The Savings Game

WISCONSIN STATE JOURNAL
Monday, May 31, 1999
"Your Money" Section

 Feeling confused? Here are some tips

By Humberto Cruz
The Savings Game

I've finally figured out what's wrong with most financial advice today. Simply put, it's too darn complicated.

So complicated, in fact, that it has become nearly impossible to deal with many important issues in this limited space.

How much life insurance do you need, and what type? Is a variable annuity right for you? Should you put your money in a traditional or a Roth IRA? What is the proper asset allocation for somebody your age? Should you buy stocks or mutual funds? When should you start getting concerned about long-term care, and what type of policy should you look for? Do you really need a living trust?

To begin to cover any of these topics adequately I - or anybody else - would need this entire newspaper page and the next one too. And it's not just that I am wordy or like to take up space.

It's that for every rule there seems to be an exception, for every guideline or suggestion a caveat, for every financial expert in favor of something another one who is against it.

"It is a very subjective process. It is not an exact science," said Robert Lovett, a certified financial planner and director of the Institute of Financial Studies at Nova Southeastern University in Fort Lauderdale, Fla.

Not only that, but you can't address just one issue - such as where to invest your money - without considering how your decision will affect something else.

So what do you do, throw up your hands and give up? Of course not. At some point, we all need to take action because we'll never do anything if we wait until we know everything.

Here are some simple actions I recommend if you're among those who tell me you feel paralyzed by too much information.

Let me admit right away that all these are simplistic and perhaps dogmatic recommendations - the type I often rile against. A bevy of financial advisers is certain to come out showing why you should have made a different choice. But I'm convinced you'll be better off doing these things than not doing anything.

• Don't even think of investing until you are properly insured, have paid off all credit card or other high-interest debt and set aside at least three months' living expenses.
• If you are young and have a family to support, particularly if you have young children, buy as much term life insurance as you can. As you reach middle age, switch to cash-value insurance so the premiums won't become prohibitive as you get older.
• For your first investments, decide first how much of your total portfolio you want in stocks and how much in bonds. A 60-40 mix is a starting point - the more risk you can stand, the more you want in stocks. Then buy a no-load, low-cost index fund for each, or one single balanced index fund that invests in both stocks and bonds.
• Contribute as much as you can to retirement plans at work such as 401(k)s, at least enough to get the highest company match.
• Contribute as much as you can to individual retirement accounts, and count the money there and in your 401(k) when figuring your stock-bond investment mix.
• Stay away from variable annuities unless you've already contributed the most you are allowed to other tax-deferred plans such as 401(k)s and IRAs. Even then, stay away unless you understand variable annuities well enough to explain them to somebody else.
• If you're in your mid- to late 50's or older, start researching long-term care policies.
• If you're about the same age and have substantial assets, seek a reputable estate planner to discuss setting up a trust and other strategies.

Is this the best you can do? Not by a long shot, but you'll do better than most and what's best, you may even find the time to enjoy your