Kip Lingers Personal Finance 201406

special section: The Best Money Moves for Millennials
p 45
personal
finance
sell your
*
stocks!
Smart ways
to cash in, and
what to do with
the money. p 24
plus
Is Your Spouse Cheating on You? p 18
Bank Stocks That Pay 8% and Up p 42
Get a Sweet Deal on a Used Car p 66
June 2014
* But not
all of them
Read the story behind our performance.

100% of T. Rowe Price Retirement Funds beat their 5-year Lipper average as of 3/31/14.*
T. Rowe Price Retirement Funds are

low cost, so your investment goes further.
How teamwork helps find promising bond opportunities.

When banks in Turkey began issuing credit for the first time, in many cases, we had just
days to make a decision on whether to invest in those bonds. So our bond analysts turned
to our equity analysts, who had long-term relationships with the corporations whose bonds
were being offered, to better understand the opportunities and risks and help us make
informed decisions. At T. Rowe Price, our collaborative approach is just one reason 100%
of our Retirement Funds beat their Lipper average for the 5-year period ended 3/31/14.*
Past performance cannot guarantee future results.
Visit our website to learn more about our funds and determine whether they are right for you.
troweprice.com/retirementfunds | 1.866.614.9084
Request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and
other information that you should read and consider carefully before investing.
The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate
year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire
significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target
date. The funds allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The funds
emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with
the need for income as retirement approaches, and focus on supporting an income stream over a long-term postretirement withdrawal
horizon. The funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The
funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility over shorter
time horizons. *Based on cumulative total return, 12 of 12, 12 of 12, 12 of 12, 9 of 9, and 2 of 3 (67%) of the Retirement Funds for individual investors outperformed their Lipper average for
the 1-, 3-, 5-, and 10-year and since-inception periods ended 3/31/14, respectively. The Retirement 2010, 2020, 2030, 2040, and Income Funds began operations on 9/30/02; the 2005, 2015,
2025, and 2035 Funds began operations on 2/29/04; the 2045 Fund began operations on 5/31/05; and the 2050 and 2055 Funds began operations on 12/31/06. (Source for data: Lipper Inc.)
T. Rowe Price Investment Services, Inc., Distributor.
RDFB082158
T. Rowe Price
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CONTENTS
KIPLINGERS PERSONAL FINANCE // FOUNDED 1947
VOL. 68 NO. 6
AHEAD
11 Topic A: Summer travel could be
taxing . . . Knight Kiplinger on money
and ethics. PLUS: June money calendar.
18 YOUR MIND AND YOUR MONEY
Do you cheat on your spouse?
by ANNE KATES SMITH.
20 OPENING SHOT Why I like

Facebook, by JAMES K. GLASSMAN.
23 SUCCESS STORY Building a

business from the grounds up,
by PATRICIA MERTZ ESSWEIN.
INVESTING/COVER
24 WHEN SELLING MAKES
SENSE Breaking up is hard to do. And
deciding to sell stocks can be harder
than choosing what to buy. We help
you make the right moves in response
to changes in your life and portfolio.
PLUS: When to sell a stock or fund
(30). Where to put your profits (32).
34 THE REIT REVIVAL Five picks that
FROM TOP: POON WATCHARA-AMPHAIWAN;

COURTESY CHIPOTLE MEXICAN GRILL, USA
let you profit from the improved climate for real estate investment trusts.
36 GOING LONG Low rates are here

to stay, by JEREMY J. SIEGEL.
38 PRACTICAL INVESTING The
impact of dividends, by KATHY KRISTOF.
42 CASH IN HAND A preference for

preferreds, by JEFFREY R. KOSNETT.
37 MORE ABOUT INVESTING Three
mouthwatering stocks (37). News of
the Kiplinger 25
37
(39). Berkshire
Hathaway:
No dividend
for you (40).
Fund rankings (41). ETF
Spotlight (43).
23
MONEY
45 SPECIAL SECTION: STARTING
OUT GUIDE TO YOUR MONEY Everything you always wanted (or needed!)
to know about stretching your paycheck, saving for a rainy day, getting
credit, paying off student loans, boosting your health benefits, putting a roof
over your head, earning extra cash on
the side and more. PLUS: Life lessons
from our young staffers.
LIVING
66 SWEET DEALS ON USED CARS
Prices are coming down, and
attractive trade-ins and off-lease
luxury cars are driving on to dealer
lots. Check out our five top picks.
PLUS: How to decide if a certified
pre-owned car is right for you.
71 THE LOWDOWN What you

need to know about going solar,
by PATRICIA MERTZ ESSWEIN.
60 GAME PLAN Will insurance

cover summer-storm damage?
by SANDRA BLOCK.
61 RETHINKING RETIREMENT
Bridging my income gap, by JANE
BENNETT CLARK.
72 3 SIMPLE STEPS Switch cable

companies.
IN EVERY ISSUE
4 FROM THE EDITOR A leg up for
young adults.
62 ASK KIM How to get a one-time

financial checkup.
8 LETTERS
63 MORE ABOUT YOUR MONEY
ON THE COVER Photograph by Alex

Martinez. Props and styling: Jabe Mabrey
Yields and rates (63).
1
06/2014
K6-CONTENTS.1.indd 1
KIPLINGERS PERSONAL FINANCE
4/11/14 3:20 PM
KIPLINGER.COM
LOG ON & EXPLORE
Financial Commandments
for Your 20s and 30s
TOP
We recommend ten goals to work

toward on your path to financial
independence.
QUIZZES
1. Is It Tax-Deductible?
kiplinger.com/links/taxdeductible
2. What It Takes to Be a Millionaire

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Kiplingers
Economic Outlook
Insurance Surprises
Our new slide show
reveals ten littleknown benefits of
your home, health
and auto coverage.
Stay ahead with

exclusive forecasts
of inflation, GDP,
employment, more.
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kiplinger.com/links/coverage
QUIZ YOURSELF
The Get-Out-of-Debt Quiz
3. Are You Saving Enough for Retirement?

kiplinger.com/links/retirementquiz
4. How Sharp Are Your Job-Hunting Skills?
kiplinger.com/links/sharp
5. Dollar StoresDeal or No Deal?
kiplinger.com/links/dollar
INTERACT
Take our new quiz to discover strategies

to pay off your debt faster.
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TOOL
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Filter the universe of top schools by
the criteria that matter most to you.
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BRAND NEW
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Retirement is packed with trustworthy
advice, guidance, worksheets and
checklists to help you plan for and enjoy
a comfortable and secure retirement.
JUMP-START YOUR
RETIREMENT PLAN
FREE CAREER
BOOSTERS
HOW MUCH FROM

THE TOOTH FAIRY?
Circle your calendar for

June 5, when financial
planners will be online all
day at Kiplinger.com to
answer your retirementplanning questions free.
Instead of taking on
more student debt,
continue your education
with massive open
online courses (MOOCs).
The average gift for a lost

tooth is now $3.50. Janet
Bodnar suggests ways for
your tooth fairy to be
special, not average.
kiplinger.com/
links/mooc
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links/toothfairy
LIVE CHAT
JOHN MILEY
JANET BODNAR
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HOW TO REACH US: Subscriptions. For inquiries about ordering, billing or renewing a subscription, or to report address changes,
please have your mailing label handy to reference your account number and visit us online at kiplinger.com/customerservice or call
800-544-0155, Monday through Friday between 7 A.M. and 9:30 P.M. and Saturday between 8 A.M. and 6 P.M. central time, closed on Sunday.
You can also write to Kiplingers Personal Finance, P.O. Box 3292, Harlan, IA 51593-0472, or e-mail us (sub.services@kiplinger.com).
Reprints. PARS International Corp. (212-221-9595, ext. 237; e-mail, jennifer.eclipse@parsintl.com). Content licensing. E-mail licensing@
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FROM TOP: KCSLAGLE/ISTOCK/THINKSTOCK; BEBOY_LTD/ISTOCK/THINKSTOCK; MARIANNA MELIKSETYAN/HEMERA/THINKSTOCK; LISE METZGER (2)
kiplinger.com/links/commandments
2
K6-CONTENTS.indd 2
06/2014
4/10/14 7:34 PM
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FROM THE EDITOR
A Leg Up for Young Adults

finance should be taught in high
school or college, 70% wish they had
learned more about basic investing in
school and 60% want to know more
about saving for retirement.
Their wish is our command. We
cover all those topics in our guide, and
then some. For example, our primer
on investing shows how you can build
a diversified, low-cost portfolio with
as little as $1,000 (page 49). More than
one-third of respondents told Wells
Fargo that student loans are their biggest financial concern. On page 55, we
show you how to de-stress by setting
up a manageable repayment plan.
A head start. Its admirable that 57%
of the millennials in the Wells Fargo

survey said they should be financially
responsible for their own retirement.
Yet only 49% are currently saving for
that goal. Of those who arent, more
than half said theyll start saving when
they have more moneygenerally, about
age 30. But as we point out on page 48,
starting just a few years earlier can
make a world of difference. In our cover
story last month (Strike It Rich! May),
we wrote about a couple in their early
forties who had accumulated $1 million
in their retirement accounts. The wife
attributed her thriftiness to her father,
who talked her into opening an IRA
when she got her first full-time job.
Which brings me to the critical role
that parents play. In the Wells Fargo
study, nearly three-fifths of those interviewed said their parents had most
influenced them and the way they
view money; parents were also their
If you have millennial

kids or grandkids,
share our special
section with them.
primary source of advice when it came
to investing. Wed like to support that
effort. So if you have millennial kids,
grandkids, friends or acquaintances,
share our special section with them.
And remember the special role you
playeven if its giving adult kids a
(temporary) respite to regroup their
finances. A friend of my 25-year-old
sons came back home to cut his expenses, return to school and beef up
his savings. Im in the black for the
first time, and Im never going back,
he told me. Its an amazing feeling.
P.S. For those at the other end of the
age spectrum, the 2014 edition of

Kiplingers Retirement Planning Guide
is now available at kiplinger.com/go/
retirekip.
janet bodnar, editor

follow janets updates at www.twitter
.com/janetbodnar.
LISE METZGER
t was a suggestion from our

younger staff members that led to
our special money guide for millennials, which starts on page 45.
Here at Kiplingers, we have a wonderful group of young people. Most of
them arrive shortly after college, often
with little or no background in personal finance. But it doesnt take long
for them to catch on, and they soon
become go-to sources of financial
information for friends eager to pick
their brains about stock tips, credit
scores and setting up retirement
accounts. So its appropriate that our
millennials offer their personal insights into saving on a starting-out
income (page 50), balancing student
loans with other expenses (page 55)
and thriving on a budget in an expensive city such as Washington, D.C.
(page 57). We think their tales will
educate and inspire other members
of their generation, who can certainly
benefit from advice and encouragement in money matters (see the interview on page 12).
Not only did the Great Recession
hurt the job prospects of young people
just starting their careers, but millennials were so traumatized by the bear
market that theyre reluctant to invest
for their future at a time when they
should be charging full speed ahead.
In a survey of young adults between
the ages of 22 and 32, Wells Fargo
found that more than half of those
interviewed were not confident in the
stock market as a place to invest for
retirement. At the same time, more
than 70% said they think personal
4
K6-NOTES.indd 4
06/2014
4/10/14 7:35 PM
FIND MORE ideas that fit your strategy.

FILTERS
Markets
Uptrend Stocks
Technicals
Options
3% on 15% Higher Vol
DESCRIPTIONS
Symbol
Last
Chg
% Chg
Bid
Ask
Volume
DEC
5.22
1.232
30.89
5.20
5.23
9,148,849
RTF
56.70
5.04
9.76
57.95
354,664
1.05
0.10
10.53
1.04
1.05
20,110,933
10.78
0.85
8.56
10.70
10.72
81,673,172
BTS
1.22
0.08
7.02
1.21
1.22
1,475,961
NABP
5.30
0.22
4.33
4.64
5.39
4,299,779
LDPE
RMA
55.90
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Fidelity Brokerage Services, Member NYSE, SIPC. 2014 FMR LLC. All rights reserved. 682376.1.0
13120_06_AD_Kips_ATP.indd 1
4/4/14 3:02 PM
PERSONAL
FINANCE
EDITORIAL
EDITOR IN CHIEF
EDITOR
Knight A. Kiplinger
Janet Bodnar
Manuel Schiffres SENIOR EDITOR, MONEY/LIVING Mark K. Solheim

MANAGING EDITOR Barbara Hoch Marcus
SENIOR EDITORS Jane Bennett Clark, Jeffrey R. Kosnett, Anne Kates Smith
SENIOR ASSOCIATE EDITORS Sandra Block, Nellie S. Huang, Marc A. Wojno (research)
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STAFF WRITER Susannah Snider
CONTRIBUTING EDITORS Carolyn Bigda, Andrew Feinberg, James K. Glassman,
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OFFICE MANAGER Glen Mayers
EXECUTIVE EDITOR
COPY AND RESEARCH
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ART
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4/4/14 4:28 PM
LETTERS
n
need
a plan like this (Ask
K
Kim, April). I once worked
w
with a nonprofit to establish
ssmall investment accounts
ffor the employees. The orgganization had many workeers who lived paycheck to
p
paycheck and had no saviings to speak of. The probllem was that the employees
rreally did not trust the invvestment vehicles that were
aavailable. They probably
ccould have used a governm
ment-sponsored plan like
tthe MyRA, which would
h
have had no fees and guaraanteed them a small return
o
on their investment.
Paul Krupnick
North Bellmore, N.Y.
Fan mail. In the fall of 2010,
F
Take the Money and Run

Jane Bennett Clarks decision to hold off taking Social
Security until age 70 makes
a lot of sense for many
peoplebut not for her
(Rethinking Retirement,
April). I think she would
be better off continuing to
workwhich would allow
her to maximize IRA and
401(k) contributionsand
take Social Security when
she reaches 66. A bird in the
hand is worth more than
the two left in the Social
Security bush.
David Weston
Miami
The case for MyRA. There are

better investments than the
MyRA, but many people
READER
POLL
Why are you planning

to sell stocks or stock
funds this year?
Im worried about
the stock market
6%
14%
I need
cash
51%
29%
Im
rebalancing
I want to
take some
profits
EDITORS NOTE: For Jane Clarks
take on this, see Rethinking Retirement, on page 61.
To learn more about when to sell

stocks, turn to page 24.
8
K6-LETTERS.indd 8
06/2014
y
your
Ask Kim column
r
recommended
four broadb
based,
low-cost index ETFs
t a man who inquired
to
a
about
rolling over a 401(k)
i
into
a retirement IRA. Four
m
months
later, and five days
after I retired, I took that
exact advice. The amount I
rolled over was a hair north
of $500,000, and I decided
that it would be my principal and I would rebalance
twice a year by taking earnings. For now, at least, this
is fun money, as my wife
and I can easily get by on
my pension and Social
Security. Your recommendation has generated over
$150,000 of said fun money
in three short years of a
very happy retirement.
John Sharland
Bridgewater, Mass.
CORRECTIONS
Capital One no longer partners with car-buying service

TrueCar (Drive Time,
April).
ONLINE
CHATTER
OUR ADVICE TO HOLD YOUR
fire on investing in pot stocks
drew a firestorm in response
(Just Say No, April):
Now is the time to invest in
marijuana stocks. This time
next year at least five more
states will have legalized
the plant. Lets jump on the
Green Revolution!
I bought 200 shares of
Advanced Cannabis Solutions (symbol CANN) on
February 24 at $18. Sold my
200 CANN shares at $60.
Waiting for the next buy-in.
I am partial to Nuvilex
(NVLX) [a biotech company
that uses cannabis to treat
disease] because it has unofficially initiated phase III
clinical trials of its proprietary pancreatic cancer treatment. This is a company I
would want to succeed even
if I didnt own any shares.
Current-account deficits
applies to countries that
spend more than they save
(Insider Interview, May).
Jonathan Kelly handles
emerging-markets investments for Fidelity Total Bond
Fund (Team Up With the
Kip 25, May).
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, Kiplingers Personal
Finance, 1100 13 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 210 KIPLINGERS READERS
4/10/14 7:37 PM
KIP
9/6/12
11:10 AM
Page 1
Loves growing things

in her garden.
OR
Has grown her garden shop into a

thriving landscape design company.
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unique. So instead of one-size-fits-all solutions, your Regions Wealth Advisor, leading a team of subject-matter experts, will
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are not bank guaranteed, are not insured by any government agency, and are not a condition of any banking activity.
AHEAD
TOPIC A
TRAVELING? BETTER
BUDGET FOR TAXES
Youll pay plenty for hotels, rental cars
and restaurant meals. BY SANDRA BLOCK
JOE WALDRON
FOR SUMMER VACATION,
youve probably included

the cost of a room in a hotel
or resort, a rental car, some
nice dinners, and a few souvenirs in the budget. But if
you fail to include taxes, you
could end up with a bad
case of travelers remorse.
This year, taxes on hotels,
rental cars and restaurant
meals are expected to cost
travelers nearly $30 per day,
on average, roughly the

same as last year. But thats
up from $29.17 in 2012 and
about $28 in 2011, according
to the Global Business
Travel Associations annual
survey of top U.S. destination cities. For a family of
four that might have budgeted $1,000 for their trip,
they could end up $100 or
$200 over budget, says
Joseph Bates, vice-president
of research for the GBTA.

The city with the highest
total tax burden, which includes general sales taxes as
well as travel-related taxes,
is Chicago, where travelers
pay an average of $41.04 in
taxes per day. Second on the
list is New York City, at
$38.65 per day. Fort Lauderdale has the lowest tax burden, at $22.61 per day.
Travel-related tax
increases enacted in 2013
include a 2% transient
occupancy tax tacked on
to existing tax rates for
hotels in northern Virginia
(which are popular with
visitors to nearby Washington, D.C.) and an increase
in Minnesotas rental-car
tax from 6.2% to 9.2%.

Taxes on travel-related
services have been on the
rise since the 1990s, when
protests against increases
in property taxes led states,
counties and other jurisdictions to search for alternative sources of revenue.
Taxes on hotels, rental cars
and restaurant meals were
viewed as a way to raise
money without increasing
the tax burden on residents.
But the GBTA argues that
residents feel the pinch, too,
because locals also eat in
restaurants, stay in hotels
for special occasions and
rent cars when their own
vehicles are in the shop.
Meeting planners
11
06/2014
K6-AHEAD.indd 11
4/10/14 7:53 PM
AHEAD
INTERVIEW
MILLENNIALS FACE
FINANCIAL HURDLES
They are underemployed and burdened
with college debt.
Gary Mottola is research

director for the Investor
Education Foundation of the
Financial Industry Regulatory Authority and author of
The Financial Capability of
Young Adults, a study of the
millennial generation (people
born between 1978 and 1994).
How has coming of age during
the Great Recession affected
millennials? They face fi-
nancial challenges that

previous generations
did not have to face,
such as underemployment and tight credit
markets. Theyre burdened with debt from
the rising cost of college, and many of them
are struggling to pay
for their education
while working. These
factors in the postrecession economy are
a strain on this generation.
Our study found that only
40% of them have a retirement account, for example, and just one in four
is willing to take investment risk when saving for
a rainy day or the future.
How do the financial habits of
this age group differ from previous generations? Millennials
appear to rely on traditional

banking much less than any
other generation. They are
much more likely to use
newer forms of payment,

such as prepaid debit cards
and mobile devices. Nearly
half of them, more than any
other generation, have used
costly forms of non-bank

borrowing, such as payday
loans and pawn shops, in
the past five years. This
could be the biggest mistake millennials are making: They may not know
that less-expensive options
are available.
You found that millennials exhibit fairly low financial literacy.
Why? Only 24% of the young
adults in our survey could

answer four or five questions correctly on a basic financial literacy quiz. They
struggle with the concept
of a mortgage, for example.
But thats because not all of
them have had the opportunity to buy a house. They
also struggle with the concept of inflation because
they came of age in an era
when inflation was under
control. More experience
could translate into
higher levels of financial
literacy. Also, millennials have been offered
more financial education through their
schools or employers
than previous generations, but their participation rate is the lowest
among all age groups.
How can financial education for this generation be
improved? One avenue that
might be fruitful is tying

education to gaming. Millennials are the most digitally advanced generation.
It makes sense to offer them
financial education through
video games and digital
content. (For more advice
for millennials, see our special Starting Out Guide to
Your Money, on page 45).
ANJELICA TAN
12
K6-AHEAD.indd 12
06/2014
/2014
4/10/14 7:53 PM
JONATHAN SPRAGUE/REDUX
increasingly factor in the

cost of taxes when deciding
where to hold conferences.
When youre talking about
1,000 people, those numbers add up, Bates says.
For leisure travelers,
though, figuring out the
amount of taxes in a specific
destination can be difficult,
says Carol Kokinis-Graves,
senior state tax analyst for
tax publisher CCH. State
sales tax rates are readily
available (see our State by
State Guide to Taxes, at
kiplinger.com/links/tax
map), and most large cities
provide information about
taxes and fees on their Web
sites. But many smaller
cities and jurisdictions that
impose their own taxes may
not even have a Web presence, says Kokinis-Graves.
Still, you can avoid some
sticker shock by planning
ahead. Web sites such as
Orbitz and Expedia dont
include taxes and fees in
their initial quotes for hotel
rooms, but once you select
a specific rate and provide
the dates of your planned
visit, youll get the total
cost. You dont need to provide your personal information or credit card number
to get this figure. Web sites
for some rental-car companies and travel discounters will give you the total
rental cost upfront; with
others, you must select the
car you want to reserve to
get that information.
Renting a car at an offairport location could also
save you the airport concession feetypically 11% to
13% of your total rate. Just
be sure to factor in the cost
of cab fare. Some cities
tax that, too.
SIMON BRUTY
JEREMY
AND NOLAND
ALBRIGHT CHOSE
A HYBRID ARM.
WHATS THE DEAL
WEIGH ONLINE
REVIEWS CAREFULLY
Compare opinions on several sites,
and dont neglect word of mouth.
BEFORE DROPPING A FEW
BORROWING
LENDERS PUSH ARMs
JONATHAN SPRAGUE/REDUX
SIMON BRUTY
Hybrid mortgages combine the best of

fixed- and variable-rate loans.
FIXED -RATE MORTGAGES
have ruled in recent years.
But look for more adjustable-rate loans, including
hybrids that combine both
fixed and variable elements.
Rates on hybrids adjust later
than rates on standard
ARMsand, often, less frequently. Lenders, which are
holding more loans on their
books instead of selling them
to investors, favor ARMs
when interest rates are
expected to rise. But innovative hybrids can be a good
deal for borrowers, too.
Noland and Jeremy Albright got a 5/5 ARM from
Redwood Credit Union to
buy their ranch-style house
in Santa Rosa, Cal. The 30year, 3% loan adjusts every
five years. Increases are
capped at two percentage
points. The lifetime cap is
five percentage points, or
K6-AHEAD.1.indd 13
8%. I know what to expect

for the next ten years. The
11th year might be tricky,
but by then Ill know if I
want to stay or sell, says
Noland. On a $250,000 loan,
Redwoods 5/5 ARM would
save borrowers more than
$18,000 in the first five
years, compared with its
30-year, 4.5% fixed-rate
loan. Even assuming the
rate adjusts to 5%, borrowers would pay 14% less in
interest over ten years.
Pentagon Federal Credit
Union recently introduced a
15/15 ARM, a 30-year loan
that adjusts only once, with
a maximum increase of six
percentage points. The rate,
recently 3% (4% for a
jumbo), is a bit higher than
the rate on PenFeds 15-year
fixed loan, but the payments, amortized over 30
years, are lower. ANNE SMITH
hundred dollars on a fancy

hotel room with rave online
reviews, be sure that what
youre reading is legitimate,
and not the work of a hired
writer or the business itself.
As online review platforms
such as Yelp and TripAdvisor become more popular,
businesses have a greater
incentive to game the systemdrumming up buzz
with planted accolades or
tarnishing competitors with
unfair criticism. Last year
the New York state attorney
generals office cracked
down on 19 companies that
solicited fake reviews to
prop up local services.
The problem has not gone
unnoticed by review sites.
Yelp filters out 25% of submissions. Some sites require
the reviewer to have made a
reservation for a hotel room
or restaurant through the
site before detailing his or
her experiences; other sites
highlight contributors with
authenticated profiles or
alert consumers to suspicious content.
But no site has a foolproof
system, so its important to
cross-reference write-ups
for the same establishment
on different sites. The
breadth of reviews on free
sites should provide enough
accurate information. If
youre looking for a special-
ized service, scrutinize

the reviewer, not just the
review. A full profile, a history of contributing to the
site and a verified user tag
are good signs. And dont
neglect word of mouth.
Asking people you know
and trust is the first thing
you should do before trusting strangers online, says
Boston University professor
Georgios Zervas, who studied fraudulent Yelp reviews.
If youre the one penning
a negative assessment, avoid
becoming the target of legal
threats by sticking to indisputable facts, toning down
hyperbole and emphasizing
that this is your experience.
MIRIAM CROSS
EXCERPT FROM
The Kiplinger Letter
UNIONS FOR
COLLEGE SPORTS?
Dont bet against unions for
college athletes now that the
feds have ruled that football
players with scholarships at
private colleges may organize. Theres slim chance of
paychecks for players, but
enhanced medical benefits
and more-generous scholarships are likely. Dont be
surprised if schools with lesscompetitive programs cut
certain sports rather than
commit to expensive health
care and tougher labor-law
requirements. (www.kiplinger13
3
biz.com/ahead/sports)
4/11/14 1:33 PM
AHEAD
CAREERS
HOW TO ACE TODAYS

JOB INTERVIEW
Anticipate oddball questions and
use them to highlight your skills.
FIERCE COMPETITION FOR
jobs is prompting employers

to add more-challenging
queries to the usual lineup
of interview questions. In
addition to Where do you
see yourself in five years?
prepare for What do you

do when you see a spider in
your house? or How many
square feet of pizza is eaten
in the U.S. each year?
Such questions, often
based on hypothetical sce-
narios or involving some

data-crunching, may seem
outlandish. But theyre
tailored to tap specific skills
and traits popular with
hiring managers: critical
thinking, problem solving,
creativity or work style,
for example. Job-seekers
can use the questions to
highlight strengths that
they might not get to address in a more traditional
interview. Questions such
as Are you more of a hunter
or a gatherer? target leadership, for example.. (Possible answer: Both. I gather
information and hunt for

solutions.) If youre asked,
If I gave you a brick, what
would you do with it? talk
about vision and innovation.
Employers want to see
how you handle the unexpected, but you can anticipate their questions. Visit
Glassdoor.com to review offthe-wall questions asked of
interviewees at a particular
company, or go to Monster
.com to see whats been
asked for similar positions
in your field. KAITLIN PITSKER
MONEY & ETHICS // KNIGHT KIPLINGER
Should I tell my co-workers

how much Im paid?
A colleague at work (were both thirtysomething women)
suspects that we and the other women in our office are
underpaid compared with our male peers. She thinks the
best way to find out would be for all of us employees
both male and femaleto reveal our salaries to one another. I think pay is a private matter between me and the
boss and that my colleagues idea of extreme pay transparency is
creepy. I think it could really undermine collegiality in our company,
which seems like a fair and honest employer. What do you think?
Im with you on this one. And most human resources
experts seem to agree with you as well, citing risks to office morale from ill-informed jealousy. Whats more, only
25% of U.S. employees say they are comfortable sharing
pay information with a co-worker, according to a 2013 survey by
Monster.com. (Voluntary salary disclosure is apparently more common in Europe, where 43% of workers in the survey were okay with it.)
Many companies personnel manuals prohibit such pay disclosure
among workers. Those policies are in violation of federal labor law
and the laws of seven states, which explicitly protect this right, as
they should. But that doesnt mean that sharing of pay information
among co-workers is smart. Yes, knowing what everyone in your
office earns could reveal patterns of discrimination against women
(or older workers or racial minorities). But not knowing all of the
factors that go into setting pay, as your boss does, can cause
workers to jump to faulty conclusions.
Differences in pay, even in similar jobs, are usually based on an
employees education, years of relevant experience and competence. Theres also the matter of what the employee was earning
at his or her previous job, requiring your company to match or
exceed that amount. Finally, even among people who do similar
things, there are differences in performance that make one employee more valuable to the company than another, meriting
higher compensation.
HAVE A MONEY-AND-ETHICS QUESTION YOUD LIKE ANSWERED IN THIS COLUMN?
WRITE TO EDITOR IN CHIEF KNIGHT KIPLINGER AT ETHICS@KIPLINGER.COM.
LISE METZGER
14
K6-AHEAD.indd 14
06/2014
4/10/14 7:54 PM
Are Tax Free Municipal

Bonds Right for You?
Please call 1-800-318-4850
for your free Bond Guide.
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

Many investors, particularly those nearing retirement
or in retirement, are concerned about protecting
their principal. In March of 2012, Moodys published
research that showed that rated investment grade
municipal bonds had an average cumulative default
rate of just 0.08% between 1970 and 2011.* That
means while there is some risk of principal loss,
investing in rated investment-grade municipal bonds
can be a cornerstone for safety of your principal.
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 Moodys 2012 research,* default
rates are historically low for the rated investmentgrade bonds favored by Hennion & Walsh.
Potential Triple 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. Triple 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 $2 billion in assets in over
15,000 accounts, providing individual investors with
institutional quality service and personal attention.
What To Do Now
Call 1-800-318-4850 and request our Bond Guide,
written by the experts at Hennion & Walsh. It will
give you a clear and easy overview of the risks and
benefits of tax-free municipal bonds.
Dear Investor,
We urge you to call and get your free Bond Guide. Having taxfree municipal bonds as part of your portfolio can help get your
investments back on track and put you on a path to achieving
your investment goals. Getting your no-obligation guide could
be the smartest investment decision youll make.
Sincerely,
FREE Bond Guide
Without Cost or Obligation
CALL 1-800-318-4850
(for fastest service, call between 8 a.m. and 6 p.m.)
Hennion & Walsh, Bond Guide Offer

2001 Route 46, Waterview Plaza
Parsippany, NJ 07054
2013 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, prices rise. *Source: Moodys Investor Service, March 7, 2012 U.S. Municipal Bond Defaults and Recoveries,
1970-2011. Past performance is no guarantee of future results.
AHEAD
CALENDAR
06/2014
YOUR MONEY
NEEDS AN ALLY
EVERY DAY OF THE YEAR.
SUNDAY, JUNE 1
If youre a recent grad with student
debt, make a plan to begin paying
it off. You may qualify for student
loan deferment or income-based
repayment (see
Dont Stress
Over Student
Loans, on
page 55.)
ISTOCKPHOTO.COM (4)
SATURDAY, JUNE 7
Most states offer free fishing days
during National Fishing and Boating Week. Amateur anglers can fish
without a license, which would otherwise cost $15 to $30 a year. Visit
www.takemefishing.org/nfbw for
a state-by-state list of dates.
SUNDAY, JUNE 15
Fathers Day. Americans surveyed
by the National
Retail Federation
planned to spend
$755 million on home
and gardening tools for
Dad last year. Look for sales at
home-improvement stores, such

as Lowes and Home Depot.
WEDNESDAY, JUNE 18
No expensive branches allows us to

offer competitive rates
Morningstar holds its annual investment conference in Chicago. Pimcos

Bill Gross will be a keynote speaker.
No hidden fees, no asterisks

and no surprises
FRIDAY, JUNE 20
Award-winning,
24/7 customer service
Wedding bells and cash registers are

ringing. If youll be a guest, budget
for travel, lodging, clothes and gifts.
Bridesmaids: Figure on $1,700 in
expenses. RYAN ERMEY
No monthly maintenance fees
allybank.com | 1-877-247-ALLY
* DEAL OF THE MONTH

Shop for a gym membership. Exercisers head outside in warm weather, so
gyms offer discounts to get
you on the treadmill. Ask
to skip newmember
fees or for
reduced
monthly
rates.
2009-2014 Ally Financial Inc.
K6-AHEAD.indd 17
4/10/14 7:54 PM
AHEAD
ANNE KATES SMITH > Your Mind and Your Money
Do You Cheat on Your Spouse?
One-third of
adults who
combine
finances with
a partner or
spouse have
committed
financial
infidelity.
as a lack of trust or an abuse of power.

Extreme cases call for a therapist equipped
to deal with money issues, and increasingly
therapists are on staff or on call in financialplanning practices.
Face the issue. But most couples can address
financial infidelity with Klontzs fourstep process, which he calls SAFE. First,
Speak the truth. Its crucial to fess up,
and then have a serious conversation about
your budget, spending habits and goals for
the future.
Start by determining whether you and
your partner are aligned in your money
values. Maybe one of you is focused on the
physical comforts of life (a nice house, car,
wardrobe) and the other cares more about
experiences (travel, the arts or professional
sports). Take the NEFE quiz at www
.smartaboutmoney.org/tools-resources/
lifevalues-quiz to find out what your money
values are. There are no wrong answers,
and you probably wont change your partners core values, but at least youll know
where you stand.
In Klontzs program, A stands for Agree
to a plan. Determine joint goals (a down
payment on a home, say), then compromise
by budgeting for the vacation and the new
car. Maybe youll agree to keep a certain
portion of your finances separate. (About
35% of those committing financial infidelity said they did it because they believe
some aspects of their finances should remain private.) Or perhaps youll decide to
discuss spending anything over a certain
threshold$100, $200, or whatever the
two of you deem appropriate.
F is for Follow the agreement, which
sounds easier than it is. Revisit your plan
in a month or two, so that you can tweak it
instead of giving up. Finally, Establish an
emergency plan. If youre fighting a lot or
youre at an impasse, its time to consult
with a counselor.
ANNE KATES SMITH IS A SENIOR EDITOR AT KIPLINGERS
PERSONAL FINANCE MAGAZINE.
LISE METZGER
ith wedding season under way,

it seems appropriate to bring up
the subject of financial fidelity.
The topic couldnt be more important for couples, and not only for those
just starting out. A recent survey reports that
one-third of adults who combine finances
with a partner or spouse have committed
financial infidelity, defined by financial
psychologist Brad Klontz as those little
green lies that ruin relationships.
The survey, conducted for the National
Endowment for Financial Education, found
that of those who said they had cheated,
three in ten hid cash, a purchase, a statement or bill, or even a bank account from
their significant other. And 13% engaged in
more-significant deceptions, such as lying
about how much they earn or what they owe.
Not surprisingly, a financial deception
ultimately caused an argument nearly half
the time. What may surprise you, however,
is that fights about money lead to divorce
more often than disagreements about chores,
in-laws, spending time together or even
sex, according to research by Utah State
University professor Jeffrey Dew, an expert
in money and family relationships. Money
brings about these intense arguments,
says Dew. People who disagree about finances almost every day are 69% more
likely to divorce than those who never or
rarely argue about money, Dew has found.
You can often spot the signs of financial
infidelity the same way you spot the other
kindby finding a stray receipt or a statement you dont recognize, says NEFEs
Patricia Seaman. Or youre not seeing
the stuff youre supposed to see, she adds.
Your partner handles the bills and you
never see how the money was spent. If you
bring up the subject of money, the other
person will try to deflect it, or be defensive
or withdrawn.
Sometimes financial infidelity is a symptom of something more serious, such as
addiction, gambling or a compulsive buying
disorder, or deeper relationship issues, such
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06/2014
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AHEAD
JAMES K. GLASSMAN > Opening Shot
Why I Like Facebook
The field
is clearly
becoming
more
crowded, but
Facebooks
brand
remains
strong.
tainable 30% annually for the next five

years. In 2019, then, Facebooks profits
would be $4.68 per share. The stock currently trades at $57. Lets say that, as an
investor, you would be happy to see Facebook double in value in five years. By 2019,
the price would be $114, or 24 times that
years earnings. That sounds reasonable.
Of course, no one has the foggiest idea
whether Facebooks profits will really grow
30% a year. The same holds for projections
of earnings growth at somewhat moreestablished Internet companies, such as
Amazon and Netflix. But the history of
GOOGLE (GOOG) may be instructive. The stock
went public in August 2004 at $85 per share.
The company earned $5.20 per share in
2005 and $36.05 in 2013. Thats an annual
compounded growth rate of about 28%. So
assuming Facebook grows as fast as Google
did, investors should feel comfortable buying at current prices. But this analysis, with
all its assumptions, tells you only that Facebook does not appear wildly overpriced.
There are other, relatively subjective questions you need to answer before you invest
in a fast-growing Internet company.
Is the business based on a good idea? This is
crucial. Mark Zuckerberg created the social

network, an online web of interests and
information that binds friends, relatives
and like-minded folks across thousands of
miles. He built his brand quickly and powerfully. The only obstacle was figuring out
how the company would make money. But
Zuckerberg found the solution: sell advertising. Facebooks revenues have risen from
$2 billion in 2010 to $8 billion in 2013, and
they are expected to approach $15 billion
in 2015. Facebooks latest breakthrough has
been its ability to sell a growing number of
ads on mobile devices.
Do you trust the leadership? So far, so good:
Zuckerberg and his crew havent made any

major mistakeswith the stock up, the
LISE METZGER
n May 17, 2012, FACEBOOK (SYMBOL FB)

raised $16 billion in one of the
largest and messiest initial public
offerings of all time. The shares,
which originally sold for $38 each, fell within
a few weeks to $26 and by September to $18.
On news of strong revenue gains, Facebook
soared to $72 in early March, then started to
drop again. The question for current shareholders is whether to hang onand for
noninvestors, whether to take the plunge.
Facebook isnt the only new-media
tech stock that had been soaring until a
vicious correction began in March. The
same holds for shares of other companies
whose livelihood is linked to the Internet.
TWITTER (TWTR) has nearly doubled in the five
months since its IPO raised about $2 billion. Shares of TRIPADVISOR (TRIP), the worlds
largest online travel company, have jumped
from $30 on October 31, 2012, to $86 today.
Among large online businesses, AMAZON.COM
(AMZN) has quintupled over the past five
years, and NETFLIX (NFLX) has quintupled in
just a year and a half. (Prices and returns
are as of April 4; stocks in boldface are
those I recommend.)
The problem with assessing such stocks
is that the usual valuation standards dont
apply. Twitter and Yelp have never made
money. Amazons price-earnings ratio,
based on projected 2014 profits, is 167.
The forward P/E for LinkedIn is 105; for
TripAdvisor, 40; for Facebook, 45; and for
Netflix, 83. The P/E for Standard & Poors
500-stock index is just 16.
Many Internet companies are growing
so fast that measures of value, such as P/Es,
are meaningless, and its nearly impossible
to predict earnings for a fledgling high-tech
company. Still, we can guess.
Lets do the math for Facebook. The
consensus of experts is that earnings will
roughly double in 2014, to $3.3 billion, or
$1.26 per share, on $11.4 billion in revenues.
Thats serious money. Lets assume that
earnings growth will slow to a more sus-
20
K6-GLASSMAN.indd 20
06/2014
4/9/14 3:49 PM
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AHEAD
Twitter
has about
one-sixth the
market cap
of Facebook,
which means
its got room
to run.
disastrous IPO is forgivenand they are

showing more appetite for experimentation
than, say, Microsoft. So far this year, Facebook has announced it intends to purchase
WhatsApp, a mobile-messaging application, for $19 billion and Oculus, a maker
of virtual-reality headgear for gamers, for
$2 billion. Investors have reacted to these
incredibly expensive deals with skepticism.
Facebooks stock dropped by nearly 20% in
three weeks in March. The $21 billion for
the two purchases represents more than
one-eighth of Facebooks market capitalization (shares times price), and you might
conclude that Facebooks leadership is getting bored with running only Facebook
or maybe worried about the growth prospects of a business that already has 1.2 billion monthly active users. But I am more
sanguine. Building an Internet business
requires taking risks, and buying other companies to get not just patents and products
but also talent and ideas for future growth
seems worth the risk.
Does the company have a significant edge on the
competition? Theres evidence that Face-
book is losing some of its cool factor among

younger users. Twitter is still far behind
Facebook in users, but it is a serious competitor. For online advertising in general,
the main competitor is Google, whose revenues are about seven times greater than
Facebooks, even though its market cap
is only about two and a half times larger.

Facebooks main global competitor is
Chinas Tencent Holdings (TCEHY) and
its mobile-messaging app WeChat. The
field is clearly becoming more crowded,
but Facebooks brand remains strong.
Does the company have room to grow? All of the
online social-networking and informationservices firms are only scratching the
surface. As users get more used to trading
some of their privacy for such benefits as
being offered goods and services geared
directly to them, the Internet advertising
market could explode. The potential is huge.
Facebook is not the only Internet business that receives positive answers to all
four questions. I particularly like Twitter,
with more than 240 million monthly users.
It is young and risky, as evidenced by the
range of 2014 earnings estimates by 30
analystsfrom a gain of 16 cents per share
to a loss of 19 cents. Twitter has about onesixth the market cap of Facebook, which
means its got room to run. Im also fond
of TripAdvisor, which is breaking out of
the travel pack, and OPENTABLE (OPEN), the
innovative online restaurant-reservation
service. I continue to be a fan of Amazon,
which, like Twitter, took a hit after earnings did not meet expectations. The shares
have sunk about 15%, presenting a buying
opportunity. And no serious stock portfolio
is complete without Google and Netflix.
If you prefer an exchange-traded fund,
youll be well served by FIRST TRUST DOW JONES
INTERNET INDEX (FDN), which charges annual
expenses of 0.60%. Top holdings are Amazon, at 7.2% of assets; Facebook, 6.2%; eBay
(EBAY), 5.8%; Priceline.com (PCLN), 5.6%;
and Google, 5.0%. Also top-notch is POWERSHARES NASDAQ INTERNET (PNQI), with the same
expense ratio, the same five biggest stocks
and similar returns.
Sure, you should have bought all these
Internet stocks a few years ago. But Im
convinced its the dawn of a new technology era. Well, maybe its 10:30 a.m., but its
certainly far from sunset.
FACEBOOK IS
CASHING IN ON
MOBILE PHONE
ADVERTISING.
JAMES K. GLASSMAN IS A VISITING FELLOW AT THE AMERICAN

ENTERPRISE INSTITUTE, WHERE HE IS AFFILIATED WITH THE
NEW CENTER FOR INTERNET, COMMUNICATIONS AND TECHNOLOGY
POLICY. HE OWNS NONE OF THE STOCKS MENTIONED.
TWIN DESIGN/SHUTTERSTOCK.COM
22
K6-GLASSMAN.1.indd 22
06/2014
4/11/14 12:18 PM
$ SUCCESS STORY
Building a Business From the Grounds Up
A former TV producer gets hooked on brewing coffee.
PROFILE
WHO: Michael Amouri, 57

WHERE: Vienna, Va.
WHAT: Roasts and blends his own
coffee at Caff Amouri
Why the coffee business? About
14 years ago, I saw an article

on the Internet about roasting coffee beans in a popcorn
popper. I bought some green
coffee beans online and a
popper at a thrift shop for
$2. The first time I brewed
coffee, I couldnt believe
how good it tasted. I grew
to love what I could do with
the flavor of coffee through
roasting and blending.
So you decided to open a shop?
I spent 28 years in TV production, and I loved it. But

I always thought, Wouldnt
it be cool to have a coffeehouse? At the time, I had a
great job at the Discovery
Channel, and leaving it was
a tough decision. A start-up
had to make business sense.
POON WATCHARA-AMPHAIWAN
How did you prepare for your

move? It took me about ten
months to write a 60-page

business plan. As part of
my research, I hung out at a
local Starbucks to profile its
business. It took me about
seven years and numerous
phone calls to our local zoning official before I finally
found the right location. We
opened in 2010.
Where did you get your financing?
I took a home-equity line of
credit, and I asked my dad

for a loan. I insisted on
signed notes, but he gave
me the money. I spent
$250,000, but I could have
done it for about $75,000
less, if I had known then
what I know now about
how to work with an architect and negotiate a lease.
Is it tough to compete with
two nearby Starbucks stores?
Weve established
ed ourselves
as the place for coffee,
whether beans or brewed.
ter [located
Our coffee roaster
ps you in the
in the shop] slaps
essage that
face with the message
sh. We curour coffee is fresh.
rently offer 20 coffees, inn blends,
cluding our own
nture Cofplus our Adventure
ch are
fee series, which
award-winning or rare
coffees that we sell at a
iggest
premium. My biggest
taff. We
strength is my staff.
look for people who
pen
are engaging, open
and generally
curious.
nights and a popular vocal

competition for charity
called Vienna Idol.
Are you profitable? Yes. Since
we opened, our sales have
grown every month by an
average of 23% over the
prev ious year. I still dont
earn what I made at my last
job, but I dont really think
about it.
Whats next? Weve
started planning for a
second shop, and
were looking for
wholesale opportunities. Those endeavors can succeed, but I need to
decide whether I
have it in me. The
first time, I
didnt
take a day off for a year,

and I was physically and
psychologically beat. Success requires that level of
dedication.
Your greatest pleasure? For
a few years before my dad

passed away, he drove here
every day after lunch for
coffee. Caff Amouri is a
legacy. Without it, I couldnt
have spent that time with
him. PATRICIA MERTZ
ESSWEIN
SEE A VIDEO OF
CAFF AMOURI
AT KIPLINGER
.COM/LINKS/
AMOURI. WANT
TO SHARE YOUR
SUCCESS STORY?
WRITE US AT
SUCCESSSTORY@
KIPLINGER.COM.
And you have a commmmumitment to the community? We always look
ner with
for ways to partner
mple, we
Vienna. For example,
ree coffee
might provide free
he local eleto the PTA at the
mentary school.. We reach
out to a group, make an imunch more
pact and get a bunch
customers. The cost might
be higher than advertising
ention rate.
but so is the retention
en-mike
We sponsor open-mike
23
K6-SUCCESS STORY.1.indd 23
4/11/14 12:18 PM
INVESTING
24
K6I-SELL YOUR STOCKS.indd 24
06/2014
PROPS AND STYLING: JABE MABREY
4/10/14 7:29 PM
INVESTING // COVER STORY
stock plunged, and in 2009 Rogerss

Chicago-based fund company sold
McClatchy shares for just pennies on
the dollar. We drank the Kool-Aid,
he says. He adds, Selling is far more
difficult than buying.
A host of psychological factors
from falling in love with an investment to having difficulty realizing a
losswork against those who hope to
sell as sagely as they buy. Ariel Investments, says Rogers, now has multiple
triggers that require stock sales
no excuses, no appeals. He attributes
at least part of the improved performance of his companys funds
since the end of
the 200709 bear
market to the companys increasingly disciplined
approach to selling.
Individual investors would be
wise to take note.
Whether you invest
in individual stocks
or through mutual
funds, wise investing requires selling
and reinvesting
your proceeds at
regular intervals.
This isnt a matter
of timing the market. Its more about
responding to
changes in your life
and your portfolio.
For most people, savvy selling has little
to do with stock prices. Rather, its a
way to maintain the balance of assets
in a portfolio, account for a major life
change, pay for a goal or reduce risk.
(For guidance on when to sell individual stocks and funds, along with specific suggestions for what to dump, see
page 30; for ideas on where to reinvest
your proceeds without resorting to
stocks, turn to page 32.)
Those who apply a disciplined
approach to selling can not only
improve their investment perform-
ance but also avoid letting a market

debacle wreak havoc on their personal
goals. The key is to have a plan, says
Donna Skeels Cygan, a certified financial planner and author of The Joy of
Financial Security. Then, whether the
stock market plunges or soars, you can
adjust your portfolio without making
an impulsive decision. Its a matter of
reminding ourselves what the money
is invested for, she says.
A typical financial plan, for instance, might put 60% of assets in
stocks and 40% in bonds. The stock
portion of that portfolio would be
diversified further to hold, say, 25%

in foreign stocks, 40% in big-company
U.S. stocks, 20% in small-company
domestic stocks and 15% in shares
of real estate investment trusts (see
The REIT Revival, on page 34).
Likewise, the bond holdings might
be divvied up among corporate, Treasury and foreign issues. The right mix
of investments will vary based on the
age and goals of the investor, as well as
on his or her feelings about risk. However, once a good mix is established,
its smart to make sure it sticks.
SCENARIO 1
The stock markets way up, and

bonds are down. Your carefully
chosen mix is now out of whack.
You need to rebalance.
ts not easy to keep your ideal asset

mix constant over time. Thats simply because different investments
appreciate and depreciate at different
speeds and different times. Lets assume you started 2013 with a $100,000
portfolio and wanted that mix of 60%
stocks, 40% bonds. Last year, Standard
& Poors 500-stock index, a broad
measure of the market, soared 32%,
and bond values (as represented by the
Barclays Aggregate Bond index) fell
2%. At the end of the year, your portfolio would have grown to $118,400,
with $79,200 in stocks and $39,200
in bonds, giving you a mix of 67% in
stocks and 33% in bonds. (To keep
things simple, we assume the money
was invested in those indexes.)
The rational move is to sell $8,000
in stocks and reinvest the proceeds in
bonds. A study of investment returns
from 1970 through 2013 found that a
rebalanced portfolio boosted returns
by an average of 0.6 percentage point
each year. Starting with just $10,000,
a rebalanced portfolio would allow an
investor to pocket $157,000 more over
a 44-year period, according to research
by Exencial Wealth Management. The
precise advantage of rebalancing varies based on the targeted asset mix,
but the strategy consistently beats
portfolios that are not rebalanced for
a simple reason: Investment results
revert to the mean over long
stretches. Translation: An asset class
that has performed far better than its
long-term average for a few years is
likely to perform worse than the average for a time. Rebalancing allows you
to get out while the gettings good.
Of course, the more comfortable,
albeit irrational, move is to do the opposite, says Chris Brightman, head of
investment management at Research
26
06/2014
4/10/14 7:30 PM
Affiliates, a Newport Beach, Cal., investment firm. Many people want to

follow the herd, sticking with investments that theyre enthused about
(because theyre hot!) and selling
those that have produced poor recent
results. If you want to be smart about
rebalancing, you need to be aware that
a lot of people act irrationallyat least
for a while, Brightman says.
Why? The investors who buy whats
hot and sell whats not create shortterm momentum that does tend to fuel
the investment that has performed
well recently, Brightman says. But that
phenomenon lasts for months, not
years. Still, if you rebalance too frequently, youll be fighting market
momentum and could sacrifice some
return. Wait too long, however, and
youll get caught in a reversion to the
mean and give up even more.
The bottom line: Rebalance, but
not more often than once a year, says
Brightman. And its okay to rebalance
less frequently, such as every other
year, if the performance of the markets hasnt thrown your investment
mix too far off your targets. Because
tedious projects like rebalancing are
easy to forget, many planners suggest
that you set a regular, and memorable,
date to do it. Make it your birthday.
New Years Day. Tax day. Your anniversary. The day on the calendar
doesnt matter. What matters is that
you establish a routine and follow it.
SCENARIO 2
You moved, had a baby, lost a job

or got divorced. You need to beef
up emergency savings.
lthough your investment strategy

shouldnt shift in reaction to a move
in the market, it should react to major
changes in your life. Thats because
marriage, divorce, births, deaths and
even significant geographic moves can
change your budget and your ability to
tolerate risk. If those factors change,
so should your investments. Any
major life event should spur a review

of your investment plan, says Cygan.
It may only require tweaks or it
could require real change. It really
depends on the event and you.
Consider, for instance, a dualincome couple who keep three months
worth of their living expenses in savings accounts to handle potential
emergencies. Although thats on the

low end of the recommended range,
its enough if both spouses have steady
jobs and health insurance. Thats because the biggest risk is a job loss, but
the chance of both spouses losing jobs
at the same time is slim. A single job
loss might require tapping less than
half a months savings (one spouses
* Taxes
More for You, Less for the IRS

Selling triggers taxes, but investors can trim the amount they pay to Uncle Sam with some
tax-wise planning. Here are five things you need to know:
Capital-gains rates for the wealthy are up. The tax rate on profits from assets held
more than one year jumped from 15% in 2012 to 23.8% in 2013 for singles with adjusted
gross income of $400,000 or more ($450,000 or more for married couples). Single investors with AGI of $200,000 to $400,000 and married couples with AGI of $250,000 to
$450,000 are also paying more, at an 18.8% rate. ADVICE: If your income approaches one of
these thresholds, figure the tax hit before triggering gains. Taking gains in years in which you
have less income or more deductions could save a bundle.
Short-term sales will cost you. If you sell a security youve held for a year or less,
youll pay taxes on the profits at ordinary income tax rates, which run as high as 39.6%.
If youre in the top tax brackets, youre also subject to the 3.8% Medicare surcharge,
making the top effective rate on that gain a whopping 43.4%. ADVICE: Unless you have capital
losses to offset costly short-term gains, try to hang on to your winners for more than one year.
You get a break on company stock in a 401(k). Most money that comes out of retirement plans is taxed at ordinary income tax rates. But theres an exception for employer stock in these plans. If you take a lump-sum distribution of the employer shares,
you are taxed (at ordinary income rates) only on your basiswhat you paid for the shares.
You will pay tax on the appreciation when the shares are sold, but at gentler capital-gains
rates. If you rolled the shares into an IRA, youd wind up paying taxes on that appreciation at
ordinary income tax rates when the money came out of the IRA. ADVICE: If you have the option, this is a simple way to permanently lower the tax rate on some retirement savings.
Your heirs get a break on taxable accounts. When you die, the tax basis of assets
in a taxable account gets stepped up to the current market value. So, when your
heirs sell, they wont owe tax on appreciation that occurred during your lifetime. By
contrast, theres no step-up for money in tax-deferred accounts, such as 401(k) plans and
traditional IRAs. Your heirs will pay tax at their top brackets when they withdraw funds.
ADVICE: Watch how you drain your accounts. Use taxable accounts to sell stocks at a loss
or modest gain, leaving alone securities with big gains. Take the rest from the tax-deferred
accounts, which have mandatory distribution requirements for those who are over 70.
Charities love stock donations. Most charities are happy to take your appreciated
stock in lieu of cash. You get a deduction for the current value of the stock if you have
owned it for more than a year. The charity gets the shares to sell, but because its a
tax-exempt organization, its not subject to capital-gains taxes. ADVICE: Look at the stocks
in your taxable accounts to find those with the greatest appreciation and consider using
27
those shares to fund charitable gifts.
02/2014 KIPLINGERS PERSONAL FINANCE
4/10/14 7:30 PM
contribution to living expenses, minus

the percentage of income he or she is
saving each month) for each month of
unemployment.
However, if a spouse dies or the
couple divorces, the need for emergency
savings could skyrocket. A single person should have enough emergency
cash to cover twice as many months of
potential job loss. So a suddenly single
individual may want to boost dramatically the percentage of his or her assets
in safe, albeit low-yielding, accounts.
Its not necessary, or even advisable,
to move investments quickly in the
wake of a major life upset. The best
strategy here is to step back and carefully review your financial plan and
goals from start to finish. Assuming
the life change doesnt alter the big
picture, an investor might simply trim
volatile stock holdings over the course
of a year or two, feeding emergency
savings accounts with the proceeds, to
better balance the new risks of his or
her situation.
emergency savings in the absence of

an immediate emergency. Perhaps
when a volatile asset class, such as
emerging-markets stocks, has a particularly good year (triggering the need
to rebalance anyway), you can sell
some of those shares and use the proceeds to cover your spending or feed
the fixed account. (The fixed-income
account needs replenishing only if
youre spending from it.)
What you dont want to do is sell
stocks en masse on the eve of retirement, says Stuart Ritter, a certified
financial planner with T. Rowe Price,
the Baltimore-based mutual fund giant.
Remember that a good portion of this
money is earmarked for spending
in the second half of your retirement,
which might be decades away. Although youll want to have at least
five years worth of living expenses
in safe, fixed-income accounts, youll
also need growth investments, such
as stocks, to finance your later retirement years. Over long periods, stock
SCENARIO 3
* Serious Money
Youre finally retiring. You need

to replenish the fund you tap for
living expenses.
THE POWER OF
REBALANCING
$743,800
$586,800
SOURCE: Exencial Wealth Advisors
Rebalanced annually
fter decades of saving, you got the

gold watch. Now what? For starters,
a good portion of your monthly paycheck will now come from savings
rather than from an employer. This,
too, demands selling some stocks, even
if you already have five years of spending power in accounts holding bonds
and other conservative, fixed-income
investments (the standard recommendation). After all, following your first
month of retirement, youre likely to
have just four years and 11 months
worth of spending power left. Now is
the time to strategically whittle back
that stock portfolio to replenish the
account that youre tapping.
You can make these sell decisions
gradually and opportunistically, similar to the way youd move money into
Not rebalanced
The bars show the growth of two $10,000

portfolios from 1970 through 2013. Both
portfolios began with 40% in U.S. stocks,
20% in foreign stocks and 40% in long-term
bonds. The package on the left was never
rebalanced. The one on the right was
rebalanced annually.
returns are far more likely to beat the

rate of inflation and allow you to retain
buying power. For this reason, Cygan
says, she never allows her clients to
reduce their stock holdings below 25%
to 30% of the overall portfolio.
SCENARIO 4
Youve landed a windfall, struck

it rich or saved enough to meet
all contingencies. You need to
relax about investing.
he most successful (or luckiest)

investors can take a cue from the
world of sports. Near the end of a
football game, when its clear that
the team with the ball has won, the
quarterback will often take a knee.
Instead of attempting to rack up more
points, the player drops to one knee
immediately after the snap, letting the
final seconds of the game tick away.
After all, the game is won. Why risk
ffumbling the ball?
Investors in the later stages of their
rretirement who know they have plenty
o
of money to cover every possible exp
pense can do much the same. And if
tthe volatility of stocks bothers them,
ttheyd be wise to do just that, says
B
Brightman, the Research Affiliates
o
official. If I can invest very conservattively in a bunch of municipal bonds
aand live completely comfortably on
tthat income, what would be the point
o
of taking investment risk? he asks.
To be sure, some investors with
m
more than enough money to sustain
tthem will still choose to invest a
m
meaningful portion of their assets
iin stocks, figuring that any excess retturn will help them leave more to their
h
heirs. But at the point that you know
yyoull have enough money no matter
h
how its invested, the game is won.
Y
You can stop playing. It becomes a
p
personal decision about whether you
w
want to take risk or not, Brightman
ssays. Who is to say which is right
aand which is wrong? Its a personal,
eemotional decision.
28
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When to Sell a Stock

It depends on what kind of investor you are.
KNOWING WHEN TO CUT TIES TO A STOCK
can be tough, especially in a bull market. One common piece of advice is

to sell when the reason you invested
in a company is no longer validfor
instance, if the great product that attracted you to a stock turns out to be
a dud. Beyond that, the sell decision
depends, in part, on your style. So here
we offer guidelines, based on the type
of investor you are.
Youre a bargain hunter. If you prefer
stocks with low price-earnings ratios,

use P/E targets to help you determine
when to sell. Tom Forester, manager of
Forester Value fund, buys stocks with
P/Es that are 20% to 40% less than the
average for a companys sector. He
* Watch List
5 Stocks on the Edge
Lululemon Athletica (LULU, $54).
New brands have entered the luxury athletic apparel business, putting pressure
on the Canadian-based retailer.
Netflix (NFLX, $337). Although the
stock has sunk 26% since early March, it
still sells at 83 times estimated earnings.
Netflixs video-streaming business is
vulnerable to emerging competitors.
RadioShack (RSH, $2). The ultra-low
share price suggests that investors dont
think the electronics retailer has much
of a future. Theyre probably right.
Rite Aid (RAD, $6). Competition in the
drugstore business is fierce, and the stock
sells at a rich 21 times year-ahead earnings estimates.
Tesla Motors (TSLA, $212). Despite a
recent correction, the stock is up fivefold
over the past year and sells for 119 times
30
estimated 2014 profits. Thats too much.
K6I-WHEN TO SELL.a.indd 30
BY CAROLYN BIGDA
sells when a stocks P/E begins to rise

above the sector average. Using this
approach, you might want to keep an
eye on Microsoft (symbol MSFT, $40).
After gaining 44% over the past year,
the stock sells at 15 times estimated
calendar 2014 earnings, the same as
for the tech sector overall. If Microsofts P/E climbs much more, it may be
time to sell. (Prices are as of April 4.)
You like growth on the cheap. Lets say
youre a classic growth-at-a-reasonable price, or GARP, investor and
prefer to buy when a companys P/E
is below its earnings growth rate. If
so, watch out if the P/E exceeds the
growth rate by 50% or more.
Consider McKesson (MCK, $171).
On the surface, the drug distributor
does not look like much of a bargain.
Its P/E, based on estimated calendar
2014 earnings, is 17, about the same as
the P/E for most large health care companies. But analysts expect McKessons
earnings to grow 19% annually over
the next few years. Projected growth
is above the P/E, giving the stock room
to run. Dont unload.
If you hold Illumina (ILMN, $139),
by contrast, you should think about
selling. Shares of the biotech company sell for 67 times forecasted 2014
earnings, nearly four times the firms
estimated long-term earnings growth
rate of 18% per year.
You invest for yield. A dividend cut is
often a cue to sell. But the time to get
out is well before a cut occurs. So keep
an eye out for hints of trouble. One
worrisome sign is when a companys
payout ratio (the percentage of earnings it pays out as dividends) is greater
than 70%. Growing debt is also a red

flag. And if a dividend cut comes out
of the blue, ask yourself why the company cut the payout. Can the circumstances that led to the reduction be
easily fixed?
You like growth stocks. If you fell in love
with a company because of its great

growth prospects and the firm is no
longer expanding, you should unload.
01/2014
4/10/14 1:19 PM
When to Sell a Fund

Its not just about performance.
BY NELLIE S. HUANG
KNOWING WHEN TO UNLOAD A FUND IS
tricky. In fact, choosing a fund to buy

is probably an easier process. But just
as you should have a checklist for buying, a checklist for selling can help,
too. Here are five factors to consider.
A key manager leaves. If a manager has
been integral to a funds success, his
or her departure may be a sign that
its time to walk away. Such was the
advice we gave when the manager of
T. Rowe Price Health Sciences left last
year. And were keeping a watchful
eye on another Price fund, Small-Cap
Value; its longtime manager, Preston
Athey, is retiring at the end of June.
The fund grows too large. Size matters.
Smaller is better, especially with funds
that focus on small or midsize companies. Otherwise, when such funds
with too much money make big trades,
they risk moving share pricesup
when buying, down when sellingin
ways that can hurt results. But asset
bloat can also trip up big-company
funds, so last month we ousted Fidelity Contrafund from the Kiplinger 25.
The fund consistently underperforms.
Consider Apple (AAPL, $532). Over

the ten years that started in 2003,
earnings exploded from 10 cents per
share to $44.15, and the stock price
rose by a factor of 110. But starting in
late 2012, Apple reported four straight
quarters of year-over-year profit declines. Its bruised shares may attract
bargain hunters, but Apples days as
one of the worlds preeminent growth
stocks appear to be over.
This is a thorny issue: How badly, and

for how long, does a fund have to lag
before its time to sell? One abysmal
year may give you pause, unless, of
course, its preceded by several solid
years and the funds investing strategy
hasnt changed. But consistently
bad performance over three or four
consecutive years that drags down a
funds long-term record is a red flag.
The environment changes. We dont
advocate market timing, but its hard
to ignore some big-picture issues. For

instance, starting in 1981, interest
rates began a steady slide. Now, with
rates more likely to rise than fall,
many bond funds are vulnerable (rates
and bond prices generally move in opposite directions). Funds that invest in
long-term bonds are especially at risk.
Its a good time to sell them.
The funds strategy changes. A fund
can shift its focus in ways that clash
with your goals. Fairholme Fund, once
more diversified, now looks a lot like
a financial-sector fund. Look at the
holdings in your fund to make sure it
fits with your goals and your portfolio.
If it doesnt, consider selling.
* Watch List
6 Funds on the Brink
Fidelity Low-Priced Stock (symbol
FLPSX). With $48 billion in assets, LowPriced is more than 30 times bigger than
the average midsize-company fund.
Harbor International (HIINX). The
fund has lagged its benchmark since the
death of longtime manager Hakan Castegren in October 2010.
Janus Triton (JATTX), Janus Venture
(JAVTX). Managers Chad Meade and Brian
Schaub left these two small-company
funds in 2013, after seven years of generally good returns.
Royce Low-Priced Stock (RYLPX).
Over the past three years through April 4,
the fund trailed the typical small-company
stock fund by an average of 13.1 percentage points per year. Ouch!
Third Avenue Value (TVFVX). What
was once a fund that focused on small
U.S. companies is now a global fund, with
31
41% of its assets invested in Asia.
01/2014
K6I-WHEN TO SELL.a.indd 31
4/10/14 1:19 PM
Where to Put Your Profits
Our ideas will produce income without exposing you to stock-market risk. BY NELLIE S. HUANG
ONCE YOUVE SOLD YOUR STOCKS, YOULL NEED
to reinvest the proceeds. Here are 14

ideas for generating income in seven
broad categories, listed in increasing
order of yield. None involves common
stocks. As always with any investment
decision, consider your overall allocation, how long you plan to invest and
your tolerance for risk before you
make a move. All returns and yields
are through April 4.
CDs and short-term bonds

Yield: 0.4% (average for two-year CDs)
Certificates of deposit may not pay

much interest, but you wont lose
money with them, either. That makes
them good choices to stash cash that
you will need within a year to 18
months. GE CAPITAL BANK pays 1.1% for
a one-year CD with a $500 minimum.
A two-year CD at MELROSE CREDIT UNION
($5,000 minimum) earns 1.4%. With
short-term rates likely to rise in the
next 12 months or so, youre better off
choosing the one-year maturity, even
though it yields slightly less than the
two-year deposit. VANGUARD SHORT-TERM
INVESTMENT-GRADE (SYMBOL VFSTX, 1.5%
YIELD), a member of the Kiplinger 25,
pays a bit more, but you might lose

a bit of principal if rates rise. (Bond
prices and interest rates tend to move
in opposite directions; to see a list of
all the funds in the Kip 25, turn to
page 39.)
Municipal bonds
Yield: 1.9% (intermediate-maturity bonds)
If youre in a high tax bracket, municipal bonds, which pay interest that is
generally free from federal income
tax (and often state and local income

taxes), can be more lucrative than taxable bonds of similar credit quality
and maturity. For instance, a ten-year,
triple-A-rated muni bond typically
yields about 2.3%. For someone in the
highest federal tax bracket, that is the
equivalent of 4.1% from a taxable
bond. Even if youre in the lower, 28%
federal bracket, your taxable-equivalent yield would be 3.2%, which beats
the taxable 2.7% yield of ten-year
Treasuries and the 3.1% yield of
comparable corporate IOUs.
Our favorite tax-free bond fund,
NO NEED
TO KEEP YOUR
CASH ON ICE.
FIDELITY INTERMEDIATE MUNICIPAL INCOME

(FLTMX), invests mostly in high-quality
bonds; more than half of the funds
assets are invested in bonds of tripleor double-A quality with maturities of
five years or more. The fund, a member
of the Kiplinger 25, yields 1.9%, which
is a taxable-equivalent yield of 3.4%
for those in the highest income tax
bracket. We also like USAA TAX EXEMPT
INTERMEDIATE-TERM FUND (USATX). Its
2.3% yield works out to a 4.1% taxableequivalent yield for top-bracket investors. The funds managers goose the
yield a little by focusing on the lower
rung of investment-grade bonds (see
A Muni Fund That Pays More, May).
Intermediate-term bonds
Yield: 2.4% (investment-grade index)
The longer a bonds maturity, the more

it usually yields, but the more vulnerable it is to higher rates. The best tradeoff between risk and yield is in the
middle of the maturity spectrum.
The typical taxable, intermediateterm bond fund yields 2.1%. But youll
32
K6I-YIELDFEST.1.indd 32
06/2014
4/11/14 12:17 PM
TK TK TK TK TK
get more with VANGUARD INTERMEDIATETERM CORPORATE BOND ETF (VCIT, 3.3%), an
exchange-traded fund. It holds mostly
investment-grade debt in bonds of
five- to ten-year maturities, but half
of the fund is invested in the lower
end of the investment-grade spectrum
(debt rated triple-B). The funds annual
fee of 0.12% scrapes near the bottom.
FIDELITY TOTAL BOND (FTBFX, 2.8%), another
Kip 25 fund, holds mostly a mix of
high-grade corporate bonds, government bonds and mortgage securities.

At last word, it also had 14% of its
assets in junk bonds.
Floating-rate loans
Yield: 3.4% (average for bank-loan funds)
Rising interest rates are bad news for

most bonds, but not this kind of security: The rates on these loans, which
banks typically make to companies
with below-investment-grade credit
ratings, move in step with the market.
Thats because they are tied to a shortterm benchmark and reset every 30
to 90 days. Because the borrowers
have above-average credit risk, we like
funds that tilt toward better-quality
or widely traded loans. FIDELITY FLOATING
RATE HIGH INCOME (FFRHX, 2.6%) has an average credit quality of double-B, better
than the single-B average quality for
the category. POWERSHARES SENIOR LOAN
PORTFOLIO (BKLN, 4.2%), an ETF, tracks
an index of the 100 largest and most
widely traded bank loans.
High-yield bonds
Yield: 5.2% (average for junk bonds)
Debt rated double-B or lower, or junk

bonds, can be risky. But default rates,
arguably the biggest risk with highyield debt, are at 20-year lows and
likely to stay low as the U.S. economy
improves. And thats a boon to junk
bond funds. USAA HIGH INCOME (USHYX,
4.7%) has consistently turned in aboveaverage returns without taking on
undue risk. Over the past decade, it
has been less volatile than its peer
group. About 70% of the funds assets
recently sat in bonds rated double-B
or single-B (par for the category), but
it also had about 15% in investmentgrade debt. For a bit more yield, reach
no further than SPDR BARCLAYS HIGH YIELD
BOND (JNK, 4.9%), an ETF that tracks an
index of widely traded junk bonds and
charges an annual fee of just 0.4%.
Bonds from exotic lands

Yield: 5.8% (emerging-markets bond
index) With slower growth in China,
political turmoil in Brazil and Turkey,
and Russias annexation of part of

Ukraine, its no wonder that emergingmarkets securities performed poorly
last year. But things are looking
brighter: In the first quarter of 2014,
emerging-markets bonds returned
2.9%, beating the U.S. bond market by
a full percentage point. And their yields
are hard to beat.
Our favorite emerging-markets
debt fund is FIDELITY NEW MARKETS INCOME
(FNMIX, 5.4%), a member of the Kiplinger
25. Longtime manager John Carlson
focuses on dollar-denominated debt,
a more stable way to invest in these
securities because foreign currencies
tend to be volatile. Over the past decade, New Markets Income returned
9.2% annualized, beating its typical
peer by an average of 1.2 percentage
points a year.
POWERSHARES EMERGING MARKETS SOVEREIGN DEBT PORTFOLIO (PCY, 5.1%) has several
things working in its favor. It focuses

on dollar-denominated debt, a more
stable way to invest in these securities,
and its 0.50% annual expense ratio is
below-average for its peer group. We
like, too, that its portfolio is spread
roughly evenly among 23 countries,
with each accounting for 4% to 5%
of the funds assets.
High-paying hybrid stocks

Yield: 6.7% (average of preferred stocks)
These hybrid investments behave

more like bonds than stocks. Befitting
securities with extra-high yields,
preferreds carry above-average risks.
First, most are issued by financial
firms, so funds that focus on preferred
stocks tend to be heavily invested in
that sector. And because preferreds
pay fixed dividends, they tend to lose
value when interest rates rise. In 2013,
just the possibility of a rise in rates
sent preferreds tumbling. But the selloff enhanced the groups appeal. As
share prices fell, yields rose. The best
way to invest in this sector is through
an ETF. POWERSHARES PREFERRED (PGX,
6.4%) has the top three-year return of
all preferred-stock ETFs: 6.6% annualized. It charges 0.50% in annual fees.
33
06/2014
K6I-YIELDFEST.1.indd 33
4/11/14 12:19 PM
INVESTING // SLUG / SLUG
CHESAPEAKE
LODGING TRUST
OWNS A HOLIDAY
INN WITH A
ROOFTOP BAR IN
NEW YORK CITY
AND, BELOW, LE
MERIDIEN SAN
FRANCISCO.
PROPERTY STOCKS
The REIT Revival

After a horrible 2013, real estate investment trusts are making
a comeback. These five have good prospects. BY CAROLYN BIGDA
LIKE BONDS, REAL ESTATE
stocks struggled last year

when the Federal Reserve
began to unwind its easymoney policies. The average
property-owning real estate
investment trust returned
just 2.5% in 2013, trailing
the overall stock market
by 30 percentage points.
But a combination of gently
rising interest rates and
gradual economic growth
isnt the worst thing for
REITs, which can raise
rents and benefit from improving property values.
Since 1993, there have been
eight stretches of 12 months
or longer when yields on
ten-year Treasury bonds
climbed by at least a halfpercentage point. During
those periods, REITs re-
turned an average of 14.8%,

according to Cohen & Steers,
an investment shop that specializes in real estate stocks.
The situation is playing
out similarly this year. Year
to date through April 4,
REITs surged 10.6%, compared with a return of just
1.4% for Standard & Poors
500-stock index. Those figures include dividends, and
that is important because
REITs are known for delivering high income. In fact,
to qualify for REIT status,
a company must pay out at
least 90% of its taxable income to shareholders. The
average property REIT
yields 3.9% today.
REITs are not particularly cheap today. The average ratio of REIT share
prices to funds from operations (the industrys preferred measure of profits)

stands at 16, up from the
average since 2000 of 15.
So what should you do?
Most advisers suggest allocating 5% to 10% of your
total portfolio to REITs
because real estate stocks
dont always move in tandem with the broad market.
If you need to build up that

allocation, stick with REITs
that own properties with
potential for appreciation
and are in a good position
to boost rents. Here are five
attractive candidates.
Upscale hotelier. Lodging
REITs have a lot of flexibility when it comes to raising
rents because operators can
change rates overnight. That
advantage has not been lost
on investors: Hotel REITs
led the pack in 2013, with
an average return of 27%.
This year, demand for rooms
is expected to be strong,
while fewer new hotels are
opening for business than
in 2008. Those factors should
continue to boost lodging
REITs, such as CHESAPEAKE
LODGING TRUST (SYMBOL CHSP).
The REIT owns 20 upscale
hotels in major U.S. cities,
such as New York, Chicago
and San Francisco. It is
renovating three of its properties this year, but even
counting those hotels as out
of commission, the Annapolis, Md.based REIT expects average revenue per
room to rise by as much as
5.5%, about on par with the
industry. Meanwhile, the
stock trades at a reasonable
13 times estimated funds
from operations.
The rise of online shopping has hurt
malls across the
nation. But analysts say that
some high-end
shopping centers
can withstand the
onslaught of technology. These
class-A malls sell
an experience you
cant get online,
COURTESY CHESAPEAKE LODGING TRUST
34
K6I-REITS.1.indd 34
06/2014
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COURTESY CHESAPEAKE LODGING TRUST
says Marc Halle, a senior

portfolio manager at Prudential. As such, he argues,
firms that specialize in toptier malls offer rare value
in the REIT sector today.
One of the best examples
is SIMON PROPERTY GROUP (SPG).
The company, based in Indianapolis, owns 156 malls,
including Copley Place in
Boston and The Galleria
in Houston, as well as 66
Premium Outlet shopping
centers across the country.
Simon also has interests in
properties abroad. Last year,
occupancy grew from 95.3%
to 96.1%, and the firm was
able to increase rents by an
average of 4%. New mall development will be limited in
the next few years, which
should allow Simon to raise
rents, says S&P Capital IQ.
And the stock commands
only a slight premium to the
market, trading at 17 times
estimated FFO.
Even though some malls
are doing well, its hard to
deny the growth of e-commerce. To ride that end of
the shopping wave, consider
PROLOGIS (PLD). The San Francisco-based REIT owns and
manages 569 million square
feet of distribution facilities
that it leases to retailers,
logistics providers and
transportation companies,
among others, in 21 countries. The economic recovery, albeit slow, is helping
fuel demand for that space.
Occupancy rates grew from
94.0% in December 2012 to
95.1% by the end of 2013,
and rates could edge up as
much as another percentage
point this year. As space
tightens, property values
should rise. Research firm
Green Street Advisors says
industrial property values

are still an average of 1%
below their 2007 peak. Prologis forecasts that rents
will rise by as much as 25%
over the next four years.
With such bright prospects, Prologis does not come
cheap. The stock trades at
23 times estimated FFO and
may be ripe for a temporary
drop. If its price falls by, say,
10%, pounce.
As consumers shop, they
may need to put some of
their old stuff into storage.
Until a few years ago, the
storage business was largely
made up of mom-and-pop
shops. Now, the industry is
consolidating, and PUBLIC
STORAGE (PSA), the largest
player, stands to benefit.
At last count, Public Storage
had 2,200 locations in 38
states, as well as 188 properties in Western Europe. The
Glendale, Cal.-based REIT
has developed a strong
brand that attracts new
customers. Last year, occupancy rates climbed from
91.9% to 93.3% (based on facilities that had existed for
at least one year), allowing
the company to boost rents
by 5.4%. Plus, few developers are building new locations. The spaces can take
a while to lease up and, as a
result, can be difficult to get
financing to build, says
Jason Yablon, a portfolio
manager at Cohen & Steers.
The stock trades at 21
times estimated FFO. So, as
with Prologis, you may want
to wait for a pullback of, say,
5% to 10% before you buy.
Office buildings may not
seem like a high-growth
area because a slow job
market has kept national
vacancy rates high. Accord-
ing to Reis, which keeps

tabs on the commercial real
estate market, the rate nationally was 16.9% at the
end of 2013, only 0.2 percentage point lower than it
was at the end of 2012.
But as with everything in
real estate, location matters.
In New York City, for example, the vacancy rate was
only 9.9% at the end of last
year. So office REITs with
a foothold in low-vacancy
areas should do well. BOSTON
PROPERTIES (BXP) has buildings
choose from a number of

solid funds. Morningstar
analyst David Kathman
favors FIDELITY REAL ESTATE
INVESTMENT (FRESX). The fund
charges 0.81% in annual
fees (the category average
is 1.33%). Steve Buller, who
has managed the fund since
1997, screens stocks based
on property values and rent
growth, but also looks at socalled technical indicators,
such as a stocks price history. Over the past 15 years,
the fund returned 11.5%
By the Numbers
REITs FOR GROWTH AND INCOME

A key measure of REIT value is price to funds from operations. Akin to
cash flow, FFO is defined as a REITs earnings plus depreciation.
Company
Boston Properties
Market
Recent value
Symbol price (billions)
PriceFFO Dividend
ratio
yield
BXP
$116
$17.8
22
2.2%
Chesapeake Lodging Trust CHSP
26
1.3
13
4.7
Prologis
PLD
41
20.5
23
3.2
Public Storage
PSA
170
29.2
21
3.3
Simon Property Group
SPG
165
51.4
17
3.0
As of April 4. SOURCES: Thomson Reuters, Yahoo.
in five prime locations:

Boston, New York, San
Francisco, Princeton, N.J.,
and Washington, D.C. The
Boston-based REIT isnt
having trouble attracting
tenants. Occupancy rates at
the end of 2013 stood at
93.2%, up from 91.1% a year
earlier.
Analysts say the stock,
which trades at 22 times estimated FFO, could rise as
new developments are completed in coming years and
investors reward the REIT
for Boston Properties presence in key markets.
If youd rather have a pro
pick the stocks, you can
annualized
annualized, compared with
10.8% for the typical real
estate fund.
Another possibility:
T. ROWE PRICE REAL ESTATE
(TRREX). Manager David Lee,
in charge since 1997, tends
to buy REITs that trade at
a discount to the value of
their properties. The fund
charges 0.79% and has
delivered an annualized
return of 12.0% over the
past 15 years.
For a lower-cost option,
consider VANGUARD REIT
INDEX (VNQ). The exchangetraded fund, which launched
in 2004, charges a rockbottom 0.10% annually.
35
06/2014
K6I-REITS.indd 35
4/9/14 3:47 PM
INVESTING
JEREMY J. SIEGEL > Going Long
The smart
money sees
powerful
economic
forces, which
transcend the
power of the
Fed, pushing
interest rates
downward.
n the early 1980s, economist Ed Yardeni

coined the term bond vigilantes to
describe fixed-income investors who
scrutinize government policies and push
bond prices down, and interest rates up, at
the first hint that those policies are sending
the country on an inflationary course.
During the 1990s, Clinton political
adviser James Carville claimed that if he
were reincarnated, hed like to come back
as the bond market because of its power to
scare other markets and intimidate politicians. At that time, most economists and
policymakers conceded that the government had no real control over long-term
interest rates because savvy bond traders
would always demand rates that took full
measure of the inflationary consequences
of government actions.
Today the pendulum has swung in the
opposite direction. Now critics blame the
Federal Reserve for artificially propping
up the bond market and keeping both
short- and long-term interest rates far
below the levels appropriate for this stage
of an economic recovery.
Where are the bond vigilantes who are
supposed to punish the Feds easy-money
policies by shunning bond purchases and
sending yields skyward? Have they thrown
up their hands, conceded that they cant
fight the power of the central bank and
fled the market?
Downward pressure. The answer is no, the
bond vigilantes have not fled the market.

The truth is that the smart money sees
powerful economic forces, which transcend the power of the central bank, pushing interest rates downward. Though the
Fed has the ability to set short-term rates,
it has only marginal influence on long-term
rates, which are driven largely by economic
forcesnotably, economic growth, inflation
and how investors feel about risk. Today, all
those variables are moving in a direction
that keeps interest rates low.
For starters, the Congressional Budget

Office predicts that growth in real potential gross domestic product will slow to
about 2% per year over the next decade
as a result of the slowdown in the growth
of the labor force. That estimate is about
1.5 percentage points lower than the average annual real GDP growth that we experienced in the postWorld War II period
prior to the financial crisis of 2008.
Second, core inflationwhich excludes
the volatile food-and-energy sectorhas
sunk to among the lowest levels in more
than a half-century. Even the Fed is having
difficulty pushing inflation up to its 2%
target, and that is another downward force
on interest rates.
Finally, the aging of the population,
combined with the trauma of the most
recent bear market, has pushed investors
to settle for bonds, even though future
returns are likely to be skimpy. Furthermore, tighter rules about funding corporate
pensions have persuaded many firms to
de-risk their investments by moving into
bonds, pushing yields still lower.
The impact of these forces is substantial.
The slowdown in economic growth alone
could lop off one to two percentage points
from long-term interest rates, and the derisking of pension portfolios combined with
baby-boomers risk aversion could subtract
another percentage point. At less than 3%,
the recent yield on the benchmark ten-year
Treasury bond is fully consistent with low
inflation and slow economic growth.
Bottom line: Dont blame the Fed for low
interest rates. It will raise short-term rates,
currently near zero, eventuallyprobably
next year. But if the Feds policy were truly
inflationary, investors would send rates on
long-term bonds much higher today. Barring an unforeseen crisis, low long-term
rates will be with us for quite some time.
COLUMNIST JEREMY J. SIEGEL IS A PROFESSOR AT THE UNIVERSITY OF PENNSYLVANIAS WHARTON SCHOOL AND THE AUTHOR
OF STOCKS FOR THE LONG RUN AND THE FUTURE FOR INVESTORS .
LISE METZGER
Low Rates Are Here to Stay
36
K6I-SIEGEL.indd 36
06/2014
4/9/14 1:26 PM
STOCKS
Chow Down on Restaurant Stocks

These three arent cheap, but they have superior growth prospects. BY DAVID MILSTEAD
AMERICANS APPETITE FOR
eating out has given investors a craving for restaurant

stocks. But few can be found
on the value menu, as the
average U.S. restaurant stock
trades for 29 times projected
2014 earnings, according to
S&P Capital IQ.
The restaurant business
is intensely competitive.
Companies rise and fall,
as the recent bankruptcy
filings of two debt-laden
chains, Quiznos and Sbarro,
show. So its best to focus
on companies with strong
balance sheets. Here are
three worth a nibble (share
prices are as of April 4).
The desire to spot the
next Chipotle has led to
lofty valuations and volatile
share prices for a host of
small fast casual chains.
Perhaps the original CHIPOTLE
COURTESY CHIPOTLE MEXICAN GRILL, USA; BUFFALO WILD WINGS INC.
MEXICAN GRILL (SYMBOL CMG, $555)
is a better bet. Sure, the stock

sells for a rich 43 times
projected 2014 earnings,
but Chipotle has earned
a reputation as one of the
industrys top operators,
with well-above-average
profit margins and returns
on capital. The Denver
company has 1,600 restaurants and expects to
open 180 to 195 new ones
this year.
The primary objection to the stock is that
it has climbed so much
some 2,000% since
McDonalds spun off Chipotle in 2006. Still, Argus

Research analyst John
Staszak says he expects the
stock to reach $660 in a year.
Chipotle is benefiting
from growing interest in
fast-casual restaurants,
which serve higher-quality
fare than fast food, but do
it faster and more cheaply
than traditional sit-down
chains. Still, some traditional eateries are worth a
look, too. DEL FRISCOS RESTAURANT GROUP (DFRG, $27) owns
29 high-end steakhouses
under the Del Friscos Double Eagle and Sullivans
brand names. The company
has thrived despite the
tepid economic recovery
and a miserable winter that
kept many diners at home.
Analysts are especially
enthusiastic about the firms
newest idea: Del Friscos
Grille, a less-expensive but
still upscale chain that targets the young people who
ordinarily shun classic
FOOD
FROM
CHIPOTLE
AND, BELOW,
BUFFALO WILD
WINGS.
wood-paneled steakhouses.
The Southlake, Tex., company has only 12 Grille locations but expects to open
five more this year. Stephens
Inc. analyst Will Slabaugh
says he expects Del Friscos
to open more than 100
Grilles over the next few
years, and that should help
fuel rapid growth. Although the stock trades for
28 times estimated 2014
profits, Slabaugh thinks the
shares are cheap. Investors
arent giving enough respect
to what I think is one of the
more attractive growth
brands, he says.
The shares of BUFFALO
WILD WINGS (BWLD, $143)
trade almost like an

agricultural commodity: chicken wings,
which make up the
lions share of the
companys food costs.
In 2012, wing prices
took flight, and investors,
worried that the Minneapolis company couldnt hold

down its costs, flew the
coop. The situation is now
reversed. With wing costs
taking a dive, BWW is forecasting rising profits and
the stock is soaring; it has
doubled since November
2012 and trades for 30 times
estimated 2014 earnings.
The volatility of wing
prices is important, but
it shouldnt overshadow
BWWs growth potential,
says UBS analyst Keith
Siegner. He says the company plans to expand rapidly overseas, as well as
along the U.S. and Canadian
coasts. That should bring
welcome geographic diversification to a chain that has
one-fourth of its 1,000
restaurants in the slowgrowing states of Illinois,
Indiana, Michigan and
Ohio. Siegner sees the stock
hitting $180 within a year.
37
06/2014
K6I-RESTAURANT STOCKS.indd 37
4/10/14 7:35 PM
INVESTING
KATHY KRISTOF > Practical Investing
The Impact of Dividends
Since 1926,
they have
accounted
for some
40% of the
stock markets
annualized
total return
of 10%.
But Ive been reluctant to use dividends

as a source of funds for new purchases.
Thats because I wanted to make a point
about how important the payments are
to the returns of individual stocks as well
as the portfolio as a whole. Since 1926, dividends have accounted for some 40% of the
stock markets annualized total return of
about 10%, according to Morningstar. And
dividends help stabilize returns because
companies generally pay them whether
stock prices are rising or not. That means
in down markets, dividends account for
an even larger portion of returns. So highyielding stocks are likely to buoy your portfolio when times are tough, but they may
cause it to lag when stock prices soar.
Case in point: APOLLO COMMERCIAL REAL
ESTATE FINANCE (ARI). I purchased 625 shares
of the mortgage-owning real estate investment trust in March 2012 for $16.02 per
share. As of April 4, the shares had climbed
a paltry 4.4%. But Apollo boasted a 10%
dividend yield when I bought it and still
yields 9.6% today. So the stocks total return since Ive owned it is a much more
palatable 26%, thanks to compounding
of those reinvested dividends. Plus, Apollo
is much less volatile than the market as a
whole. I may not love that sluggish appreciation when the market rises, but Ill appreciate the stability when the market falls.
Seeking reader input. If I stop reinvesting
dividends, a stock such as Apollo will

appear to be a huge underperformer, even
though it will be feeding the portfolio with
a steady stream of cash. The question is, do
you, dear readers, care more about the returns of the individual holdings, or are you
mostly interested in the performance of the
portfolio as a whole? Please e-mail me at
kkristof@kiplinger.com and let me know
your thoughts. Id love to hear from you.
KATHY KRISTOF IS A CONTRIBUTING EDITOR TO KIPLINGERS PERSONAL
FINANCE AND AUTHOR OF THE BOOK INVESTING 101 . YOU CAN SEE
HER PORTFOLIO AT KIPLINGER.COM/LINKS/PRACTICALPORTFOLIO.
LISE METZGER
s I was working on this months

cover story about the challenges
of selling stocks, I had an epiphany.
A financial planner and I were
discussing the psychological hurdles investors often face before pulling the sell
trigger, when I suddenly realized we could
have been talking about me.
Selling isnt usually a problem for me
because Im a classic buy-and-hold investor.
But my Practical Investing portfolio forces
me to sell stocks far more often than Id like.
Thats because the portfolio is static; I dont
add cash to it or withdraw money from it.
For those of you who are new to this
column, I launched the portfolio in October
2011 with $200,000. Now, some 30 months
later, the account is worth $307,962 (including shares in the stock-market index fund
against which the individual stocks are
measured), thanks to the stunning bull market. (Although my portfolio has gained 53%,
it is barely beating its benchmark.) Aside
from the initial nine months, during which
I seeded the portfolio with stocks, it has been
99% invested for the bulk of its existence.
Thus, when I want to add a new stock to
the portfolio, I have only two ways to come
up with the cash to pay for it. The first is
obvious: I could sell something. For example,
I recently pared back my stake in SPIRIT AIRLINES (SYMBOL SAVE), my biggest winner, selling
300 shares for $18,092 but hanging on to 83
shares. The stock has climbed 322% since
I bought it in 2011 and now trades for about
20 times projected earnings. Analysts remain bullish on Spirit, but at such a lofty
valuation, the risks are high if the company
fails to live up to expectations.
My other option is to stop reinvesting
dividends, let the payouts accumulate and
use the cash to buy new stocks. Last year,
the portfolio collected a tidy $5,400 in cash
dividends. The total is likely to be higher
this year because I reinvested those distributions to buy additional shares of the companies that paid them.
38
K6I-KRISTOF.indd 38
06/2014
4/9/14 1:27 PM
THE KIPLINGER 25 UPDATE
Why a Vanguard
Fund Is Lagging
BENCHMARKS DONT MEAN
much to Don Kilbride, manager of VANGUARD DIVIDEND

GROWTH . My performance
against any benchmark is
interesting, but at the end
of the day it doesnt inform
how I manage the fund, he
says. So Kilbride, whos a
partner at Wellington Management (which runs Dividend Growth and a number
of other Vanguard funds),
isnt especially worried that
his fund has trailed Standard & Poors 500-stock
index slightly over the past
year. At any rate, his long-
term record is superb: Since

he became manager in
2006, Dividend Growth has
returned 9.0% annualized,
an average of two percentage points per year better
than the index.
But in a soaring stock
market led, at least until
recently, by fast-growing
companies that typically
hang on to all of their profits, its not surprising that
Dividend Growth lagged,
says Kilbride. Thats partly
because he focuses on
established firms that are
willing to raise dividends
Total return*
Added to
3 yrs. 5 yrs. 10 yrs. Kip 25
U.S. Stock Funds
Symbol 1 yr.
Akre Focus Retail
AKREX 25.0% 19.9%
Artisan Value
ARTLX 18.0
Baron Small Cap Retail
consistently; the funds 51

stocks have done so at an
average rate of 10% per year
over the past five years.
Some energy stocks muted
the funds returns, too.
Kilbride hunts in a universe of about 400 stocks.
He tends to settle on wellmanaged companies with
little or no debt that fall into
one of two camps: older
firms with decades of steady
payments, such as Johnson
& Johnson, and ones that
are new to paying dividends,
such as Oracle. Dividend
Growth yields 1.9%, slightly
less than the S&P 500.
But price is the deciding
factor. Kilbride tilts toward
stocks that have lagged the
S&P or that trade near their
52-week lows. In mid 2013,
fund records indicate,
Kilbride bought shares of
Anheuser-Busch InBev.
Shares of the Belgium-based
brewer were up 18% in 2013,

well below the stock markets return. (The fund can
invest up to 25% of its assets
in foreign stocks; it has 11%
overseas today.)
When Kilbride buys, he
holds for a long time. His
funds annual turnover of
18% suggests an average
holding period of more than
five years. He sells a portion
of a holding if it grows to
more than 4% of the funds
assets, but he rarely unloads
an entire position. Doing
that, Kilbride says, would
mean the nature of the
companys business has
changed (say, it made an
acquisition that he felt didnt
add value) or competition
has intensified, inhibiting
the companys ability to
grow. NELLIE S. HUANG
REACH YOUR GOALS: TO SEE PORTFOLIOS
USING THESE FUNDS, GO TO KIPLINGER
.COM/LINKS/PORTFOLIOS.
Specialized/
Go-Anywhere Funds
Symbol 1 yr.
Total return*
Added to
Dec. 2009
FPA Crescent
FPACX 15.9% 10.2% 15.2%
8.5%
Oct. 2008
12.9
19.3%
May 2012
Merger
MERFX 4.0
3.4
June 2007
BSCFX 22.3
11.9
21.4
Davenport Equity Opps
DEOPX 23.1
16.7
May 2014
Dodge & Cox Stock
DODGX 29.2
16.3
22.4
7.5
May 2008
Fidelity New Millennium
FMILX
29.4
15.7
23.3
9.4
May 2014
Homestead Small Co Stock
HSCSX 27.4
14.1
26.6
11.7
May 2012
Mairs & Power Growth
MPGFX 23.9
16.8
21.6
8.8
Jan. 2013
T. Rowe Price Sm-Cap Value
PRSVX 23.7
12.8
22.3
10.0
May 2009
Vanguard Dividend Growth
VDIGX
19.6
15.0
18.0
8.8
May 2010
Vanguard Selected Value
VASVX 30.9
16.1
23.3
10.2
May 2005
Wells Fargo Advtg Discovery STDIX
International
Stock Funds
Cambiar Intl Equity
23.8
Symbol 1 yr.
CAMIX 20.5%
12.4
23.5
8.9% Dec. 2007
10.2
May 2012
3.7
Bond Funds
Symbol 1 yr.
DoubleLine Total Return N
DLTNX
0.7%
5.9%
May 2011
Fidelity Intermed Muni Inc
FLTMX
0.3
4.4
4.4%
3.9%
May 2004
Fidelity New Markets Income FNMIX 1.4
7.5
13.1
9.1
May 2012
0.5
4.6
8.1
5.2
May 2014
Met West Unconstrained Bd M MWCRX 3.0
May 2013
6.2
10.2
6.9
May 2013
2.5
5.0
3.6
May 2010
Fidelity Total Bond
FTBFX
Osterweis Strategic Income
OSTIX
5.6
Vanguard Sh-Tm Inv-Grade
VFSTX
1.3
Total return*
3 yrs. 5 yrs. 10 yrs.
Indexes
1 yr.
S&P 500-STOCK INDEX
22.1% 14.3% 19.8%
7.2%
6.9% May 2014
RUSSELL 2000 INDEX
26.2
12.3
22.0
8.1
20.2
7.7
15.2
7.0
Total return*
Added to
6.9% 17.2%
2.3
Total return*
Added to
Dodge & Cox Intl Stock
DODFX 26.6
8.4
18.2
9.1
May 2005
MSCI EAFE INDEX#
Harding Loevner Emrg Mkts
HLEMX
7.5
2.1
15.3
11.0
May 2013
MSCI EMERGING MARKETS INDEX
1.5
2.9
13.2
10.4
Matthews Asian Gro & Inc Inv MACSX
1.4
5.9
14.7
10.4
Aug. 2013
BARCLAYS AGGREGATE BOND INDEX 0.5
3.8
4.9
4.6
Through April 4, 2014. *Three-, five- and ten-year returns are annualized. Not available; fund not in existence for the entire period. Small-company U.S. stocks. #Foreign stocks. Tracks high-grade U.S. bonds. SOURCE: 2014 Morningstar Inc.
39
06/2014
K6I-KIP 25.1.indd 39
4/11/14 12:10 PM
INVESTING
Dont Bet on Dividends

From Berkshire
Warren Buffett thinks he can do a better job managing the firms
cash than shareholders can. BY CAROLYN BIGDA
FOR MORE THAN 45 YEARS ,
Warren Buffett, the chief

executive officer of BERKSHIRE HATHAWAY (SYMBOL BRK-B,
$124), has declined to pay
a dividend. A vocal group
of shareholders would like
that to change. But Buffett
has repeatedly expressed
his view on the subject:
No dice. He feels he can
earn a higher return for
shareholders if he invests
the companys retained
earnings than if the shareholders did it themselves,
says David Kass, a finance
professor at the Robert H.
Smith School of Business at
the University of Maryland

in College Park.
Kass, a Berkshire shareholder who regularly attends
the companys annual meeting (often with students in
tow), will have a front-row
seat as the matter comes to
a vote this year. Although
the outcome of the shareholder vote, scheduled for
May 3, was not known before
press time, it was virtually
certain that the resolution
would be rejected.
Berkshire certainly has
the means to pay a dividend.
According to the 2013 annual report, the company
had about 10% of its assets,

or $48.2 billion, in cash. But
Buffett has said he would
pay a dividend only if he
could not find investing opportunities that were more
INCOMPLETE DATA
Checking Up on Your Broker

RESPONDING TO HORROR STORIES OF
brokers who run wild with customer assetsby, say, churning accounts or recommending inappropriate investments
Americans have gotten good at doing a
little research before hiring. Millions of
people turn to the Financial Industry Regulatory Authoritys online Broker Check tool
each year to get background info on investment professionals.
However, recent research uncovered
troubling gaps in the disclosures provided
by Finra, the brokerage industrys self-
regulatory arm. A Wall Street Journal investigation found that the database failed to
include criminal records or personal-bankruptcy filings for 1,600 brokers. A separate
study by the Public Investors Arbitration
Bar Association, a group of securities lawyers, found that information reported by
state securities regulators, including tax
liens and the reasons brokers were fired
from previous jobs, was often missing, too.
Finra defends its disclosure policies. It
says it must balance the needs of investors
with whats fair to disclose about the more
attractivesomething that
could happen if stocks became grossly overpriced.
But even when the stock
market has reached extraordinarily high levels, as it
did during the technologyfueled growth-stock boom
of the late 1990s, Buffett
declined to return cash to
shareholders. Part of his
success in investing is his
patience, Kass says.
So if you own some Berkshire shares, or plan to invest in the company, dont
count on getting a dividend
soon. The more likely scenario is that the company
will begin paying dividends
after Buffett, 83, departs
from the scene. In the
meantime, youll have to
be satisfied with capital appreciation from Berkshires
stock. Buffett has a fabulous
long-term record, but over
the past ten years (through
April 4), Berkshires Class B
shares have lagged the market slightly, with an annualized return of 7.0%.
than 4,100 investment firms and some

633,000 brokers. Finra says it does disclose
termination data when brokers leave in the
wake of fraud or misconduct allegations.
But it wouldnt necessarily report a case of
a supervisor who found a broker incompetent. Some state regulators would.
Finra says it has long urged investors to
take the extra step of investigating filings
with state securities regulators. The North
American Securities Administrators Association maintains an online listing (at www
.nasaa.org) of state securities offices. But
dont expect easy going at the state level.
Most state securities offices can be contacted only by phone, and some charge
to copy and mail files. KATHY KRISTOF
BEN BAKER/REDUX
STOCKS
40
K6I-BERKSHIRE.indd 40
06/2014
4/9/14 3:33 PM
FUND SPOTLIGHT
Number
Crunchers
Seek Value
This funds managers want
share-price momentum, too.
MIDSIZE-COMPANY GROWTH FUNDS Ranked by one-year returns

Total return
through April 4*
Symbol
LGOAX
1 yr.
47.7%
3 yrs.
17.4%
2. Putnam Equity Spectrum A@
PYSAX
40.2
21.5
5.75
1.45
800-225-1581
3. Cambiar SMID
CAMMX 34.6
2.00 r
1.35
866-777-8227
4. Rydex S&P 500 Pure Value A@
RYLVX
34.5
17.7
30.7
4.75
1.51
800-820-0888
5. Harbor Mid Cap Value Inv@
HIMVX
32.4
16.4
25.3
none
1.30
800-422-1050
6. Schneider Value
SCMLX
31.5
8.3
18.1
1.00 r
0.90
888-520-3277
7. Meeder Quantex
FLCGX
31.2
14.8
28.3
none
1.52
800-325-3539
8. Putnam Multi Cap Value A@
PMVAX 31.1
14.9
23.7
5.75
1.15
800-225-1581
9. Vanguard Selected Value
VASVX
30.9
16.1
23.3
none
0.43
800-635-1511
HWMAX 30.3
18.4
29.7
5.25
1.32
866-493-8637
13.0%
22.1%
10. Hotchkis & Wiley Mid Cap Value A@**
25.3%
CATEGORY AVERAGE
AS A BULL MARKET KEEPS CHURNING ALONG,
it gets harder to find cheap stocks. But

the managers of HARBOR MID CAP VALUE
dont seem to be having much trouble.
Their secret: a numbers-based stockpicking system. Its a boring, conservative strategy, says Josef Lakonishok,
CEO of LSV Asset Management, which
runs the fund. But its a strategy that
delivers. Since the bull market began
in 2009, Mid Cap Value has returned
32.4% annualized, outpacing the Russell Midcap index and 93% of its peers.
Lakonishok and two partners use
computers to identify relatively cheap
stocks with market values of $1 billion
to $28 billion. They home in on key measures of value, such as price-earnings
and price-to-cash-flow ratios. But they
also want stocks that have been performing well recently. Those that
score best make it into the fund. At last
word, Mid Cap Value held 137 stocks.
One number the managers dont
care about is the price they paid for a
stock. We have no memory of what
price we bought a company for, says
Lakonishok. And they dont use price
targets to determine when to sell a
stock. Rather, they take into account the
same factors they used when buying.
If a stock becomes too expensive or it
loses momentum, it becomes a candidate for selling. But the managers sell
infrequently. The funds turnover ratio
is 18%, implying an average holding
period of almost six years. Top holdings include Ameriprise Financial and
Helmerich & Payne, an energy-drilling
company. ANJELICA TAN
20 LARGEST STOCK MUTUAL FUNDS Ranked by size

Assets
Rank/Name
Total return
through April 4*
Symbol (in billions) 1 yr.
1. Vanguard Total Stock Market Idx Inv@ VTSMX
3 yrs.
Max.
sales
5 yrs. charge
Toll-free
number
$282.3
23.0%
14.1%
20.4%
none
800-635-1511
148.8
21.9
14.1
19.6
none
800-635-1511
3. American Growth Fund of America A@ AGTHX
141.9
24.6
13.2
18.0
5.75%
800-421-0180
4. American EuroPacific Growth A@
AEPGX
125.0
18.1
6.0
14.2
5.75
800-421-0180
5. Vanguard Total Intl Stock Idx Inv@
VGTSX
117.8
13.6
4.0
13.7
none
800-635-1511
6. Fidelity Contrafund@
FCNTX
108.5
22.6
13.6
19.1
none
800-343-3548
7. American Capital Income Builder A@
CAIBX
91.3
10.7
9.0
13.4
5.75
800-421-0180
8. American Income Fund of America A@ AMECX
90.4
13.7
10.7
16.1
5.75
800-421-0180
9. Franklin Income A@
89.2
13.7
9.7
17.2
4.25
800-632-2301
10. American Capital World Gro & Inc A@ CWGIX
86.5
19.2
10.1
16.0
5.75
800-421-0180
11. Vanguard Wellington@
VWELX
82.9
14.5
11.0
15.2
none
800-635-1511
12. American Balanced A@
ABALX
72.1
15.6
11.6
15.7
5.75
800-421-0180
13. Fidelity Spartan 500 Index Inv@
FUSEX
71.5
22.0
14.2
19.7
none
800-343-3548
14. American Washington Mutual A@
AWSHX
70.9
22.4
14.6
18.9
5.75
800-421-0180
15. American Invstmt Co of America A@
AIVSX
70.6
24.2
13.6
17.6
5.75
800-421-0180
16. American Fundamental Inv A@
ANCFX
68.0
22.1
12.0
18.4
5.75
800-421-0180
17. BlackRock Global Allocation A@
MDLOX
59.2
10.5
5.4
10.9
5.25
800-441-7762
18. Dodge & Cox International Stock
DODFX
57.3
26.6
8.4
18.2
none
800-621-3979
19. American New Perspective A@
ANWPX
56.9
20.0
10.4
17.4
5.75
800-421-0180
20. Dodge & Cox Stock
DODGX
55.6
29.2
16.3
22.4
none
800-621-3979
S&P 500-STOCK INDEX
22.1%
14.3%
19.8%
MSCI EAFE INDEX
20.2%
7.7%
15.2%
2. Vanguard 500 Index Inv@
VFINX
FKINX
*Annualized for three and five years. For all share classes combined. @Rankings exclude share classes of this fund with different fee structures or
higher minimum initial investments. **Closed to new investors. rMaximum redemption fee. Not available; fund not in existence for the entire period.
MSCI EAFE index consists of developed foreign stock markets. SOURCE: 2014 Morningstar Inc.
EXPLANATION OF TERMS
Kiplinger.com
RETURNS FOR
THOUSANDS OF
FUNDS ONLINE
Use our Mutual Fund Finder
to get the latest data and see
the top performers over one-,
three- and five-year periods.
Research a specific fund, or
compare multiple funds based
on style, performance and
cost. And view details including
volatility rank and turnover
rate. To use this tool, go to
kiplinger.com/tools/fundfinder.
Total return assumes reinvestment of all dividends

and capital gains; three- and five-year returns are
annualized. Returns reflect ongoing expenses but
not sales charges.
Maximum sales charge A figure without a footnote
means the commission is deducted from the money
you send to the fund. A figure with an r is the maximum redemption fee charged when you sell shares.
Funds that charge both sales and redemption fees
are footnoted with an s next to the front-end load.
Expense ratio is the percentage of assets claimed
annually for operating a fund.
41
06/2014
K6I-FUNDTRENDS_RANKINGS.indd 41
Max.
sales Expense
Toll-free
5 yrs. charge ratio
number
28.0% 5.75%
1.21% 877-721-1926
Rank/Name
1. Legg Mason Opportunity A@
4/10/14 7:36 PM
INVESTING
JEFFREY R. KOSNETT > Cash in Hand
A Preference for Preferreds
Many
preferred
shares offer
better current
yields than
junk bonds
issued by
companies
with lower
credit
ratings.
received had you bought the preferred

when it was issued.
BB&T has four preferred issues: Series D,
E, F and G. Tickers are BBTPRD, BBTPRE
and so on. Standard & Poors gives all four
issues an investment-grade rating of BBB,
and their dividends qualify for favorable
tax treatment. As of April 4, the prices of
the four preferreds ranged from $20.92 to
$23.69, and their yields to call (that is, what
you would earn in income and appreciation
if BB&T were to redeem an issue at $25 per
share as soon as it could, in 2017 or 2018)
ranged from 8.0% to 10.9%.
Muted risks. These numbers are so compelling that I ransacked my library and called
some sages for perspective. I found boilerplate about the risks of inflation, rising
interest rates and default. But inflation
is minimal, and if you sense rates getting
ready to surge, you can sell a preferred
as easily as you can a regular stock. As for
default risk, yes, its true that the claims of
bondholders precede those of preferred investors in case of bankruptcy. But investing
involves making choices between risk and
reward; in this case, with BB&T bonds due
in 2018 yielding a mere 2.1% to maturity, the
preferreds clearly look like a better choice.
To make sure I wasnt suffering from
irrational exuberance, I checked in with
strategist Larry Swedroe. He dissed preferreds in a 2006 book about bonds, arguing that he could not endorse any security
without a known maturity. He still thinks
that way. In investing, theres no free
lunch, he intoned when I asked whats
wrong with trying to turn $20.92 today into
a likely $25 by 2018 while collecting fat dividends to boot. But he did approve of using
low-cost exchange-traded funds to own
preferreds. My two favorites: ISHARES U.S.
PREFERRED STOCK (PFF, YIELD 5.8%) and POWERSHARES PREFERRED (PGX, 6.4%).
JEFF KOSNETT IS A SENIOR EDITOR AT KIPLINGERS PERSONAL FINANCE.
LISE METZGER
uring the financial crisis, regulators prevailed upon BB&T (symbol

BBT), the nations 12th-largest
bank, to chop its common stocks
47 cent quarterly dividend by more than
two-thirds. The shares, which had been
as high as $45 in 2008, bottomed at $11 in
early 2009. But long-term investors properly counted on BB&T to outlast the downturn with its independence and marketing
muscle intact. All the while, the WinstonSalem, N.C., company remained profitable.
And this spring, for the first time since the
Great Recession, BB&Ts stock crossed $40.
Although BB&T has raised its payout a
few times since the crisis, it will be many
years before the dividend, now 23 cents a
quarter, returns to its prerecession level. So
why would I call BB&T a splendid income
investment with a capital-gains kicker?
The answer: Im not talking about its
common stock. Im betting on the banks
preferred shares. And its not just BB&Ts
preferreds that look attractive. I could say
the same about preferreds from dozens of
banks, insurers and real estate investment
trusts. Many preferred shares trade below
their offering prices (typically $25 per
share) and offer better current yields than
junk bonds issued by companies with
lower credit ratings.
Preferred stocks pay fixed dividends,
which may or may not qualify for favorable
tax treatment. Prices bop around daily in
response to interest-rate gyrations because
preferreds are bondlike securities. But unlike bonds, few preferreds ever mature.
Beyond the fixed dividend rate and the
yield, the key number for preferreds is their
$25 issue price. Thats the price at which
the issuer can redeem, or call, the shares,
generally starting five years after their
issuance. If you pay more than $25 a share,
expect to lose principal. Buy at less than
$25 and you will realize a gain upon redemption or, if the issuer never redeems,
receive a better yield than you would have
42
K6I-KOSNETT.indd 42
06/2014
4/9/14 2:50 PM
ETF SPOTLIGHT
A Fast Start
for a Utility
Fund in 2014
This exchange-traded fund
adds some telecom stocks to
more-traditional fare.
WHO SAYS UTILITY FUNDS ARE DULL?
After putting up mediocre numbers

in 2013 (a return of 14.3%), GUGGENHEIM
S&P 500 EQUAL WEIGHT UTILITIES ETF has
been anything but boring this year.
The exchange-traded fund gained
nearly 10% in the first quarter.
Unlike many utility funds that invest just in electricity, gas and water
companies, the Guggenheim ETF
injects a bit of excitement by placing
about 15% of its assets in telecommunications stocks. Guggenheims William Belden says the sectors are more
alike than dissimilar: The volatility,
dividend yield and price-earnings
ratio associated with telecom services
are more closely aligned with the utility
sector than with tech.
The ETF is built differently than
most index-tracking funds. Traditional indexes weight stocks by market capitalizationthe bigger the
market cap, the larger a stocks position in the benchmark. The Guggenheim ETFs index holds its 35 stocks
in roughly equal proportions. Because
stock prices and market values fluctuate, Guggenheim rebalances the
portfolio every three months to maintain the equal weighting. The thinking
behind equal-weighted indexes is that
over time they will outpace traditional
indexes because they will have more
exposure to smaller, presumably
faster-growing firms. Over the past
five years, the Guggenheim ETF has
outpaced the typical utility ETF by
an average of 3.4 percentage points
per year. MIRIAM CROSS
Guggenheim S&P 500 Equal Weight Utilities

Key Facts:
SYMBOL: RYU
$70
Weekly
closes
60
CLOSING PRICE: $69

ASSETS: $61.8 million
START DATE: November 1, 2006
STOCK HOLDINGS: 35
AVG. PRICE-EARNINGS RATIO: 16*
AVG. MKT. VALUE: $15.4 billion
50
40
30
2010
2011
3.3%
TOP FIVE HOLDINGS

Account for 15.3% of Assets
3.2%
FRONTIER
COMMUNICATIONS (FTR)
EXELON (EXC)
3.1%
IS THE
ETFS YIELD
3.0%
AT&T (T)
CENTURYLINK (CTL)
3.0%
EDISON
INTERNATIONAL (EIX)
3.0%
2014
2013
2012
Thats 1.3 percentage

points more than
the yield on the
S&P 500 index.
SECTOR BREAKDOWN: More in telecom than most utility funds
39%
3%
DIVERSIFIED
UTILITIES
GAS UTILITIES
6%
INDEPENDENT
POWER/RENEWABLE
ENERGY
15%
TELECOMMUNICATION
SERVICES
37%
ELECTRIC
UTILITIES
*Based on estimated earnings. SOURCES: Guggenheim Investments, Morningstar Inc.
UTILITY SECTOR ETFs Ranked by three-year returns
Rank/Fund
2011
Total return*
Assets
market Expense
Symbol (billions) 1 yr.
3 yrs.
5 yrs. correction ratio
1. Guggenheim S&P 500 Eq Weight Utilities RYU
$0.1
11.6%
13.3%
16.7%
5.0%
0.40%
VPU
1.6
10.7
13.2
15.0
1.1
0.14
2. Vanguard Utilities
3. Utilities Select Sector SPDR
XLU
5.2
9.8
13.1
14.1
1.0
0.16
4. iShares US Utilities
IDU
0.7
10.8
12.8
14.8
1.7
0.46
5. PowerShares DWA Utilities Momentum
PUI
0.0 #
19.8
12.4
13.9
11.9
0.63
24.2%
14.8%
20.1%
18.6%
S&P 500-STOCK INDEX
Through April 3. *Assumes reinvestment of all dividends and capital gains; three- and five-year returns are annualized. Market correction is from April 29
through October 3, 2011. #Fund has $40 million in assets. Expense ratio is the percentage of assets claimed annually for operating a fund.
SOURCE: 2014 Morningstar Inc.
43
06/2014
K6I-ETF SPOTLIGHT.1.indd 43
4/11/14 12:20 PM
I Hate Annuitiesand So Should You!

The Soothing Sound of Guaranteed Income
Many investors currently own or are considering annuities. After all, they are sold as
safe investments, offering dependable and predictable returns, no matter what the
market does. And that sounds very appealing, especially after suffering through the
worst bear market since the Great Depression. So whats the problem with annuities?
What You Might Not Know about Annuities

Could Come Back to Haunt You
Before you put your hard-earned money into an annuity, or if you already own one,
please call 1-800-695-5929 for a special report, Annuity Insights: Your Guide to Better
Understanding Annuities. It could help save you hundreds of thousands of dollars and
untold financial heartache.
The vast majority of annuities are really complicated insurance policies that make
it very difficult to fully understand the implications and unintended consequences.
And once you buy into an annuity, it can be a very difficult and potentially very
costly investment decision to reverse. Thats why it is vital you look before you leap
and ensure that you have your eyes wide open before you purchase an annuity.
And if you already own an annuity, this free report is just as valuable as it can help
you sort out the good, the bad and the ugly aspects of annuities.
What Youll Learn from this Free Report
The different types of annuities and the advantages and disadvantages of each
Why annuities can be complex to understand
What you need to ask an annuity salesman when evaluating his product
The inflation risk, tax implications, estate planning considerations and
typical annuity fees
Stuck in an Annuity?
Because people often regret their annuity decision, Fisher Investments has helped
many investors extract themselves from annuities. In fact, if you have a portfolio of
$500,000 or more, we may rebate some or all of your annuity surrender penalties.
Rebates average over $13,000.* Please call for details and to see if you might qualify.
About Fisher Investments
Fisher Investments is a specialized money management firm serving successful

individuals as well as large institutional investors. With over $53 billion** in assets
under management and with an over 25-year track record in bull and bear markets,
Fisher Investments uses its proprietary research to manage money for prudent investors.
If you own an annuity or if

someone is trying to sell you
one, I urge you to call for
your free report. Annuities
can lock you into low returns,
complicate your tax situation,
tie up your wealth and hit you
with high fees. If you have an
annuity, my team can help you
decide if it is right for you.
And if it isnt, we might be able
to help you get out of it and
even help you offset some of
the annuity surrender fees.*
This free report could save
you from making one of the
biggest investment mistakes
of your life. And for owners
of annuities, the free analysis
could be a life saver.
Ken Fisher
CEO and Co-Chief Investment
Officer, Fisher Investments
Forbes Portfolio Strategy
columnist for 29 years
Author of 10 financial
books, including four
New York Times bestsellers
Please hurry! This offer contains time-sensitive information.
Call today for your FREE report!

1-800-695-5929 Ext. A495
2014 Fisher Investments. 5525 NW Fisher Creek Drive, Camas, WA 98607.
Investments in securities involve the risk of loss. *Rebates are for investors who
liquidate an annuity with surrender penalties and fund a Private Client Group
account. Average rebates from August 2011 to September 2013 were $13,227.
Terms and conditions apply. See www.AnnuityAssist.com/Terms-and-Conditions
for further information. **As of 12/31/2013.
How Millennials Can Get Ahead
TYPOGRAPHY BY ROSS MOODY
to live with a roommate or wait to get a

car. If giving to charity or your church
is crucial, cable may have to go. Its
not about deprivation, says von Tobel.
Its about spending thoughtfully.
Youve launched your career, and

the paychecks are rolling in. If this
is the first time youve had to manage finances beyond your college
meal plan, you may be surprised at
how easily the money seems to
evaporate. Even if youve been
working a while, you may find that
youre living paycheck to paycheck,
Yes, you need a budget.

But look at it as an
opportunity to set priorities.
without enough left over to meet
your goals. Thats why you need a
strategy for how youll spend and
save itin other words, a budget.
Rather than view a budget as a
straitjacket on your spending, think
of it as a way to set priorities. Is
having HBO now more important
than being able to retire with the
standard of living youd like? asks
Trent Porter, a certified financial
planner and founder of Priority
Financial Planning, in Denver.
As a broad guideline, Alexa von
Tobel, founder and CEO of moneymanagement Web site LearnVest
.com, suggests using the 50-20-30
rule. That means that up to 50% of
Track your spending. To meet your

numbers, youll have to keep track of
what you spend. You may want to use
a budgeting site, such as Mint.com or
LearnVest.com. Their tools let you
monitor your bank, retirement, credit
card and investment accounts, automatically categorize your expenditures, and let you set target spending
limits for various items, such as restaurants and shopping. They also help
you organize your goals and monitor
how much youre saving for them.
If a hard spending limit is more
effective than just a warning at keepyour take-home pay goes toward essential spending: rent or mortgage paying you within your budget, nothing
beats cash. Withdraw the equivalent
ments, utility bills, groceries, and
of your budget over the course of the
transportation to work. Designate at
month in cash, divide the money into
least 20% for savings (including for retirement, an emergency fund and other categories, and put money for each
goals) plus paying off debt, such as stu- category into envelopes (the budget
site Mvelopes.com lets you fund virdent loans. Up to 30% is for lifestyle
tual envelopes and track the amount
choices, such as a gym membership,
in them by linking to your checking
your cell-phone plan, entertainment
account and credit cards). Once youve
(including your cable bill), charitable
spent all of the cash designated for
giving, shopping and eating out.
eating out, for
Want a better
example, youre
road map? We
done with resoffer a more
taurants until
detailed breaknext month.
down of your
As your cirtake-home pay
cumstances
at right, based
MINT
change, your
on average
(Apple, Android, Windows)
budget should be
expenditures
gives you a detailed snapflexible enough
tracked by the
shot of where your finances
to adjust. But
Bureau of Lastand, including charts and
that doesnt
bor Statistics.
graphs that show your
mean that you
Unless you
spending and net income.
Plus, it provides alerts
should upgrade
work for yourwhen bills are due.
to a flashier car
self, your emor a downtown
ployer will
apartment as
make sure a
soon as you get a
portion of your
raise. Especially
pay finds its
if your savings are missing the mark or
way to the IRS (see Give Yourself a
youre paying off a lot of debt, ratchet
Raise, on page 51).
When money is tight, youre going to up the amount you put toward those
areas as your income reaches a more
have to make some trade-offs. If rents
comfortable level. LISA GERSTNER
are high where you are, you may have
get this app!
46
K6M-MILLENNIALS 46-47.indd 46
4/10/14 7:14 PM
Use these allocations,

which are based on
national averages, as
a guide to your aftertax spending.
35%
HOUSING
(rent, utilities and insurance)
15%
FOOD
(at home and eating out)
12%
TRANSPORTATION
(car loan and other expenses,
insurance and mass transit)
5%
HEALTH CARE
(insurance and co-pays)
7%
RETIREMENT SAVINGS
(excluding employer match)
8%
DEBT
(student loans and credit cards)
5%
OTHER SAVINGS
5%
CELL PHONE AND INTERNET
3%
CLOTHING
(emergency fund and other goals)
5%
ENTERTAINMENT
(including cable bill)
Set Up an
Emergency Fund
For years, when I had a financial crisis, I
would speed-dial the Bank of Mom and
Dad. I expected them to bail me out of
tough financial surprises, from parking
tickets to big dental bills. My backup plan
was to charge emergencies to a credit card.
The former strategy cost me in a
strained relationship with my parents.
How sad it must have been for them to
get a call from me only to realize the chat
would cost them hundreds of dollars. The
credit card approach came with interest
and lowered my credit score.
After I started working for Kiplinger,
I learned that I needed an emergency
fund that can cover six months worth of
expenses, stashed in an easy-to-access
savings account. Now, I put $100 a month
into an American Express online account
and add any extra income, such as holiday
bonuses or birthday gifts, if I can.
Providing myself with a cash safety net
is the key to making my way to financial
independence. Its still a bummer to shell
out the money to cover, say, replacing
a furnace worn out by a polar vortex
plagued winter. But at least it doesnt cost
me extra interest or, worse, the respect of
my parents. STACY RAPACON
47
4/10/14 7:14 PM
Get in the habit early,

even if its only a small
amount with each paycheck.
If you dont pay your rent or cell-phone
bill, the consequences are immediate.
If you fail to stash money in savings
as soon as you start earning a paycheck, you probably wont notice the
damage right away. But the long-term
fallout can be devastating if it limits
your choiceswhether thats buying
the house you want, sending your kids
to a top college, or deciding when (or
even if) you can retire.
Say youre 25 years old and you put
$500 into a mutual fund that earns 8%
a year, and you add $100 each month.
Youll wind up with more than $335,000
by the time youre 65, excluding taxes.
If you wait until youre 35, invest $2,500
and then add that $100 a month, all
else being equal youll have only about
$167,000 by age 65.
Pay yourself first. If you skim savings off the top of each paycheck, the
cash will disappear before you have a
chance to miss it. With a 401(k) retire-
Choose a bank. Any savings that

you may need to access in a pinch
(and that includes your emergency
fund) should reside in a bank, where
your money is insured. Savings
accounts and money market deposit
accounts, which often pay more than
regular savings accounts, are generally easy to access. At www.deposit
accounts.com, look for accounts available in your area that pay top interest
rates. Watch out for minimum-balance
requirements and monthly maintenance or transfer charges.
You dont have to have a checking
account and savings account in the
same place. Banks are increasingly
offering convenient features such
as mobile check deposit, which allows
you to submit a check by snapping
a picture of it with your smart phone.
Online banks, such as Ally Bank and
ment plan at work, for example, your
Evantage Bank, let you perform many
employer pulls the amount you desigof the same transactions as a tradinate from each paycheck. For other
tional bank.
savings, you can schedule automatic
Wherever you put your money,
transfers from your checking account.
watch for fees. If you regularly get
You may want to set up multiple savcash from other banks ATMs, you
ings accounts if that helps you track
could pay hundreds of dollars a year
progress toin extra charges.
ward each
Some banks will
goal more
reimburse you
easily.
for fees that other
Saving for
banks charge you
retirement
for using their
is usually priATMs; the State
SAVEDPLUS
ority number
Farm Bank Free
(Android, Apple) automatione, but you
Checking Account,
cally shifts money from
your checking account into
should also
for one, will rea savings account every
create an
fund all ATM
time you make a purchase.
emergency
charges if you
You choose the percentage
fund that
have direct deof the purchase amount.
holds enough
posit. Other incash to cover
stitutions are
at least six
members of large,
MASTERCARD NEARBY
(Android, Apple, Windows)
months
surcharge-free
lets you search for nearby
worth of livATM networks,
ATMs based on your current
ing expenses
such as the Alllocation, and it can filter for
(see Lesson
point network.
features such as 24-hour
Learned, on
Most banks waive
availability and fees.
the previous
monthly maintepage). Then,
nance fees on
assuming you
checking accounts
have a plan
if you have a monthly
to pay off any debts, you can move on
direct deposit or maintain a minimum
to saving for your other goals.
balance. LISA GERSTNER
get these apps!
48
4/10/14 7:26 PM
Saving is good. Investing is better.

If you save $100 a month and earn
0.95% annually (currently the highest
yield for savings accounts, according
to Bankrate.com), youll have more
than $58,400 in 40 years, excluding
taxes. If you invest the same amount
and earn an 8% annual return, your
total grows to about $324,180.
Your first experience with investing
will likely be within a 401(k) or similar
employer-sponsored retirement plan
(see Free Money for Retirement, on
Over the long term,

the rewards of stocks
far outweigh the risks.
the next page). Those dollars are earmarked for the faraway future. So you
can afford to take on risk and should
consider putting your entire portfolio
in stocks.
You might be wary of such advice,
especially if you were paying attention
during the bear market of 2007 to
2009, when Standard & Poors 500stock index tumbled 55%. But at the
end of the day, the stock market will
be your friend, says Wendy Weaver,
a financial planner with FBB Capital
Partners, in Bethesda, Md. Youll
stay ahead of inflation, which can eat
away your buying power and your
ability to be financially independent.
In fact, the S&P 500 has delivered a
total return of more than 200% since
its 2009 low.
Still, your exact stock allocation will
depend on your comfort level. If youd
rather dial down risk, balance your investments with some bonds and cash.
Mutual funds or exchange-traded
funds are the best ways to get into the
stock market. A single investment

can buy you a diversified portfolio at a
relatively low cost. You need a brokerage account to purchase ETFs, which
you buy and sell like individual stocks.
(We offer diversified portfolios below
using funds or ETFs.)
Begin with basic investments,
such as the index funds or ETFs in our
portfolios, or, if youre investing in
your 401(k), the index funds offered
by your employer. The plain-vanilla
strategy of mirroring a broad market
segments performance can help minimize surprises and give you a solid
foundation. A target-date fund is
another option: Choose the year you
want to retire, and the funds managers select the mix of investments.
As you age, the pros adjust the portfolio to the allocations considered
appropriate for that time frame. A

target-date fund may be the default
investment in your 401(k).
Even the most patriotic investors will
need to look overseas. The U.S. is facing a lot of headwinds, from our debt
to taxes to paying for social programs,
whereas other countries have a lot of
growth potential, says Bob Gavlak, a
financial planner with Strategic Wealth
Partners, in Independence, Ohio. To
get the best long-term returns, says
Gavlak, international and emergingmarkets stocks need to be part of your
investments. We recommend that the
majority of your assets stay home,
with up to 70% of your portfolio in
U.S. stocks. But send the rest abroad,
putting up to 25% in international
stocks and 5% to 10% in emergingmarkets stocks. STACY RAPACON
A $1,000 PORTFOLIO, TWO WAYS

Weve put together one mutual fund portfolio and one ETF portfolio that are good
bets for your first foray into investing. Charles Schwab offers index funds with
minimum initial investment requirements of just $100, and account holders may
trade more than 100 ETFs free. You can open a brokerage account at Schwab with
$1,000or with no minimum, if you agree to add $100 each month automatically.
$200
$100
FUND: SCHWAB INTL.

INDEX (SWISX)
FUND: SCHWAB FUNDAMENTAL

EMERGING MARKETS LARGE
COMPANY INDEX (SFENX)
ETF: SCHWAB INTL.

EQUITY (SCHF)
ETF: SCHWAB EMERGING MARKETS

EQUITY (SCHE)
$700
FUND: SCHWAB TOTAL STOCK MARKET INDEX (SWTSX)
ETF: SCHWAB U.S. BROAD MARKET (SCHB)
49
4/10/14 7:26 PM
Scrounge to Save
While working as an intern at Kiplingers,
I wait tables on the side. Holding down
two jobs isnt an ideal situation, but it has
allowed me to pursue a career in writing
while keeping food on the table and a roof
over my head.
Washington, D.C., is an expensive city,
and Im on a shoestring budget, but I still
contribute a small chunk of my paycheck$100 a monthto my 401(k) plan.
Kiplingers plan has the option of a Roth
401(k), and thats what I use. I dont get
a tax break on the money I contribute, but
Ill get to make tax-free withdrawals in retirement. (And its a safe bet, considering
my interns wages, that Ill retire in a higher
tax bracket than the one Im in now.) I put
all of my money in stock funds. At my age,
I can take on the extra risk and go for a
better return.
You read a lot about the magic of
compounding. But its not magic. Its math.
The numbers say contributing as early and
as consistently as I can is going to make
me richer by the time I retire. That makes
it worth working a little harder and living a
little more modestly right now. RYAN ERMEY
Even modest contributions to a savings plan could mean the difference

between retiring comfortably and
never being able to retire at all. The
good news is that most big companies,
and many small ones, offer a 401(k)
plan. If you work in the public sector,
you may be offered a 403(b) or 457
plan; the federal governments version
is called the Thrift Savings Plan.
Money is automatically deducted
from your paycheck and invested in
a portfolio of mutual funds or other
If your company
matches contributions,
youve got a head start.
investments. Your contributions will
grow, tax-deferred, until you withdraw the money. In 2014, you can
contribute up to $17,500. That may be
more than you can spare. But if your
company matches contributions, you
should contribute at least enough to
get that match. The typical company
match is 25% to 100% of your contribution, up to 6% of your salary.
More than half of large companies
automatically enroll new employees in
their 401(k) plans, forcing them to opt
out if they dont want to participate.
But auto-enrollment plans typically
set contributions at 3% of paywell
short of the amount you should be
saving for retirement. Shoot for 10%,

including the match.
If you dont have access to a company retirement plan, youll have to
do a little more legwork. For most millennials, the best option is a Roth IRA
(consider investing in one even if you
have a retirement plan through your
job). In 2014, the maximum you can
contribute to a Roth IRA is $5,500.
Contributions to a Roth are after-tax,
but the money will grow tax-free. You
can always withdraw contributions
tax-free, and as long as you wait until
youre 59 to dip into earnings, 100%
of the earnings will also be tax-free.
A traditional IRA is another option.
If youre not covered by a retirement
plan at workor youre covered but
your modified adjusted gross income
in 2014 is $60,000 or less, or $96,000
or less if youre married and file
jointlyyou can deduct the full contribution (the maximum is the same as
for a Roth). Self-employed workers can
make even larger deductible contributions. If you open a SEP IRA, you can
contribute 20% of your net earnings
(your business income minus half of
your self-employment tax), up to a
maximum of $52,000. A solo 401(k)
lets you save even more. You can contribute up to $17,500 plus up to 20%
of your net self-employment income,
up to $52,000. For example, if you net
$15,000 from a freelance job this year,
you could contribute the full amount
to a solo 401(k), but only $3,000 (20%
of $15,000) to a SEP. SANDRA BLOCK
50
4/10/14 7:13 PM
miums and, if your deductible is at least

$1,250 for single coverage or $2,500
for family coverage, you may qualify
to make contributions to a health
savings account. You dont pay taxes
on contributions to an HSA, and you
can use the money tax-free to pay health
insurance deductibles, co-payments
and other medical expenses.
Most high-deductible policies provide preventive care (certain checkups
and tests) that is free of deductibles

and co-payments. Many employers
contribute about $500 to employee
HSAs for single coverage or $1,000
for family coverage, no matter how
much you contribute yourself, says
Jeff Munn, vice-president of benefits
policy development for Fidelity.
Employers may also contribute extra
money to HSAs for wellness programs.
If your boss doesnt offer an HSAeligible high-deductible policy and
you have a lot of out-of-pocket medical
expenses, make use of your employers
flexible spending account (FSA). You
can set aside up to $2,500 per year,
which isnt nicked by taxes and may
be used tax-free for out-of-pocket medical expenses. Most employers let you
carry $500 from one year to the next.
What if you dont have workplace
health insurance? You can buy a policy
on your state health insurance exchange
(see HealthCare.gov for links). If your
income is below 400% of the federal
poverty level (about $47,000 for an
individual and $63,000 for a couple),
you can get a subsidy to help cover
your premiums. The Affordable Care
Other bennies. Sign up for pretax

commuter benefits, if theyre offered.
You can set aside up to $130 per month
for public transportation and up to
$250 per month for parking (and $20
per month if you bike to work). If you
have children younger than 13, you
can contribute up to $5,000 pretax
to a dependent-care FSA for day care,
preschool, after-school care, a nanny
or day camp while you and your spouse
work (or if one works and the other is
a full-time student).
Dont worry about life insurance
your employer may offer extra coverage for a feeunless you have a spouse
or children who depend on you financially. You may be able to add extra
disability insurance, but this coverage
can be pricey. Calculate whether your
employers group disability benefits
are enough to cover your bills.
KIMBERLY LANKFORD
Youll likely see about a fourth of your

salary lopped off for federal, state and
local income taxes plus Social Security and Medicare payroll taxes. You
can control the amount of income tax
withheld from your paycheck by
changing the number of allowances

on your Form W-4, which is available
from your human resources department or at IRS.gov. Claim more allowances on your W-4 form and less tax
will be withheld.
Most workers err on the side of
having too much withheld and receive
a big refund in the spring. But thats
giving Uncle Sam an interest-free loan.
You could use extra money in each
paycheck to add to savings or pay
down debt. If your current situation
is similar to last years, use our Tax
Withholding Calculator (kiplinger
.com/links/withholding) to estimate
how many allowances you deserve.

Dont overlook breaks that could
lower your tax bill when you file your
income tax return. If you moved at
least 50 miles from your old home to
start your first job (or, if you switched
jobs, your new job is at least 50 miles
farther from your old home than your
old job was), you can deduct the cost
of moving yourself and your household
goods. Paying off student loans? You
can deduct up to $2,500 in interest, as
long as your modified adjusted gross
income is less than $75,000 if youre
single, or $155,000 if youre married
and file jointly. SANDRA BLOCK
The biggest perk on your employers

benefits menu is likely to be health
insurance, but youll probably have
to share the cost. If you have several
options, consider a high-deductible policy, especially if youre healthy. These
policies generally have the lowest pre-
High-deductible
health insurance plus a
health savings account is a
winning combination.
Act allows you to stay on your parents

plan until age 26, but if you live in a
different city without access to their
network of providers, consider buying
a policy on the exchange.
51
4/10/14 7:13 PM
Treat it as a valuable
asset. The right moves
will earn you the lowest
interest rates.
If youre smart about when and how

you use it, a credit card can help you
build a solid credit history and boost
your credit score. That will help you
get a lower rate when you apply for a
mortgage or other loan.
Qualifying for your first credit card
can be a pain because you may not
have much of a credit record. Check
with your bank or credit union, which
may offer its customers a break. Or
apply for a retail credit card, such as
the Target REDcard or the Chevron/
Texaco gas card. Retail cards are
often easier to get than other cards,
although they typically come with
high annual percentage rates and low
spending limits. A third option: a secured credit card, which requires you
to make a cash deposit. On-time
protection, which may get you a restudent-loan payments also help you
pair, replacement or reimbursement
build a good credit history.
for an item you bought with the card
Its easy to rack up a big balance
quickly, and if you dont pay off the full that is damaged or stolen within a certain period after purchase. And some
balance each billing cycle, youll owe
rewards cards offer up to 5% or 6%
interest. Pay only the minimum and
cash back on certain purchases, such
youll be paying for a while. For examas groceries or gas. (Youll need a solid
ple, if you charge $2,000 on a credit
credit history to qualify for the best
card with a 22% interest rate and
rewards cards.)
make a $40
The Discover It
payment every
card, for one, pays
month, it will
5% cash back in
take more than
categories that
11 years to pay
rotate quarterly
it offand
and 1% on all
youll fork over
CREDIT KARMA
other purchases.
$3,471 in inter(Android, Apple) gives
Compare annual
est. You may
you your credit score from
TransUnion, tracks balpercentage rates
find that the
ances, and has a credit
and fees, such as
best way to
report card with info on
annual and latecontrol your
such things as percentage
payment fees.
cash flow is
of on-time payments and
(For our favorite
to use a debit
how much of your available
credit, debit and
card or prepaid
credit youre using.
prepaid cards,
debit card
see the box on
once you spend
the next page.)
the money,
its gone (see
Know the score. Credit scores are
a comparison of payment methods on
based on information from your credit
the next page).
history, and theyre a shorthand way for
Many credit cards carry perks such
lenders to judge your creditworthiness.
as extended warranties and purchase
get this app!
52
4/10/14 7:32 PM
There are many credit scores, but

lenders commonly use the FICO score
when you apply for credit. You often
have to pay to see your FICO score
and the version that you buy may not
be the same one a lender views. The
VantageScore is another gauge that
lenders use, though it hasnt been as
widely adopted as the FICO score. The
latest version of the VantageScore operates on the same scale as the FICO
score (300 to 850), but its calculated
with a different formula.
Dont get caught up trying to track
every score. To get an idea of where
your credit stands and how you can
improve it, use free tools such as
Credit.com, which provides two credit
scores based on information from the
credit bureau Experian. CreditKarma
.com offers free scores based on TransUnion information (it also has an app;
see the previous page).
To protect your credit score, always
make your payment by the due date,

even if its the minimum. Missing just
one payment can ding your score. You
should also keep the balance on your
credit card low compared with the
cards maximum limit. Ideally, your
charges wont exceed about 20% of
the cards limit. And dont apply for
several credit cards in a short time.
That can tug down your score. Credit
.com and Credit Karma both provide
insight on how each portion of your
score stacks up.
check your credit reports. At www

.annualcreditreport.com, you can get a
free credit report annually from each
of the major credit bureaus: Equifax,
Experian and TransUnion. Your reports list your credit accounts, including loans and credit cards, and provide
information such as your record of
on-time payments, the age of each
account, and inquiries from lenders
to check your report. Credit reports

also point out any delinquencies, such
as a bankruptcy or an account that went
into debt collection. You can request
all three of your free reports at once
or stagger them throughout the year,
ordering a report every four months.
If information on any of the reports
is incorrect, youll have to correct it
with each bureau that has the erroneous information. The procedure is
spelled out on each bureaus Web site.
You can use free credit-monitoring
tools to get e-mail alerts of changes
in your credit reports. Credit Karma
will monitor your TransUnion report
free, and Credit Sesame (www.credit
sesame.com) does the same for your
Experian report. If you get a notification that, say, a new credit account
has been opened but you didnt open
it, you can investigate further in case
someone has stolen your identity.
LISA GERSTNER
Pick Your Plastic

Credit Cards
Debit Cards
Prepaid Cards
PROS
Strongest fraud protections
Helps build credit history
Perks such as purchase protection
and travel insurance
Rewards, such as points for travel
or cash back, on some cards
PROS
Limits spending to what you have in
the bank
No monthly payments or interest
charges
Using it may fulfill requirement for
no-fee checking
PROS
Limits overspending
Some have direct deposit, ATM
access and online bill-paying
Easier to acquire if you have poor
credit
CONS
Temptation to accumulate debt
Late fees; some cards have an
annual fee
High interest rates compared with
home and car loans
CONS
High fees if you allow overdrafts
Weaker fraud protection than a
credit card
Doesnt build credit history
May be harder to use for hotel
and rental-car reservations
OUR PICKS
The Barclaycard Rewards Master
Card (for average credit) offers
cash back on purchases and has a
lower bar for qualifying than other
rewards cards.
If you carry a balance, check out the
First Command Bank Platinum
Visa, which has a 6.25% rate.
OUR PICK
The Lake Michigan Credit Union
Max Checking account pays 3% on
up to $15,000 if you use your debit
card ten times monthly, have direct
deposit and meet other requirements. Join by donating $5 to the
ALS Association of Michigan.
CONS
May charge high activation fee and
monthly maintenance charges
Fewer fraud protections
Doesnt build credit history
OUR PICKS
The American Express Serve
waives its $1 monthly fee if you
have direct deposit or load at least
$500 a month, has no fees at some
ATMs and has mobile check deposit.
Bluebird from American Express
and Walmart has no monthly or
activation fee and no fees at certain
ATMs (with direct deposit). It also
offers mobile check deposit.
53
4/10/14 7:33 PM
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4/10/14 3:50 PM
Among graduates of the class of 2012

who borrowed, the average debt is
$29,400not a crippling amount, but
no easy lift, either. Many graduates
have a mix of federal loans at a variety
of interest rates (federal Direct Loans,
the most widely available, carried a
3.86% rate for the 201314 school
year), and some borrowers also have
private loans with variable rates as
high as 11%. You can pick a repayment
plan that fits your finances; if your
circumstances change, you can always
If payments are
taking a huge slice out
of your salary, choose
another repayment plan.
change the plan. To see which best
fits your budget, go to http://student
aid.ed.gov/repay-loans/understand
and click on Repayment Estimator.
The most straightforward repayment plan for federal loans is the standard ten-year plan. Under this arrangement, you pay the same amount each
month until your loan is repaid. But
that can be challenging for graduates
with a lot of debt or a low-paying job.
Borrowers who have $30,000 or more
in loans can opt for the extended-
repayment plan, which lowers the

monthly bill by lengthening the repayment period to as long as 25 years.
The graduated repayment plan requires lower payments at first and
then raises them, usually every two
years, for up to ten years, presumably
as your income increases. (With the
extended and graduated plans, youll
pay more interest than with the standard repayment plan.)
Or check out income-based repayment plans, such as Pay As You Earn,
the newest of such options. Incomebased repayment is for borrowers with
a lot of debt relative to income. You
qualify if you have a partial financial
hardshipthat is, your monthly payments would be higher under the tenyear standard repayment plan than
under the income-based plan.
With Pay As You Earn, you must
also have taken your first loan on or
after October 1, 2007, and received a
disbursement of at least one loan on
or after October 1, 2011. You put 10%
of your discretionary income (the
amount by which your income exceeds
150% of the poverty line) toward your
loans over 20 years, after which any
remaining amount is forgiven.
Borrowers in income-based repayment programs who work in publicservice positionsfor the federal
government or a qualifying nonprofit,
for examplealso qualify for publicserv ice loan forgiveness; federal loans
are forgiven after ten years (or 120 ontime payments) instead of 20 years.
Consolidate your loans. Consolidation lets you combine your federal

loans under one interest rate and one
bill (you cant consolidate federal
loans with private loans). The interest
rate is based on the weighted average
of the interest rates on the loans being
consolidated, rounded up to the nearest one-eighth point. Consolidating
still gives you access to the range of
repayment plans.
No matter which repayment plan
you choose, sign up for automatic
debit. Youll qualify for a 0.25percentage-point reduction on your
federal interest rate. SUSANNAH SNIDER
BALANCE DEBT
PAYMENTS AND SAVING
Sometimes you can overdo a good thing.
I have a manageable, ten-year repayment
plan for my federal student loans, but I
used to put every spare penny toward my
student debt. I loathed having that fivefigure number hanging over my head like
a rain cloud. If I had a security deposit returned, Id pay down my student loans. If I
received a birthday check from my favorite
aunt, Id pay down my student loans. Got a
raise? Yup, Id pay down my loans.
But my tunnel vision wasnt helping my
overall financial health. I was paying down
debt at the expense of my emergency fund
and retirement savings. When my laptop
gave up the ghost, I didnt have enough
cash on hand to buy a new one. My 401(k)
was meager at best.
It took a year or so after graduation
to realize that my monthly student-loan
payments werent the only piece of my
financial picture. I needed to build a cash
cushion for unexpected expenses and start
saving for the future. Ive scaled back and
now pay the monthly amount based on
the ten-year plan, focusing instead on saving for retirement and putting up to 10%
of my paycheck into an emergency fund.
SUSANNAH SNIDER
55
K6M-MILLENNIALS 55.1.indd 55
4/11/14 1:30 PM
Its a good time to buy,

but renting is better
if youre not ready to
stay put at least five years.
If youre uncertain where life might
take you nextfor a job, a relationship
or just a change of sceneryrenting
beats buying. It costs a lot less in terms
of time, effort and money to break a
lease than to sell or rent out a home
that you own. Plus, the landlord is responsible for maintenance and repairs.
Buying can be a great investment
or a lousy one, depending on the market where you live when you buy and
when you sell. If you buy and home
values go down, you may have to wait
to sell to get back the money you invested in a down payment and mortgage closing costs (see the next page
for advice on what it takes to qualify
for a mortgage).
It usually makes sense to buy only if
you plan to stay in your home for five
to seven years. Thats generally long
enough to recoup the upfront cost to
be able to keep up to $250,000 of profit

tax-free when you sell ($500,000 if
youre married and file your income
taxes jointly).
If youre on the fence about buying
or renting, take a look at the price-torent ratio where you live (the median
sale price of a home divided by the
average annual rent for a comparable
one). In general, if the ratio is less than
15, the market favors home buyers; if
its more than 20, it rewards renters.
Right now, the ratio nationally is a balanced 14.8, according to Marcus &
Millichap, a real estate research firm.
Ratios between 15 and 20 can go either
way, depending on factors such as
taxes and the potential for appreciation. The ratios in such millennial
meccas as New York City, San Francisco and Washington, D.C., typically
favor renters, but a spike in rents and
low mortgage rates is tipping the
ratios in favor of buyers. (For a look
get a mortgage and the back-end costs
at the largest 100 cities, see Rent
to sell and pay an agents commission.
vs. Buy: Which is Cheaper for You?
If you fit that profile, now is a good
at www.trulia.com/vis/rentvsbuytime to buy; most cities in the U.S.
winter-2014 and use the calculator
have recovered from the housing marto assess your situation.)
ket bust that began in mid 2006, and
Even with your down payment in
mortgage rates are still superlow. Once
hand, landing your
you become
dream home
a homeowner
could be a chaland prices
lenge, especially
rise, youll
in markets where
be rewarded
the inventory of
with the
homes for sale is
power of
Just because you dont own a home
low (often the
leverage
doesnt mean you shouldnt insure the
same markets
you may put
things you own. Buy renters insurance
where rents are
only 20% (or
to reimburse you for the cost to replace
inflated) and the
less) down,
your belongings (a replacement-cost
best homes atbut you get
policy) if theyre stolen or destroyed, as
tract multiple
100% of the
well as provide liability coverage. The
bids. What you
appreciation.
average cost of a policy is $16 a month,
can do: Get preRegardless of
says the National Association of Insurapproved for fiwhether your
ance Commissioners. Compare policies
nancing to make
homes value
at NetQuote.com or InsWeb.com. Youll
your bid more atgoes up,
usually get a discount if you buy covertractive. And ask
youll benefit
age through the same company that
the sellers agent
from the tax
insures your car.
if you can get the
deductions
home inspected
for mortgage
before you make
interest and
an offer so you dont
property taxes
have to include it as a contingency in
if you itemize deductions on your fedthe contract. PATRICIA MERTZ ESSWEIN
eral tax return. And you will probably
INSURE YOUR STUFF
56
4/10/14 7:10 PM
How much youll need

and what to expect when
you apply for a mortgage.
Before lenders will approve you for a
mortgage, they want some assurance
that you arent going to default on the
loanthat you have enough income to
pay your mortgage, enough savings for
a down payment and closing costs, and
a good credit history. The better your
credit profile and the bigger your
down payment, the lower the interest
rate for which youll qualify. (In early
April, the average 30-year fixed rate
was 4.3%.)
Lenders size up your three cs
credit history (your credit score and
your record of debt repayment), capacity (income, savings and investments)
and collateral (your down payment
and the value of the home you want to
buy, after an appraisal). They verify
employment for the past two years and
try to predict how likely it is that youll
keep your job. If youre weak in one
area, strength in the other two or in a
spouses profile may compensate.
To figure out how big a mortgage
you can afford, lenders apply paymentto-income ratios. (The majority of
banks and credit unions sell the mortgages they originate to Fannie Mae or
Freddie Macagencies that guarantee
the loans made by lendersand follow

their rules.) Your monthly mortgage
payment shouldnt exceed 28% of your
monthly gross income (before taxes
and other deductions). That 28% limit
covers principal and interest, real
estate taxes, homeowners (hazard)
insurance, and homeowners or condo
association dues.
Recurring monthly payments for all
debts (including student loans, even if
theyre deferred) shouldnt exceed
36% of your monthly gross income.
The Federal Housing Administration
(FHA), another loan guarantor, bumps
up the ratios for mortgages and all
debts to 31% and 43%, respectively (it
doesnt include student-loan payments
that are deferred for a year or more).
Probably the greatest challenge for
would-be home buyers is saving for
the down payment. Fannie Mae and
Freddie Mac require a minimum down
payment of 5% to 10% of a homes purchase price. In early 2014, 10% down
on a median-priced home in the U.S.
would have required nearly $19,000.
Put down less than 20%, though, and
you must pay for private mortgage insurance. The FHA allows down payments as low as 3.5% but requires that
you pay upfront and annual insurance
premiums.
If youve been stashing money in a
traditional IRA, you can withdraw up
to $10,000 penalty-free for a first-time
home purchase (youll owe taxes on
100% of the withdrawal unless youve
made nondeductible contributions).
You can always withdraw your contributions to a Roth IRA without penalty
or taxes, and you can take up to
$10,000 of earnings penalty-free for a
first-time home purchase. If your Roth
has been open for at least five years,
those earnings are tax-free, too.
Or you can generally borrow up to
half of the balance of a 401(k), up to a
maximum of $50,000, for any reason.
The interest you pay on the loan goes
back into your account. Your employer
may give you up to 15 years to repay
the loan if you use the money to buy a
home, and the loan doesnt count in
the debt-to-income ratio.
PATRICIA MERTZ ESSWEIN
Get a Roommate!
When I started working in the Washington,
D.C., area after graduating from college,
two friends and I lived in a townhouse that
I loved. It provided easy access to public
transportation, and it had a backyard
patio as well as a spacious basement that
came with a pool table.
By splitting the bills for rent and utilities
three ways, my roommates and I kept our
monthly housing expenses to about $900
per persona fair price in a region with a
high cost of living. Since then Ive moved
a few times, but I continued to share
housing costs with a roommate. We found
apartments that we could afford, in safe
neighborhoods that were near the Metro
and had a lot of young professionals. My
current roommate and I are even comfortable splitting the price of some memberships, such as Amazon Prime and Costco.
Without housing expenses draining
most of my paycheck, Ive been able to
save for retirement and spend money
on things I value, such as travel. And Im
debt-free. Ive never known the pleasures
of living alone, but Im convinced that
living within my means feels even better.
LISA GERSTNER
57
4/10/14 7:10 PM
thats how you get Internet access,

but youll pay a more reasonable $40
or so per month, depending on your
plan. If cutting the cable is out of the
question, shop the competition for a
better deal. You may be able to get
your bill reduced by sending the cable
company a tweet and threatening to
cancel your subscription (see 3 Simple Steps, on page 72).
If you dont have a boatload of disposable income, use technology and

social-media savvy to bolster your
spending power.
Be flexible with travel. The more

leeway you have with travel dates and
destinations, the better the deals on
airfare and lodging. Have a dream
destination or favorite airline? Sign up
for alerts at Airfarewatchdog.com or
through an airlines Web site to get a
sense of what tickets typically cost and
Use our strategies

(and your smart phone)
to save money on
the fun stuff.
to get first dibs on flash sales. You may
have to travel on a weekday or book at
the last minute to grab the low fare.
Use a travel site such as Kayak.com
(or the Kayak app) to compare prices
on flights, hotel rooms or rental cars.
You can also set up alerts to see the
lowest airfares on a favorite route.
For the best lodging deals, travel offseason. Destinations that cater to tourists will have empty hotel rooms to
fill, and they may offer you freebies
in addition to a cheaper rate. In any
season, booking at the last minute is a
good way to save because hotels often
slash prices to fill unsold rooms. Try
the Hotel Tonight app (Android and
Apple) for day-of reservations in dozens of locales across the U.S., Canada,
Mexico and Europe. It includes a
ranking of the hotel and information
on amenities, and it labels venues from
luxe to crashpad.
Use a prepaid wireless plan. Prepaid

phone plans are an affordable option
if you arent getting a deep discount
through a family plan. For $55 per
month, you get unlimited talk time,
text messaging and data with Virgin
Mobiles Beyond Talk Plan (data speed
slows any month you pass 2.5 gigabytes of usage). Other Beyond Talk
plans charge less for fewer minutes
of talk. Having a prepaid plan doesnt
mean you have to chat on an old-school
flip phone. Virgins plan recently offered the iPhone 5s with 16GB of storage for $495.
Cut the cable. The average cable bill
is $62 a month, or $744 a year (not
including Internet serv ice), reports
the Federal Communications Commission. Thats a lot of cash. Instead of
pricey cable channels, try Hulu Plus,
which typically uploads shows one day
after they air on television and lets you
stream them through Amazon Fire,
Apple TV, a Roku box, Wii or other
Internet-enabled device. A Netflix
account gives you access to tons of
movies, plus its own buzzy shows,
such as House of Cards and Orange
Is the New Black. Each service costs
$8 per month.
You wont be able to sever your ties
with the cable company completely if
Consider car sharing. If you live

in a high-rent city, your budget may
not have room for a set of wheels.
Of course, most urban areas have
mass transit systems and access to car
sharing, such as Zipcar ($7 an hour or
more, plus a $25 application fee and
$60 annual membership fee). If a car
is essential, consider buying used (see
Sweet Deals on Used Cars, on page
66). Payments for a used, $14,433 2011
Honda Civic LX with 10% down and
a 60-month, 5.5% loan would be $248
a month. Leasing is another option.
Leasing gives you the freedom to walk
away when your contract expires
without worrying about reselling or
trading in your ride. You could recently get a three-year lease for a
$19,980 2014 Honda Civic LX with
no money down for $210 a month.
Use technology to find deals. Shopping online is the simplest way to compare prices, search for coupons and
find discounts. Install PriceBlink on
your computer and it will scan 4,000
retailers to see whether the item
youre viewing is available elsewhere
for less. It will also alert you to coupon
codes that you can apply at checkout
for a discount. Or try the Honey plugin. Pull up an item on your screen and
click the plug-in to find discounts and
coupon codes. And remember that
even a brick-and-mortar shopping trip
can use a tech boost. To compare
prices from store to store or instantly
download coupons, scan a product
code using RedLasers app (Android,
Apple, Windows) to see whether your
item is selling for a lower price at
nearby stores. Or pull up coupons on
RetailMeNots mobile app (Android,
Apple). SUSANNAH SNIDER
58
K6M-MILLENNIALS 58-59.1.indd 58
4/11/14 3:21 PM
A part-time business
today could end up as your
main source of income.
Whitney Robinson, 28, graduated from
Duke University in 2008 with a degree
in computer science, and she spent the
next three years working for high-tech
and Web design companies. By 2011,
though, she realized she wanted to
do something more creative. She was
intrigued by the fact that furniture
companies in the Durham, N.C., area
routinely discarded scraps of highquality leather. I was fascinated that
leather, which has a pretty high perceived value, was being thrown away,
she says.
Robinson asked every furniture
company within a 30-mile radius
for scraps. She started a side business
making earrings, and later moved on
to wallets and purses. Her products,
marketed under the name Freshly
Given, are sold through her Web site,
Freshlygiven.com, on Etsy.com and
at local craft fairs.
Robinson would like to make Freshly
Given a full-time gig, but she isnt
earning enough to give up the money
shes paid for working as a consultant
to local start-ups that need help with
Web design.
One big advantage millennials have
over their parents is that in 2014, it
doesnt cost a lot to launch a business,

whether its a side gig or a full-time
venture. Web sites such as Etsy provide a low-cost way to sell everything
from pottery to vintage clothes, and
you can market professional services
through sites such as Elance.com,
Freelancer.com and Guru.com. By harnessing the power of the Internet, you
can promote your business to thousands of potential customers, at little
or no cost.
Millennials are the social media generation, so theyre comfortable taking
advantage of opportunities to market
their products and services. Still, if
you want to make money, you need to
treat your side business like, well, a
business. Start by setting up a checking
account for your venture. That way,
youll be able to separate your personal
expenses from your business expenses
a critical distinction when it comes
time to file your taxes.
Next, work on developing your personal brand. Create a LinkedIn profile
and ask people who are familiar with
your work to write references. Set up
a Facebook page specifically for your
business. Write guest posts for popular blogs and sponsor giveaways of
your products or services, says Kimberly Palmer, author of The Economy
of You. You can also use Instagram
and Twitter to promote your venture.
Even if you never work for yourself
full-time, a business you run on the
side could advance your career. It can
really set you apart in job interviews,
Palmer says. SANDRA BLOCK
T he End
RESHOP YOUR
CAR INSURANCE
Writing about cars has its perkssuch as
driving new cars all the time. I still have
my 1997 Honda Civic, which I drive once a
week, but the insurance premiums seemed
high. While working on a story about
Progressives Snapshot tool, I gave it a
test drive.
Heres how it works: You plug a
palm-size tool into the diagnostic port in
your car, and it pulls data from the cars
computer and sends it to the company via
a cellular network. The tool tracks the time
of day you drive, your mileage, and your
acceleration and braking rates. (Allstates
Drivewise works the same way.) After
30 days, you may earn an initial discount;
after six months, you send the tool back
and become eligible for a permanent
discount of up to 30%.
My monthlong test-run results showed
I would qualify for 30% off with Snapshot, so I signed up. During the six-month
monitoring period, I gave in to bad citydriving habitssome rapid accelerations
and sudden brakingand earned only a
21% discount. But with discounts for being
accident-free and having my homeowners
insurance with Progressive, my rates went
down even more. JESSICA ANDERSON
59
4/10/14 7:28 PM
GAME PLAN
If my home is damaged by a summer storm,

will my insurance cover repairs?
local insurance agent. Dont

wait until storm clouds
gather to buy a policy; typically, theres a 30-day waiting period before premiums
take effect. For price quotes,
go to FloodSmart.gov.
Sewage backup. If heavy rains
overwhelm your storm-water
system, sewage could back
up into your housean
expensive and smelly mess.
Most standard homeowners policies dont include
sewage-backup coverage,
but you can purchase a rider
that will pay for $10,000
to $20,000 of damages for
about $50 to $75 a year,
McGrath says.
Damage from trees. Old-growth
trees lose their charm in a
hurry when lightning,

wind or heavy rain knocks
them down. If the tree hits
your house, garage or other
insured structure, the damage is usually covered by
your homeowners insurance, says Jeanne Salvatore,
spokeswoman for the Insurance Information Institute.
Damage from a neighbors
treeor even from one a
block away that was uprooted in a windstormis
also covered. If your insurer
believes your neighbor contributed to the problem by
failing to take care of the
tree, it may try to collect
against your neighbors policy, Salvatore says. In that
case, you could get a break
on all or part of your deductible. But it works both
Get a tax break? You may be

able to recover some of the
costs your insurance doesnt
reimburse when you file
your taxes.
Losses from hurricanes,
floods and other disasters
that arent covered by your
policy are deductible, as long
as you itemize. You wont
be able to deduct the entire
amount of your losses, however. First, youll have to
reduce the amount of your
loss by $100. Then, you can
deduct only the amount
that exceeds 10% of your
adjusted gross income. For
example, if you suffered
$20,000 in unreimbursed
losses and your AGI is
$100,000, you would subtract $100, then subtract
$10,000 (10% of your AGI)
from the $19,900 balance,
bringing your deduction
to $9,900. SANDRA BLOCK
DAVE URBAN
ways: If your tree damages

your neighbors property,
you could be held responsible. Your insurer could
refuse to cover damage to
your property if it believes
you were negligent.
Most policies wont pay
to remove a tree that falls
in your yard but doesnt hit
anythingalthough you
may be eligible for some
coverage if the fallen tree
blocks your driveway or
prevents you from getting
into your house.
WHERE WATER-RELATED
damage is concerned, the

answer depends on whether
the water came from above
or below. In general, if the
damage was caused by winddriven rain that came in
through your roof, windows
or doors, your insurance will
cover the cost of repairs.
But if the damage is
caused by flooding, a far
more common problem
during storm season, your
homeowners insurance will
not cover it. The only way to
protect yourself from floodrelated damage is to buy
flood insurance from the
federal National Flood Insurance Program. Premiums range from about $200
a year to more than $2,000,
depending on your areas
risk of flooding.
Never assume you dont
need flood insurance just
because you dont live in a
coastal area. In 2011, torrential rainfall from Hurricane
Irene caused widespread
flooding throughout the
Northeast. Vermont was
hard hit, and many of the
victims didnt have flood insurance. A lot of Vermont
residents never thought
theyd be involved in major
flooding, says Richard
McGrath, chief executive
of McGrath Insurance
Group, in Sturbridge, Mass.
You can purchase federal
flood insurance through a
60
K6M-GAME PLAN.indd 60
06/2014
4/10/14 1:17 PM
JANE BENNETT CLARK > Rethinking Retirement
Bridging My Income Gap
plan on living at least until 90. Thats

not chutzpah talking; its heredity. My
grandmother lived to age 95, and my
mom is going strong at 89. (The average
life expectancy for women who make it to
65 is 86; for men, its 84.) Given that I may
have to stretch my retirement savings over
25 years or more, Ill try to wait past 66, my
full retirement age, to claim Social Security
benefits. For each year I wait, my benefit
will grow by 8% until age 70, when it maxes
out at 132% of the amount Im due at age 66.
With the extra income, Ill have less chance
of running out of savings later.
But because I cant live on fumes, Ill
have to find a way to make up for the missing Social Security checks for four years.
One obvious solution would be to keep
working full-time. Not only would my
paycheck more than compensate for the
benefit Im temporarily forgoing, but my
retirement accounts would keep growing,
and I could continue to fuel them.
LISE METZGER
Take spousal benefits. I could also receive
Social Security based on my former husbands benefit while postponing my own,

then switch to my higher benefit at 70.
Married couples can use a similar strategy
by claiming one spouses benefit and postponing the others through a method called
file and suspend. (For a personalized recommendation of which claiming strategy
would work best for you, visit kiplinger
.socialsecuritysolutions.com.) Spousal
benefits are generally equal to only half
the other spouses full benefit.
If I decide to retire before 70, Id have to
supplement the spousal benefits by working part-time. Alternatively, I could take
more out of my retirement accounts to cover
the income gap until I hit 70. On the face of
it, that strategy seems scary. Wouldnt taking
bigger withdrawals early in retirement
mean scraping bottom 25 or 30 years hence?
In fact, says William Reichenstein, a principal at Social Security Solutions, the higher
Social Security benefit you get by waiting

until 70 not only increases your spending
power but also extends your portfolio
despite the earlier, bigger withdrawals.
Thats because bigger Social Security benefits will let you withdraw less from your
retirement accounts to generate the same
spendable cash. If you have a long life
expectancy, its the right decision, he says.
Yet another idea: Keep working and postpone Social Security, but stop saving. This
concept, called practice retirement by
T. Rowe Price, lets you enjoy some of the
perks associated with retirement while still
pulling in a paycheck. Maybe you were setting aside 15% or 20% of your salary. Instead,
contribute enough for the employer match
and enjoy the rest of the money, says Christine Fahlund, vice-president of T. Rowe
Prices Investment Services.
Granted, youll lose some of that money
to taxes, assuming you were contributing to
a pretax account. But if you were saving the
maximum ($23,000 this year in a 401(k) for
people 50 and older), you could still free up
enough to finance a few nice trips or home
improvements. (Hello, hot tub!) Youll also
be delaying Social Security, letting your
savings compound and shortening the
period during which youre withdrawing
money in retirement. (For examples of various scenarios, see T. Rowe Prices Practice
Retirement, at http://tinyurl.com/k5ae9xz.)
Of all the possible strategies, the idea of
working longer and saving less appeals to
me the most. Heres why. I like my job, so
doing it for a few more years isnt the hardship it would be if I were less fortunate in
my career. Ive been saving my entire adulthood, and I would welcome the chance to
splurge a little. If working longer at a job
I enjoy also gets me a monthlong vacation
in Provence or a Mini Cooper in which to
cruise into retirement when I leave my job,
Id say thats a pretty good trade-off.
Of all the
possible
strategies,
the idea of
working longer
and saving
less appeals
to me the
most.
JANE BENNETT CLARK IS A SENIOR EDITOR AT KIPLINGERS PERSONAL FINANCE.
61
06/2014
K6M-RETHINK RETIRE.1.indd 61
4/11/14 12:09 PM
MONEY
KIMBERLY LANKFORD > Ask Kim
A One-Time Financial Checkup
D.F.G., South Windsor, Conn.
Most advisers
in the Garrett
Planning
Network
charge $150
to $300 per
hour, or $600
to $1,500 for
a one-time
financial
review.
Try the Garrett Planning Network (www

.garrettplanning.com), which has more
than 300 fee-only financial advisers
throughout the country who charge by
the hour. Member advisers taking on new
clients must offer one-time financial checkups as one of their services. Most of the
advisers charge $150 to $300 per hour,
or $600 to $1,500 for a one-time review.
Many members of the Alliance of Cambridge Advisors (www.acaplanners.org)
also offer one-time checkups, as do some
members of NAPFA (www.napfa.org), a
national association of more than 2,400
fee-only financial advisers.
The scope of services can vary. Margot
Dorn, a certified financial planner in San
Diego, charges $210 per hour for retirement
planning, cash-flow analysis, investment
advice, and insurance and estate-planning
reviews. Basic planning, she says, takes one
to three hours; detailed retirement projections and investment allocation can take
longer.
You may also have access to advice
through your 401(k) plan or brokerage
firm. Vanguard will connect you by phone
to a financial planner who will assess your
progress toward your retirement goal,
discuss asset allocation and show how
much you can safely spend in retirement
(the fee is $250 for clients with $50,000
to $500,000 in investments at Vanguard).
documents showing that distributions were

used for medical expenses?
G.J., Frederick, Md.
HSA money can be rolled from one administrator to another, and you can have more
than one HSA as long as your total contributions for the year arent more than
$3,300 for individual coverage or $6,550
for family coverage (plus $1,000 if you are
55 or older). Keep your current account
active if your employer contributes to it,
even if you add another account. The new
administrator can help with the transfer.
Withdrawals for eligible medical expenses are tax-free at any age. You dont
need to show the provider receipts to get
the money, but for tax purposes, you must
keep the records with your tax files. (You
can generally be audited for up to three
years after the tax-filing deadline.)
Long-term care. How does a partnership
eligible long-term-care policy work, and

what happens if we move to another state?
J.D., via e-mail
HSA rollover. Can I roll over a health savings
Most states offer long-term-care partnership programs, which allow you to keep
more of your assets if you exhaust all of
your benefits from an eligible policy and
have to rely on Medicaid. For example,
if your policy provides total benefits of
$200,000 (usually your daily benefit multiplied by your benefit period), you can
protect an extra $200,000 in assets above
the states Medicaid limits.
Most states have reciprocity with other
states partnership programs. So if you
move, you can generally protect the same
amount of assets based on your policys
total benefits; the Medicaid eligibility rules
of your new state (not the state where you
bought the policy) will apply. A few states,
such as California, do not have reciprocity
(see www.aaltci.org/partnership).
account to another institution or have more

than one HSA? How long do I need to keep
GOT A QUESTION? ASK KIM AT KIPLINGER.COM/ASKKIM. KIMBERLY

LANKFORD ANSWERS MORE QUESTIONS EACH WEEK ON KIPLINGER.COM.
LISE METZGER
MY HUSBAND PLANS TO RETIRE

in about four years. Wed like to see
a financial planner for a one-time
checkup to make sure were on the
right track. How do we find someone
who will do this, and how much
will it cost?
62
K6M-ASK KIM.indd 62
06/2014
4/9/14 2:50 PM
TOP-YIELDING MONEY MARKET ACCOUNTS
CREDIT
Make Bill-Paying
(Almost) Painless
PAYING BILLS WILL NEVER
really be fun. But making

payments electronically
makes it easier. It cuts down
on clutter, gives you an electronic history of your payments, and saves you from
buying stamps.
Bill-paying through your
bank is a handy way to manage all of your bills in one
place. (Its often free, but
Wells Fargo, for example,
charges $3 per month if you
dont meet certain criteria.)
Just sign up through your
Kiplinger.com
RATE
UPDATES
For the latest savings yields
and loan rates, visit kiplinger
.com/nances/yields.
banks Web site and list regular payees. Even if a payee

doesnt accept e-payments,
the bank will send a paper
check. You may have a
choice of making one-time
payments or automatic
recurring payments on the
dates and in the amounts
you choose. Check whether
you can set up notifications
of available e-bills and upYIELD BENCHMARKS
30-day
Min.
yield as investof April 1 ment
Taxable Funds
Yield
U.S. series EE savings bonds* 0.10%
coming due dates, or when

funds in your checking
account are low. Some
banks also let you pay bills
through their mobile apps.
Or, you could sign up with
each payee to make e-payments. Unless you set up
automatic deductions, youll
have to visit several Web
sites to pay your bills. But
you may have more flexibility in how you pay. For
example, your bank may
require you to debit your
checking or savings account, but the payees site
may give you the option of
using a credit card. If you
use this a la carte approach,
link your accounts to a tool
such as Manilla.com.
Paying bills online doesnt
mean you can set it and
forget it. Review your statements for errors or suspicious activity, and see
whether due dates have
changed. Dont forget to
keep an eye on your bankaccount balance. If an
account from which you
make automatic payments
changesfor example, you
lose a credit card and have
to get a new numberyoull
have to update all of the services you pay. LISA GERSTNER
Month- Yearago
ago
0.10%
0.20%
U.S. series I savings bonds
1.38
1.38
1.76
Six-month Treasury bills
0.05
0.09
0.10
Five-year Treasury notes
1.66
1.65
0.71
Ten-year Treasury notes
2.68
2.80
1.76
As of April 8. *EE savings bonds

purchased after May 1, 2005, have
a xed rate of interest.
Bonds purchased before
May 1, 1995, earn a minimum of 4%
or a market-based rate from date of
purchase.
Bonds bought between
May 1, 1995, and May 1, 2005,
earn a market-based rate from
date of purchase.
SOURCES FOR TREASURIES:
Bloomberg, U.S. Treasury.
Web site
(www.)
Davis Govt MMF A (RPGXX)*
0.09%
$1,000
davisfunds.com
Meeder Money Market Retail (FFMXX)*
0.06
2,500
meederfinancial.com
Direxion US Govt MMF A (DXMXX)*
0.03
25,000
direxionfunds.com
PNC Money Market Fund A (PEAXX)*
0.03
1,000
pncfunds.com
NATIONAL AVERAGE
0.01%
Tax-Free Funds
30-day Tax. eq. yield Min.

yield as 25%/39.6% investof Mar. 31 bracket
ment
Alpine Municipal MMF (AMUXX)* 0.02%
Web site
(www.)
0.03%/0.03% $2,500
alpinefunds.com
0.02
0.03/0.03
1,000
American Cent T-F Inv (BNTXX)* 0.01
0.01/0.02
2,500 americancentury.com
1,000
PNC Tax-Ex MMF A (PXAXX)*

BMO Tax Free MMF Y (MTFXX)*
0.01
0.01/0.02
NATIONAL AVERAGE
0.01%
0.01%/0.02%
Deposit Accounts#
pncfunds.com
bmo.com
Annual
yield as of
Min.
April 8
amount
Web site
(www.)
CIT Bank (Utah)
0.95%
$25,000
bankoncit.com
GE Capital Retail Bank (N.J.)
0.95
none
myoptimizerplus.com
Barclays Bank (Del.)
0.90
none
banking.barclaysus.com
GE Capital Bank (Ill.)
0.90
none
gecapitalbank.com
NATIONAL AVERAGE
0.11%
*Fund is waiving all or a portion of its expenses. #Deposit accounts include money market deposit accounts and
high-yield savings accounts. Internet only. Similar yields are available at Palladian Private Bank, Sallie Mae
Bank and Union Federal Savings Bank. SOURCES: Bankrate.com; Money Fund Report, iMoneyNet Inc. (508-6166600; www.imoneynet.com).
TOP-YIELDING CERTIFICATES OF DEPOSIT

1-Year
Annual
yield as of Min.
April 8 amount
Web site
(www.)
GE Capital Bank (Ill.)
1.05%
1.05
BAC Florida Bank (Fla.)#
1.01
500
Silvergate Bank (Cal.) #
1.01
2,500
silvergatebank.com
Min.
amount
Web site
(www.)
none
banking.barclaysus.com
gecapitalbank.com
myoptimizerplus.com
bacflorida.com
0.23%
NATIONAL AVERAGE
5-Year
$500
25,000
Annual
yield as of
April 8
Barclays Bank (Del.)
2.25%
2.25
$25,000
EverBank (Fla.)
2.24
1,500
everbank.com
iGOBanking.com (N.Y.)
2.15
1,000
igobanking.com
NATIONAL AVERAGE
0.79%
myoptimizerplus.com
Internet only. #Virtual Bank offers the same yield. SOURCE: 2014 Bankrate.com, a publication of Bankrate Inc.,
11760 US Highway 1, N. Palm Beach, Fla. 33408 (800-327-7717, ext. 11410; www.bankrate.com/kip).
LOW-RATE CREDIT CARDS

Issuer
Rate
as of Annual Late
fee
fee
Apr. 4*
First Command Bank (P)
6.25%
none
Lake Michigan Credit Union (P)
6.25
none#
25
lmcu.org
Simmons First Bank Visa (P)
7.25
none
25
simmonsfirst.com
Web site
(www.)
$25 firstcommandbank.com
AIR-MILES CARDS
Rate
Miles
as of Annual needed
Web site
Issuer
Apr. 8* fee for ticket
(www.)
Simmons First Visa Travel Rewards 9.25% none 25,000 simmonsfirst.com
U.S. Bank FlexPerks Travel
13.99
$49
Barclaycard Arrival World MC
14.99
89
20,000
usbank.com
40,000 barclaycardarrival.com
Rates are adjustable. *If you do not qualify for this rate, issuer will offer a higher-rate card. (P) Platinum. $35
if late more than once in six months. #Must be a credit union member. Value up to $400. Waived for the rst year.
SOURCE: Bankrate.com. Banks may offer lower introductory rates.
63
K6M-CREDIT YIELDS.indd 63
4/10/14 7:38 PM
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LIVING
So its a good time to buy used. But

if you can wait another year, used cars
may be even more affordable, says
Tom Kontos, chief economist at Adesa,
a vehicle auction company. Prices vary
by season, as well. In the wholesale
market, prices ramp up from winter
to spring and then decline through the
rest of the yearbut faster in the fall,
as carmakers introduce new-car
incentives to move last years models.
That means buying in late summer
through the end of the year could
save you even more.
Whenever you buy, the strategies
here will help you find the vehicle you
want at an attractive price. We recommend used models that scored high in
Kiplingers rankings for value as new
cars; they are still good values three
or four years later. (Youll find the
complete list at kiplinger.com/links/
used14.)
FIND THE SWEET SPOTS
Some vehicle categories are riper

for a deal than others. Right now,
youll find the best prices on luxury
models. Leasing of luxury cars didnt
decline with the economy, so a steady
supply of off-lease luxury vehicles
has headed to used-car lots. Plus,
luxury vehicles typically lose more
of their value more quickly than
mainstream models do. Prices of
luxury sedans have fallen more than
those of luxury SUVs.
Prices are also coming down on
small and midsize cars. Midsize cars
are the most popular models and sell
the most in the new-car market. Plus,

carmakers have introduced a raft of
new choices over the past several
years. As a result, midsize prices are
falling a little more than prices
rket as a
in the used market
me
whole. The same
c
ct
goes for compact
ctt modand subcompact
re even
els, but prices ar
are
uel econbetter. As the fuel
omy of midsize
en
n
models has risen
and gas prices
have leveled
off, small cars
(and hybrids)
have lost some
of their cachet.
sssovers and SUVs
Prices of crossovers
g. Many buyers of comare a mixed bag.
used so high
pact crossoverss choose used,
demand is propping up used prices.
Traditional, truck-based SUV sales
have increased as
fuel costs have
leveled off,
so prices for
those vehicles are
holding
steady. But
as buyers
move back
to truckbased models,
larger crossovers are less in demand, and prices
are down.
Even if prices havent dropped
across the board for the type of car
youre considering, there are ways
to find a deal in any segment. Look at
models that are most often leased, or
ones purchased by car rental companies. For example, a high percentage
of leases are written for entry-level
luxury cars, such as the BMW 3 series,
Mercedes-Benz C-Class and Audi A4.
The Toyota Prius and Camry, the Ford
Focus and Fusion, and the Chevrolet
Cruze and Malibu are often found in
rental fleets. As rental companies refresh their fleets and leases end, more
of these models end up on dealer lots,

and that means more room to haggle,
says AutoTrader.coms Juan Flores.
Look for recently redesigned
models. With a new-generation
model on the market, theres
an inherent discount on the
previous version. Plus,

the last couple of years of any model
run are when cars are mechanically
at their best because the manufacturer
had plenty of time to work out any
kinks that showed up when the model
was new.
Dont limit your search to go-to
brands. Japanese carmakers, particularly Honda and Toyota, have stellar
reputations for reliability. But the improving quality of all vehicles means
you can cast a wider net. Keith Griffin,
the used-car expert at About.com,
suggests looking at Korean carmakers
Hyundai and Kia. They have fiveyear/60,000 mile new-car warranties,
and used-car buyers get the remainder
of that time. (Their ten-year/100,000mile powertrain warranties do not
transfer to new owners.)
DO THE RESEARCH
More information is available about

used-car models, reliability and
pricing than ever before. Edmunds
.com and Cars.com allow you to drill
down to a specific model and year
and see features by trim level, read
expert and consumer reviews, and
get prices.Edmunds shows models
for sale with prices; Cars.com shows
the current retail price range estimated by Kelley Blue Book. Check out
reliability ratings for used models at
PREVIOUS PAGE: COURTESY ACURA, ISTOCKPHOTO.COM;

THIS PAGE FROM TOP: COURTESY TOYOTA, MAZDA
68
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06/2014
4/11/14 1:32 PM
THIS PAGE FROM TOP: COURTESY TOYOTA, MAZDA
FROM TOP: COURTESY MERCEDES-BENZ, SUBARU
ConsumerReports.org (you can get a

one-month subscription for $6.95).
You can also search for models for
sale at AutoTrader.com and CarGurus
.com. Consider looking outside your
area. Most sites allow you to see listings 200 miles away or more. If you
find a vehicle hundreds or thousands
of miles away that will save you more
than the cost of a plane ticket to go
pick it up or the cost of shipping it to
you, go for it. Cross-country transport
runs $900 to $1,300, but most shippers
will negotiate. For example, ask what
it would cost to ship the vehicle
when the truck has a full load,
and see if you can save by having the vehicle dropped off at
a nearby terminal rather
than at your door.
BUY PRE-OWNED?
For the most peace of mind, buy a certified pre-owned vehicle. Only latemodel vehicles (typically less than five
years old) with low mileage (usually
less than 60,000 miles) qualify for
CPO programs, and theyre put
through rigorous inspections and
come with an extension of the vehi-
cles new-car warranty. For example,

Toyota certified vehicles come with an
extra year (12,000 miles) of comprehensive coverage and two additional
years (40,000 miles) of powertrain
coverage. After the inspection, vehicles
are repaired and reconditioned. Youll
pay a premium for the reconditioning
and the additional warrantyabout
$1,500 on a mainstream make or
$2,500 on a luxury model. Perks such
as roadside assistance and special
financing rates from the manufacturers captive finance companies can
lessen the sting of higher prices. Be
sure your choice is certified by the
factory, not a dea
dealeryou want
the warrant
warranty to be backed
by the manufacturer.
If youre not
going the
C
CPO route,
cch
check out the
ca
ar history
cars
be
b
before you get
se
serious about
p
pulling the
trigger. First,
run the vehicle identification numb
ber (VIN)
thro
th
through the National Insurance Crime Bureaus Web
site (www.nicb.org) to make sure the
vehicle hasnt been reported as stolen
and isnt a salvage vehicle (a vehicle
deemed totaled by an insurance company). Then use the VIN to run a vehicle history report on AutoCheck.com
or Carfax.com ($30 to $40 for one report, $45 to $55 for unlimited reports).
Make sure that recall work has been

done. According to figures compiled
by Carfax, 3.5 million cars with unfixed recall issues were for sale online
in 2013. Thats about 8% of all used
cars sold last year. Though big recalls
(and reluctant carmakers) make news,
most are garden-variety fixes, and all
are repaired free at a dealership. You
can check for recalls, complaints and
service bulletins (the manufacturers
recommended fixes for smaller repairs) at SaferCar.gov. If youre buying
from a dealer, ask for proof that repairs were done before you buy; with
a private-party sale, ask for repair and
maintenance records.
Get a non-CPO vehicle inspected by
a mechanic. This precaution is vital
for a private-party sale, and its a good
idea even if youre purchasing from
a dealer and youre assured that the
vehicle has been vetted by its service
team. The cost will be $75 to $150, but
its money well spent, says Joe Wiesenfelder, executive editor of Cars.com. It
lets you know how well a vehicle has
been maintained and what service you
may have to do yourself in the future.
And, he says, it can save you a lot in
the long run if it helps you rule out a
car. If you dont have a trusted shop
(or youre buying long distance), check
out AiM Mobile Inspections (www
.aimmobileinspections.com). For $129,
it conducts a 150-point inspection,
which it arranges with the seller, and
provides a report.
How We Pick Our Favorites

We picked three- and four-year-old vehicles that not
only were tops in Kiplingers rankings for performance,
value and safety when they were new, but also get
good marks for reliability. Prices listed are from Kelley
Blue Book and represent the Fair Purchase Price from
a dealer, based on actual transactions. See more picks
at kiplinger.com/links/used14.
69
06/2014
K6M-USED CARS.1.indd 69
4/11/14 1:32 PM
LIVING
PROTECT YOUR WALLET
Figuring out a fair price for a used car

is even harder than with a new car because no two cars are alike, and mileage and condition will vary. A variety
of Web sites offer used-car prices
and break them down by transaction
typedealer, private party, CPO and
trade-in (see below for the pros and
cons of each type). For any car youre
interested in buying, look up pricing
on several Web sites and come up
with an average as your target.
Edmunds.com lists the most prices,
but Kelley Blue Books Kbb.com and
NadaGuides.com will round out your
research. All three sites base prices
on actual transactions. CarGurus.com
is another good site to visit; it analyzes listings in your area and
rates each vehicle from Great Deal

to Overpriced.
So much more information is available to consumers now than five or ten
years ago that dealers are starting to
set prices with less room to negotiate.
Some now start with their bottom-line
price and may allow only a couple hundred dollars in wiggle room, Flores says.
Dont forget your trade-in, if you
have one. Used vehicles in good condition are in high demand, so dealers
are willing to pay good money for
yours. Richard Arca, senior pricing
manager for Edmunds.com, recommends getting an appraisal before hitting the dealer lot. AutoTrader.com
has a new trade-in guarantee tool that
starts online. Enter your vehicles

features, mileage, condition and so
on, and youll get an offer good for 72
hours. Then, you take your car to an
affiliated dealer near you. Take your
car to CarMax, and it will give you a
guaranteed price good for seven days.
If you have the stamina, shop your
trade-in at several dealers as well
the best price wins.
Finally, if youre not paying cash,
get preapproved for a loan before
visiting a dealer. Check with several
banks and a credit union, if youre
a member (to join one, visit www
.culookup.com). Rates at banks recently
averaged 4.7% for 36-month loans,
and credit unions averaged 3.7%,
according to Bankrate. If a dealer
offers a better rate, grab it.
WHICH ROUTE IS
BEST
FOR YOU?
YOU?
FOR
$ $$
CPO
NON-CPO
$$ NON-CPO
PRIVATE
$ PARTY
Certified pre-owned vehicles are as close to a

new-car-buying experience as you can get.
Youll pay an extra $1,500 to $2,500 compared
with non-CPO vehicles.
Dealers sell vehicles they acquire at auction or

through trade-ins that arent scooped up by the
CPO programs. Youll likely pay at least 10%
more to a dealer than to a private party.
The cheapest way to buy a used car. Private

sellers can sell a used car for a higher price to
you than they could to a dealer, but they cant
inflate the price as much.
N
CONDITIO
Excellentmodels are five years old or

newer with fewer than 60,000 miles.
Because many CPOs are off-lease,
they have had only one owner.
Mostly cosmetic reconditioning. Dont

expect repairs to be made. Most
dealers offer a vehicle history report
from AutoCheck.com or Carfax.com.
It varies. Ask for maintenance

records and get a vehicle history report on AutoCheck.com or Carfax.com.
IO N
INSPECT
A 100- to 200-point inspection. Vehicles are repaired and reconditioned.

Worn parts are replaced, saving
money on future maintenance.
A dealers service department

inspects the car, but get your
own mechanic to go over the car
before you buy.
Youre on your own. If the seller wont

agree to let you take it to a mechanic,
move on to the next prospect.
TY
WARRAN
Usually a year or two extension of

new-car comprehensive and powertrain warranty, backed by the manufacturer, not the dealer.
You get whats left of the new-car

warranty. Resist the hard sell on an
extended warranty. Some states have
laws to protect used-car buyers.
As with a dealer sale, you get whats

left of the new-car warranty.
If you get stuck with a lemon, you
have little or no recourse.
Carmakers finance companies offer

lower rates than youd pay on non-CPO
loans. You may save hundreds of
dollars in interest.
The F&I department will arrange financing, but dealers may get a commission. Get prequalified at your bank
or credit union and compare offers.
Youll have to pay cash. If you need

a loan, consider drawing on a homeequity line, or get a used-car loan
at a bank or credit union.
G
FINANCIN
K6M-USED CARS.indd 70
4/10/14 7:41 PM
LOWDOWN
What You Need

to Know About
Going Solar
The cost of a home system has dropped
dramatically, and there are more options
to pay for it. BY PATRICIA MERTZ ESSWEIN
1. A BRIGHT IDEA GETS CHEAPER.
JOE WALDRON
Since 2007, the cost to buy a

solar power system has fallen
by about 50%, to an average
upfront cost of $4,590 per
kilowatt, says the Solar Energy Industries Association
(a typical home system
ranges from 3 kW to 7 kW).
You would recoup your upfront cost in an average of
seven to 15 years, the Solar
Foundation reports. The
higher the electric rate you
currently pay, the more sunshine your location receives,
and the greater the financial
incentives that are available
to you, the better your return on solar will be, says
Jonathan Bass, vice-president of communications
with SolarCity, the largest
system installer in the U.S.
direct current to alternating

currenta tie-in to the grid
and, in many cases, a monitoring system that tells the
installer how much power
youre producing.
3. UNCLE SAM WANTS TO HELP.
2. GET OUT YOUR TAPE MEASURE.
Through 2016, you can take

advantage of a federal tax
credit that lets you write
off up to 30% of the cost of
buying and installing a solar
system. You can finance a
system with cash, a homeequity loan or line of credit,
or a low-cost solar loan. You
may trim your cost further
with incentives, such as rebates or sales- or propertytax exemptions, from your
state, municipality or electric utility. (Visit www
.dsireusa.org/solar to find
loan programs and incentives where you live.)
For each kilowatt of capacity, youll need 100 square

feet of space that faces south
and is mostly unshaded.
Panels may be mounted
on a flat or sloped roof or
in your yard. In addition to
the panels, youll need an
inverterwhich converts
4. DONT BUY. RENT. Let an

installer pay for a system,
then you pay the installer
for the electricity that your
system produces each
monthtypically at a rate
thats less than your local
utility charges. With a solar
lease, youll pay a fixed

monthly amount that
smooths out seasonal variations. With a power purchase agreement (PPA),
available in 22 states and
the District of Columbia,
your bill may vary. For
example, with a lease you
might pay $50 a month
year-round; with a PPA,
you might pay $20 to $30
a month in winter and
$70 to $80 in summer. Both
agreements typically last
20 years, with options for
upgrading or removing the
system, or conveying it if
you sell your home. The
installer maintains, repairs
and insures the system.
5. YOURE STILL ON THE GRID.
Unless you live in a remote

area, your system is tied
into the local utility. If it
produces more electricity
than you use, the excess is
fed into the grid; in 43 states
and the District of Columbia, so-called net metering

using a special meter that
runs forward and backwardwill give you credit.
6. FIND AN INSTALLER. The
largest multistate installers
include SolarCity, Vivint
Solar, Verengo, REC Solar
and Real Goods Solar. Or
you can look for smaller,
independent installers. On
the home page of the Solar
Energy Industries Association Web site (www.seia.org),
click on Directory and
search by state and Contractor/Installer. Then
look for companies that
employ staff certified by the
North American Board of
Certified Energy Practitioners (www.nabcep.org/
installer-locator) or trained
in a program accredited by
the Interstate Renewable
Energy Council. Get at least
three comparable bids.
71
06/2014
K6L-LOWDOWN.2.indd 71
4/11/14 3:23 PM
3 SIMPLE STEPS
Switch Cable Companies
STEP 1
If youre thinking of nding a new
cable provider because a promotional offer ended or your bill keeps
increasing, call your current provider
to see whether you can negotiate a
better price. Make sure that if you
signed a contract, you weigh any
early-termination fee against the
savings youd get by switching.
STEP 2
If you decide to jump ship, call the
new company to start service. If
your home is already wired and
youre fairly handy, you may be
able to set up the equipment on
your own. That way you wont have
to wait for a technician, and youll
likely avoid an installation fee. But
if youre stumped by some tasks,
such as making sure the equipment integrates properly with your
TV, you may have to pay a pro to
take care of them.
STEP 3
Once the new equipment is installed,
make sure it is running smoothly
before you cancel the old service.
When youre ready to end service with
your previous provider, conrm that
automatic bill payments will cease.
Be sure you receive a refund if you
were billed for any days beyond your
service termination date. Find out
how to return equipment, such
as the cable box and remote, on
time to avoid fees. The company
may retrieve the devices from
your doorstep so that you dont
have to be home for the pickup.
THE PAYOFF
You could save more than $300 a yearand still enjoy your favorite shows.
72
K6-SIMPLE STEPS.1.indd 72
06/2014
ILLUSTRATION BY RYAN COX
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