Ask Liz Weston

Get smart with your money

Investing

Thursday’s need-to-know money news

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Today’s top story: How to prioritize debt payments in the pandemic. Also in the news: The fairness of airline fees, the influence of 2020 on investing, and how to avoid paying certain car dealership fees.

How to Prioritize Debt Payments in the Pandemic
The rules have changed.

Ask a Travel Nerd: Are Airline Fees Fair?
The process of buying a plane ticket can be misleading because you aren’t shown all of the fees upfront.

Will 2020 Make Us More Empathetic Investors?
Investment dollars can make an impact, so be sure your impact is a good one.

Avoid Paying These Car Dealership Fees
Know which fees you have to pay, which ones you can negotiate, and which ones you can avoid altogether.

Q&A: Here’s why trying to time the stock market is a really bad idea

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Dear Liz: I confess that I am one of those people who panicked and sold a portion of my portfolio in March, against the advice of many who said, “Hold, don’t fold.” Thus, when the market bounced back, I was left standing out in the cold.

I am filled with a tremendous sense of stupidity. I have no idea what I should do with the cash, which remains in a money market account.

Do I wait for a 5% or 10% market correction to reenter the market? Do I leave the money in a money market account, where it earns 0.01% interest, and wait for interest rates to rise?

Answer: You tried to time the market once, with painful results. Why would you want to make the same mistake again?

That’s what you’re doing when you wait for a correction to enter the market. Many people think they’ll have the discipline to do this, but the reality can be quite different.

Once the market drops 5% to 10%, what’s to keep it from dropping further? Would you be able to jump in as others are bailing out? And what if the correction is manageably small but happens after the market has climbed considerably? You would still have missed out on a substantial amount of growth.

You may have panicked because you were taking too much risk with your portfolio. Perhaps you were trying for maximum returns or the proportion devoted to stocks had increased during the previous bull market.

The solution is to craft an asset allocation that reflects your goals and risk tolerance. Then you regularly rebalance back to that asset allocation.

Having such a plan can help you resist the urge to cash out in a downturn. So too can having an advisor who can help you craft a plan and talk you down when anxiety has you climbing the walls.

Thursday’s need-to-know money news

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Today’s top story: The tax credit fix many can’t afford to miss. Also in the news: Being the first in the family to invest, how to right your retirement savings after coronavirus setbacks, and why your credit karma score seems to high.

The Tax Credit Fix Many Can’t Afford to Miss
Working families could miss out on the refundable tax credits they need to make ends meet.

First in the Family to Invest: How I Saved Almost $700K
Frugality and a commitment to invest at least 20% of his earnings have paid off for this Missouri man.

How to Right Your Retirement Savings After Coronavirus Setbacks
For investors whose retirement savings have been disrupted by the pandemic, there’s a path to replenishment in 2021 and beyond.

Why Your Credit Karma Score Seems Too High
Not all scores are the same.

Monday’s need-to-know money news

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Today’s top story: 4 financial experts who could steer you wrong. Also in the news: Treating investing like a subscription, 7 credit card perks to prioritize in 2021, and Disney cancels its annual Passport Program.

4 Financial ‘Experts’ Who Could Steer You Wrong
Be cautious about taking advice from sources who care more about their profits than your financial health.

Want to Invest More This Year? Treat It Like a Subscription
A better financial future for just $49.99 a month sounds like a late-night infomercial, but it’s not as crazy as it seems.

7 Credit Card Perks to Prioritize in 2021
Resolve to examine your cards’ features and ensure they’re still getting the job done and saving you money.

Disney Cancels Its Annual Passport Program
Over one million customers impacted.

Q&A: It’s not too late for Mom’s stocks

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Dear Liz: My mother is 68. She has had a sizable amount of money in an old work 401(k) for several years now. Unfortunately, it has been stuck in the most conservative low-growth fund for more than 10 years during a time of great stock market growth. If she changed it to a more aggressive fund now, are there tax implications to consider, and would this be an unwise change at her age?

Answer: Ouch. The stock market as measured by the Standard & Poor’s 500 benchmark rose more than 250% in the last decade. Instead of more than tripling her money, her low-growth fund may have barely kept up with inflation.

She can’t get back those lost returns, but she could allocate her money more aggressively without having to worry about triggering taxes. Money in 401(k)s and most other retirement accounts is taxed only when it’s withdrawn.

Q&A: Investing can be scary. How to overcome your anxiety

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Dear Liz: I’m 53 and a debt-free homeowner. I’m employed but don’t have a 401(k) and have only about $80,000 in savings. I realize I need to put that money to work somewhere but I just freeze when it comes to trusting myself or someone else to handle it. Markets lately scare me to death, as do fraudulent or self-serving money managers. But as time ticks away, I develop more and more anxiety about it. What would you suggest?

Answer: Many worthwhile endeavors are scary, and you haven’t got a moment to lose.

You don’t have to make yourself an investing expert. You do need to understand enough about how the markets work that you don’t panic at the first downturn and yank your money out. Consider reading a good book about investing, such as “Investing for Dummies” by Eric Tyson, “The Little Book of Common Sense Investing” by John Bogle or “The Broke Millennial Takes On Investing” by Erin Lowry.

While you can’t control the markets, you can control what’s much more important in the long run: how much you invest and how much you pay in fees. Try to maximize the former and minimize the latter. Consider opening an individual retirement account and contributing the maximum $7,000. (The usual limit is $6,000 per year but people 50 and older can contribute an additional $1,000.)

A discount brokerage, such as Vanguard, Fidelity, TD Ameritrade, ETrade or Charles Schwab, will have low-cost target date retirement funds that do the heavy lifting for you, such as choosing investments, rebalancing and getting more conservative as your retirement date approaches.

If you still want help with investing, seek out an advisor willing to be a fiduciary, which means they’re committed to putting your best interests first.