Kiplinger's Personal Finance - May 2018

7 GREAT GROWTH STOCKS TO BUY NOW BUY NOW

Keep More Cash! You You may be wasting thousands of dollars every year. We show you how to fix your money leaks. ■

■

■

Skip insurance you don’t need Trim your yo ur investing costs

LAST CHANCE TO SAVE ON YOUR YOUR TAXES AXES p 49 +

Pull the plug on energy wasters

AND MUCH MORE

+

p 32

WHAT HOMES ARE WORTH WHERE YOU LIVE p 42 +

SMART NEW WAYS TO GIVE p 66 APRIL 2018

p 52

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CONTENTS

KIPLINGER’S PERSONAL FINANCE FOUNDED 1947 VOL. 72 NO. 4

■ THE SOSOOS OF TEANECK, N.J., ARE PREPARING TO BUY A NEW HOME, EVEN THOUGH THE NEW TAX LAW WILL BOOST THEIR COSTS. PAGE 42

AHEAD 9 TOPIC A: What to make of the market’s turmoil . . . Beware closing-cost scams. 20 OPENING SHOT Should you invest in commodities? commodities ? by JAMES K. GLASSMAN. 24 SUCCESS STORY Farm living is the life for them, by PATRICIA MERTZ ESSWEIN. 25 MILLENNIAL MONEY The power of living within your means, by MIRIAM CROSS. 26 LIVING IN RETIREMENT Get help with Medicare coverage, by JANET BODNAR. 28 CROWDSOURCING What was your biggest financial mistake? 30 YOUR MIND AND YOUR MONEY Tap into your emotions, by ANNE KATES SMITH.

MONEY K I B U K M O T

32 COVER STORY STOP WASTING MONEY Those little leaks that may seem like no big deal can add up to

big bucks down the drain. Here’s how to save on insurance, investing costs, tech and more.

64 PRACTICAL INVESTING What I bought when stoc ks tanked, by KATHY KRISTOF. KRISTOF.

42 HOME PRICES KEEP CLIMBING Most areas are on the upswing, but rising interest rates and the new tax law may slow the market.

59 MORE ABOUT INVESTING Dividend 15 update (59). Kiplinger 25 update (63). Fund spotlight (65 (65). ).

COUNTDOWN OWN TO TAX TAX DAY You may 49 COUNTD still be able to save on your 2017 taxes.

LIVING

46 ASK KIM Insurance for home sharers, by KIMBERLY LANKFORD. 48 GAME PLAN How do I get in on a classaction lawsuit against Equifax?

INVESTING

66 THE NEW RULES OF PHILANTHROPY Fewer people will itemize under the new tax law, but our strategies will help you get the most out of your charitable giving. 71 TO YOUR HEALTH Keep out-of-pocket costs in check, by NELLIE S. HUANG.

GREAT GROWTH 52 TOMORROW’S GREAT STOCKS We found seven small and midsize companies with big potential.

IN EVERY ISSUE

YOU NEED TO KNOW ABOUT 60 WHAT YOU BITCOIN Don’t invest more than you can afford to lose.

6 LETTERS A run for your money.

58 INCOME INVESTING The silver lining of rising rates, by JEFFREY R. KOSNETT.

4 FROM THE EDITOR My investing misstep.

TAKEAWA AWAY Y Is it taxable? Take our quiz. 72 TAKE

ON THE COVER: COVER: Photo-Illustration by C.J. Burton

04/2018

KIPLINGER’S PERSONAL FINANCE

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A retirement product is not a retirement plan.

What’s your game plan? To get help with yours, visit

mutualofamerica.com or

call 1-866-954-4321.

Mutual of America and Mutual of America Your Retirement Company are registered service marks of Mutual of America Life Insurance Company, a registered Broker/Dealer. 320 Park Avenue, New York, NY 10022-6839.

FROM THE EDITOR

Mark Solheim

My Investing Misstep

B

ack in June 2000, this magazine ran an article titled “True Confessions,” which related the tale of one editor’s foray into the dark excesses of the dot-com-era stock market. The author, who chose to remain anonymous, confessed not only to investing in a number of wildly inflated tech stocks but also to buying them— gasp —on margin. “In retrospect,” he wrote, “I admit that I succumbed to greed and hubris, betraying the principles of responsible investing by playing the ma rket with borrowed money.” If you haven’t already guessed, the author was me. Five years earlier, I had opened a Schwab account with $10,000, invested in Microsoft and a few other solid prospects, and watched the account grow to $100,000. That’s when the greed and day-trader mentality took over. I bought into the philosophy that corporate earnings didn’t really matter in the internet era, that momentum would propel popular stocks ever higher. I started investing in companies whose products and services I didn’t understand, and doing so with other people’s money. Then the market crashed, and I got not one but two margin calls. Volatility and valuation.

The same impulsive mindset that pushed stocks to the breaking point in 2000 has parallels today in the crypto4


04/2018

currency markets. A lot of novice investors have been buying bitcoin, watching its value swing wildly up and down. Like stocks 20 years ago and home prices 10 years ago, cryptocurrencies have crept into watercooler conversations. When our UPS guy reported that he has bought in, we took it as a sure sign that bitcoin has entered bubble territory. In her cry ptocurrency FAQ on page 60, Nellie Huang points out t hat bitcoin has no revenue, no earnings and no underlying asset value, so prices are driven by demand alone. When an ordinary stock’s price rises, it’s usually based on expectations of earnings or revenue growth. At worst, she writes, bitcoin’s rise fits the

downdraft were threats of higher inflation and a rise in interest rates. But we don’t think the bull is ready to expire; it’s still supported by strong corporate profits and healthy economies around the globe. Some excess valuation has been wrung out of stocks, but as yields on Treasuries tick up, many stocks will be v ulnerable to selling, and you can expect more anxiety-producing trading days in the months ahead. If you’re buying, Anne recommends investing overseas and in sectors that won’t get socked by higher rates. And if you get queasy when stocks tumble, it’s a sign that you might want to pare back your holdings. My hard-won lesson. Finally, please take

a look at “Crowdsourcing,” on page 28. The question we asked readers this time around was “What was your biggest financial mistake—and how did you recover from it?” As you now know, my biggest stumble was playing

MY SCHWAB ACCOUNT BALLOONED TO $100,000. THAT’S WHEN THE GREED AND DAY-TRADER MENTALITY TOOK OVER. “classic definition of Wall Street’s ‘greater fool theory,’ and at best, it describes speculation, not investment.” It also reminds me of late ’90s blind investing because few investors understand its blockchaintechnology underpinnings. The stock market is easier to call. As investing editor Anne Smith explains in “Topic A,” on page 9, the triggers for the February

stocks like roulette nearly 20 years ago. I stayed out of the market for a few years while I licked my wounds, but my lesson in investing (and humility) has served me well. In 2008 and 2009, I took advantage of bargain prices to get back into the market. Now I am fully invested in a mix of stocks and bonds that I won’t have to tweak much until I am a couple of years from retirement—no matter which direction the market goes. ■

MARK SOLHEIM, EDITOR MSOLHEIM @KIPLINGER .COM TWITTER:

@MARKSOLHEIM

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LETTERS

great ideas. If invested wisely, an initial donation of $10,000 can increase in value and enable the donor to make gifts for years to come. Our donor-advised fund enables us to be more charitable than would otherwise be possible. Through it, we can support causes like the ones in your article. DAVID AND ROSEMARY REST WESTMINSTER, MD.

EDITOR’S NOTE: We spotlight donor-advised funds in our article about charitable giving strategies. See “The New Rules of Philanthropy,” on page 66.

A vote for college coverage.

A Run for Your Money Your story on great ideas for ways to spend your cash includes suggestions—all terrific—on giving back (“Great Ideas for $1,000, $10,000 or $100,000,” Feb.). Especia lly heartening is the idea to run for public office. By identifying the dollars needed for a candidacy for municipal office or a seat in a state legislature, you’ve provided us with a lesson in campaign financing—and some of us with a draft budget for stepping forward to serve. ANGELA S. LIPTACK RIDGEFIELD, CONN.

Q

READER POLL

How will you give to charity in 2018 if your gift isn’t tax deductible? Continue to give, regardless of tax deductions

66% Give less

20% “Bunch up” donations to get some tax break

11% Via a donor-advised fund

3%

We were disappointed that you did not include donoradvised funds as one of your 6


04/2018

To learn how you can maximize your charitable giving under the new tax law, turn to page 66.

Mark Solheim’s column suggests your (presumably older) readership doesn’t appreciate your college articles (“From the Editor,” Feb.). I am 69 and retired, yet I value this kind of coverage very much. Many of us have college-age children, and I have found this coverage very valuable in helping to select a college for my daughter, as well as in finding an appropriate 529 plan. DON LEONARD BROOMALL, PA.

Fraud restitution. A big thank

you for Thomas Blanton’s article “Relief for Fraud Victims” (“Ahead,” Feb.). My mother was scammed in 2008, thinking her grandson needed money. When she discovered the scam, she filed a police report, but nothing came of it (she passed away in 2016). Imagine my surprise to read that there could be restitution. I visited the Federal Trade Commission website

mentioned in the article, then called the FTC to have a representative walk me through the process. I know my mother would be very happy to think that her grandson might get the money after all! A.R. SEATTLE

Keep ’em coming. I just felt

compelled to tell Janet Bodnar how much I enjoy her articles (“Living in Retirement,” Feb.). Great insight always, and her delivery may be even better. I know she’s semi-retired, but I can sincerely ask: Please don’t quit your day job. CARL ROHRER FREDERICK, COLO.

An honest investor. I respect

Kathy Kristof’s advice because of her honesty. It is so refreshing to find a stock columnist who admits to having a few losses (“Practical Investing,” March). Many writers and talking heads boast about their gains but seem to never have a single loss. If they are such financial geniuses, why do they still need to work for a living by handing out advice? RICHARD COHEN BAYSIDE, N.Y.

LETTERS TO THE EDITOR

Letters to the editor may be edited for clarity and space, and initials will be used on request only if you include your name. Mail to Letters Editor, Kiplinger’s Personal Finance, 1100 13th St., N.W., Washington, DC 20005, fax to 202-778-8976 or e-mail to [email protected]. Please include your name, address and daytime telephone number.

. S R E D A E R S ’ R E G N I L P I K 3 3 3 D E Y E V R U S L L O P : E C R U O S

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Trades are limited to online domestic equities and options and must be used within two years. Options trades are limited to 20 contracts per trade. Offer valid for new and existing Fidelity customers opening or adding net new assets to an eligible Fidelity IRA or brokerage account. Accounts receiving $100,000 or more will receive 500 free trades. Account balance of $100,000 must be maintained for at least nine months; otherwise, normal commission schedule rates may be retroactively applied to any free trade executions. See Fidelity.com/ATP500free for further details. Fidelity reserves the right to modify these terms and conditions or terminate this offer at any time. Other terms and conditions, or eligibility criteria may apply. † Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, contact Fidelity Investments by calling 800-544-5115 to receive a copy of Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request. There is an Options Regulatory Fee from $0.04 to $0.06 per contract, which applies to both option buy and sell transactions. The fee is subject to change. Among listed competitors, Fidelity is the only broker to display price improvement. Price improvement details provided for certain domestic stock and single-leg option orders entered during market hours after the primary opening, provided there is a National Best Bid and Offer (NBBO) at the time the order is placed. Price improvement details are provided for informational purposes only and are not used for regulatory reporting purposes. See Fidelity.com for more details. § Barron’s, March 20, 2017 and March 19, 2016 Online Broker Surveys. 2017: Fidelity was evaluated against 15 others and earned the top overall score of 35.6 out of a possible 40. The firm was also named best online broker for Long-Term Investing (shared with 2 others), Best for Novices (shared with 1 other), and Best for Investor Education (shared with 2 others). Fidelity was also ranked 1st in the following categories: Trading Experience & Technology (shared with 2 others), Mobile (shared with 1 other), Research Amenities, and Portfolio Analysis and Reports (shared with 2 others). 2016: Fidelity was evaluated against 15 others and earned the top overall score of 34.9 out of a possible 40.0. 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Portland Lighthouse

EDITORIAL

Knight A. Kiplinger Mark K. Solheim EXECUTIVE EDITOR Anne Kates Smith MANAGING EDITOR Frederic Fane Wolfer SENIOR EDITORS Eileen Ambrose , Sandra Block, Jeffrey R. Kosnett EDITOR AT LARGE Janet Bodnar SENIOR ASSOCIATE EDITORS Daren Fonda, Nellie S. Huang, Marc A. Wojno (research) ASSOCIATE EDITOR Patricia Mertz Esswein STAFF WRITERS Miriam Cross, Ryan Ermey, Kaitlin Pitsker CONTRIBUTING EDITORS Lisa Gerstner, James K. Glassman, Kathy Kristof, Kimberly Lankford OFFICE MANAGER Glen Mayers EDITOR IN CHIEF EDITOR

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THE KIPLINGER WASHINGTON EDITORS INC.

1100 13th St., N.W., Suite 750, Washing ton, DC 20005 (202-887-6400) W.M. Kiplinger (1891–1967), Founder Austin H. Kiplinger (1918–2015), Former Chairman and Editor CHAIRMAN, PRESIDENT AND PUBLISHER Knight A. Kiplinger EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Corbin M. Wilkes SENIOR VICE PRESIDENT AND CHIEF O PERATING OFFICER Denise M. Elliott SENIOR VICE PRESIDENT AND CHIEF CONTENT O FFICER Kevin McCormally VICE PRESIDENT, CONTENT Sarah Stevens

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KIPLINGER’S PERSONAL FINANCE (ISSN 1528-9729) is published mont hly by THE KIPLINGER WASHINGTON EDITORS INC. Editorial & Execu tive Offi ces: 1100 13th St., N.W., Suite 750, Washington, DC 20005 (202-887-6400). Subscription Center/Customer Service: Visit us online at kiplinger.com/customer-service, call 800-544-0155, or e-mail [email protected]. POSTMASTER: Send change of address to: Kiplinger’s Personal Finance, P.O. Box 62300, Tampa, FL 33662. GST# 123395253. Volume 72, Issue 4. Copyright © 2018 by the Kiplinger Washington Editors Inc. Periodical posta ge paid at Washington, DC, and at additional mailing offi ces. Subscri ption prices: In U.S. and possessions $23.95 for one year, $39.95 for two years, $54.95 for three years. Additional international postage: $17.00 per year. Single-copy price: $4.99.

AHEAD

TOPIC A

WHAT TO MAKE OF THE MARKET’S DOWNTURN The bull market lives, but it will stumble again. Here’s what to do now. BY ANNE KATES SMITH

FOLLOWING A STOCK MARKET

correction that seemed to come and go in the blink of an eye, investors are hoping that the worst is behind them—but many aren’t convinced. Their anxiety is well founded. To be clear, with no recession on the horizon, we don’t think the bull market is over. But more scary downdrafts are likely, and some tweaking of your portfolio may be in order. Just shy of its ninth birthILLUSTRATION BY JOE ANDERSON

day, the bull market took a breather in late January and early February, sinking a little more than 10% in less than two weeks. That was the first official correction (defined as a drop of 10% to 19% from a peak) in two years. The downturn may have been exacerbated by a flash-crash-style meltdown in exchange-traded funds that had bet against volatility. But there was nothing mysterious about the funda-

mental triggers: threats of higher inflation and a rise in interest rates. “The secret sauce of this bull market has been the economy’s ability to grow without aggravating inflation or sparking higher interest rates,” says Jim Paulsen, chief investment strategist at the Leuthold Group, a market research firm in Minneapolis. “That’s changed.” Inflationary pressures are coming from wages that are starting to rise in a tight labor market. More pressure might arise from the fiscal stimulus of tax cuts and increased spending on infrastructure a nd defense. Yields on 10-year Treasuries jumped from 2.5% in the beginning of 2018 to 2.9% recently, and Kiplinger forecasts that they could trade

at 3.3% at year-end. “Now that rates have picked up and the threat of inflation is on the rise, it makes investors less secure in owning stocks at elevated prices,” says Sam Stovall, chief investment strategist at research firm CFRA. The bull market still has strong underpinnings. Confidence among corporate executives and consumers alike is sky-high, global economies are on a synchronized growth track, and corporate profits— buoyed by lower tax rates— are forecast to increase a remarkable 18% this year. “Once I’m convinced that a recession is coming, it’s over. Short of t hat, a correction is a buying opportunity,” says Paulsen. Another jolt is almost 04/2018


9

AHEAD

certainly on the way. Going back to 1950, Stovall found 25 calendar years in which stock prices fell by 5% to 20% (more than 20% would be a full-fledged bear market). In five of those years, the market turned down three times, and in three of the years—1980, 1988 and 1997—the market logged four pullbacks of 5% or more. Last year, Standard & Poor’s 500-stock index logged one-day price swings of 1% or more on only eight occasions; the law of averages says to expect 50 such days this year. What to do. Use the volatil-

ity to position your portfolio wisely. Stocks overall will represent good value if the S&P 500 sinks below 2500, says Paulsen. He recommends thinning out interestrate-sensitive sectors— utilities, real estate investment trusts and telecommunication firms. Focus on stocks that prosper when the economy is growing and inflation is ticking higher, including energy, industrials, raw materials and tech. Consider investing 5% of your portfolio in a commodity fund, says Paulsen. Make sure you have some money invested overseas, where markets are cheaper and economies are growing but far from overheating. Lastly, think of the recent market mayhem as a dress rehearsal for the next bear market. If your stomach churned and you couldn’t sleep at night, it’s a sign that you need to reevaluate your stock holdings in relation to your risk tolerance and your stage in life. 10 KIPLINGER’S PERSONAL FINANCE

04/2018

INTERVIEW

HOW TO COMPLAIN AND GET RESULTS Keep your cool, create a paper trail and take it all the way to the top if you need to. Christopher Elliott is the founder of www.elliot.org, which helps consumers resolve disputes with businesses, free of charge. What’s the most effective strategy to get a satisfying resolution? Follow what I

call the three Ps. First is politeness. Take a deep breath, maybe wait 24 hours, and then contact the company. Avoid using emotiona lly charged language. If you say, “I’m a loyal customer, and it would make me really happy if you could address this one issue,” it’ll be much more effective than saying, “You destroyed my life, and my lawyer is preparing to file a lawsuit.” Second is pat ience. You’ll usually get a response that will ideally solve the problem within about a week. But if it’s an issue that requires a lot of research— say, involving an insurance claim—it could take six to eight weeks or longer. Third is persistence. Sometimes call centers are designed to make you go away. If you hit a brick wall, try to talk to someone higher up the food chain. What’s the best way to contact a company? Create a paper

trail, which provides written evidence that you’ve tried to fix the problem. PHOTOGRAPH BY DEREK ISRAELSEN

If you can submit a complaint on a form through the company’s website, start there. Put your message into one paragraph, if possible. Include a short timeline of events, such as the date you bought the product or service and when the problem occurred. You’ll more likely succeed with an issue that the company can fix right away, such as a hotel offering a voucher for a spa treatment during your stay because of construction noise near your room. Go over the rules sur rounding the purchase. Some hotel rooms and airline tickets are nonrefundable no matter what your personal circumstances are. And if the initial appeal doesn’t work? Write

to someone a little higher up. The typical hierarchy might include a customer service manager, then a vice president of customer service, then an executive vice presi-

dent and then the CEO. Names and e-mail addresses of executives at many major companies are on my website. If all else fails, you have two nuclear options: disputing the purchase on your credit card, if you used one, or going to court. Judges often side with consumers, but even if you win a judgment, companies sometimes make it difficult for you to collect the money. How can a customer avoid encountering a problem in the first place? If you know

about the product you’re buying, there’s less of a chance that you’ll be disappointed later. Read the ter ms of your purchase, such as the license agreement for a software product or the warranty on electronics or appliances. Check out product reviews. LISA GERSTNER

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on necessities such as housing, food and transportation. But relocating to a high-cost area may make this gu ideline unworkable. The table below shows what you would pay for commonly used products and services in four cities that made the list of 20 finalists for Amaz on’s second headquarters—which is expected to add 50,000 jobs. We added Orlando because that area is attractive to retirees. You can find a COLI calculator at www.pay scale.com/cost-of-livingcalculator. RIVAN STINSON

STICKER SHOCK

CHECK ALL LIVING COSTS BEFORE MOVING Home prices are just one factor you should consider when choosing a city.

IF YOU’RE A RETIREE LOOKING

for a change of scenery, or you’ve been offered a job in another city, you may want to consider more than just the cost of housing. Prices for groceries, utilities, health care and other necessities can also var y significantly. For example, the average

cost of a doctor’s appointment in Rockford, Ill., is $139, compared with $75 in Bloomington, Ind., according to the Council for Community and Economic Research’s cost of living index, or COLI. The general rule of thumb is that you should spend no more than 50% of your budget S E L E G N A S O L

A SAMPLING OF COSTS IN FIVE CITIES K E A T S

$

$

9.24

$

106.80

$

79.99

$

S A L L A D

12.44

$

11.82

$

10.44

91.22

$

96.14

$

96.42

T I S T N E D $

410.11

G Y I N R D N E A L C

$

449.88

9.88

$

13.15

$

$

$

443.70

387.28

$

10.34

$

8.62

$

8.63

10.60

$

13.20

$

428.97

$

8.73

$

R E E B $

COMPOSITE INDEX

147.8

FOR 2017. COMPOSITE INDEX NATIONAL AVERAGE: 100.

12

A I H P L E D A L I H P

D N I

12.10

$

N O I T P S I R G C U S R E D R P

S I L O P A N A I

O D N A L R O


04/2018

95.3

92.4

12.97

117.0

$

10.03

101.9

SOURCE: THE COUNCIL FOR COMMUNITY AND ECONOMIC RESEARCH

PAY TO PLAY

POPULAR PARKS GET PRICIER The National Park Service plans to more than double the peak-season entrance fees at 17 of its most popular parks, including Grand Canyon, Sequoia and Yosemite, as early as May 1. The proposal, which is expected to be approved by the NPS, will hike fees from about $25 or $30 per carload to $70 during the park’s busiest five months. Only 118 of the country’s 417 national park sites charge an entrance fee, so most will still be free to enter. If you frequent national parks that charge admission, consider buying an annual pass ($80 at federal recreation sites, $85 at Store.usgs.gov/pass). Park visitors who are 62 or older can purchase a lifetime pass for $80 in person or $90 online or by mail. Current members of the military and their dependents can receive a free annual pass by showing a military ID at a federal recreation site that issues passes. If you visit parks with admission fees only occasionally, look for fee-free days. The National Park Service waives entrance fees several times a year at parks that charge for admission, but be prepared for crowds. To learn more, visit NPS.gov/planyourvisit. KAITLIN PITSKER

M O C . O T O H P K C O T S I

AHEAD

PHISHING EXPEDITIONS

BEWARE CLOSING COST SCAMS

CALENDAR 04/2018

Home buyers are being tricked into wiring their money to crooks.

YOU’VE FOUND YOUR DRE AM HOUSE AND

made a winning offer on it. Now all that’s left is a transfer of funds to get you in the door. That’s when the closing-cost scammers strike. Posing as real estate or settlement agents, these con artists swindled home buyers out of nearly $1 billion last year, up from $19 million in 2016, the FBI says. The scheme works like this: Thieves hack into a real estate professional’s e-mail account to track upcoming transactions. When a deal’s closing date nears, they send the home buyer an e-mail that appears to come from the real estate agent or title company that’s handling the closing. The e-mail directs the home buyer to wire funds for the closing costs and the down payment to a fraudulent account. To protect yourself from this scam, don’t trust e-mails containing moneywiring instructions. Don’t click on links or call phone numbers provided in such e-mails, and don’t share your financial information with the sender. Talk to your real estate or settlement agent about the closing process and wire-transfer protocols. Once you’ve made the transfer, confirm that the funds were received. If you’re victimized, catching problems quickly increases your chances of getting the money back. THOMAS H. BLANTON 14


04/2018

SUNDAY, APRIL 1 The Centers for Medicare and Medicaid Services will begin mailing new Medicare cards that are less vulnerable to ID theft. The new cards will contain randomly assigned numbers in place of Social Security numbers. The rollout will take up to 12 months, with old cards remaining active until December 31, 2019. Medicare beneficiaries should destroy their old card once the new one arrives.

▲

SUNDAY, APRIL 8

It’s National Library Week. Celebrate by checking out a book, either in person or through the Libby app (available for Apple and Android devices). Or take advantage of other services many local libraries offer, including coding classes, musical instrument rentals, and access to 3-D printers.

TUESDAY, APRIL 17 Today is the deadline to file your 2017 federal tax return or request an extension until October 15.

For last- minute ideas on how to lower your tax bill, see “Countdown to Tax Day,” on page 49.

MONDAY, APRIL 30 Prepare for speedier store checkouts. All credit card networks in the U.S.— including American Express, Visa, MasterCard and Discover—will no longer require merchants to get a signature from their customers for transactions. THOMAS H. BLANTON

*

DEAL OF THE MONTH

April is a good time to book cruise deals. The hurricane season starts in June, which means the months before then are often cheaper (without being as high risk for bad weather). Typically, that means great deals on any unsold cruise inventory. For example, you and another person could set sail for a week to Mexico for about $600, according to DealNews.com.

) 2 ( M O C . O T O H P K C O T S I

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PROFESSIONAL INSIGHTS FROM PERSONAL CAPITAL

Focus on What You Can Control for a More Secure Retirement Michelle Brownstein, Vice President of Private Client Services, CFP ®

I

n retirement, the less uncertainty, the better. Unfortunately, some events are impossible to predict, like changes to tax legislation or the direction of the stock market. But that doesn’t mean you can’t prepare. There are some areas of retirement planning where taking action now can reduce the risk of running out of money later.

Plan for tax changes Some taxpayers in high tax states like New York, California and New Jersey might be facing higher taxes because the tax law limits the amount of state, local and property t axes that can be deducted from federal income taxes. As a result, retirees—and soon-to-be retirees— should think carefully about where they want to live. On the portfolio side, pay close attention to the account types you use for different investments. Your choices can have big tax consequences. � Tax-sheltered accounts are good for investments that pay dividends and interest because no tax is owed until the money is withdrawn. (If it’s a Roth, you never have to pay taxes on that income). � Taxable accounts, on the other hand, are better suited for investments such as growth stocks. That’s because those gains, when held in taxable accounts, are only taxed 15% or 20 % for most people.

Be smart about income One of the new tax law’s provisions raises the income level on higher tax brackets. That will help alleviate income pressure in retirement by giving you added flexibility. You’ll now be able to take bigger withdrawals from IR As and 401(k)s without moving into a higher tax bracket (at least until those changes expire in 2025). In addition, municipal bonds provide

interest free from federal income tax. Bonds from your home state also give you a break on state income taxes.

Strike the right asset balance Your mix of stocks, bonds and alternative investments, otherwise known as asset allocation, is the top driver of your portfo lio’s long-term returns. If your goal is to grow your portfolio for retirement so that it can support you for several decades, you’ll want an asset alloc ation that’s his torically been able to achieve stronger returns. That generally points to stocks. However, as your age and life circumstances change, you’ll need to tweak your asset allocation. What’s appropriate

“ Retirees should think carefully about where they want to live.” at 25 may carry too much risk when you’re in your late 50s or early 60s. The challenge is to find the ri ght balance between an asset allocation that feels comfortable and one that can outpace inflation, so you can maintain your purchasing power throughout your retirement.

is just your first line of defense. Should disaster strike when you have little time to recover your losses, you may need to make other changes to your plan. For example, you might have to consider working longer, reducing your withdrawals, or downsizing your retirement expectations.

Make contingency plans

Fixed, but flexible

Retirement planning isn’t just about what you invest in, it’s also about timing. Just ask anyone who planned to leave the workplace in 20 08 or 200 9. Even those who had an appropriate asset alloc ation still saw their portfolio values fall due to the severe financial crisis. Of course, it’s nearly impossible to pre dict when the next bear market will strike. And that’s why an asset allocation that matches your age and time horizon

A lot gets thrown at you during the decades you’re saving for retirement. Much of it is out of your hands . Focus on what you can control, but also be aware of the things you can’t. That way, you’ll be ready for anything. � Personal Capital offers free online financial software, mobile apps and personal wealth management services. Learn more at www.personalcapital.com.

Active Matters: Life isn’t a passive activity. Investing shouldn’t be either. Whether you’re planning on retiring in the not-too- distant future or years from now, being actively involved matters in achieving results. When it comes to managing our funds, we share the same active philosophy. Our investment teams seek to navigate down markets, find opportunities, and manage risk so you can stay on track toward reaching your retirement goals. Over 90% of T. Rowe Price Retirement Funds beat their 10-year Lipper average as of 12/31/17.* Put our active investment approach to work for your retirement . We offer IRAs, Rollover IRAs, and retirement planning. Call our retirement specialists at

877-872-5475 or go to troweprice.com/retirement

Consider the investment objectives, risks, and charges and expenses carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, call us. Read it carefully. *36 of our 39 Retirement Funds had a 10-year track record as of 12/31/17 (includes all share classes). 34 of these 36 funds beat their Lipper average for the 10-year period. 38 of 39, 39 of 39, and 35 of 36 of the Retirement Funds outperformed their Lipper average for the 1-, 3-, and 5-year periods ended 12/31/17, respectively. Calculations are based on cumulative total return. Not all funds outperformed for all periods. (Source for data: Lipper Inc.) Past performance cannot guarantee future results . All funds are subject to market risk, including possible loss of principal.

T. Rowe Price Investment Services, Inc., Distributor.


PROFESSIONAL INSIGHTS FROM T. ROWE PRICE

Good Retirement Planning Starts with Strategic Investing Joel Grant, Vice President, CFA ®

W

hen it comes to retirement planning, saving as much as you can and crafting an appropriate asset allocation count for a lot. But choosing specific investments based on their long-term potential is important, too. Many investors look only to the next quarter or two. That might be expedient and can help you navigate the current in vesting landscape, but it may not align with a long- term investment hori zon. We believe it’s important to look out three to five years—a nd maybe as long as 10— to realize the f ull potential of an investment strategy. It’s about identify ing trends in ad vance, and to do that effec tively, you have to get out into the field and talk directly with businesses and their suppliers.

Interpreting the future takes skill There’s a lot of market eff iciency in the near-term because most investors have more or less the same information that they use to make immediate decisions. There’s plenty of guida nce from companies and “sell side” research to pinpoint where earnings will come in over the next quarter or the next fiscal year. What ’s harder is making sense of the swarm of information regarding future potential and understanding its impact. The longer out you go, the less clarity there is, and the greater the risks. That ’s where a strategic investing approach by an experienced manager makes a difference. Of course, the process is time consuming and requires industry exper tise. A manager who has spent years honing this skill and building out a network of industry contacts can add value.

Invest through the noise Take Tesla, a maker of electric cars. Over the past two years , as the company

Notice the ripple effects

“A manager who has spent years building out a network of industry contacts can add value.” rolled out its Model X and Model 3 cars, they were beset by battery production glitches and delivery problems. Consumer Reports even called the futuristic SUV Model X “fast but f lawed” due to reliability concerns. With so much hype around t he company’s mission to end reliance on fossil fuels, the stock took a hit. But some investors were able to view Tesla’s short-ter m problems through a longer lens, considering both its loyal consumer base and its disruption of the automobile industry. Examples like this show the importance of experienced portfolio managers with deep industry knowledge, who can make informed decisions on long-range investment opportunities.

Amazon is another example where thinking long term ca n pay off. Yes, Amazon has been successfu l in building its brand, growing market share, and entering new markets. But that’s only half the story. Consider Amazon’s potential impact elsewhere in the economy. There are few industries Amazon isn’t disrupting— whether that’s retail or real estate and many in between. Looking out several years to understand the future business climate helps to understand how Amazon may impact other areas of your portfolio. Intensive research and deep industry connections enable T. Rowe Price managers to gain clarity on these issues and guide their long-term investing.

Putting it together Most people saving for retirement are thinking long term. So, it makes sense that your investments should keep that time horizon in mind, too. Sometimes, mainstream investing can be too focused on the immediate future. T. Rowe Price’s commitment to strategic investing, however, considers the impact of long-term trends. A nd that approach is the backbone of a portfolio that is focused on an investor’s long-term goals. � T. Rowe Price is a global investment management organization that provides a broad array of mutual funds, subadvisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries. The organization also offers a variety of sophisticated investment planning and guidance tools. T. Rowe Price’s disciplined, risk-aware investment approach focuses on diversification, style consistency, and fundamental research. Learn more at troweprice.com. T. Rowe Price Investment Services, Inc.

AHEAD

Commentary

OPENING SHOT

James K. Glassman

Should You Invest in Commodities?

T

he market has again reminded us that stocks can move in two directions. It’s an old story but easy to forget: When inflation expectations rise, so do interest rates—and stock and bond prices fall. For the first time in five years, the consumer price index in 2017 registered an annual increase of more than 2%, and prices rose more than expected in January. The January jobs report showed a jump in wages. Inflation has yet to reach worrisome levels, but the stock market dropped sharply after each sighting, with investors worried that the Federal Reserve would start aggressively raising shortterm interest rates—something we have not seen in a long time. (Through the end of 2017, the Fed had ra ised rates by a total of just 1.25 points over 11 years.) Longer-term rates, not waiting for the Fed, have soared. The yield on the 10year Treasury note rose from 2.1% to 2.9% in just five months (prices are as of February 16). Maybe it’s time to invest in a hedge, an asset that will buffer a decline in stock values. But other than selling the stock market short (essentially, betting on a market drop), which can be risky and expensive, there is no consistent way to invest in something that’s guaranteed to score a profit when stocks score a loss. What about bonds? In 2008, when Standard & Poor’s 500-stock index dropped 37% and nearly every other global asset got clobbered, long-term U.S. Treasury bonds returned 25.9% as investors sought safety. The next year, as stocks recovered, T-bonds lost 14.9%. But as we have seen lately, bonds often move in tandem with stocks. A zig when stocks zag. A better hedge

is commodities. Research shows that 20 KIPLINGER’S PERSONAL FINANCE

04/2018

investments in crops, metals, energy, currencies and other tangible things are negatively correlated with both stocks and bonds. When one group goes up, the other group tends to go down, and vice versa. This inverse relationship is not perfect. If economic growth slows sharply, stock prices typically fall, but the demand for oil, copper, corn and such slows as well, so commodity prices fall, too. If the U.S. were to slide into a serious recession, commodities would almost certainly get crushed. Over the course of the 2007–09 recession, for instance, commodities dropped 40%—even more than stocks did. In a growing economy, however, commodities do provide protection against the ravages of inf lation.

a barrel. You are hoping that before the settlement date, the market price of crude will rise and you can sell your contract at a prof it—for example, at $70 a barrel, you’d have a $10,000 gain. (Note that unless you have a big garage, you won’t take delivery of the goods. The object is to sell the contract before the settlement date.) What makes this kind of investing

INVESTMENTS IN CROPS, METALS, ENERGY, CURRENCIES AND OTHER TANGIBLE THINGS TEND TO GO UP WHEN STOCKS AND BONDS GO DOWN.

Many businesses cannot pass along the extra costs when the prices of raw materials, supplies and labor rise, so their earnings and share prices suffer. But commodities, almost by definition, increase in value when inflation rises. Now we get to the tricky part: buying those commodities. The traditional method is to purchase a f utures contract, which is a promise to buy a certain amount of stuff on a specific date. For example, you can buy a contract on the New York Mercantile Exchange today to purchase 1,000 barrels of light sweet crude oil in September. The recent cost was about $60

dangerous is that contracts are sold on margin, meaning that you put up only a portion of the full value of the contract and borrow the rest. Recently, the initial margin—what you’d have to put down on a crude-oil contract—was about $2,000. If you sell when oil is $70 a barrel, your $10,000 profit is roughly five times the money you put up (minus interest charges and transaction fees). Leverage works the other way, too. If the value of your contract drops by 4%, your initial investment is wiped out unless you put up more margin money. My advice: Stay away from individual futures contracts.


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The Main Advantages of Municipal Bonds

Investors are attracted to municipal bonds for three reasons; safety of principal, regular predictable income and the tax-free benefits. Together, these three elements can make a compelling case for including tax-free municipal bonds in your portfolio. Potential Safety of Principal

When investing in municipal bonds, investors are paid back the full face value of their investment at maturity or earlier if called, unless the bond defaults. This is important because many investors, particularly those nearing retirement or in retirement,are concerned about protecting their principal. In May of 2016, Moody’s published research that showed that rated investment grade municipal bonds had an average cumulative 10-year default rate of just 0.09% between 1970 and 2015.* That means while there is some risk of principal loss, investing in rated investment-grade municipal bonds can be an important part of your portfolio. Potential Regular Predictable Income

Municipal bonds typically pay interest every six months unless they get called or default. That means that you can count on a regular, predictable income stream. Because most bonds have call options, which means you get your principal back before the maturity date, subsequent municipal bonds you purchase can earn more or less interest than the called bond. According to Moody’s 2016 research,* default rates are historically low for the rated investment-grade bonds favored by Hennion & Walsh. Potential Tax-Free Income

Income from municipal bonds is not subject to federal income tax and, depending on where you live, may also be exempt from state and local taxes. Tax-free can be a big attraction for many investors in this time of looming tax increases. About Hennion & Walsh

Since 1990 Hennion & Walsh has specialized in investment-grade tax-free municipal bonds.The company supervises over $3 billion in assets in over 16,000 accounts, providing individual investors with institutional quality service and personal attention. Our FREE Gift To You

We’re sure you’ll want to know more about the benefits of tax-free Municipal Bonds. So our specialists have written a helpful Bond Guide for investors. It’s free and comes with no obligation whatsoever.

Without cost or obligation Call (800) 318-4850 © 2018 Hennion & Walsh, Inc. Securities offered through Hennion & Walsh Inc. Member of FINRA, SIPC. Investing in bonds involves

risk including possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. *Source: Moody’s Investor Service, May 31, 2016 “US Municipal Bond Defaults and Recoveries, 1970–2015. Past performance is not a guarantee of future results.

AHEAD

A safer bet. A less adventurous way

to buy commodities is by purchasing an exchange-traded product, which is linked to an index. For example,

COMMODITIES ARE NOT A FOOLPROOF HEDGE. IF RISING INTEREST RATES THROW THE ECONOMY INTO A TAILSPIN, OIL AND CORN WON’T HELP YOU MUCH.

POWERSHARES DB COMMODITY TRACKING

(SYMBOL DBC, $17) mimics a Deutsche

Bank index; it holds a mix of two dozen futures contracts maturing this year and next, including gold, natural gas, soybeans and wheat. The fund carries an expense ratio of 0.85%. In a vivid display of negative correlation, while the average annual return of the S&P 500 was 14.8% over the past five years, the fund returned –10.2%. Another popular choice, IPATH BLOOMBERG COMMODITY INDEX TOTAL RETURN (DJP,

$24), is structured as an exchange-traded

note (ETN), or debt issued by Barclays Bank, the ETN’s sponsor. Instead of paying interest, the ETN provides returns linked to the performance of the underlying index. That Bloomberg index, in turn, is composed of several subindexes. The ETN is tilted toward energy (30% of assets) and grains (21%). It returned

an annual average of –9.9% over the past five years. The expense ratio is 0.70%. As stocks have gone up and up during the bull market, the performance of these commodity funds has been rotten. In 2013, for example, when the S&P returned 32.4%, the Bloomberg ETN fell 11.1%. With the exception of a decent 2016, the commodities drought has continued for seven years. But if you believe the stock market is entering its own drought, investments in commodities could provide some fertile soil for your portfolio. Another way to buy commodities

Inflation Protection

HOW TO INVEST IN COMMODITIES Commodities have struggled as stocks have surged. But the tide may be turning in their favor. The stocks and funds below will prosper if prices for natural resources rise. Share price

Company (symbol)

Market value

Priceearnings (billions) ratio*

Yield

1-year total return

$38

$14.5

30

2.6%

–29. 2%

Devon Energy (DVN)

34

17.9

13

0.7

–22.1

Franco-Nevada (FNV)

74

13.5

64

1.2

9.0

Mosaic (MOS)

25

9.8

16

0.4

–21.5

Schlumberger (SLB)

66

91.7

30

3.0

–15.8

Weyerhaeuser (WY)

35

26.6

26

3.6

8.7

Yield

Expense ratio

Apache (APA)

Annualized total return 1 yr. 3 yrs. 5 yrs.

Exchange-Traded Fund (symbol)

iPath Bloomberg Commodity Idx TR (DJP)†

0.0%

–6.3%

–9.9%

—

0.70%

iShares US Oil & Gas Expl & Prod (IEO)

–0.9

–5.7

–1.6

1.0%

0.44

Materials Select Sector SPDR (XLB)

17.4

7.7

11.2

1.7

0.13

4.8

–3.3

–10.2

—

0.85

12.0

10.2

–1.4

0.6

0.35

18.7%

11.5%

14.8%

1.9%

6.6

–7.4

PowerShares DB Commodity Tracking (DBC) SPDR S&P Metals and Mining (XME) INDEXES S&P 500-STOCK INDEX S&P GSCI INDEX (commodity)

–12.9

As of February 16. *Based on estimated earnings for the next four quarters. †Exchange-traded note. SOURCES: Fund companies, Morningstar Inc., XTF.com, Yahoo Finance, Zacks Investment Research.

—

is to purchase shares of companies whose profits depend on the value of natural resources. An obvious example is the oil and gas exploration sector. Shares of APACHE (APA, $38), a 64-year-old Houston company that owns reserves throughout the world, have dropped from more than $100 per share in August 2014 to just $37 recently, as petroleum prices have declined by nearly half. Also consider DEVON ENERGY (DVN, $34), with 15,000 oil and gas wells in the U.S. and Ca nada. This could also be a good opportunity to buy SCHLUMBERGER (SLB, $66), a giant company that services oil and gas firms and carries a dividend yield of 3%. Shares are down by more than 40% from their peak four years ago. Other good companies whose fortunes rise and fall with commodities prices are WEYERHAEUSER (WY, $35), which owns nearly 13 million acres of timberlands in the U.S. and has a dividend yield of 3.6%; FRANCO-NEVADA (FNV, $74), a firm that helps mining companies develop and explore properties in return for a stream of royalties on the gold and other metals that are discovered; and MOSAIC (MOS, $25), a fertilizer company that benefits from rising agricultural prices. Also consider morespecialized ETFs that own resource stocks. Examples include ISHARES US OIL & GAS EXPLORATION & PRODUCTION (IEO, $62), SPDR S&P METALS AND MINING (XME, $38) and MATERIALS SELECT SECTOR SPDR (XLB, $60), which owns companies that both hold and process commodities. Commodities are not a foolproof hedge. If rising interest rates throw the economy into a tailspin, oil and corn won’t help you much. But over the long term, commodities offer ballast by offsetting stock declines. That negative correlation also means that if stocks go barreling upward, your commodity holdings will limit your gains— or even turn them into losses.  JAMES K. GLASSMAN CHAIRS GLASSMAN ADVISORY, A PUBLICAFFAIRS CONSULTING FIRM. HE DOES NOT WRITE ABOUT HIS CLIENTS AND DOES NOT OWN ANY OF THE SECURITIES MENTIONED IN THIS COLUMN. HIS MOST RECENT B OOK IS SAFET Y NET: T HE ST RATEGY FO R DE- RISKIN G YOUR INVESTMENTS IN A TIME OF TURBULENCE. REACH HIM AT

[email protected].

22 KIPLINGER’S PERSONAL FINANCE

04/2018

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AHEAD

SUCCESS STORY

Farm Living Is the Life for Them A former sheriff and assistant D.A. go back to their roots, raising livestock on 132 acres.

PROFILE

WHO: Kerry Dunaway, 60 (interviewed) and Robin Dunaway, 62 WHERE: Roberta, Ga. WHAT: Owners, Greenway Farms of Georgia, LLC

How did you get into farming?

We grew up on family farms, and Robin and I lived together on 18 acres. Robin pickled and made jelly all her life, and she began making goats-milk products after she and I retired. She sold them at local farmers markets, where she noticed the demand for meat and eggs. So we decided to raise livestock. We had bought an additional 22 acres early in retirement, and we rented another 100 acres after getting advice from university cooperative extension agents and other farmers.

we began raising livestock, we took a line of credit from AgSouth Farm Credit, a lending cooperative. Last year, we partnered with another couple and bought a 92-acre farm. We no longer rent land. Now our assets total $520,000, and our debt is less than $90,000. What kind of livestock do you raise? We buy calves, piglets

and meat chickens. We also have 235 laying hens. We pasture-raise our animals without growth hormones or antibiotics added to their feed. When it’s time, we

drive them to a familyowned processor that is USDA-certified and humane. We’ve found that meat from an animal raised and processed humanely is more tender than meat from a stressed animal.

at farmers markets. As we became known for our quality, we attracted some local stores and restaurants, too. We also sell via our website (www.greenway farmsofga.com). What do you charge? Our

What do you can? In 2013, we

built the cannery to make jams, jellies, pickles and sauces with local produce. Robin runs it. Her law skills were a big help in getting our kitchen federally inspected and USDA-certified. Where do you sell? We started

chicken goes for $3.35 a pound, ground beef for $7, center-cut pork chops for $8, filet mignon for $20 and a dozen large eggs for $5. Some people say, “I can buy this hamburger or steak at Wal-Mart.” I say, “You can’t buy this kind of hamburger or steak at Wal-Mart.” How big are you now? In 2017,

we sold about 17,000 pounds of beef, pork and chicken and about 2,500 dozen eggs, as well as 4,600 jars of our canned goods. In 2018, we expect to more than triple our meat production.

When did you retire? At the

end of 2008. I was sheriff of Crawford County for 25 years, and Robin was an assistant district attorney in Macon for 28 years. I was tired of politics, and Robin was burned out. We enjoyed sitting around, drinking coffee and watching the news. But soon we were getting on each other’s last nerve and needed more to do. Where did your capital come from? We tapped our sav-

ings for the 22 acres. When 24 KIPLINGER’S PERSONAL FINANCE

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Do you make a living? We

supplement our retirement income with farm income. We also benefit from agricultural tax breaks that flow back to us personally as a limited liability corporation. The work is demanding, with nonstop going and doing, but it’s fun, and every day is a little different. Still, I used to wonder why my grandparents went to bed at 8 p.m., and now I know why. PATRICIA MERTZ ESSWEIN

[email protected] PHOTOGRAPH BY LEAH OVERSTREET

Commentary

MILLENNIAL MONEY

Miriam Cross

The Power of Living Within Your Means

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reating a budget is crucial at any age, but it’s especially important—and daunting—for us millennials. When rent, health care, cell phone bills and other costs previously borne by Mom and Dad gobble up our paychecks, figuring out how to handle the rest of our cash is hard. And for me, at least, travel, socializing with friends and spending on everyday needs can be tough to balance against saving for a far-off future. But now is the best time to learn how to budget. “We’re at this critical point where if we don’t understand where our money goes, we will feel less and less in control of our finances as the years go on,” says Pam Capalad, a certified financial planner (and millennial) who owns Brunch & Budget, in New York City. Learning to live within your means will help you prepare for the inevitable stressors later on, such as buying a home, starting a family or taking time off between jobs. Budgeting well can take some trial and error. When I moved to Washi ngton, D.C., in 2012, I dutifully recorded every dollar I spent on a spreadsheet. But I eventually got lazy and stopped adding up my expenses each month. When I revisited my budget last year to see if I could afford to leave roommate life behind and live alone, I was shocked. My fixed expenses had mostly stayed the same, but my discretionary spending had ballooned as I grew lax about throwing money at nights out with friends. At the same time, I was accumulating too much cash in my checking account that could have been put to better use in a savings account or in my 401(k). I assumed that tracking expenses was enough. But “it’s not budgeting if you don’t check back in and ask yourself, ‘Do I want my money going into

those categories?’ ” says Rebecca Conner, a CFP and founder of SeedSafe Financial, in Seattle. Strategies that stick. Start budgeting

I found Mint overwhelming and rarely logged in. Try redirecting a bigger chunk of your income into a savings account when you get your paycheck (and before you have a chance to spend it). See how crunched you feel the first month before upping that amount. Similarly, if you currently contribute 3% of your paycheck to your 401(k), inch up slowly toward the ideal 15%. Owning up to what you spend (or overspend) is scary. “Freaking out is part of the process,” says Capalad. I felt disheartened when I realized that something had to give. But the important thing is spending my money on what I value most, and that’s my choice. The rest is negotiable. ■

by tracking your expenses for two to three months—without judgment— says Ryan Frailich, founder of Deliberate Finances, in New Orleans. Once you’re aware of where your money goes, you can set realistic, concrete goals (“save $700 in my vacation fund by August”) rather than vague ones (“go out less”). This will motivate you to revisit your budget regularly. Start gradually, rather than try ing to overhaul your money habits all at once. Capalad recommends that her clients choose one category at a time and spend a couple of months paring TO SHARE THIS COLUMN, PLEASE GO TO KIPLINGER.COM/ LINKS/MILLENNIALS. YOU CAN CONTACT THE AUTHOR AT down their spending in that area. At [email protected]. the same time, think about what you value most—living alone, getting in shape with a personal trainer, going to concerts or the theater—and prioritize BUDGETING IS those in your budget. A free budgeting app WORK, BUT IT or website, such as Mint ALLOWS YOU or investor-focused PerTO SPEND sonal Capital, may help. YOUR MONEY Another tool, You Need a Budget, encourages usON WHAT YOU ers to assign each dollar VALUE MOST. earned a “job” so all income is allocated to expenses or savings. The service costs $84 a year, but some users think the results, breaking the paycheck-to-paycheck cycle, outweigh the fee. Setting up these tools can be tedious, but they will help you visualize your net worth, spending patterns or goals. A tool that works for your friends might not work for you.


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Commentary

LIVING IN RETIREMENT

Janet Bodnar

Get Help With Medicare Coverage W

hew! Thanks for your overwhelming response to my column on the challenges of signing up for Medicare (“Living in Retirement,” Dec.). Some of you sympathized with my situation—often in colorful terms. “Thus began a journey into the bowels of bureaucratic mayhem,” wrote one reader. “I had to laugh because I just went through the same maze,” wrote another. Some of you offered detailed advice on how you negotiated that maze: “I have been on Medicare for 10 years and have had at least five different Medicare Part D drug plans,” wrote one reader. Others complimented local Social Security representatives who were “excellent to work with and got the issues resolved quickly.” Some e-mails were eloquent pleas for help: “I need to know more than what my options are; I need to know how to competently choose among those options.” And some of you offered assistance. For example, Gary Davis volunteers with the Chester County office of Pennsylvania’s State Health Insurance Assistance Program. “We offer a telephone help line, educational seminars and one-on-one counseling,” Gary wrote. (SHIP is a nationwide program; go to www.shiptacenter.org or call 800-633-4227 to find the office closest to you.) SHIP is one source Kiplinger recommends in our own extensive Medicare coverage in this magazine, in Kiplinger’s Retirement Report ($29.95 for 12 issues) and on our website (kiplinger.com/links/ medicare). Medicare.gov has price listings for Medicare Advantage plans and Part D drug plans available in your area (www.medicare .gov/find-a-plan). Finding price comparisons for


04/2018

Medicare supplement (medigap) policies takes more digging. My state, Maryland, has a comprehensive rundown on dozens of plans available in the state, but plans appear alphabetically by carrier, so finding price information can be tedious (go to www.naic.org and click on “map” for links to your state insurance department). For $49, Kiplinger readers can get a personalized report from Weiss Medigap (ww w.weissmedigap.com/ kiplinger) that ranks plans by price. Help wanted. I was surprised by the

number of readers who had sought help from independent insurance agents or consultants to sort out the Medicare puzzle or who asked for guidance on how to find an agent familiar with Medicare. In general, you want an agent who specializes in health insurance. Because agents are

compensated by insurers, the challenge is to find those who are truly independent and work with a number of carriers, not just one company. “It’s important to ask how many health plans an agent represents,” says Shaina Popkin, an independent agent at Presley General Insurance Agency in Orange County, Calif. “You’re not looking for any specific number, but enough that you feel comfortable with.” At eHealthMedicare.com, agents on call nationwide deal with multiple insurers. “In the case of Medicare Advantage and Part D drug plans, the government sets fixed commissions,” says Andrew Shea, vice president of Medicare products at eHealth. “Commissions for Medicare supplements tend to be very similar among plans.” Some Medicare consultants charge a flat fee. For example, 65 Incorporated (www.65incorporated.com)

MANY OF YOU WANTED TO KNOW WHAT KIND OF COVERAGE I CHOSE. THAT’S STILL A WORK IN PROGRESS.

charges $399 for an hour-long consultation about coverage options and premiums when you initially enroll in Medicare at age 65. Finally, many of you wanted to know what kind of coverage I chose. That’s still a work in progress. I enrolled in a Medicare Advantage PPO because I qualified for a subsidy through my husband’s former employer. It has a wide provider network, prescription drug coverage and, with the subsidy, it was the least expensive option. But when the subsidy ends, I’ll have to reevaluate. So the saga continues. ■ JANET BODNAR IS EDITOR AT LARGE OF KIPLINGER’S PER- SONAL FINANCE . CONTACT HER AT [email protected].


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TOLL-FREE 1-888-371-8633 Or Download a Copy at FisherRetirePlan.com About Fisher Inves tment s Fisher Investments is a respected money management rm serving over 30,000 successful individuals as well as large institutional investors.* We have been managing portfolios through bull and bear markets for over 30 years. Fisher Investments and its subsidiaries use proprietary research to manage over $100 billion in client assets.* ©2018 Fisher Investments: 5525 NW Fisher Creek Drive, Camas, WA 98607 Investments in securities involve the risk of loss. Past performance is no guarantee of future returns. *As of 01/12/2018

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CROWDSOURCING

What was your biggest financial mistake—and how did you recover from it?

”

Most of your regrets revolve around racking up credit card debt, botching investments and missing retirement-saving opportunities. One interesting observation: The majority of responses are from women, who perhaps are more willing to be honest about their mistakes.

As young marrieds, we allowed ourselves to get into so much debt we couldn’t make the minimum payments without working overtime. We worked like crazy to pay it off, but we lost so much time—and money we could have invested. Karen Lojo

In my BK (Before Kiplinger’s) days, I fell in love with someone who wanted someone to constantly buy for her. After a short time, I was using all (and I mean all) of my paycheck to pay the minimum balances on my credit cards. After a while, I was maxed and had to start saying no. The girlfriend didn’t hang around long after that, and I found a credit union that would give me a signature loan to pay off the credit cards. Soon, I could start to see daylight and cut up my credit cards! Lee Stroud

I bought thousands of dollars of shares in a precious metals and minerals mutual fund in 2010 at $37 a share. I sold a good portion six weeks later at $41, but I should have sold 28 KIPLINGER’S PERSONAL FINANCE

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all of it because now the fund trades at $12 per share. Ashton Wolf

I dismissed bitcoin as a fad in 2013, but I could have easily made 100 times my investment if I had bought it back then. Even a 5% investment would have gone a long way. Lesson: Be more risk-taking when something has potential to become huge. Difu Wu

I had a pension but did not start putting additional money into retirement savings accounts before age 35. Even adding a little would have been better than nothing. Debbie Willits

At the end of 2012, my husband received a pension plan payout, which he rolled over to an IRA. We decided to invest it in a private mutual fund in which the fees would be 2% of the amount invested. I looked over the statements once a month and noticed that we would buy stock and sometimes only hold it a week.

One stock was bought and sold three times in the span of two months. Meanwhile, the stock market was taking off, but nothing we had through this program was earning anything. Finally, we pulled the plug and invested on our own. I ignored too many red flags, and I no longer discount our own abilities. Karen Kauneckas

We bought a very expensive house in 2007. We debated short selling or just walking away when the value of our house dropped significantly, but we decided to stick it out and make extra payments, too. Nine years later, we paid it off. Now we have a house with equity, we have great credit, and we saved tons of money on interest. What was the worst financial decision turned into the greatest. Victoria Benway

Next Question When an adult child moves home or needs support, how do you help without jeopardizing their sense of independence—or your own financial future? To share your answer, go to kiplinger.com/links/crowdsourcing


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Commentary

YOUR MIND AND YOUR MONEY

Anne Kates Smith

To Save More, Tap Into Your Emotions

I

am knee-deep in mementos and family heirlooms these days, having cleaned out three separate houses within the past 14 months following my parents’ deaths and an aunt’s decision to downsize. So, naturally, I was intrigued when I came across a recent study that says these very heirlooms might help plump up my savings. The study comes from Brad Klontz— a psychologist, certified financial planner and associate professor at Creighton University—and was funded by Capital One. The object was to find out whether tapping into your emotional connections to nostalgic items could inspire you to save more—sort of a search for a savings talisman. Remember the good times. Here’s how it

worked: In five cities—Atlanta, Austin, Boston, Dallas and Seattle—experimenters invited the public to a seminar on savings, to be conducted at a local hotel. When participants arrived on the day of the seminar, they were sent to one of two conference rooms. The first group heard a standard presentation on financial literacy, which touched on the importance of saving, the power of compound interest and various saving strategies. The second group was told to bring an item of sentimental value (or a picture of one). They arrived with teddy bears, Grandma’s locket, Grandpa’s watch, wedding rings, aged photos of favorite family vacations and all manner of mementos. In their conference room, they were given a tri-fold board and art supplies, magazines, scissors and glue. “It looked like a kindergarten classroom at art ti me,” says Klontz. After being cued to visualize t he memories connected with their items, participants used the art supplies to 30 KIPLINGER’S PERSONAL FINANCE

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depict those memories on the first panel of their board. On the third panel, they wrote or depicted the emotions the memories elicited, expressing why the memories were so meaningful and the values underlying them. Concepts conjured up included happiness, family, home, safety, security, adventure—you get the picture. On the middle panel, participants identified their top three savings goals, in words or pictures. They were told to be as specific as possible—not “retirement,” but “retirement home on the beach.” Not just “new car,” but the make and model, along with the person they envisioned in the passenger seat.

by 67%, with increases in the five cities ranging from 40% to 115%. The experiment shows that one way to get around the primal human instinct that makes it hard to delay gratification for some future goal is to connect that goal with other primal, motivating emotions, says Klontz. To try it at home, find something meaningful, a nd ask yourself what feelings or values you associate with it. Chances are, they’re also what underlie your savings goals. To tap those emotions, envision the future as specifically as possible. Tape a picture to your mirror, or use an evocative image as your screen saver. Set up automatic contributions to a savings or investA savings bump. Three weeks later, ment account while you’re fired up, Klontz found that both groups had and name the account—you might increased their rate of saving as a contribute more to the Red Maserati percentage of income. The fund or the Famfinancial literacy group ily Oceanfront boosted their savings by Condo account. FIND A MEANINGFUL 22%; the emotional group, Klontz has a OBJECT AND ASK savings talisman YOURSELF WHAT of his own: a money clip he VALUES YOU gave his grandfa ASSOCIATE WITH IT. ther for ChristCHANCES ARE, mas one year. THEY’RE ALSO WHAT Shortly before the elder gentleUNDERLIE YOUR man died, he SAVINGS GOALS. pressed it back into Klontz’s hand. “My grandfather was low-income and passed away in a trailer park,” says Klontz. To him, t he heirloom represents love of family and a desire to create a legacy of abundance that his grandfather wasn’t able to enjoy. “Funny that it’s a money clip,” he says  .

ANNE KATES SMITH IS EXECUTIVE EDITOR OF KIPLINGER’S PERSONAL FINANCE MAGAZINE. YOU CAN CONTACT HER AT [email protected].


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MONEY MONEY

Keep Stop More Wasting Cash Money Stop wasting money! We

show you howkeep to fix your You’ll more cash if you follow our advice. money leaks. It’s a pretty good bet that you have leaks in your budget— car insurance that costs too much, bank account fees, homeenergy wasters or mutual funds with high expense ratios. Each of those leaks in isolation won’t damage your finances, but all of the drips can quickly add up to big bucks—maybe even thousands of dollars a year—going down the drain. On the following pages, we identify typical leaks and show you how to fix them so you can keep more money in your pocket.

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PHOTO-ILLUSTRATIONS BY C.J. BURTON

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MONEY

Shop Smarter Hunt for discounts. You can find store discount codes, often worth up to 20%, at sites such as RETAILMENOT .COM and PROMOCODES.COM . But if you’re not in the mood to conduct the search yourself, HONEY (www.joinhoney .com), a browser extension available for Chrome, Safari and Firefox, searches for coupons at thousands of sites and applies the discounts at checkout. Honey also searches Amazon.com for the lowest price. Don’t assume Amazon has the best deal. LendEDU, a comparison marketplace for loans and other financial products, compared a shopping cart of 50 identical items from Amazon and Walmart in five categories: home goods, kitchen/appliances, tech, food and beverage, and miscellaneous items. Walmart bested Amazon in 34 KIPLINGER’S PERSONAL FINANCE

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every category except food and beverage. You can score deals at the supermarket without clipping coupons. If you sign up for a loyalty card, you can save up to 30% on sale items, and you may be able to add virtual coupons to your card if you register it on the grocer’s website.

Avoid the shipping fee. If you’re paying pesky shipping fees, maybe you’re not shopping right. The coupon sites mentioned above may turn up free-shipping codes. Or search BRADSDEAL.COM for more than 50 stores— including Coach, Dell, DKNY, Microsoft, Neiman Marcus, Nordstrom, North Face, Ray Ban and Zappos— that always offer free shipping with no minimum purchase. But compare what you buy at sites with

shipping fees to make sure you’re getting the best overall deal. A nother option: Best Buy, Nordstrom, Target and other large retailers offer free shipping to nearby stores, so you can take advantage of the online price. Or contact customer service through the chat box to ask about freeshipping codes.

Skip the extended warranty. Don’t pay an extra 20% on an extra warranty—your credit card may have your back. American Express offers an extended warranty on all of its cards, and most cards from Visa and MasterCard also include this perk (Discover recently discontinued it). To see what your card issuer offers, go to WalletHub.com and search for “extended warranty.” The extra warranty ty pically lasts up to a year beyond the manufacturer’s warranty and has coverage up to $10,000.

Buy When Things Are On Sale JANUARY: linens and bedding,

exercise equipment, winter clothing FEBRUARY: TVs, tax-filing

software, cookware and small kitchen appliances MARCH: skis and snowboards,

high-end fashion, luggage APRIL: tires, cruise vacations,

hotel discounts on tax day MAY: mattresses, smart-home

hubs, office furniture JUNE: gardening tools, gym

memberships, camping gear JULY: swimwear, air conditioners AUGUST: laptops, school

supplies, shoes SEPTEMBER: older iPhone

models, grills, summer clothing OCTOBER: outgoing models of

sedans and SUVs, Halloween costumes, patio furniture NOVEMBER: gaming systems,

tablets, large appliances DECEMBER: jewelry, toys,

wedding dresses

Cut Investing Costs Watch mutual fund fees. You Yo u might be surprised surpris ed to learn the extent to which high mutual fund expenses can erode your return. Consider PRIMECAP ODYSSEY GROWTH (POGRX), a member of the Kiplinger 25 (the list of our favorite no-load funds). f unds). The fund invests in growthoriented, large-company stocks and charges expenses of just 0.66% of assets. The long-term annualized return for large-cap stocks is 10%. Assuming a more conservative 8%, a $10,000 investment in Odyssey Growth would be worth nearly $41,000 after 20 years. Under the same scenario, a $10,000 investment in the Monetta Fund, a largecompany comp any growth fund with a 1.46% expense ratio, would grow to just $35,000 over two decades. You can save even more with index mutual funds and exchange-traded funds. VANGUARD RUSSELL 1000 GROWTH ETF (VONG), which

tracks the performance of 1,000 growth-oriented, large-company stocks, charges 0.12%. Under the same assumptions, the fund would net $45,500.

Curtail your trading commissions. If you’re shelling out more than $5 per trade to buy or sell stocks, you’re paying too much. Brokerage firms Ally, Charles Schwab and Fidelity each charge $4.95 per stock trade, beating E*Trade, TD Ameritrade and Vanguard (all

at about $7 per t rade) rade).. Merrill Edge levies $6.95 per trade but waives the fee entirely on up to 30 trades a month for customers who keep at least $50,000 with the firm (including its parent, Bank of America). Investors can also trade exchange-traded funds or buy mutual funds without paying a penny in fees. Schwab offers an industryleading 254 commissionfree ETFs. Vanguard brokerage customers may buy or sell more than 70 of its ETFs without charge. Most brokers also offer thousands of no-transaction-fee mutual funds. Fees Matter

How a $10,000 Investment Grows Year earss Over 20 Y The first and second f unds are actively managed, with expenses at the high and low end. The fund on the right is an average index fund. $45,778* $40,175*

$30,801*

Expense ratio 2.05%

Expense ratio 0.74%

Expense ratio 0.09%

*Assumes an 8% annualized return.

Invest tax-efficiently. Exchange-traded change-trad ed funds f unds that track a market benchmark tend to be more tax-efficient than actively managed mutual funds f unds that invest in the same arena because the latter may distribute capital gains on a regular basis. In a taxable account, consider swapping a poor-performing mutual fund that invests in large-company stocks for an ETF such as ISHARES CORE S&P 500 (SYMBOL IVV). Its expense ratio is a wafer-thin 0.04%, and it distributes dividend income only from underlying stock holdings. Municipal bond funds can be a good alternative to taxable bond funds because muni interest isn’t taxed by Uncle Sam; it may also be tax-free at the state level to the extent the fund holds bonds issued by the state in which you live. FIDELITY INTERMEDIATE MUNICIPAL INCOME (FLTMX) yields about

2%, equal to a 3.2% yield for investors in the top 37% tax bracket, or 3.4% for those also subject to the net investment income tax.

Don’t pay a load. Our standard advice to mutual fund investors is to avoid funds that come with sales charges, known as loads, which can range as high as 5.75% each time you buy shares. But if you invest through a discount brokerage,, you may be able to purage chase a stellar load fund without paying a sales charge or transaction fee.

Get Advice for Less Investment advice from a human might cost you 1% of assets. Robo advisers typically charge about 0.25%. These virtual advisers use computer programs to match you with a diversified portfolio of low-fee ETFs tailored to your time horizon and risk tolerance. You can find robo advisers at a slew of financial firms; Betterment, Fidelity, Merrill Lynch, Morgan Stanley, Schwab and Vanguard each offer their own service. Robos’ performance depends on the mix of assets in their portfolios. Schwab Intelligent Portfolios (free) beat its peers over the past two years, thanks to its stakes in foreign stocks, highyield debt and foreign bonds, says the Robo Report newsletter. LOOMIS SAYLES CORE PLUS BOND

(NEFRX), which has outper-

formed its benchmark in seven of the past nine calendar years, usually levies a 4.25% charge for Class A shares. But you can purchase them load-free at brokerages such as E*Trade, Fidelity and Schwab. Much of the fund’s assets are pegged to the Bloomberg Barclays Aggregate Bond index, but the managers can stray from the index if they see fit. HOTCHKIS & WILEY VALUE OPPORTUNITIES

(HWAAX) returns

have bested the average large-company value fund in seven of the past 10 years, including so far i n 2018. The fund ininvests in promising out-offavor companies. A shares are available without their 5.25% load at Fidelity, Schwab and Vanguard.

SOURCES: Bankrate, Investment Company Inst. 04/2018


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Tame Tech Spending Get perks with your phone plan. Our pick for the best family phone plan, SPRINT’S UNLIMITED FREEDOM PLAN , costs $100 a month through March 2019 for unlimited calling, texting and data on up to five lines (you must make automatic payments to qualify for that price). After that, it costs $60 a month for the first line, $40 for the second line and $30 for each additional line. The plan includes free access to Hulu (worth $8 a month). Cell-phone users with low data needs can often cut costs through prepaid carriers, such as CRICKET WIRELESS

(a subsidiary of AT&T) and METROPCS (a subsidiary of T-Mobile), which charge about $40 per month for 5 gigabytes of data with unlimited talk a nd text. The average monthly data use is 2.4GB, according to Nielsen. If you need more data, consider an unlimited data plan through one of the big four carriers—and you may get a bonus perk. T-Mobile’ -Mobile’ss unlimited plan comes with a free standard Netflix subscription (worth $11 per month) for accounts with two or more phone lines (cost: $120 per month for two lines) li nes).. AT&T’s unlim-

ited plans (starting at $60 a month for one line) come with free HBO (worth $15 per month) and, if you opt for the Unlimited Plus plan (starting at $90 for one line), a discount on a DirecTV subscription.

Buy a new old phone. When you’re due for a phone upgrade, save $100 or more by skipping new, pricier models and going with their cheaper, almost-asgood predecessors. The iPhone 8 retails for $700, but a new iPhone 7 starts at

$550. The Samsung Galaxy S8 sells for $725, but the Galaxy S7 costs $450.

CONSUMERS’ CHECKBOOK

7 Things You (Probably) Shouldn’t Pay For Air-duct cleaning. Independent research indicates that duct-cleaning work may contribute to dust problems rather than lessen them.

1

Basement waterproofing services. Most basement moisture problems are resolved by cleaning out clogged gutters, extending gutter downspouts or doing a bit of regrading work. These tasks are far less expensive than jackhammering up your basement and installing interior drainage systems and sump pumps.

2

Car repairs at the dealership. Unless the work you need is covered by a new-car warranty or manufacturer recall, use an independent shop. When we use our surveys of consumers to compare quality of work at dealers and nondealers, the nondealers, on average, score better—and charge less.

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Home security systems. Because most burglars enter homes by opening unlocked doors or windows—or pushing and kicking locked ones until they open— there are many more-effective and much less costly ways to secure your home. Equip all doors with good deadbolt locks and set up lighting systems.

Tax prep help. If you have complicated investments, are selfemployed or own a business, it often makes sense to pay a CPA for help. But tax-prep software is now remarkably easy to use, and several studies have found that many of the “experts” at tax-prep companies don’t know what they’re doing anyway.

ID theft insurance. Most mini insurance policies (extended warranties, travel coverage, furniture protection plans) are pretty useless. That’s also true of the add-on policies for ID theft offered by homeowners insurance. They don’t promise to clear your credit history and record for you; they merely cover the expenses you incur when you do so on your own. The average out-of-pocket cost to remedy the effects of identity theft is well under $1,000, and many cost victims nothing. Mostly, it takes time and effort to repair the damage.

Tire-protection plans. If you get a flat caused by a nail, glass or other road debris, a plan promises to repair or, if necessary, replace the tire. But if you get a flat from accidentally running over a curb or another driver error, you get bubkes.

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7

KEVIN BRASLER AND JAMIE LETTIS

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MONEY

Pay Less for Insurance Lower your car insurance premium. The insurer that had the best rate when you bought your coverage may not be the most competitive after you add a teenage driver, get married, move, buy a new car or improve your credit score. It’s a good idea to reshop your auto insurance every year or so even if nothing has changed. In a study by the Texas Insurance Department, people saved an average of $125 per year just by calling other insurers to compare rates. Weigh any premium savings against long-term customer discounts you may be earning. Also, you’ll usually get a big discount if you keep your auto and home coverage with the same company. You can compare quotes from several insurers through an independent agent (to find one, go to www.trusted choice.com), at Insurance .com or InsuranceQuotes .com, or by visiting a few insurers’ websites. Tell your company about a better quote before switching; it may reduce your rate to 38 KIPLINGER’S PERSONAL FINANCE

04/2018

keep you as a customer. Ask your insurer for a list of discounts to see if you qualify for breaks you’re not receiving. If you have safe driving habits and low mileage, you may save up to 50% by signing up for a datatracking program, such as Progressive’s Snapshot,

State Farm’s Drive Safe & Save or Allstate’s Drivewise. If you have an old car and you’re still paying for collision insurance, you may be paying more in premiums than you would collect from your insurer if you totaled your car. Check out your car’s value at Edmunds.com

Coverage You Don’t Need A lot of insurance is simply overkill—it duplicates coverage you already have or offers too little payback for the premium.

Rental car insurance. If you have car insurance with liability limits of $500,000 to $1 million, you don’t need to pay $10 to $15 per day for $1 million of rental car liability insurance.

Credit and mortgage life insurance. You’ve probably found pitches for credit life coverage tucked in with your car loan or credit card bill. The coverage looks cheap, but the benefits are minimal: The insurance just pays off the balance on your loan. Likewise, with mortgage life insurance, the value goes down every year as your mortgage balance decreases. Plus, your heirs can’t use the death benefit for any thing else.

Dental insurance. Most policies pay for cleanings and checkups every six months and annual x-rays. But annual premiums commonly run $180 to $600 for policies that generally cap coverage at $2,000 or less per year for most other expenses. Many policies also make you wait six months before covering fillings or at least 12 months before covering a root canal. If your employer offers a subsidized plan, it could be a good deal. But it may be more cost-effective to add pretax money to your flexible spending account to cover dental expenses.

or KBB.com, and drop collision coverage if the value of your car minus your deductible is less than what you pay for collision coverage. Or boost your deductible. Raising it from, say, $250 to $1,000 could save you 15% or 20% in premiums. Increase your homeowners deductible. Raising your deductible from $250 to $500 or $1,000 can cut your premiums by 15% or more. It also makes you less likely to file small claims that could boost your premiums or lead to cancellation of your policy. Don’t forget to ask your insurer about discounts for home improvements that reduce claim risks, such as installing storm shutters or impactresistant glass. You could also snag a discount of up to 5% for a home generator. Save in a health savings account. If your family is in relatively good health, you can save money on premiums—and benefit from an HSA’s triple tax benefit— by signing up for a highdeductible health insurance policy. To be eligible for an HSA in 2018, your deductible must be at least $1,350

for self-only coverage or $2,700 for family coverage. Your contributions are ta xdeductible or pretax (and you may get an employer match), and the money can be used tax-free for medical expenses in any year. If you don’t have an HSA but your employer offers a flexible spending account (FSA), you can contribute up to $2,650 in 2018, and the money escapes federal income and Social Security taxes. FSA funds can be used tax-free for eligible medical expenses. You must use the cash in your account by December 31 or March 15, depending on your employer, or you’ll lose it. (Some employers let you roll over $500 to the next year.)

Don’t pay too much for Medicare. You have from October 15 to December 7 each year to reshop your Medicare Part D or Medicare Advantage plans. Go to www.medicare.gov/ find-a-plan and ty pe in your drugs and dosages to see how much you’d pay in premiums a nd out-of-pocket costs for Part D plans. Use the same tool to shop for Medicare Advantage plans. If you’re paying the Medicare surcharge but your income has decreased because of retirement, divorce or the death of a spouse, you can get your surcharge reduced. (You pay higher premiums for Part B and Part D when your adjusted gross income plus tax-exempt interest is more than $85,000 if you’re single or $170,000 if married filing jointly.) See www.ssa.gov/medicare for details.

Trim Account Fees Switch to a no-fee rewards card. Not getting your money’s worth from a card that charges an annual fee? You have plenty of great choices among nofee cards. The CITI DOUBLE CASH card rewards you with 1% cash back when you make a purchase and another 1% when you pay the bill, for a total of 2% on all spending. DISCOVER IT offers 5% cash back on up to $1,500 spent in categories that change quarterly; in 2018, the 5% categories include gas stations, grocery stores, restaurants and Amazon.com. Take advantage of your card’s perks. Don’t pay for benefits you can get free. Your card may offer purchase protection, which provides a refund, replacement or repair if an item you bought with the card is damaged or stolen within a few months of purchase. Some cards include travel insurance, such as for trip cancellations or lost or delayed baggage. Certain types of identity-theft monitoring, such as scanning internet black markets for your Social Security number, are available to MasterCard and Discover cardholders. Find a fee-free bank account. The BANK OF INTERNET USA ESSENTIAL CHECKING

account requires no minimum balance or monthly fee and provides unlim-

ited reimbursement of out-of-network ATM fees. Plus, it’s free to have money automatically transferred from a savings account if you overdraw your checking account. The free ALLY

Avoid Charges When You Travel The following cards don’t charge a 3% foreign-transaction fee for each purchase.

BANK INTEREST CHECKING

CREDIT CARDS

ACCOUNT yields up to 0.6%,

 BANK OF AMERICA TRAVEL

depending on the balance. Ally reimburses up to $10 monthly in out-ofnetwork ATM fees, and overdraft transfers from savings are free ( but you’ll pay a $25 fee if you choose to have Ally cover an overdraft).

REWARDS VISA (no annual fee)

makes it simple to earn and redeem points.  CHASE SAPPHIRE PREFERRED VISA ($95 annual fee, waived the

first year) lets users transfer points to several partner airline and hotel programs, or use points to book travel through the Chase portal.  PENFED PATHFINDER REWARDS

Cut down on interest. If you’re carrying a balance on a credit card, consider transferring it to a card such as the BANKAMERICARD CREDIT CARD. It charges no interest for 15 months and levies no balance-transfer fee (you must make the transfer within 60 days of opening the account to capture those terms). If you can’t pay off the balance before the 0% window closes, you may be better off moving the debt to a lower-rate loan. The average rate on a $30,000 home-equity line of credit was recently 5.66%, according to Bankrate.com. Or consider a personal loan. LightStream, a n online lending division of SunTrust Bank, offers rates as low as 5.49% on a debtconsolidation loan.

AMERICAN EXPRESS (no annual

fee) dangles some attractive features for travelers, plus you can earn up to four points per dollar spent on travel purchases (for more details, see kiplinger.com/ links/penfed). DEBIT CARDS

When you withdraw cash abroad, some debit cards waive the 3% foreign-transaction fee as well as out-of-network ATM fees (commonly $2.50, according to Bankrate.com).  CHARLES SCHWAB BANK HIGH YIELD INVE STOR CHECKING re-

funds all ATM fees to withdraw cash worldwide and charges no foreign-transaction fees to use the debit card. The account is free to open and maintain.  CAPITAL ONE 360 CHECKING

does not charge foreign-transaction fees or out-of-network ATM fees, but it won’t refund fees that the ATM owner charges. The account is free to open and maintain. 04/2018

KIPLINGER’S PERSONAL FINANCE 39

MONEY

Save Energy, Save Money Families in a ty pical singlefamily home spend an average of $2,060 annually on energy, according to the Lawrence Berkley National Laboratory. These steps will help you slash your energy bills, and you might snag a rebate or other incentive (check www.dsireusa.org).

Install a smart thermostat. The first programmable thermostats promised energy savings, but homeowners didn’t fully tap their potential. Smart thermostats make it easier: They learn from your habits and automatically adjust temperature settings for the highest efficiency. The Nest 3rd Generation (works with Google Home and Amazon Echo, $249), ecobee4 (with built-in Alexa Voice Service, $249) and t he ecobee3 lite (works with Amazon Echo, $169) have been certified by Energy Star. Independent studies show that the Nest thermostat will save an average of 10% to 1 2% on heating bills and 15% on cooling bills, or an average of $130 to $145 a year. Pull the plug on energy vampires. U.S. households have, on average, 65 electronics and appliances plugged in, according to the Natural Resources Defense Council. Most of them consume electricity around the clock, even when they’re turned off. 40 KIPLINGER’S PERSONAL FINANCE

04/2018

And that’s costing households $165 a year, on average. (You can see how much you’re paying with the Energy Vampire calculator at www.duke-energy.com.) The obvious way to pull the plug on these suckers is to do just that—pull the plug. An easier approach: Use a smart power strip, which cuts power to electronics, such as computers, printers and home audio/video components, that slip into standby mode. The sevenoutlet Smart Strip Power Strip and automatic switching surge protector ($25.75 at www.smarthomeusa .com; $33.95 for a 10-outlet strip) automatically turns outlets on or off when it detects whether an electronic device plugged into it is on, off or in standby mode.

Stop the leaks. If you can rattle a door or a window in its frame, or you can see light around it, your home is letting in hot air in the summer and drafts in the winter. To save 5% to 20% on your energy bills, weatherstrip around doors and be-

tween the sashes of doublehung windows. Caulk other cracks and gaps. You’ll save another 5% to 15% on your energy bills if you have your heating and cooling equipment tuned up annually (about $70 to $100 per unit) and change the air filter at least every three months.

Ditch the old fridge. About one-third of Americans have an old, inefficient refrigerator in their basement or garage. To see what you can save by retiring yours, use the “Flip Your Fridge” calculator at EnergyStar .gov. For example, if you got rid of a side-by-side model

Home Sellers: Don’t Pay 6% The standard real e state commission is 6%, but in 2017, the average was 5.1% and falling, according to Real Trends, a real estate consulting company. A shortage of housing inventory and pressure from discount and flat-fee brokerages are behind the trend. At Redfin, now available in more than 80 cities, sellers pay the usual 3% commission to the buyer’s agent but just 1.5%—or 1% in some cities, including Washington, D.C.—to their agent. At a rate of 4.5%, you’d save $6,000 on a $400,000 home.

built in the early 2000s, you could save an average of $90 to $150 annually.

Buy Energy Star. When it’s time to replace appliances, get an Energy Star– certified model. Your clothes washer and dryer gulp the most energy in your home. By replacing them with Energy Star models, you would use only about half as much energy and water, and the typical household could save an average of $113 annually compared with standard models. Install LED bulbs. Homeowners could save about $1,000 over 10 years by replacing 20 incandescent or halogen lightbulbs with LED bulbs, according to a 2017 price survey and cost analysis by the Consumer Federation of America. Most stores now sell 60watt LEDs for less than $5 per bulb. 

TKTKTKTK

HOME PRICE OUTLOOK

Home Prices Keep Climbing A tap on the brakes from the new tax law may be just what the market needs. BY PATRICIA MERTZ ESSWEIN

NEW JERSEY IS THE POSTER CHILD FOR

the high-cost, high-tax states where housing markets—and homeowners— are supposed to suffer under the new tax law. Patrice and Kalvin Sosoo, of Teaneck, N.J., have a toddler, Kingsley, and a baby on the way, so they’re in the market for a larger place. But 42 KIPLINGER’S PERSONAL FINANCE

04/2018

the Sosoos aren’t deterred by the new rules, even though housing costs for their next home are likely to be higher. Under the new law, homeowners with existing mortgages taken out before December 15, 2017, can continue to deduct interest on up to $1 million of mortgage debt. After that date, the

limit for all “acquisition debt”—money used to buy, build or substantially improve a home—falls to $750,000. The deductibility of interest on homeequity loans or lines of credit, old or new, that are used for other purposes— such as paying for a vacation, a car or a college education—disappears. Plus, the deduction for state and local taxes, including property taxes, will be capped at $10,000. While living in their first home, the Sosoos itemized deductions on their federal tax return, including $11,000 in annual property taxes. The Sosoos have set a price limit of $700,000 on their next home, so they will still be able to deduct all of their mortgage interest. But they’ll take a major hit on the deductibility of their state and local taxes; they estimate that property taxes alone will run them about $15,000 annually. “Taxes here are crazy, and the $10,000 limit kind of hurts,” says Patrice. But when they file PHOTOGRAPH BY TOM KUBIK

■ THE NEW TAX LAW IS LIKELY TO INCREASE PATRICE AND KALVIN SOSOO’S HOUSING COSTS WHEN THEY BUY THEIR NEXT HOME.

their taxes for 2018, a tax-rate cut and the higher standard deduction could offset at least some of the loss in state and local tax deductions.

Limited Damage The new law raises the standard deduction to $12,000 for single filers, $18,000 for head-of-household filers and $24,000 for married couples who file jointly. That may make the limits on deduction of mortgage interest and state and local taxes a moot point for many homeowners, who will benefit by switching from itemizing to taking the standard deduction. And despite the agita that followed passage of the tax law, the changes will affect relatively few homeowners. In 2017, about 100,000 home buyers, or just 3.9% of all buyers nationally, took out a mortgage that exceeded $750,000, and they’re mainly concentrated in the Bay Area of California and the New York metro area, accord-

ing to Attom Data Solutions, which analyzes property data. Attom also found that 4.1 million homeowners, or 4.4% of all homeowners, paid more than $10,000 in property taxes, and they’re concentrated in high-tax counties in the Bay Area, Connecticut, Illinois, New Jersey, New York and Texas. But high-earners in places with lower property taxes could also hit the limit. Many highincome homeowners who are subject to the alternative minimum tax were already limited to deducting interest only on mortgage or home-equity debt used to buy, build or improve their homes, and they were prohibited from deducting state and local taxes. What do the changes to the tax law mean for home prices? Moody’s Analytics expects the housing market to continue recovering in 2018, the seventh year since the market hit bottom. But Moody’s predicts that by 2019, home prices nationally will be 3.7% lower, on average, than they would have been otherwise. The value of tax benefits was baked into home prices in high-cost, high-tax areas, so home prices will rise more slowly as prospective buyers try to contain the af tertax cost of homeownership. Some renters may rent longer or choose not to buy at all. Some buyers will look for less-expensive homes. Sellers of higherend trade-up homes will feel more pressure to lower their prices. Their buyers not only will hit the mortgageinterest and tax caps but also will be more likely to take the standard deduction and discontinue itemizing, especially if they have no other sizable deductions besides housing costs, says Andres Carbacho-Burgos, a housing economist at Moody’s Analytics. High-cost counties that will see home-price appreciation slow are concentrated on the West Coast, in the largest metro areas of Texas, in Chicago, and in the states from Massachusetts to Virginia. New Jersey is the worst case because it has the highest average property tax rate of the 50 states and the largest share of high-

Mortgage Outlook

Rates Will Ratchet Up The 30-year fixed rate has lingered at about 4% or less since mid 2011, but this is the year mortgage rates will begin to rise from historic lows. The Federal Reserve is all but certain to continue ratcheting up short-term rates, and yields on 10-year Treasuries, which are tied to the 30-year mortgage rate, have already jumped. In early February, the national average 30year fixed rate was 4.2%, according to Freddie Mac. By the end of 2018, Kiplinger expects the 30-year fixed rate to hit 4.5% and the 15-year fixed rate to reach 4.2%, up from 3.7% in early February. Borrowers who have a FICO credit score of 720 or higher and a down payment of at least 30% will get the best rates. Lenders will look at your whole credit profile, however, and consider factors that will offset risk, such as making a larger down payment or having other assets, says Guy Cecala, publisher of Inside Mortgage Finance. You still must be prepared to produce heaps of documentation of your income and assets and answer persnickety questions. With rising home prices and increasing equity, homeowners who haven’t refinanced yet could still snag a low fixed rate. As rates rise, 5/1 and 7/1 adjustable rate mortgages, which lock in a lower rate for five or seven years and then default to a one-year ARM, could gain popularity. Rates on jumbo loans (with a loan amount of $453,100 or more or, in high-cost areas, $679,650 or more) may be even lower than on conforming loans, says Cecala. When you shop, include an independent mortgage broker or two along with your bank or credit union and nonbank lenders such as Quicken, Caliber Home Loans or LoanDepot. Brokers may be able to find a cheaper deal through their wholesale channel than you could by approaching lenders directly. To find a broker, visit https://findamortgagebroker.com.

04/2018


43

MONEY

tier markets. Moody’s figures that by mid 2019, New Jersey’s home prices will fall by 2% from the year before. The trend of people moving from high-cost to lower-cost states will accelerate, says Lawrence Yun, chief economist at the National Association of Realtors. Home prices will continue to rise in states such as Arizona, the Carolinas, Colorado, Florida, Nevada, Texas and Utah as more people move in than out. But prices in Connecticut, Illinois, New Jersey and New York will decline as more people leave.

Home Prices Around the U.S. Prices increased nationally by 5.4% in 2017, compared with 5.8% in 2016, according to Clear Capital, a provider of real estate data and analysis. Jobs fueled demand from millennials and Generation Xers, who competed for a dearth of starter and trade-up homes and drove up prices. Home values rose in 269 of the 299 cities tracked by Clear Capital, going up by double digits in about oneseventh of them. (For data on the 100 largest metro areas tracked by Clear Capital, see the table at right.) With the exception of San Jose, Calif., epicenter of the tech boom, the places with the biggest gains were mostly smaller cities on the West Coast, in the Mountain states or in Florida that are attracting buyers priced out of larger cities nearby or have thriving economies. The cities where prices lost ground have moribund economies. They’re mostly located in Upstate New York, the Rust Belt and the South. CoreLogic, a fina ncial data and analytics company, forecasts that prices will rise by about 4% in 2018, reverting to their historical pace. Frank Nothaft, chief economist at CoreLogic, says that in late 2017, CoreLogic analyzed home prices in the largest 100 metro areas and found that about one-third of them were overvalued by 10% or more, based on the long-term relationship between income and home prices. Are they in bubble trouble? “No,” says Nothaft. “It’s more an 44


04/2018

amber warning light indicating erosion of affordability.” Nothaft says historically low mortgage rates have helped to mask declining affordability, and when rates edge up in 2018, affordability will erode, adding to the potential for a slowdown in sales and price appreciation.

An Unbalanced Market The U.S. homeownership rate reached 64.2% in 2017, and it’s on a susta inable upward track, according to the U.S. Census. (The homeownership rate peaked at 69.2% in 2004.) Throughout 2017, the number of new homeowners exceeded the number of new renters, and first-time home buyers accounted for nearly one-third of all home sales. Millennials are making their first foray into ownership, and Gen Xers are transitioning from renting back to owning, says Yun. But until the inventory of new and existing homes increases, many would-be first-time buyers will be forced to continue renting. Existing homeowners are staying put longer than ever, and the share of repeat home buyers fell slightly between 2016 and 2017. Many homeowners would like to sell, but they fear they won’t be able to find another home they want. Others don’t want to give up their cheap mortgages. New homes are the key to unlocking the inventory stalemate, and w ith more new homes coming to market, the acuteness of the overall housing shortage is past, says Yun. “This year won’t be as bad for buyers as 2017, but it won’t be back to normal, either,” he says. As the housing market approaches the spring sales season, one thing is sure: Most people buy or sell homes for reasons other than tax benefits. “They’re getting married, having kids, or they’ve changed their jobs, or they’re retiring,” says Ralph McLaughlin, chief economist at Trulia, an online real estate marketplace. “The tax benefits are of less importance to them.”  YOU CAN CONTACT THE AUTHOR AT [email protected].

Housing Snapshot

Home Prices in 100 Cities The table at right shows changes in prices for existing homes (singlefamily houses and condos) for the 100 largest metro areas tracked by Clear Capital in 2017. Prices nationwide rose 5.4% over the past year. We also show the change in home prices since the peak of the national market in mid 2006. Prices in about half of the cities have returned to peak levels. We added a new column to show how far prices have risen since the bottom of the market in early 2012. The median home price (half of all homes sold cost more, and half cost less) as of December 31 was $232,000. That was $20,000 more than at yearend 2016, reflecting strong demand by buyers for a scarcity of homes for sale. Sales of existing homes rose by 1.1% in 2017, to 5.51 million, and will rise by a smidgen in 2018, according to the National Association of Realtors. Nationwide, the number of existing homes for sale fell in 2017, and the year ended with a historic low of 3.2 months’ supply (the time it would take to sell the current number of homes on the market at the current pace). That favors sellers; six to seven months’ supply is considered balanced between buyers and sellers. Affordability index shows the rela-

tive affordability of cities (on a scale of 1 to 10; 1 is most affordable and 10 is least affordable). It’s based on the percentage of average wages required to buy a median-priced home (including principal, interest, taxes and insurance) in each metro area in late 2017.

METRO AREA Akron, Ohio Albany, N.Y.

Allentown, Pa.

% change

Median home price

One year

$125,000

1.9%

172,000

1.9

175,000

5.6

Affordability index#

METRO AREA

31.8%

2

Madison, Wis.

–4.7

7.5

5

McAllen, Texas

118,000

–19.9

17.1

4

Memphis, Tenn.

– 3.2

88.8

4

Miami, Fla.

240,000

7.5

0.4

19.0

1

Milwaukee, Wis.

192,000

3.9

7 2.8

71.2

9

Minneapolis-St. Paul, Minn. 235,000

–19.8%

Since bottom†

Affordability index#

34.9%

8

2 6.5

31.8

4

137,000 12.7 –14.6

38.4

1

–21.4

92.1

9

–21.1

34.4

6

6.8

– 6.2

56.5

6

4 0.6

62.0

6

7.9

46.2

3

One year

190,000

7.3

147,000

3.4

Austin, Texas

251,000

3.5

199,000

6.0

–26.7

70.7

6

Nashville, Tenn.

234,000

8.9

238,000

5.6

–19.4

18.2

7

New Orleans, La.

190,000

0.5

425,000

Baltimore, Md. Baton Rouge, La.

166,000

3.5

1 3.1

14.9

2

New York, N.Y.-N.J.

Birmingham, Ala.

131,000

3.6

–11.8

27.5

1

Ogden, Utah

Boise City, Idaho

215,000

8.7

6.5

82.5

7

Oklahoma City, Okla.

365,000

3.0

Boston, Mass.

398,000 16.8

Bridgeport, Conn.

125,000

7.0

Cape Coral, Fla.

200,000

5.5

Charleston, S.C.

238,000

Charlotte, N.C.

Buffalo, N.Y.

Chattanooga, Tenn. Chicago, Ill.

Cinncinnati, Ohio

Cleveland, Ohio

Colorado Springs, Colo.

Columbia, S.C.

4.2

Augusta, Ga.

Since peak*

$245,000 7.7% 19.9%

Atlanta, Ga.

Bakersfield, Calif.

Median home price

% change

Since bottom†

Since peak*

7.1

– 8.1

29.3

10

211,000 15.3

5 5.4

72.4

7

155,000

2.1

1 9.1

18.1

3

5.0

44.6

9

Omaha, Neb.

175,000

6.2

2 0.4

31.6

5

–20.7

21.4

9

Orlando, Fla.

205,000

8.0

–24.8

79.6

7

39.5

32.6

3

Oxnard, Calif.

565,000

4.9

–13.2

56.3

10

–22.8

79.4

8

Palm Bay, Fla.

160,000

6.3

–20.4

86.9

4

6.2

12.0

49.0

7

Pensacola, Fla.

155,000 10.1

– 8.2

43.9

4

198,000

7.7

21.7

49.7

4

Philadelphia, Pa.

131,000

4.8

15.7

34.8

2

Phoenix, Ariz.

–17.1

53.7

6

Pittsburgh, Pa.

–3.4

33.4

4

Portland, Ore.

–26.2

42.2

3

Port St. Lucie, Fla.

218,000

7.5

150,000

5.3

135,000

7.1

260,000

8.2

2 1.7

44.6

7

Providence, R.I.

133,000

4.7

– 0.4

18.2

2

Provo, Utah

170,000

6.6

190,000

3.8

–10.8

16.1

5

240,000

8.9

–18.1

87.3

5

125,000

1.5

350,000

8.1

7.8

21.8

2

3 0.9

74.7

9

188,000 10.2 –18.6

89.9

8

246,000 11.5 –25.2

50.2

8

250,000

8.9

4 2.6

71.4

8

238,000

5.9

2 3.3

31.1

5

320,000 12.2 –10.0

129.5

9

34.2

5

3.3

49.9

6

Raleigh, N.C.

Dallas, Texas

182,000 10.9

5 3.0

83.5

7

Reno, Nev.

Dayton, Ohio

115,000

–10.8

36.2

1

Richmond, Va.

200,000

7.9

2.7

Deltona, Fla.

170,000 11.8 –20.5

87.0

7

Riverside-San Bernardino, Calif. 320,000

Denver, Colo.

360,000

8.9

5 4.9

85.1

9

Rochester, N.Y.

4

Sacramento, Calif.

Columbus, Ohio

6.3

9.4

–20.1

87.6

10

127,000

3.1

7.3

16.9

2

359,000

9.8

–13.0

101.9

10

301,000 14.5

5 3.5

84.8

7

170,000

5.6

3 5.8

49.5

8

530,000

8.3

– 1.3

74.2

10

750,000

9.3

9.7

105.4

10

2 6.9

96.5

10

2.1

92.8

10

–19.0

74.8

8

173,000

4.5

1 3.5

32.0

Detroit, Mich.

145,000

8.7 –28.3

111.0

3

Salt Lake City, Utah

Durham, N.C.

220,000

4.4

2 2.4

26.9

6

San Antonio, Texas

163,000

6.0

4.7

35.2

2

San Diego, Calif.

233,000

8.9

–26.7

67.7

8

San Francisco, Calif.

155,000

8.5

1 2.4

87.2

3

San Jose, Calif.

Des Moines, Iowa

Fayetteville, Ark. Fresno, Calif.

Grand Rapids, Mich.

118,000

2.1

– 5.5

19.8

3

Santa Rosa, Calif.

Greenville, S.C.

170,000

6.6

2 4.7

39.1

3

Sarasota, Fla.

Harrisburg, Pa.

162,000

5.0

Hartford, Conn.

201,000

3.2

530,000 170,000

Greensboro, N.C.

Honolulu, Hawaii

Houston, Texas Jacksonville, Fla.

Scranton-Wilkes Barre, Pa.

6

Seattle, Wash.

5.5

3 6.1

45.6

10

4.8

3 0.2

67.9

6

St. Louis, Mo.

170,000 11.6 –16.4

61.0

7

Stockton, Calif.

3.3

Lancaster, Pa.

184,000

6.3

Lansing, Mich.

Las Vegas, Nev.

Lexington, Ky.

Louisville, Ky.

6.2

80,000

0.8

–25.3

3.7

1

417,000 13.1

3 4.4

92.4

9

195,000

8.6

–5.9

31.2

NA

155,000

6.7

–14.3

35.0

3

312,000 10.8 –26.7

116.0

9

1 3.5

27.6

2

Syracuse, N.Y.

2.8

6.7

NA

58.2

4

Tampa, Fla.

176,000 12.1 –17.8

80.8

5

20.4

6

Toledo, Ohio

106,000

5.8

–18.6

39.1

1

128,000 11.0 –23.6

60.3

1

Tucson, Ariz.

179,000

8.2

–20.3

48.2

5

240,000 13.6 –31.4

105.4

8

Tulsa, Okla.

150,000

3.8

9.1

21.5

2

215,000

3.4

–14.4

16.6

8

375,000

4.5

–17.0

32.0

9

1 3.8

4.1

8.5

4

Virginia Beach, Va.

140,000 –2.5

– 2.0

–0.5

2

Washington, D.C.

605,000

7.5

– 1.3

78.5

10

165,000

5.2

1 5.6

25.4

1

2.4

225,000

–23.2

167,000

Springfield, Mass.

600,000 12.1

3

6.4

10.8

146,000

Los Angeles, Calif.

1,000,000 13.7

10.7

141,000

– 0.5

Little Rock, Ark.

–14.5

Lakeland, Fla.

Knoxville, Tenn.

106,000

3.1

Winston-Salem, N.C.

137,000

5.2

1.3

21.4

1

Youngstown, Ohio

75,000

4.6

–25.5

21.7

1

Home-price data as of December 31, 2017. Cities represe nt metropolitan statis tical areas as defined by the U.S. Census. *Since May 31, 2006, when the housing market peaked nationally. †Since March 31, 2012, when the housing market hit bottom nationally. #Ranked 1 (most affordable) through 10 (least affordable). SOURCES: Clear Capital, ATTOM Data Solutions, U.S. Census.

04/2018


MONEY

ASK KIM

Kimberly Lankford

Insurance for Home Sharers I’M THINKING ABOUT RENTING OUT MY

house through a home-sharing service while I’m away for a few weeks. Do homesharing services provide any insurance? G.P., BALTIMORE, MD.

Home-sharing services may offer some coverage, but ask about limits or gaps. Airbnb provides (free) $1 million in insurance for damages and $1 million for liability. HomeAway provides $1 million in liability coverage at no charge and sells insurance for your building and possessions. But your homeowners policy may already have you covered for occasional short-term rentals, depending on the insurer and your state. In many cases, insurers will cover damages to your home and liability resulting from brief rentals, but your policy may exclude coverage for theft or damage of your possessions. Some insurers offer extra coverage to fill in gaps— Allstate’s HostAdvantage (available in 12 states) costs $50 per year to cover $10,000 of your personal property per rental period. Some insurers don’t cover short-term rentals at all. Dennis Hilton, an independent agent in Damariscotta, Maine, says that only two of the six insurers he works with offer coverage for rentals of up to 12 weeks a year. Homeowners need to tell their insurer about plans to rent out their house and verify what the company covers, he says. Rewards-card fee. If I get a rewards credit card that waives the annual fee for the first year and cancel the card before it charges the fee, will that affect my credit score?

J.B., HARRISBURG, PA.

You can generally close a credit card whenever you want, but doing so could lower your credit score, says John 46 KIPLINGER’S PERSONAL FINANCE

04/2018

Ulzheimer, an expert on consumer credit. The new card’s credit limit is added to your “credit utilization ratio,” which measures the portion of your available credit that you’ve used. If your balance across all cards remains the same but you close one card, your utilization ratio will rise, which could hurt your score. You can minimize the impact of canceling a credit card if you pay down your balances and keep your charges low on all of your cards.

contributions on state tax returns. If your child doesn’t go to a school on the list, you can use the money to pay other colleges directly without owing taxes or penalties—but the value is limited to your contribution plus net investment returns of no more than 2% per year. You can also switch the account to another beneficiary within the family.

A 529 for private colleges. What is the Private College 529 Plan, and who should invest in one? What happens to the money if you don’t go to one of the colleges?

N.H., BETHESDA, MD.

HOME-SHARING SERVICES AND YOUR HOMEOWNERS POLICY MAY COVER LIABILITY AND DAMAGES BY TENANTS, BUT THE INSURANCE MAY FALL SHORT.

The Private College 529 Plan is a prepaid tuition plan you can use at more than 290 private colleges, including Duke, Emory, Notre Dame, Princeton and Rice. The money you invest prepays future tuition at today’s prices. So if you invested $10,000 in the plan 10 years ago, it would have bought about one-fourth of a year’s tuition at Notre Dame—now worth nearly $14,500, says Bob Cole, of the Private College 529 Plan. The gains are tax-free, and the prepaid tuition can be redeemed for up to 30 years. Arizona, Kansa s, Minnesota, Missouri, Montana and Pennsylvania let residents deduct plan

Powerball’s impact on Social Security. If I win the Powerball jackpot, will that affect my Social Security benefits? I’m 63, so I’m worried about the earnings test.

L.S., BOCA RATON, FLA.

Lottery winnings aren’t subject to the Social Security earnings test, so your windfall won’t reduce your benefits. But like other high-income households, you may have to pay bigger Medicare Part B premiums at age 65. The top premium today is $428 per month. ■ GOT A QUESTION? ASK KIM AT [email protected]. KIMBERLY LANKFORD ANSWERS MORE QUESTIONS EACH WEEK AT KIPLINGER.COM/ASKKIM.


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MONEY

finance class-action lawsuits over five years.) Going it alone. Hiring your

GAME PLAN

Q

I’m still upset about the Equifax data breach. How do I get in on a class-action lawsuit against the company? YOU DON’T HAVE TO DO

anything at this point. You— along with nearly 146 million others affected by the breach—would automatically be part of any classaction lawsuit, unless you opt out and sue on your own. Equifax, a credit reporting company that collects personal data about consumers, says its system was hacked between mid May and the end of July, although it didn’t let the public know about the breach until September 7. Thieves made away with consumers’ Social Security numbers, birthdates and other information, leaving millions vulnerable to identity theft 48 KIPLINGER’S PERSONAL FINANCE

04/2018

for the rest of their lives. Equifax offered free credit monitoring for a year, and after a public outcry, it agreed to waive a requirement that anyone using the service must settle disputes through arbitration. That paved the way for consumers to sue, and within weeks, more than 240 lawsuits seeking classaction status were filed against Equifax. The cases have been consolidated into one case that will be heard by a court in Atlanta, where the company is based. A judge in Atlanta has yet to certify the case as a class action. If and when that happens, you’ll likely get a

notice that you are part of the class, says Kevin Sharp, whose law firm, Sa nford Heisler Sharp, sued Equifax. Most class actions are settled. If that happens, you’ll get a chance to object to the settlement or opt out. (Equifax was recently in the news again, when Reuters reported that the Consumer Financial Protection Bureau has retreated from a full investigation into the breach.) Class actions were designed for cases such as this, in which the number of plaintiffs is large and the complaints similar, says Josh King, chief legal officer at Avvo, an online legal resource for consumers. “It’s oftentimes used where any individual claims might not be significant enough to merit bringing a lawsuit individually,” he says. If you take part in an Equifax class-action lawsuit, there’s little or nothing you need to do, and you won’t pay the legal fees of lawyers because their fees will come out of any settlement. (A July study by the CFPB found that, on average, lawyers’ fees and expenses came to about 18% of settlements in consumer

own lawyer to represent you or filing a complaint yourself in small-claims court are options. One reason to hire your own lawyer is if your stolen Equifax information has been used by criminals and your damages are significant enough to make paying legal fees worthwhile. By going to smallclaims court, you don’t need to hire a lawyer and can present your case to the judge yourself. The maximum amount of your claim will be limited, based on your state; limits range from $2,500 to $25,000. But consumers will generally be better off sticking with the class action. “It’s extremely difficult to pursue a case on your own unless you have a lot of money at stake and the ability to prove that the company harmed you. The advantage of class actions is that you don’t have to do anything, and you have the potential of recovering even small dollar claims,” says Lauren Saunders, of the National Consumer Law Center. Class actions can go on for years. Meanwhile, take steps to protect your information from crooks, such as by freezing your credit reports (see “Your Equifax Defense,” Dec.). And beware of scams. “If you are contacted by someone claiming to be an attorney or some kind of facilitator of these suits and they’re seeking money, it’s a scam,” Sharp says. EILEEN AMBROSE [email protected] ILLUSTRATION BY DAVE URBAN

LAST-MINUTE TIPS

Countdown to Tax Day This is your last crack at the old rules. We help you make the most of them. BY SANDRA BLOCK

EXCITED ABOUT THE NEW TAX LAW?

Well, keep calm as you sit down to do your 2017 return. With just a couple of exceptions, neither the promising nor the threatening changes will affect the bottom line on the forms due this April. If you itemized in the past, you’ll probably itemize again. And if your personal situation in 2017 was similar to what it was the year before, your tax bill probably won’t change much, either. However, if you took steps toward the end of 2017 to prepare for the new law, you may encounter some speed bumps on the road to filing your tax return. Luckily, you’ll have a couple more days to figure things out. Because April 15 is on a Sunday and April 16 is a holiday in Washington, D.C., you have until April 17 to file your federal tax return. But don’t use that as an excuse to procrastinate. Filing early is the most effective way to prevent identity thieves from stealing your refund. Getting a jump on your return also reduces the risk that you’ll make errors that could cost you money or attract unwanted attention from the IRS.

year and distribute the funds later, says 91% more accounts were opened during the last six months of 2017 than over the same period in 2016. If you ramped up your giving in 2017, make sure you have records to support your donations in the event of an IRS audit. For gifts of less than $250, you should have a canceled check, credit card receipt, bank record or acknowledgment from the charity showing the date and amount of your contribution. If you made contributions through payroll deduction, keep copies of your pay stubs. For gifts of more tha n $250, you should have a written acknowledgment from the charity showing the amount and date of the contribution, along with an assurance that you didn’t receive anything in ex-

change for your contribution. Don’t overlook noncash donations that could increase the size of your charitable deduction. Although you can’t deduct the value of your time when you volunteer, you can deduct volunteer-related expenses. So if you drive, for example, you can write off 14 cents a mile, along with parking and tolls. You can also deduct the cost of items you buy for a charity, such as food for a soup kitchen. Finally, be sure you claim credit for any noncash donations you made to Goodwill, the Salvation Army or similar charities. You can deduct donations of used clothing, household goods, books and other items based on their fair market value, which the IRS defines as the price a buyer would pay for the items. Tax programs such as TurboTax include tools that will help you estimate the fair market value of donated items; the Salvation Army offers a value guide at https://satruck .org/Home/DonationValueGuide. Deduct medical expenses. The tax

overhaul did make a change to the 2017 rules that could help families with large medical expenses. For 2017, you can deduct medical expenses that exceed 7.5% of your

Get rewarded for philanthropy. While


the new law preserves the deduction for charitable contributions, fewer taxpayers will benefit from it after 2017 because more people will claim the standard deduction (see “The New Rules of Philanthropy,” on page 66). With that in mind, many ta xpayers increased their charitable giving at the end of 2017. Schwab Cha ritable, a donor-advised fund that allows donors to make deductible contributions in one 04/2018


MONEY

adjusted gross income, down from a previous threshold of 10%. The 7.5% threshold will remain in effect for 2018; after that, it will return to 10%. If you had a lot of out-of-pocket medical expenses last year—for longterm care, for example, or a family member’s serious illness—it’s worth gathering up your receipts and records. Co-payments, the cost of prescription drugs and treatments that aren’t covered by your insurance (including dental and vision care) are all deductible. You can include your own expenses as well as those of your spouse and anyone you claim as a dependent. Set up an HSA. Contributing to a health

savings account is one of the most effective ways to save for health expenses down the road. It’s also one of the few opportunities still available to lower your 2017 tax bill. You have until April 17, 2018, to set up and fund an HSA for 2017. If you had an HSA-eligible health insurance policy (with a deductible of at least $1,300 for individual coverage or $2,600 for family coverage) for 2017, you qualify. Even if you didn’t have an HSA-eligible policy for the full year, you can still make the full year’s contribution (up to $3,400 if you had single coverage or $6,750 if you had family coverage) as long as you had it on December 1 and you keep an HSAeligible policy for all of 2018. You can contribute an additional $1,000 if you were 55 or older in 2017; if your spou se was at least 55, he or she can also contribute an extra $1,000. Contributions to an HSA will reduce your adjusted gross income. The money in your account will grow tax-free, and withdrawals used to pay medical expenses are tax-free, too. Contribute to an IRA. You also have until

April 17 to contribute to an IRA for 2017. If you’re not enrolled in a workplace retirement plan, you can deduct an IRA contribution of up to $5,500, or $6,500 if you’re 50 or older. As is the case with an HSA, your contributions to a traditional IRA will re50


04/2018

duce your adjusted gross income on a dollar-for-dollar basis, which could also make you eligible for other tax breaks tied to your AGI. Workers who have a company retirement plan but earn below a certain amount may qualify to deduct all or part of their IRA contributions. For 2017, this deduction phases out for single taxpayers with AGI of between $62,000 and $72,000; for married couples who file jointly, the deduction phases out between $99,000 and $119,000. Prepaid Property Taxes

Deductible or Not? The last week of December is usually a quiet time for county treasurer’s offices, but that wasn’t the case last year. In places such as Montgomery County, Md., and McHenry County, Ill., taxpayers stood in long lines to prepay their property taxes before December 31. The catalyst was a provision in the tax law that caps the amount of state income, sales and property taxes that taxpayers can deduct at $10,000. The law specifically stated that taxpayers couldn’t prepay their 2018 state income taxes, but it didn’t address property taxes. That prompted homeowners in high-tax states to try to prepay as much of their 2018 taxes as possible so they could deduct them on 2017 returns. But just because you wrote a check for your 2018 property taxes by New Year’s Eve doesn’t mean you can deduct them. The IRS says 2018 property taxes are deductible on a taxpayer’s 2017 return only if the taxes were assessed before December 31. Payments based on an estimate of your 2018 taxes aren’t deductible, even if your county accepted the money. If you prepaid a p ortion of your 2018 taxes based on an assessment issued in 2017, keep a copy of the assessment for your records, says Gil Charney, director of policy analysis at H&R Block’s Tax Institute. In the event of an audit, that will support your claim that the deduction is legitimate, he says.

If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution, as long as the couple’s joint AGI doesn’t exceed $186,000. A partial deduction is available if the couple’s AGI is between $186,000 and $196,000. Don’t overlook state tax breaks. State

taxes often take a back seat to federal taxes, which involve larger sums of money. But in the rush to meet the taxfiling deadline, don’t miss credits and deductions that could lower your state taxes, says Cari Weston, director of tax practice and ethics for the American Institute of Certified Public Accountants. Those state tax breaks will be even more valuable in the future because the new tax law caps the amount of state income and property taxes that itemizers can deduct. But there’s no cap for the write-off on the return you’re working on now. Some of the most common state tax breaks are designed to help retirees pay their property taxes. For example, Mississippi homeowners who are 65 or older are eligible for a property tax exemption on up to $75,000 of assessed value. (For more information on state tax breaks for seniors, check out Kiplinger’s Retirement Tax Map at kiplinger.com/links/retireetaxmap.) More than 30 states provide tax deductions and credits for contributions to state-sponsored 529 college-savings plans. Arizona provides tax credits worth up to $200 ($400 for a married couple) to offset fees for extracurricular activities at K–12 public and charter schools. Other states offer credits and deductions to residents who adopt a child, restore a historic home, or designate a portion of their property as farmland or open space. You can get more info from your state treasurer’s office or the instructions for your state tax return. Be sure to take advantage of a ny benefits you’re due for your activities in 2017. ■ YOU CAN REAC H TH E AU THO R AT SBLO CK@K IPLI NGE R.CO M.

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INVESTING

in Asia, Europe and other foreign markets that are growing at a healthy clip. The new tax law could be a boon. Companies now owe federal income tax at a 21% rate, down from 35%. Firms that aren’t profitable or that report slim earnings won’t reap much, if any, savings. But the tax changes should add up for profitable firms, lifting their earnings and leaving more cash to plow into their businesses, raise dividends or buy back shares. Consider the following seven stocks for their potential to prosper over the long run. Note that some of these stocks look pricey, based on measures such as price-earnings ratios. But many investors are willing to pay a premium for shares of companies with bright growth prospects, especially if the firms are likely to keep expanding briskly for years. (All share prices and other data are as of February 16.)

1

COOPER COMPANIES (SYMBOL COO,

$232) Globally, sales of contact

lenses, Cooper’s primary business, rise by about 4% to 5% a year. But Cooper’s lens sales have increased at about twice the market rate for most of the past decade, and they show no sign of slowing. Cooper and t wo other firms, Johnson & Johnson and Novartis, dominate the industry. But Cooper has been gaining on its rivals, increasing its share of the contact-lens market from 15% a decade ago to 23% in 2017. Some 61% of the company’s total lens sales are overseas. The firm is making gains in the mass market, but it is also prospering with its premium-price, daily-use lenses and its specialty lenses, such as multifocals, which correct seamlessly for both near- and farsightedness. The company is expanding with new products, recently rolling out “digital zone optics” lenses, for instance, which help the wearer’s eyes adapt to long stints in front of computer screens. Cooper also sells surgical instruments and other medical devices for women’s health a nd fertility; those account for about 22% of total sales. 54


04/2018

That side of the business is growi ng, and it should get a lift f rom the $1.1 billion acquisition in 2017 of contraceptive device maker Paragard, which makes the only hormone-free intrauterine device approved in the U.S. Overall, Cooper looks poised for long-term growth, says Don Easley, manager of T. Rowe Price Diversified Mid-Cap Growth Fund, which owns shares of the stock. Trading at 20 times estimated earnings for the year ahead, the stock looks cheaper than the broader universe of mid-cap stocks (which trade at 24 times earnings, on average). Analysts expect Cooper’s profits to climb by 18.6% over the next year. The firm should “grind out” solid earnings growt h for years, says Easley, making the stock a compelling longterm holding.

2

FLEETCOR TECHNOLOGIES (FLT,

$199) Fleetcor facilitates pay-

ments between businesses, specializing in fuel cards for truck f leets and other corporate customers. Firms dole out the cards to employees to keep tabs on their spending—restricting the cards’ use for gas, vehicle maintenance or other approved expenses. Walmart recently chose the firm’s fuel-card program for its 4,000 U.S. employees who use company vehicles. And Fleetcor has deals with major gas-station chains, such as Arco and Speedway, along with foreign oil companies, such as BP and even Russia’s Gazprom. The business looks appealing for several reasons. For one, the company collects processing fees that are charged on every card swipe. The firm gets a cut of gasoline sales, too, and should benefit from fuel prices that are likely to stay strong with a healthy economy. Fleetcor has plenty of ways to expand. The firm now provides cards to pay for lodging or building supplies (say, if a house painter runs out of paint on a job). Fleetcor recently bought a travel-booking business and an international-payments firm based in Canada. The company could ramp up sales

abroad, which account for about onethird of total sales. Fleetcor owns a toll-payment business in Brazil, and it sells fuel cards in Mexico, the United Kingdom and other foreign markets. Driverless vehicles may threaten the business eventually, as firms employ fewer human truckers. But Charles Freund, an executive vice president with the firm, says that even if that happens, payment processing will still be needed for unloading cargo or charging an electric vehicle.

S G N I D L O H O C B A W , C O D A L E T Y S E T R U O C

In the Netherlands, Fleetcor cards are accepted at charging stations, he points out. “We’ll stick around until the robots take over,” he says. At 21 times earnings, Fleetcor shares trade below the average P/E for mid-cap stocks, and profits are forecast to rise by a healthy 21.6% over the next year. NORDSON (NDSN, $139) You probably don’t think about the packaging when you buy a box of Cheerios. But the colorful box was made with

3

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some high-tech equipment, including a sophisticated adhesive-dispensing system. Nordson makes that equipment, along with other products to apply materials such as coatings and sealants on assembly lines for everything from cereal boxes to computer circuit boards and medical devices. As a multinational industrial firm, Nordson is benefiting from an uptick in global economic growth. Yet even if global growth slows a bit, Nordson’s sales should hold up well. Companies that install the firm’s equipment also need its spare parts and single-use items, such as disposable cartridges. Those goods create a recurring revenue stream that amounts to nearly half of the firm’s annual sales. Nordson has been expanding into the medical business, too, supplying syringes and other disposable products that add to its recurring revenues. Longer term, Nordson will profit from a manufacturing trend called light-weighting, says Dave Carlsen, manager of Buffalo Discovery Fund, which owns the stock. Automakers and other industrial companies are replacing metal fasteners with adhesives and composite materials that are glued, rather than welded, making cars and other machines lighter, more fuel-efficient and cheaper to produce. “Advanced composites are the materials of the future,” says Carlsen. Trading at 22 times earnings, Nordson’s shares are a good buy, says Carlsen. The company is on track to boost profits by 15.8% over the next year, according to analysts’ estimates. The firm pays a modest dividend, too, and has hiked its payout for 54 straight years, a streak that shows no signs of stopping now. SITEONE LANDSCAPE SUPPLY (SITE, $79) Most landscaping shops are mom-and-pop businesses. But SiteOne is gradually snapping them up, buying 24 companies with 123 stores over the past four years to build a network of 477 stores in 44 states and five Canadian provinces. The ac-

4

quisitions have made SiteOne the largest national wholesaler of landscape supplies. Revenues have soared 63% since 2013, hitting an estimated $1.8 billion in 2017. SiteOne still has plenty of room to expand, too. The firm offers its full product line—including fertilizers, plants and nonplant hardscape products, such as stone walls and pavers— in only about one-fourth of its locales. Its stores serve less than half of the country’s metropolitan a reas. And sales so far amount to just 10.1% of the $17 billion landscape-supply market. SiteOne’s business also appears to be shielded from online competition, says Brian Bythrow, manager of Wasatch Micro Cap Value Fund, which owns the stock. Much of what the company sells, such as bags of mulch, is too bulky to ship economically to individual customers. Landscaping crews tend to pick up supplies right before they start working, rather than ordering in advance. About half of SiteOne’s sales are to commercial customers— owners of buildings, golf courses and other properties—which get discounts for large purchases. “The business is Amazon-proof,” says Bythrow. At 42 times estimated 2018 earnings, SiteOne shares trade substantially above the P/E of the average mid-cap stock. Yet analysts expect SiteOne to boost earnings by 41% this year—nearly twice the average growth rate for mid-caps, according to S&P. Even as the largest national wholesaler of landscape supplies, the firm could triple in size over the next eight years, Bythrow adds, making its high P/E more pa latable. SKYWORKS SOLUTIONS (SWKS, $104) Computer-chip maker Skyworks is prospering in an increasingly wireless world. The firm makes radio-frequency chips and other components that enable mobile devices to connect wirelessly to the internet. Skyworks’ chips are in the new iPhone X, for example, along with devices made by Samsung and the huge

5

04/2018


55

INVESTING

Chinese technology firm Huawei. Skyworks competes against other chipmakers in this field. But the pie should keep getting bigger as phone makers cram more RF content into devices and the technology expands with the “internet of things.” Analysts expect the IoT market to grow from 15 billion connected objects—such as home appliances, cars and fitness trackers—to 75 billion by 2025. All of these devices will need moreadvanced connectivity chips supplied by Skyworks and other manufacturers. The wireless industry is also upgrading to 5G networks, which will require a new generation of chips capable of processing and transmitting data at faster speeds. Data will fly up to 10 times more quickly than it does on current 4G networks, Skyworks says, creating substantial opportunities for its chips. Granted, Skyworks could face bumps along the way. In the near term , analysts worry that the iPhone X isn’t selling as well as expected, hurting component makers such as Skyworks. A broader slowdown of mobile device sales would sting, too. These hurdles may already be reflected in the price of the shares, which trade at a modest 15 times earnings. At that price, the stock looks like a bargain, says Easley, whose fund

owns it. And Skyworks is thriving, with earnings per share expected to climb 13.2% over the next year.

TELADOC (TDOC, $37) The leading telemedicine company, Teladoc provides a network of doctors and other medical experts that patients can consult with via phone, internet or mobile device, 24 hours a day. Telemedicine is handy if your kid wakes up with pinkeye, for example, and you need a prescription for antibiotics. Companies offer Teladoc as a benefit to employees, aiming to keep them in the office by avoiding unnecessary trips to see a doctor in person. The firm aims to address a range of ailments. Patients can upload a photo of a skin rash, for example, to get a diagnosis from a dermatologist. And Teladoc now makes mentalhealth expert s available. In 2017, Teladoc acquired Best Doctors, a physician-consulting service composed of cardiologists a nd other specialists, who may now weigh in with a second opinion on a patient’s complex condition. Teladoc isn’t profitable yet and may not be for years, as the company plows all its cash flow into expanding the business. But sales are expanding rapidly; they’re expected to reach $356

6

Key Stats

BIG PROMISE FOR SMALL(ISH) STOCKS These companies operate businesses ranging from lawn care to virtual medical care. All of them are expected to log brisk profit growth.

Symbol

Share price

Market value (billions)

Cooper Companies

COO

$232

FleetCor Technologies

FLT NDSN

Company

Nordson

SiteOne Landscape Supply Skyworks Solutions Teladoc

SITE SWKS

TDOC

Wabco Holdings

WBC

Priceearnings ratio*

Annual earnings growth†

$ 11.4

20

10.8%

199

17.8

21

16.5

139

8.0

22

14.8

79

3.1

42

15.4

104

19.0

15

15.1

37 138

2.3 7.4

NA 18

20.0 15.0

As of February 16. *Based on estimated earnings for the next four quarters. †Estimated for the next three-to-five years. NA Not available. SOURCES: Yahoo Finance, Zacks Investment Research.

million in 2018, up by 53% from 2017. Teladoc says 23 million workers have access to its service, up from 8 million in 2014. And patients used Teladoc nearly 1.5 million times in 2017, up from 299,000 in 2014. If the company can maintain this pace of growth, it should triple in size by 2021, says Randolph Gwirtzman, comanager of Baron Discovery Fund, which owns the stock. As for Teladoc’s lack of profits, Gwirtzman says that’s acceptable for a young, fast-growing business. “The company is investing for growth,” he says.

WABCO HOLDINGS (WBC, $138) Commercial vehicles such as trucks and buses are getting safer and more fuel-efficient, thanks in part to products made by Wabco. The company sells high-tech brakes and advanced safety gear, such as blind-spot detection systems for big rigs. Other products include air compressors, transmissions and technology to improve the aerodynamics of trailers, helping truckers save on fuel costs. The business is thriving as vehicle production rises around the world. And Wabco should prosper as a supplier of safety technologies for driverless trucks and semi-autonomous vehicles (which still require a driver behind the wheel). Wabco is at the forefront of developing these technologies, says brokerage firm R.W. Baird. Acquisitions, including the 2017 purchase of a firm that makes automated steering systems, have strengthened Wabco’s position, too, Baird says. Wabco could face a few hurdles if global economic growth stalls. The company does about half its business in Europe, where sales are rising briskly as the economy improves. A slowdown there would hurt, as would weakness in China, another big market for Wabco. For now, though, t he firm’s prospects look bright. Analysts expect profits in 2018 to climb 11.8%, compared with 2017. 

7

SEND COMMENTS OR QUESTIONS TO [email protected].

56


04/2018

THAT DINNER

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Auto • Home • Rent • Cycle • Boat geico.com | 1-800-947-AUTO (2886) | local office Some discounts, coverages, payment plans and features are not available in all states or all GEICO companies. Homeowners and renters coverages are written through non-affiliated insurance companies and are secured through the GEICO Insurance Agency, Inc. Boat and PWC coverages are underwritten by GEICO Marine Insurance Company. Motorcycle and ATV coverages are underwritt en by GEICO Indemnity Company. GEICO is a registered service mark of Government Employees Insurance Company, Washington, D.C. 20076; a Berkshire Hathaway Inc. subsidiary. © 2017 GEICO

INVESTING

Commentary

INCOME INVESTING

Jeffrey R. Kosnett

The Silver Lining of Rising Rates M

ost of what you read and hear about higher interest rates is negative. Some of it, to be blunt, is downright alarmist and exaggerates the risks. If Treasury note and bond yields and other key rates don’t level off pronto, we’re led to believe, then stocks and bonds will melt down, the sweet family eager to buy your house won’t find an affordable mortgage, and America’s steady economic growth will come to a choking halt. Stock investors have proved that they are indeed jittery about rising rates, but I don’t foresee a long-lasting meltdown yet. I confess that the part about mortgages rings true, but I also remember once paying 13.5% on a home loan. And the idea that the U.S. economy is so fragile that a 3% yield on government bonds will strangle growth strikes me as preposterous. Today, big businesses have so much cash that most can easily put more of their own money back into their enterprise instead of borrowing to maintain or expand their operations. I am extremely confident that American businesses, both public and private, can handle not-so-rock-bottom credit costs, and so can you. In fact, you might benefit as rates settle on a higher plane. That’s largely an untold story, and it promises broader and deeper opportunities than the extra 0.5 percentage point your bank might magnanimously offer you to renew a CD. More bang for your buck. Consider three

narratives. First, scores of fixedincome mutual funds and exchangetraded funds are paying out higher monthly cash distributions. Second, newly issued preferred stocks and ordinary bonds, both taxable and taxfree, are sporting weightier coupons. 58 KIPLINGER’S PERSONAL FINANCE

04/2018

Third, a profusion of floating-rate investments are poised to profit from rising rates. Those include not just popular bank-loan funds but also portfolios that hold big chunks of other debt with floating interest—securities backed by payments from car loans, equipment leases or credit cards, for example. The ISHARES 1-3 YEAR TREASURY BOND ETF (SYMBOL SHY, $83, YIELD 2.1%) exemplifies the first story line. Since February 2017, this fu nd has steadily increased its distribution, from 5.1 cents a share to 9.4 cents a share through January, dipping to 8.6 cents in February. You’ve probably noticed the sharp increase in short-term interest rates. A fund like this one passes the higher rate directly to investors, and the payouts aren’t boosted by capital gains, returned capital or extra dividends paid for with borrowed funds. The ETF’s net asset

tate investment trusts issued preferred shares with coupons ranging from 6.125% to 6.50%. In 2017, comparable offerings paid between 5.25% and 5.50%. The series G preferred shares from ANNALY CAPITAL MANAGEMENT (NLY-G, $24, 6.8%) can convert at maturity, in 2023, to shares with a floating-rate coupon equal to the three-month London Interbank Offered Rate (currently

IT’S NOT ALL BAD NEWS. YOU CAN PROFIT WITH THESE THREE TYPES OF INVESTMENTS.

value has shed a few pennies so far this year, and that leaves the NAV at the same point it was seven years ago—but with a growing rather than shrinking payout. If you’d prefer taxexempt income, VANGUARD SHORT-TERM TAX-EXEMPT (VWSTX, $16, 1.4%) has upped its monthly per-share dividend from 13 cents to 17 cents in the past 12 months, with a flat net asset value. You can find plenty of funds with similar patterns (prices and yields in this column are as of February 16). Next: preferred stocks. Late 2017 and early 2018 brought a bunch of new offerings. In January, several real es-

1.88%) plus 4.172%. This is called a fixed-to-floating security, and it’s worth watching out for such shares. That’s my segue to floating-rate investments. Floating-rate funds that own parts of adjustable-rate loans, such as FIDELITY FLOATING RATE HIGH INCOME (FFRHX, $10, 3.6%), have done well so far in 2018. But there are many other varieties—and rising rates are on your side with all of them. Think of it this way: If you believe interest rates are headed up for a long spell, put your cash on the escalator.  JEFF KOSNETT IS EDITOR OF KIPLINGER’S INVESTING FOR INCOME . YOU CAN CONTACT HIM AT [email protected].


THE KIPLINGER DIVIDEND 15 UPDATE

Dividend Stocks: A Mixed Bag WHEN WE LAUNCHED THE

Kiplinger Dividend 15 in the December 2017 issue, we didn’t expect our favorite dividend-paying stocks to be big winners in this market. Stocks made our roster primarily for their dividend stability, income growth or above-average yield. And it’s the shares of companies with brisk earnings growth that have fueled much of the rally, leaving stocks with slower growth and higher dividends behind. Overall, the Kip 15 returned an average of 7.4% since October 1, 2017, trailing the 9.3% return of Standard & Poor’s 500-stock index (prices and returns are through February 16). Several of our picks still delivered superior returns. Walmart climbed 34.8% as investors bet that the retailer, which has invested heavily in online sales, could successfully fend off Amazon.com. Shares of Home Depot rose 14.9%, fueled by ongoing strength in the housing market. Texas Instruments, up 18%, prospered from strong demand for its computer chips in the industrial and automotive markets. A few of our stocks didn’t perform nearly as well. ExxonMobil missed analysts’ estimates for fourthquarter earnings, contributing to a 4.8% decline in the

stock. CVS Health retreated 10.5% as investors worried about Amazon getting into the pharmacy business and the impact of CVS’s subsequent $69 billion bid for health insurer Aetna. Procter & Gamble slipped 7.8% after issuing a sluggish sales and profit forecast. None of these hurdles should impact the firms’ dividends, however, and the stocks should fare well over the long term. We’re also sticking with Realty Income, a real estate investment trust that has slumped by 11.3%, including dividends. REITs have come under pressure as interest rates have climbed. Higher rates make the stocks less competitive with long-term bonds, and also raise financing costs for REITs, which tend to issue a lot of debt to buy and fix up properties. Realty owns more than 5,000 retail properties that it leases to big companies such as Walgreens, FedEx and Dollar General. Some of these retailers may not open as many stores as in the past as shoppers buy more goods online. And Realty has been adding movie theaters to its property lineup—a worrisome trend as theater chains struggle w ith lackluster attendance. Yet Realty’s business isn’t showing any signs of stress.

Most of its tenants sign long-term leases, and more than 98% of its properties remained leased at the end of 2017. Revenues rose 10.2% in 2017, compared with a year earlier, and profits rose 6.3% ( based on funds from operations, a measure of earnings that represents net income plus depreciation expenses). Analysts expect Realty ’s FFO to hit $3.17 per share in 2018, up from $3.06 in 2017. Realty’s dividend, meanwhile, should continue like clockwork. The firm doles

out dividends monthly and hasn’t missed a payment in 572 months—or nearly 50 years. Realty has a long history of raising its dividend, too, and hiked it by 5.7% in the third quarter of 2017. We don’t expect big things from the stock, which could slump more if interest rates continue to climb. But the shares now yield a generous 5.3%. With Realty’s dividends secured by long-term leases from large, stable tenants, investors should get paid for years to come. DAREN FONDA

[email protected]

THE KIP DIVIDEND 15: BY THE NUMBERS Picking some stocks from each of the groups below will give you a mix of dividend income and growth. 5-year Consecutive dividend Share Dividend Annual years of growth price yield dividend increases rate*

Company (symbol) DIVIDEND STALWARTS

Companies in this category have raised dividends for at least 20 straight years.

$237

2.3%

$5.4 4

60

16.5%

Air Products & Chemicals (APD) 164

2.7

4.40

35

9.2

Emerson Electric (EMR)

73

2 .7

1.94

61

3.4

ExxonMobil (XOM)

77

4.0

3.08

35

6.2

133

2.5

3.36

55

6.6

83

3.3

2.76

61

4.2

105

1.9

2.04

44

5.1

3M (MMM)

Johnson & Johnson (JNJ)

Procter & Gamble (PG) Walmart (WMT) DIVIDEND GROWTH

Companies in this category should continue a history of robust dividend increases. CVS Health (CVS)

$72

2.8%

$2.00

14

17.3%

Home Depot (HD)

187

1.9

3.56

9

21.4

Lockheed Martin (LMT)

361

2.2

8.00

16

11.7

Texas Instruments (TXN)

104

2.4

2.48

14

24.2

$3.40

3

15.1%

HIGH YIELD

Companies in this category yield 4% or more. Blackstone Group (BX)

$35

9.9%

Enterprise Products Ptnrs (EPD)

26

6.4

1.70

19

5.2

Realty Income (O)

50

5.3

2.63

24

3.9

Verizon Communications (VZ)

50

4.7

2.36

11

2.8

$51.12

9

INDEX

S&P 500-STOCK INDEX

1.9%

7.4%

As of February 16. *Annual ized. SOURCES: S&P Dow Jones Indices, Yahoo Finance.

04/2018


INVESTING

CRYPTOMANIA

What You Need to Know About Bitcoin Investing in cryptocurrencies is dicey . Instead, consider the underlying technology. BY NELLIE S. HUANG

WHEN “BITCOIN” APPEARED

as a clue in the New York Times Sunday crossword puzzle earlier this year (the five-letter answer was “ecoin”), it was confirmation that the cry ptocurrency had officially entered the zeitgeist. Such virtua l currencies use computer-generated encryption to secure and track transactions, independent of a central bank. Bitcoin made headlines last year because of its meteoric rise from $963 per bitcoin at the start of 2017 to a high of nearly $20,000 in December. This year’s news has been about bitcoin’s descent, to a low of $7,000 in February, from which it was recently on the rebound. The craze over bitcoin and its ilk—there are more than 1,000 digital currencies, although bitcoin is the best-known and t he oldest— is as mythic as its beginning. (The true identity of bitcoin’s creator or creators remains a hotly debated mystery.) Bitcoin was born in the aftermath of the financial crisis, when distrust of financial institutions was at a high, and a cu rrency divorced from a central bank found wide appeal. The cur60 KIPLINGER’S PERSONAL FINANCE

04/2018

who understand the risks. Bitcoin has no revenue, earnings or underlying asset value. Its price rise is driven by demand alone, and that shows signs of a frenzy. By contrast, when a stock price rises, even that of a speculative penny stock, the move is typically based on an expectation of earnings or revenue growt h. With bitcoin, “you buy it in the hope that someone will pay you more for it later,” says Mark Dodson, a money manager with Hays Advisory. At worst, that’s a classic definition of Wall Street’s “greater fool theory.” At best, it describes speculation, not investment. Of course, bitcoin bulls say that there’s still room to run on the price of bitcoin and that the technology behind the digital currency— called blockchain—makes the coin a worthwhile investment. But there are better ways to bet on the technology (more on t hat later). What if I still want to buy? If

rency of choice for blackmarket buying crossed over to the mainstream with the purchase of a pizza in 2010. Techies glommed on, and by 2016, bitcoin was an investing phenomenon. Along the way, bitcoin has spawned as many skeptics as believers, while regulators grapple with how to oversee this newfangled asset and the potential for fraud that comes with it. One thing is sure: Whether bitcoin or any other cry ptocurrency survives, the technology behind it is here to stay. Read on to learn more.

What can I buy with bitcoin?

Just about anything. You can buy towels, bedding and other goods at Overstock .com. Or purchase movies and games at Microsoft’s online Windows and Xbox stores. At Gyft.com you can apply your bitcoin toward gift cards to use at Starbucks, Target, Uber and Whole Foods. Expedia, the travel booking website, lets you pay for hotel reservations with bitcoin.

you must buy a cryptocurrency, invest only what you are willing to lose, and prepare for a wild ride. “Knock yourself out” if you want to buy bitcoin, Dodson tells friends and clients who ask about digital currencies, “but assume the price is going to zero.” This is something you put your mad money into, not your savings. The IRS classifies digital currencies as property, so you’ll owe capital gains tax on any profits that you earn when you sell or spend.

Are digital currencies such as bitcoin a good investment?

How do I acquire bitcoin?

Only for pure speculators

There are several ways to go


about it. Here’s one: First, open an account online at a digital-currency trading platform, called an exchange. Coinbase (www.coinbase .com) is one of the biggest. You can store or spend your bitcoin from that account. Next, link your bank account to the Coinbase account. Forget about using your credit card: Several major card issuers, including Bank of America and JPMorgan Chase, now decline cry ptocurrency transactions, and others are likely to follow suit. Once your account is funded, you can buy. You don’t have to purchase a whole bitcoin (in mid February, one bitcoin traded for $10,189). You can buy a fraction as small as one onehundred-millionth of a bitcoin, says Philip Gradwell, of Chainalysis, a blockchain software company. Fees apply when you buy or sell. Coinbase charges a 1% to 4% fee for purchases, depending in part on how they’re funded. Keep your bitcoin at Coinbase or store it in a “wallet,” a custodial account for cryptocurrency, at another firm. Crypto-security expert Richard Ma recommends opening a separate wallet if you hold more than $10,000 worth of digital currency because exchanges have been prone to being hacked. Blockchain Wallet (https://blockchain .info/wallet) is one of his favorites because it is userfriendly. Xapo (https://xapo .com/wallet) is popular, too. You may have to pay a fee to set up an account a nd to send coins to someone,

or to exchange your coins for cash or other digital currencies.

Gradwell says ICOs are analogous to a company that sells tokens for fair rides before the fairground is built. You’re asked to invest without answers to key questions. Says Gradwell: “Are they going to build the fairground? And then, will people want to go on the rides?” Approach any ICO investment cautiously. Check to make sure the ICO is registered with the Securities and Exchange Commission. Go to www.sec.gov and search the Edgar database for the required registration statement, known as Form S-1. If you don’t find one, that’s a red flag.

Are there bitcoin alternatives I can invest in? Yes, but think

twice before doing so. New digital coins, also ca lled tokens, are launched all the time in what are called initial coin offerings, or ICOs. Dozens of tokens are listed on Coinmarketcap.com, a website that ranks cryptocurrencies by market value. Any one of those currencies could overtake bitcoin in market value. But many will disappear. “You don’t know who the winners will be,” says Jan van Eck, of VanEck Associates, an investment firm and exchange-traded fund provider.

What other risks come with buying digital currencies? For

starters, hackers could steal your bitcoin. In January, cyber thieves stole more than $500 million worth of cryptocurrency from Coincheck, a Japanese exchange. Or you could lose access to your bitcoin, in much the same way your cash is gone when you lose your wallet.

How does an ICO work? ICOs,

like initial public offerings (IPOs), raise money for companies. But IPOs are typically for businesses already in operation. With some ICOs, groups sell coins to raise money in order to start a business.

When you own bitcoin, you have two “keys,” similar to the login ID and password you use to access traditional online financial accounts. One is called a private key; the other, a public key. The public key is analogous to your account number. The private key is akin to your personalized digital signature and is your proof of ownership. Lose your private key and you lose your claim to the bitcoin. Some wallet firms, including Xapo, will hold onto your private key for you. Lastly, digital-currency accounts don’t have the same level of insurance that protects customers if a bank or brokerage goes belly-up. There is some cushion, though. Big exchanges typically hold insurance policies against a cyberattack; proceeds from the policies can be used to pay you back for any stolen coins. And although digital assets aren’t covered, any U.S. dollars held in an account at Coinbase

Wild Ride

THE UPS AND DOWNS OF BITCOIN Bitcoin believers see more gains ahead for the cryptocurrency. Skeptics are waiting for an “I told you so” moment. Our take: Don’t invest more than you can afford to lose. $18,000 Bitcoin daily closes

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Jan. 2017

Feb. 2017

March 2017

April 2017

May 2017

June 2017

July 2017

Aug. 2017

Sept. 2017

Oct. 2017

Nov. 2017

Dec. 2017

Jan. 2018

Feb. 2018

Through February 16. SOURCE: Yahoo Finance

04/2018


61

INVESTING

are FDIC-insured, up to $250,000. Is it the technology behind bitcoin, but not bitcoin itself, that I should be focusing on? Yes.

Some say blockchain technology could be as worldchanging as the internet. Companies all over the world are exploring ways blockchain can help them save money, store sensitive data, streamline transactions and improve information flow. “Every major financial institution and technology company is investing in blockchain,” says van Eck. Alphabet, Citigroup, Goldman Sachs and Overstock.com are among the biggest blockchain investors today, according to research firm CB Insights. Gartner, the research firm, predicts that by 2030, 30% of global businesses will use blockchain technology. How does blockchain work?

Think of blockchain as an unalterable, official ledger of transactions stored on a vast network. Anyone can get on the network to help maintain the ledger, and everyone on the network collectively controls it. There is no central authority. It’s super-secure because of the way the ledger is built—each transaction is connected to the last—and because it exists on thousands of computers. A hacker would have to break into every computer on the network at the same time—an impossible task—to do damage. In the case of bitcoin, each transaction is sent to a vast worldwide network of computers that run the bit62 KIPLINGER’S PERSONAL FINANCE

04/2018

coin software. (Anyone can download the software at https://bitcoin.org.) These computers are run by people who compete to approve the transaction by solving a complicated math problem. The first to solve the problem wins a reward of newly created bitcoins. That’s why they’re called bitcoin miners. (Mined bitcoins are taxable as income.) Network participants okay the new transaction, which is added to a block of other recently approved trades, and the block is connected to the chain, which is a record of

all bitcoin transactions ever made. “The chain is immutable. It has never been hacked,” says Laurie Rosini, an attorney with Perkins Coie in the f irm’s blockchain technology and digital currency group. Among business users, Walmart is exploring ways to use blockchain to improve food tracking and safety and Vanguard is testing whether it can smooth trades and simplify management of its U.S. stock index funds. Can I invest in blockchain? Yes.

For now, an ETF is probably

New Frontiers

Cops on the Bitcoin Beat State and federal regulators have keen eyes on digital currencies. Digital-currency exchanges and wallets must register and comply with rules set by the Treasury Department’s Financial Crimes Enforcement Network (Fincen). These include collecting and verifying customer information. And the Securities and Exchange Commission and the Commodity Futures Trading Commission are cracking down on fraudulent schemes. Virtual currencies mean “potential riches and the next big thing” to would-be investors, said CFTC chairman J. Christopher Giancarlo at a congressional hearing in February, but for scam artists, they’re “a way to separate the unsuspecting from their money.” Earlier this year, the CFTC charged a Las Vegas, Nev.–based firm called My Big Coin Pay, and two men associated with it, with fraud and misappropriation of funds. The CFTC alleges that the men took more than $6 million from 28 investors, touting its digital currency, MBC, as a solid investment backed by gold (when it was not). Then they spent $645,000 of the money on a house, more than $500,000 on antiques and fine art, and $340,000 on jewelr y, among other purchases, the CFTC charges. Last December, a new unit of the SEC targeting cyber-related scams filed fraud charges against Quebec-based PlexCorps and two partners in connection with an initial coin offering. PlexCorps had raised $15 million selling a digital token called PlexCoin to tens of thousands of investors by promising them a 13-fold return in less than a month. The partners said they would invest the proceeds to deliver returns. Instead, according to the SEC complaint, they took the money and used some of it for personal homeimprovement projects, including lawn care and painting.

your best bet. If you’re looking for a pure blockchain tech company to invest in today, good luck. We found six publicly traded U.S. firms that are wholly tied to blockchain technology. But none earned a penny in the past 12 months; one trades for less than 2 cents a share; and three have market values that fall below $50 million. That said, ETFs focused on this technology are fairly new, too. The four blockchain-related ETFs currently open launched this past January. All invest in firms t hat are exploring, adopting or enabling the use of blockchain technology. The good news is that the portfolios are f illed with familiar companies. For example, each fund owns shares in IBM, Intel, Microsoft, Nvidia and Oracle. REALITY SHARES NASDAQ NEXTGEN ECONOMY ETF (SYMBOL BLCN), which tracks a pro-

prietary index, is our favorite. It charges 0.68% in annual fees and has $100 million in assets. The ETF starts with f irms that have at least $200 million in market value and $1 million in average daily trading volume. It then zeroes in on companies that are expected to benefit the most— either from cost savings, for example, or operational efficiencies—from blockchain technology, ranked by a proprietary score. BLCN holds 59 stocks, and at last report, the fund’s top three holdings were Cisco Systems, Intel and Overstock.com.  YOU CAN CONTAC T T HE AU THO R AT [email protected].

KEY DATA FOR OUR MUTUAL FUND PICKS Kiplinger 25 funds are no-load; you can buy them without sales

THE KIPLINGER 25 UPDATE

All Action, No Talk THE MANAGERS WHO RUN

PRIMECAP ODYSSEY GROWTH

are some of the best stock pickers in the country. But you won’t see them quoted in newspapers or talking on TV. They’d rather focus on their jobs than talk to the press. We can’t complain. Over the past 12 months, Odyssey Growth shot past its peers (funds that invest in large, growing firms). It beat Standard & Poor’s 500-stock index by 13.6 percentage points. The fund hit the market’s sweet spot, thanks to a 33% stake in technology stocks. Shares in graphicschip maker Nvidia climbed 128% over the past 12 months. Memory- and storage-product maker Micron Technology gained 92%, and ASML Holding—which makes photolithography tools used to make smaller, next-generation semiconductor chips—rose 52%. Odyssey Growth also has almost one-third of its assets invested in health care shares. Two standouts over the past year include medical-device makers Abiomed, which soared 134%, and Insulet, which increased 77%. The fund’s five comanagers invest in growing companies that trade at bargain prices. They look for a catalyst—the introduction of a new product, the arrival of a new execu-

tive or a corporate restructuring—that could push the stock higher. They are patient about waiting for a stock to turn around, and after it does, they t ypically hold for the long term. The fund’s 5% turnover ratio— meaning that roughly 5% of holdings, on average, are replaced in a year’s time—is a fraction of the typical 58% turnover ratio of its peers. Almost onefifth of Odyssey Growth’s 134 stocks have been in the portfolio since the fund opened in 2004, including drug companies Eli Lilly and Amgen.

charges. For more about the funds, visit kiplinger.com/links/kip25. Annualized total return Added to 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25

U.S. Stock Funds

Symbol

Dodge & Cox Stock

DODGX 15.2% 11.7% 15.1%

Fidelity New Millennium

F MI LX

1 7. 3

1 0. 6

1 3. 4

1 0. 4

May 2 014

Homestead Small-Co Stock

HSC SX

9.5

7.5

1 1.4

1 1.5

May 2 01 2

Mairs & Power Growth

MPGF X 1 1.1

8 .6

1 1.8

9.7

Jan. 201 3

Parnassus Mid Cap

PAR MX 1 1. 4

9. 4

1 2. 2

1 0. 5

Aug . 2 014

T. Rowe Price Blue Chip Growth TRBCX 35.7

16.5

19.2

12.6

May 2016

T. Rowe Price Dividend Growth P RDGX 16 .5

1 0. 6

1 3.7

9. 5

O ct. 2 01 6

T. Rowe Price QM US Sm-Cp Gro PRDSX 17.6

10.6

14.9

12.7

May 2015

8.8% May 2008

T. Rowe Price Sm-Cap Value

PRSVX

9.9

1 1. 3

1 1. 2

9.9

May 20 09

T. Rowe Price Value

TRVL X 1 5. 2

9. 2

1 3.5

9.3

May 201 5

Primecap Odyssey Growth

POGRX 32.3

17.1

19.2

13.0

May 2017

Vanguard Equity-Income

VE IPX

1 0. 6

1 3. 2

9. 5

Ja n. 2 01 7

International Stock Funds

Symbol

Baron Emerging Markets

B EX FX 3 1.7 %

14 .6

Annualized total return Added to 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25

9. 8%

8 .4 %

—

O ct. 2 01 6

Fidelity International Growth FIGF X

2 3. 8

8 .3

8 .5

Oakmark International‡

OA KI X

2 7.7

1 0. 2

1 0. 0

8 .6

J ul y 2 01 7

T. Rowe Price Intl Discovery

P RI DX

3 4. 2

1 6. 0

1 3. 4

8 .5

M ay 2 01 7

Specialized/ Go-Anywhere Funds

Symbol

1 yr.

Fund updates. Investors

Vanguard Health Care

VGHCX 12.7%

6.2% 16.5% 12.5% May 2016

who buy shares in OAKMARK INTERNATIONAL for the first time must now buy directly from the firm. The fund is closed to new investors at most brokerage firms, including Fidelity and Schwab. If you already own shares, this news doesn’t affect you. You can still buy shares through your brokerage firm or directly from Oakmark. PIMCO INCOME’s D shares became A shares at the end of March. The expense ratio, 0.90%, remains the same. If you own the shares, hold on to them. But given the switch (and potential load for new investors), we are re-evaluating the fund.

Vanguard Wellington ‡

VWELX 1 1.5

7.9

NELLIE S. HUANG

6 .1% Feb. 2016

Annualized total return 3 yrs.

5 yrs. 10 yrs.

9.9

7.9

Annualized total return

Added to Kip 25

May 2016

Added to Kip 25

Bond Funds

Symbol

1 yr.

DoubleLine Total Return N

DLTNX

1 .9 %

1 .8 %

2 .3 %

Fidelity Intermediate Muni

FLTMX

2.7

1.6

2.0

3.4% May 2004

Fidelity New Markets Income FNMIX

5.2

7.4

4.2

7.6

May 2012

Met West Total Return Bond M

MWTRX

0.8

0.9

1 .8

5.1

May 2016

Pimco Income A§

PONAX

6.0

5.6

5.4

8.6

May 2016

VanguardHigh-YieldCorporate VWEHX

4.3

4.6

4.8

7.0

May 2016

Vanguard Sh-Term Inv-Grade V FSTX

1.0

1.6

1.5

2.6

May 2010

Indexes

1 yr.

3 yrs.

5 yrs. 10 yrs.

—

May 2011

Annualized total return 3 yrs.

5 yrs. 10 yrs.

S&P 500-STOCK INDEX

1 8. 7%

RUSSELL 2000 INDEX*

11.8

9.6

12.4

9.7

MSCI EAFE INDEX†

21.1

6.9

7.4

3.3

MSCI EMERGING MARKETS INDEX

29.7

9.3

4.9

3.0

1.0

1.2

1.8

3.7

BLOOMBERG BARCLAYS AGG BND IDX#

1 1. 5% 1 4. 8%

9. 7%

As of February 16. ‡New investors must purchase directly from the fund company. *Small-company U.S. stocks. †Foreign stocks. #High-grade U.S. bonds. §Reflects Pimco’s change in share class. —Fund not in existence for the entire period. SOURCE: © 2018 Morningstar Inc.

[email protected] 04/2018


INVESTING

Commentary

PRACTICAL INVESTING

Kathy Kristof

What I Bought When Stocks Tanked A

s those who have followed Although much has been made of the this column for a while know, people who will lose these deductions, I become nervous during stock the net effect is that 90% of A merimarket rallies and practically gleeful cans will get a tax cut. The Tax Policy during market corrections. So when Center, a Washington, D.C., think tank, the market dropped by 7.8% over a estimates that the average middleone-week stretch in early February income family will pay $900 less. That (which happened to contain my birthgives the average family about $75 day), I considered it a gift. more each month in spending power. Why? I was holding more than But U.S. corporations were the big$26,000 in cash in the Practical gest winners. Top federal corporate Investing portfolio that I wanted to rates dropped from about 35% to deploy. I’d built up this cash cushion 21%—a massive savings. Hundreds of over the past year, believing that the corporations have promised to pass on bull market was long in the tooth. But a portion of their savings to workers in when I had a chance to digest the tax the form of bonuses and higher startlaw passed in December, I changed ing wages. The Tax Foundation, anmy mind. I believe the law is likely to other policy group, estimates that the help both the economy and corporate net result of the law is that companies earnings enough to fuel fur ther stock will boost pay hikes by an average of market gains. 1.5 percentage points each year over The problem was that Wall Street the next decade. agreed with me a little too vigorously. Following the law’s I HAPPILY SEIZED passage, stock prices THE MOMENT TO zoomed forward at BUY TWO STOCKS a breakneck pace. THAT HAD BEEN I wasn’t about to join in the feeding ON MY WISH LIST frenzy. Optimism FOR A LONG TIME: is reasonable, in my COSTCO AND humble opinion, but exuberance is not. BOEING. Let’s back up a step to explain why the tax law improved the market’s prospects—but not enough to sustain Wall Street’s irrational exuberance. As you probably already know, the law made a number of sweeping changes to both individual and corporate taxes. On the individual side, it raised the standard deduction and cut tax rates across the board, but it also eliminated personal exemptions and pared back a number of deductions. 64 KIPLINGER’S PERSONAL FINANCE

04/2018

Between the tax cuts and the income boost, more spending money is likely to lead to more spending. That’s likely to fuel the economy and corporate profits, which is likely to generate additional stock market gains. All good. Seizing opportunity. But in the market’s

classically manic-depressive style, euphoria turned to fear that all that growth might also lead to inf lation and higher interest rates—and suddenly Wall Street’s collective psyche fell into a deep funk in early February. Stocks plunged, briefly bringing prices back to where they were before t he tax-law rally. I happily seized that moment to buy two stocks that have been on my wish list for a long time. One was COSTCO WHOLESALE (SYMBOL COST, $192), the big-box retailer where I spend most of my disposable income. The other was BOEING (BA, $355), maker of commercial and military jets, satellites, and missile defense systems. Both highly profitable and well-managed companies are expected to grow at better-than-average rates over the next few years. And I believe they’ll make good use of the tax dollars they’re likely to save under the new law. I bought 60 shares of Costco for an average price of $182.56; I snapped up 35 shares of Boeing at $334.44 each, and another 10 shares for $323.16 each, which ate up my cash. I’ll detail my analysis of both companies in a later column. For now, I’ll just say that even though I could have picked up both stocks for even less as the market continued to tumble, no one can call a market bottom, and I’m glad I jumped at the opportunity.  KATHY KRISTOF IS A CONTRIBUTING EDITOR AND AUTHOR OF THE BOOK INVESTING 101 . YOU CAN CONTACT HER AT [email protected].


icantly boost recurring revenues, says Plumb. Firms that are successfully making the change, such as Ansys, which specializes in simulation and design software used in engineering, as well as top cloud providers Alphabet and Amazon .com occupy prominent positions in the fund. Beyond thematic considerations, Plumb favors firms that can increase revenues by double-digit percentages annually, and that generate enough cash flow to pay down debt and expand their businesses. Technology, financial services and industrial firms make up the bulk of the portfolio. At 1.19%, the fund’s expense ratio is down from the 1.43% charged to investors in 2017, but still higher than the 1.05% fee levied by the average fund that invests in large-company stocks. Plumb expects the expense ratio to drop to 0.99% once assets in the fund exceed $90 million. Assets in the fu nd currently total $32 million. RYAN ERMEY

SPOTLIGHT: LARGE-COMPANY GROWTH FUNDS

Snapping Up Bargains This small fund looks for big stocks with staying power.

IN TIMES OF STOCK MARKET

LARGE-COMPANY GROWTH FUNDS

turmoil, Tom Plumb, whose PLUMB EQUITY FUND invests in stocks of large, fast-growing companies, is not one to batten down the proverbial hatches. The recent market correction was an opportunity to buy his favorite stocks at a discount, and Plumb jumped at the chance to add to key holdings and initiate new positions. For a manager who invests in companies based on their growth potential over the next five to 10 years, and is therefore willing to withstand some market volatility, beefing up the portfolio during a downturn is a no-brainer. The long-term growth prospects for the 30 stocks in the namesake fund depend on worldwide trends that Plumb believes will transcend short-term ebbs

Ranked by one-year return


Rank/Name

Symbol

ZVGNX 53.8% —

1.00% r 1.40%

WWWFX 45.8

14.3%

2.00r

1.87

QSTFX 42.8

—

none

1.66

Morgan Stanley Multi Cap Growth A CPOAX 42.3

19.9

5.25

1.23

1.

Zevenbergen Genea Inv

2.

Kinetics Internet No Load

3. Quantified STF Investor 4.

5. Transamerica Capital Growth A 6. Morgan Stanley Inst Growth A

8.

1.24

SGNFX 38.7 12.5

none

2.39

PLBEX 37.9 16.6

none

1.19

Baron Fifth Avenue Growth Retail BFTHX 37.6 17.1

none

1.10

9. Plumb Equity Fund @ 10.

Sparrow Growth No-Load

25.4%

CATEGORY AVERAGE

and flows in the stock market. Most stocks in the portfolio fall under one of two themes. The first is a shift in shopping habits. With consumers increasingly favoring online and mobile transactions over in-store purchases, payment processors such as Visa and MasterCard should command

Symbol (billions) 1 yr.

1. Vanguard Total Stock Market Idx Inv VTSMX

5. American EuroPacific Growth A 7. Fidelity Contrafund 8. American Balanced A

Ranked by size. Returns for thousands of funds online at kiplinger.com/tools/fundfinder.

Max. sales 5 yrs. charge

1-year Max. Assets† total Current sales Symbol (billions) return yield charge

BOND MUTUAL FUNDS Rank/Name

$158.6

1. Vanguard Total Bond Market Index Inv VBMFX

none

2. Pimco Income A

VFINX 330.2 18 .6

14.7

no ne

3. Vanguard Total Intl Bd Idx Inv

1 6. 0

5. 75 %

4. Metropolitan West Total Return Bd M MWTRX

AEPGX

ABALX

[email protected]

6.8

9. American Income Fund of America A AMECX 10. Vanguard Wellington Inv‡

a larger percentage of overall sales, Plumb says. Both stocks are among the fund’s top holdings, with Visa occupying the top spot. The other major theme: cloud computing. Software companies that shift from selling software licenses toward selling cloud-based subscriptions should signif-

17.8% 14.3% none

FCNTX

14.9%

21.9

FUSEX

$603.8

VGTSX 339.8

4. American Growth Fund of America A AGTHX 6. Fidelity 500 Index Inv


18.0

Max. 1.23 5.50 sales charge 0.92 5.25 5.50

Assets†

MSEGX 39.9 20.9

7. Prudential Jennison Focused Gr A SPFAX 39.1

STOCK MUTUAL FUNDS Rank/Name

3. Vanguard 500 Index Inv

IALAX 39.9 20.7

20 LARGEST STOCK AND BOND MUTUAL FUNDS

2. Vanguard Total Intl Stock Idx Inv

1 yr.

Max. sales Exp. 5 yrs. charge ratio

VWELX

186.7 169.3 149.7 133.6 129.9 110.7 108.9

24 .3

VTIBX

27.4

8.9

5.75

5. Pimco Total Return A

18 .6

14.7

no ne

6. Vanguard Short-Term Inv-Gr ade Inv VFSTX

no ne

7. Vanguard Interm -Term Tax-Ex Inv VWITX

5.75

8. Dodge & Cox Income @ 9. DoubleLine Total Return Bond N

2 9.9 1 2.3

16.6 10. 2

9.9

8.9

5.75

11.5

9.9

none

PTTAX

DODIX

DLTNX

10. Lord Abbett Short Duration Income A LALDX

90.5 79.0 73.1 63.1 57.3 55.1 51.8 40.6

S&P 500-STOCK INDEX

18.7% 14.8%

BLOOMBERG BARCLAYS US AGGREGATE BOND INDEX

MSCI EAFE INDEX

2 1. 1%

B OF A MERRILL LYNCH MUNICIPAL MASTER INDEX

7. 4%

0.9 %

2. 8%

no ne

3.3

3.75%

2.5

0.8

none

0.8

1.9

none

2.1

1.7

3.75

1.0

2.6

none

2.6

2.2

none

2.6

2.6

none

1.9

3.3

none

1.6

2.3

2.25

PONAX 110.0 6.0

1 .0 %

3. 1%

3. 3%

2. 6%

As of February 16. @ Only share class. Unless otherwise indicated, funds come in multiple share classes; we list the share class that is best suited for individual investors. r Maximum redemption fee. †For all share classes combined. ‡ Open to new investors if purchased directly through Vanguard. MSCI EAFE tracks stocks in developed foreign markets. SOURCES: Bank of America Merrill Lynch, Morningstar Inc., Vanguard. 04/2018


LIVING

THE NEW RULES OF

Phil��t The new tax law may discourage donations. But you can still support your causes and reduce your tax bill with these strategies. BY MIRIAM CROSS

66


04/2018

ILLUSTRATION BY JOE ANDERSON

ro�y THE CHANCE TO GET A DEDUCTION FOR THEIR GENEROSITY

often motivates charitable givers to become even more generous and write larger checks. But under the Tax Cuts and Jobs Act, far fewer taxpayers will itemize deductions when they file their tax returns for 2018—and beyond—compared with 2017. And that is leading to a lot of hand-wringing among charities. The new tax law nearly doubles the standard deduction in 2018—to $12,000 for singles and $24,000 for joint filers younger than age 65— while capping or eliminating other deductions. That means it will no longer make sense for as many taxpayers to itemize. The Tax Policy Center estimates that the number of households claiming an itemized deduction for charitable giving will fall from about 37 million to about 16 million in 2018. Though it’s too soon to know the precise fallout from the new tax law, nonprofits are concerned. The Council on Foundations estimates that the new rules will decrease charitable giving in the U.S. by $16 billion to $24 billion annually (total giving was $390 billion in 2016, according to Giving USA). But there are alternatives that let you take a tax deduction while consistently supporting your favorite groups. And even if tax incentives don’t factor into your philanthropy at all, tweaking your strategy in other ways can mean a bigger impact on causes you care about. 04/2018


67

LIVING

SET UP YOUR OWN CHARITABLE FUND

If you are close to the threshold for taking the standard deduction, you may be able to get a tax break for your donations by employing a tactic called bunching. Basically, you make two or more years’ worth of donations in a single year so that—along with your other deductible expenses—you’ll end up with enough deductions to itemize that year. Then you skip donating the next year or two and revert to taking the standard deduction. Although this tactic will provide a tax break for you, it may not be ideal for the charity. “This model would significantly impact nonprofits, many of which have little in reserves,” says Mirah Horowitz, executive director of Lucky Dog Animal Rescue in Arlington, Va. But a donor-advised fund avoids that problem. Contributing to one allows you to pool your donations in one pot, deduct the entire contribution in the year you make it and then spend time deciding how you want to dole out grants. You can continue to give in “off” years—on a more regular schedule that will benefit the charity, too—while taking the standard deduction. Donor-advised funds are available through financialservices firms, independent groups such as the National Philanthropic Trust, community foundations and “single-issue charities,” such as hospitals, universities and religious organizations. The funds have become increasingly popular: 68


04/2018

In 2017, Fidelity Charitable, a donor-advised fund sponsor, reported an 83% increase in new donors over the previous year, while Schwab Charitable saw the number of new accounts opened in the last six months of 2017 jump by 91% compared with the same period in 2016. Donor-advised funds are flexible about the type of donations they will accept. Besides cash, mutual funds and other publicly traded securities, funds may accept illiquid or complex assets such as restricted stock, privately held business interests and retirement accounts. On the quirkier end, they may accept collectibles, personal property such as jewelry and artwork, timberland, royalties, and bitcoin—an increasingly popular option. Fidelity Charitable, for instance, received nearly $70 million in cryptocurrency last year, nearly 10 times more than in the previous year. Once you’ve contributed to a fund, the money can be invested in a variety of growth, balanced, conservative or socially responsible investment pools, where it can grow tax-free. If your fund is large enough—say, $250,000 or more—you might qualify for professional management. Donor-advised funds make it easy to involve generations of the family in philanthropy. You can appoint your kids as advisers or successors to the fund and get their input on giving. Jim Black and his wife, Audrey, of Raleigh, N.C., set up a fund through the

North Carolina Community Foundation in 2014 for themselves and their three sons. The couple kicked in $100,000 to start, and they consulted with their children before making two grants of $5,000 each, in 2016 and 2017. The money went to Rex Healthcare Foundation at UNC Rex Healthcare, a Raleigh hospital where Audrey’s father worked and where the couple’s sons were born. Because their sons are raising young families, “I don’t expect them to add money to the fund anyt ime soon, but we wanted to create a philanthropic vehicle for the family,” says Jim. “They can put in money as they’re able and involve their kids later on.” The family will recon-

vene this year to discuss a third grant. Donor-advised funds, though, have rules and restrictions you don’t face when simply writing checks to charities. You’ll need a minimum of $5,000 to set up a donor-advised fund at Fidelity Charitable, Schwab Charitable or TIAA Charitable; $10,000 at the T. Rowe Price Program for Charitable Giving; and $25,000 at Vanguard Charitable or the National Philanthropic Trust. Minimums for community foundations vary, but a few have no minimum, and several start as low as a few thousand dollars (find your local foundation at www.cof.org/communityfoundation-locator). Also, some funds set

Where Donations Go American donors, including individuals, corporations and foundations, gave $390 billion to U.S. charities in 2016—up 2.7% from the year before, according to Giving USA. Here are the types of organizations receiving charitable donations:

15% Education

32%

12%

Religion

Human services

10% 2

Foundations

%

Individuals

3

Environment/ Animals

8%

8%

%

Publicsociety benefit

5%

Arts, Culture, Humanities

6% International affairs

Health

Figures do not add up to 100% due to rounding. SOURCE: Giving USA Foundation

■ J IM AN D AU DR E Y B LAC K ’S D ON O R - A D VI S ED F UN D M AK ES P HI LAN TH RO P Y A F AM ILY AF FA IR .

limits on subsequent contributions (Fidelity has no minimum, but others vary between $250 and $5,000), set a minimum amount per grant that you can recommend (typically no less than $50) or specify how many years can pass before you make a grant. While most sponsors let you donate to any eligible 501(c)(3) charity, those focused on a single issue, such as universities, may reserve a percentage for their institution or impose other restrictions. The fund sponsor also handles your recordkeeping, but this comes at a cost. You’ll pay annual administrative fees (say, the larger of $100 or 0.60% on up to $500,000 in assets, though the percentage will shrink as your fund grows larger) as well as expenses for your fund’s underlying investments. UPPING YOUR IMPACT

Y L I M A F K C A L B E H T Y S E T R U O C

Whether or not you use a donor-advised fund, there are ways to make a greater impact with your giving. Start by asking yourself what issues deeply move you, says Eileen Heisman, chief executive officer of the National Philanthropic Trust. It could be a disease affecting a relative, an ongoing social problem or a cause tied to your faith or hobbies. “You can’t be all things to all people, but you may have a visceral reaction to certain things,” she says. Greg and Diane Ogawa of Albuquerque focus their giving on education and “critical social needs,” such as health care, homelessness and hunger. “We’ve seen firsthand the dif fer-

ence a great education makes,” says Diane. They have set up endowments in a variety of places, including the private schools their two daughters attended, to honor students involved in community service and to provide financial aid. Once you’ve homed in on causes that are important to you, consider whether you want to lend support to local, national or international organizations. Each has its merits. For example, you may feel more connected to a problem in your hometown or think that local groups are better equipped to solve it than a national organization that operates in multiple markets. But your dollar may go further overseas. GiveWell, a nonprofit that curates a list of heavily vetted, underfunded charities, recommends only international organizations working in low-income countries. The organization concluded that those programs were more cost-effective than initiatives in the U.S. Once you have a short list, scrutinize each charity’s mission, goals and pro-

grams described on its website to make sure they align with your values. Dozens of organizations may pledge to end hunger, for example, but you may prefer one that distributes food instead of one that focuses on advocacy or raising awareness. The temptation to sprinkle money among multiple charities can be strong, but many experts advise focusing on a few to make a bigger impact—or even just one that you’ve thoroughly vetted. And instead of designating your funds for a specific program, consider marking your donation as “unrestricted,” meaning the charity can use the funds wherever the need is greatest. Inevitably, calls to support your friend’s charity race or a humanitarian need will pop up over the year, so reserve part of your charitable budget—say, 15%—for these opportunities. TIME IT RIGHT

Charities tend to see two spikes in contributions: during their push for donations at the end of the calendar year and during appeals at

the end of their fiscal year, typically in June. If you’re dispensing a lump sum, consider doing so in the slower months on the heels of the giving season, namely January, February or March. Or contact the nonprofit itself to ask when funding is critical. The Center for Disaster Philanthropy, which disburses funds to meet medium- and long-term needs after disasters, found that 70% of disaster giving flows in within a month of the event, after which there’s a steep decline. “But the recovery after a major disaster is likely to last for years, when philanthropic dollars are most needed but hardest to come by,” says Bob Ottenhoff, CEO of the CDP. Alternatively, consider setting up recurring donations, which charities appreciate because the reliable flow of income helps them budget and alleviates the need to re-solicit donors. If you’re planning to donate stock or make a gra nt through a donor-advised fund or make a tax-free transfer from your IRA (see the box on page 70), aim to 04/2018


69

LIVING

complete the transaction by early December in case of processing delays, or earlier if your fund requires it. VET THE CHARITY

“Overhead,” or the portion of expenses that charities use for administrative and fund-raising costs, has gotten a bad rap over the years, but it’s one small part of the picture. “People see it as the fat, but the fat pays the rent,” says Heisman. “Overhead is needed to run well.” More important is how effectively a charity is accomplishing its goals or making an impact. This should be discussed on the charity’s website or shared with you if you contact the charity’s development office (or the executive director, if it’s a smaller charity). “If the organization can’t clearly track and communicate its progress, that’s a red flag to me as a donor,” says Gabe Cohen, senior director of marketing and communications at GuideStar, which gathers information on nonprofits. Other things to look for alongside overhead costs: financial transparency (there should be links to financial documents, including the charity’s Form 990, which is the report that most tax-exempt organizations must file with the IRS), the experience and training of leadership staff, and evidence that past mistakes or risks were handled responsibly. Websites that review charities or serve as watchdogs, such as Charity Navigator (www.charitynavigator.org) and the Better Business Bureau’s Wise Giving Alliance 70


04/2018

(www.give.org), can also give a sense of the larger picture and help you interpret important details more easily than slogging through a dense Form 990. GuideStar (www.guidestar .org) presents a neutral snapshot, including balance-sheet data, program descriptions and links to financial documents. On

GuideStar, charities can also answer five questions to assess their impact and five questions about board oversight and performance. Don’t rely solely on one review to make a judgment, and don’t immediately dismiss an organization that rates low or isn’t profiled without reading about it further in the news, on the

Leaving a Legacy

More Tax-Savvy Ways to Give If you donate cash and itemize your deductions, the new tax law allows more-generous write-offs. You can now deduct up to 60% of your adjusted gross income, up from 50%. (If your cash donations exceed that limit, you can carry forward any unused deductions for five years.) Consider donating shares of appreciated stock or mutual funds. You can deduct the current value of the investment as a charitable contribution if you itemize, and you’ll avoid paying capital gains taxes on the profits. Plus, the charity will receive the full value of your investment. Your deduction for donating stocks and fund shares to a public charity or donor-advised fund is limited to 30% of AGI. Again, you can carry forward unused deductions. To donate a sizable sum and get some income in return, a charitable gift annuity can make sense (see “Game Plan,” Nov.). You give cash or securities and get a partial tax deduction up front, then receive fixed payments for the rest of your life. Donating assets to a charitable remainder trust also nets a partial tax deduction, and you or your beneficiaries will receive an income stream until the assets revert to the charity after a certain amount of time or until the death of the last beneficiary. If you’re 70½ or older, you can transfer up to $100,000 from a traditional IRA tax-free to charity each year. It will count as your required minimum distribution without being added to your adjusted gross income. Your charitable gift won’t be taxed, as it would be if you were to take a distribution and then donate the cash to charit y. Plus, keeping your RMD out of your adjusted gross income could help keep your income below the threshold for being subject to the high-income surcharge for Medicare parts B and D, as well as hold down the percentage of your Social Security benefits that’s subject to taxes. Or you can name a charity as the beneficiary of your IRA. That way, neither your heirs nor your estate will pay income taxes on the assets, and the charity will receive the full value. If tax-efficiency is your main goal, leave your traditional IRA to charity and your taxable accounts to your heirs, says Karla Valas, of Fidelity Charitable. Your heirs will receive a step-up in basis to the value of the securities at the time of your death.

charity’s website or on other review sites. What about personal campaigns that benefit an individual or family through crowdfunding platforms such as GoFundMe? Approach them with caution. GoFundMe guarantees that funds will go to the beneficiary, not the campaign organizer, and it will refund up to $1,000 to donors if there is evidence of misuse. But donations to personal campaigns are considered gifts and are not tax-deductible. It may make sense to chip in for someone you know, or when a specific story moves you. But to help people struck by widespread tragedies, “you may want to give to an organization with boots on the ground that knows how to disperse the money according to who needs it most,” says Cohen. The biggest charity scams are centered on kids, cancer and veterans, says Heisman. Bogus institutions may share similar names with legitimate nonprofits and pressure you to donate before you have had time to properly vet them. Don’t click on a link in an unsolicited e-mail or respond to an unsolicited call. Instead, head to the charity’s website to do your own research. Verify a charity’s 501(c)(3) status (meaning that it can receive tax-deductible contributions) through the IRS’s Exempt Organizations Select Check (htt ps://apps .irs.gov/app/eos). 

YOU CAN CONTACT THE AUTHOR AT MCROSS@ KIPLINGER.COM.

Commentary

TO YOUR HEALTH

Nellie S. Huang

Keep Out-of-Pocket Costs in Check E

ven if you have good insurance from your employer, you probably shoulder a large share of your medical costs, from monthly premiums to deductibles and co-payments. And patients make simple mistakes all the time that cost them even more. What can you do before a doctor’s visit or after the bill arrives to keep your health care costs in check? We asked patient advocates who focus on helping consumers with problematic medical bills to share some secrets. Ask the right question. You probably

know to ask whether a medical practice or hospital is in-network (meaning that it has negotiated rates with your insurer). But apparently, “Do you take my insurance?” is the wrong query to put to your health care provider. The correct one is “Do you have negotiated or contracted rates with [the name of your insurance plan]?” says Mart ine G. Brousse, a California-based patient advocate who worked for 20 years as a billing manager in a doctor’s office. Be sure to state the plan’s full name; “UnitedHealthcare” isn’t precise enough. Most large insurers offer various tiers of coverage, each with its own network of providers. UnitedHealthcare plans, for instance, include Choice Plus, Core and Options PPO. Remember to make sure the lab your doctor uses for blood work is innetwork, as well as any diagnostic facilities, urgent care clinics and hospitals you may visit. N A W I A H P M A A R A H C T A W N O O P

Get an estimate in writing.

Ask your provider or insurer how much the tests or procedures will cost ahead of time, even if your doctor is in-network, says Brousse. The best question: “What will I

pay out-of-pocket after insurance adjustments?” Get the estimate in writing from your doctor or insurer; if you can’t, “write down the person’s name, the details of what they told you and the date,” says Brousse. The info may help later if you have to dispute the bill. Negotiate. In-network doctors may

not budge on their fees, but out-ofnetwork providers may give a little. (And, of course, get any negotiated rates in writing.) Ask about getting a discount by paying cash instead of using your insurance. Kenneth Klein, of Human Health Advocates in Boca Raton, Fla., calls this the “self-pay” rate. This strategy works best if you’re getting treatment that’s not covered by insurance (cosmetic surgery, say) or you have a high deductible you haven’t met yet.

Investigate. When a doctor’s bill or

insurance statement (the explanation of benefits, or EOB) arrives in the mail, read it carefully. About 50% of all bills have errors, such as the wrong codes or incorrect charges, says the Patient Advocate Foundation’s Caitlin Donovan. Verify that the charges on your bill match the payment you owe according to your EOB. “Make sure the medical codes are the same, the dates are the same and the billed amount is the same as what the insurance company has processed,” says Klein. You may have to ask your provider for a detailed bill that includes diagnostic and procedure codes. Act fast. As soon a s you receive a bill or

an EOB, the countdown begins on the time left to appeal the claim, correct the bill or nego tiate a payment plan. Check with your insurer about the time limit to file WE ASKED PATIENT an appeal, and call ADVOCATES WHO your provider to FOCUS ON HELPING find out when a bill will be sent to CONSUMERS WITH collections. If you THEIR MEDICAL haven’t paid your BILLS TO SHARE provider by that SOME SECRETS. time, the bill will likely be sent to a collection agency. You can head off the march to collections by asking your provider’s billing office for a billing-cycle suspension while you appeal your claim. It can take months to get medical records or sort out a bill. Record the names of everyone you speak with, as well as the dates and times and the extension period you receive.  NELLIE S. HUANG IS A SENIOR ASSOCIATE EDITOR OF KIPLINGER’S PERSONAL FINANCE MAGAZINE. YOU CAN CONTACT HER AT [email protected].

04/2018


71

TAKEAWAY

Is It Taxable? Take Our Quiz You may be surprised at the sources of income and good fortune that are taxable. Which of the following do you think are true, and which are false?

1. You received a $100 cash rebate after you purchased your new laptop. It isn’t taxable. T

F

3. You received a college scholarship that covers tuition, room and board. All of it is tax-free. T

F

5. Your boss gave you a gift certificate for the holidays. It’s not taxable. T

F

7. A settlement to cover your medical costs after a car accident is tax-free. T

F

8. You sold the home you’ve lived in for the past eight years for $100,000 more than you paid for it. All of the proceeds are tax-free. T

F

F

4. Your ex pays you alimony each month. You owe taxes on that income. T

T

F

2. You found buried treasure in your backyard. You don’t have to tell the IRS. T

6. You were out of work for a few months last year. Your unemployment benefits aren’t taxable.

F

. t i r o f d i a p 0 0 0 , 0 5 2 $ o t p u , s r a e y e v i f t s a p e h t f o o w t t s a e l t a r o f e m o h e h t n i d e v i l u o y f I . e u r T . 8 u o y n a h t s s e l h t r o w s ’ t i f i n o i t c u d e d a e k a t o t e l b a e b o s l a y a m u o Y . s d n o b d n a s k c o t s . e l b a x a t s i y e n o m t a h t f o n o i t r o p a , s e g a m a d h t w i o d u o y s a t s u j — s e t a r s n i a g l a t i p a c t a e v i t i n u p d e v i e c e r u o y f i , r e v e w o H . e u r T . 7 s t i f o r p r u o y n o s e x a t y a p o t d e t c e p x e e r ’ u o y . e s l a F . 6 , t i r o f d i a p u o y n a h t e r o m h t r o w s i s e c i v r e s r o . e m o c n i e l b a x a t e r a — s d n e i r f r o s e v i t a l e r m o r f t o n t u b — r e y o l p m e r u o y s d o o g y u b o t e s u u o y n i o c t i b e h t f I . e s l a F . 0 1 . e l b a x a t e r a s g n i n n w i g n i l b m a G . e u r T . 9 m o r f s e t a c i f i t r e c t f i g r o h s a c f o s t f i G . e s l a F . 5 . e e r f - x a t s i ) e l p u o c . e e r f - x a t d e i r r a m a r o f 0 0 0 , 0 0 5 $ ( s t i f o r p r u o y f o e b o t e u n i t n o c s t n e m y a p t r o p p u s - d l i h C

9. You hit it big in Vegas. Now you must pay taxes on your jackpot. T

F

10. You used bitcoin that you bought several years ago to buy a first-class airline ticket. You don’t have to worry about taxes. T

F

. e e r f - x a t e b l l w i , 8 1 0 2 , 1 3 r e b m e c e D r e t f a d e h c a e r s t n e m e e r g a e c r o v i d h g u o r h t d i a p y n o m i l a , w a l x a t w e n e h t r e d n u t u B . e u r T . 4 . e l b a x a t s i d r a o b d n a m o o r s r e v o c t a h t d r a w a e h t f o n o i t r o p e h t y l n o t u B . e s l a F . 3 . e u l a v t e k r a m r i a f s t i t a d e x a t s i d e n o d n a b a r o t s o l s a w t a h t d n i f u o y y t r e p o r P . e s l a F . 2 . t n u o c s i d a e t a b e r h s a c a s r e d i s n o c S R I e h T . e u r T . 1 : s r e w s n A

ILLUSTRATION BY JOHN UELAND

72


04/2018

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Kiplinger's Personal Finance - May 2018

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