Money sept2016

travel deals up to 32% off P. 76

SAVE, EARN, AND INVEST YOUR WAY TO REAL WEALTH P. 48 PLUS

SOCIAL MEDIA SECRETS TO BOOST YOUR CAREER P. 30

3 MOVES TO CUT YOUR TAXES IN RETIREMENT P. 35

SEPTEMBER 2016 M O N E Y. C O M

33 WAYS TO TAP YOUR INNER MILLIONAIRE

P. 60

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Enjoy restful sleep in the Heavenly Bed.

© 2016 Starwood Hotels & Resorts Worldwide, Inc. All Rights Reserved. Westin and its logo are the trademarks of Starwood Hotels & Resorts Worldwide, Inc., or its affiliates.

A WEEKEND I N T H E H E A V E N LY ® B E D MAKES IT EASIER TO COME BACK TO EARTH MAKE MONDAY BETTER

BOOK A WESTIN WEEKEND

SEPTEMBER 2016 VOLUME 45, NUMBER 8

C

R OVE

STO

RY

48

How to Reach

$1 MILLION A strong investing and earning plan will put you on the road to true wealth.

by Carolyn Bigda, Daniel Bortz, Elaine Pofeldt, and Penelope Wang

60

Tap Your Inner Millionaire Thirty-three ways to save and spend your way to seven figures.

by Ismat Sarah Mangla and Kerri Anne Renzulli

70

Master the Medicare Maze An expert shares five key tips for managing the system’s twists and turns.

by Philip Moeller

76

The Roads Less Traveled You can afford your perfect getaway—if you know where to go.

by Stirling Kelso

F E AT U R E S

Contents Photograph by

t h e vo o r h e s

SEPTEMBER 2016

m o n e y. c o m

3

SEPTEMBER 2016 VOLUME 45, NUMBER 8

Retire

Plan

18

23 / WIN THE MILES GAME Free flights can be hard to come by. Try these tricks to score now.

26 / ASK THE EXPERT Taxes on a 401(k), gifting a house, and career credit checks.

27 / KNOW YOUR HSA Get the most from your health savings account.

P H O T O G R A P H B Y B R YA N D E R B A L L A , WA R D R O B E S T Y L I N G B Y W H I T N E Y A L E X A N D R A , H A I R A N D M A K E U P B Y STA C Y B E N E K E

28 / LIBERAL ARTS, LIBERAL PAYCHECKS Schools that excel at getting their grads top salaries.

35 / YOUR TAX-CUT WINDOW The early years of retirement give you an unexpected chance to grab some savings.

Invest 41 / THE CASE FOR GOING GLOBAL Fighting the tide of economic nationalism and investing abroad can pay off.

46 / STOCK X-RAY: HEWLETT PACKARD ENTERPRISE

30 / HOW TO SHARE YOUR NEW GIG Spread your good news with these etiquette tips.

This tech giant is slimming down to grow smarter and faster.

Education is not just knowledge growth but financial growth.”

FIRST

15 / THE BIG NUMBER 16 / FAST TAKES 17 / READERS TO THE RESCUE 18 / AMERICAN VOICES 20 / TECH 21 / THE STATS

—Shirley Acevedo Buontempo, American Voices, page 18 IN THIS ISSUE

6 / Money.com 8 / Editor’s Note 84 / The Numbers Cover photograph by THE VOORHES Hair and makeup

by Billy Mercer

MONEY (ISSN 0149-4953) is published monthly (except one in January/February) by Time Inc. PRINCIPAL OFFICE: 225 Liberty Street, New York, N.Y. 10281-1008. Periodicals postage paid at New York, N.Y. and additional mailing offices. POSTMASTER: Send all UAA to CFS. (See DMM 507.1.5.2). NON-POSTAL AND MILITARY FACILITIES: Send address corrections to MONEY Magazine, P.O. Box 62120, Tampa, FL 33662-2120. Canada Post Publications Mail Agreement No. 40110178. Return undeliverable Canadian addresses to: Postal Station A, P.O. Box 4326, Toronto, Ontario M5W 3H4. GST No. 888381621RT0001. © 2016 Time Inc. All rights reserved. Reproduction in whole or in part without written permission is prohibited. MONEY is a registered trademark of Time Inc. U.S. subscriptions: $15 for one year. SUBSCRIBERS: If the Postal Service alerts us that your magazine is undeliverable, we have no further obligation unless we receive a corrected address within two years. Your bank may provide updates to the card information we have on file. You may opt out of this service at any time. CUSTOMER SERVICE AND SUBSCRIPTIONS: For 24/7 service, go to MONEY.COM/CUSTOMERSERVICE. You can also call 800-633-9970; write MONEY, P.O. Box 62120, Tampa, FL, 33662-2120; or email help@money.customersvc.com. MAILING LIST: We make a portion of our mailing list available to reputable firms. If you would prefer that we not include your name, please call or write us. PRINTED IN THE U.S.

COLUMNS 38

45

88

TIPS FROM THE PROS

THE INTELLIGENT INVESTOR

MONEY WELL SPENT

Look Beyond High Yields

Navigating a Safe-ish Harbor

Tickets to the Unknown

Retirees can hobble their portfolios by reaching for extra income. There’s a better strategy.

by Allan Roth

Money funds offer ballast and convenience—if you know the new rules.

by John Waggoner

SEPTEMBER 2016

How theater subscriptions provide a valuable adventure in an expensive city.

by Laura Goldstein

m o n e y. c o m

5

SEPTEMBER 2016 VOLUME 45, NUMBER 8

Money.com

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Jess Edelstein (left) and Sarah Ribner battled with Sharks—and won.

HOW TO TURN PASSION INTO PROFIT Got the entrepreneurial itch? Before you scratch it, take some advice from folks who have spun their creative pursuits into paying businesses, including a pair of deodorant inventors who stayed cool on Shark Tank and an airline pilot so sick of lousy in-flight coffee that he decided to roast his own. money.com/passionplays

ELECTION 2016 Learn how the candidates’ positions on taxes, health care, college, retirement, and other pocketbook issues could affect your family’s finances.

MONEY IN YOUR IN-BOX! Sign up for our weekly newsletters: Ask the Expert, Retire With Money, and our latest, the MONEY College Planner. money.com/newsletters

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NOTABLES TALK MONEY

Our online tool lets you find the college that’s right for your student—and your budget.

Authors James Patterson and Malcolm Gladwell, actor George Takei, and other personalities share their money mistakes and triumphs.

money.com/colleges

money.com/bestadvice

YOUR BEST COLLEGE

6

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SEPTEMBER 2016

CHRIS ELLIOTT puts thorny consumer complaints to rest in “Problem Solved.” @elliottdotorg

C L O C K W I S E F R O M TO P : M I C H A E L D E S M O N D/A B C ; H I YA N A PA S K O V E / T H E WA S H I N G TO N P O ST/G E T T Y I M A G E S ( C L I N T O N ) ; J I M WATS O N /A F P/G E T T Y I M A G E S ( T R U M P )

TWITTER twitter.com/ money

BECAUSE SOMEDAY

0\ YLVLRQ ZLOO Ɠ QDOO\ take shape.

Fidelity doesn’t believe in “set it and forget it” plans.

We work with you as your needs change.

• We’ll help you build a plan that can adapt as your life — and the markets — change • You’ll have access to a wide variety of investment options, and the people who can help you choose • Our research, perspectives, education, and tools can help you stay on track Every someday needs a plan.® We’ll work together on yours the way you want.

In person, by phone, or online.

Fidelity.com/someday 800.FIDELITY

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Guidance provided is educational.

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Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2016 FMR LLC. All rights reserved. 748124.1.12

EDITOR’S NOTE

Write the Editor: editor@moneymail.com

How to Feel Like a Millionaire SCOTT FITZGERALD FAMOUSLY WROTE, “The very rich … are difpath to true wealth is to emulate those who ferent from you and me.” And he didn’t mean that in a good have already amassed a seven-digit net way. To paraphrase the author, whose themes often touched worth—following their saving, spending, on the corrosive effects of extreme wealth, the superaffluent earning, and investing habits. The most imare soft and cynical and think they’re better than the rest portant lesson isn’t a particular portfolio or of us—in other words, nothing to aspire to. In fact, research supcareer strategy. Rather, it’s a mind-set that ports the notion that having a ton of money does not make people emphasizes responsibility and frugality, happier, day to day. shuns excessive risk taking, and imbues you But what about those who are not “very rich” but merely rich with the confidence to go against the crowd.

You’ll find additional stories about how to enough? That’s quite different. Feeling that you have sufficient cash get to $1 million on our website, Money.com. on hand to cover any emergency and ample assets for both short- and And while you’re there, be sure to check out long-term needs—say, providing for your family now and living comour continuing coverage of Election 2016 and fortably through retirement—is indeed correlated with greater satthe pocketbook issues that affect you most. isfaction with your life, according to a University of Minnesota study.

I think you’ll find it profitable reading.

The key, the researchers concluded, is not the amount of money you have in your portfolio but the degree of control you feel over your circumstances.

That’s why the single most important word on the front of the magazine this month isn’t “million,” even though reaching that iconic DIANE HARRIS level of wealth is the subject of this issue’s cover package. No, the key twitter.com/dianeharris word is “freedom,” which appears on the vanity plate of the vintage Ford Mustang convertible depicted. Because the point of our special report A SLICE OF SAVINGS? Prop stylist Megumi Emoto cooked up a clay money pie isn’t to help you get rich. It’s to help you achieve to show the sweet rewards available if you deploy smart tax strategies at retirement. For the story and our advice, see “Your Tax-Cut Window” (page 35). a level of financial security that frees you from everyday stresses over money and lets you enjoy the kind of lifestyle that makes you and your family happy—whatever that may be. (In any event, hitting the seven-figure savings mark won’t exactly qualify you as rich these days; a $1 million nest egg, at the standard recommended withdrawal rate of 4% a year, will yield only about $40,000 in annual retirement income.)

As you’ll see in the lead article, “How to Reach One Million” (page 48), and its companion story, “Tap Your Inner Millionaire” (page 60), the surest

F

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SEPTEMBER 2016

I L L U ST R AT I O N B Y A L E X A N D R A C O M PA I N -T I S S I E R ; P H O TO G R A P H B Y L A C E Y B R O W N E

8

We build cars and relationships that last.

Subaru is Kelley Blue Book’s Best Overall Brand and Most Trusted Brand of 2016.*

When it comes to your vehicle, there is nothing more important than trust.

You want to know that no matter where you go, it will get you there and back again. According to Kelley Blue Book, Subaru is the Best Overall and Most Trusted Brand of 2016. Love. It’s what makes a Subaru, a Subaru.

To explore all the Kelley Blue Book awards, go to subaru.com/awards.

Subaru is a registered trademark. *2016 Kelley Blue Book Brand Image Awards are based on the Brand Watch™ study from Kelley Blue Book Strategic Insights. Award calculated among non-luxury shoppers. For more information, visit www.kbb.com. Kelley Blue Book is a registered trademark of Kelley Blue Book Co., Inc.

Because the best dressing room is your bedroom.

When returning is as easy as buying, your customers get the hassle-free shopping experience they want. And since 45% of shoppers have returned something they purchased online in the past year*, we make it as simple as placing a label on a box. Plus, UPS Returns® services provide greater visibility of items coming back, so there are no surprises for you or them.

Just one of the many ways UPS is helping companies solve for today’s rising customer expectations. See how we can help you at ups.com/solvers

*UPS Pulse of the Online ShopperTM Survey Copyright ©2016 United Parcel Service of America, Inc.

THE BIG NUMBER + FAST TAKES + READERS TO THE RESCUE + AMERICAN VOICES + TECH + THE STATS

P R O P ST Y L I N G B Y M O L LY A N D E R S O N

People who donate via crowdfunding After only a few years, fundraising websites such as GoFundMe and Kickstarter have become popular grantgiving tools, according to a study by Pew Research Center. Individual contributions are small; in 2015, 62% of donors gave less than $50 to any one project. Even so, there are significant drawbacks to these collection sites.

Watch for these risks before opening your virtual wallet:

Photograph by dav id

e mmi te

SE PT E M B E R 2 0 1 6

DONORS, BEWARE WA W ATCH FEES GoFundMe and Kickstarter keep 5% of donations and deduct another 3% for credit card processing—plus 20¢ to 30¢ per donation. “If you care about a cause, give directly so you’re not paying a middleman,” says Rick Cohen of the National Council of Nonprofits.

TRUST BUT VERIFY Most sites don’t vouch for the integrity of donation pages, but CrowdRise verifies that a charity has registered with the IRS. On GoFundMe, a “certified charity” icon means donations go directly to the nonprofit, not to whoever set up the collection.

SKIP THAT WRITE-OFF Just because you’re giving doesn’t mean the IRS will allow a deduction.“Anything you donate needs to be to a 501(c)(3) [a registered charity] or you won’t qualify for a tax deduction,” says CPA Cari Weston. Gifts to a page set up by someone collecting on behalf of a charity won’t qualify. —KERRI ANNE RENZULLI SEPTEMBER 2016

m o n e y. c o m

15

FIRST Looking for smart retirement-savings tips?

You’ll find them at money.com/retirement.

FAST TAKES

CRIME

SCAM ALERT: A NEW NO. 1

INVESTING

Cash Is King for Millennials. Bad Call

16

m o n e y. c o m

Illustration by ja s o n

s ch n e i de r

QUOTED

“If you lend money to people, assume you’re not going to get it back.”

Bestselling author James Patterson, on his worst financial mistake

P H O TO G R A P H B Y G E T T Y I M A G E S

IT MAKES SENSE FOR LITTLE KIDS to keep their money in a piggy bank, but many young adults are managing their money the same way. A new Bankrate.com survey found that 32% of respondents 35 and under preferred to keep their savings in cash. “Millennials will have the biggest retirement-savings burden in history due to longer life spans,” says Greg McBride, Bankrate’s chief financial analyst. “Hunkering down in safe-haven investments will leave them light-years short of where Generation gap: people who say they need to be.” that cash is the best investment Across all age groups, only 16% said the stock market was the best 32% place to keep money long term, de19% 18% spite its higher returns. If you had invested $10,000 in the Vanguard 500 stock index 10 years ago, you’d have Millennials Gen X Baby (18 to 35) (36 to 51) boomers $20,940 today. The same amount in a (52 to 70) money-market fund would have —MARTHA C. WHITE yielded $11,160.

SOURCE: Bankrate.com

Impostor scams— including taxrelated cons in which criminals pose as IRS agents to get money or personal information out of victims— are the fastestgrowing threat to consumers today, according to a new survey from the Consumer Federation of America (CFA) and the North American Consumer Protection Investigators.

“If someone calls or emails you

unexpectedly claiming to be from the IRS, your utility company, a tech support company, or even your employer, don’t assume that it’s true,” said Susan Grant, CFA director of consumer protection and privacy.

Grant warned consumers to be especially wary if someone demands money and asks you to pay with a prepaid or gift card.

Those are increasingly popular because crooks can get their money in a hurry and in a way that can’t be traced. —M.C.W.

FIRST

READERS TO THE RESCUE

Join the conversation: twitter.com/money facebook.com/moneymagazine • pinterest.com/moneymagazine

Resisting Bequest THE QUESTION According to my father’s will, if any of his children die before he does, that child’s family (spouse and children) will inherit nothing. I don’t need the money, but my children sure would. Should I approach him?

unbelievably cruel to feel so completely left out.

THE READERS I would certainly approach my father. I would remind him of the joy that my children, his grandchildren, have brought him over the years, and how devastated they would feel, not only at his death but at the apparent disregard their grandfather had for them. It would be

kathy gray Knoxville

peter wilson Tasajera, Venezuela

Perhaps he has reasons for his decision: Maybe your children and the other grandchildren don’t spend time with him. But I think you’re worrying for naught. Your chances of outliving your father

THE EXPERT

It seems as if he is not aware of all his options. An attorney could explain how to leave an inheritance to his grandchildren that bypasses the spouse, if that’s what he is afraid of. A CFP could advise on a 529 college-funding plan and other generation-skipping trusts.

Hopefully you can come up with a solution that keeps the peace. joe kelly, Ambassador for the P H O TO G R A P H B Y S H AY L A H U N T E R

are far higher than vice versa. Given that, say nothing.

CFP Board of Washington, D.C.

You may want to delicately (and discreetly) approach the subject and explain to him that should you predecease him, your children would certainly benefit from the funds. More likely than not, you may learn during this discussion that your father has valid and legitimate reasons for including the provisions he did.

mark scialdone

TAP SEE “ NER IN YOUR NAIRE” MILLIOGE 60) A

FACEBOOK QUESTION OF THE MONTH

(P WHAT’S THE BIGGEST MONEY ‘LEAK’ YOU’VE PLUGGED?

“Gift giving, emergency home repairs, and eating out. I had to get honest with myself about how much I was spending. They are all part of the budget spreadsheet now.”

—bernadette harmon

“Stop eating out.”

—derek terry “The snack and soda machines at work and all unnecessary urges to indulge. Last month I saved $260. I know because that’s what I invested in my new brokerage account.”

—david stuart-alexander

Boston

It’s his money. He has a right to dispose of it as he pleases. You could only tighten his resolve if you approached him with such a request.

“Interest on credit cards.” —cynthia alpan “I call my satellite TV provider to tell them the other satellite company made me a great offer. Boom! I get HBO free for three months.” —brandon bell

william mahnic Brecksville, Ohio

“A spendthrift ex-wife.”

—brent doolin

Want solutions to a financial dilemma in your life? Email your question to social@moneymail.com. To join our reader panel, go to moneymatterspanel.com.

SEPTEMBER 2016

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FIRST

AMERICAN VOICES

SHIRLEY ACEVEDO BUONTEMPO 53, WHITE PLAINS, N.Y. BACKSTORY: Moved to the Bronx from Puerto Rico in 1973 EDUCATION: BA and

Creating New Firsts SHIRLEY ACEVEDO BUONTEMPO was

master’s of public administration from Pace University PROFESSION: Founder and executive director, Latino U College Access VISION: Level the playing field for first-generation Latinos via higher ed

HER COLLEGE LESSONS FEAR NOT THE STICKER PRICE. Don’t write off a school because of the published price. Nearly $3 billion worth of Pell Grants are left unclaimed, says Buontempo. Even at higher incomes, she adds, “families can get federal loans, reduced Pells, institutional funding, or private scholarships. Everyone should fill out a FAFSA.” WIDEN YOUR SEARCH. “Many Latino students think they can’t afford to live away from home, so they limit their choices to commuter schools,” she says.“Aid is available for dorm living.”

EDUCATION REALLY DOES PAY. A college degree opens doors. “For me education is not just knowledge growth but financial growth, for you and generations to come.” —JOAN CAPLIN

18

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SEPTEMBER 2016

For more stories in this series, go to time.com/americanvoices.

P H O TO G R A P H B Y B R YA N D E R B A L L A , WA R D R O B E S T Y L I N G B Y W H I T N E Y A L E X A N D R A , H A I R A N D M A K E U P B Y STA C Y B E N E K E

10 when she arrived in New York from Puerto Rico, unable to speak English.

“It was sink or swim,” she says. She and her brother were finally joining their mother, who had been working in various office jobs for five years. A fast learner, Buontempo ultimately became the first in her family to go to college. In 2012, after a career in marketing, she founded Latino U to give first-generation Hispanic students equal access to higher education. The tiny staff and hundreds of volunteers have helped more than 500 students prep for college and land $2 million in financial aid. “What drives many ‘first gens,’ ” she says, “is the desire to honor their families’ sacrifice.”

“MY WISH IS TO BE A HOLLYWOOD STUNT DRIVER.”

Professional driver on closed course. Do not attempt. Prototype shown with options. Production model will vary. ©2016 Toyota Motor Sales, U.S.A., Inc.

FIRST

TECH

BUY

APPLE IPAD MINI 2

SAVE

33%

SKIP

Apple iPad Mini 4 These Apple tablets feature the same high-resolution Retina display, dual speakers, and core features. The

$399 Mini 4 has a slightly faster processor, a slightly upgraded camera, and a fingerprint sensor. But do you really need those things in a midsize tablet? The Mini 2 sells for only $269.

BUY

AMAZON KINDLE VOYAGE SKIP

Amazon Kindle Oasis Amazon’s $290 super-luxe Oasis may well be the Rolls-Royce of

e-readers, but the $190 Voyage is nearly as good.

Both feature a high-resolution e-ink display, dedicated page-turn buttons, and builtin night lighting.

Granted, the Oasis can last for months on a charge, but the Voyage will run for weeks, which seems long enough, no?

SAVE

49%

SAVE

Out With the New

BUY

Before you spend top dollar on the latest and greatest tech gear, take a look at last year’s latest and greatest. You’ll compromise very little and save a lot.

HP SPECTRE x2 SKIP

HP Spectre

—RICK BROIDA

SKIP

Samsung Galaxy S7

SAVE

15%

BUY

APPLE IPHONE 6s SKIP

Apple iPhone 7 When Apple reveals a new iPhone, it often knocks down

20

BUY

SAMSUNG GALAXY S6

m o n e y. c o m

the prices of previous models. When the iPhone 7 arrives in September, look for the $649 iPhone 6s to drop by $100. The new model isn’t expected to add major features, so the only reason to go for it over the 6s is if Apple tucks in an espresso maker.

SEPTEMBER 2016

SAVE

55%

You do get slightly improved battery life with the $670 S7 as well as a storage expansion slot—worthwhile but hardly revolutionary upgrades. Or you can spend $300 for a refurbished S6 (32GB, Verizon unlocked) at outlet stores such as Daily Steals.

For more of MONEY’s technology reviews, go to money.com/tech.

P H OTO G R A P H S B Y A L A M Y ( 2 ) ; C O U R T ESY O F H P

At $1,170, HP’s opulent 2016 Spectre claims to be the world’s thinnest laptop, but consider the less flashy 2015 Spectre x2 instead. It also features a dock for a detachable keyboard and weighs only a few ounces more than the gold-trimmed Spectre. You can find a refurbished x2 for close to $600 at Best Buy.

34%

FIRST Next month’s question: How much do you spend on your pet? To cast your vote, go to money.us/pets.

THE STATS MONEY READERS WEIGH IN POLL: How much did you spend

to buy your last new car?

LESS THAN $20,0 00

$20,000 to $29,999

42 %

28%

,000 $40 ORE OR M %

$30,000 to $39,999

16

14%

Deals on Wheels 2 ,03 0 $3

AUTO LOANS SHIFT INTO HIGH GEAR

This year

$28 ,711 Last year

VS.

AUTO INSURANCE: WHERE YOU LIVE CAN COST YOU HIGHEST AVERAGE PREMIUMS 1. Michigan: $2,738 2. Montana: $2,297 3. New Jersey: $1,905

CHEAPEST COVERAGE 1. Maine: $808 2. Ohio: $900 3. Wisconsin: $912

AVERAGE SALE PRICE OF NEW CARS AND SUVS IN 2016 (RECORD HIGH) UP 3.5% FROM 2015

$33,845

HOW MUCH THAT FIRST FENDER BENDER WILL RAISE YOUR PREMIUMS

LEMONS AND GEMS: LIFETIME REPAIR COSTS Chrysler Sebring

$15,600

BMW 328i

I L L U ST R AT I O N S B Y T H E W O R K S

BONUS: BEST RESALE VALUES AFTER FIVE YEARS Toyota Tacoma 72.9% Toyota 4Runner 66.7% GMC Canyon 70.7% Chevrolet Colorado 70% Jeep Wrangler 65.6% SAFETY EXTRAS (THEY WILL DENT YOUR WALLET)

Nissan Murano

Progressive

10%

29.5% 30%

$14,700

$4,300 Toyota Prius

AAA Auto Club

State Farm

$17,100

GREEN PAYDAY Buy a qualifying electric or plug-in hybrid vehicle through early 2017 and you become eligible for a $7,500 federal income tax credit.

TAKE A LOAD OFF AND SAVE

$4,700 Kia Soul $5,200

Toyota Camry

100

LBS.

$142

$190

Backup cameras

Inflatable seat belts

$295 Rearparking sensor

$850 Adaptive headlights

$2,000 Automatic emergency brakes

$3,477 TOTAL

Take that many pounds from your trunk and save 1% on fuel. (So 500 pounds out = 5% less gas.)

NOTES: MONEY poll conducted online in June 2016, surveying 634 readers. Premium increases are a sampling of providers; some manufacturers offer optional safety features only as part of a package. SOURCES: Experian,AAA, Insure.com, Kelley Blue Book, Priceonomics,YourMechanic.com, Fueleconomy.gov,American Society for Quality,Autotrader, Ford

m o n e y. c o m

21

Youâ&#x20AC;&#x2122;ve earned your money, but are you owning it?

In life, you question everything. The same should be true when it comes to managing your wealth. Do you know what your investment recommendations are based on?

'RHV \RXU á QDQFLDO SURIHVVLRQDO VWDQG E\ WKHLU ZRUG" 'R \RX NQRZ KRZ PXFK \RXĂ&#x161;UH SD\LQJ LQ IHHV" $QG KRZ WKRVH IHHV DIIHFW \RXU UHWXUQV" $VN \RXU á QDQFLDO SURIHVVLRQDO and if you donâ&#x20AC;&#x2122;t like their answers, ask again at Schwab.

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Wealth management refers to products and services available through the operating subsidiaries of the Charles Schwab Corporation of which there are important differences including, but not limited to, the type of advice and assistance provided, fees charged, and the rights and obligations of the parties. It is important to understand the differences when determining which products and/or services to select.

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P R O P ST Y L I N G B Y M E G U M I E M O TO

Win the New Miles Game ULE CHANGES HAVE MADE FREE FLIGHTS HARDER TO COME BY. TRY THESE TRICKS TO SCORE NOW. by Martha C. White

Photograph by jos h

dickinson

IF YOU THINK frequent-flier programs are too complicated to figure out, you’re not alone. A study in June by the U.S. Department of Transportation found the programs so byzantine that even its own analysts had trouble evaluating them.

And recent changes haven’t exactly helped travelers. In August, American Airlines joined fellow “legacy” carriers United and Delta in rewarding passengers for dollars spent, not miles flown; Southwest and JetBlue have similar systems.

The shift makes it much harder for casual fliers to rack up miles. Take a JFK–LAX roundtrip: Until SEPTEMBER 2016

m o n e y. c o m

23

Plan

AIRLINE MILES | ASK THE EXPERT | HEALTH | COLLEGE | CAREERS

recently, it would have earned a non-elite flier 4,950 miles. Under the new rules, on a typical $500 fare, including $60 in taxes, you’ll get only 2,200 miles for the same trip. (See graphic below for other examples.)

Scoring freebies now takes more strategic thinking, both in accumulating mileage and cashing in. Use these tips to get the best payoff.

SKIP THE UPGRADES Redeeming points for upgrades used to be a good deal, but the math has changed. “Airlines have been adding co-pays to a lot of upgrades,” says Ben Schlappig of PointsPros.com; those can run up to $500. And some carriers don’t let you upgrade with miles if you’ve bought the cheapest tickets. That undercuts the deal.

For a business-class award ticket, a better strategy is to just use miles to buy the trip. “The mileage difference is often minimal between upgrading and outright booking,” Schlappig says.

BREAK IT DOWN Most airlines let you cash in miles two ways: on “saver” tickets that take fewer miles but have limited availability, and anytime versions that can cost twice as many points but have more flexible dates. When you’re booking travel, think in terms of two one-way legs, says Mike Choi, co-founder of IFlyWithMiles.com, a mileage booking service. Even if you get only one at the lower rate, you’ll still end up with more miles to spend next time.

economy-class trip. But if you pay cash, that Paris getaway could run almost 17 times the U.S. fare.

SWAP PARTNERS Alaska Airlines still uses the oldfashioned, miles-flown points system, but it partners with Delta and American—so capitalize on that relationship if you can. Accumulate miles on Alaska the old way, then cash in points for a trip on its partners. Note you’ll be limited to “saver” tickets, so use this strategy when your dates are flexible.

GO LONG You get the best bang for your miles by using them for the most expensive routes and seats. “The sweet spot is international premium business class,” Choi says.

That’s because you pay much less for higher-end options, relatively speaking, when spending miles instead of cash. For instance: A roundtrip business-class ticket to Paris on United costs 115,000 miles—less than five times what you’d pay for a cross-country U.S.

TARGET YOUR PLASTIC With miles getting harder to accrue, airline credit cards are now a critical part of the equation. You can still find sign-up bonuses of 50,000 miles or so, says George Hobica, president of Airfarewatchdog.com. Just one key caveat: Some cards, like the Platinum Delta SkyMiles American Express, limit those bonuses to people who have never had the card in the past. Be sure to check terms and conditions before applying, he says.

TAKE THE CASH

Game Change Airlines have made it much harder to rack up rewards with discount tickets.

MILES EARNED PER ROUNDTRIP

OLD RULES Any fare

OLD RULES

SEA

Any fare

3,320 NEW RULES

LGA American

Delta

Full fare

Full fare

2,095 Discount fare

3,044 NEW RULES

DFW

1,355

ATL

1,880 Discount fare

970

NOTES: DFW–SEA is 1,660 miles each way; LGA–ATL is 1,522. Calculations based on sample roundtrip fares for mid-September; non-elite mileage plan members earn five miles per dollar spent. SOURCE: MONEY research

24

m o n e y. c o m

SEPTEMBER 2016

Infrequent travelers should rethink airline loyalty altogether, whether booking travel or using credit cards. Domestic travelers who spend less than $8,600 on trips a year can earn more rewards with a cash-back card than a travel card, NerdWallet found earlier this year.

Choi sets a slightly different threshold, suggesting cash-back cards for anyone who won’t travel enough to reach elite status. “For domestic travel,” he says, “you’re usually better off just saving up the cash back and buying the cheapest fare available.”

# " " ! # # # # " ! " ! ! ! # ! # # ! # #

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Plan

AIRLINE MILES | ASK THE EXPERT | HEALTH | COLLEGE | CAREERS

Q A

RETIREMENT

How do I pay taxes on a transfer from my 401(k) to a Roth 401(k)?

—randy gaven, Cornville, Ariz.

If your 401(k) lets you move a balance from a pretax account to a Roth version, the amount you convert counts as taxable income. You’ll need to cover the resulting bill, says financial planner Richard W. Paul of Novi, Mich.

“It’s always a good idea to pay the taxes from an outside source,” he says.

A single worker in the 28% tax bracket, for example, could pay $14,000 for a $50,000 conversion.

(See the chart, above right.) If you take extra cash from your 401(k) to cover the bill, you would additionally be subject to a 10% early withdrawal penalty, assuming you’re under 59½. In the example above, that’s another $5,320. (There’s no penalty on the in-plan rollover itself.)

If you can’t afford the taxes now, you’re much better off making the conversion incrementally and paying the (smaller) bills with liquid assets.

26

m o n e y. c o m

Q

CAREERS

I’m applying for a job. Can the company check my credit?

Rolling money into a Roth? Pay the tax from savings.

Withdrawing extra 401(k) assets will trigger a bigger tax hit.

WHAT YOU’D OWE ON A $50,000 ROTH CONVERSION

$19,320

If paid from 401(k) assets

If paid from savings

$14,000

NOTES: Assumes $100,000 salary, single taxpayer. SOURCE: Ted Sarenski, CPA/PFS

Q

R E A L E S TAT E

My son and I co-own a house.

If I give him my share, do I owe any tax? —sandy, Warren, Ohio

A

When you take your name off the deed, you need to declare the gift—but you won’t face a tax bill.

Current federal law allows a lifetime gift and estate tax exemption of $5.45 million, explains Portage, Mich., financial planner Charles C. Zhang.

The home counts toward that limit, but it probably won’t push you over.

Ultimately your estate will owe taxes only if the total value of your gifts

SEPTEMBER 2016

(including the house), plus assets you leave behind, exceeds the lifetime cap. For now, you can give up to $14,000 a year per recipient without telling the IRS or counting it for the exemption; report larger gifts on Form 709. In any event, you won’t pay taxes personally, Zhang says. The size of your estate and gifts won’t be calculated until your final estate tax return is filed—that is, after your death.

A

Some employers want to see your credit history as part of a vetting process.

It’s particularly—but not exclusively—likely if you’d be making financial decisions or be privy to sensitive info. “There are plenty of jobs that require a credit report that have nothing to do with handling money,” says Bruce McClary of the National Foundation for Credit Counseling.

You must give written consent before a company runs a credit check.

You could refuse, “but odds are your application will go in the shredder,” says McClary. If your credit history takes you out of the running for the job, though, the employer must tell you and let you respond. To avoid surprises, review your credit reports before you start a job search. Access them for free via AnnualCreditReport.com.

By Sarah Max, Elizabeth O’Brien, and Kerri Anne Renzulli

Read more answers from Ask the Expert and submit your own question about personal finance at money.com/expert.

AIRLINE MILES | ASK THE EXPERT | HEALTH | COLLEGE | CAREERS

1

2

4

YOU’RE PROBABLY USING YOURS WRONG

5

A GOOD HSA IS TOUGH TO FIND (ON YOUR OWN)

The single best HSA move you can make is to max out contributions every year, says Greg Geisler, who teaches accounting at University of Missouri at Saint Louis—but only 15% of users actually do so, EBRI finds. Then, keep enough in cash to cover short-term needs (co-pays, deductibles), but invest the rest in a mix of stock and bond funds for retirement medical expenses. Just 3% to 4% of HSA holders put their money in investments aimed at a long time horizon, Remjeske says.

CHANCES ARE YOU’LL SEE ONE THIS FALL

Health savings accounts, which let you pay medical bills with pretax dollars, are surging: 72% of large employers offered them in 2016, up from 40% in 2010, says the National Business Group on Health. Employers like HSAs because they work with some highdeductible insurance plans, which shift health costs to workers. And the accounts deliver a triple tax advantage: You add money pretax, and both growth and withdrawals for qualifying expenses are tax-free.

Plan

Things to Know About HSAs Now

THEY’RE MORE FLEXIBLE THAN YOU THINK

As with an IRA, you can make prior-year contributions until April 15—giving you an extra chance to trim taxable income. For 2016, individuals can put aside up to $3,350, and families, $6,750—plus another $1,000 a year if you’re 55 or older. And there’s no use-itor-lose-it rule: You can stash money away until you need it, or reimburse yourself retroactively for past expenses, as long as the account was open and you’ve kept your receipts.

Illustrations by

greg christman

by Elizabeth O’Brien

3

THEY’RE NOT JUST FOR THE SUPER HEALTHY

Despite conventional wisdom, HSA-eligible plans can pay off even if you don’t have ultralow medical bills. High-deductible employer plans generally cost individuals $1,000 to $2,000 less in annual premiums than traditional insurance, says Eric Remjeske, of HSA consultant Devenir. And many firms sweeten the deal, adding an average of $1,021 to workers’ accounts, the Employee Benefit Research Institute (EBRI) finds. One way to compare plans is to weigh worst-case scenarios: To do so, add the out-of-pocket max to your yearly premium.

If you change jobs, you get to keep your HSA—but you could pay more once you lose your employee discount. And locating a cheaper one is tricky. “The options can be difficult to find, and there’s a wide range of fees,” says Eric Dowley, who runs Fidelity’s HSA business. Some accounts charge maintenance or debit card fees; others have no investment options. Compare accounts at hsasearch.com.

SEPTEMBER 2016

m o n e y. c o m

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AIRLINE MILES | ASK THE EXPERT | HEALTH | COLLEGE | CAREERS

Students at Oregon’s Reed College tend to fare well in the job market.

Liberal Arts, Liberal Paychecks GRADUATES OF THESE 20 LIBERAL ARTS COLLEGES GO ON TO EARN THE HIGHEST SALARIES. by Kim Clark arts colleges ultimately tend to earn more than the average college grad.

New graduates of these schools start at roughly the same salaries as other college graduates, according to surveys by PayScale.com.

But once they’re about 15 years into

THE BEST OF THE BEST Of course, some liberal arts colleges are more successful than others.

Alumni of the schools listed opposite tend to earn above-average starting salaries and often move on to sixfigure jobs within 15 years, according to PayScale’s latest data. And that’s without the added cost of a graduate or professional degree.

Two of these schools tilt toward lucrative fields like engineering. At Harvey Mudd College, which tops the list, almost 60% of students major in engineering or computer science.

At Virginia Military Institute, more

The world of investing is complex.

But sometimes the answer is right in front of you.

Visit SPDRs.com/spy

COU RT ESY O F R E E D CO L L EG E

STUDYING LIBERAL ARTS is a one-way ticket to Barista-ville, right?

Not necessarily.

While you may know a few recent English majors who struggled to find well-paying jobs, salary data show that graduates of four-year liberal

their careers, they report average pay of about $80,000 a year—$6,000 more than college grads in general, PayScale says.

One reason is that liberal arts alums can be attractive even to high-tech companies. “No job postings say you must have read Plato, but employers are asking for people with the ability to communicate clearly, think strategically, and be an analytical problem solver,” says Tom Perrault, the chief people officer of Rally Health, a San Francisco–based health benefits website, and the author of a much-discussed Harvard Business Review article on why digital companies need more liberal arts majors.

than a quarter of graduates earn engineering degrees. Both qualify as liberal arts colleges, as defined by the Carnegie Foundation for the Advancement of Teaching, in part because they are small residential schools focused on teaching undergraduates.

GOOD NEWS FOR HISTORIANS But students whose interests lie in less technical subjects, such as philosophy and history, also have plenty of great schools to choose from. The other 18 colleges on the list are more conventional liberal arts schools, and their alums report high earnings as well.

Whatever college you attend, you can improve your odds in the job market by taking advantage of any internship opportunities your school has to offer. Take a business course or two. And be ready to explain how you’ve gained practical skills that employers can use. For example, “show that you participated in activities outside of class and took on a leadership role,” suggests Perrault—a liberal arts grad (history and political science) himself.

For more advice on choosing a school, visit the MONEY College Planner at money.com/colleges.

Schools Where Plato and Proust Pay Off These 20 liberal arts colleges produce the highest-earning undergrads.

RANK

SCHOOL (MONEY OVERALL RANK)

1

HARVEY MUDD COLLEGE (79)

2

COLGATE UNIVERSITY (59)

Claremont, Calif.

Hamilton, N.Y.

3

WILLIAMS COLLEGE (49)

4

CLAREMONT MCKENNA COLLEGE (71)

5

WASHINGTON AND LEE UNIVERSITY (29)

6

VIRGINIA MILITARY INSTITUTE (42)

Williamstown, Mass.

7

BUCKNELL UNIVERSITY (152)

8

LAFAYETTE COLLEGE (69)

9

SWARTHMORE COLLEGE (100)

10

BOWDOIN COLLEGE (43)

Claremont, Calif.

Lexington, Va.

Lewisburg, Pa.

Easton, Pa. Swarthmore, Pa.

Brunswick, Maine

11

AMHERST COLLEGE (7)

12

OCCIDENTAL COLLEGE (255)

13

WABASH COLLEGE (123)

14

REED COLLEGE (258)

Portland, Ore.

15

BATES COLLEGE (61)

Lewiston, Maine

16

EARLHAM COLLEGE (28)

17

COLLEGE OF THE HOLY CROSS (65)

18

FRANKLIN AND MARSHALL COLLEGE (165)

19

TRINITY COLLEGE (104)

20

UNION COLLEGE (98)

Lexington, Va.

Amherst, Mass.

Los Angeles

Crawfordsville, Ind.

Richmond, Ind. Worcester, Mass.

Hartford, Conn.

Schenectady, N.Y.

Lancaster, Pa.

EARLY EARNINGS

MID-CAREER EARNINGS

$79,700

$130,000

$55,800

$121,000

$53,100

$120,000

$58,800

$112,000

$53,900

$115,000

$56,400

$111,000

$57,900

$109,000

$57,800

$106,000

$50,000

$112,000

$48,900

$112,000

$53,400

$102,000

$47,700

$106,000

$52,400

$101,000

$45,200

$107,000

$46,700

$105,000

$45,600

$104,000

$49,500

$100,000

$45,200

$102,000

$53,400

$93,200

$51,200

$95,100

NOTES: Ranking based on averaging PayScale.com early-career and mid-career earnings. SOURCES: U.S. Department of Education, Peterson’s, PayScale.com, and MONEY/College Measures calculations

ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.

The SPDR ® S&P 500 ® ETF Trust is an exchange traded fund designed to generally correspond to the price and yield performance of the S&P 500 Index.TM SPDR ®, S&P and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC (S&P) and have been licensed for use by State Street Corporation. State Street Corporation’s financial products are not sponsored, endorsed, sold or promoted by S&P, S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.

ALPS Distributors, Inc. is distributor for SPDR S&P 500 ETF Trust, a unit investment trust. ALPS Distributors, Inc. is not affiliated with State Street Global Markets, LLC. Before investing, consider the funds’ investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus, which contains this and other information, call 1.866.787.2257 or visit www.spdrs.com. Read it carefully.

IBG-16246

Not FDIC Insured • No Bank Guarantee • May Lose Value

Plan

AIRLINE MILES | ASK THE EXPERT | HEALTH | COLLEGE | CAREERS

How to Share Your New Gig CHANGING JOBS? CONGRATULATIONS. NOW USE THESE ETIQUETTE TIPS TO SPREAD THE WORD WITHOUT MAKING ANY SOCIAL MEDIA STUMBLES. by Megan Leonhardt AS THE JOB MARKET is heating up, you may see more friends trumpeting new roles on LinkedIn, Twitter, and Facebook. More than one in five workers plan to change jobs this year, a CareerBuilder survey found—up 5% from last year. But social media is like an open microphone; you don’t want to say the wrong thing at the wrong time.

If you’re changing jobs, here’s how to stay on message and in control.

Don’t tip your hand. Before you make a move, be discreet. Dropping clues can make it difficult to exit on your own terms.

The classic mistake used to be leaving a résumé in the copier, says Daniel Post Senning, etiquette expert at the Emily Post Institute.

Today social media is the new Xerox: Staff at one large company, for instance, told him that the firm monitored workers’ LinkedIn pages, viewing activity as disloyal.

That’s extreme, of course—but even so, avoid a big, obvious profile makeover. Instead, use smaller,

30

m o n e y. c o m

incremental tweaks, says Post Senning—and be sure to turn off the “sharing profile edits” option (under privacy settings) so the site won’t highlight your updates.

Also, wait to connect with prospective colleagues until after you’ve started at a new job.

Pace yourself. Once you have an offer, it’s best to wait until your last days on the job before dropping any online hints; at a minimum, hold off till you’ve given formal notice. “You don’t want your employer finding out on social media,” says Patrick Gillooly, director of digital communication and social media at Monster.com.

At that point, go ahead and share your departure—but delay mentioning your new role while still on your old company’s dime.

Stay upbeat and brief, even if your exit was not ideal. Future employers are watching: An April CareerBuilder survey found that 60% of hiring managers and HR pros check applicants’ social media

SEPTEMBER 2016

profiles before hiring them. “The ability to manage and regulate an emotional response is a valuable thing for many businesses and professionals,” Post Senning says.

Get in sync. After you’ve gone public, colleagues may have questions about how to proceed in your absence. Be ready with an email identifying resources and points of contact. Also ask your future employer about any planned announcements, Post Senning says, and try to follow its lead.

Break the news. Finally, once you’ve started, send out a tweet and update all your social media profiles with your new company, job title, and contact information—ideally within your first day or two, Gillooly says.

Pair that with emails to contacts, detailing your new role and responsibilities, he adds. (Mass blast? Remember to use the bcc field.) “Put a little thought behind the process,” Gillooly says. “It’s a big message to the world.”

Illustration by ga ry

neill

IT’S LIKE READING A 5 -STA R R E V I E W. O F T H E R ESTAU R A N T YO U J UST O PEN ED.

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Lincoln.com/MKZ

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2΍HU &DUHHU $GYLFH WR 7KRVH :KR +DYH 6HUYHG ACP AdvisorNet is an online community providing volunteers the unique opportunity to engage directly with veterans in a meaningful way.

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Join us and answer questions posted by veterans about their career development. %URZVH WKH FRPPXQLW\ WR ȴQG YHWHUDQV WR FRQQHFW ZLWK RQH RQ RQH Each day, new veterans sign up seeking career guidance.

Join ACP AdvisorNet WRGD\ WR PDNH D GL΍HUHQFH

www.acp-advisornet.org $&3 $GYLVRU1HW LV D SURJUDP RI $PHULFDQ &RUSRUDWH 3DUWQHUV $&3 $&3 LV D QRQ SURȴW RUJDQL]DWLRQ assisting veterans in their career transition from the armed forces to the civilian workforce.

P R O P ST Y L I N G B Y M E G U M I E M O TO

de

Your TaxCut Window THE EARLY YEARS OF YOUR RETIREMENT GIVE YOU A CHANCE TO GRAB SOME SAVINGS. by Elizabeth O’Brien

Photograph by jos h

dickinson

THE FIRST FEW YEARS of retirement are a perfect time to explore your passions, travel the world, and bond with your family. Something else they can be great for: cutting your lifetime tax bill— and leaving you more money to spend on yourself.

The reason? Once you stop collecting a paycheck and start living off other funds—say, investments, part-time work, and maybe a pension—chances are good that, as for most retirees, your income will drop, putting you in a lower bracket. That means you’ll pay a lower federal tax rate on your highest income. But this might SEPTEMBER 2016

m o n e y. c o m

35

Retire

LOW-TAX WINDOW | TIPS FROM THE PROS

not last. If you’re diligently waiting to tap your tax-deferred accounts so they can continue to grow and delaying Social Security to build up your monthly benefit—both smart moves—you could pop back up to your higher tax bracket once you hit your seventies and start taking required minimum distributions (RMDs).

And odds are you will, say planners, if you have savings of at least $500,000 and you were in the 25% bracket pre-retirement (in 2016 that means taxable income between about $75,000 and $152,000 for married couples filing jointly; $38,000 to $91,000 for singles).

Nearly all of these households could benefit from strategic moves when they’re temporarily in the 15% bracket, says John Leis, vice president of personal financial solutions at American Century Investments.

Here’s how you can take advantage of your briefly low bracket.

SWITCH TO A ROTH Converting a 401(k) or traditional IRA into a Roth can significantly reduce your future taxable income, since no federal taxes are due on Roth withdrawals, unlike the case with those tax-deferred accounts.

Upon converting, you’ll owe ordinary income taxes on the amount converted (excluding after-tax contributions). But once you’re in a lower tax bracket, your tax bill may be smaller than it would have been a few years earlier or later (see the chart below).

Planners suggest stretching out a Roth conversion over a number of years, each year converting only an amount that won’t push you into a higher tax bracket. “You’re nibbling at the IRA,” says Laura Scharr-Bykowsky, a financial planner in Columbia, S.C. A Roth conversion is less attractive, however, if you are under 65 and are buying subsidized health insurance on the public exchanges, she warns. Because converting will increase your income, it will also decrease your subsidy.

GET AHEAD OF THE IRS Is the bulk of your savings in tax-deferred accounts? A Roth conversion might not make financial sense, says Michael Goodman, a certified public accountant and financial planner in New York City, since you will need funds outside your 401(k) or traditional IRA to pay taxes on the conversion

Lower Income, Lower Taxes Making some financial moves when you’ve dropped to a lower tax bracket—say, to 15% from 25%—can save you thousands of dollars.

TAXES OWED ON TRANSACTIONS 25% bracket

15% bracket

No taxes on capital gains

$5,000 $3,000

$3,000 $0

Convert $20K IRA to a Roth

Sell stock at $20K profit

NOTES: Assumes stock has been held for at least one year. For married couples filing jointly, 25% bracket is $75,000 to $152,000, and 15% bracket is $19,000 to $75,000 in 2016. SOURCE: MONEY calculations

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(see Ask the Expert, page 26).

So instead you might start taking distributions from a 401(k) or an IRA while you’re in your sixties.

Retirement savers try to hold off on withdrawals until they turn 70½ and the IRS imposes RMDs; in the latest figures from the Employee Benefit Research Institute, 21.7% of traditional IRAs held by people in their late sixties had withdrawals, but that figure jumped to 60.7% for accounts of people in their early seventies. You might save money, however, by starting to make withdrawals earlier and in a lower bracket (as long as you’re over age 59½, avoiding the 10% penalty you’re subject to in most cases).

This strategy can help you delay claiming Social Security, ensuring a higher payout when you do file and giving you income to live off before then. It also lowers your future tax liability on your retirement account by reducing the balance.

SELL SOME STOCK If you’re in the 15% federal tax bracket or lower, you don’t owe capital gains taxes on the sale of securities you have held for more than one year. Investors in higher brackets will owe at least 15%. So if you drop to a low bracket, you could sell stocks that no longer fit in your portfolio, especially if they have appreciated in value, says Scharr-Bykowsky.

Your circumstances can change from year to year, based on such factors as changing tax rules and fluctuations in your income. So revisit these strategies regularly. “This is not ‘Set it and forget it,’ ” says Michael Berry, head of the advanced planning team at Voya Financial.

Come with goals, leave with a plan.

At TD Ameritrade, our complimentary goal planning sessions are built to help you bring your confidence to new heights. We’ll help you set investing goals and develop a detailed strategy to pursue them—with regular check-ins all along the way. No matter where today takes you, you’ll always have your feet on the ground.

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Visit tdameritrade.com/goalplanning All investments involve risks, including risk of loss. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business.

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Retire

LOW-TAX WINDOW | TIPS FROM THE PROS

Look Beyond High Yields RETIREES CAN HOBBLE THEIR PORTFOLIOS BY REACHING FOR EXTRA INCOME. THERE’S A BETTER STRATEGY.

by Allan Roth AS A FINANCIAL PLANNER, I often have people at or near retirement show me their portfolios that produce a seemingly rich income of 5% or more a year. These payments come from complex and risky investments, such as master limited partnerships (MLPs), high-yield bond funds, and private real estate investment trusts.

Most of these investors aren’t celebrating. That’s because they have lost far more of their principal value than they ever made in income. In some cases they have needed to lower their lifestyle or return to the workforce.

The instinct to build a portfolio that produces income is a powerful one. By retirement age you will have worked decades to build up your assets. The thought of flipping a switch and spending down that portfolio is very scary. Little wonder so many people say their goal is to develop a portfolio that produces a safe income to live on.

They believe that’s the only way to guard against running out of money later in life.

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MLPs, which typically own oil and gas pipelines, yielded 7.6% on average. But including a steep price drop, investors actually lost 18.5%, according to Morningstar.

A smarter approach is to take your investment risk in stocks and let capitalism work its magic over the decades of your retirement. Balance the risks of stocks with safe fixed-income assets, and give yourself permission to dip into the principal.

NOT SO EASY

WHAT TO EXPECT

When people ask how they can get that high, safe income, my answer is, “You can’t.”

Investments that deliver far higher yields than safe bonds such as U.S. Treasuries typically come with a significant price risk. For example, over the year through June 30, a group of exchangetraded funds that invest in energy

While stocks are very volatile, I expect they will beat inflation by an average of four to five percentage points a year over the very long run. Pick index funds for diversification and low costs.

For shock absorbers, buy bank CDs, funds that own investmentgrade bonds, and also inflationindexed bonds (see the chart).

Over time I expect these holdings to at least keep pace with inflation and maybe earn up to one percentage point a year more. The goal isn’t maximizing income, but providing stability and also dollars to put into stocks when they tumble.

You will sometimes be selling bond or stock funds to pay expenses, and that’s okay. I tell clients that money is simply stored energy. Over the years they work and save to convert human capital (their ability to make a living) to investment capital. Use your money. You earned it. And if your stocks grow over time, that will help finance your later years and leave dollars to pass on to heirs.

SEPTEMBER 2016

Portfolio Ballast This suggested blend of low-risk assets is intended to keep pace with inflation over time.

ASSET MIX AND YIELDS

50%

10%

40%

Five-year bank CDs: 2.1%

iShares TIPS Bond (TIP): 2.1%

Vanguard Total Bond Mkt. (BND): 1.8%

NOTE: TIPS yield assumes inflation is at the Federal Reserve’s target rate of 2%. SOURCE: Allan Roth

Allan Roth is a financial planner in Colorado Springs and the author of How a Second Grader Beats Wall Street.

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P R O P ST Y L I N G B Y M E G U M I E M O TO

de

The Case for Going Global FIGHTING THE TIDE OF ECONOMIC NATIONALISM AND INVESTING MORE ABROAD CAN PAY OFF. by Carla Fried

Photograph by jos h

dickinson

GLOBALIZATION IS UNDER ATTACK. In June, Brits voted to leave the European Union, with Brexit backers vowing “to take our country back.” In July the GOP nominated a presidential candidate who vows to tear up global trade deals. And you have probably noticed that American stocks are trouncing the world’s, with the S&P 500 up 270% in this bull market, vs. 122% for an index of non-U.S. stocks. So why even bother investing abroad?

Well, that very disparity is a compelling reason to venture overseas. After a seven-year run, U.S. stocks are now more expensive, based SEPTEMBER 2016

m o n e y. c o m

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Invest

THE CASE FOR GOING GLOBAL | THE INTELLIGENT INVESTOR | STOCK X-RAY

on price/earnings ratios, than foreign shares (see chart). “Buying more U.S. stocks now is like buying the best house on a bad block,” says Russ Koesterich, head of asset allocation for the BlackRock Global Allocation Fund. “You’re likely paying too large a premium.”

On the flip side, the doom and gloom surrounding the future of the EU is creating bargains and opportunities. Research Affiliates forecasts that foreign stocks in developed markets like Europe and Japan are likely to return 6.3% a year, after inflation, over the next decade, vs. just 1.2% for the S&P 500 index of U.S. shares.

Emerging-market stocks are expected to do even better: 8.1%.

Of course, as the U.K. and EU negotiate their divorce, there will be more jolts for global stocks—an index of European shares lost 13% in the first few days after Brexit, but has since rallied more than 9%.

The challenge: How do you manage the risk while taking advantage of the opportunities?

notes Gregg Fisher, the firm’s founder. The global strategy never was the worst performer (or the best) in any 10-year period.

The U.S. portfolio, by contrast, did the worst 56% of the time.

Keep in mind that from January 2002 through the fall of 2007, the script was flipped.

Foreign stocks gained 170%, vs. just 48% for the S&P 500. “There will be a time, I am pretty darn sure, over the next 20 to 30 years where we will get the inverse of the current trend,” says Fran Kinniry, a principal in the Vanguard Investment Strategy Group.

FLY INTO THE TURBULENCE It seems odd to embrace the very regions that are driving market anxiety. But if you are thoroughly diversified globally, “one shock will be balanced out by other parts of the portfolio,” says Christopher Mack of Harding Loevner Global.

The investment manager Gerstein Fisher studied U.S.-only, foreign-only, and globally diversified portfolios over more than 400 rolling 10-year periods since 1970. The firm found that global portfolios (defined as 75% U.S./25% international) delivered the same 10.2% annual return as U.S.-only portfolios—but with less rockiness,

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STRIKE THE RIGHT BALANCE Kinniry says allocating 40% of your equities to overseas markets is the risk/reward sweet spot. Vanguard studied foreign diversification and found that as you increase global exposure, your portfolio grows less rocky—until you hit 40%, after which volatility kicks up again.

With a 60% stock/40% bond strategy, put 36% of your overall portfolio in U.S. stocks and stash 24% abroad. Ken Moore of Global View Investment Advisors suggests keeping five to 10 points of that foreign stake in the faster-growing but riskier emerging markets.

HEDGE SOME OF YOUR BETS

New World Order U.S. stocks have trounced foreign shares over the past five years…

STOCK PRICE APPRECIATION U.S. stocks

Rest of the world

60

Up 62%

40 20

Down 10%

0 –20 JULY ’11

JULY ’16

… but they are now frothier than they have historically been.

PRICE/EARNINGS RATIO Current

Historical median

26 16

U.S. stocks

22 13

Foreign developed market

11

17

Foreign emerging market

NOTE: P/E ratio is based on 10 years of average earnings. SOURCE: Research Affiliates

When the dollar gains strength, that reduces the value of foreign returns earned by Americans.

And when the buck weakens, the reverse is true. Over time, currency swings even out, but over shorter periods political and economic uncertainty can hammer foreign portfolios that do not neutralize this risk by hedging currencies.

As the euro sank nearly 20% against the dollar in the past two years, Vanguard FTSE Europe ETF (VGK), which doesn’t hedge, fell 14%.

By contrast, WisdomTree Europe Hedged ETF (HEDJ) was up nearly 6%.

Scott Opsal, director of research at the Leuthold Group, says the euro could weaken further if exiting the EU becomes a central issue in upcoming elections in France, Germany, and the Netherlands. “There could be benefit to getting rid of your currency risk as we see how things evolve across Europe,” he says. You can add some currency immunity with HEDJ or Deutsche X-Trackers MSCI Europe Hedged ETF (DBEU).

HAVE YOU BEEN SETTLING FOR AVERAGE? We have not. 100% of T. Rowe Price Retirement Funds have above-average returns for the 10-year period and below-average costs.

• 100% of our Retirement Funds beat their 10-year Lipper average as of 6/30/16* • 100% of our Retirement Funds have expenses below their Lipper average as of 6/30/16** Results will vary for other periods. Past performance cannot guarantee future results.

Request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.

Call our Retirement Specialists to roll over your old 401(k).†

Rollover with ConfidenceSM troweprice.com/rollover | 800-541-5862

The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target date. The funds’ allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long-term postretirement withdrawal horizon. The funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility over shorter time horizons.

*20 of our 36 Retirement Funds had a 10-year track record as of 6/30/16 (includes all share classes). All 20 of these 20 funds (100%) beat their Lipper averages for the 10-year period. 8 of 36, 36 of 36, and 36 of 36 of the Retirement Funds outperformed their Lipper average for the 1-, 3-, and 5-year periods ended 6/30/16, respectively. Calculations based on cumulative total return. Not all funds outperformed for all periods. (Source for data: Lipper Inc.) **Keep in mind that an IRA may be subject to an annual fee, and a fee may be assessed if the IRA is closed. † Consider all available options, including remaining with your current retirement plan, rolling over into a new employer’s plan or IRA, or cashing out the account value.

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UNAV082910

THE CASE FOR GOING GLOBAL | THE INTELLIGENT INVESTOR | STOCK X-RAY

How to Navigate a Safe-ish Harbor MONEY FUNDS PAY LITTLE BUT STILL OFFER BALLAST AND CONVENIENCE—IF YOU UNDERSTAND THE NEW RULES.

by John Waggoner HERE’S THE MOST ASTONISHING fact on Wall Street: $2.7 trillion is cooling its heels in money-market mutual funds, earning less than an ant’s allowance. The average yield on retail money funds—which invest in short-term government securities, commercial paper, and bank CDs—is a paltry 0.04%.

All that cash is a testament to the durability of money funds as the investor’s parking place of choice. A big appeal is convenience.

Columnist John Waggoner is the author of three books on Wall Street and investing.

You can move cash from a money fund into your stock fund or bank account swiftly and easily. “They are like the Federal Express of mutual funds: They’re for when you absolutely, positively have to have your money overnight,” says Peter Crane, publisher of Crane Data.

THE NEW RULES But regulators are imposing new rules later this year that may make it harder to get instant access but that are designed to boost safety.

Through an accounting convention, money funds can keep share prices steady at $1, giving them the illusion of being as risk-free as a bank deposit, though they aren’t

Illustration by

taylor callery

Invest

FDIC insured. If assets slip below $1 a share, the fund sponsor will backstop the fund. But that’s not always possible, as in 2008 when the Reserve Fund let its shares fall below $1 in the financial panic.

Starting in October, most institutional money funds—used by the wealthy and pensions and endowments—will have to let their share price float, as any other mutual fund does. On the other hand, retail money funds that are geared to individual investors will be able to keep their $1 share price.

The retail universe includes different types of funds, including government money funds, prime funds that invest in commercial paper, and tax-free money funds that invest in municipal securities.

Going forward, prime and tax-free money funds will have to ensure they have enough cash on hand to handle large redemptions.

So both types can institute a 2% redemption fee if their liquid assets fall below certain levels. They can also start imposing a hold, or gate, of up to 10 days on redemptions in times of extraordinary stress.

The time you really need quick access to a money fund, of course, is in a crisis. So if you want to avoid restrictions and fees, use a government fund instead of a prime or tax-free fund. Vanguard says the Vanguard Federal Money Market Fund (VMFXX) will be the only money fund its customers can use for brokerage trades after Oct. 14.

The downside, of course, is that government money-market funds pay less—they yield only 0.02%.

But tax-free funds are paying only 0.04% while prime funds are at 0.08%. So ironically, today’s paltry yields make this choice easier.

SEPTEMBER 2016

m o n e y. c o m

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THE CASE FOR GOING GLOBAL | THE INTELLIGENT INVESTOR | STOCK X-RAY

X-Ray: Hewlett Packard Enterprise A TECH GIANT THAT’S SLIMMING DOWN TO GROW FASTER. by John Waggoner Hewlett-Packard, founded in a Palo Alto garage in 1939, was a storied Silicon Valley fixture for more than 60 years.

Unfortunately, the last 15 weren’t so hot, which is why CEO Meg Whitman split the company in two in 2015, leaving the slow-growing printer-and-computer business to HP Inc. (HPQ). Hewlett Packard Enterprise (HPE) got the faster-growing software and service company—and Whitman. She chose wisely, as HPE shares have soared 32% in the past 12 months vs. 3.6% for HPQ. But is HPE nimble and big enough to fight off new competitors and threats?

Fighting Weight

Pounded by Brexit?

Stiff Competition

Whitman continues to look for ways to shed legacy businesses.

With big U.K. exposure, HPE shares were hit hard after Britain’s EU vote.

After streamlining, the company’s giant rivals come into sharper focus.

HPE SALES BY REGION

TOTAL MARKET VALUE

ANNUAL REVENUES

$52

BILLION

$33

BILLION

39%

10%

U.S.

U.K.

$425

BILLION

$103

BILLION

$33

$153

Original HewlettPackard

Hewlett Packard Enterprise

BILLION HPE after next spin-off

Six months after parting from HP Inc., Hewlett Packard Enterprise is jettisoning another slow-growing unit. HPE will spin off its enterprise services group—which provides IT assistance to corporations—and then merge it with an outside company.

One thing’s for sure: HPE has shown how fast it can boost profits without its printer-and-laptop business weighing it down. Earnings are up 49% over the past 12 months, according to Standard & Poor’s. And spinning off enterprise services should help propel growth further, says Angelo Zino, technology analyst for S&P Global Market Intelligence.

“It’s been a laggard for years,” Zino says. With the extra cash from the deal, HPE should be able to shift focus to higher-margin businesses.

51%

Rest of the world

In the days following Britain’s vote to leave the European Union, HPE shares sank nearly 13%, double the drop for the tech sector. Why? Like the typical tech firm, HPE generates more than half its revenues abroad.

But a bigger-than-average 10% comes from the United Kingdom.

And the British pound has plunged from $1.48 to $1.32 post-Brexit, which will eat into HPE’s U.K. earnings once they are repatriated into dollars.

On the plus side, the company’s British exposure is expected to decline slightly after the spin-off of its enterprise services unit, according to analysts at Jefferies. Moreover, the company hedges some of its currency exposure already. And if the pound and the euro start to recover, HPE’s revenues should see a lift.

Microsoft

IBM

m o n e y. c o m

SEPTEMBER 2016

HPE

HPE is a hard stock to judge since no company has the same mix of storage, software, and enterprise technology. But without enterprise services, HPE now goes head-to-head against giants IBM and Microsoft.

While value investors may be enticed by HPE’s modest price/ earnings ratio of 10—vs. 17 for Microsoft and 11 for IBM—be careful.

HPE’s rivals are sitting on tons of cash and can afford to dole out much bigger dividends. And even after the Brexit slide, HPE shares have risen three times as much as tech stocks overall. The average HPE analyst has a 12-month target price of $20.

The stock is at $19.77 now. So even though the shares look cheap on paper, you may want to wait for another market swoon to buy.

SOURCES: Bloomberg, Morningstar, Jefferies

46

BILLION

standup2cancer.org #reasons2standup #su2c ASTRAZENECA, CANADIAN BREAST CANCER FOUNDATION, CANADIAN IMPERIAL BANK OF COMMERCE, CANADIAN INSTITUTES OF HEALTH RESEARCH, CANCER STEM CELL CONSORTIUM, LILLY ONCOLOGY, FARRAH FAWCETT FOUNDATION, GENOME CANADA, LAURA ZISKIN FAMILY TRUST, NATIONAL OVARIAN CANCER COALITION, ONTARIO INSTITUTE FOR CANCER RESEARCH, OVARIAN CANCER RESEARCH FUND ALLIANCE, THE PARKER FOUNDATION, ST. BALDRICK S FOUNDATION, VAN ANDEL RESEARCH INSTITUTE STAND UP TO CANCER IS A PROGRAM OF THE ENTERTAINMENT INDUSTRY FOUNDATION (EIF), A 501(C)(3) CHARITABLE ORGANIZATION. IMAGES FROM THE STAND UP TO CANCER 2012 AND 2014 SHOWS. THE AMERICAN ASSOCIATION FOR CANCER RESEARCH (AACR) IS STAND UP TO CANCER S SCIENTIFIC PARTNER.

Your goal isn’t to live like the 1%. It’s to achieve 100% of the life that matters to you. Steal a page from today’s millionaires and learn how to plot your best route to financial freedom.

By CAROLYN BIGDA, DANIEL BORTZ, ELAINE POFELDT, and PENELOPE WANG Photographs by THE VOORHES

plus: tap your inner millionaire » p. 6O

MONEY

»

COVER STORY

W

HEN YOU THINK

of millionaires, words like “privilege” and “opulence” often come to mind. What about “comfort”? That’s a term more commonly associated with the middle class. But while most American families enjoy creature comforts, they yearn for a more enduring variant—the peace of mind that comes from knowing you have the financial freedom to pursue whatever life you want.

That sense of comfort is more attainable than you might think. The majority of the seven-figure club’s 10 million members come from middle-class households. And one in five high-net-worth Americans grew up poor, according to a survey by U.S. Trust. Contrary to popular belief, inheritance played a small role in their success; more than 80% of their wealth was earned through their jobs, small businesses, and investments.

On the following pages, you’ll learn just how those millionaires maximized their incomes and portfolios to achieve their financial goals (hint: most of them chose to play the smart odds, not roll the dice). You’ll also find how you can put their strategies to work.

The truth is, becoming a millionaire isn’t about living like the 1%. It’s about doing all the little things at work or in your portfolio or in your budget (see the next story on page 60) that can move the dial 1% here and 1% there to achieve your financial goals.

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invest smarter Millionaires say small moves make the biggest differences in your portfolio.

»BE A CHEAPSKATE. Say you

GET YOUR HEAD IN THE GAME Building wealth isn’t just about strategy; it’s about having the right mind-set.

Sarah Fallaw, founder of Data Points, a behavioral finance research firm that analyzes wealth potential, says the four key traits to making money are frugality, confidence, responsibility, and social indifference—that is, the strength to avoid fads.

“These behaviors are linked to greater wealth potential for people of all ages and incomes,” says Fallaw, advancing the work of her father, Thomas Stanley, coauthor of The Millionaire Next Door. Among 30-year-olds worth at least $100,000, Data Points found that people with “high wealth potential” based on those traits had a median net worth of $300,000, vs. $200,000 for those with “medium potential.”

Here’s how to apply these qualities to your portfolio:

have $150,000 and are paying 1% in investment fees, which is typical for actively managed funds. If you cut costs by just three-quarters of a percentage point, you’ll save $1,125 in fees a year.

Great, right? But this understates the real impact.

“It’s not just 1% of assets, but of your potential return,” which is then compounded over time, says investing expert Charles Ellis, author of The Index Revolution. “When you look at it that way, a 1% fee is enormous.” If you earn 7% in the market but pay a 1% fee, you’ll lose nearly 15% of your return. Given those costs, over 30 years $150,000 will grow to $862,000. Cut those expenses to 0.25%, and you’ll have $1.1 million.

Lowering costs by threequarters of a percentage point isn’t that hard with index funds and ETFs. In fact, the median annual expense ratio for passively managed portfolios in the MONEY 50, our recom-

how to reach a million » part one

Keep Things Simple Millionaires are often associated with exotic investments, but that’s actually not the case.

H A I R A N D M A K E U P B Y B I L LY M E R C E R

mended list of mutual and exchange-traded funds (see page 86), is just 0.20%.

»IGNORE THE CROWDS. There are always big trends on Wall Street, like the recent rise of “liquid alternative” funds, which bring hedge-fund-like tactics to the masses. Yet the path to $1 million involves being disciplined enough to go against the tide.

Just ask millionaires themselves. Contrary to popular belief, the wealthy don’t rely on trendy forms of investing—in fact, only 15% own hedge funds.

By contrast, nearly 90% say their biggest success is due to buying and holding basic stocks and bonds, a U.S. Trust survey found.

You don’t need to resort to investment exotica, either, to find ways to boost returns while reducing risk in your portfolio (see next page). Plus, history shows that faddish investments typically don’t pay off in the long term—at least not as much as core holdings (see chart above).

Consider this: Over the past 15 years—a period marked by extreme highs and extreme lows—a plain-vanilla basket of blue-chip U.S. stocks gained 5.8% annually. By comparison, hedge-fund-like “long-short” funds, which are supposed to thrive in such times, gained 3.2 percentage points less. A $500,000 portfolio earning 5.8% a year would grow to $2 million in 25 years. The same portfolio earning three points less wouldn’t even get to $1 million.

Millionaires attribute their success to basic investments held patiently over time.

For good reason: Hedge-fund-like strategies have historically lagged stocks and bonds.

SOURCE OF BIGGEST GAINS

GROWTH OF $10,000 OVER 15 YEARS

89%

11%

Stocks and bonds

Alternative assets

86%

14%

Buyand-hold investing

Market timing

$23,100

U.S. stocks

$21,000

Bonds “Long-short” funds “Market neutral” funds

$14,500 $12,200

SOURCES: U.S. Trust, Morningstar

READER TIP

Just Say No … to Fees

»STICK TO THE PLAN. Confident

“We learned how to handle our own investments and money.

That means no-load funds, no high broker fees, and no management fees.”

investors “make decisions without second-guessing or quickly

Waukesha, Wis.

MARY VICK

changing their minds,” says Fallaw. This is important because that self-assurance can prevent you from being whipsawed.

Successful investors also have the composure to hang on to—and even buy—“out-of-favor asset classes with poor prior performance,” says financial adviser William Bernstein, author of The Four Pillars of Investing.

That is also critical, as Bernstein notes that asset classes “with below-average past returns tend to have higher-thanaverage future returns.”

Case in point: foreign stocks.

After outpacing U.S. stocks from 2000 to 2009, European and emerging-market shares have struggled, mired by everything from China’s slowdown to Brexit to the Zika virus (see “The Case for Going Global” on page 41).

Over the next 10 years, though, foreign equities are expected to outperform U.S. shares by an average of five percentage points a year or more after taxes and inflation, according to Research Affiliates.

That’s largely owing to being undervalued for so long.

»OWN UP TO YOUR MISTAKES. There are going to be times when you make the wrong decision. The key is accepting responsibility and moving on appropriately.

“Investors too often have difficulty acknowledging their mistakes,” says Meir Statman, a finance professor at Santa Clara University. In stock picking, this can lead to hanging on to laggards out of pride rather than cutting losses.

Emotions can also creep in when you fall short of a goal. Say you’re 45 with $200,000 saved and you’re socking away $10,000 a year. Maybe you were hoping to hit $1 million by 65 by earning 7% a year. But what if you wind up gaining just 5.5% annually?

You could try to make up for this shortfall by ramping up risk.

But a more rational response is to boost your annual savings by about $2,500, which will get you back on track for seven figures with far more certainty.

LOSE LESS Risk is the most important factor in investing, according to millionaires surveyed by the Spectrem Group. Well, here’s one way to think about it: “If you lose less on the way down, you have less to make up when the market recovers,” says Sam Stovall, U.S. equity strategist at S&P Global Market Intelligence.

»SEEK STABILITY WISELY. Stovall calculated returns for a portfolio with 60% in global stocks that tend to gyrate less than the broad market, and 40% in U.S. bonds. Had you invested $10,000 nearly 20 years ago, it would have grown to $39,670 by the end of 2015. The same 60%/40% portfolio without a low-volatility focus would have grown to $32,660.

This is in line with other research showing that “low-vol” strategies have beaten the market by about 1.5% annually in the long run.

With so much anxiety about the market lately, though, low-vol shares have been bid up, trading at an average price/earnings ratio of nearly 22 today, vs. 18 for the S&P 500. The solution: Focus on value funds with a long record of stability but whose holdings are less frothy. American Century Equity Income (TWEIX) isn’t as rocky as many low-vol funds and has lost 40% less than the market in down months. That has helped the fund beat 98% of its peers for the past 15 years.

READER TIPS

Don’t Market Time “In 1978 the market tanked, and I moved my 403(b) account into a money market. Deciding when to get back in is harder than getting out, and I waited too long. I never did that again.”

HAMPDEN SMITH III Lexington, Va.

Max Out Early “As a boost, I always try to max out my annual 401(k) contribution by June 30. This gives my money an extra six months to compound.”

CHRIS COLLINS

ERS. Not only do shares of companies that boost their payouts beat non-dividend-paying stocks in the long run, but they outper-

m o n e y. c o m

DIVERSIFY MORE Historically a 60% U.S. stock/40% U.S. bond strategy was diversified enough. But with equities at record highs and investors flocking to Treasury bonds, these basic assets are frothy. So much so that over the next decade, a 60% large U.S. stock/40% U.S. bond portfolio is likely to return just 4.3% annually—1.3% after inflation—says Chris Brightman, chief investment officer of Research Affiliates. This requires more diversification, not less.

»EXPAND YOUR MIX OF STOCKS

»DON’T FORGET DIVIDEND GROW-

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form nonpayers by 0.8 percentage point in months when volatility spikes, according to a recent study by Nuveen. Among the best is T. Rowe Price Dividend Growth (PRDGX), which has beaten the S&P 500 by nearly one point a year for the past 15 years.

SEPTEMBER 2016

AND BONDS. Don’t add exotic alternative assets to the mix, but rather the type of assets you’ll find in a target-date retirement fund. In the stock portion of your portfolio, that means allocating 5% to 10% in foreign shares, emerging-markets stocks, real estate investment trusts, and commodities to go with U.S. blue chips. Add similar doses in global bonds, emergingmarket debt, inflation-protected Treasuries, high-yield debt, and bank loan funds to round out your bonds.

By doing this, your more elaborate 60% stock/40% bond portfolio is likely to return about 6% a year—or 3% after inflation—for the next decade. And that’s with no increase in volatil-

ity. With a $500,000 portfolio, that would bring you nearly $134,000 closer to your goals in the next 10 years.

ACTIVELY PICK YOUR PASSIVE FUNDS While the average actively managed stock fund charges 1.3% in annual fees, the typical equity index fund’s expense ratio is

how to reach a million » part one

READER TIPS

Play the Long Game “There are a number of ways to build wealth— rental houses, for instance, are a good way to build your portfolio. But the main attributes are patience and diversification.”

MICHAEL GILLAM Franklin, Tenn.

Forget Stock Picking

0.7%, according to Morningstar.

If you had $250,000 to invest for 20 years and earned 6% in the market before fees, cutting costs by indexing would amount to more than $75,000 in savings.

» BARGAIN HUNT. Yet even 0.7% is high. While index funds are cheap vs. actively managed portfolios, you must still compare their fees. This is especially true when it comes to

funds that mirror broad benchmarks such as the S&P 500.

“Those funds are substantially similar,” says Ben Johnson, director of global ETF research at Morningstar, “so pick the one with the lowest fees.” Schwab S&P 500 Index (SWPPX), which is in the MONEY 50, charges just 0.09% annually. On that same $250,000, you could save another $86,000 over 20 years by switching.

“Don’t try to buy individual securities.

Don’t try to buy the latest hot investment.

Invest in low-cost, broad-based index mutual funds or ETFs.” LOUIS I. Augusta, Ga.

BE HANDS-ON WITH REAL ESTATE A PNC survey found that only one in five millionaires says real estate accounts for most of his or her wealth. Yet tangible assets such as investment properties do play a role in the strategies of nearly half of the wealthy, the U.S. Trust survey found.

One appeal: Physical real estate is financed with debt, which can amplify gains you’ll enjoy on the underlying home value. But owning investment properties “is not passive, like buying a mutual fund,” says Ben Gurwitz, a financial planner in San Antonio. “It needs a lot of TLC to be successful” and to squeeze out savings.

» MANAGE IT YOURSELF. Property managers save you the worry of dealing with a leaky faucet, but they also charge about 5% to 10% of the monthly rent, plus a onetime fee when finding new tenants. By doing the work yourself on a rental that fetches $2,000 a month, you’ll net as much as $2,400 a year in savings, which if invested at 5% gains could grow to nearly $120,000 in 25 years. »DOUBLE DOWN WITH A DUPLEX. Save on costs with a duplex or a home with a rental unit, says financial planner Jason Dahl.

Since the rental is part of your primary home, you can qualify for a mortgage with a lower rate—on average 3.6% for a 30year fixed-rate loan today, vs. as much as a percentage point more for an investment property. Plus, you won’t have to come up with a second down payment, and you’ll minimize maintenance costs.

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how to reach a million » part one

work hard Many millionaires attribute their success to their careers and companies. Do what they do.

NEGOTIATE FOR HIGHER PAY Nearly two-thirds of millionaires say their wealth is largely attributable to their jobs, a PNC survey found. Maybe that’s because most Americans who earn six figures (like millionaires) haggle over their salaries, according to a study by PayScale.com. By contrast, 59% of all U.S. workers settle for the first offer.

» BEAT HIRING MANAGERS TO THE P U N C H . There’s a school of thought that says job seekers should wait for interviewers to reveal a salary range, to avoid asking for too little or too much.

By waiting, though, you’re ensuring the negotiations take place within the company’s range. Instead, throw out a figure first, says Robin Pinkley, management professor at Southern Methodist University and co-author of Get Paid What You’re Worth. “The first number becomes an anchor” around which the haggling begins, she says. Start with compensation data from Glassdoor.com and PayScale. And see if anyone in your network knows people at the company to get a better sense of pay there. “You want to find the highest number you can defend,” says Pinkley.

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raise if your pay is out of whack.

Also, take advantage of annual performance reviews. Quantify your contributions in writing.

“Talk about how you performed on a project in terms of budget, hitting milestones, and how it impacted the bottom line,” says Stefanie Wichansky, CEO at Professional Resource Partners.

» ASK FOR A SIGN-ON BONUS.

» PLAY FREE AGENT. The best way

More than two-thirds of companies are having trouble recruiting full-time talent, according to the Society for Human Resource Management. No wonder 76% of employers now offer sign-on bonuses, according to WorldatWork. And “they’re not just for CEOs or executives,” says career coach Marcelle Yeager.

For supervisors and middle managers, most bonuses range from $5,000 to $25,000. While that’s a one-off, it can help you catch up if you’re behind on savings. And if the company can’t meet all of your salary demands, inquire about a bonus as an alternative, says Los Angeles– based executive coach Libby Gill.

to boost pay is to change firms.

External hires get paid 18% to 20% more on average than folks promoted internally, according to research by Wharton management professor Matthew Bidwell.

Still, workers change jobs only once every 4.6 years. Dig deeper than job boards and LinkedIn. “Online networking isn’t a substitute for in-person networking,” says career coach Nancy Ancowitz. Meet recruiters face to face at industry events so that when job openings come up, your name will too.

»FIGHT FOR ONE BIG SALARY ADJUSTMENT. Even if you’re a top performer, you may not score routine pay hikes. That’s okay.

Even one big bump can make a difference. For instance, a $10,000 raise when you’re 45 can amount to $232,000 in added lifetime earnings (see chart at right).

If you feel you’re significantly underpaid compared with peers, start by asking for a “salary adjustment” rather than a raise.

It may be easier for your supervisor to justify a bigger-thanaverage adjustment than a merit

SEPTEMBER 2016

READER TIP

Act Like an Owner “I buy goodquality companies and hold for years. I buy dividend stocks because if I own a business through stock, I expect to be paid.”

ARNOLD GUTTMAN Chicago

The Power of One A single $10,000 raise midway into your career can make a huge difference in lifetime earnings.

CUMULATIVE GAIN IN LIFETIME INCOME

$200,000

$100,000

Age 45

55

65

NOTE: Assumes a 1% annual inflation adjustment. SOURCE: MONEY research

HOW WILL YOU GET TO $1 MILLION? Tell us at letters@moneymail.com.

MULTIPLE AWARDS. OVER A MILLION PEOPLE TO THANK. Thank you to our customers for helping Ally Bank stand out in the industry. We feel honored to have been awarded by MONEY Magazine for five years in a row, as well as being recognized by Kiplinger’s, Ponemon, and GOBankingRates.com. We’ll continue to set ourselves apart by offering a straightforward banking experience, competitive rates and 24/7 helpful customer care.

“BEST ONLINE BANK” 2011, 2012, 2013, 2014, 2015.

“BEST ONLINE BANK” 2014, 2015.

“BEST ONLINE BANK” 2015, 2016.

A “MOST TRUSTED COMPANY FOR RETAIL BANKING” 2015.

©2009-2016 Ally Financial Inc.

how to reach one million »

HONE THE SKILLS THAT REALLY MATTER »BE A LEADER. Nearly one-third of HR execs are struggling to fill senior leadership positions, a WorkplaceTrends.com survey found. Average pay hikes for execs who were promoted jumped to 9.1% last year, vs. 2.8% for workers overall.

Not a manager yet? Show the bosses you can lead by taking on smaller tasks where peers report to you. Showcase your teambuilding skills, not dictatorial prowess. “Great leaders know how to build relationships,” says executive coach Julie Cohen.

And make sure all your references can speak to specific examples of your leadership.

A big part of motivating others involves verbal and written communication, two of the most sought-after skills by employers, according to job market research firm Burning Glass Technologies. Practice speaking and running meetings outside the office, says Atlanta career coach Hallie Crawford, by joining Toastmasters, which offers public speaking workshops (cost: about $72 a year). »HEAD UP A BIG PROJECT. The skills involved in running a multifaceted project are transferable to virtually any industry— and can lead to 4.4% higher pay, a MONEY/PayScale study found.

If there are no project management opportunities for your position, volunteer for the company’s community outreach program or serve on the board of an industry association and run an initiative there, suggests Crawford.

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PUT THE FAMILY TO WORK »RECRUIT YOUR SPOUSE. Four out of 10 wealthy entrepreneurs like to hire their kin, according to a U.S. Trust survey. At the same time, six in 10 are worried about taxes. Address both issues by hiring a spouse and putting a large chunk of his or her salary into a 401(k) plan. That will reduce your joint taxable income and boost retirement savings, says Marty McCutchen, a certified public accountant. The maximum contribution for 2016 is $18,000, or $24,000 for those 50 and older. If you have a solo 401(k), you can add your spouse to it.

SEPTEMBER 2016

MORE ONLINE For more insights into the mind-set of millionaires, visit money.com/ million.

Quiz: Are you a millionaire in the making?

Video: How do you join the seven-figure club?

»HIRE THE KIDS. Saving for college and finding that there’s little left for your own retirement?

Hire your children and set up a direct transfer of their pay to a tax-sheltered 529 college plan or Roth IRA, says certified public accountant Sandy Botkin.

The first $6,300 they earn will be tax-free for them because they will get an equivalent standard deduction on their tax return. They will be taxed at 10% on the next $9,225. Plus, their wages will be a tax-deductible business expense for you, as are wages you pay others. Just make sure you assign the kids work that’s reasonable for their age.

And don’t pay them excessively, in case of an IRS audit.

When making by hand means making a mess, your hands could use a hand.

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sweat the key details

Keeping more of what you earn—and finding ways to motivate yourself to act—will help you move the dial to seven figures.

FIGHT TAXES ON ALL FRONTS Two out of three millionaires worry about the tax implications of their investments, according to Spectrem’s survey. With good reason: Research by Vanguard says taxes can cost as much as two percentage points in returns a year. The price tag: $70,000 if you were to invest $10,000 annually for 20 years and earned 4% on your money instead of 6%.

»FIND THE RIGHT HOME FOR YOUR F U N DS. Use your 401(k)s and IRAs for investments that throw off short-term capital gains or interest income, which are taxed as ordinary income. This means taxable bond funds, high-yielding dividend stock funds, and actively managed funds that trade frequently. Then use taxable accounts for buy-and-hold equity

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funds that trade infrequently, such as index funds, and muni bond funds. Being smart about “asset location” can save up to 0.75 points a year in returns, says Vanguard senior investment strategist Joel Dickson.

» MAKE UNCLE SAM SHARE YOUR PAIN. Sell stocks that are down and use the losses to offset gains elsewhere in your account. Over the past decade, doing so once a year at year-end has added 0.6 points in annual return to your taxable account, according to Wealthfront, an automated investment service. (This assumes a combined federal and state tax rate of 42.7% for short-term gains and 24.7% for long-term gains.)

»EXPAND YOUR ALPHABET. Even among millionaires, more than a third are worried about rising health care costs, according to PNC’s survey. That’s understand-

SEPTEMBER 2016

able. A typical 65-year-old couple will spend $245,000 throughout retirement on health care, Fidelity says. If you choose a highdeductible health plan, you can contribute up to $3,350 in pretax money as an individual or up to $6,750 for a family to a taxsheltered health savings account, or HSA ($7,750 for those 55 and older). “I call them the health care IRA,” says CPA McCutchen.

(See “Five Things to Know About HSAs Now,” page 27.)

As with 401(k)s and IRAs, money that goes into an HSA is tax-deductible and is allowed to grow tax-free. If you saved $6,750 a year for 20 years in an HSA, earning 6% annually, you would have $248,000—enough to cover average medical costs.

And withdrawals for qualified health care needs are tax-free.

»STRUCTURE YOUR BUSINESS THE RIGHT WAY. Eight out of 10 millionaires who are entrepreneurs built their businesses from the ground up, according to U.S. Trust. Only 2% inherited them.

Early on, a sole proprietorship is often the best way to limit taxable income. If you lose money at first, you can use losses to offset other income, including capital gains, which is harder to do in a corporation, says CPA Botkin.

But if you seek liability protection and start generating close to a six-figure income, electing to pay taxes as an S corporation—rather than a limited liability company, or LLC—could help you avoid getting killed by self-employment taxes, covering Social Security and Medicare.

While workers pay only half of their Social Security and Medicare taxes—their employers

READER TIP

Invest in Yourself “We put retirement first, with college savings a lower priority— though we have always tried to pay one-third of total costs.”

PAUL AND LORIE HOEKSTRA Maple Grove, Minn.

how to reach one million » part one

cover the rest—the self-employed are hit with the full 15.3% rate.

But an S corp lets you control how you’re paid. If your firm earns $150,000, you may opt to pay yourself a salary of $75,000 and take the rest as a so-called distribution of earnings. You’d pay only the self-employment tax on your $75,000 salary. An S corp also avoids the 3.8% Medicare surtax imposed by Obamacare on high earners.

This move would save you more than $7,000 a year, estimates CPA Jeff Cohen, partner at Grassi & Co.: “That’s a layup.”

USE RISK AS A MOTIVATIONAL TOOL It’s impossible to predict the future, except for this: When you’re five years or so from retiring, you’ll have to cut back on risk by reducing your stocks, perhaps to a 50% stake or less.

That’s because if a bear market strikes, you won’t have time to

The Risk of Not Taking Risks If you aren’t aggressive with stocks early on, you may not be able to play it as safe later.

SCENARIO NO. 1

SCENARIO NO. 2

Keep most of your money in stocks in your 20s and trim your equity exposure one point a year.

Maintain a moderate mix with 60% in stocks throughout your life.

Stocks

85%

46%

$1.7 MILLION

Bonds

15%

Asset allocation at 24

60%

54%

Asset allocation at 64

60%

Median balance at 64

40%

40%

$1.3 MILLION

NOTES: Balances are median figures based on a wide array of Monte Carlo simulations. Assumes annual pay increase of 2.5%. Stocks based on S&P 500 and predecessor index. Bonds based on total returns for U.S. Treasuries. SOURCE: Spencer Jakab, Heads I Win, Tails I Win

recoup your losses before having to tap your nest egg.

To be able to afford such a conservative stance, though, you have to take risks at other stages of life. “If you embrace risk at the right time, you can actually reduce it over the long term,” says Spencer Jakab, author of Heads I Win, Tails I Win. A perfect example is in the chart below. If you had 85% of your money in equities when you were young—and gradually reduced that over time—you could afford to keep less than half your money in equities at retirement.

And you’d still be better off than investors who kept 60% of their portfolios in stocks throughout their lives. The takeaway: If you want the flexibility to play it safe later, you must take a fair amount of risk while you’re young.

LOOK TO THE FUTURE Take these tiny steps to trick yourself into saving and investing better. A 2014 study by researchers at Stanford and the University of Minnesota found that people save more when they see projections of their future income. That’s something more 401(k) statements provide. If yours doesn’t, use the retirement income calculator at Money.com.

Also, people who see digitally altered images of themselves as seniors are willing to save more for retirement than those who don’t. One study found hypothetical paycheck contributions rose from 5.2% to 6.75%. In another, people exposed to their future selves were willing to put almost twice as much into long-term savings. So go to the AgingBooth app or click on faceretirement.merrilledge.com to see the future—and fix it.

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SEPTEMBER 2016

33 ways to save

and spend your way to a seven-figure nest egg.

Getting to $1 million takes investing smarts and hard work, for sure. But there’s something else: a personality that looks for savings at every turn.

“Everyone expects wealthy people to be flashy about how they spend their money, but they aren’t,” says George Walper, president of Spectrem Group, which studies and tallies America’s millionaires (10 million–plus, at last count). “These folks can afford to spend more than most people, and they do, but they’re not exorbitant. They are disciplined about their lifestyles.” To reach seven figures, you must find the frugality within you, or learn a few spending tricks that will help you act like a millionaire in the making. Take a three-pronged approach to living well within your means: Don’t go over the top on the big stuff like your home or car, train yourself to spend less every time you shop, and plug the cash leaks that can drain your budget. Put the strategies that follow to work—and see how even small moves can add up to big savings.

By ISMAT SARAH MANGLA and

KERRI ANNE RENZULLI Illustrations by MIKEY BURTON

how to reach one million » part two

get the big things right

To free up money to save, zero in on your three biggest spending buckets: your home, which eats up 33% of the average American’s budget, according to the Bureau of Labor Statistics, transportation (17%), and food (13%).

AIM FOR SIX FIGURES “The wealthy like to hold on to their cars for a long time” says Tom Corley, $ author of Rich Habits. The best way to break the 100,000-mile mark is to schedule regular oil changes, says Joe Wiesenfelder of Cars.com.“You want to keep the most expensive item— the engine—healthy.” Also, drive gently: Don’t brake forcefully or accelerate fast.

ANNUAL SAVINGS *

6,O36

*Based on average monthly car loan payment.

BUY ANOTHER DRIVER’S LOSS Once you do need new wheels, your best value is a car that’s two or three $ years old. Let someone else take the 20% hit from driving a new car off the lot. A certified pre-owned 2013 Honda Accord LX sells for $15,750, vs. $23,840 for the 2016 model. And you’ll pay less to insure a slightly used car.

ANNUAL SAVINGS *

47

*Difference in insurance costs for a 35-year-old married man.

SHRINK YOUR FOOTPRINT When you find yourself with more space than needed, downsize. You don’t have to embrace the tiny-house

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READER TIP

Borrow Toys, Don’t Buy “We don’t blow money on big-ticket toys. I would rather chip in for gas for a ride on a friend’s boat than have the hassle of owning one.”

find a keeper home, not a starter home

“Millionaires make sure they are not house poor so they can do other things with their money,” says Jacquelyn Boyer, senior wealth planner with PNC Wealth Management. So skip the trade-up to a costlier pad and make staying put more pleasurable. According to a survey by home renovation and design site Houzz, 74% of owners who remodeled or ANNUAL * redecorated recently say they feel happier overall.

SAVINGS $5,388 “Kitchens are where fashion and technology move the fastest, meaning this room feels out of date quicker,” says Bruce Irving, a realtor in Cambridge, Mass. In lieu of a full overhaul (average tab: $60,000, according to Remodeling’s “2016 Cost vs. Value” report), Irving suggests replacing the things you touch every day: countertops, sinks, and faucets; with sound cabinets, repaint them. That project could come in under $20,000. *Staying in a $250,000 home with a $200,000 mortgage, vs. buying a $400,000 pad with a $350,000 loan.

LARRY MITTAG San Diego

Be a Part of History trend to save: Simply giving up a few rooms and a sprawling lawn can mean a smaller (or no) mortgage and less for utilities and upkeep. Plus, notes Steven Sass at the

m o n e y. c o m

Center for Retirement Research at Boston College, if at retirement you swap a $250,000 home for one that costs $150,000, the $75,000 you could clear after

SEPTEMBER 2016

selling and moving costs could add $3,000 a year to your retirement income.

ANNUAL SAVINGS *

$3,25O

*Assumes carrying costs are 3.25% of home value.

Refinance to slash what might be your biggest monthly outlay.

Historically low rates are still $ available for strong borrowers with good credit scores (740 and up), says Keith Gumbinger of HSH Associates. Today the average rate for a 30-year-fixed mortgage is 3.5%. If you’re going to stay in your home for three years or more, even a half-percentagepoint drop can pay off, says Gumbinger.

ANNUAL SAVINGS *

1,3O9

*By refinancing a $200,000 loan at 4% that you took in June 2013.

empty your fridge

The average family tosses out 25% of the food and drinks it buys, says the Natural Resources Defense Council. Stop throwing money away: Take stock of your pantry and freezer once a month and your fridge about once a week to see what’s about to expire, says ANNUAL Annette Economides, co-author SAVINGS * of Cut Your Grocery Bill in Half $993 With America’s Cheapest Family.

Place anything approaching its end date in the front of the fridge, freezer, or pantry so you’ll remember it. Stuck for ways to use your leftovers? For recipe ideas, plug in what you’ve got at sites like BigOven and Supercook. *Based on average amount spent on food at home of $3,971, per the BLS.

Brag About Your Cool, New Stuff Any work you’ve done on your home that makes it ANNUAL safer, from installing a burglar alarm or smoke SAVINGS * detector to storm shutters and a hail-resistant roof, $ could earn you a sizable discount on your homeowners insurance. With a home security system, for example, Allstate and Nationwide offer up to 15% off.

164

*Based on the average homeowners premium of $1,096, according to the Insurance Information Institute.

GET PAID TO EAT With the American Express Blue Cash Preferred card, you earn 6% cash back on all groceries. It carries a $95 annual fee, but if you spend more than $31 a week on groceries, you’ll still come out ahead, says NerdWallet credit expert Sean McQuay.

ANNUAL SAVINGS *

$143

STAY IN SEASON For lower prices on fresh food, check the calendar.

“You can save 40% to 60% on produce by buying what’s in season,” says Economides. Visit USDA.gov for a

guide. Go with organic only when it’s likely to be “dirty” or contain pesticides; the average premium is 47%, Consumer Reports found.

Foods that need to be peeled, like pineapples, man-

goes, avocados, onions, and corn, are lower risk, according to the Environmental Working Group.

ANNUAL SAVINGS *

$292

*Assumes the average spent on produce is cut by 40%.

Build Up an Appetite for Apps Double up on the cash back you can earn by using apps like Ibotta, SavingStar, and Checkout 51. These services offer weekly cashback deals on a range of goods.

To collect, upload a photo of your receipt showing what you bought.

For other chances to save, download your food store’s app. “These apps have digital cou-

pons, special promotions, and rebates, and work as your loyalty card,” says Stephanie Nelson, founder of CouponMom.com. “The apps also start to learn your preferences and tailor offers to your shopping habit.”

ANNUAL SAVINGS *

$24O

*Based on recent savings

by Ibotta users who shop for groceries weekly.

How Millionaires Splurge (or Don’t) In the past year, percentage of millionaires who spent money on …

92%

Vacations

73%

Home renovations

64%

Cars Club memberships Boats

42%

9%

High-end jewelry ($5K+)

But only 19% indulged in vacations over $10,000

4%

SOURCE: “Spending Choices Among Wealthy Investors,” Spectrem Group, 2015

*Based on BLS average spent for food at home.

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how to reach one million » part two

adopt a new mind-set

For folks in the seven-figure club, keeping spending in check is often second nature. In fact, a full 78% of millionaires cite frugality as a reason for their success. If that doesn’t sound like you, develop some new habits.

Cherish Your Victories Next time you’re tempted to splurge, $ think of when you stayed strong. A study published in the Journal of Consumer Psychology in 2015 reported that people were willing to incur 28% more credit card debt when they recalled two times they had indulged in spendthrift behavior, vs. recalling two times they had abstained.

ANNUAL SAVINGS *

3,36O

What Accounts for Millionaires’ Success Saving early and regularly

56%

Controlling spending

*Interest savings if your credit card balance is the average of $9,600, vs. 28% more.

38% HIT THE ATM MORE OFTEN Because the pain of parting with money isn’t immediate, you are more likely to overspend when you pay with plastic.

A new study in the Journal of Consumer Research found that shoppers who use cash feel more of a

64

pinch than chargers. And researchers at MIT showed that people were willing to pay twice as much for stuff when they were paying with a credit card.

Smart investment choices

38%

Earning a lot of money

ANNUAL SAVINGS *

$1,15O

26%

*Buying lunch with cash every day, vs. paying with plastic.

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SOURCE: PNC Wealth Management 2013 survey of adults with $1 million in investments

know your balance

Real-time info activates your self-control. Research by Shlomo Benartzi, a UCLA behavioral economist, and USC assistant professor Yaron Levi found that people who downloaded a financial app looked at their account ANNUAL 12 times a month, SAVINGS * compared with $822 going to the website twice a month. The results: Spending fell 15.7% in the four months after people loaded the app, led by less discretionary spending. Dining-out expenses dropped by 19.2%, and grocery bills by 20.7%.

READER TIP

Challenge Yourself “Set savings goals and get excited about them. We used to set goals of ‘Let’s save $1,000 by X date,’ and it became a challenge. As the years went by, it was amazing to see $100K, $200K. A quarter of a million was shocking.”

JOAN CURTISS Candor, N.Y.

NEVER MISS A DEAL Check RetailMeNot.com and CouponCabin.com for coupon codes.

Install Honey, a browser extension that applies the highest-value code to your cart, no matter where you shop.

ANNUAL SAVINGS *

$46O *Average saved by CouponCabin users.

*Based on 21% off the typical grocery bill.

LEARN TO LOVE HAGGLING Frugality isn’t about denial. It’s about never paying more than you need to, says Herb Cohen, author of You Can Negotiate Anything.

Always ask. Even stores like Best Buy and Nordstrom will quietly negotiate. Make the salesperson your ally. Present it as a problem you need help solving, says Cohen.

“I want to buy this thing

that costs $1,500, but I only have $1,100 in my budget. How can you help me?”

ANNUAL SAVINGS *

$1OO+

*What you could knock off the price of a big-screen TV.

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how to reach one million » part two Travel Freely

plug your money leaks

Millionaires tend to be more thoughtful about savings and financial decisions, says PNC’s Jacquelyn Boyer. Take that deliberate approach to every nook and cranny of your budget, and you can free up hundreds—or thousands—a year.

DON’T PROTECT YOUR CLUNKER

Only 33% of drivers shopped around for a new auto policy last year, a J.D. Power study found. But those who switched insurers saved $ hundreds on premiums. When your renewal is up, get quotes from at least four companies. You can check any insurer’s customer complaint history at the National Association of Insurance Commissioners’ website, naic.org.

Once your car turns 10 or is worth less than 10 times your annual premium—get an estimate of its value at kbb.com— $ you can scale back on insurance. Ditching collision coverage and keeping just injury and propertydamage coverage could save you as much as 40%.

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*Average savings for policyholders who switched, via J.D. Power.

rethink the fancy gym

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SEPTEMBER 2016

READER TIP

*Based on the average auto insurance rate of $1,325, according to Insure.com.

PROGRAM YOURSELF Heating and cooling your home is your biggest energy outlay. To slash that bill, start with a no-brainer fix: a $25 programmable thermostat, which lets you easily adjust the temperature when the family isn’t home (or is asleep). Plus, make sure the weather stripping around your doors and windows is up to date—as much as 12% of a home’s heat loss occurs in those spots.

ANNUAL SAVINGS *

$18O

*EPA estimate for programming your thermostat.

m o n e y. c o m

$9O

ANNUAL SAVINGS *

The average gym membership is $58 a month. In cities like St. Louis, New York, and even Charlotte, it’s north of $100. But two-thirds of would-be exercisers never use their gym membership, according to Statistic Brain, based on data compiled from the International Health, Racquet & Sportsclub Association, the Bureau of Labor Statistics, and more. For the rest, the equivalent ANNUAL * of $39 a month goes to waste because of underutilizaSAVINGS $576 tion. Stay fit for less. Your health insurer or employer may subsidize a gym membership. At Blue Cross Blue Shield, for example, members get access to some 9,500 fitness centers nationwide for $25 a month. Or try a discount gym. Planet Fitness has opened locations in 48 states, and memberships start at about $10 a month. It doesn’t offer all the benefits of a fancier gym, but if you’re looking for a place just to jump on the treadmill or lift weights, it’s a good bet. Or join a gym at the end of the month, when many clubs offer discounts to hit monthly quotas. *Based on switching from a gym charging the average membership fee to a low-cost one.

ANNUAL SAVINGS *

*Assuming $3,000 in charges overseas.

TEST-DRIVE NEW CAR INSURERS ANNUAL SAVINGS *

Stop coughing up an extra 1% to 3% on every purchase abroad. A new CreditCards.com study finds that 61 of 100 popular cards levy foreigntransaction fees, down from 77 of 100 last year. If yours still does, switch.

A top no-fee option: the Barclaycard Arrival World.

Look for Savings That Stick “I found ways to save on recurring monthly bills.

By agreeing to limit my electric usage between 12 p.m. and 6 p.m., I paid a much lower rate during the ‘off’ hours. I cut my life insurance premiums by switching from whole life to term. I cut my homeowners and car insurance premiums by raising the deductibles.”

MICHAEL GOLDEN Clovis, Calif.

READER TIP

Run Up the Meter “I recommend purchasing a vehicle (slightly used, preferably) and driving it for at least 120K to 150K miles (even longer, if possible).

Modern-day cars are built to last.

Reject the siren calls of auto and finance companies to churn, churn, churn.”

R.K. MOHAN Flower Mound, Texas

DITCH REWARDS

Take a Not-So-Hot Shower Your water heater is the second-biggest power hog in your $ home, accounting for 18% of electricity costs, says the U.S. Department of Energy. For every 10 degrees you turn down the tank’s thermostat, you’ll save 3% to 5%. Most heaters default to 140° F, but the typical household can make do at 120° F, according to the Energy Department. Plus, low-flow fixtures ($15 each) can reduce the amount of hot water you use by up to 60%.

ANNUAL SAVINGS *

78

Millionaires’ Favorite Stores The surprising places where the average millionaire has made a purchase in the past 12 months

50%

Amazon

34%

32%

31%

31%

30%

Walmart

Home Depot

Kohl’s

Trader Joe’s

Target

Maybe you signed up for a $30-a-month credit-monitoring service three years ANNUAL ago when you were SAVINGS * $ shopping for a home.

Or a monthly $50 *Based on dropping two services charging $30 to $50. Gogo Air in-flight

96O

Internet subscription is buried in your credit card statement, even though you haven’t flown in a year.

Recurring subscriptions can easily suck up hundreds of dollars

a year. Trim (asktrim .com) is a free service that scans your credit card bills, shows you what you’re paying for, and cancels unwanted services. You give Trim your credit and debit

ANNUAL SAVINGS *

$58

*The average rewards card annual fee, per NerdWallet.

SOURCE: The Shullman Luxury, Affluence and Wealth Pulse

*Based on $781 average electric bill and 20-degree change.

REMEMBER WHAT YOU SET AND FORGOT

Paying an annual fee on your credit card in the hope of scoring a free vacation? Only 7% of Americans used rewards points to pay for even part of a trip last year, a new survey by the American Institute of CPAs found. Don’t be lured in by perks. Only pay for rewards you’ll actually be able to use.

card log-ons (it uses bank-level security, but if you don’t feel comfortable, you can send copies of your statements). You’ll get a text message listing your recurring charges,

and you can tell Trim which ones you want to drop and which you want to keep (though some services, like Dropbox, need to hear directly from you).

how to reach one million » part two Fire Your Bank At brick-and-mortar banks, maintenance fees on checking accounts run $14.89 a month. With an average of $3,250 in your account, you can avoid that fee, or, if you don’t want to park that much cash, switch to a bank with no checking fees. While only 11% of traditional banks offer nominimum free checking, 62% of online banks do, including Ally, MONEY’s best online bank in 2015.

know your limits

Cell phone overage charges are at record highs, and one in five cell phone users reported paying them, a survey from financial research firm Cowen & Co. found.

No surprise, given that data-hogging streaming video and music apps are becoming more popular. You pay about $15 for every gigabyte of usage over your ANNUAL limit. The fix: Find a plan that matches your typical usage (our tool at * SAVINGS money.com/cellphones can help). Then set up alerts. Verizon will email $18O or text you when you’re close to your limit. Or monitor your usage with an app like My Data Manager. On many phones, if you’re near your max you can turn off *If you pay for 1GB extra a month. cellular data so that certain functions will work only on Wi-Fi.

CUT THE CORD

How Millionaires Economize

9OO

Percentage of millionaires who say they…

ANNUAL SAVINGS *

$179

30% 28%

*Based on average checking fee.

READER TIP

GERRY EVEN

pay a lot less to watch TV, including live news and sports. Sign up for Sling TV. For as little as $20 a month, you can stream channels like CNN and ESPN. For another $5, add local NBC and Fox stations. A $50 digital antenna can connect you to the big broadcast channels. *If cut cord and switch to Sling TV.

Stop Renting

Feed the Fun Jar “Any side gigs I have, birthday or holiday money I receive, rebates on purchases, and accumulated spare change from when I make a cash purchase go in a Fun Fund that I use for splurges to help keep me on track without feeling deprived.”

You’re ANNUAL SAVINGS * probably paying about $ $100 a month for cable, according to the Leichtman Research Group.

Tack on $9 a month for Netflix too (about two-thirds of Netflix subscribers also pay for cable). It’s not hard to

8%

6%

Even without cable, you’re spending some $50 a month on broadband Internet. You can bring that cost down, says digital expert Kim Komando. Are you being charged a $5 to $10 rental fee for your modem and ANNUAL router? Buy your own for $75. Also SAVINGS * see if you’re paying for more speed $ than you need. Your provider may push 15 to 50 megabits per second for another $10 to $40, but for most viewers 10 to 25 is fine, even for video. To make sure you’re getting the speed you’re paying for, check your connection at speedtest.net.

24O

Use Mow Shop at coupons their own Goodwill for food lawn shopping

Change their own oil

SOURCE: Rich Habits: The Daily Success Habits of Wealthy Individuals, by Tom Corley

*No modem rental, saving $20 a month with slower speed.

STAY IN NETWORK ANNUAL SAVINGS *

$235

*Assuming one out-ofnetwork visit a week.

Banks charge, on average, $2.46 each time you get cash from an out-ofnetwork ATM. The ATM owner levies a fee too, bringing the total to $4.52, on average, according to

Bankrate.com. You’re not alone if you’ve been hit: A third of all ATM withdrawals are out of network, banking tech company Personetics Insights found. Use the ATM look-up service on

your bank’s app to find nearby machines, or switch to a bank that doesn’t charge fees to stray.

At 64% of online bank accounts, you won’t be charged.

Fargo, N.D.

68

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WHAT’S YOUR BEST FIX FOR A MONEY LEAK? letters@moneymail.com

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Book Excerpt

MASTER THE MEDICARE MAZE ++++++++++++++++

MAKING A WRONG MOVE WHEN DEALING WITH THIS HEALTH INSURANCE GIANT CAN COST YOU PLENTY. A RETIREMENT EXPERT GUIDES YOU THROUGH THE SYSTEM’S TWISTS AND TURNS. B Y P H I L I P M O E L L E R • I L L U ST R AT I O N B Y J O H N T O M A C

++++++++++++++++ MEDICARE IS “complicated and often opaque and impenetrable,” says MONEY contributor Philip Moeller, coauthor of the bestseller Get What’s Yours: The Secrets to Maxing Out Your Social Security. That’s a shame, given the impact Medicare—the health insurance program covering more than 95% of Americans 65 and older— can have on your life. Medicare households spend 15% of their budget on health care, reports the Kaiser Family Foundation, compared with the U.S. average of 7%. The wrong coverage or a missed deadline can not only cost you thousands but also threaten your health.

To guide you through the morass, Moeller has written Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs, due out on Oct. 4. In the book, Moeller walks you through the system’s many complexities, including sign-up windows, coverage options, and provider quality.

On the following pages are five key pieces of advice drawn from Moeller’s new book. They’ll help you save money while ensuring you get the quality care you deserve.

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SEPTEMBER 2016

Fill Gaps With Medigap…

Know Your True Deadline Signing up for Medicare can cause a major brain freeze. The circumstances under which you do or don’t need Medicare at age 65 are often unclear. And you face potentially harsh financial penalties if you get the decision wrong.

Let’s say you are 65 or older and are covered by a current employer’s group health insurance policy, either through your own job or your spouse’s. In most cases you don’t have to sign up for Medicare. Only once your or your spouse’s coverage as an active employee ends does the clock start ticking.

You have eight months after that to sign up for Medicare.

As is the case for people who sign up for Medicare at 65, you generally enroll in Part A (primarily for hospitals and other inpatient treatment) and Part B (doctors, outpatient treatment, and medical equipment). You usually must have those before you apply for other Medicare policies, like Part D, which covers prescription drugs.

Not everyone who has employer-provided health insurance when turning 65, however, can skip getting Medicare.

Watch out for some very important exceptions to the rule.

SMART STEPS Does your employer have fewer than 20 employees? Then you have to get Medicare when you turn 65, since at these small businesses Medicare automatically takes the role of what’s called the “primary” payer of your insurance claims.

Employer insurance moves to the backseat as the secondary payer of claims, helping defray expenses not fully covered by Medicare, including deductibles, co-pays, and co-insurance.

Another exception is if you have a retiree health plan from an employer that insured you or your spouse as a worker. As indicated above, you have to be in an active employer group plan to belong to the “don’t need it” club.

You also don’t get a pass if you have health insurance under the COBRA law, which allows people to stay on their employer’s health plan by paying not only their employee premium but also costs previously picked up by their employer. If you go on COBRA when you’re 65 or older, or are already on it when you turn 65, the clock can start ticking on your Medicare enrollment obligations.

In all these situations you could be on the hook for various financial penalties, starting with a 10% higher monthly premium—for life—for each full year you are late signing up for Medicare Part B. Worse, perhaps, is that you might be living with no primary health insurance at all. In many cases you won’t even know this until you get the bill for medical expenses.

Pray that they are minor.

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Medigap policies, also known as Medicare supplement plans, are private insurance plans that fill coverage gaps that can leave people with Parts A and B—also known as Original Medicare—vulnerable to enormous expenses. Part B, for example, generally pays only 80% of the cost of covered services and medical equipment. You pay the other 20%.

There are 10 standard Medigap policies that can be sold by insurers, designated by different letters of the alphabet, from A through N. Coverage varies by letter; for example,

only some of the policies (C, D, F, G, M, and N) pay for emergency medical needs during foreign travel, which Original Medicare does not do.

What all Medigap plans cover is 100% of Part A co-insurance and hospital costs up to an additional 365 days after Medicare benefits are exhausted. Should you have Original Medicare but not Medigap, an extended hospital stay could cost you dearly (see the chart at right).

This single Medigap feature would save just about everyone from the poorhouse.

Medigap policies offered by any insurer must include exactly the same coverage as the same-letter plans offered by other insurers. Insurers are free, however, to charge different prices for the sameletter policies. And they do.

… Or Find a Medicare Advantage Network As an alternative to the fee-forservice Original Medicare (with stand-alone Part D for drug coverage and a Medigap plan), one-third of Medicare recipients have chosen Medicare Advantage plans, which have surged in popularity over the past decade.

Available from private insurers, MA plans are simpler to buy and use than Original Medicare and usually end up costing less, even though their premiums come in addition to Part B premiums instead of replacing them. Most are sold with Part D prescription-drug coverage built in, and many include dental, hearing, and vision coverage, which aren’t covered by Original Medicare or Medigap. Although Original Medicare has no cap on annual out-of-pocket expenses (unless you have Medigap), MA plans do limit your maximum exposure.

What’s not to like?

Here’s the catch: If you’re on Original Medicare, you can use any care provider that accepts Medicare patients—and most do.

MA plans, by contrast, usually require members to use only the providers within a plan’s network. The plan picks the doctors, hospitals, and other key health care providers you can see. If your doctor and preferred hospitals are in the network, terrific. If not, you’ll pay higher out-of-network fees or full price.

About two-thirds of MA plans are health maintenance organizations, most of which make you get all your services in their networks (except for emergency care and out-of-area urgent care).

Your primary physician coordinates your treatment and is the gatekeeper for any referrals you might need. This is generally the cheapest type of MA plan.

Most other MA plans are preferred provider organizations,

ONE GOOD REASON TO BUY MEDIGAP

Book Excerpt

If you’re on Original Medicare, you pay a $1,288 deductible per hospitalization. Then, after 60 days, your costs quickly escalate.

DAILY OUT-OF-POCKET COSTS

Days 61–90

Following days (up to 60 “lifetime reserve days”)

After lifetime reserve days are exhausted

$322

$644

ALL COSTS

NOTE: Figures are for 2016. SOURCE: Medicare.gov

The Kaiser Family Foundation reported in 2013 that the monthly premium for Plan F, the most popular, ranged from about $155 to $197 across most states.

SMART STEPS Because of the variability in premiums, comparing prices when you shop for

Medigap is essential.

Also, once you have secured Part A and Part B coverage, you normally have six months of guaranteed access to Medigap. Insurers must sell you any plan they offer that you want; they can’t refuse to insure you because of preexisting

conditions, and they can’t nail you with higher premiums because of those conditions. Also, the Medigap policy is guaranteed to be renewable on these terms as long as you keep up your premiums. These guarantees may go “Poof!” if you miss your enrollment window.

T H E A D VA N TA G E O F M E D I C A R E A D VA N TA G E Unlike Original Medicare, Medicare Advantage plans limit annual out-of-pocket costs for Parts A and B. Most cover drugs too.

AVERAGE MONTHLY MA PREMIUMS

ANNUAL OUT-OF-POCKET COSTS Average

$41

All MA plans

$31

HMOs

$68

Local PPOs

$5,257 $6,700 $118 $360

NOTES: Premiums are for MA plans with Part D coverage. Figures are for 2016. Out-of-pocket spending on drugs may also include share of “doughnut hole” coverage gap and share of catastrophic costs. SOURCE: Kaiser Family Foundation

which offer you broader access than HMOs to doctors and hospitals outside their networks. You usually don’t need referrals from your primary physician. As is the case with HMOs, if you want Part D drug coverage, you must purchase it bundled with your MA plan; you can’t buy it separately.

SMART STEPS You should not—repeat, not—buy an MA plan unless your doctor and other preferred providers are in its network (or you’re willing to switch to providers who are). You may not know whether a doctor is, but he or she will. Or more accurately, the doctor’s office staff will.

Many people believe that once you have Medicare, you will need to keep it for the rest of your life.

Not true. And it’s especially not true in today’s economy, in which people are regularly moving into and out of the labor force after they turn 65.

Let’s say you’re over 65, happily retired, and on Medicare.

Then one day you land a great job with benefits that include a very good health plan.

If you are actively employed and you can be covered on your employer’s group health insurance, you can drop Medicare without facing a penalty when you re-retire and sign up again. The same is true for your spouse, if he or she is covered by your new plan.

Highest

Cap on hospital and medical care expenses Prescription drug deductible

Prepare to Reverse Course, If Necessary

Also, are you a snowbird living in more than one place in the U.S. over the course of the year? Fee-forservice Original Medicare with Medigap may be better for you because you can take your coverage with you. This may not be possible with a Medicare Advantage plan tied to a local network of providers.

SMART STEPS Because dropping Medicare is such a serious decision, the government makes you have a personal interview with a Social Security representative before you can fill out the necessary form. To get started, you’ll have to make an appointment with Social Security, which handles Medicare enrollment. Find contact information at ssa.gov/locator.

One caveat: Your ability to drop Part D prescription drug coverage hinges on the drug coverage included in your employer plan being what’s called “creditable.” That’s an important code word in Medicare meaning that the provided coverage is as good as, or better than, typical Medicare drug coverage. Your employer should have this information.

Book Excerpt

T H E H I G H C O ST O F N OT S H O P P I N G A R O U N D F O R D R U G S Insurers change lineups each year, and prices can vary widely.

So be sure that your Part D plan covers the medications you use.

MONTHLY OUT-OF-POCKET COSTS OF COMMONLY PRESCRIBED DRUGS Median cost on formulary

Highest cost off formulary

$474 $382 $114 $5

Omeprazole (GERD)

$47

$47

Januvia (diabetes)

Advair Diskus (asthma)

NOTE: Prices are for 20 national and near-national stand-alone prescription drug plans in 2016. SOURCE: Kaiser Family Foundation

Revisit Your Drug Plan Again and Again Or you can get a Medicare Advantage plan bundled with Part D—most MA plans are packaged that way—usually abbreviated as an MA-PD plan.

SMART STEPS What good is a drug plan if it doesn’t include the drugs you and your doctors think you need? A plan’s list of drugs, called a formulary, is one of the first things you should evaluate in a Part D plan, since the cost difference for you if a drug is on-formulary or off-formulary can be huge (see the chart above for some examples). In most

cases you can find what a plan charges for the drugs you need at its website, but Medicare’s Plan Finder (medicare.gov/ find-a-plan) is the easiest way to see how all plans available to you handle your drugs.

After you enter your drug information into Plan Finder, the software will sort through available plans and tell you roughly what a year’s worth of those drugs will cost you. You can return to your account and change your drug list as needed.

When you use Plan Finder, make sure you include the pharmacies you like to use so

Philip Moeller is an expert on retirement, aging, and health. Adapted from Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs by Philip Moeller. Published by arrangement with Simon & Schuster Inc. Copyright © 2016 by Philip Moeller.

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DO YOU HAVE A QUESTION ABOUT MEDICARE? Ask us at letters@moneymail.com.

P H O TO G R A P H B Y S H AY L A H U N T E R

Part D prescription-drug plans are voluntary. But voluntary or not, if you are late in enrolling for a plan—if your coverage doesn’t kick in within two months after your deadline for enrolling in Part B—you may be hit with lifetime penalties. For each month you’re late, a 1% fee is tacked on to your basic Part D premium. So sign up four years late and you’re facing a 48% markup every month for the rest of your life.

Once you get Parts A and B, you have two pathways into Part D. You can buy a standalone plan, often called a PDP.

that you can see whether a plan works with your pharmacy and how this may affect your costs.

Part D plans usually include a preferred pharmacy network.

Filling prescriptions through the network will generally be cheaper, especially for mail orders, than going outside the network to another pharmacist.

So investigate. Are you restricted to a certain pharmacy provider for your plan’s prescriptions? What happens if you want to fill a prescription elsewhere?

And don’t assume that a plan that’s terrific for you in 2016 will be terrific in 2017.

Rates, formularies, and other details can change from year to year, and usually do.

Medicare gives you the right to freely change not just drug plans but also health plans every year during open enrollment, which runs from Oct. 15 through Dec. 7. I’m urging you to take advantage of this right and to make sure you have the best plan possible each Jan. 1. People tend to stick with the plan they have, despite overwhelming evidence that they would be better off switching.

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The Alamo, in the heart of San Antonio

T R 76

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The law of supply and demand applies to vacations too. Wait until the crowds thin out, and youâ&#x20AC;&#x2122;ll return home with a fatter wallet.

Of course, that means knowing where to goâ&#x20AC;&#x201D;and where to avoid. Consider this a tour guide to great destinations with fantastic prices.

T H E R O A D S L E S S

A V E L E D

BY STIRLING KELSO

The Tower of London

INSTEAD OF NEW YORK, TRY…

LONDON cally expensive country on the cheap,” says Zach Honig, editor of ThePointsGuy.com. Better yet, tourism to London drops 17% from August to September. Even flights are cheaper, with the average fare to Heathrow down 32% over the past year, says Cheapflights.com.

White Cube gallery

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DO Admission is free to many London museums, unlike New York’s. The British Museum’s main galleries are home to the Rosetta Stone, mummies, and Parthenon marbles from the Acropolis of Athens. The Tate Modern houses one of the world’s great collections of 20th- and 21st-century art, and it just opened an extension focusing on film, live performance, and large-scale installations. For more contemporary art, don’t miss White Cube gallery (whitecube.com).

The Tower of London is home to the crown jewels and the irrepressible Beefeater tour guides.

AVERAGE WEST END THEATER TICKET

$

57

VS.

$

110

AVERAGE BROADWAY TICKET

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O P E N I N G S P R E A D : P H OTO G R A P H B Y G E O R G E H . H . H U E Y/A L A M Y. T H I S S P R E A D , C L O C K W I S E F R O M TO P L E F T: P H OTO G R A P H S B Y G E T T Y; C O U R T E S Y O F V I S I T S A N A N TO N I O . C O M ; I A N D A G N A L L /A L A M Y; A L A M Y

WHY Only a few months ago average hotel prices in London and New York City were neck and neck, at about $250 a night. Then came Brexit and the pound’s 14% drop. “Britain is effectively on sale, giving American tourists a fantastic opportunity to visit this histori-

Admission is pricey at $30, but it’s one of many top spots included with the London Pass (londonpass.com). The two-day version costs $103 for adults and $77 for children and gets you access to Kensington Palace, Westminster Abbey, Windsor Castle, the London Zoo, hop-on tour buses, a Thames cruise, and more. Individual tickets to those sites total $195 for adults.

Needless to say, London is huge, too big to travel by foot.

Instead, take the Underground— the Tube to Londoners—and buy a weekly Oyster Travelcard for $42. You’ll be ahead after five trips. When you get hungry, you’ll find decent fare at almost any pub, from fish-and-chips to steakand-kidney pie, for about $15 a person. For something more cosmopolitan, join the post-work crowds at José (josepizarro.com) on Bermondsey Street, an intimate corner tapas restaurant where you can enjoy dinner and a nice glass of Rioja for about $20.

STAY At the family-owned London Elizabeth Hotel (londonelizabethhotel.com), on the edge of Hyde Park, rooms range from $186 to $257, with 10% off bookings of more than three nights. The modern Bermondsey Square Hotel (bermondseysquarehotel.co.uk), near London Bridge, has rooms from $136 to $209.

L E S S

If you’re traveling with the family, the new 104,000-square-foot DoSeum (thedoseum.org) is a children’s museum loaded with interactive and hands-on exhibits (light-and-sound shows, a Spy Academy, climbing structures).

The $12 entry fee is waived the first and third Tuesday of every month from 6:30 p.m. to 8:30 p.m.

With the heat breaking, you’ll want to spend some time along the River Walk, the café- and artlined canal and pedestrian path that meanders for 15 miles through downtown. Jump off the waterfront path at the Pearl, a historic brewery complex turned urban neighborhood known for its restaurants and locally owned shops, says Jordan Breal, travel editor at Texas Monthly. At Botika, the menu fea-

INSTEAD OF AUSTIN, TRY…

SAN ANTONIO WHY Austin has long been the hippest spot in Texas, but it fills up with musical festivals in the fall. For a different slice of the Lone Star State, try San Antonio, a popular spring destination that sees fewer visitors in October, when hotels are about 30% cheaper, according to STR. STAY If you’re in town to see the Alamo, you can’t get much closer than the Gothic Revival Emily Morgan (emilymorganhotel.com), which overlooks the 19th-century battlefields (rooms are $149 in September and October). The hip Hotel Havana (havanasanantonio .com) is located on a quiet

San Antonio’s newly expanded River Walk

section of the River Walk and features minimalist rooms with wistful Cuban touches. Prices in the fall are $107 to $124.

DO San Antonio’s collection of five 18th-century Spanish Colonial missions was recently named a Unesco World Heritage site, one of only 23 in the U.S. (nps.gov/saan; free admission). The city also features 30 museums with fourstar-plus ratings on TripAdvisor.

AVERAGE SAN ANTONIO HOTEL ROOM

$

109

VS.

$

161

AVERAGE AUSTIN HOTEL ROOM

T H E R O A D S T R A V E L E D

The annual Fiesta San Antonio

tures Peruvian-meets-Asian dishes such as fried ceviche (botikapearl.com; dinner, $25).

Worth a splurge: drinks at the dazzling new Hotel Emma (thehotelemma.com), with its glassed-in library and the elegant, wood-paneled Sternewirth Bar and Clubroom, where the former brew tanks have been left in place to create semiprivate seating nooks. Cocktails are $10 to $15.

INSTEAD OF BURLINGTON, VT., TRY…

STAY History buffs should opt for the Inn at St. John (innatstjohn .com), located in a three-story Victorian guesthouse that opened in 1897. King-size rooms with private baths run from $99 to $215.

P O R T L A N D, MAINE WHY Looking to do some leaf peeping? New England towns such as Burlington, Vt., are chockablock with foliage fanatics, but Maine’s largest city actually experiences a 13% drop in hotel prices after the summer season. Rates average $172 a night, according to Hotels.com, compared with $212 a night in Burlington. Portland is about more than leaves, of course.

It has long made a name for itself

80

m o n e y. c o m

DO Head to Wolfe’s Neck Woods State Park ($6 admission) in Freeport, 30 minutes from downtown Portland, for the impressive foliage and a free ranger-led tour to visit resident ospreys along Casco Bay, suggests Bob Witkowski, author of 100 Things

with its centuries-old lighthouses, pedestrian-friendly neighborhoods, and working waterfront.

Plus, it has a burgeoning foodie scene that has helped bolster its rep as “the other Portland.”

AVERAGE PORTLAND HOTEL ROOM

$

172

VS.

$

212

AVERAGE ROOM IN BURLINGTON

NOTES: Hotel costs for San Antonio and Austin in October; annual rates for Portland and Burlington; 2015 figures for Santa Barbara and Santa Monica. SOURCE: Tourist costs in Rome,Venice, Montreal, and Paris from Numbeo.com

to Do in Portland, Maine Before You Die. For a different perspective, take a half-day guided kayak tour with Portland Paddle (portlandpaddle.net; $65). After working up an appetite, head out “on

Long Wharf in the heart of the waterfront

L E S S

T H E R O A D S T R A V E L E D

Fall on the banks of the Fore River

St. Paul Street, the oldest road in town INSTEAD OF PARIS, TRY…

MONTREAL

C L O C K W I S E F R O M T O P L E F T: P H O T O G R A P H S B Y C O R E Y T E M P L E T O N ; A L E X E Y S K R I PA N E V/A L A M Y; L E E B R O W N /A L A M Y; I A N D A G N A L L /A L A M Y

the P” (the peninsula), as locals call it, to dine at one of the city’s 300 restaurants—not bad for a metropolis with a population of 65,000. Pamela Laskey, owner of Maine Foodie Tours (from $49), suggests Boda (bodamaine .com) for its Thai tapas, such as quail eggs seasoned with soy sauce and scallions ($3 to $10).

And don’t leave this storied maritime state without visiting a lighthouse. Sept. 10 is Maine Open Lighthouse Day, which means you can take free tours of dozens of lighthouses along the Maine coast that are rarely open to the public. In Portland, don’t miss a trip to the stunning Portland Head Light, where the first oillamp sentry was lit in 1791.

WHY Montreal really is a lot like Paris. There’s the French part, of course—the City of Saints is the most bilingual urban destination in North America. A Unesco City of Design, it’s très belle as well as a great eating town, with 6,000plus establishments that serve more than 80 types of cuisine.

Hotels in Montreal cost $162 on average, 25% less than in Paris, according to Hotels.com. The average roundtrip airfare also fell 16% in the past year, according to Cheapflights.com.

STAY The strong U.S. dollar means that you can splurge for less at places such as the design-forward Le Petit Hotel (petithotelmontreal.com), in the historic district. Rates average $220 in September and October.

For an Old World feel, try one of the 30 rooms in the Manoir Sherbrooke (manoirsherbrooke.ca), housed in a century-old mansion in downtown Montreal. Rooms go for $90 to $128 a night in September and October.

ANNUAL TOURISTS IN MONTREAL

9.6 MILLION VS.

ANNUAL TOURISTS IN PARIS

45

MILLION

DO Get your bearings at the new observation deck on the 46th floor of Au Sommet Place Ville Marie (tickets, $15). You’ll overlook some of Montreal’s iconic sites, such as the Gothic Revival Notre-Dame Basilica ($4 admission), which was founded in 1683, and the nine-mile Lachine Canal, flanked by a walking and biking path. For lunch, try Montreal’s signature sandwich, featuring a pastrami-like smoked meat, at the legendary Schwartz’s Deli ($7). Danny Pavlopoulos, cofounder of Spade & Palacio NonTouristy Tours (spadeandpalacio .com), recommends dinner at the Restaurant Le Diplomate.

T H E R O A D S L E S S T R A V E L E D

INSTEAD OF SANTA MONICA, TRY…

SA N TA B WHY You might call it the battle of the saints: Santa Monica vs. Santa Barbara, two Southern California beach resorts known for their natural beauty and plush amenities. It’s Santa Barbara that’s called America’s Riviera, and so it’s something of a surprise that Santa Barbara is also the better value. Hotels are less crowded (77% occupied, vs.

84% for Santa Monica, on average) and 22% less expensive. According to Cheapflights.com, flights into Santa Barbara Municipal are also down 25% compared with 2015.

The Muhammad Ali Center

STAY The Eagle Inn (theeagleinn .com), a charming bed-and-breakfast—it serves warm cookies every afternoon—is three blocks from the

INSTEAD OF NASHVILLE, TRY…

LOUISVILLE

STAY Each of the seven guest

quarters at the Guesthouse on Story (guesthouseonstory.com) has a theme: the Bourbon Room, the Derby Room, the Ali Room.

They start at $120 a night. Even five-star hotels can be a relative steal: At the stately Brown Hotel (brownhotel.com), built in 1923,

SEPTEMBER HOTEL OCCUPANCY IN LOUISVILLE

%

64 VS.

SEPTEMBER HOTEL OCCUPANCY IN NASHVILLE

75%

rooms feature mahogany beds topped with Egyptian-cotton linens and start from $189 in September.

DO From the replica of his training ring to his Presidential Medal of Freedom, the Muhammad Ali Center (alicenter.org; tickets, $9) has always been a powerfully personal museum, and that’s especially true given his death this year. Located on museum row in Louisville’s historic center, it’s a short walk to the pedestrian-friendly SoFo (South of Fourth) area, home to galleries, shops, and cafés. For happy hour, order an old-fashioned, Louisville’s signature drink, at Bourbons Bistro (bourbonsbistro.com), where select cocktails are half off every day from 4:30 p.m. to 7 p.m.

MORE ONLINE Want a closer look at top, affordable vacation spots? Check out our videos at money.com/travel.

P H O T O G R A P H S , C L O C K W I S E F R O M T O P L E F T: C O U R T E S Y O F A L I M U S E U M ; J AY S I N C L A I R / C O U R T E SY O F V I S I T S A N TA B A R B A R A ; G O N Z A LO A Z U M E N D I /G E T T Y; J O E DA N I E L P R I C E /G E T T Y

WHY New England doesn’t have a monopoly on fall foliage—the hills come alive with color in the Southeast too. Nashville’s rolling landscape offers lush viewing, but the forests and parks of Louisville, three hours to the north, are every bit as vibrant. Louisville has the advantage of smaller crowds.

About 64% of the hotel rooms are occupied in September, compared with 75% in Nashville. Its hotels, which average $126 a night, are about 28% cheaper too, according to Hotels.com. Then there’s the real smackdown: Kentucky bourbon vs. Tennessee whiskey. You’ll have to make that call yourself.

INSTEAD OF VENICE, TRY…

ROME

B ARBARA beach. October rates start at $143.

The Agave Inn (agaveinnsb.com) on lower State Street is about a mile from the Mission Santa Barbara and its historic park. The inn features whitewashed rooms with colorful accent walls, Mexican bed throws, and prices from $129 to $159 in the fall months.

DO The Santa Barbara Sailing Center (sbsail.com) offers twohour tours of the harbor and picturesque Stearns Wharf for only $12 a person; most other boat outings start at $35. Back in town, the Santa Barbara County Courthouse (sbcourts.org) is almost too pretty to be a government building, so it’s worth a

the Forum

WHY If all roads lead to Rome, there’s no better time to take them than in fall: The sun cools, the lines shrink, the hotel rates drop—but the pasta and the vino

Rock climbing at the beach

AVG. SANTA BARBARA HOTEL ROOM

$

240

VS.

$

305

visit to see its Spanish-inspired architecture and large sunken garden (free admission). Around the block is the Santa Barbara Museum of Art (sbma.net), known for its collections of Im-

pressionist and Greek and Roman art. Admission ($10) is free from 5 p.m. to 8 p.m. on Thursdays. With more than 450 restaurants, Santa Barbara is also a foodie paradise. Krista Harris, ed-

are every bit as abundant. Rome has long been one of the more expensive European cities, but its average hotel rates have come down 16% year over year (and they are 12% cheaper in October than in June). In fact, hotels are 21% more expensive on average in Venice.

DO Sign up for a tour of the Forum or the Vatican with Context Travel (contexttravel.com), known for its small groups— a maximum of six guests—and led by experts who often have a master’s or Ph.D. in relevant Roman history. Tours are 15% off when booked from Sept. 4 to 10 (from $89 a person). If you’re going to the Roman Forum on your own, try to schedule your trip for the first Sunday of the month, when admission is free (tickets, $13). Inside, be sure to check out the lesser-known Forum Boarium, which is made up of the Temple of Hercules (named for Hercules Olivarius, the patron of olive merchants), one of the oldest marble temples in Rome, and the

STAY Located not far from the Papal Basilica of Santa Maria Maggiore, the Hotel de Monti (hoteldemonti.com) is housed in a rose-colored building that dates back to the 1500s. Rooms in September and October cost less than $150 and include breakfast delivered to your door. If you can stand the spontaneity, it’s worth booking your hotel at the last minute, as properties discount their prices within weeks of the check-in date. At the Villa Laetitia (villalaetitia.com), located on the Tiber River, rooms feature 1920s tiled floors and balconies with city or garden views. They cost $200 in advance but are frequently available for $149 just a week before arrival.

AVG. TOURIST COST PER DAY IN ROME

$

itor and publisher of Edible Santa Barbara, recommends roaming through downtown’s side streets for hidden gastronomical gems.

“Also downtown, check out the independent bookstore the Book Den,” says Ted Mills, host of the popular local Funk Zone Podcast (funkzonepodcast.com). Keep an eye out for vintage cookbooks and rare and out-of-print tomes (bookden.com).

AVG. IN SANTA MONICA

218

The Vatican spiral staircase

Temple of Portunus. For dinner, try Renato e Luisa (renatoeluisa.it, $28), near the Campo de’ Fiori, says Natalie Kennedy of AnAmericanInRome.com: “Try the Italian classics like carbonara or the steak with a balsamic glaze.”

VS.

SEPTEMBER 2016

$

285

AVG. TOURIST COST PER DAY IN VENICE

m o n e y. c o m

83

THE NUMBERS

STOCKS & FUNDS BIGGEST MUTUAL FUNDS BY CATEGORY CATEGORY

TOTAL RETURN ONE YEAR

THREE YEARS1

EXPENSES (AS % OF ASSETS)

LARGE-CAP STOCKS

Stocks Rebound After Brexit WHILE THE FIRST few days following Britain’s vote to leave the European Union looked scary, equities recovered in dramatic fashion. The S&P 500 index soared 4.5% in the four weeks ended July 20, led by economically sensitive sectors such as technology and financials.

S&P 500 RATIOS P/E

2.4 22.0

2.3

20.0

2.1

18.0

ONEYEAR RANGE

2.2

19.0

2.1

TOTAL RETURN ONE MONTH

INDEX

S&P 500 Nasdaq2 Russell 2000 Morgan Stanley EAFE Dow Jones industrial average Barclays U.S. aggregate bond index

ONE YEAR

4.5% 5.2 4.6 0.1 4.6 1.0

4.4% –2.5 –2.5 –10.1 5.5 6.1

11.0% 12.4 6.3 1.1 8.8 4.0

5.9 5.9 5.5 4.7 4.0 3.6 3.5 2.9 2.9 2.1

5.2 –1.7 23.4 10.4 –4.8 4.6 13.3 5.8 24.6 1.5

16.4 15.6 9.9 11.5 6.5 12.8 12.6 8.7 13.7 –3.2

NOTES AND SOURCES: Stock index data as of July 20 from Lipper, New York; 877-955-4773.

Sector returns from Bloomberg. Bond index data from Barclays. Monthly S&P 500 ratios are from Standard & Poor’s. P/E ratios are based on previous four quarters of operating earnings.

Biggest funds ranked by total net assets. 1Annualized. 2Price change only.

84

m o n e y. c o m

0.79 0.08 0.09 0.07 0.21

0.8 4.2 –3.9 7.0 –3.1

8.1 9.3 6.9 5.9 6.6

0.08 0.08 0.35 0.92 0.08

6.1 1.3 1.0 1.4 4.7

8.4 8.0 8.3 6.7 7.9

0.58 0.56 0.56 0.34 0.08

Vanguard Total International Stock Index (VGTSX) Harbor International (HAINX) American Funds EuroPacific Growth (AEPGX) Vanguard International Growth Fund (VWILX) T. Rowe Price International Stock Fund (PRITX)

–7.2 –11.4 –7.5 –5.5 –7.0

1.2 0.3 3.5 3.6 3.4

0.19 0.76 0.83 0.34 0.83

–3.6 –5.5 0.3 –2.0 –4.9

1.2 0.0 2.6 2.2 –0.8

1.04 0.15 1.24 1.05 0.30

4.8 4.2 4.1 2.3 4.7

3.3 2.9 2.7 1.5 3.0

0.45 0.65 0.88 0.80 0.75

6.2 6.0 5.3 3.4 5.5

3.9 3.8 4.0 2.4 3.8

0.06 0.09 0.43 0.10 0.59

4.6 1.1 0.8 0.3 2.3

4.8 2.1 5.4 2.8 3.1

0.13 0.67 0.72 0.81 0.72

6.3 2.4 0.0 0.1 1.0

5.1 1.9 0.0 0.0 0.8

0.12 0.12 0.40 0.15 0.12

U.S. GOVERNMENT BONDS THREE YEARS1

SECTOR

Information technology Health care Telecom services Industrials Financials Consumer discretionary Consumer staples Basic materials Utilities Energy

6.9 10.2 7.6 7.6 10.4

EMERGING MARKETS

2.0

BENCHMARKS

–2.4 1.8 –2.0 –2.1 –1.3

SMALL-CAP Vanguard Small-Cap Index (VSMAX) Vanguard Small-Cap Value Index Fund (VSIAX) Vanguard Explorer (VEXRX) T. Rowe Price Small-Cap Value (PRSVX) Vanguard Small-Cap Growth Index (VSGAX)

American Funds New World (NEWFX) Vanguard Emerging Markets Stock Index (VEMAX) T. Rowe Price Emerging Markets Stock (PRMSX) Fidelity Emerging Markets (FEMKX) Northern Emerging Markets Equity Index Fund (NOEMX)

CURRENT

17.0

0.71 0.65 0.58 0.52 0.58

INTERNATIONAL

21.0 ONEYEAR RANGE

11.1% 10.6 10.8 8.0 9.7

MIDCAP Fidelity Low-Priced Stock (FLPSX) Vanguard Mid-Cap Index (VIMAX) Vanguard Extended Market Index (VEXAX) Fidelity Spartan Extended Market Index (FSEVX) Vanguard Strategic Equity Fund (VSEQX)

American Funds American Balanced (ABALX) Fidelity Balanced (FBALX) Fidelity Puritan Fund (FPURX) Vanguard Star Fund (VGSTX) Vanguard Balanced Index Fund (VBIAX)

CURRENT

22.0

–0.7% 1.8 5.2 –3.1 6.2

BALANCED

DIVIDEND YIELD

23.0

Fidelity Contrafund (FCNTX) American Funds Growth Fund of America (AGTHX) American Funds Investment Co. of America (AIVSX) Dodge & Cox Stock (DODGX) American Funds Wash. Mutual Investors (AWSHX)

SEPTEMBER 2016

Fidelity Government Income (FGOVX) American Funds U.S. Government Securities (AMUSX) MFS Government Securities (MFGSX) Sit U.S. Government Securities (SNGVX) JPMorgan Government Bond (OGGAX)

INVESTMENT-GRADE Vanguard Total Bond Market Index (VBTLX) Vanguard Total Bond Market II Index (VTBIX) Dodge & Cox Income (DODIX) Vanguard Short-Term Investment-Grade (VFSUX) T. Rowe Price New Income (PRCIX)

HIGH YIELD Vanguard High-Yield Corporate (VWEAX) American Funds American High-Income Trust (AHITX) Fidelity Capital & Income (FAGIX) Northern High Yield Fixed Income (NHFIX) Fidelity High Income (SPHIX)

TAX-EXEMPT Vanguard Intermediate-Term Tax-Exempt (VWIUX) Vanguard Limited-Term Tax-Exempt (VMLUX) Fidelity Municipal Money Market (FTEXX) Vanguard Tax-Exempt Money Market (VMSXX) Vanguard Short-Term Tax-Exempt Fund (VWSUX)

Recapture the freedom you had in your youth. But without your youth. Or your hair.

RETIRE LIKE A 20 YEAR OLD. INVEST LIKE A 50 YEAR OLD. The Main Advantages of Municipal Bonds Investors are attracted to municipal bonds for three reasons, safety of principal, regular predictable income and the tax-free benefits. Together, these three elements can make a compelling case for including tax-free municipal bonds in your portfolio.

Potential Safety of Principal Many investors, particularly those nearing retirement or in retirement, are concerned about protecting their principal. In March of 2012, Moody’s published research that showed that rated investment grade municipal bonds had an average cumulative default rate of just 0.08% between 1970 and 2011.* That means while there is some risk of principal loss, investing in rated investment-grade municipal bonds can be

a cornerstone for safety of your principal.

Potential Regular Predictable Income Municipal bonds typically pay interest every six months unless they get called or default. That means that you can count on a regular, predictable income stream.

Because most bonds have call options, which means you get your principal back before the maturity date, subsequent municipal bonds you purchase can earn more or less interest than the called bond. According to Moody’s 2012 research,* default rates are historically low for the rated investmentgrade bonds favored by Hennion & Walsh.

Potential Triple Tax-Free Income Income from municipal bonds is not subject to federal income tax and, depending on

where you live, may also be exempt from state and local taxes. Triple tax-free can be a big attraction for many investors in this time of looming tax increases.

About Hennion & Walsh Since 1990 Hennion & Walsh has specialized in investment grade tax-free municipal bonds.The company supervises over $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 experts have written a helpful Bond Guide for investors. It’s free and comes with no obligation whatsoever.

FREE Bond Guide

Without cost or obligation

Call (800) 316-1837 © 2016 Hennion and Walsh. Securities offered through Hennion & Walsh Inc. Member of FINRA, SIPC. Investing in bonds involves risk including possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. *Source: Moody’s Investor Service, March 7, 2012 “U.S. Municipal Bond Defaults and Recoveries. 1970–2011.” Past performance is not guarantee of future results.

THE NUMBERS

MONEY 50

TOTAL RETURN

Stocks Return to Record Highs A STRONG RECOVERY IN THE JOB MARKET GIVES EQUITIES—AND MONEY 50 FUNDS—A LIFT. A SURPRISING JUMP in hiring in June calmed the nerves of investors who had feared that the economy was softening. The better-than-expected news sparked the market as it was already rebounding from several rocky days after Britain’s vote to leave the European Union.

The result: Both the S&P 500 and Dow Jones industrial average hit all-time highs in the four weeks ended July 20.

Among our MONEY 50 recommended list of mutual and exchange-traded funds, portfolios that invest in riskier fare performed the best. T. Rowe Price Emerging Markets Stock Fund, for instance, gained 7.3% while WisdomTree SmallCap Dividend rose 5.1%. European focused funds, though, struggled, including Oakmark International, which dropped 2.4%. —TAYLOR TEPPER

HOW TO USE OUR RECOMMENDED LIST Building-block funds: For broad exposure to core asset classes Custom funds: Specialized investments that can tilt your strategy One-decision funds: If you want stocks and bonds in one portfolio

TOTAL RETURN ONE MONTH

FUND (TICKER)

ONE YEAR

THREE YEARS 1

EXPENSES (AS % OF ASSETS)

PHONE NUMBER (800)

BUILDING-BLOCK FUNDS Large-Cap Schwab S&P 500 Index (SWPPX) Schwab Total Stock Market Index (SWTSX) Midcap/Small-Cap iShares Core S&P Mid-Cap (IJH) iShares Core S&P Small Cap (IJR) Foreign Fidelity Spartan International (FSIIX) Vanguard Total Intl. Stock (VGTSX) Vanguard FTSE A/W ex-U.S. Small (VFSVX) Vanguard Emerging Markets (VEIEX) Specialty Vanguard REIT Index Investor (VGSIX) Bond Vanguard Total Bond Market (VBMFX)

86

m o n e y. c o m

4.5% 4.4

4.3% 10.9% 3.1 10.3

0.09 0.09

435-4000 435-4000

3.8 4.5

4.5 4.5

9.5 9.3

0.12 0.12

474-2737 474-2737

0.6 1.9 0.5 7.2

–9.9 –7.2 –2.6 –5.7

1.1 1.2 3.2 –0.2

0.19 0.19 0.37 0.33

544-8544 662-7447 662-7447 662-7447

6.9

20.4

12.3

0.26

662-7447

1.0

6.1

3.8

0.16

662-7447

SEPTEMBER 2016

FUND (TICKER) Vanguard Short-Term Bond (VBISX) Vanguard Inflation-Protected (VIPSX) Vanguard Short-Term Infl.-Prot. (VTIP) Vanguard Total Intl. Bond Index (VTIBX)

ONE MONTH

0.2% 1.4 0.2 1.5

ONE YEAR

THREE YEARS 1

2.4% 4.8 1.8 7.6

1.5% 1.7 0.2 5.5

EXPENSES (AS % OF ASSETS)

PHONE NUMBER (800)

0.16 0.20 0.08 0.17

662-7447 662-7447 662-7447 662-7447

CUSTOM FUNDS Large-Cap Dodge & Cox Stock (DODGX) 4.0 PowerShares FTSE RAFI U.S. 1000 (PRF) 3.8 Sound Shore (SSHFX) 3.8 PowerShares S&P High Qual. Port. (SPHQ) 4.3 Primecap Odyssey Growth (POGRX) 5.5 T. Rowe Price Blue Chip Growth (TRBCX) 4.5 Midcap Ariel Appreciation (CAAPX) 2.1 WisdomTree MidCap Dividend (DON) 3.9 T. Rowe Price Div. Mid Cap Gro. (PRDMX) 4.3 Small-Cap Royce Opportunity (RYPNX) 4.6 Vanguard Small-Cap Value (VBR) 3.9 WisdomTree SmallCap Dividend (DES) 5.1 Wasatch Small Cap Growth (WAAEX) 3.3 Specialty PowerShares Intl. Div. Achievers (PID) 2.3 SPDR S&P Dividend (SDY) 4.3 Cohen & Steers Realty Shares (CSRSX) 6.5 SPDR Dow Jones Intl. Real Estate (RWX) –0.2 iShares N. American Nat. Resources(IGE) 2.1 Foreign Oakmark International (OAKIX) –2.4 Vanguard International Growth (VWIGX) 3.9 T. Rowe Price Emerging Markets (PRMSX) 7.3 Bond Dodge & Cox Income (DODIX) 1.6 Fidelity Total Bond (FTBFX) 1.6 Vanguard Short-Term Inv. Grade (VFSTX) 0.5 iShares iBoxx $ Inv. Grade Corp. (LQD) 2.4 Loomis Sayles Bond (LSBRX) 1.9 Fidelity High Income (SPHIX) 2.9 Vanguard Intm.-Term Tax-Ex. (VWITX) 0.3 Vanguard Limited-Term Tax-Ex. (VMLTX) 0.2 Templeton Global Bond (TPINX)3 4.6 Fidelity New Markets Income (FNMIX) 4.6

–3.1 3.9 –1.6 11.4 –1.1 –2.5

8.0 9.2 8.6 13.1 9.9 12.6

0.52 0.39 0.93 0.29 0.64 0.71

621-3979 843-2639 551-1980 983-0903 729-2307 638-5660

–3.8 13.9 0.5

7.1 13.0 10.6

1.12 0.38 0.87

292-7435 909-94732 638-5660

–2.4 4.2 9.8 –6.5

2.2 9.3 9.3 4.4

1.17 0.08 0.38 1.22

221-4268 662-7447 909-94732 551-1700

–11.1 18.0 17.6 1.5 1.7

–2.2 12.5 12.3 4.4 –4.6

0.55 0.35 0.96 0.59 0.47

983-0903 787-22572 437-9912 787-22572 474-2737

–16.3 –5.6 0.3

–2.1 3.4 2.6

0.95 0.47 1.24

625-6275 662-7447 638-5660

5.3 6.1 3.3 10.3 3.7 2.3 6.3 2.3 –3.0 12.1

4.0 4.2 2.3 5.9 2.7 3.1 5.0 1.8 0.3 5.9

0.43 0.45 0.20 0.15 0.89 0.72 0.20 0.20 0.89 0.86

621-3979 544-8544 662-7447 474-2737 633-3330 544-8544 662-7447 662-7447 632-2301 544-8544

8.0 3.7 7.7

0.56 1.02 0.26

544-8544 544-8544 662-7447

4.8 6.3

0.58 0.66

638-5660 638-5660

6.5 6.8

0.15 0.15

662-7447 662-7447

ONE-DECISION FUNDS Balanced Fidelity Balanced (FBALX) 3.2 1.3 Fidelity Global Balanced (FGBLX) 1.3 0.9 Vanguard Wellington (VWELX) 3.1 4.8 Target Date T. Rowe Price Retirement series (STOCK/BOND ALLOCATION) Example: 2005 Fund (45%/55%) (TRRFX) 2.0 3.3 Example: 2020 Fund (68%/32%) (TRRBX) 2.6 1.6 Vanguard Target Retirement series Example: 2025 Fund (70%/30%) (VTTVX) 2.7 1.7 Example: 2035 Fund (84%/16%) (VTTHX) 3.0 0.4

NOTES: As of July 20, 2016. N.A.: Not available. Load funds are included for those who prefer to use a broker. 1Annualized. 2Phone numbers are 866. 34.25% sales load.

SOURCES: Lipper, New York, 877-955-4773; the fund companies

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MONEY WELL SPENT

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Tickets to the Unknown

by Laura Goldstein EVERYBODY KNOWS that New York City is expensive, which is okay if you’re a tourist who has saved up for a blowout trip of high-end shopping, fancy dinners, and a swank hotel. But for us locals, the city’s pleasures are increasingly out of reach. Sure, I’ll treat myself to an occasional night on the town, but even that has lost some of its charm. No matter how exquisite the food, when you drop $300 on a birthday dinner for two, it’s hard not to feel that the expense just wasn’t worth it.

There is one indulgence that never disappoints, however. Over the past 20 years, I’ve enjoyed dozens and dozens of plays, musicals, and other shows. Most cost me less than $50, and many were as cheap as $10 or even free.

How? Through the economics of theater subscriptions.

As a subscriber, you purchase an entire season’s slate of shows (typically three to five) upfront, in exchange for a break of 10% to 40% off the box-office price. Some theaters offer a membership option: For an annual fee, usually between $50 and $150, members can purchase discounted tickets to the productions of their choosing, usually for around 25% off.

There is a catch to these arrangements. Because subscribers commit to productions months or even a year in advance, we never know exactly what we’re going to get. Often they’re new plays or works in progress, being performed in public for the first time. They can be mem-

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SEPTEMBER 2016

orable and even dazzling— and there’s almost always a clunker in every batch.

That means I probably haven’t saved that much money in the long run. After all, I most likely wouldn’t have purchased individual tickets for every production I ultimately attended. (Remember those clunkers?) And the upfront cost can be substantial: Just this week I booked the six-play fall season at the Public Theater for $240.

But the tradeoff has been more than worth it. Unlike the nine-course tasting menu that I barely recall (granted, there was wine involved), my nights in the theater stay in my memory long after the event. Perhaps it’s because what I’m really buying is a ticket to the unexpected. I may love it or I may hate it, but there’s a good chance I’ve never seen the likes of it before. A couple hundred bucks seems a small price to pay for that sense of discovery.

So it was with no expectations almost two years ago when I took my seat for, of all things, a musical about the first U.S. secretary of the Treasury. Today, top-tier tickets to that show sell for $850 (if you can get them), twice that from a broker. The cost in early 2015 as part of my Public membership: $50. So that’s why I keep plunking down the fee year after year. Because I want to be in the audience when the curtain goes up on the next Hamilton.

Laura Goldstein is the deputy editor of Money.com.

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