15 Steps to Better Investing in 1998

Simplify, know what you own, and rebalance your portfolio, experts say

For many of us, the turn of a new year is a time for taking stock.

In personal finance, it might be time to take some bonds, too. The following resolutions may help you prosper in 1998:

1. Invest now. "People are always coming up to me and saying, 'there's so much volatility,' or 'the market is going down' ... 'I'll wait 'til everything settles down before investing.' But then they never do," says John Markese, president of the American Association of Individual Investors in Chicago.

Jump in, but not necessarily all at once, Dr. Markese says. To avoid putting all your money in just before a market drop, invest a small amount every month or so.

If you have a big amount to invest, such as an inheritance, divide it into eighths, he suggests, and invest one chunk each quarter over the next two years.

2. "Buy low and sell high." Sure, that's the cardinal rule of investing. Buthow many of us don't just as often buy when stocks are high and future gains seem oh-so-promising (and never come)? Or hold on to a losing product and sell after it tanks?

3. Think Roth. "Consider setting up a Roth IRA," says Tim Shmidl, a financial planner in Overland Park, Kan. This new version of the good old individual retirement account is "appealing for many people," he says.

You won't avoid taxes on your contributions, as with a traditional IRA. But no taxes are due on earnings or withdrawals after that.

The upshot: Many people may want to convert their current IRAs - despite taxes due on the money rolled over. Eligibility depends on income (see box below).

4. Or spousal IRA. Contributions to an IRA owned by a nonworking spouse are deductible, for the first time, on your 1997 tax return.

A $2,000 contribution qualifies if it's made by April 15.

5. Plan ahead on taxes. Have preliminary record-keeping done by early December or sooner. That way, you can figure out whether it makes sense to pay for Junior's new glasses or a spouse's dental work in late 1998, rather than 1999 - to qualify for a larger deduction on '98 taxes.

6. Save early and often. Make the largest possible contribution to your 401(k) or 403(b) retirement plan at work. At the least, "contribute up to your employer's level for company matching funds," says financial planner Gary Schatsky, in New York.

7. Simplify/diversify. Consider having only one checking account, one gas credit card, one brokerage account. But also diversify, which means having more than one mutual fund or credit card can make sense. In mutual funds, you need alternative types of investments to lower risk or increase gains.

Example: Have a real estate or utilities fund as well as a stock index fund. Real estate and utilities tend to add stability, balancing swings in the broader stock market.

8. Check out your funds' portfolios. Some funds are not what they seem to be. The Fidelity Utilities fund, which has done relatively well this year, is now largely a telecommunications fund, notes one Fidelity watcher. Know what you own and why - what role each investment plays in your overall strategy.

9. Rebalance your asset allocation. 1997 was the third boom year in a row for equities, with stock indexes jumping 20 percent or more. Because of hefty returns, many portfolios have seen a sharp percentage increase in the amount of stocks, as opposed to bonds and cash. So consider returning to your desired mix, replacing some stocks with bonds.

10. If the market tumbles, don't fret. "Easy to say," you might grumble. But then again, consider history. Adverse market conditions tend to work themselves out. To keep our affluent 1990s in perspective, every now and then talk with someone who lived through the Great Depression of the 1930s.

11. Be a cheerful giver. Some people "tithe" 10 percent of their income to church or charity. Even modest giving - and a modest annual increase - can make a big difference. "Even an additional dollar to a charity can help that organization leverage more contributions from corporations and foundations," says Ann Kaplan of Giving USA. And if you can't give cash, consider donating old clothing or your time.

12. Be better informed. A number of media companies, including this one, offer indispensible information. The Wall Street Journal and Money magazine, for example, deliver views from some of the smartest investment professionals. And CNBC matches content on TV.

Modern business and financial books tend to be more sprightly than their predecessors. Try "The Only Investment Guide You'll Ever Need," by Andrew Tobias (Harcourt Brace), or "Personal Finance For Dummies," by Eric Tyson (IDG Books).

13. Dates. Set up a personal financial calendar and follow it, suggests the Institute of Certified Financial Planners. A few key dates: Feb. 15, the deadline for applications for federal student aid; April 15, taxes; Dec. 31, the last day to open a tax-deferred Keogh retirement plan for 1998 (you can fund the account up to April 15, 1999).

14. Cut expenses. Who says generic mouthwash isn't as good as the expensive stuff? And does premium gas really work better than regular? But, better believe it, don't scrimp on necessities for your spouse.

15. Look ahead. "Sit down and think about where you'd like to be five years from now," says Mike Huffman, a financial consultant at Fraser Management Associates, Burlington, Vt. "Set aside some time with the person closest to you. Visualize what ... steps you can take to achieve your goals."

A New Year, a New IRA?

What: The Roth individual retirement account. For many IRA investors, it's a better deal.

Why: Your contributions are taxed but not the earnings or withdrawals. And no mandatory payouts during retirement.

Income limits: To contribute the full $2,000 next year, adjusted gross income can't exceed $95,000 (single) or $150,000 (married filing jointly). To convert an existing IRA to a Roth, income can't exceed $100,000, whether filing single or joint returns.

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