December 27, 2006
Five for the Money's Best Tips of 2006
From traveling on a budget to saving without a 401(k), here are a handful of the savviest strategies Five for the Money uncovered this yearA well-diversified investor could have done quite well in 2006. As of afternoon trading Dec. 27, the Standard & Poor's 500 index was up 14.1% for the year. The tech-heavy Nasdaq composite climbed 10.1% over the same period, and the Dow Jones industrial average was near an all-time high, up 16.5%.
Since launching late last year, Five for the Money has sought out ways for people to make better use of their—big surprise—money. From finding stocks under $10 to vacation advice, this feature has covered nearly as many topics this year as most people have had different types of financial transactions.
With a new year on the way, it's a good time to look back at the ideas we've come across. This Five for the Money looks at the best tips from our weekly column this year. We hope they've helped you, and that you'll come back for more in 2007.
1. Take control of risk.
It shouldn't come as a surprise that investing is risky. Newer risks loom as baby boomers approach retirement, from the chance they'll outlive their assets to the threat of inflation and rising health-care costs. The biggest risk of all, experts say, is simply not saving.
Earlier this year, Five for the Money looked at a few ways investors can make sure their portfolios reflect an appropriate level of risk (see BusinessWeek.com, 4/6/06, "Winning the Game of Risk"). It's important to start saving early and gradually shift assets into less risky investments, such as bond funds, over the decades, financial planners say.
Diversification, or spreading investments across asset classes that move independently, is probably the most basic way to protect against risk. Checking a fund's underlying holdings and considering alternative classes can help investors become more diversified. Once you have a smart financial plan, the key is sticking to it.
2. Travel within your budget.
Vacation-planning information is easier to find than ever thanks to the proliferation of online travel sites. But getting where you want to go probably isn't getting any cheaper. Five for the Money shared some expert advice on how to plan the perfect trip without breaking the bank (see BusinessWeek.com, 3/2/06, "Travel Tips to Send You Packing").
One tip: Take it slow. A short-term vacation rental in a single locale might not only be cheaper than hotel-hopping, it also affords travelers a chance to really immerse themselves in a community. Watching exchange rates closely and exploring other alternative accommodations can help keep costs under control, too.
If you feel the need to splurge, don't spend it all in one place. Treating yourself to one or two nights in a top hotel and trying world-class restaurants a different night can provide a fuller experience for the same price. And don't look down your nose at organized tours.
3. Save for yourself.
Not all workers get their employer's support in saving for retirement. As Corporate America moves further away from the days of pensions and gold watches, many young professionals now hold freelance, temporary, or contract positions that don't come with a 401(k) or similar retirement plan (see BusinessWeek.com, 12/23/05, "Temporary Jobs: Bah, Humbug?").
One Five for the Money looked at ways workers without retirement plans could squirrel away money for the future (see BusinessWeek.com, 2/16/06, "Life Without a 401(k)"). Opening an IRA, looking into other savings vehicles like individual 401(k)s for the self-employed, and making savings automatic are a few savvy suggestions. Financial advisers say workers should save 10% of what they earn.
O.K., but where should young people invest those savings? Some experts recommend automatic options such as lifecycle funds. Others note that index funds can offer similar exposure at significantly lower fees.
4. Get health care covered.
Health insurance is another perk going the way of lifetime employment for many in the 21st century. In 2004, 45.8 million Americans (15.7% of the population) lacked health insurance, according to U.S. census data. At the same time, health-care costs are rising. By all accounts, going without health insurance isn't a good idea.
We'd like to keep our readers healthy, so Five for the Money prescribed a few alternative strategies for those working without a net (see BusinessWeek.com, 2/2/06, "How to Get Your Health-Care Coverage"). Buy insurance through Wal-Mart's (WMT) Sam's Club warehouse stores, for example. Try a health savings account (HSA), if you can afford it. Or work part-time for an employer like Starbucks (SBUX), which extends health-care benefits to employees who clock at least 20 hours a week.
An independent insurance broker can be a better option than rushing to Web sites such as eHealthInsurance.com or INSweb.com, some experts say. When all else fails, keep looking. Many professional or independent organizations offer health insurance coverage, including Brooklyn (N.Y.)-based Working Today.
5. Learn the art of making deals.
Negotiation is one highly practical skill that's not typically taught in school. Life-changing transactions like buying a house, renting an apartment, or securing a decent starting salary all require that young adults know how to make a deal. With that in mind, Five for the Money asked professional dealmakers how to navigate such watershed moments successfully (see BusinessWeek.com, 8/14/06, "Savvy Negotiations for Your Future").
The most important part of any negotiation, experts say, is doing your homework in advance. From there, it's important not to be shy, but like Kenny Rogers' The Gambler, you've also got to know when to walk away. Keep friends quiet so their comments won't counter your hard-boiled haggling. And never burn a bridge.
Five for the Money covered a lot of ground in 2006, from the trials and tribulations of vacation homes (see BusinessWeek.com, 4/28/06, "Taking the Stress Out of a Second Home") to technologically advanced investing tools (see BusinessWeek.com, 6/8/06, "Be Your Own Rocket Scientist"). With so much more ground to cover, we'll offer even more financial tips and strategies in 2007, and welcome your comments and suggestions.