund. VANGUARD
TOTAL INTERNATIONAL
■ INVESTORS CAN
ISTOCKPHOTO.COM
FIND ENTICING
OPPORTUNITIES
OVERSEAS.
STOCK (VXUS, $55), a
member of the Kiplinger ETF 20, tracks
an index representing
the entire market
outside the U.S. The
portfolio allocates
84% of assets to developed nations, with
the rest in emerging
markets. It comes
with an expense ratio
of 0.11%.
Two mutual funds
from the Kiplinger 25,
the list of our favorite
actively managed
funds (see page 56),
offer a more targeted
approach. OAKMARK
INTERNATIONAL (OAKIX)
invests in bargainpriced stocks in developed Europe and
Asia. BARON EMERGING
MARKETS (BEXFX) focuses on large and
midsize emergingmarkets companies
with above-average
growth potential and
competitive advantages over their peers.
Both funds sport fiveyear annualized returns that place them
in the top 5% of similar funds.
MAKE THE MOST
OF RISING RATES
Signaling confidence
in the economy, the
Federal Reserve will
trim the $4.5 trillion
securities portfolio it
amassed in the wake
of the financial crisis
and continue boosting short-term interest rates; we expect
two hikes in 2018.
Long-term rates will
inch higher. Given the
Fed’s slow and measured pace, the challenge remains finding
decent yields without
taking on undue risk.
Savers can eke out
the best yield on a
rainy-day fund with
insured savings or
money market deposit
accounts from internet banks, which
have been the most
responsive to the
Fed’s rate hikes. The
REDNECK BANK MEGA
MONEY MARKET ACCOUNT
recently paid a 1.5%
rate (see the table on
page 42 for other topyielding accounts).
If you can lock up
cash for a while, CDs
have appeal. With
a $5,000 deposit, you
could recently nab
1.6% on a one-year
CD or 2.6% on a fiveyear CD (among
nationally available
certificates). With
rates edging higher,
it’s wise to build a CD
ladder by spreading
money among CDs
of varying terms and
reinvesting at a higher
rate as each CD matures. Or choose CDs
with minimal earlywithdrawal penalties.
ALLY BANK recently
offered 1.5% on an
11-month No Penalty
CD with a $25,000
minimum deposit.
Bond investors can
stay flexible with a
multisector bond
fund. We recommend
PIMCO INCOME (PONDX,
3.6% YIELD), a member
of the Kiplinger 25.
It favors a “barbell”
strategy, balancing
high-yield debt on one
end with high-quality
bonds on the other.
Or you can check
out another Kip 25
fund, DOUBLELINE TOTAL
RETURN BOND (DLTNX,
3.2%), which invests
in a variety of mortgage bonds.
Full-service broker MERRILL EDGE customers
who enroll in Preferred Rewards (from Merrill’s parent,
Bank of America) can qualify for up to 30 free stock
trades a month. There’s a catch: You’ll need to maintain at least $50,000 in combined monthly balances
at Merrill and BofA. Stashing at least $100,000 with
the firm gets you up to 100 free trades a month. Either
way, customers also qualify for perks such as cashback bonuses on credit cards and lower rates on car
loans and mortgages.
Discount broker ROBINHOOD, an online-only
brokerage launched in 2015, offers commission-free
stock trading on its mobile app (available for Apple
and Android devices). There’s no minimum deposit to
open an account, and placing a trade takes just a few
taps and a swipe on your device. The drawbacks: You
can trade only stocks and exchange-traded funds
through the app, and you won’t get any research or
tools. For accounts with less than $25,000, Robinhood also limits day trading—buying and selling the
same stock in the same day.
Limited-time offers FIDELITY and SCHWAB
provide free trades for up to two years as a bonus
for opening a new account. Fidelity dishes out 300
commission-free trades if you deposit between $50,000
and $99,999, and up to 500 free trades if you stash
$100,000 or more. At Schwab you get up to 500 free
trades with a deposit of $100,000 or more. Both firms
earned high scores in Kiplinger’s 2017 survey of online
brokers (see “We Pick the Best Online Brokers,” Oct.).
12/2017
KIPLINGER’S PERSONAL FINANCE
61
LIVING COVER STORY
Cash back with no
annual fee The CITI
DOUBLE CASH card
keeps it simple: Earn
1% cash back when
you make a purchase
and an additional 1%
when you pay the bill,
for a total of 2% on
everything you buy.
Cash back for big
spenders Get 3%
back on all purchases
with no annual fee
the first year you use
ALLIANT CASHBACK VISA
SIGNATURE . From the
second year on, you’ll
pay a $59 annual fee
and earn 2.5% back.
If you spend at least
$2,360 a year on the
card, you’ll earn
enough in rewards to
cover the annual fee.
See www.alliantcredit
union.org for details
on how to join the
credit union.
REWARDS (0% for 12
months) gives you 1.5
points per dollar on
all spending (or three
points per dollar on
purchases through
Bank of America’s
Travel Center shopping portal). Redeem
points at a rate of a
penny per point for
statement credit on
travel purchases.
all other spending
earns one point per
dollar.
Gas PENFED PLATINUM
REWARDS VISA SIGNA-
everything else.
You’ll get the best
exchange rate when
you use points to
book travel through
PenFed’s shopping
portal (one point
equals 1.18 cents, on
average). See www
.penfed.org for details
on how to join Pentagon Federal.
TURE doles out five
points per dollar on
fuel you buy at the
pump, three points on
supermarket spending and one point on
Groceries Supermarket purchases
capture a whopping
6% cash back on up
to $6,000 spent yearly
with the AMERICAN
EXPRESS BLUE CASH
PREFERRED card ($95
annual fee; 0% for
12 months). Earn 3%
back at gas stations
and select department stores and 1% on
everything else. The
no-fee version, AMEX
BLUE CASH EVERYDAY,
pays back 3% on groceries (also on up to
$6,000 spent), 2%
on gas and department store spending,
and 1% on other
purchases.
CHASE SAPPHIRE PREFERRED ($95 annual
fee, waived the first
year) is more flexible.
Each point is redeemable at a rate of 1.25
cents toward travel
purchases through
the Chase Ultimate
Rewards portal, or
transfer them at a 1:1
ratio to partner hotel
and airline programs.
Travel and dining
purchases earn two
points per dollar, and
Travel rewards
BARCLAYCARD ARRIVAL
High-yield checking The
waived the first year)
offers two points per
dollar on everything
you buy. When you
exchange miles for
statement credit on
travel purchases
(value: 1 cent per
mile), you’ll get a 5%
bonus on the number
of miles redeemed.
Prefer not to pay
an annual fee? BANK-
NORTHPOINTE BANK ULTIMATE
AMERICARD TRAVEL
62
KIPLINGER’S PERSONAL FINANCE
Best banks and credit unions
Recently, Kiplinger’s partnered with
Moebs Services to weigh factors such
as fees and interest rates to choose
top financial institutions (see “The
Best Bank for You,” July). Among
national banks, TD BANK and U.S.
BANK came in first. Among credit
unions, LANGLEY FEDERAL CREDIT
UNION got the nod, and ALLY took
top honors for online banks.
12/2017
ACCOUNT yields a juicy 5% on up to
$10,000 if you make 15 debit card purchases each month, receive electronic
statements, and have a direct deposit
or automatic withdrawal of $100 or
more. No maintenance fee or minimum balance is required, and you’ll
get up to $10 refunded monthly in
fees you pay at out-of-network ATMs.
No-strings checking ALLIANT
FREE CHECKING requires no mini-
mum balance or monthly fee, re-
imburses up to $20 monthly in ATM
surcharges, and offers the first box
of standard checks free. If you get
electronic statements and have a
monthly direct deposit, you can earn
0.65% interest with High-Rate
Checking. See www.alliantcredit
union.org for details on how to join.
Savings accounts The online
savings accounts from LIVE OAK
BANK and DOLLAR SAVINGS DIRECT
both recently yielded 1.4%, with
no monthly maintenance fee or
required minimum balance.
ISTOCKPHOTO.COM
PLUS ($89 annual fee,
99 Tips to Make Your
Retirement More Comfortable
from New York Times best-selling
author Ken Fisher
■
Yours
FREE!
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
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 assembled
99 Retirement Tips, gleaned from Fisher Investments’ clients,
people who have or are successfully navigating the transition from
work to retirement.
Retirement Is More Complicated
Than Just Money Management
99 Retirement Tips, designed for those with $500,000 or 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 toward a better retirement.
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 $83 billion* in client assets.* Ken Fisher, Executive
Chairman and Co-Chief Investment Officer, is a USA Today and
Financial Times columnist, as well as the author of more than 10
financial books, including 4 New York Times bestsellers.
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)
■ 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 1-888-899-2574
©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 6/30/2017.
301305_7_x_9.571.indd 1
9/20/17 11:37 AM
LIVING COVER STORY
like other free online
tax-preparation programs, CREDIT KARMA
TAX isn’t limited to
taxpayers with simple
returns: You can use
it if you have income
from investments and
self-employment. The
program also includes
one state tax return.
You can’t import the
previous year’s tax
return or other documents. But the site is
easy to navigate if you
decide to enter your
information manually.
If you prefer a program that allows you
to import your financial documents and
offers a few more
bells and whistles,
H&R BLOCK DELUXE is
a better value than
TurboTax. The program costs $72 for a
federal and state tax
return, and the price
includes unlimited
tax advice.
NFC capability and a
separate technology
that allows contactless payments at most
businesses that have a
magnetic-stripe card
reader. Plus, earn
Samsung Rewards
points—redeemable
for Samsung products
and gift cards from
major retailers, among
other options—every
time you make a qualifying purchase.
College major To
name the best college
majors, we looked for
courses of study that
tend to lead to sizable
■ THE COLLEGE
MAJOR WITH THE
BEST PROSPECTS:
NURSING.
Mobile wallet With
mobile wallets such
as Apple Pay and Android Pay, you can use
your phone to tap and
pay only at stores that
accept near field communication (NFC)
transactions. But SAMSUNG PAY (available on
the Galaxy S6, Note5
and later-generation
Galaxy phones) has
64
KIPLINGER’S PERSONAL FINANCE
12/2017
College savings plan
Invest in a 529 plan
from your state, if it
offers a tax incentive.
If your state doesn’t
offer a tax break—or
if you live in Arizona,
Kansas, Minnesota,
Missouri, Montana or
Pennsylvania, which
offer a tax break no
matter where you invest—look for a plan
that fits your investing style. For example, if you’re in search
of the lowest fees, our
top pick is NEW YORK’S
529 COLLEGE SAVINGS
PROGRAM (see “How
to Pay for College,”
Sept.). For hands-on
investors, we like the
UTAH EDUCATIONAL SAVINGS PLAN , which lets
you design a custom
portfolio that automatically adjusts your
investment selections
as your child ages.
Health savings
account If your em-
ployer offers an HSA,
that’s usually your
best bet. Your contributions will escape
federal as well as Social Security taxes
when made through
payroll deduction. If
you have health insurance on your own
or your employer
doesn’t offer an HSA,
consider HEALTHEQUITY
(www.healthequity
.com), which lets you
choose among 17 lowcost Vanguard mutual
funds and six Vanguard target-date
funds for long-term
investing. Health
Equity also offers an
FDIC-insured savings
account for shortterm savings.
Stock-ing stuffer Online brokerage Stockpile
.com makes it easy to give
shares of stock or ETFs—
even fractional shares.
You can mail or e-mail a
gift card to the recipient,
who then opens a Stockpile account (an adult
must open a custodial
account if the recipient
is younger than age 18).
The minimum investment
is only $5, and you can
choose from more than
1,000 stocks and ETFs.
For an e-gift of stock,
you’ll pay $2.99 for the
first trade and 99 cents
for each additional stock,
plus 3% of the transaction. Account holders pay
99 cents per trade to sell
shares.
Time with a pro Help
new grads or newlyweds
get started on the right
financial path, or provide
a money check-up for
anyone else, by giving a
couple of hours of a financial planner’s time. Search
NAPFA.org for advisers
who charge by the hour.
Planners in the Garrett
Planning Network typically
charge a flat fee of $400
to $600 for two hours.
Advisers with the XY Planning Network cater to Gen
Xers and millennials and
charge $150 to $250 an
hour, or $100 to $200 per
month for a longer-term
commitment. Garrett and
XY planners offer sessions
in person or via video chat.
ISTOCKPHOTO.COM
Online tax prep Un-
paychecks. We also
sought out fields that
are in high demand
now and have promising long-term growth
expectations. The
college major with
the best prospects:
NURSING. Registered
nurses (RNs) earn
a median of $67,418
a year; nurse practitioners (NPs) need a
graduate degree but
earn an average of
$98,288 a year. The
runner up: BIOMEDICAL
ENGINEERING. Recent
grads working in this
field typically average
$62,900 a year, and
experienced workers
earn about $103,500.
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LIVING COVER STORY
can make changes at
any time. A moderate
user, for example,
might pick 200 minutes, unlimited texting and 1 gigabyte of
data, for $19 a month.
DOM PLAN , you’ll pay
$90 a month through
October 2018 (you
must make automatic
payments to qualify
for that price) for unlimited calling, texting and data on up
to five lines. After
that, you’ll pay $60
a month for the first
line, plus $40 a month
for the second line
and $30 a month for
each additional line.
International travelers Globe-trotters
But if you live in an
area where Sprint
doesn’t work well, we
like the CRICKET WIRE-
network and will reduce your data speed
if you surpass 22GB
a month.
LESS UNLIMITED TALK
AND TEXT PLAN with
Average users For
moderate data users—
maybe you check in
on e-mail and social
media but only occasionally stream music
or a video—consider
the TEXTNOW WIRELESS
GRANDE PLAN . It includes unlimited talk
and text and 3GB of
data for $28 a month.
The no-contract plan
includes unlimited
talk and text within
the U.S. and Canada.
Data gobblers All
four of the major carriers—AT&T, Sprint,
T-Mobile and Verizon—now offer plans
with unlimited data.
For $50 a month for
one line and $90 a
month for up to five
lines (through October 2018), it’s tough
to beat the SPRINT UNLIMITED FREEDOM PLAN .
66
KIPLINGER’S PERSONAL FINANCE
high-speed data for
$55 a month (you
must make automatic
payments to receive
that price). Cricket
operates on the AT&T
Bargain hunters
TELLO lets you choose
the number of minutes, texting and data.
Plans start at $5 a
month for a barebones option, and you
Power up A portable charger
can keep your devices running
without a desperate search for an
outlet. The RAVPOWER 12000MAH
POWER BANK ($22) holds enough
juice to fully charge an iPhone 7
four times. Plus, dual inputs allow
you to charge two devices at once.
Password manager Creating
(and remembering) strong passwords for all your accounts can be
taxing. But password manager
LASTPASS will do the heavy lifting
for you. The free version will generate and save strong, unique pass12/2017
will have an easy time
phoning home with
the T-MOBILE ONE PLUS
PLAN ($80 a month
with autopay). You’ll
get unlimited talk,
text and data at home,
plus phone calls for
20 cents a minute and
unlimited data at up
to 4G speeds (on the
first 10GB used each
month) in more than
140 countries.
Deal on the new
iPhone All the major
carriers have similar
pricing for the new
iPhone 8 ($699),
words and store them for you securely. You only need to remember
one master password. You can use
the service to log in to your accounts from multiple devices. The
site’s $24-a-year premium option
adds a few security features and 1 gigabyte of
encrypted storage,
but families will do
better with the
$48-a-year family plan, which
allows up to six
people to
use the
service
and share
log-in information with one
another for shared accounts, while
keeping other accounts private.
Smart watch The latest
APPLE WATCH (Series 3, $329)—
without the Dick Tracy–esque cellular capability, which has
been reported to be
sketchy—is an
evolved version of
its predecessor. It
features faster
processing speeds
and a brighter display, and its built-in
GPS and improved
barometric sensor are
boons for runners. Fans of
Siri can interact with the digital assistant through the watch.
ISTOCKPHOTO.COM; COURTESY APPLE
Families With the
SPRINT UNLIMITED FREE-
iPhone 8 Plus ($799)
and iPhone X ($999),
but you can score a
discount if you’re
making a trade-in.
T-Mobile and Verizon
both recently offered
$300 off for some
customers, but if
you’re trading in a
recent smartphone,
SPRINT’S FLEX monthly
finance program offers the best value.
New and existing
customers who join
the lease program
and trade in an
iPhone 7, Samsung
Galaxy S8 or certain
other recent smartphones can upgrade
to a 64GB iPhone 8
for no charge. After
18 months, you’ll have
the option of buying
the phone for the remaining balance or
upgrading to a new
device.
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LIVING COVER STORY
BENEFITS OF
AMAZON PRIME
Amazon’s $99-a-year
Prime membership
comes with more
than just free twoday (or faster) shipping and free music
and videos.
Unlimited photo
storage Save as many
COURTESY CADILLAC
photos as you’d like
(plus 5GB of documents and videos) to
the cloud using Amazon Photo’s unlimited
photo storage. You
can upload them from
your phone or tablet
using the Amazon
Drive app, or use the
desktop app to save
photos from your
hard drive.
to buy the grocers’
private-label products, including those
from 365 Everyday
Value, Whole Foods
Market, Whole Paws
and Whole Catch,
through Amazon.com,
Amazon Fresh, Prime
Pantry or Prime Now.
Discount on the
Washington Post
Prime members can
get a free six-month
digital subscription to
the Washington Post
(which Amazon CEO
Jeff Bezos owns), followed by a discounted
rate of $4 a month—
a $6 savings—to read
the paper on your
computer, phone or
tablet via the Post app.
Whole Foods discounts After buying
HIDDEN USED-CAR
GEMS Edmunds
Whole Foods last
summer, Amazon announced that it would
offer Prime members
special savings and
other in-store benefits. (As of early October, there was still
no word on when
the rewards
program will
start.) You’ll
also be able
helped us identify a
handful of two-yearold vehicles that have
depreciated faster
than their peers but
■ AMONG
LUXURY CROSSOVERS, THE 2015
CADILLAC SRX IS
A GREAT VALUE.
68
KIPLINGER’S PERSONAL FINANCE
12/2017
are still great values.
Among compact
crossovers, the 2015
FORD ESCAPE , which
was recently worth
about 66% of its original sticker price, gets
high marks for reliability. For luxury
crossover fans, the
CADILLAC SRX (72% of
original price) offers
a direct-injected
3.6-liter V6 that delivers more power than
the Lexus RX 350’s
engine. The crossover
craze has come at
the expense of sedan
sales, but that just
means opportunity
for the value shopper.
Consider the FORD
FUSION (60% of original value) and HYUNDAI SONATA (63%). The
Fusion edges the Sonata on the Consumer
Reports reliability
ratings, but Hyundai
continues to offer
the longest warranty
out there: five years.
Finally, among compact cars, value shoppers should take a
look at the CHEVROLET
CRUZE (68% of its price
when new). ■
We asked our staff for the best purchase they’ve
made over the past year.
I paid $450 to get
the CHASE SAPPHIRE RESERVE CARD. I got a $300
travel credit and 50,000
bonus points (worth
$750 for travel booked
through Chase) after
spending $4,000 in the
first three months. I also
got access to some airport
lounges and a free TSA
PreCheck account (worth
$85). I have probably received more than $1,500 in benefits so far. Daren Fonda
For people like me who frequent the cinema, MOVIEPASS, which gives you up to one movie ticket a day for
$10 a month, is a hell of a deal. Thomas H. Blanton
Slightly larger than a thumbnail, the PEANUT
LIGHTER ($10 on Amazon) is on my key chain, ready to
light a campfire, candles or the grill when I can’t put
my hands on a book of matches. Eileen Ambrose
My family paid about $65 per person for a SIX FLAGS
SEASON PASS—a no-brainer, given that the regular
daily admission price was $68. Each season pass holder
can bring one friend free on select dates. Nellie S. Huang
Money Management Skills
Taught by Professor Michael Finke
TEXAS TECH UNIVERSITY
E
IT
D TIME OF
R
FE
31
off
D
ER
ER
OR
75%
1.
Understanding Your Financial Brain
2.
Managing Money with Life Cycle Theory
3.
Basic Investing—Keep It Simple
4.
The Key Financial Instruments
5.
How to Use Credit Optimally
6.
Investing in Education
7.
The Economics of Home Ownership
8.
Managing Risk with Insurance
9.
Essential Tax Principles
B
LIM
LECTURE TITLES
BY D E C E M
10. Saving for Retirement
11. Fundamentals of Estate Planning
12. Putting Your Financial Plan Together
Enjoy a Worry-Free
Approach to Finances
Money management can be intimidating. Fortunately, most of us only
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LIVING
NELLIE S. HUANG
To Your Health
Help Navigating the Medical System
W
A patient advocate
can help you sort
through care
options or sort
out medical or
insurance snafus.
How to find one. Patient advocates help
you navigate the system, but they don’t provide medical
care or make treatment decisions, says Trisha Torrey, executive director of AdvoConnection Directory, a database
of independent patient advocates. Rather, they help patients
make informed decisions. “Patients often don’t know what
questions to ask,” says Torrey. “The advocates do.”
Many Americans already have access to these services
through an employee benefits program. Health Advocate
Solutions, for instance, works with 11,500 large companies
and institutions worldwide, offering advocacy services to
12.5 million employees and their families. “Health care is
70
KIPLINGER’S PERSONAL FINANCE
12/2017
confusing and difficult for the average
person to figure out,” says Abbie Leibowitz, a founder of Health Advocate
Solutions. “We help people who have
any problem in health care.”
If your employer doesn’t offer a benefit like this, you’ll likely have to pay out
of pocket for an independent advocate.
Such professionals typically charge between $75 and $450 an hour, depending
on the type of service required and
your location, says Torrey. Some advocates who focus solely on billing issues
charge a commission on the amount
of money they save you instead of an
hourly rate (or, in some instances, on
top of an hourly fee). Leibowitz says the
average case at his firm takes roughly
two hours, spread over days or weeks.
The nonprofit Patient Advocate
Foundation offers its services free.
“We help patients with their entire
case,” says outreach director Caitlin
Donovan. Although the group deals
mostly with lower-income households,
anyone can call for help. “It can be hard
to get through on the phone lines, but
keep calling,” she says. The foundation
works in tandem with many other
groups, too, such as cancer and diabetes organizations.
One caveat: Patient advocates aren’t
licensed, credentialed or regulated in
any state. A group called the Patient
Advocate Certification Board is developing certification criteria and an exam,
which may launch in early 2018. In the meantime, if you’re
thinking about hiring an advocate, ask your primary-care
doctor for a referral, says Linda Adler, a patient advocate
in San Mateo, Calif. Then interview the advocate. Ask for
personal references, says Leibowitz. Find out what kinds
of cases the advocate is used to handling to see whether
he or she has experience with cases like yours. And if
the advocate tries to sell you something, Leibowitz adds,
find another candidate. ■
NELLIE S. HUANG IS A SENIOR ASSOCIATE EDITOR OF KIPLINGER’S PERSONAL FINANCE MAGAZINE.
YOU CAN REACH HER AT NHUANG@KIPLINGER.COM.
LISE METZGER
hen Richard Crestani had eye
surgery three years ago, an
error in the medical billing
code for the operation resulted in
$18,500 in bills his insurance company
refused to pay. After trying to correct
the error for six months with no luck,
Crestani, who lives in Boca Raton, Fla.,
called Kenneth Klein, a local patient
advocate. Klein helps clients negotiate
medical bills and resolve billing errors,
and he was able to convince the hospital that the medical billing code was
incorrect. In the end, the insurance
company paid its share, reducing the
bill by nearly $15,000. “He was very
tenacious and knew just who to contact,” says Crestani.
A growing number of patient advocates like Klein can help you untangle
medical bills or insurance coverage snags
or assist with care-related questions,
such as helping you decide whether to
have heart surgery in your hometown
or at a specialty hospital in another
state. Patient advocates, also known
as care managers or patient navigators,
are often doctors or nurses, or they may
be former employees of insurance companies, doctor’s offices, hospitals or
other care facilities. That gives them
an insider’s understanding of how the
system works and how best to sort out
medical snafus.
A WHAT? BY WHOM?
Municipal Bonds by Hennion & Walsh – possibly the
smartest retirement investment you’ve never heard of.
The Main Advantages of
Municipal Bonds
Investors are attracted to municipal
bonds for three reasons; safety of
principal, regular predictable income and
the tax-free benefits. Together, these
three elements can make a compelling
case for including tax-free municipal
bonds in your portfolio.
Potential Safety of Principal
When investing in municipal bonds,
investors are paid back the full face
value of their investment at maturity or
earlier if called, unless the bond
defaults. This is important because
many investors, particularly those
nearing retirement or in retirement,
are concerned about protecting their
principal. In May of 2016, Moody’s
published research that showed that
rated investment grade municipal bonds
had an average cumulative 10-year
default rate of just 0.09% between 1970
and 2015.* That means while there is
some risk of principal loss, investing in
rated investment-grade municipal bonds
can be an important part of your portfolio.
Potential Regular Predictable Income
Municipal bonds typically pay interest
every six months unless they get called
or default. That means that you can
count on a regular, predictable income
stream. Because most bonds have call
options, which means you get your
principal back before the maturity date,
subsequent municipal bonds you
purchase can earn more or less interest
than the called bond. According to
Moody’s 2016 research,* default rates
are historically low for the rated
investment-grade bonds favored by
Hennion & Walsh.
Potential Tax-Free Income
Income from municipal bonds is not
subject to federal income tax and,
depending on where you live, may also
be exempt from state and local taxes.
Tax-free can be a big attraction for
many investors in this time of looming
tax increases.
About Hennion & Walsh
Since 1990 Hennion & Walsh has
specialized in investment-grade
tax-free municipal bonds.The company
supervises over $3 billion in assets
in over 16,000 accounts, providing
individual investors with institutional
quality service and personal attention.
Our FREE Gift To You
We’re sure you’ll want to know
more about the benefits of tax-free
Municipal Bonds. So our specialists
have written a helpful Bond Guide
for investors. It’s free and comes
with no obligation whatsoever.
FREE Bond Guide
Without cost or obligation
Call (800) 318-4850
© 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. *Source: Moody’s Investor Service, May 31, 2016
“US Municipal Bond Defaults and Recoveries, 1970–2015. Past performance is not a guarantee of future results.
TAKEAWAY
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A
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A
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D
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A
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HOLI
6
$
$$$
Coupon
1. Get a discount. Use an online
price tracker, such as Pricepinx
or CamelCamelCamel. Paribus
(https://paribus.co) automatically
refunds price drops on purchases
made at nearly 30 major retailers.
Honey (www.joinhoney.com) automatically applies coupon codes.
2. Get in line on Thanksgiving
for Black Friday deals. Hot
items go fast, so plan on having an
early Thanksgiving dinner and shopping on Thursday evening. Review
Black Friday ads to see what’s on
sale—store circulars may feature
extra coupons.
3. Or wait for Cyber Monday
specials. Load up your online shopping carts during Black Friday weekend. Popular products sell fast, so be
ready to click “purchase” as soon as
the deal goes live, and have coupon
codes ready.
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6. Get a last-minute deal.
FREE
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4. Get free shipping. December
15 is Free Shipping Day, but it’s not
the only day you can avoid shipping
charges. FreeShippingDay.com,
RetailMeNot.com and BradsDeals
.com list retailers that offer free shipping, often with no minimum purchase.
72
KIPLINGER’S PERSONAL FINANCE
12/2017
5. Let Alexa do the shopping
for you. Amazon Prime users can
ask the Echo digital assistant to find
deals. Last year’s savings ranged from
$15 to $130 on a variety of products,
from Samsung TVs to Lego box sets.
(Google Assistant may tip you off to
similar deals.) Worried about porch
thieves? Ask Alexa if there’s an Amazon locker near you. No extra charge.
Kohl’s and Target, among other retailers, offer doorbusters and extended
hours until Christmas Eve. Check
online for last-minute discounts
and free or discounted rush shipping.
Christmas is on a Monday, and many
online retailers will guarantee delivery if you order by Thursday, December 21, and choose overnight delivery.
MARC A. WOJNO
ILLUSTRATIONS BY PETER O’TOOLE
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