HOW TO SURVIVE A STOCK MARKET DOWNTURN p 39

PERSONAL
FINANCE

10 SMART PLACES
TO RETIRE
Surprise!
College
towns
aren’t
just for
students.
They offer
an amazing
(and yet
affordable)
mix of fun,
food, culture PLUS
and community. p 44 Nine Crucial
Credit Secrets p 54
How to Beat
Airline Fees p 67
Oxford, Miss.,
tops our list—
Collectibles:
a heady blend of Profits and
football, food
AUGUST 2014 and Faulkner. Pitfalls p 60
 B:17”
T:14.75”
S:14.25”

For people with a higher risk of stroke due to

Atrial Fibrillation (AFib) not caused by a heart valve problem

I focused on finding something better

than warfarin.
NOW I TAKE ELIQUIS® (apixaban) FOR 3 GOOD REASONS:
1 ELIQUIS reduced the risk of stroke better than warfarin.
2 ELIQUIS had less major bleeding than warfarin.
3 Unlike warfarin, there’s no routine blood testing.
ELIQUIS and other blood thinners increase the risk of bleeding which can be
serious, and rarely may lead to death.

B:11.125”
S:9.875”
T:10.5”
Ask your doctor if ELIQUIS is right for you.
This risk is higher if, an epidural catheter is placed You are encouraged to report negative side effects
ELIQUIS® (apixaban) is a prescription medicine used to reduce the risk of stroke and blood clots in in your back to give you certain medicine, you take of prescription drugs to the FDA. Visit www.fda.gov/
people who have atrial fibrillation, a type of irregular heartbeat, not caused by a heart valve problem. NSAIDs or blood thinners, you have a history of medwatch, or call 1-800-FDA-1088.
difficult or repeated epidural or spinal punctures.
IMPORTANT SAFETY INFORMATION: Get medical help right away if you have any of
these signs or symptoms of bleeding:
Tell your doctor right away if you have tingling, Please see additional
numbness, or muscle weakness, especially in your Important Product Information
Do not stop taking ELIQUIS for atrial fibrillation - unexpected bleeding, or bleeding that lasts a legs and feet. on the adjacent page.
without talking to the doctor who prescribed it for long time, such as unusual bleeding from the
you. Stopping ELIQUIS increases your risk of having gums; nosebleeds that happen often, or Before you take ELIQUIS, tell your doctor if you
a stroke. ELIQUIS may need to be stopped, prior menstrual or vaginal bleeding that is heavier have: kidney or liver problems, any other medical
to surgery or a medical or dental procedure. Your than normal condition, or ever had bleeding problems. Tell Individual results may vary.
doctor will tell you when you should stop taking - bleeding that is severe or you cannot control your doctor if you are pregnant or breastfeeding,
ELIQUIS and when you may start taking it again. If - red, pink, or brown urine; red or black stools or plan to become pregnant or breastfeed.
you have to stop taking ELIQUIS, your doctor may (looks like tar) Do not take ELIQUIS if you currently have certain
prescribe another medicine to help prevent a blood
clot from forming.
- coughing up or vomiting blood or vomit that looks types of abnormal bleeding or have had a serious Visit ELIQUIS.COM
like coffee grounds allergic reaction to ELIQUIS. A reaction to ELIQUIS or call 1-855-ELIQUIS
ELIQUIS can cause bleeding, which can be serious, - unexpected pain, swelling, or joint pain; headaches, can cause hives, rash, itching, and possibly
and rarely may lead to death. feeling dizzy or weak trouble breathing. Get medical help right away if
You may have a higher risk of bleeding if you take ELIQUIS is not for patients with artificial heart valves. you have sudden chest pain or chest tightness, ©2014 Bristol-Myers Squibb Company
ELIQUIS and take other medicines that increase your have sudden swelling of your face or tongue, 432US14BR00451-01-01 04/14

risk of bleeding, such as aspirin, NSAIDs, warfarin
(COUMADIN®), heparin, SSRIs or SNRIs, and other
blood thinners. Tell your doctor about all medicines,
vitamins and supplements you take. While taking
ELIQUIS, you may bruise more easily and it may
take longer than usual for any bleeding to stop.
Spinal or epidural blood clots or bleeding (hematoma). have trouble breathing, wheezing, or feeling
People who take ELIQUIS, and have medicine dizzy or faint.
injected into their spinal and epidural area, or have
a spinal puncture have a risk of forming a blood
clot that can cause long-term or permanent loss of
the ability to move (paralysis).

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 B:17”
T:14.75”
S:14.25”

For people with a higher risk of stroke due to

Atrial Fibrillation (AFib) not caused by a heart valve problem

I focused on finding something better

than warfarin.
NOW I TAKE ELIQUIS® (apixaban) FOR 3 GOOD REASONS:
1 ELIQUIS reduced the risk of stroke better than warfarin.
2 ELIQUIS had less major bleeding than warfarin.
3 Unlike warfarin, there’s no routine blood testing.
ELIQUIS and other blood thinners increase the risk of bleeding which can be
serious, and rarely may lead to death.

B:11.125”
S:9.875”
T:10.5”
Ask your doctor if ELIQUIS is right for you.
This risk is higher if, an epidural catheter is placed You are encouraged to report negative side effects
ELIQUIS® (apixaban) is a prescription medicine used to reduce the risk of stroke and blood clots in in your back to give you certain medicine, you take of prescription drugs to the FDA. Visit www.fda.gov/
people who have atrial fibrillation, a type of irregular heartbeat, not caused by a heart valve problem. NSAIDs or blood thinners, you have a history of medwatch, or call 1-800-FDA-1088.
difficult or repeated epidural or spinal punctures.
IMPORTANT SAFETY INFORMATION: Get medical help right away if you have any of
these signs or symptoms of bleeding:
Tell your doctor right away if you have tingling, Please see additional
numbness, or muscle weakness, especially in your Important Product Information
Do not stop taking ELIQUIS for atrial fibrillation - unexpected bleeding, or bleeding that lasts a legs and feet. on the adjacent page.
without talking to the doctor who prescribed it for long time, such as unusual bleeding from the
you. Stopping ELIQUIS increases your risk of having gums; nosebleeds that happen often, or Before you take ELIQUIS, tell your doctor if you
a stroke. ELIQUIS may need to be stopped, prior menstrual or vaginal bleeding that is heavier have: kidney or liver problems, any other medical
to surgery or a medical or dental procedure. Your than normal condition, or ever had bleeding problems. Tell Individual results may vary.
doctor will tell you when you should stop taking - bleeding that is severe or you cannot control your doctor if you are pregnant or breastfeeding,
ELIQUIS and when you may start taking it again. If - red, pink, or brown urine; red or black stools or plan to become pregnant or breastfeed.
you have to stop taking ELIQUIS, your doctor may (looks like tar) Do not take ELIQUIS if you currently have certain
prescribe another medicine to help prevent a blood
clot from forming.
- coughing up or vomiting blood or vomit that looks types of abnormal bleeding or have had a serious Visit ELIQUIS.COM
like coffee grounds allergic reaction to ELIQUIS. A reaction to ELIQUIS or call 1-855-ELIQUIS
ELIQUIS can cause bleeding, which can be serious, - unexpected pain, swelling, or joint pain; headaches, can cause hives, rash, itching, and possibly
and rarely may lead to death. feeling dizzy or weak trouble breathing. Get medical help right away if
You may have a higher risk of bleeding if you take ELIQUIS is not for patients with artificial heart valves. you have sudden chest pain or chest tightness, ©2014 Bristol-Myers Squibb Company
ELIQUIS and take other medicines that increase your have sudden swelling of your face or tongue, 432US14BR00451-01-01 04/14

risk of bleeding, such as aspirin, NSAIDs, warfarin
(COUMADIN®), heparin, SSRIs or SNRIs, and other
blood thinners. Tell your doctor about all medicines,
vitamins and supplements you take. While taking
ELIQUIS, you may bruise more easily and it may
take longer than usual for any bleeding to stop.
Spinal or epidural blood clots or bleeding (hematoma). have trouble breathing, wheezing, or feeling
People who take ELIQUIS, and have medicine dizzy or faint.
injected into their spinal and epidural area, or have
a spinal puncture have a risk of forming a blood
clot that can cause long-term or permanent loss of
the ability to move (paralysis).

@ Studio#: 642-181851 CLIENT: Pfizer Name WC OK Date

Agency Job #: 301-1420ELI4008 Bleed: 17” x 11.125” Colors: 4CP VENDOR: PRODIGIOUS in NY Art Dir: None
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Regular; OpenType) Acct. Mnger: None
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642-181851 Studio: John Vila
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ELI4008-A Proof
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 IMPORTANT FACTS about ELIQUIS® (apixaban) tablets
The information below does not take the place of talking with your healthcare professional. Only your healthcare
professional knows the specifics of your condition and how ELIQUIS may fit into your overall therapy. Talk to your healthcare
professional if you have any questions about ELIQUIS (pronounced ELL eh kwiss).
What is the most important
information I should know
about ELIQUIS (apixaban)?
For people taking ELIQUIS for
atrial fibrillation: Do not stop
taking ELIQUIS without talking
to the doctor who prescribed
it for you. Stopping ELIQUIS
increases your risk of having
a stroke. ELIQUIS may need to
be stopped, prior to surgery or
a medical or dental procedure.
Your doctor will tell you when
you should stop taking ELIQUIS
and when you may start taking
it again. If you have to stop
taking ELIQUIS, your doctor may
prescribe another medicine to
help prevent a blood clot from
forming.
ELIQUIS can cause bleeding
which can be serious, and
rarely may lead to death. This
is because ELIQUIS is a blood
thinner medicine that reduces
blood clotting.
You may have a higher risk of
bleeding if you take ELIQUIS
and take other medicines that
increase your risk of bleeding,
such as aspirin, nonsteroidal
anti-inflammatory drugs (called
NSAIDs), warfarin (COUMADIN®),
heparin, selective serotonin
reuptake inhibitors (SSRIs)
or serotonin norepinephrine
reuptake inhibitors (SNRIs), and
other medicines to help prevent
or treat blood clots.
Tell your doctor if you take any of
these medicines. Ask your doctor
or pharmacist if you are not sure
if your medicine is one listed
above.
While taking ELIQUIS:
• you may bruise more easily
• it may take longer than usual
for any bleeding to stop
Call your doctor or get medical
help right away if you have any
of these signs or symptoms of
bleeding when taking ELIQUIS:
• unexpected bleeding, or
bleeding that lasts a long
time, such as:
• unusual bleeding from the
gums
• nosebleeds that happen
often
This independent, non-profit organization provides assistance to qualifying patients with financial hardship who
generally have no prescription insurance. Contact 1-800-736-0003 or visit www.bmspaf.org for more information.
• menstrual bleeding or • reduce the risk of forming not take more than one dose at
vaginal bleeding that is a blood clot in the legs and the same time. Do not run out
heavier than normal lungs of people who have just of ELIQUIS (apixaban). Refill
• bleeding that is severe or you had hip or knee replacement your prescription before you
cannot control surgery. run out. When leaving the
• red, pink, or brown urine It is not known if ELIQUIS is safe hospital following hip or knee
and effective in children. replacement, be sure that you
• red or black stools (looks like will have ELIQUIS available to
tar) Who should not take ELIQUIS
(apixaban)? avoid missing any doses. If you
• cough up blood or blood clots are taking ELIQUIS for atrial
• vomit blood or your vomit Do not take ELIQUIS if you: fibrillation, stopping ELIQUIS
• currently have certain types of
looks like coffee grounds may increase your risk of
• unexpected pain, swelling, or abnormal bleeding having a stroke.
joint pain • have had a serious allergic What are the possible side
reaction to ELIQUIS. Ask your effects of ELIQUIS?
• headaches, feeling dizzy or doctor if you are not sure
weak • See “What is the most
ELIQUIS (apixaban) is not for What should I tell my doctor important information I
patients with artificial heart before taking ELIQUIS? should know about ELIQUIS?”
valves. Before you take ELIQUIS, tell • ELIQUIS can cause a skin rash
your doctor if you: or severe allergic reaction.
Spinal or epidural blood clots • have kidney or liver problems
or bleeding (hematoma). Call your doctor or get
People who take a blood thinner • have any other medical medical help right away if
condition you have any of the following
medicine (anticoagulant) like symptoms:
ELIQUIS, and have medicine • have ever had bleeding
problems • chest pain or tightness
injected into their spinal and
epidural area, or have a spinal • are pregnant or plan to become • swelling of your face or
puncture have a risk of forming pregnant. It is not known if tongue
a blood clot that can cause ELIQUIS will harm your unborn • trouble breathing or
long-term or permanent loss of baby wheezing
the ability to move (paralysis). • are breastfeeding or plan to • feeling dizzy or faint
Your risk of developing a spinal breastfeed. It is not known Tell your doctor if you have any
or epidural blood clot is higher if: if ELIQUIS passes into your side effect that bothers you or
breast milk. You and your that does not go away.
• a thin tube called an epidural
catheter is placed in your back doctor should decide if you These are not all of the possible
will take ELIQUIS or breastfeed. side effects of ELIQUIS. For more
to give you certain medicine
• you take NSAIDs or a medicine You should not do both information, ask your doctor or
Tell all of your doctors and pharmacist.
to prevent blood from clotting
dentists that you are taking Call your doctor for medical
• you have a history of difficult ELIQUIS. They should talk to the advice about side effects. You
or repeated epidural or spinal doctor who prescribed ELIQUIS for may report side effects to FDA at
punctures you, before you have any surgery, 1-800-FDA-1088.
• you have a history of problems medical or dental procedure. This is a brief summary of the
with your spine or have had Tell your doctor about all the most important information
surgery on your spine medicines you take, including about ELIQUIS. For more infor-
If you take ELIQUIS and receive prescription and over-the-counter mation, talk with your doctor or
spinal anesthesia or have a spinal medicines, vitamins, and herbal pharmacist, call 1-855-ELIQUIS
puncture, your doctor should supplements. Some of your other (1-855-354-7847), or go to
watch you closely for symptoms medicines may affect the way www.ELIQUIS.com.
of spinal or epidural blood clots ELIQUIS works. Certain medicines Manufactured by:
or bleeding. Tell your doctor may increase your risk of bleeding Bristol-Myers Squibb Company
or stroke when taken with ELIQUIS.
right away if you have tingling, Princeton, New Jersey 08543 USA
numbness, or muscle weakness, How should I take ELIQUIS? Marketed by:
especially in your legs and feet. Take ELIQUIS exactly as Bristol-Myers Squibb Company
prescribed by your doctor. Take Princeton, New Jersey 08543 USA
What is ELIQUIS? and
ELIQUIS twice every day with or
ELIQUIS is a prescription medicine without food, and do not change
Pfizer Inc
used to: New York, New York 10017 USA
your dose or stop taking it unless COUMADIN® is a trademark of
• reduce the risk of stroke and your doctor tells you to. If you Bristol-Myers Squibb Pharma Company.
blood clots in people who have miss a dose of ELIQUIS, take it as
atrial fibrillation. soon as you remember, and do
© 2014 Bristol-Myers Squibb Company
ELIQUIS is a trademark of Bristol-Myers Squibb Company.
Based on 1289808A0 / 1289807A0 / 1298500A0 / 1295958A0
March 2014
432US14BR00770-04-01

ELIQ_0314iFacts432US14BR00770_0401_675x9wip2.indd 1 4/1/14 5:28 PM

A @
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PO #: 3010046011
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Trim: 6.75” x 9”
CLIENT:
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APP: CS6
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PFIZER
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Creat. Dir: None

Name WC OK Date

File Name: 642-182303A-1.0 Photographer PPI Live: None

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Scale Ratio: 1” : 1” (77 Bold Condensed; Type 1)
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1.0
 CONTENTS KIPLINGER’S PERSONAL FINANCE // FOUNDED 1947
AHEAD
13 Topic A: The price of staying home
to raise kids . . . Student loan rates inch
up . . . Knight Kiplinger on money and
ethics. PLUS: August money calendar.
18 OPENING SHOT Playing a soft
housing market, by JAMES K. GLASSMAN.
22 YOUR MIND AND YOUR MONEY
When inertia pays off, by ANNE SMITH.
24 SUCCESS STORY Turning sand
into dollars, by PATRICIA MERTZ ESSWEIN
AND LISA GERSTNER.
INVESTING
26 7 GREAT GROWTH STOCKS Our
picks range from a giant entertainment
company to a maker of high-quality
lasers. What they all have in common
is expanding profits and bright futures.
PLUS: Best of the growth funds.
34 HOW TO WIN IN THE EXPLODING
ETF MARKET These days, the sheer
number of ETFs will make your head
spin. Use these 20 solid funds to fill
the gaps in your portfolio.
36 WHAT’S DRIVING THE BOOM IN
BONDS Defying predictions, bonds
are thriving. We look at the reasons
for their surprising strength.
32 GOING LONG The conversion of
Bill Gross, by JEREMY J. SIEGEL.
38 PRACTICAL INVESTING Readers
share their wisdom, by KATHY KRISTOF.
40 CASH IN HAND More power to
utility stocks, by JEFFREY R. KOSNETT.
39 MORE ABOUT INVESTING How to
JEFFERY SALTER/REDUX
survive a 10% downturn (39). News of
the Kiplinger 25 (41). Fund rankings (42).
ON THE COVER: Photograph by Amanda Friedman.
Stylist: Marya Talbot. Hair and makeup: Ashley Rubell.
K8-CONTENTS.indd 3
MONEY // COVER
44 RETIRE TO A COLLEGE TOWN
Living close to a university offers
intellectual and cultural opportunities
ranging from lectures and classes to
concerts and sports. The ten towns
we profile also have great restaurants,
affordable homes and access to good
health care. PLUS: The best and worst
states for retiree taxes.
54 9 CRUCIAL CREDIT SECRETS
Sometimes the world of credit isn’t
just obscure, it’s counterintuitive.
53 ASK KIM Tax records you can toss.
58 RETHINKING RETIREMENT
How much you really need, by JANE
BENNETT CLARK .
57 MORE ABOUT YOUR MONEY
Protect your college student (57). Yields
and rates (59).
VOL. 68 NO. 8
60
LIVING
60 A PASSION FOR COLLECTING To
make money in collectibles, you need
knowledge, skill and patience.
66 TECH Pimp my bike, by JEFF
BERTOLUCCI.
67 DODGING AIRLINE FEES—THE
HARD WAY Our writer runs Spirit
Airlines’ gantlet of extra charges.
69 DRIVE TIME What’s behind all the
recalls, by JESSICA ANDERSON.
70 THE LOWDOWN What you need to
know about timeshares, by PATRICIA
MERTZ ESSWEIN .
IN EVERY ISSUE
6 FROM THE EDITOR Our top places
to retire.
10 LETTERS
3
08/2014 KIPLINGER’S PERSONAL FINANCE
6/5/14 7:35 PM
 KIPLINGER.COM LOG ON & EXPLORE

31 Ways to Save

5
on Health Care
Save hundreds,
even thousands,
with Kim Lankford’s

VIDEOS
guide to cutting
costs on insurance,
doctor visits,
prescription
drugs and more.

1. Worst Buys at Warehouse Clubs

kiplinger.com/links/warehouse

kiplinger.com/links/healthcare 2. Don’t Blow This Social Security Decision

kiplinger.com/links/blow

Kiplinger’s Stocks to 3. Tax-Friendly States for Retirement

Economic Outlook Make You Rich kiplinger.com/links/friendly
Stay ahead with If you can stomach
4. 7 Simple Rules of Investing
exclusive forecasts a rocky ride, these
kiplinger.com/links/rules
of inflation, GDP, growth stocks
jobs and more. might pay off big. 5. Best Buys at Dollar Stores
kiplinger.com/outlooks kiplinger.com/links/rich kiplinger.com/links/dollarvideo

INTERACT
QUIZ YOURSELF
The Obamacare Quiz
See how much you really know about
the health law’s costs and benefits.
kiplinger.com/links/aca

TOOL
Top Mutual Funds by Category
Track the winners among sector funds,
target-date funds, global funds, more. DITCH YOUR CAR, 7 FUNDS TO BUY BRACE FOR HIGHER

TOP TO BOTTOM: ISTOCKPHOTO.COM (3); LISE METZGER (3)

SAVE A FORTUNE & HOLD FOREVER ENERGY BILLS
kiplinger.com/links/category Andrea Browne tallies Steve Goldberg tells The Kiplinger Letter’s Jim
the savings from her investors to put their Patterson explains why
car-free lifestyle. Big-city money in diversified, low- energy costs are rising,
ONLINE STORE commuters, share your cost index funds and get even as the reliability of
Retire Rich! own challenges and tips. on with their lives. service gets shakier.
Knight Kiplinger’s 10 Steps to a Richer kiplinger.com/ kiplinger.com/ kiplinger.com/
Retirement is packed with trustworthy links/ditch links/forever links/bills
advice, guidance, worksheets and
checklists to help you plan for and enjoy ANDREA BROWNE STEVE GOLDBERG JIM PATTERSON
a comfortable and secure retirement. @ANBrowne @Kiplinger @KipLetter

kiplinger.com/go/tools
HOW TO REACH US: Subscriptions. F or i nquiries a bout o rdering, b illing o r r enewing a s ubscription, o r t o r eport a ddress c hanges, connect wi
th
please have your m ailing l abel handy to r eference your account number and v isit us o nline at k iplinger.com/customerservice o r c all
us

800-544-0155, Monday through Friday between 7 A.M. and 9:30 P.M. and Saturday between 8 A.M. and 6 P.M. central time, closed on Sunday.
You c an a lso w rite t o K iplinger’s P ersonal F inance, P.O. B ox 3292, H arlan, I A 51593-0472, o r e -mail u s (sub.services@kiplinger.com).
Twitter
Reprints. PARS International Corp. (212-221-9595, ext. 237; e-mail, jennifer.eclipse@parsintl.com). Content licensing. E-mail licensing@ Facebook
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0472 and instruct us to exclude your name. Tumblr
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KIPLINGER’S PERSONAL FINANCE 08/2014

K8-CONTENTS.indd 4 6/5/14 7:35 PM

 Ranked one of the
“10 Gorgeous Lakes in the US”
by MSN.com

Beauty truly is in the eye of the beholder.

AND HERE, THERE’S SO MUCH TO BEHOLD.

Between the gorgeous land, stunning Lake Oconee, and a

vibrant community of more than 3,000 residents, there’s always
something to do at Reynolds Plantation. A range of exciting Book your Discovery Package at
adventures awaits just 80 miles east of Atlanta – from our Rey nol dsPl an t ation.c om /Re tir e
six golf courses, boating, fishing, and fitness classes to or 87 7-882-3982
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So whether you’re seeking a weekend retreat, a summer home,
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Reynolds Plantation invites you to Come Play this summer. RESIDENCES FROM THE $300’S TO $4M+

Real estate and other amenities are owned by Oconee Land Development Company LLC and/or other subsidiaries and affiliates of MetLife, Inc. (collectively, “OLDC”) and by unrelated third parties. MetLife is not the owner of Reynolds Plantation. Reynolds Plantation Properties, LLC (“RPP”)
is the exclusive listing agent for OLDC-owned properties in Reynolds Plantation. RPP also represents buyers and sellers of properties in Reynolds Plantation which OLDC does not own (“Resale Properties”). OLDC is not involved in the marketing or sale of Resale Properties. This is not
intended to be an offer to sell nor a solicitation of offers to buy OLDC-owned real estate in Reynolds Plantation by residents of HI, ID, NY, OR, or any other jurisdiction where prohibited by law. No offering of OLDC-owned properties can be made to residents of New York
until an offering plan is filed with the Department of Law of the State of New York. As to such states, any offer to sell or solicitation of offers to buy applies only to Resale Properties. Access and rights to recreational amenities may be subject to fees, membership dues,
or other limitations. Information provided is believed accurate as of the date printed but may be subject to change from time to time. The Ritz-Carlton Lodge is a private commercial enterprise and use of the facilities is subject to the applicable fees and policies of the operator.
For OLDC properties, obtain the Property Report required by Federal law and read it before signing anything. No Federal agency has judged the merits or value, if any, of this property. Void
where prohibited by law. WARNING: THE CALIFORNIA DEPARTMENT OF REAL ESTATE HAS NOT INSPECTED, EXAMINED, OR DISQUALIFIED THIS OFFERING. An offering statement has been filed
with the Iowa Real Estate Commission and a copy of such statement is available from OLDC upon request. OLDC properties have been registered with the Massachusetts Board of Registration of Real
Estate Brokers and Salesmen at 1000 Washington Street, Suite 710, Boston, Massachusetts 02118-6100 and the Bureau of Consumer Financial Protection at 1700 G Street NW, Washington, D.C. 20552.
 » UPFRONT
Janet Bodnar
FROM THE EDITOR
Our Top Places to Retire
hink about the characteristics
T you’d choose for a great place
to retire. Perhaps a vibrant
cultural life? Intellectual stim-
ulation? A wide range of outdoor ac-
tivities? An attractive setting? Access
to top-notch health care? When we set
out to plan our cover story on page 44,
we took into account all those things.
But at the very top of our list was one
word: taxes.
For retirees concerned about mak-
ing their money last, keeping living
costs under control is paramount so
that they can afford to soak up the
cultural life, take advantage of the
outdoor activities and pay for the top-
notch health care. In screening college
towns for our list, senior associate edi-
tor Sandy Block started with one basic
requirement: “The towns had to be in
states that are tax-friendly to retirees.”
Sandy is just the right person to
make those choices. As a key member
of the team that built our retiree tax
map at kiplinger.com/links/retiree
taxmap, Sandy helped construct a tax
profile for each of the 50 states and the
District of Columbia, rating them as
friendly, unfriendly or mixed. A few
of the towns on our list are in “mixed”
states, but none are unfriendly.
That rating system explains some
notable absences. For example, you
won’t find any West Coast towns in
California or Oregon, nor will you find
any charming New England villages.
“With the exception of New Hamp-
shire, all of the states north of Penn-
sylvania are tax-unfriendly,” says
Sandy, mostly because of high prop-
6
KIPLINGER’S PERSONAL FINANCE 08/2014
K8-NOTES.1.indd 6
erty taxes. Contrast that with Missis-
sippi—home to Oxford, tops on our list
of college towns, and one of our ten
tax-friendliest states.
Property taxes can take a big bite
out of your income. But to see how
you’ll be affected by taxes in retire-
ment, you should also look at income
and sales levies, paying close attention
to what’s excluded from each. For
example, some states with income
taxes exclude pension income or IRA
withdrawals (see page 51), and pre-
scription drugs are often exempt from
sales tax. Also, 19 states and the Dis-
trict of Columbia have estate or inheri-
tance taxes, some of which kick in at
$1 million or less. You can find details
on each state on our retiree tax map,
which also lets you do side-by-side
comparisons of up to five states.
Narrowing the search. Of course, taxes
aren’t everything. One city we consid-
ered in a tax-friendly state was Tucson,
home to the University of Arizona. But
we decided to focus on smaller college
towns with robust arts, culture and
sports scenes, great restaurants, and
an affordable cost of living. Our
choices are spread across a range of
geographic locations and climates.
Downsizing our search didn’t make
it any easier. When senior editor Mark
Solheim returned from visiting Oxford
(population 20,865), he asked for more
space to write about his impressions.
In addition to football, Faulkner and
food, Mark adds a fourth observation:
“It struck me as a family-values kind
of place.” One retired couple he met
“We focus on college
towns with robust arts
and sports scenes.”
had moved from Virginia to be near
their grandchildren, and the Oxford
Newcomers Club provides an instant
social network. It didn’t take Mark
long to feel connected in a place where
“people make eye contact and say hello.”
After dining on shrimp and grits and
sampling a selection of regional bour-
bons, he was sold on Oxford as our top
choice. “If you ever lived or went to
school there, you’d want to go back.”
P.S. For in-depth information on
choosing a place to live in retirement,
minimizing the tax bite and creating
an income stream, check out our new-
est product, Knight Kiplinger’s 10 Steps
to a Richer Retirement, an essential
toolkit aimed at people in their fifties
and older (available at kiplinger.com/
go/tools). ■
LISE METZGER
j anet bodnar , edit or
f ol l ow j anet ’s u pdat es a t w w w.t wit t er
.com/j anet bodnar .
6/6/14 12:16 PM
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 PERSONAL
FINANCE

EDITORIAL
EDITOR IN CHIEF Knight A. Kiplinger
EDITOR Janet Bodnar
EXECUTIVE EDITORManuel Schiffres SENIOR EDITOR, MONEY/LIVING Mark K. Solheim
MANAGING EDITOR Barbara Hoch Marcus
SENIOR EDITORS Jane Bennett Clark, Jeff rey R. Kosnett, Anne Kates Smith
SENIOR ASSOCIATE EDITORS Sandra Block, Nellie S. Huang, Marc A. Wojno (research)
ASSOCIATE EDITORS Jessica L. Anderson, Patricia Mertz Esswein, Lisa Gerstner
STAFF WRITER Susannah Snider
CONTRIBUTING EDITORS Carolyn Bigda, Andrew Feinberg, James K. Glassman,
Kathy Kristof, Kimberly Lankford, Jeremy J. Siegel
OFFICE MANAGER Glen Mayers

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K8-MASTHEAD.1.indd 8 6/6/14 2:37 PM

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 » LETTERS

wwhole is a better indicator

oof financial progress. Be-
ssides, tracking individual
sstocks is easy these days.
Gr eg Sa at hof f
Eagl e, Idah o
I vote for receiving divi-
ddends as a source of ready
ccash. If you owned apart-
mments and one had particu-
llarly good cash flow, would
yyou reinvest by installing
ggranite countertops or satin
nnickel fixtures? That would
pput your gain in someone
eelse’s hands. A gain is really
rreal when it is made liquid.
DDon’t be happy with just
a statement.
Spencer Cowa n
Or a nge , Ca l .
Trust, but verify. I don’t agree
T Even if I’m going to be paying
tthat a used-car buyer should
mmove on to the next prospect
iif the seller won’t let you take
tthe car to your mechanic
((“Sweet Deals on Used
CCars,” June). A seller might
ONLINE
CHATTER
OUR ADVICE ON HOW TO
manage student-loan debt
spurred debate (“Starting
Out Guide to Your Money,”
June):
“In most cases, interest begins
accruing from the moment
your loan commences. It is
essential to make payments
starting on day one instead
of extending a year or so.”
“You should pay off student
loans rapidly only if the inter-
est rate on your student loans
exceeds the long-term aver-
age of 8% you could get in
the stock market.”
“I have medical school debt.
the loans off for 30 years,
they will be paid off. I may
not have an Audi or a Mer-
cedes, but I have a job that I
love and enough coin to drive
a used Toyota, insure it for

Advice From Readers worry that a prospective

Columnist Kathy Kristof
invited readers to comment
on her policy of reinvesting
dividends and asked what
mattered most to them: the
returns of individual hold-
ings or overall performance
(“Practical Investing,” June).
Below are a couple of re-
sponses. (For more on what
readers said, see page 38.)
in tracking the return
on individual investments;
I think the portfolio as a
Q READER
POLL
What have you asked your
credit card issuer to do?
Drop a late fee
43%
●● CORRECTIONS
Waive annual fee
The Toyota model pictured
buyer could disappear with
cheap and take care of my
family.”
the car and never return it.
“I am swimming in so much
If I were selling my car, I
debt that a $40,000 salary
would offer to drive it to the
isn’t cutting it. I moved to
prospective buyer’s mechanic
Texas for the lower cost of
and wait while the car was
inspected—a win-win for
living and the ability to get
a job in the field I studied in
both buyer and seller.
college, but a car payment,
Rit a Faye Smit h
rent and $700 in loans per
Da l l as
month isn’t doable.”
SOURCE: POLL SURVEYED 339 KIPLINGER’S READERS

I’ve been reading the maga-
zine for more than 25 years.
Kiplinger’s helped me retire
from the high-tech industry
two years ago at age 48 (I’m
embarking on a second ca-
reer as a secondary-school
teacher). With regards to
your recent feedback re-
quest, I am not interested
10
KIPLINGER’S PERSONAL FINANCE
21%
Change payment date on page 68 of the June issue › LETTERS TO
20% is a 2012 Prius v, not a 2011 THE EDITOR
Lower interest rate Prius II (“Sweet Deals on Letters to the editor may be
17%
Used Cars”). edited for clarity and space,
Improve signup bonus
3% and initials will be used on
None of the above
The table on page 41 of request only if you include
38% the June issue should have your name. Mail to Letters
Editor, Kiplinger’s Personal
For more ideas on how to get the been labeled “Midsize-
most out of your credit card, turn Finance, 1100 13 St., N.W.,
to page 54.
Company Value Funds” Washington, DC 20005, fax
(“Fund Spotlight”). to 202-778-8976 or e-mail
to feedback@kiplinger.com.
Please include your name,
address and daytime tele-
08/2014
phone number.

K8-LETTERS.1.indd 10 6/6/14 2:56 PM

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Are Tax Free Municipal
Bonds Right for You?
Please call 1-800-318-4850
for your free Bond Guide.
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 investment-
grade 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 $2 billion in assets in over
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institutional quality service and personal attention.
What To Do Now
Call 1-800-318-4850 and request our Bond Guide,
written by the experts at Hennion & Walsh. It will
give you a clear and easy overview of the risks and
benefits of tax-free municipal bonds.

Dear Investor,
We urge you to call and get your free Bond Guide. Having tax-
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free municipal bonds as part of your portfolio can help get your Without Cost or Obligation
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your investment goals. Getting your no-obligation guide could CALL 1-800-318-4850
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be the smartest investment decision you’ll make.
Hennion & Walsh, Bond Guide Offer
Sincerely, 2001 Route 46, Waterview Plaza
Parsippany, NJ 07054

© 2013 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, prices rise. *Source: Moody’s Investor Service, March 7, 2012 “U.S. Municipal Bond Defaults and Recoveries,
1970-2011.” Past performance is no guarantee of future results.
 » AHEAD
TOPIC A
WEIGH THE PRICE
OF STAYING HOME
Trading a job to raise kids may cost
more than you think. BY ANNE KATES SMITH
AFTER DECADES OF DECLINE,
the number of stay-at-home
moms is on the rise. A re-
cent Pew Research analysis
of census data found that
29% of U.S. mothers stayed
home with kids in 2012.
That’s up from 23% in 1999,
MAXWELL HOLYOKE-HIRSCH
the trough of a drop-off
that began in the 1970s.
Visit a park on a weekday
morning and you’ll see that
dads, too, are swapping
K8-AHEAD.indd 13
desk chairs for high chairs.
Some parents are at home
for lack of a job. Those there
by choice say you can’t put a
price on sandbox time with
a preschooler or heart-to-
hearts while chauffeuring
a teen. But parents should
factor in costs beyond the
commute, child care and a
professional wardrobe be-
fore making the decision to
stay home.
A lapse in retirement
saving, for instance, can
devastate a nest egg. A 25-
year-old earning $40,000
a year and saving 13% of her
salary (including any em-
ployer match) can expect to
replace 50% of her income
at retirement, according to
a study by T. Rowe Price.
But take three years off, and
the replacement rate falls to
43%; five years, and it drops
to 39%. To make up for a
three-year lapse, you’d have
to save 15% of your salary
thereafter, or 17% of your
pay after a five-year hiatus.
If you decide to take time
off, continue to save in a
spousal IRA. The account
can be funded by the work-
08/2014
ing spouse, but it is in
the nonworking partner’s
name. You can open a tradi-
tional or Roth IRA as long
as you’re married and file
a joint return. Your lower
family income may make
you eligible for a Roth if you
weren’t before you stayed
home. Consider whether
a lower income—and hence,
a lower tax bite—makes
converting a traditional
IRA to a Roth worthwhile.
Check whether the stay-
at-home parent will be eli-
gible for Social Security
benefits at retirement age.
You’ll need 40 credits,
requiring at least ten years
of working and paying into
Social Security. Consider
13
KIPLINGER’S PERSONAL FINANCE
6/5/14 4:50 PM
 » AHEAD
working a little longer if you
are close, says David Stull,
a certified financial planner
with Storehouse Financial,
in Fort Worth. The Social
Security Administration
considers the 35 years of
highest earnings to figure
benefits, so years with zero
earnings will cost you. Even
part-time work can have
a big impact down the road.
Stay-at-home parents who
don’t qualify for benefits on
their own are entitled to up
to one-half the benefit of
the working spouse.
Don’t neglect life insur-
ance on the parent at home
(it’s unlikely anyone else
will work that job for free).
And make sure the bread-
winner has adequate life
and disability insurance.
But the best insurance for
a stay-at-home spouse is the
ability to find a well-paying
job, says Marina Goodman,
a certified financial planner
and investment strategist
at Giralda Advisors, in
Madison, N.J. Professionals
who stay home should
maintain their credentials
and continue to network.
When kids are older, con-
sider part-time work or vol-
unteering. “You want to
know you can go back to
work if you have to,” says
Goodman.
Budgeting is key for a
two-income family down-
scaling to one income. If
the breadwinner becomes
unemployed, there will be
no backup income, so you’ll
need a bigger emergency
fund, for starters. Try living
on one income for a while
before you take the plunge,
says Stull. “That’ll help you
decide if you want to make
the sacrifice.”
14
KIPLINGER’S PERSONAL FINANCE
K8-AHEAD.1.indd 14
INTERVIEW
HOW TO SAVE
ENOUGH TO RETIRE
Setting the right priorities helps.
Hint: Put yourself first.
Carrie Schwab-Pomerantz
is president of the Charles
Schwab Foundation and
senior vice-president at
Charles Schwab & Co. She
is the author of The Charles
Schwab Guide to Finances
After Fifty.
What question do you get most
often from people about their
finances? It’s “How much
do I need to retire?” Our rule
of thumb is that you need 25
times the amount you expect
to withdraw from your sav-
ings each year. For instance,
if you need $60,000 to live
on and you get $20,000
from Social Security, you’ll
need $1 million to generate
$40,000 in income.
Are most people on track?
People aren’t saving enough.
I know it’s daunting because
the financial world has be-
come so complex. Think
of everything we have to
choose from: the Roth IRA,
traditional IRA, Roth 401(k),
Simple IRA, and on and on,
with different savings vehi-
cles for college education.
It creates analysis paralysis.
Even financial professionals
want to run for the hills.
Is it that people don’t under-
stand that they need to save, or
that they don’t have the money
to save? It’s a combination.
How many friends do you
08/2014
know who haven’t started
saving for retirement, or
didn’t save until their for-
ties or fifties? Or live almost
paycheck to paycheck? Or
put their kids’ college first
before their retirement? I’m
not saying don’t help your
kids, but don’t do it at the
expense of your future.
How can people cut through the
complexity? When people
are trying to figure out
where to put their
money, we say to
save first in a
401(k), enough
to capture
any matching
funds from
your employer.
Two: Pay
off your non-
deductible,
high-
interest debt. If you’re
paying 15% on a loan, that
money can go back into sav-
ings once it’s paid off. Then
create a cash emergency
fund sufficient to pay three
to six months of essential
expenses. Save in any other
retirement accounts after
that. Only then should you
think about saving for col-
lege or a home. You have to
put yourself first.
What’s a good strategy for using
your savings when you retire?
When we talk about with-
drawal strategies, we say
cash in your maturing
bonds or certificates of
deposit first, and take
required minimum distri-
butions from retirement
accounts, if you have to.
Next, go to your taxable
investment account, by
selling the losers or
the highly appreci-
ated securities
when you rebal-
ance your port-
folio. Then, your
traditional IRA.
It’s tax-wise to
go as slow as you
can with your
Roth IRA.
ANNE KATES
SMITH
JACK HUYNH/ORANGE PHOTOGRAPHY
ALLISON MICHAEL ORENSTEIN
6/5/14 7:43 PM

COLLEGE
LOAN RATES INCH UP
But don’t panic. The increase won’t dent
your budget much.
FIRST, THE BAD NEWS:
Federal student loans are
more expensive this year.
Undergraduate Stafford
loans disbursed after July 1,
2014, carry a 4.66% interest
rate, up from 3.86%. Rates
on Staffords for graduate
and professional students
are now 6.21%, and PLUS
loans for graduates and
parents now charge 7.21%.
But there’s good news: The
hikes are manageable.
Valerie Cathcart, a rising
senior at Marymount Man-
hattan College, in New York
City, isn’t too worried. She
borrowed $6,500 in unsub-
sidized Stafford loans last
year (the loans accrue inter-
JACK HUYNH/ORANGE PHOTOGRAPHY
est while students are still
ALLISON MICHAEL ORENSTEIN
in school) and plans to take
out $7,500 (the maximum
for dependent undergradu-
ate third years and above)
this year. But the higher
rate will add only about
K8-AHEAD.indd 15
■ LOANS WILL
COST A LITTLE
MORE THIS YEAR
FOR VALERIE
CATHCART.
$3 per month to a $7,500
loan, or about $345 over a
standard ten-year repay-
ment period. And last year’s
debt will remain at the old
rate of 3.86%—no retroac-
tive rate change there. “I’m
just happy that it’s happen-
ing my last year of college,”
says Cathcart.
Borrowers can’t dodge
higher rates, but they can
borrow wisely. Reduce the
need for loans by tapping
savings, working part-time
and cutting your cost of liv-
ing. After graduation, sign
up for automatic debits to
repay your loans, which
will cut your interest rate by
0.25 percentage point (see
“Your Mind and Your
Money,” on page 22). Avoid
private loans. Their rates
are typically variable, and
the loans don’t offer the same
protections as federal debt.
SUSANNAH SNIDER
WHAT’S THE DEAL
GOT A BEEF? FIX-IT
SERVICES CAN HELP
But you may do better on your own.
WHEN IT COMES TO
wrangling a refund for
a delayed flight or an un-
just bill, many consumers
would rather let the occa-
sional error slide than wade
through pages of fine print
to figure out their entitle-
ment. So services that prom-
ise to recoup your money
may sound tempting, espe-
cially when there is no ini-
tial fee and all you have to
lose is a cut of your refund—
which you may not have
asked for in the first place.
A sampling of these start-
ups includes Fixed, an app
that contests parking tick-
ets; 71lbs, which collects
refunds for late package de-
liveries; and AirHelp, which
claims compensation for
delayed or canceled flights
to or from Europe.
These are recent iterations
of an old idea, says Susan
Grant, of the Consumer
Federation of America.
There’s nothing inherently
wrong with these sorts of
businesses—as long as they
don’t charge upfront (a sign
of a scam). But disgruntled
consumers may do better on
their own.
Start your dispute with
the business itself. Use a
social-media platform, or
send a complaint letter.
Make it clear you’ll notify
a consumer agency if you
don’t hear back promptly.
Then explore one of many
free services that don’t skim
from your payment, such
as local Better Business Bu-
reaus, consumer protection
agencies or trade associa-
tions that handle disputes.
You can find them in the
Consumer Action Handbook,
available at USA.gov.
If you do resort to a fix-it
service, clarify how your
personal information will
be used, and exactly what
you are signing away if a
power of attorney is required.
Be wary of services that
imply you’ll never succeed
without extensive experi-
ence. Says Lois Greisman,
of the Federal Trade Com-
mission, “Consumers can be
enormously effective when
dealing with a legitimate
company.” MIRIAM CROSS
EXCERPT FROM
The Kiplinger Letter
MORE MOBILE
ROBOCALLS
Automated messages to
consumers’ cell phones are
getting the go-ahead. Recent
Federal Communications
Commission decisions are
clearing away legal concerns.
Watch for more use of text-
ing and robocalls—not all of
them sales pitches. Retailers
will use them to warn of data
breaches. Utilities, police and
others will send alerts about
brownouts, emergencies, etc.
(www.kiplingerbiz.com/
155
ahead/robo)
6/5/14 4:50 PM
 » AHEAD

SHOPPING are testing the concept on in addition to a service fee.

a smaller scale. Some retailers waive the fee

CURBSIDE SERVICE Here’s how it works: You

FOR GROCERIES
Order online and pick up your bags for
less than the cost of home delivery.
THE LAST THING ANYONE
wants to do after a long day
at work (or with kids in tow)
is trek through the super-
market. So a growing num-
ber of grocers are offering
online ordering and will
bring the goods right to
your car. Harris Teeter
has opened more than 150
“click and collect” locations
in seven states. Other gro-
cers, including Hannaford,
Giant and Weis Markets,
go to the store’s Web site
and order your groceries,
noting preferences such
as green bananas or thinly
sliced deli meat. Then you
schedule a pickup for later
in the day or a few days
later. When you arrive at
the store, the bagged gro-
ceries are brought to your
car. Most of the programs
charge $5 to $10 per order;
many are cheaper than
home delivery, which may
el fees
include distance or fuel
for larger orders—say, $125
or more. Others, such as
Giant, don’t charge a fee at
all. Still others are experi-
menting with monthly or
yearly all-you-can-shop
fees. Some grocers offer
both delivery and click-and-
collect services. But look for
curbside pickup to gain trac-
tion in areas where sprawl-
ing communities make
home delivery costly and
impractical. KAITLIN PITSKER

MONEY & ETHICS // KNIGHT KIPLINGER

I JUST MOVED IN, AND YOU WANT

MONEY FOR WHAT?
A few days after I moved into my new apartment, a neighbor
came around collecting from all the tenants in our small building

Q for a retirement gift for the longtime janitor, who was appar-
ently very popular. He said everyone was chipping in $200.
I told him that I hadn’t met the man and, as a new tenant,
hadn’t benefited from his service over the years, so I declined to
contribute. Now the neighbor is telling everyone I’m a cheapskate. In fact,
I’m quite generous to service workers, especially those who go the extra mile
to be helpful. Who’s right on this?

Your position makes sense and is ethically sound, and A similar quandary is faced by new tenants who move in

A your neighbor was out of line in saying anything nega-

tive about any tenant’s donation, whatever the amount.
People have different means, and $200 isn’t chicken
feed. (Don’t I recall an episode of Friends in which Ross faced this
dilemma?) Your neighbor should also have contacted the previous
tenant of your apartment—who did benefit from the janitor’s serv-
ices, perhaps for a lengthy period, and should have contributed to
the retirement kitty.
That said, it would have been diplomatic of you to make a small
contribution as a neighborly gesture; after all, even new tenants
at year-end and are approached to make a contribution to the
employees’ holiday fund. An ideal solution is for them to make
donations that are proportional to the amount of time they
were residents of the building.
I’m pleased to hear that you are usually generous when you
tip service employees, especially those with a genuine ethic
of serving others. Many service workers are paid a small hourly
wage and depend upon tips. Acknowledging their helpfulness
throughout the year, and especially at year-end, is always appro-
priate and welcome.
LISE METZGER

get some benefit from the tidiness of the building under the retir-
HAVE A MONEY-AND-ETHICS QUESTION YOU’D LIKE ANSWERED IN THIS COLUMN?
ing janitor’s watch. WRITE TO EDITOR IN CHIEF KNIGHT KIPLINGER AT ETHICS@KIPLINGER.COM.

16
KIPLINGER’S PERSONAL FINANCE 08/2014

K8-AHEAD.indd 16 6/5/14 4:50 PM

 » AHEAD

CALENDAR
08/2014

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LISE METZGER

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K8-AHEAD.indd 17 6/5/14 4:50 PM

 » AHEAD
JAMES K. GLASSMAN > Opening Shot
Playing a Soft Housing Market
tocks of companies that build houses
S have been languishing. Over the
past year, SPDR S&P Homebuilders
ETF (symbol XHB), an exchange-
traded fund, gained 2.3%, while Standard
& Poor’s 500-stock index returned 20.5%.
With a gap that wide, the contrarian in
me can’t help but wonder whether builder
stocks are undervalued. Is there an oppor-
tunity for bargain-hunting investors who
like to buy what others shun?
Over the past few months, economists
and other people who watch the housing
market have certainly been growing more
pessimistic. New construction is leveling
“
off, prices aren’t rising much, and the sup-
ply of homes on the market is increasing.
Because real estate is subject to the forces
of supply and demand, an abundance of
All those choices for buyers means lower prices.
One reason for the softening market is
kids in their the increase in mortgage rates over the
past year. But a more important reason
twenties and may simply be that the economy is so weak.
Paychecks are stagnating. And although
thirties who the unemployment rate may have dropped,
are living a big reason is that discouraged Americans
have stopped looking for jobs.
with their Typically, housing starts and real estate
prices increase as more people start work
parents will and build families. Now, it’s not unusual
for kids to graduate from college, search for
eventually a job for a long time and, even if they find
want their one, continue to live with their parents.
Some 21.6 million millennials lived with
own homes.” their parents in 2012 (the most recent year
for such statistics), compared with only 18.5
million in 2007.
Roller coaster. Then there’s the housing-price
bubble that started the financial crisis in
the first place. Home prices have histori-
cally increased at just about the same rate
as inflation; but from 2000 to 2006, the
S&P/Case-Shiller 20-City Composite Home
Price index more than doubled, soaring
from 100 to 207. Then the bubble popped,
18
KIPLINGER’S PERSONAL FINANCE 08/2014
K8-GLASSMAN.indd 18
and by 2009 the index fell to 139, a loss of
about one-third. The index is now at 167.
It’s hard to know whether housing prices
are too high, too low or just right. But we
can be pretty sure that there’s a lot of pent-
up demand. All those kids in their twenties
and thirties who are living with their par-
ents will eventually want their own homes.
Plus, I think there’s a good chance that
Americans won’t stand for 2% economic
growth much longer; they will demand
growth-enhancing policies, such as tax-
rate cuts and trade deals that result in
better jobs. Even if we can’t tell what the
future holds, we can look at what the prices
of home-building stocks imply that it holds.
If those prices reflect too much pessimism,
then it’s a good time to buy.
Prices of home-building stocks definitely
reflect some pessimism. Consider Pulte
Group (PHM). In 2005, before the bubble
started to deflate the stock, it peaked at
$46; it’s now $20 (all prices and returns
are as of May 30). Still, Pulte doesn’t seem
undervalued. Analysts estimate that the
Bloomfield Hills, Mich., company will earn
$1.16 per share this year and $1.44 next
year. Based on 2015 estimates, the stock’s
price-earnings ratio is 14. That’s less than
the overall market’s P/E but well above the
stock’s average P/E during the glory days.
It’s true that when earnings are depressed,
P/Es are often higher than normal. But in
the case of homebuilders, I don’t think pro-
jected 2015 earnings are all that low.
Another example: KB Home (KBH),
a large Los Angeles–based builder, which
made a profit in 2013 after six straight
years of losses. Its stock has fallen by about
one-fourth from its recent peak, in June
2013, and by some 80% from its record
high, in 2005. But again, if analysts’ projec-
tions are right, KB, at $16, trades at 11 times
estimated earnings for the fiscal year that
LISE METZGER
ends in November 2015. That’s not cheap
enough to entice me.
All of the major home-building stocks are
6/5/14 3:55 PM
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 » AHEAD
in the same boat: They carry relatively
“Beazer high valuations based on expected 2015
earnings. If share prices do fall a lot fur-
Homes, which ther—say, by one-third or more—then my
lost money favorite building stock is TOLL BROTHERS (TOL),
which, at $36, trades at 16 times estimated
every year profits for the year that ends in October
2015. Toll is a class act, with a good balance
from 2007 sheet and strong leadership.
through 2013, Limited opportunities. It’s possible that the
is surging analysts—like the economists and other
housing mavens—are too gloomy. Even so,
back into it’s hard to see much appreciation potential
in homebuilders today unless the Case-
the black.” Shiller index shoots past 180 in the next
few months. And if that happens, we are
probably in another bubble.
Still, I do want to offer one homebuilder
stock to buy now, BEAZER HOMES USA (BZH). At
$20, the stock has lost more than 95% since
its heyday, so the potential is great. But it is
also very risky. The Atlanta-based company
carries so much debt that it has to dip into
its cash balances to pay interest. However,
Beazer, which lost money every year from
2007 through 2013, is surging back into the
black, and it will benefit if the market re-
covers spectacularly and housing starts
surge to their pre-recession levels. Buy the
stock knowing that you could lose your en-
tire investment—or perhaps quadruple it.
Also consider a new kind of public com-
pany that buys houses (many of them fore-
closures), renovates them and then rents
them out. Rentals will look even better if
■ HOME-
IMPROVEMENT
CHAINS, SUCH
AS HOME
DEPOT, OFFER A
DIFFERENT WAY
TO CASH IN ON
THE HOUSING
MARKET.
20
KIPLINGER’S PERSONAL FINANCE 08/2014
K8-GLASSMAN.indd 20
interest rates rise. AMERICAN HOMES 4 RENT
(AMH), launched in 2011, went public last
year and now owns more than 25,000
houses in 22 states. It’s structured as a real
estate investment trust, which means the
Agoura Hills, Cal., company must distrib-
ute nearly all of its profits to shareholders
as dividends. At $18, the current yield is
only 1.1%, but as profits rise, you can expect
dividends—and the share price—to climb.
American Homes lost money in its first
three years, but analysts estimate that
funds from operations will be 60 cents per
share this year and 93 cents in 2015 (akin
to cash flow, FFO is the REIT industry’s
preferred measure of profits). The stock’s
price—19 times estimated 2015 profits—
seems high. But unlike homebuilders,
American Homes’ revenues and earnings
are growing swiftly. Like Beazer, it’s risky
but worth considering.
Another good way to play the housing
market is to invest in home-improvement
stocks, a strategy I recommended in my
December 2012 column. Two picks, HOME
DEPOT (HD) and LOWE’S (LOW), roughly doubled
in two-and-a-half years. But, incredibly
enough, they are still worth buying.
Home Depot’s revenues should reach
some $83 billion in the fiscal year that ends
next January, up from $68 billion in the
year that ended in January 2011. Over the
same period, earnings are forecast to more
than double, to $4.42 per share. The stock,
at $80, boasts a P/E of 18. That is perfectly
reasonable for a business that is expected
to deliver annual profit growth of 15% over
the next three years. The story is similar
for Lowe’s, but I prefer Home Depot,
mainly because of its higher dividend yield
of 2.3%. The company has raised its payout
sharply in recent years. It’s now up to $1.88
annually, or nearly twice the dividend of
2010 and nine times that of 2002.
When I started researching homebuild-
ers for this article, I was nearly certain that
it was time to start buying them, that the
pessimism was overdone. That isn’t the
case, at least not yet. But there are other
ways to profit from the fact that everyone
ISTOCKPHOTO.COM
has to live somewhere. ■
JAMES K. GLASSMAN IS A VISITING FELLOW AT THE AMERICAN
ENTERPRISE INSTITUTE. HIS MOST RECENT BOOK IS SAFETY NET:
THE STRATEGY FOR DE-RISKING YOUR INVESTMENTS IN A TIME OF
TURBULENCE. HE OWNS NONE OF THE STOCKS MENTIONED.
6/5/14 3:55 PM
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6/4/14 9:29 AM
 » AHEAD
ANNE KATES SMITH > Your Mind and Your Money
When Inertia Pays Off
don’t have to tell you, especially if
I  you’re reading this poolside with a
cool drink nearby, that August is a
great month for doing nothing. Turns
out Americans—humans, really—are pretty
good at that. So behavioral experts have
pushed 401(k) plan sponsors to use inertia
to our benefit. Make saving effortless, the
argument goes, and more people will save.
Guess what? It’s working.
Vanguard, the giant investment firm,
manages more than $570 billion in 401(k)
“
and equivalent employer-sponsored retire-
ment plans. An analysis of the plans in 2013
found that when enrollment was automatic,
82% of workers participated (employees
Many can opt out if they wish). When employees
had to sign up for the plans on their own,
companies only 65% participated.
will raise Automated saving has a downside, how-
ever. Vanguard reports that investors who
your annual were automatically enrolled in their em-
ployer’s savings plan set aside 4.9% of their
retirement salary, on average, annually. But those who
enrolled on their own shoveled away 7.5%.
contribution Fidelity Investments found almost identical
averages at the plans in its shop during the
for you—no first quarter.
need to lift The problem with automatic enrollment
is that workers may start out at dangerously
a finger.” low savings rates, and in this case the power
of inertia works against them. Fidelity re-
ports that 73% of employers that automati-
cally sweep employees into a savings plan
enroll them at a default rate of 3% of salary
or less. Even accounting for employer con-
tributions, these workers could be well short
of what they should be saving. Of course,
they can always set aside more. But many
believe their employers endorse the default
savings rate, and that can compound their
inertia. “Default rates are sticky,” says Jean
Young, senior research analyst in Vanguard’s
Center for Retirement Research.
Many companies will raise your annual
contribution rate for you—again, no need
to lift a finger (although you might have
22
KIPLINGER’S PERSONAL FINANCE 08/2014
K8-YMYM.1.indd 22
to sign up at the beginning). Such plans
typically escalate your savings rate by
1% of your salary per year, up to a cap of,
say, 6%. About 20% of plan participants at
Fidelity increased their savings rate in the
past 12 months, and more than one-third
of the increases were automatic. Half of
the increases young workers made were
due to automatic-escalation programs.
Upward trend. Still, for many savers (espe-
cially those who got a late start or who
have no other retirement savings) such
nudges might not be enough, says UCLA
professor and behavioral finance guru
Shlomo Benartzi. It’s generally recom-
mended that savers put away 10% to 15%
of their income, including any employer
match. “Everyone should look at the default
rate and think about whether they should
do more,” says Benartzi. “At the same time,
employers should be more proactive about
suggesting that people go beyond the de-
fault.” He sees default rates increasing at
corporate plans, for both initial savings
and annual increases. “The trend is in the
right direction,” he says.
Automating can pay off in areas besides
retirement. You can shave 0.25 percentage
point off the interest rate on your federal
student loans by having your payments
electronically debited. Wells Fargo and other
private student-loan lenders offer the same
0.25-point rate reduction. And almost all
major car insurers will give you a discount
for paperless billing or automatic payments.
For instance, Allstate’s Easy Pay Plan will
discount your premium by 2% to 7% (de-
pending on your state) if you pay via auto-
matic withdrawals from your bank account.
Auto-pay six months’ worth of premiums
at a time and you’ll save 5% to 13%.
So go ahead, relax. As long as you set the
right course, parts of your financial life will
LISE METZGER
do fine on autopilot. ■
ANNE KATES SMITH IS A SENIOR EDITOR AT KIPLINGER’S
PERSONAL FINANCE MAGAZINE.
6/5/14 3:47 PM
 NO BULLS.
NO BEARS.
JUST BETTER.
Betterment customers can expect 4.3% higher returns1
than the average DIY investor through automation,
diversification, and low fees.

Get up to 6 months of free automated investment management | www.betterment.com/magazine

1
4.3% higher expected returns is the combined estimated value of the individual benefits provided by Betterment’s passive investment portfolio, global
diversification, automatic rebalancing, and features that encourage better investor behavior. Analysis was conducted by Betterment. Actual performance will
vary greatly. For a complete discussion, visit www.betterment.com/growth

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securities in jurisdictions where Betterment is not registered. Betterment and the Betterment Speedometer are trademarks of Betterment Holdings, Inc.
 $ SUCCESS STORY
Turning Sand Into Dollars
Bored at the shore, a former dental hygienist launches a booming beach business.

PROFILE
WHO: Barbara Bigford, 58
WHERE: Paoli, Pa.
WHAT: Invented and licensed
Beach Pockets, anchors for beach
umbrellas
Where did you get your idea? For
years, I took my three kids
and our beach umbrellas to
the shore. I’d look forward
to reading my novel but end
up holding down umbrellas
in the wind. One day in 2001,
I was bored and staring at
the sand. I thought, Why
not use it to hold down the
umbrellas?
have a couple of prototypes
made, and I took them to a
trade show. The response
was overwhelmingly posi-
tive. I hired a manufacturer
in Orlando to make 6,000
units. Over the next several
years, I sold to Acme super-
markets, Ace Hardware,
SuperValu, Walgreens and
other retailers. In 2004,
I appeared on QVC [the
broadcast retailer], where
I sold more than 2,000 units
in six minutes.
How did you finance the busi-
ness? I used about $34,000
$1.6 million in sales. I real-
ized that I needed help to
run a growing business.
I didn’t want to sell the
company, so licensing my
product to another company
to manufacture and distrib-
ute seemed best. After the
first licensing agreement
didn’t work out, in 2013
I signed with Aqua Leisure,
in Boston, a leader in sea-
sonal and recreational
goods. The company paid
me an initial royalty to be-
gin our partnership, and I’ll
get between 4% and 6% of
everything that Aqua Lei-
sure sells, starting with
a relaunch this summer.
That’s a typical licensing
arrangement. I’m also get-
ting a monthly consulting
fee. I’m bringing in a little
over $50,000 annually from
my projects, but when the
royalties from Aqua Leisure
kick in, my income will in-
crease significantly. Aqua
Leisure anticipates sales of
$1 million annually within
two years. PATRICIA MERTZ
ESSWEIN AND LISA GERSTNER
HAVE A SUCCESS STORY YOU WANT TO
SHARE? WRITE US AT SUCCESSSTORY@
KIPLINGER.COM.

in savings and $85,000 from

What came next? I found a
lightweight and fast-drying
material and sewed a pocket
that could be tied to the um-
brella pole and filled with
sand. Unfortunately, at the
beach the anchor slipped off
the pole. Several trips to
Home Depot later, I found
a collar with a screw that
you could tighten to fit
different-size poles, and
I attached pockets to the
collar. It worked.
Did you apply for a patent? Yes,
after one old gentleman on
the beach pumped me for
information and asked if
I had taken my idea to a
a home-equity line of credit,
plus hundreds of thousands
of dollars in bank loans, pri-
marily to pay for manufac-
turing. I used any money
I made to pay off loans or
plowed it into the business.
What was your sales strategy?
I was honest, I was genuine,
and if I didn’t know some-
thing, I asked questions.
In my first meeting, with
Acme Markets, the corpo-
rate buyers asked me what
my margin was. I was a den-
tal hygienist. I didn’t know
margin! I told them so, and
they were really helpful.
Also, I was tenacious. Even
GINA LEVAY; MAKEUP BY JACLYN RORICK

lawyer. Within 24 hours, after Wal-Mart made Beach

I talked with a patent attor-
ney in Philadelphia to start
the process. I got a patent
in September 2002.
How did you start your business?
I paid about $450 apiece to
Pockets available online to
its store managers, I visited
125 stores over six months.
Why did you decide to license
Beach Pockets? Through
2008, I racked up nearly

24
KIPLINGER’S PERSONAL FINANCE 08/2014

K8-SUCCESS STORY.1.indd 24 6/5/14 1:02 PM

 The Studio
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 » INVESTING

7 Great
Growth
Stocks
Our eclectic
picks share
one common
trait: Their
profits are
expanding
faster than
those of
the overall
market.
BY TOM PETRUNO

26
KIPLINGER’S PERSONAL FINANCE 08/2014

K8I-GROWTH STOCKS.indd 26 6/4/14 5:13 PM

 ■ MAY THE FORCE BE
WITH DISNEY AS THE
COMPANY GETS SET TO
LAUNCH THE FIRST
STAR WARS FILM
UNDER ITS AUSPICES.

27
COURTESY DISNEY 08/2014
01/2014 KIPLINGER’S PERSONAL FINANCE

K8I-GROWTH STOCKS.indd 27 6/4/14 5:13 PM

 » INVESTING
BUYING SHARES OF A GROWTH COMPANY EARLY IN ITS RUN TO GREATNESS IS THE HOLY GRAIL OF
stock picking. The goal is to get in at a relatively cheap price, hang on as revenue and
earnings rise sharply, and reap big returns as other investors hop aboard. But after
the stock market’s phenomenal five-year bull run, finding undiscovered gems today
is no easy feat. // That leaves growth-seeking investors with two options. One is to
identify successful com-
panies with strong growth
prospects and figure out
what you would like to pay—
then hope for a market pull-
back that brings their prices
into your range. With steep
declines this year in many
technology and biotech-
nology stocks, investors in
those sectors suddenly have
a lot of marked-down shares
to sift through.
The second option is to
look for growth companies
that may keep flying high
but whose share prices rela-
tive to expected earnings
are still reasonable for a
long-term investor. Like it
or not, having a long time
horizon is key at this stage
of a bull market. Buying
at today’s price levels may
mean it will be five years or
more before a stock realizes
meaningful appreciation.
So you have to ask yourself:
How patient am I?
We went hunting for at-
tractive growth companies
and came up with seven.
They cover a broad spec-
trum of sizes, industries
and growth rates, but they
all share one trait: In the
view of Wall Street analysts,
their earnings will rise
significantly faster than
the 10.2% average annual
earnings growth predicted
for Standard & Poor’s 500-
stock index over the next
three years. (The actual
growth rate for the broad
market will almost certainly
28
KIPLINGER’S PERSONAL FINANCE
K8I-GROWTH STOCKS.indd 28
■ THERE’S MORE
TO DISNEY THAN
MICKEY (AND
MINNIE). THE
FIRM IS A GIANT
IN TV, MOVIES
AND RESORTS.
be lower than what Wall
Street expects.) We rank
our picks by market value.
Prices and related data are
as of May 30. Price-earnings
ratios are based on estimated
year-ahead profits.
Walt Disney
1 Disney is a Wall Street
rarity: a growth story that
spans generations. Disney
was a phenomenal growth
company in its early days.
It stumbled in middle age,
then came roaring back
beginning in the mid 1980s.
Today, the Burbank, Cal.,
company remains the pre-
mier U.S. entertainment
franchise, with its film
08/2014
studios (latest hit: Frozen),
TV networks (including
ABC and ESPN), theme
parks, resorts, home videos
and consumer products.
With $45 billion in an-
nual revenues, Disney can’t
grow at the pace of smaller,
up-and-coming businesses.
But it offers investors the
benefits of a blue-chip com-
pany that’s still capable of
market-beating growth.
Analysts estimate that
Disney’s earnings will rise
an annualized 16% over
the next three years, well
above the overall market’s
growth rate. Even allowing
for typical Wall Street over-
optimism, there is good
reason to believe that Dis-
ney’s growth rate will stay
above the blue-chip average.
Key to the company’s suc-
cess is its ESPN juggernaut.
Led by the sports channels,
Disney’s cable networks now
generate 52% of the com-
pany’s total operating profit.
But beyond cable, Disney’s
ability to consistently find
new ways to make money
from its treasure trove of
assets—from Mickey to
Buzz Lightyear and Captain
America—is unparalleled
in the media industry, says
Morningstar analyst Peter
Wahlstrom. What’s more,
in the boom-or-bust movie
business, Disney’s 2012
acquisition of the rights
to the Star Wars franchise
heralded what FBR Capital
Markets analysts say is a
major shift by the studio
unit. By focusing more on
films with proven track
records such as Star Wars
(Episode VII is due out in
late 2015), Disney aims for
a “much more profitable,
less risky” slate of future
releases, FBR says. Nothing
wrong with sticking with
what works.
Qualcomm
2 Like Disney, Qual-
COURTESY LINKEDIN CORPORATION
comm knows a thing or two
about managing a growth
business. The company has
mushroomed over the past
COURTESY DISNEY
30 years into a global leader
in wireless technologies.
That puts it at the heart
6/4/14 5:14 PM
 of the continuing rush
throughout the world to be
connected—to anyone and,
increasingly, to anything.
Qualcomm earns technol-
ogy-licensing fees on nearly
every 3G and 4G wireless
phone sold. The San Diego
company also produces the
chips that help run many
high-end smart phones and
tablet computers. All told,
Qualcomm earned $6.9 bil-
lion, or $4.51 per share, in
the fiscal year that ended
last September, represent-
ing a doubling of profits
since 2010. That pace isn’t
likely to continue, in part
because Qualcomm faces
rising competition in the
smart-phone chip business
from other tech titans, in-
cluding Intel.
Still, the company’s size
and technological know-
how give it an advantage
over rivals as consumers
and businesses worldwide
demand faster and more-
intelligent wireless phones.
Brian Modoff, an analyst at
Deutsche Bank Securities,
says that Qualcomm sees
great possibilities in the
Fast Growers
FROM MICKEY MOUSE TO LASERS
Five of our picks carry modest price-earnings ratios, but you have to
pay up for the fast growth expected of LinkedIn and 3D Systems.
Recent value
Company Symbol price (billions) (billions) ratio* growth rate
Walt Disney DIS
Qualcomm QCOM
ACT
COURTESY LINKEDIN CORPORATION
Actavis PLC
LinkedIn LNKD
3D Systems DDD
AL
Air Lease
COURTESY DISNEY
IPG Photonics IPGP
Data as of May 30. *Based on estimated earnings for the next four quarters. SOURCES: Thomson Reuters,
Yahoo.
K8I-GROWTH STOCKS.indd 29
development of the “Inter-
net of things,” the connect-
ing of everything from
homes to cars to appliances
via smart phones and other
devices. He expects earn-
ings to rise 17% in the cur-
rent fiscal year and 15% in
the year that ends in Sep-
tember 2015, and he adds
that Qualcomm executives
are committed to sharing
profits with shareholders
via dividends (now $1.68 per
share annually). Investors
looking to play the telecom
industry can certainly find
smaller, faster-growing
companies. But if you want
a marquee name at the fore-
front of wireless technology,
Qualcomm fits the bill.
Actavis PLC
3 It seemed a slam-
dunk in the late 1990s to
bet that the giant U.S. drug
companies would make a lot
of money off an aging popu-
lation. But stocks such as
Merck and Pfizer were
terrible performers in the
first decade of the new cen-
tury as the companies lost
patent protection for key
Market Last 12 mos. Price- Est. 3-yr.
revenue earnings earnings
$84 $145.5 $47.1 20
80 135.8 25.7 15
212 36.9 8.7 15
160 19.5 1.7 89
51 5.2 0.6 57
41 4.2 1.4 17
63 3.3 0.7 18
As of April 30. *Based on estimated earnings for the next four quarters. SOURCES: Thomson Reuters, Yahoo.
products and
■ BOOSTED BY A USER
makers of BASE OF 300 MILLION
generic drugs PEOPLE, LINKED IN IS A
swooped in. LIKELY SURVIVOR OF THE
SOCIAL-MEDIA WARS.
Now comes
generic firm
Actavis with a
reverse strat-
egy: It is buying
up brand-name
drug makers to
boost its long-
term prospects
by lessening its
dependence on the cut- an analyst at Cowen & Co.,
throat generic business. says the stock’s leap shows
Actavis, the third-largest that investors are “exceed-
U.S. generic drug firm, spent ingly comfortable” with the
$8.5 billion last year to buy company’s finances in the
Ireland’s Warner Chilcott, near term (even with a
a maker of brand-name much higher debt load). He
drugs to treat women’s- thinks Actavis will continue
health, gastroenterological to build up its brand-name
and dermatological issues. drug portfolio via acquisi-
(Actavis is headquartered tions, boosting the com-
in Dublin, although its exec- pany’s ability to generate
utive offices are in Parsip- cash for shareholders in the
pany, N.J.) In February, next few years. As the mar-
Actavis announced another ket focuses on that longer-
blockbuster acquisition: a term payoff, Cacciatore says,
$25 billion deal to buy For- the stock could be worth
est Laboratories, which is as much as $255 within 12
known for drugs that are months.
used to treat depression,
high blood pressure, fibro- LinkedIn
mmyalgia and other diseases. 4 Love it or hate it,
With the mergers, Acta- social media is here to stay.
vvis’s annual revenues should For investors, the question
rreach $15 billion, up from is which social-media com-
jjust $3.6 billion in 2010. panies are here to stay—and
AAnalysts on average expect which are likely to flame out,
eearnings of $13.67 per share like so many Internet-based
tthis year, rising 22%, to firms before them. That
$$16.61 per share, in 2015. concern has deepened this
16% PProfits will be helped in year as many of the tech
11 ppart by the low tax rate stocks that soared in 2013
25
AActavis now enjoys after have plummeted.
cchanging its registration to High on the list of this
33
IIreland. Wall Street clearly year’s losers is professional-
24
llikes Actavis’s strategy: The networking leader LinkedIn.
23
sstock soared from $100 in After peaking at $258 last
16 tthe spring of 2013 to $230 fall, LinkedIn’s shares have
bby early 2014, before pulling slid to $160. Besides being
bback a bit. Ken Cacciatore, caught in the general rout
29
08/2014 KIPLINGER’S PERSONAL FINANCE
6/4/14 5:14 PM
 » INVESTING

of tech stocks, LinkedIn has

spooked some investors by
showing signs that its red-
hot growth of the past few
years is slowing. First-quar-
ter revenues climbed 46%,
to $473 million, from the
same period a year earlier,
but that was down from
full-year growth of 57%
in 2013. And after posting
mostly modest quarterly
profits since 2010, the
Mountain View, Cal., com-
pany fell back into the red
in the first quarter, losing ■ PRINTERS MADE
BY 3D SYSTEMS ARE
$13 million as it spent heav- ALREADY IN USE
ily on expansion. FOR A VARIETY OF
Wall Street analysts still MANUFACTURING
APPLICATIONS.
think LinkedIn has spec-
tacular growth potential.
On average, they’re project- in theory, at least, to enhance workers and employers. exciting new technology
ing annualized earnings their career prospects. If Critics say that only a triggers stock manias. Shares
gains of 33% over the next the future of business net- small percentage of Linked- of 3D Systems and its rivals
three years. Why bet they’re working and recruiting is In members are active on rocketed in 2012 and 2013,
right? One reason is the 300 increasingly online, Linked- the site. But that also means with 3D Systems soaring
million people worldwide In is in a sweet spot to more opportunity for the from $10 at the start of 2012
who have joined LinkedIn— sell more services to both company to engage them. to a peak of $97 last January.
What’s more, LinkedIn is Since then, as high-flying
just beginning to ramp up stocks in general have
* Four Picks its presence in China. All crashed, 3D Systems has
in all, the company has “a tumbled as well, to $51. It
Best of the Growth Funds clear path for long-term didn’t help that rising re-
IF YOU’D RATHER BUY GROWTH STOCKS THROUGH A FUND, growth,” says analyst Kerry search costs and other ex-
start by checking out two members of the Kiplinger 25. At FIDELITY Rice, of Needham & Co. The penses drove the Rock Hill,
NEW MILLENNIUM (SYMBOL FMILX), manager John Roth invests in a question suggested by this S.C., company’s operating
diverse mix of companies, including emerging growers and out-of- year’s stock-price swoon: earnings lower in the first
favor firms. Stocks of large companies account for 55% of the fund’s What price for that growth? quarter, despite a 45% year-
assets; midsize and small outfits make up the rest. Despite its name, over-year jump in revenues.
BARON SMALL CAP (BSCFX) has slightly more of its assets invested 3D Systems For growth-hunting in-
in midsize firms than in small-capitalization issues. Manager Cliff 5 Some investors may vestors who can handle high
Greenberg, who favors undervalued growth companies, has mostly view 3D printing like flying risk, however, the sinking
stayed away from high-flying social-media and biotech stocks. cars: futuristic technology stock price could be a gift.
Also worthy of consideration is PRIMECAP ODYSSEY GROWTH that will never really get Though the consumer mar-
(POGRX), a team-run fund managed by low-profile Primecap Man- here. In fact, the technology ket for 3D printing remains
agement. The fund’s performance has been plenty high-profile: From is already widely in use in small, many manufacturers
COURTESY IPG PHOTONICS CORPORATION

2005, Odyssey Growth’s first full year, through 2013, it landed in the manufacturing. And one have embraced it—not yet
top third of the large-cap growth category six times. Annual expenses of the oldest names in 3D for mass production but for
printers, 3D Systems, has smaller tasks, such as creat-
COURTESY 3D SYSTEMS INC.

are 0.65%, unusually low for an actively managed fund.

If you prefer an exchange-traded fund, look no further than been making money since
POWERSHARES QQQ (QQQ). One of the oldest ETFs, QQQ tracks the 2009. Sales have jumped
Nasdaq 100 index and holds many tech giants, including Apple, from $113 million that year
Google and Facebook. Annual fees are 0.20%. to $513 million in 2013.
But as so often happens,
ing prototypes and produc-
ing replacement parts for
older machinery. 3D print-
ing uses digital imagery of
an object to replicate it in

30
KIPLINGER’S PERSONAL FINANCE 08/2014

K8I-GROWTH STOCKS.1.indd 30 6/5/14 7:47 PM

 metal, plastic or other mate-
rials. For 3D Systems and
other printer makers, long-
term growth will hinge not
just on printer sales but also
on revenue from material
refills and servicing, as with
conventional printers. Hendi
Susanto, an analyst at money
manager Gabelli & Co.,
thinks demand will drive
3D Systems’ revenues to
$1 billion by 2016 and oper-
ating earnings to $1.45 per
share. The risks, of course,
are many, particularly from
increased competition. But
3D Systems is a leader in
this business, not a novice.
Air Lease
6 Travel is a growth
industry worldwide, but it
has been tough to make
money in the notoriously
fickle airline industry. Since
1980, more than three dozen
U.S. carriers, including most
of the biggest names, have
filed for bankruptcy at least
once. Air Lease offers a dif-
ferent way to bet on travel:
It buys jets and leases them
to major airlines worldwide,
a profitable middleman role
that gives carriers greater
financial and business flexi-
bility. The Los Angeles firm
also manages jet fleets
owned and leased out by
investor groups.
Jet leasing is a tricky
business because it requires
financial savvy as well as
the ability to ride out inevi-
table airline-industry tur-
COURTESY IPG PHOTONICS CORPORATION
bulence. But Air Lease’s
chief executive, Steven
Udvar-Házy, 68, has been
COURTESY 3D SYSTEMS INC.
doing this for a long time:
He ran International Lease
Finance Corp. from 1973 to
2010, when he left to launch
Air Lease as a competitor.
K8I-GROWTH STOCKS.1.indd 31
The new company’s reve-
nues rose from $337 million
in 2011 to $859 million in
2013. Per-share earnings
reached $1.80 last year, up
from 59 cents in 2011. Ana-
lysts on average predict 23%
annualized profit growth
over the next few years.
Air Lease reached a
milestone in May when it
bought its 200th aircraft.
The company expects to
ride surging global air traf-
fic, particularly in emerging
economies. The total annual
passenger count is projected
to reach 3.9 billion by 2017,
up from 3 billion in 2012,
says the International Air
Transport Association. An-
alysts at Morgan Stanley say
Air Lease has a number of
advantages over its rivals,
including the youngest fleet
of high-quality jets and a
“relatively conservative
■ LASER MAKER
IPG PHOTONICS WILL
LIKELY BENEFIT IF
BUSINESSES START
TO BOOST CAPITAL
EXPENDITURES.
balance sheet,” which will
allow the company to take
on more debt. The key risks:
a major economic slump
or another credit crunch.
But Udvar-Házy has seen
those before.
IPG Photonics
7 IPG Photonics isn’t
a household name, but it’s
a big one in the business
of lasers. After four years
of rapid growth, the com-
pany appears to have hit
a soft patch in sales. If this
setback is just a hiccup, it
could be a great opportunity
for long-term investors,
with the stock down 20%
from its 2013 high.
IPG says it’s the world’s
leading producer of high-
performance lasers used in
manufacturing, telecommu-
nications, health care and
other applications. The ma-
KIPLINGER’S PERSONAL FINANCE
jority of sales are to manu-
facturers for use in materi-
als processing—for example,
cutting, drilling and weld-
ing metals or other materi-
als. Using a term favored
by Silicon Valley, IPG sees
itself in the role of a “dis-
ruptor,” as its lasers replace
older technologies in manu-
facturing. IPG’s revenues
jumped from $186 million
in the recession year of
2009 to $648 million in
2013; earnings per share
rocketed from 12 cents to
$2.97 in the same period.
Although revenues in the
first quarter of 2014 rose
a solid 20% from the same
period a year earlier, IPG
projected weaker-than-
expected sales in the second
quarter. The company said
the slowdown was partially
due to some customers de-
laying orders that it still
expected to arrive later
on and that orders overall
remained “very strong.”
But the forecast spooked
some investors, at a time
when some IPG executives
were trimming their per-
sonal stock holdings and
when the company faced
competition from China in
lower-end lasers. Analysts
at Stifel, Nicolaus are cau-
tious in the near term, but
they still see double-digit-
percentage earnings gains,
to $3.38 a share this year
and $3.75 in 2015. The lon-
ger-term view is that IPG
has a host of new markets
to conquer with its laser
technology—exactly what
the firm has been doing for
the past decade. And with
$481 million in cash on its
balance sheet and little
debt, it has the wherewithal
to power ahead. ■
31
6/5/14 7:47 PM
 » INVESTING
JEREMY J. SIEGEL > Going Long
The Conversion of Bill Gross
ver the years, I have frequently
O clashed with Pimco founder Bill
Gross about his bearish comments
regarding the stock market. Gross
writes monthly commentaries that gener-
ate considerable buzz in the investment
community. In September 2002, almost at
the bottom of the bear market that followed
the tech bubble, Gross posted a shocking
column entitled “Dow 5000.” “Stocks stink
and will continue to do so until they’re
priced appropriately … around Dow 5000,”
wrote Gross, or about 3,000 points below
the Dow’s level at the time. A few weeks
later, the Dow Jones industrial average
bottomed at 7286, and the index nearly
doubled over the next five years.
“
Ten years later, in August 2012, with
the Dow at 12,000, Gross wrote an article
entitled “Cult Figures.” In that piece, he
asserted that the “cult of equity” was dying,
and he singled me out as its major booster.
It’s good My research had calculated a long-term
real return (after inflation) for U.S. stocks
to see a of 6.6% a year. But Gross claimed that was
long-term a “historical freak, a mutation likely never
to be seen again,” and asserted that stock
stock market investors were in for a major disappoint-
ment. Instead, the market sprinted up
bear concede another 4,000 points.
that stocks No bubbles. Given Gross’s long-term anti-
pathy to stocks, I was floored when I read
are not his May 2014 newsletter. As the Dow was
overpriced.” flirting with 17,000, or 5,000 points higher
than the level at which he had pronounced
that equities were dying, Gross wrote that
in the new environment of low interest
rates, assets such as stocks and real estate
are fairly priced and that “current fears of
asset bubbles would be unfounded.” Fur-
thermore, investors could adjust to the low-
interest-rate environment by investing in
“a higher proportion of stocks versus bonds.”
What a turnaround! A bit longer than a
decade after Gross declared that Dow 5000
was the right level for stocks, he now claimed
the market was fairly priced at Dow 17,000.
32
KIPLINGER’S PERSONAL FINANCE 08/2014
K8I-SIEGEL.indd 32
Gross’s new view of stocks stems from
his current view of financial markets,
which he calls the “new neutral.” The term
neutral is used by central banks to describe
an interest-rate environment that encour-
ages neither expansion nor contraction.
In their quarterly economic forecasts,
Federal Reserve policymakers have been
projecting a long-term neutral federal
funds rate (the interest rate at which banks
lend excess reserves to each other) of about
4%. But both Gross and I believe that the
neutral rate is closer to 2%. As I explained
in my previous column, lower rates are a
consequence of slower growth and lower
inflation (see “Going Long,” June). Gross
and I agree that lower rates should raise
the valuation of assets such as stocks,
bonds and real estate.
But this is where our agreement ends.
I disagree with Gross’s expectations for
stock returns, which he puts at only 4%
before inflation. Although the bond market
has adjusted to the “new neutral,” the stock
market has not. The stock market’s current
price-earnings ratio, at 16 times estimated
2014 earnings, is very near its historical
average. That means stocks should nearly
match their long-term real return of 6.6%
annually. If we add the 2% that the Fed has
targeted for the long-term inflation rate,
that corresponds to a return in excess of 8%.
It’s good to see a long-term stock market
bear like Bill Gross concede that stocks are
not overpriced at today’s levels (although
that in itself could be a bearish indicator).
But he is still far too pessimistic about
stocks’ future returns. Even if future cor-
porate earnings do not rise any faster than
inflation, the returns on stocks will swamp
returns on fixed-income assets over the
next decade. The “new neutral” doesn’t just
mean that stocks are fairly priced. They’re
actually undervalued if, as I expect, inter-
est rates remain below 4%. ■
LISE METZGER
COLUMNIST JEREMY J. SIEGEL IS A PROFESSOR AT THE UNIVER-
SITY OF PENNSYLVANIA’S WHARTON SCHOOL AND THE AUTHOR
OF STOCKS FOR THE LONG RUN AND THE FUTURE FOR INVESTORS .
6/5/14 3:53 PM
DO YOUR INVESTMENTS FALL SHORT OF YOUR
INVESTMENT STRATEGY?

An investment may look

perfect to you on paper. But
that’s no reason to believe
it will measure up to your strategic goals.
Consider what State Street Global Advisors
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When it comes to building your portfolio, it’s
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or visit spdrs.com.

Before investing, carefully 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.
ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions
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The SPDR S&P MidCap 400 ETF Trust is an exchange traded fund designed to generally correspond to the price and yield performance of the S&P MidCap 400 Index.TM
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 » INVESTING
FUNDS »
How to Win in the
Exploding ETF Market
Choose among these 20 exchange-traded stock and bond funds to fill the
gaps in your investment mix. BY NELLIE S. HUANG
TWO DECADES AFTER THE FIRST
exchange-traded fund de-
buted in the U.S., the field
is crowded with some 1,500
ETFs holding $1.8 trillion.
You don’t need most of them.
For example, WisdomTree
Japan Interest Rate Strat-
egy ETF (symbol JGBB),
which tracks the perform-
ance of U.S. Treasury bills
relative to Japanese govern-
ment bonds, isn’t exactly
essential.
But the right ETFs can be
perfect for filling gaps in
your portfolio. Do you need
to beef up on foreign stocks?
Want to make a bet on com-
panies that will benefit from
an improving economy?
Looking for more income?
We’ll guide you to solid
funds for meeting your goals.
Begin with the basics. Use
“total” ETFs to build a di-
versified portfolio with just
a few low-cost funds. Start
with VANGUARD TOTAL STOCK
MARKET ETF (VTI), which holds
large, midsize and small
U.S. companies. Then add
VANGUARD TOTAL INTERNATIONAL
STOCK ETF (VXUS), which holds
34
KIPLINGER’S PERSONAL FINANCE
K8I-ETFs.indd 34
more than 5,000 stocks in
developed and emerging
countries. Throw in VAN-
GUARD TOTAL BOND MARKET ETF
(BND) and VANGUARD TOTAL IN-
TERNATIONAL BOND ETF (BNDX),
and you have everything
you need. Well, almost ev-
erything. (Annual expenses
for the Vanguard ETFs
range from 0.05% to 0.20%.)
If you just need to fill in
a few missing pieces, other
ETFs will fit the bill. For
tracking stocks of big com-
panies, buy SCHWAB U.S. LARGE-
CAP ETF (SCHX). It charges a
rock-bottom annual fee of
0.04%. For midsize com-
panies, a solid choice is
ISHARES RUSSELL MID-CAP ETF
(IWR). Finally, VANGUARD SMALL
CAP ETF (VB) wins our vote for
small-company fund. Its
0.09% annual expense ratio
is less than one-third that of
its typical peer.
For foreign stocks, the
cheapest ETFs are ISHARES
CORE MSCI EAFE ETF (IEFA), for
developed markets, and
ISHARES CORE MSCI EMERGING
MARKETS ETF (IEMG), for devel-
oping markets. For a little
more oomph, check out
08/2014
6/4/14 6:35 PM
 ISHARES INTERNATIONAL SELECT
DIVIDEND ETF (IDV),
which
owns dividend-paying
foreign stocks. It boasts
a generous yield of 3.6%.
Boost your income. You don’t
collect much interest from
garden-variety bonds these
days. For instance, Van-
guard Total Bond Market,
which tracks the invest-
ment-grade segment of the
U.S. bond market, yields just
RYAN COX
2.1%. But other categories
offer better payouts.
Real estate investment
trusts must pay 90% of their
profits to shareholders in
the form of dividends. A
superb way to invest in the
K8I-ETFs.indd 35
group is to buy VANGUARD
REIT ETF (VNQ), which tracks a
broad index of mall, hotel
and apartment stocks. It
charges a scant 0.10% per
year and yields 3.8%.
Junk bonds (those rated
below investment grade)
pay higher yields because
they come with greater risk
of default. But default rates
are at historical lows. Our
favorite high-yield ETF is
SPDR BARCLAYS HIGH YIELD BOND
ETF (JNK).The fund, which
yields 4.7% and charges
0.40% per year, invests
mostly in the better-qual-
ity end of junk territory;
only 18% of its assets are
devoted to bonds rated
below B. If you want a fat-
ter yield—and you’re will-
ing to assume more credit
risk—explore ADVISORSHARES
PERITUS HIGH YIELD ETF (HYLD).
This actively managed
ETF yields 8.0%, despite
a high 1.25% annual ex-
pense ratio. (For more on
Peritus, see “Rich Yield From
Really Junky Bonds,” July.)
Finally, look at preferred
stocks. These hybrid secu-
rities, which pay fixed divi-
dends, behave a lot like
bonds, leaving them vul-
nerable to rising interest
rates. But the fat 5.8% yield
you get from ISHARES U.S.
PREFERRED STOCK ETF (PFF) may
justify taking a chance.
Take a tactical approach.
As we said in our July
cover story, the bull market
isn’t over, but picking win-
ning stocks has gotten
trickier. Over the next year,
we favor larger companies
over smaller ones. To cash
in on the biggest U.S. com-
panies, buy ISHARES S&P 100
ETF (OEF). The fund, which
costs just 0.20% a year,
tracks 100 of the largest
companies in the S&P 500.
An improving economy
bodes well for energy, in-
dustrial and technology
companies. VANGUARD ENERGY
ETF (VDE) is well diversified,
with 160-odd stocks, and
charges just 0.14%, the low-
est expense ratio in its peer
group. Size and high trading
volumes draw us to INDUS-
TRIAL SELECT SECTOR SPDR (XLI)
and TECHNOLOGY SELECT SECTOR
SPDR (XLK). They’re the larg-
est funds in their respective
categories, and they charge
just 0.16% per year for fees.
Spice up your mix. After a poor
2013, emerging-markets
stocks are showing signs
of life. IShares Core MSCI
Emerging Market, with more
than 1,600 stocks, is a good
way to play the rebound. But
for those willing to focus on
a slice of the emerging-mar-
kets universe, Kevin Blocker,
a strategist with Horizon
Investments in Charlotte,
N.C., suggests ISHARES LATIN
AMERICA 40 ETF (ILF). He views
it as a good way to tap
into the region’s abundant
natural resources and the
growing number of people
entering the middle class.
The fund, which charges
0.50% a year, has 80% of its
assets in Brazil and Mexico.
After shooting up 164%
since early 2012, biotechnol-
ogy stocks have stumbled
lately. But biotech companies
are making remarkable
strides in addressing a mul-
titude of diseases, so the
correction may not last long.
Our favorite in this group,
ISHARES NASDAQ BIOTECHNOLOGY
ETF (IBB), holds companies of
all sizes. ■
08/2014
FOUR TIPS
FOR SUCCESS
Know what you’re buying.
Nearly 40 ETFs have “S&P
500” in their names, but not
all of them track the index
the same way. Read the pro-
spectus to find out how the
ETF and the index it tracks
are constructed.
Think cheap. Buy commis-
sion-free ETFs if possible,
especially if you plan to hold
them for less than three
years. But investors who
have longer time horizons or
who make big purchases
should make low annual
fees a priority.
Note a fund’s size. An ETF
may shut down if it attracts
too little cash. When that
happens, it distributes the
proceeds to investors, which
can result in a tax bill. Avoid
potential tax hassles by
buying ETFs with more than
$100 million in assets. Ample
assets help in another way:
They improve an ETF’s
liquidity, helping to narrow
the gap between the highest
price a buyer is willing to pay
(the bid price) and the low-
est price a seller is willing to
accept (the asked price).
Don’t buy too early. The
worst time to buy an ETF is
at the opening bell, says
Vanguard’s Joel Dickson, be-
cause a fund’s holdings may
not have begun to trade. So
there may be a discrepancy
between the price of an
ETF’s shares at the market’s
opening and the prices of its
underlying securities.
35
KIPLINGER’S PERSONAL FINANCE
6/4/14 6:35 PM
 » INVESTING

FIXED INCOME »

What’s Driving the

Boom in Bonds
We answer eight key questions to help you understand the market’s surprising
resilience. BY CAROLYN BIGDA

Why
WHEN THE UNEXPECTED HAPPENS, IT
deserves an explanation. Arguably, are bonds So far this year, the yield of the benchmark ten-year
the biggest surprise in financial on a roll? Treasury has dropped from 3% to 2.5%, a large move by
markets this year is the strong per- bond-market standards. The decline is due mainly to subpar
formance of bonds. You may recall economic growth. In fact, gross domestic product contracted
that bond prices fell (and yields rose) at an annualized rate of 1% in the first quarter of 2014. Granted,
last year after the Federal Reserve the miserable winter weather accounts for some of that weakness, but the
gingerly began to reverse its easy- figure was well below economists’ forecasts of 1% growth. Normally, the ten-
money policies. With yields still near year Treasury’s yield approximates economic growth plus inflation. With inflation
historically low levels, many seers ex- running a cool 1.4%, the bond market seems to believe there isn’t much need
pected more pain this year. But so far for higher yields, at least anytime soon. “Everything depends on the path that
growth takes,” says Brian Kennedy, a bond fund manager at Loomis Sayles.
in 2014, the Barclays U.S. Aggregate
Bond index, a measure of investment-
grade debt, has delivered a total
return of 3.9%. Other segments have
done even better. The Merrill Lynch What If yields rise,
U.S. High Yield Master II index, a could make By this point, bond
which bonds
measure of junk-bond performance,
returned 4.8% this year, and the
the market prices and yields already
would feel the
reflect the effects of the
Bloomberg USD Emerging Market change Fed’s decision to gradu- most pain?
Sovereign Bond index, a benchmark course? ally reduce and ulti-
of U.S. dollar-denominated emerg- mately end its mammoth
ing-markets government debt, gained bond-buying program,
8.3% (returns are through May 30). which was designed to Without a doubt,
The bond market has been able to hold down interest rates. Yields could start high-quality bonds
outwit even the best investors lately. rising again if economic growth kicks into such as Treasuries,
In 2011, for example, legendary bond higher gear—especially if warmer weather government agency
investor Bill Gross famously dumped unleashes pent-up consumer demand, as mortgage–backed
Treasuries in his Pimco Total Return some economists (including those at the Fed) securities and high-
fund, believing yields were due to rise predict. Indeed, Kiplinger’s forecasts that grade corporates—
sharply. That year, the Barclays U.S. the U.S. economy will be expanding at a 3% especially those with
Treasury index rallied 9.8%. And in annual pace by the end of 2014, and that the long maturities—
2013, Gross loaded up on Treasury ten-year Treasury yield will return to 3% by would lose the most
bonds, just as the market was about the new year. But for yields to really surge, if yields rose sharply.
to tumble. So while we can’t predict growth would have to accelerate even faster, Those bonds are the
what’s next, we present eight ques- or inflation would have to reach or exceed the most sensitive to
tions and answers to explain the Fed’s target rate of 2%. interest-rate moves.
mysterious ways of the bond market.

36
KIPLINGER’S PERSONAL FINANCE 08/2014

K8I-BONDS Q&A.1.indd 36 6/5/14 7:46 PM

 How big Are foreign bonds
could the That depends on the kind of bonds you own and how you a better value?
losses invest in them. If you own individual bonds and hold them
tto maturity, you won’t risk losing your principal from interest-
be? ra moves. But you will have to settle for earning less than
rate Overseas bonds can pro-
you might make from newer bonds. And if rising rates are due vide a good dose of diver-
to an acceleration
ac of inflation, your bonds’ purchasing power at sification to a fixed-income
maturity will be less than you would have expected. portfolio. Trying to invigorate
If you invest through a fund, you could see capital losses because the value of the euro-zone economy, the
the bonds within the fund will fall as yields rise. How big those losses could be will European Central Bank is more
depend on the average duration (a measure of interest-rate sensitivity) of the fund’s likely to cut already-low inter-
holdings. Say your fund has an average duration of five years. If yields rise by one est rates than to increase them.
percentage point, the principal value of the fund will decline roughly 5%. You can You’ll get more income and ad-
find the duration of your bond fund at Morningstar.com. ditional diversification if you
invest in emerging-markets
debt, but you’ll assume more
risk. The Bloomberg USD
What about Emerging Market Sovereign
municipal Bond index yields 4.5%, but it
Do some types of fell 6% last year. The Barclays
bonds?
bonds provide more So U.S. Aggregate Bond index
much declined just one-third as much.
protection against And with any foreign bond
for their rep-
rising rates? utation for being sedate. fund, you have to think about
Tax-free bonds are having a the effect of currency swings
bang-up 2014, with the Barclays on return. A strong euro has
Yes. The higher a bond’s inter- Municipal Bond index having helped boost performance. But
est “coupon,” the less the IOU is likely returned 5.9% so far. A couple if the currency weakens, U.S.
to lose in response to rising yields. That of factors are at work: Higher investors would suffer as euros
makes high-yielding junk bonds a good income tax rates boost demand convert to fewer dollars.
way to defend against a spike in yields. for munis, which pay interest
Junk bonds can also get a lift if rising rates that is generally exempt from
are the result of an improving economy, federal income taxes and, in
which typically boosts the fortunes of some cases, from state and
high-yield-debt issuers. One positive sign local taxes, too. Also, supply Given the
for junk bonds: As of April, the global de- has been tight. Anthony
fault rate for high-yield debt was only Valeri, market strategist at
risks, should I own
2.4%, about half the historical average, brokerage firm LPL Financial, bonds at all?
according to Moody’s. says issuance of new muni
Unfortunately, these virtues have not bonds in 2014 could be the
gone unnoticed. Investors have been pil- lowest it has been in ten years.
ing into junk bonds in recent years, push- A supply-demand imbalance Bonds certainly have their perils
ing yields down to an average of 5.4% could help prop up munis over these days, but they still play
today, well below the long-term average the longer term, too. an important role in a portfolio.
of 9.6%. Plus, the narrow gap between Still, munis are loosely tied Treasuries provide a buffer
junk and Treasury yields—2.9 percentage to the Treasury market. If against the gyrations of riskier
points—suggests that junk is pricey, if not yields rise, muni bonds could assets, such as stocks. In 2008,
overvalued. As a result, junk bonds’ big- stumble, especially given that for example, when the U.S.
gest gains are probably behind them. they have become more ex- stock market plunged 37%, the
Keep in mind, too, that junk bonds tend to pensive during this year’s rally. U.S. Aggregate index returned
track the stock market much more closely “Munis will not be able to 5.2%. Other types of bonds, in-
than high-grade debt. If the economy ignore higher yields in Treas- cluding junk bonds and foreign
tanks, so will junk bonds. uries,” says Valeri. debt, can boost your income.

37
08/2014 KIPLINGER’S PERSONAL FINANCE

K8I-BONDS Q&A.a.indd 37 6/4/14 5:25 PM

 » INVESTING
KATHY KRISTOF > Practical Investing
Readers Share Their Wisdom
learned about investing by interviewing
I
hundreds of smart people over the
years, from market strategists and ana-
lysts to fund managers and financial
planners. But until I asked for some advice
in my June column, I didn’t realize how
much investment wisdom I could gain from
my own readers.
More than 200 of you wrote in response
to my question about how I should handle
dividends for the purpose of measuring the
results of my Practical Investing portfolio.
Although most who wrote said that the
performance of the portfolio as a whole is
paramount, many of you said you like to see
details about how each stock contributes.
“
The best way to measure a stock’s perform-
ance is to assume that any dividends it pays
are reinvested in additional shares, regard-
less of whether the distributions are actu-
More than ally reinvested or taken as cash. Figuring
out returns under those circumstances is
200 of you tougher than it sounds, but I am testing
tools that I hope will let me do that. Mean-
wrote in while, you can track the performance of
my portfolio at kiplinger.com/links/
response to practicalportfolio.
my question I want to share the insights I gleaned
from your investing strategies, which
about how I turned out to be the real prize. Truth be
told, I could fill a year’s worth of columns
should handle with your wisdom. But with limited space,
I decided to focus on one topic, managing
dividends in risk, to do your thoughts justice. Here are
some of your nuggets:
my Practical
Investing ■ Invest in what you understand. Doing so
allows you to avoid getting caught in stock-
portfolio.” market bubbles and to remain (relatively)
calm during a crash because you can better
determine a company’s true worth.
■ Less debt means less risk. When choosing
individual stocks, look closely at the com-
pany’s balance sheet. Too much debt ham-
pers growth and a company’s ability to
weather economic storms.
38
KIPLINGER’S PERSONAL FINANCE 08/2014
K8I-KRISTOF.indd 38
■ Use dividends to diversify your stock holdings.
Instead of selling stocks to keep your port-
folio in balance, take dividends in cash
and use the proceeds to invest in sectors
in which you have little or no exposure.
This improves diversification without run-
ning the risk that you will incur a tax bill
when you sell.
■ If you use funds, look under the hood. Owning
a myriad of mutual funds doesn’t make
you diversified when your funds own a lot
of the same stocks. That’s a brutal lesson
many learned during the 2000–02 bear
market, during which many funds were
caught holding overvalued blue-chip stocks
and ridiculously priced dot-coms. It’s better
to check your funds’ holdings before the
market goes south to make sure your port-
folio is as diversified as you think it is. The
x-ray tool at Morningstar.com can help.
■ The right stock can replace a bond. With inter-
est rates in the gutter, many readers have
turned to high-yielding stocks to replace
all or a portion of their bond holdings. But
it’s important to keep a close tab on a com-
pany’s earnings and cash flow to make sure
it can afford to keep paying—and, better
yet, raising—those dividends.
■ Cash isn’t trash. Even if it pays nothing, cash
can be useful. Keep some on hand to take
advantage of market downturns. We haven’t
had a stock-market correction of as much as
10% since late 2011. We’re overdue (see “How
to Survive a 10% Correction,” on page 39).
■ Patience is a virtue. Not every stock takes off
like a rocket, even in a bull market. Whether
due to industry or company-specific issues,
even stocks of great outfits can stall. Be-
cause they’re long-term investors, most
Kiplinger readers have learned that today’s
LISE METZGER
stinker often turns into tomorrow’s rose. ■
KATHY KRISTOF IS A CONTRIBUTING EDITOR TO KIPLINGER’S PERSONAL
FINANCE AND AUTHOR OF THE BOOK INVESTING 101 .
6/4/14 6:34 PM
 MARKETS »
How to Survive a 10% Correction
Stocks are overdue for a pullback. Here’s how to get ready. BY ANNE KATES SMITH
STOCK MARKET CORRECTIONS ARE AN
inevitable part of investing. Since 1932,
declines of 10% to 20% (the traditional
definition of a correction) have occurred
an average of every two years, according
to InvesTech Research. The last one
was in 2011 (though we came close in
2012). The physics of the stock market
haven’t changed: What goes up can’t go
up forever. Are we due for a big drop?
Probably. As the accompanying
chart shows, this bull market has bent
but not broken in response to substan-
dard economic reports, hints of tighter
monetary policy and geopolitical tur-
moil. There’s no guarantee that the
market will brush off future disap-
pointments, and corrections can come
out of the blue. Still, if you believe the
bull market has more room to run,
don’t panic when it stumbles. Here’s
how to put a downturn to good use.
Beef up your buying power. While stocks
continue to hit record highs, take some
profits from your winners and build
a cash reserve. You may also want to
unload some clunkers. When the mar-
ket finally sinks, scoop up bargains.
“We’re prepared for the emergence
of more-meaningful discounts,” says
David Perkins, co-manager of Weitz
Value fund, which at last report had
nearly 30% of its assets in cash.
Prepare a shopping list. Jot down a list
of stocks you’d like to acquire at lower
prices. “There are many stocks on
my buy-at-the-right-price list,” says
Wasatch Funds chairman Sam Stewart.
He likes health care and would start
to nibble at WALGREENS (SYMBOL WAG, $72)
if it fell to the high $50s. Scott Klimo,
director of research at Saturna Capi-
K8I-CORRECTION.indd 39
tal, which manages the Amana funds,
would use a 10% correction to add to
a stake in search engine giant GOOGLE
(GOOG, $560) and BORG WARNER (BWA, $63),
a leading maker of turbochargers. (All
prices are as of May 30.)
Don’t miss a stealth correction. Broad mea-
sures such as Standard & Poor’s 500-
stock index have been marching to
new highs, but a closer look at the
market shows that some sectors have
already taken big hits and are starting
to recover. Two examples: Internet
services and biotech stocks. “Now is
not a bad time to buy the stocks that
got beaten up,” says Ed Yardeni, an
economist and market strategist.
Turn off the TV. If a decline starts to snow-
ball, you’ll hear about it—over and over.
“Don’t become your portfolio’s worst
enemy by allowing yourself to get
caught up in the negative hysteria,”
Charging Ahead
THE BULL THAT REFUSES TO DIE (SO FAR)
Since the 2011 downturn, the U.S. stock market has experienced four notable pullbacks,
but none has reached the 10% threshold that usually marks a correction.
S&P 500-stock index
1800
The red lines are market
corrections of 5% or more.
1600 –19.4%
April 29, 2011
to Oct. 3, 2011
1400
1200
2012
SOURCES: InvesTech Research, Yahoo
says Sam Stovall, chief stock strategist
at S&P Capital IQ. Instead, remind
yourself that the market has experi-
enced 20 drops of 10% to 20% since
World War II (plus 13 bear-market
tumbles of at least 20%). Even so,
large-company stocks have returned
11.1% annualized since the war’s end.
Have a strategy. You’ve probably heard
of dollar-cost averaging, a strategy
of investing a set amount in the market
at periodic intervals. Consider a
correction-market twist: Invest peri-
odically, but use decline thresholds
instead of time intervals to determine
when. For example, you might put a
set amount into stock funds in your
401(k) after every 5% dip.
Anticipate better days. The effects of cor-
rections don’t last long. After a drop of
10% to 20%, it typically takes just four
months to break even, says Stovall. ■
–7.7%
–9.9% Sept. 14, 2012
to Nov. 15, 2012 –5.8%
April 2, 2012 Jan. 15, 2014
to June 1, 2012 to Feb. 3, 2014
–5.8%
May 21, 2013 to
June 24, 2013
2013 2014
39
08/2014 KIPLINGER’S PERSONAL FINANCE
6/4/14 5:28 PM
 » INVESTING
JEFFREY R. KOSNETT > Cash in Hand
More Power to Utility Stocks
t a home down the street from
A mine in a leafy Maryland suburb
of Washington, D.C., work crews
just installed a set of solar panels.
I don’t know the homeowners, who arrived
last winter and obviously plan to do less
business with Pepco, our electric company,
than the rest of the folks on our cul-de-
sac do. We’re pleased that Pepco (symbol
POM), which has an awful storm-related
reliability record, is being acquired by
Exelon (EXC). But should investors in
Exelon worry that people in my neighbor-
hood—or the next one over or the one after
that—are galloping to get off the grid? I biked
“
around and saw no signs of that, despite the
subsidized loans and state and federal tax
credits available for solar installations.
That brings me to the performance of
For steady, utility stocks, which are having a great
2014. Through May 30, the Dow Jones
albeit modest, utility average has delivered a total return
of 11.1%, compared with 1.9% for the Dow
growth and Jones industrial average and 5.0% for Stan-
above-average dard & Poor’s 500-stock index. I am not
shocked by utilities’ stellar results (see
dividend “Cash in Hand,” July 2013).
Solar mania is just the latest wrong-
yields, it’s headed argument for the idea that tradi-
tional electric utilities are obsolete and
still hard to their stocks are doomed. Solar-power
output is growing rapidly, especially in
top utilities.” sun-drenched California and Arizona. But
most of that growth comes from utilities
tapping the rays to produce juice for resale,
not from the homeowning public adding
so much solar energy that it threatens to
dispatch Local Power & Light to the dustbin,
alongside Blockbuster Video. Plus, utilities
are adding far more generating capacity
from natural gas. Their solar efforts are
a buffer against the risk that cheap and
abundant gas will become unavailable.
There are plenty of other flawed argu-
ments against investing in power com-
panies. Among them are the likelihood of
rising interest rates, the threat of regula-
40
KIPLINGER’S PERSONAL FINANCE 08/2014
K8I-KOSNETT.indd 40
tors trying to score political points by cap-
ping or reducing investor returns, a history
of stupid acquisitions, and a perception that
the industry is mismanaged because smart
people enter more exciting fields. The stock
market generalists I question about utilities
believe all of the above, so they usually
pan the sector. By contrast, utility analysts
and managers of utility funds give the com-
panies they follow high marks for solving
problems and controlling their appetite for
ill-fitting nonregulated ventures.
Valid concerns. Not everything is sunny in
utility-land. Duke Energy (DUK) may need
to spend $10 billion—the equivalent of four
years of profits—to clean up toxic coal-ash
ponds in North Carolina that poison rivers
and soil. Southern Co. (SO) is building two
nuclear reactors in Georgia that are three
years behind schedule and more than
$2 billion over their estimated $14.3 billion
cost. New York’s Consolidated Edison (ED)
is picking up the pieces from Hurricane
Sandy by “hardening” its system at a cost to
the company (read: investors) of more than
$1 billion. I don’t recommend ConEd, Duke
or Southern, all of which trail the Dow
Jones utility average so far in 2014.
But for steady, albeit modest, growth
and above-average dividend yields, it’s hard
to top utility stocks. Investors can choose
from among 55 regulated electric or gas-
and-electric utilities. You can gain expo-
sure to the entire sector by buying VANGUARD
UTILITIES (VPU, 3.4% YIELD), an exchange-traded
fund. Among actively managed mutual
funds, the best choice is FRANKLIN UTILITIES
(FKUTX, 2.8% YIELD). Choose it if you can avoid
the sales charge. If you’d rather invest
directly, buy a bunch of utilities to mini-
mize the risk of a Duke-style disaster.
My favorites are AMERICAN ELECTRIC POWER
(AEP, RECENT PRICE $53, YIELD 3.7%), NATIONAL GRID
LISE METZGER
(NGG, $75, 6.1%) and XCEL ENERGY (XEL, $31, 3.9%). ■
JEFF KOSNETT IS A SENIOR EDITOR AT KIPLINGER’S PERSONAL FINANCE.
6/5/14 12:53 PM
 ●● THE KIPLINGER 25 UPDATE hampered lead manager over management of the
Matthew Gershuny and co- fund, through May 30, Par-

A Socially Screened manager Lori Keith in their

search for good, growing
businesses. They look for
nassus returned an annual-
ized 13.7%, beating the typi-
cal midsize-company fund

Fund Joins Our List companies that have a

smart team at the top, offer
a product or service that’s
by an average of 1.4 percent-
age points per year. And over
that time the fund was 13%
in demand, and dominate less volatile than its peers.
industries that are hard for Parnassus has other
TOP-PERFORMING FUNDS TEND suggests, Parnassus prowls competitors to enter. For things going for it, too. It
to attract a lot of money. among midsize companies, a company to make it into holds just $251 million in
That’s what happened to which for this fund means the portfolio, the managers assets, giving the managers
Wells Fargo Advantage stocks with market values must conclude that its in- plenty of flexibility to buy
Discovery (symbol STDIX), at the time of purchase trinsic value—what they es- and sell stocks. The fund’s
which recently shut to new of $3 billion to $20 billion. timate to be its true worth— annual expense ratio of
clients after seeing assets What the name doesn’t tell can increase, on average, 1.14% is below the average
nearly double, to more than you is that Parnassus prac- by at least high-single-digit 1.28% for mid-cap funds.
$3 billion, over the past five tices socially screened in- or low-double-digit percent- Plus, we like that the port-
years. The closure prompted vesting, making it the first ages annually over the next folio tilts toward technology
us to remove the fund from such fund to join the Kip 25. three years. (13% of assets) and industrial
the Kiplinger 25, as is our Parnassus favors companies The result is a fund that stocks (31%), two groups
custom, and to set out in that it believes behave ethi- has outpaced its competition that should perform well
search of a replacement. cally, and it won’t invest in and done so with below-av- as the economy improves.
The newest member of tobacco, beer and booze erage volatility, despite cur- NELLIE S. HUANG
the list of our favorite no- companies, or weapons rently holding just 38 stocks.
load funds is PARNASSUS MID makers, among others. Since October 2008, when REACH YOUR GOALS: TO SEE PORTFOLIOS
USING THESE FUNDS, GO TO KIPLINGER
CAP (PARMX). As the name The limitations haven’t Gershuny and Keith took .COM/LINKS/PORTFOLIOS.

Total return* Added to Specialized/ Total return* Added to

U.S. Stock Funds Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25§ Go-Anywhere Funds Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25§
Akre Focus Retail AKREX 20.5% 20.7% — — Dec. 2009 FPA Crescent FPACX 13.5% 10.6% 13.2% 8.8% Oct. 2008

Artisan Value ARTLX 16.5 13.5 17.3% May 2012 Merger MERFX 5.1 2.6 3.9 3.6 June 2007
Baron Small Cap Retail BSCFX 16.3 11.4 19.0 8.8% Dec. 2007 Total return* Added to
Bond Funds Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25§
Davenport Equity Opps DEOPX 19.2 16.3 — — May 2014
DoubleLine Total Return N DLTNX 2.7% 5.6% — — May 2011
Dodge & Cox Stock DODGX 24.4 16.2 19.4 8.0 May 2008
Fidelity Intermed Muni Inc FLTMX 2.6 4.2 4.4% 4.3% May 2004
Fidelity New Millennium FMILX 22.4 15.6 20.3 10.4 May 2014
Fidelity New Markets Income FNMIX 5.2 8.4 11.8 10.3 May 2012
Homestead Small Co Stock HSCSX 16.7 13.8 22.5 12.0 May 2012
Fidelity Total Bond FTBFX 3.5 4.4 7.2 5.6 May 2014
Mairs & Power Growth MPGFX 19.4 16.7 19.4 8.8 Jan. 2013
Met West Unconstrained Bd M MWCRX 3.3 — — — May 2013
Parnassus Mid Cap PARMX 18.9 12.5 19.5 — Aug. 2014
Osterweis Strategic Income OSTIX 5.3 6.2 9.2 7.0 May 2013
T. Rowe Price Sm-Cap Value PRSVX 15.7 12.7 18.9 10.1 May 2009
Vanguard Sh-Tm Inv-Grade VFSTX 2.2 2.4 4.1 3.8 May 2010
Vanguard Dividend Growth VDIGX 17.6 14.7 16.9 9.3 May 2010
Total return*
Vanguard Selected Value VASVX 25.5 16.1 20.8 10.7 May 2005 Indexes 1 yr. 3 yrs. 5 yrs. 10 yrs.
International Total return* Added to S&P 500-STOCK INDEX 20.4% 15.1% 18.4% 7.8%
Stock Funds Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25§
Cambiar Intl Equity CAMIX 15.4% 7.0% 13.6% 7.2% May 2014 RUSSELL 2000 INDEX† 16.8 11.7 19.3 8.6

Dodge & Cox Intl Stock DODFX 23.9 9.3 14.4 9.9 May 2005 MSCI EAFE INDEX# 18.5 7.8 11.9 7.6

Harding Loevner Emrg Mkts HLEMX 10.7 4.0 11.1 12.8 May 2013 MSCI EMERGING MARKETS INDEX 4.6 –1.4 8.7 12.1

Matthews Asian Gro & Inc Inv MACSX 4.2 6.6 11.8 11.3 Aug. 2013 BARCLAYS AGGREGATE BOND INDEX‡ 2.7 3.5 5.0 5.0

Through May 30. *Three-, five- and ten-year returns are annualized. §Date of issue. —Not available; fund not in existence for the entire period. †Small-company U.S. stocks. #Foreign stocks. ‡Tracks high-grade U.S. bonds. SOURCE: © 2014 Morningstar Inc.

41
08/2014 KIPLINGER’S PERSONAL FINANCE

K8I-KIP 25.1.indd 41 6/5/14 3:45 PM

 » INVESTING

FUND SPOTLIGHT
LARGE-COMPANY VALUE FUNDS Ranked by one-year returns
Total return Max.

Bargain Rank/Name
1. South Shore Inv@
Symbol
SSHFX
1 yr.
25.6%
through May 30*
3 yrs.
16.4%
sales Expense
5 yrs. charge ratio
17.5% none
Toll-free
number
0.93% 800-551-1980

Hunter on 2. Federated MDT All Cap Core A@

3. Dodge & Cox Stock
4. Matrix Advisors Value
QAACX
DODGX 24.4
MAVFX 24.1
25.2 16.0
16.2
11.6
17.6
19.4
15.0
5.50%
none
1.00 r
1.35
0.52
0.99
800-341-7400
800-621-3979
866-209-1965

the Mend 5. Fidelity Value Discovery

6. Poplar Forest Partners A@
7. T. Rowe Price Value
FVDFX
PFPFX
TRVLX
23.8
23.7
23.2
15.1
16.6
16.5
18.5
—
20.0
none
5.00
none
0.73
1.25
0.84
800-343-3548
877-522-8860
800-638-5660
After many lean years, this 8. Hotchis & Wiley Large Cap Value A@ HWLAX 23.1 17.2 20.2 5.25 1.30 866-493-8637
fund posts healthy gains. 9. Federated Clover Value A@ VFCAX 23.1 15.0 17.2 5.50 1.19 800-341-7400
10. Nuveen Large Cap Value A@ NNGAX 22.9 14.6 17.4 5.75 1.25 800-257-8787
CATEGORY AVERAGE 18.3% 13.3% 16.7%
WHEN YOU’RE A VALUE INVESTOR, IT PAYS
20 LARGEST STOCK MUTUAL FUNDS Ranked by size
to be patient. Consider David Katz,
Total return Max.
who has run MATRIX ADVISORS VALUE since Assets† through May 30* sales Toll-free
1996. Recently, the fund has benefited Rank/Name Symbol (in billions) 1 yr. 3 yrs. 5 yrs. charge number
from stocks, such as Charles Schwab 1. Vanguard Total Stock Market Idx Inv@ VTSMX $286.1 20.4% 14.7% 18.8% none 800-635-1511
and Teva Pharmaceutical, that Katz 2. Vanguard 500 Index Inv@ VFINX 150.2 20.2 15.0 18.2 none 800-635-1511
bought in 2011, when the market was 3. American Growth Fund of America A@ AGTHX 136.3 21.8 14.2 16.4 5.75% 800-421-0180
4. American EuroPacific Growth A@ AEPGX 124.2 17.1 6.2 11.0 5.75 800-421-0180
in turmoil because of worries about
5. Vanguard Total Intl Stock Idx Inv@ VGTSX 120.1 15.7 4.7 10.3 none 800-635-1511
Europe’s future. The picks have helped
6. Fidelity Contrafund@ FCNTX 107.5 20.6 14.4 17.8 none 800-343-3548
put Matrix in the top 2% of large- 7. American Capital Income Builder A@ CAIBX 93.9 14.0 9.3 12.2 5.75 800-421-0180
company value funds over the past year. 8. American Income Fund of America A@ AMECX 92.8 14.8 11.1 15.0 5.75 800-421-0180
Katz relies on computers as well as 9. Franklin Income A@ FKINX 92.6 14.4 10.1 14.7 4.25 800-632-2301
hands-on analysis to find bargains 10. American Capital World Gro & Inc A@ CWGIX 87.0 19.7 10.4 13.8 5.75 800-421-0180
with attractive prospects. He starts by 11. Vanguard Wellington@ VWELX 83.9 14.0 11.3 13.7 none 800-635-1511
screening the 1,500 largest U.S.-traded 12. Fidelity Spartan 500 Index Inv@ FUSEX 74.0 20.3 15.0 18.3 none 800-343-3548
companies for such measures as price 13. American Balanced A@ ABALX 73.5 13.8 12.1 14.6 5.75 800-421-0180
relative to earnings and dividend yield. 14. American Washington Mutual A@ AWSHX 72.3 19.8 15.3 17.9 5.75 800-421-0180

The computer kicks out a fair value for 15. American Invstmt Co of America A@ AIVSX 71.3 23.4 14.8 16.5 5.75 800-421-0180
16. American Fundamental Inv A@ ANCFX 67.9 18.7 13.1 16.6 5.75 800-421-0180
each firm. Katz considers any stock
17. BlackRock Global Allocation A@ MDLOX 59.8 10.0 5.7 9.1 5.25 800-441-7762
that trades for at least one-third less
18. Dodge & Cox International Stock DODFX 58.6 23.9 9.3 14.4 none 800-621-3979
than that fair-value figure. About 75 19. American New Perspective A@ ANWPX 56.0 17.3 10.8 15.0 5.75 800-421-0180
to 100 names pass muster. Katz buys 20. Dodge & Cox Stock DODGX 55.6 24.4 16.2 19.4 none 800-621-3979
the 30 to 40 most-promising stocks. S&P 500-STOCK INDEX 20.4% 15.1% 18.4%
He sells when a stock reaches its fair MSCI EAFE INDEX 18.5% 7.8% 11.9%
value, or if he sees deterioration in *Annualized for three and five years. †For all share classes combined. @Rankings exclude share classes of this fund with different fee structures or
higher minimum initial investments. rMaximum redemption fee. —Not available; fund not in existence for the entire period. MSCI EAFE index consists
the quality of a firm’s balance sheet of developed foreign stock markets. SOURCE: © 2014 Morningstar Inc.

or its earnings prospects.

EXPLANATION OF TERMS
Matrix’s long-term record has
●● Kiplinger.com Total return assumes reinvestment of all dividends
been erratic. After beating Standard &
and capital gains; three- and five-year returns are
Poor’s 500-stock index each year from RETURNS FOR annualized. Returns reflect ongoing expenses but
1999 through 2003, the fund lagged
the market in seven of the next nine
THOUSANDS OF not sales charges.

years. But Katz believes the fund,
which holds just $78 million in assets,
is poised to continue its rebound. As
long as investors focus on individual
companies rather than big-picture is-
sues, he says, such solid, well-priced
holdings as Microsoft and JPMorgan
Chase should do well. ANJELICA TAN
42
KIPLINGER’S PERSONAL FINANCE 08/2014
FUNDS ONLINE Maximum sales charge A figure without a footnote
Use our Mutual Fund Finder means the commission is deducted from the money
to get the latest data and see you send to the fund. A figure with an r is the max-
the top performers over one-, imum redemption fee charged when you sell shares.
three- and five-year periods. Funds that charge both sales and redemption fees
are footnoted with an s next to the front-end load.
Research a specific fund, or
compare multiple funds based
on style, performance and Expense ratio is the percentage of assets claimed
cost. And view details including annually for operating a fund.
volatility rank and turnover
rate. To use this tool, go to
kiplinger.com/tools/fundfinder.

K8I-FUNDTRENDS_RANKINGS.indd 42 6/4/14 6:38 PM

 Read the story behind our performance.
100% of T. Rowe Price Retirement Funds beat their 5-year Lipper average as of 3/31/14.*

T. Rowe Price Retirement Funds are

low cost, so your investment goes further.

How teamwork helps find promising bond opportunities.

When banks in Turkey began issuing credit for the first time, in many cases, we had just
days to make a decision on whether to invest in those bonds. So our bond analysts turned
to our equity analysts, who had long-term relationships with the corporations whose bonds
were being offered, to better understand the opportunities and risks and help us make
informed decisions. At T. Rowe Price, our collaborative approach is just one reason 100%
of our Retirement Funds beat their Lipper average for the 5-year period ended 3/31/14.*
Past performance cannot guarantee future results.

Visit our website to learn more about our funds and determine whether they are right for you.

troweprice.com/retirementfunds | 1.866.667.6411

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.
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. *Based on cumulative total return, 12 of 12, 12 of 12, 12 of 12, 9 of 9, and 2 of 3 (67%) of the Retirement Funds for individual investors outperformed their Lipper average for
the 1-, 3-, 5-, and 10-year and since-inception periods ended 3/31/14, respectively. The Retirement 2010, 2020, 2030, 2040, and Income Funds began operations on 9/30/02; the 2005, 2015,
2025, and 2035 Funds began operations on 2/29/04; the 2045 Fund began operations on 5/31/05; and the 2050 and 2055 Funds began operations on 12/31/06. (Source for data: Lipper Inc.)
T. Rowe Price Investment Services, Inc., Distributor. RDFB082520

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 » MONEY // COVER STORY

Retire to a
College Town
Our top ten towns
offer intellectual
sizzle, cultural
spice and plenty
of team spirit.
BY SANDRA BLOCK

TAILGATING
BEFORE OLE
MISS FOOTBALL
GAMES IS A BIG
ATTRACTION IN
OXFORD, MISS.

44
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 45
COURTESY OF THE UNIVERSITY OF MISSISSIPPI 08/2014 KIPLINGER’S PERSONAL FINANCE

K8L-RETIRE COLLEGE TOWN.a.indd 45 6/6/14 2:41 PM

 » MONEY // COVER STORY

REMEMBER WHEN YOU WENT OFF TO COLLEGE FOR THE FIRST TIME? YOU WERE EXCITED,
eager for challenges and psyched to try something new. Retire to a college town and
you can re-create that horizon-broadening experience and sense of adventure. //
In these ten towns, including our top choice, Oxford, Miss., the university generates
intellectual and cultural sizzle for local residents and opens the door for retirees
to take free or low-cost ington, Ky. (308,428), not quarterback Archie Man- heart of Oxford, anchored
classes. College sports counting college students. ning or his son Eli, who by the old Lafayette County
bring the entire community And most are close to or be- has a home in Oxford. courthouse—hums with
together (and sometimes low the national average for Faulkner: William activity when diners visit
impel retired alums to move the cost of living index (100). Faulkner wrote his most its dozen or so restaurants.
back). On-campus attrac- famous novels and stories Locals as well as visiting
tions, such as concerts, lec- while living at Rowan Oak, celebrities enjoy the south-
ture series and games, are
OXFORD a 29-acre estate now owned ern cuisine at City Grocery,
COLLEGE: University of Mississippi
open to all comers, not just by Ole Miss. Faulkner’s in- founded by chef John Cur-
POPULATION: 20,865
undergraduates. fluence and the presence rence (the shrimp and grits
MEDIAN HOME PRICE: $210,000
But universities aren’t the of other writers, including has been on the menu for 22
COST OF LIVING: Not available
only reason these towns are John Grisham, as well as years). On a recent evening,
great places to retire. Most Here’s Oxford in three Square Books, the famous you might have dined next
are in states that are tax- words: football, Faulkner independent bookstore, to Morgan Freeman or
friendly to retirees (the and food. have inspired an active arts Dolly Parton.
others are in states where Football: Conversations scene. On Thursday nights, Eight years ago, Dave
the tax picture is mixed). sooner or later turn to the you can stop by Off Square and Betsy Dyke moved from
They present a rich assort- Ole Miss Rebels and the Books, a few doors down Great Falls, Va., a Washing-
ment of restaurants, gener- elaborate tailgating ritual from the main store, to hear ton, D.C., suburb, to a home
ally reasonable home prices in the Grove, at the edge of the live broadcast of the ra- in the Grand Oaks develop-
and access to good health campus, that precedes each dio show Thacker Mountain, ment of Oxford, bordering
care. As for size, they range home game. During the pre- re- w
wh ic features author read-
which on one of two local golf
from tiny Oxford (popula- game partying, you might iings
ngs and bluegrass music. courses. Dave, 78, is a re-
tion 20,865) to midsize Lex- run into legendary Ole Mississs Fo
Food: The Square—the tired United Airlines pilot.
Betsy, 71, attended Ole Miss.
The Dykes found a welcom-
ing group of fellow retirees
through the Oxford New-
comers Club, as well as a
range of activities, from

THE NATIONAL ASSOCIATION OF REALTORS AND LOCAL REALTOR ASSOCIATIONS.

book clubs to volunteer

COURTESY OF THE UNIVERSITY OF MISSISSIPPI. SOURCES FOR HOME PRICES:

opportunities.
If you buy a home here,
you might want to wait until

COURTESY OF VISITANNARBOR ORG EXPLOREASHEVILLE COM

after a losing Rebels season.
The team’s record is one
predictor of home prices,
says real estate agent Steve
Vassallo. Another predictor:
proximity to the Square.
A three-bedroom home
BOTTLETREE
BAKERY IN within a few blocks can
OXFORD, top $600,000, and a stately
MISS., IS A 19th-century house will
POPULAR
DESTINATION. fetch $1 million or more. But
a two-bedroom condo just a

46
KIPLINGER’S PERSONAL FINANCE 08/2014

K8L-RETIRE COLLEGE TOWN.a.indd 46 6/6/14 2:41 PM


RESIDENTS
CONGREGATE
AT STATE AND
LIBERTY STREETS
IN ANN ARBOR,
MICH.
seven-minute walk from the
Square is on the market for
$179,000. Three-bedroom
homes within a five-minute
drive of the Square sell for
$200,000 to $500,000.
Beyond the tidy downtown,
new apartments will serve
the expanding student pop-
ulation, now nearly 19,000.
Traffic on game days slows
to a crawl.
Mississippi is tax-friendly
toward retirees: Property
taxes are low (as are insur-
ance and utilities), and re-
tirement income is exempt
from state taxes. More
than 100 specialists are
associated with the 217-bed
Baptist Memorial Hospital–
North Mississippi.
The university is a hub
THE NATIONAL ASSOCIATION OF REALTORS AND LOCAL REALTOR ASSOCIATIONS.
of culture as well as specta-
tor sports. Broadway plays
come to the Gertrude C.
Ford Center for the Per-
COURTESY OF VISITANNARBOR.ORG, EXPLOREASHEVILLE.COM
forming Arts, and one uni-
versity course per semester
is free to retirees. The town
is actively recruiting tech
companies and other busi-
nesses, but retirees who
want to work part-time
have to compete for scarce
jobs. Some retirees share
their experience through
the incubator business net-
work or do other volunteer
K8L-RETIRE COLLEGE TOWN.a.indd 47
work. Others apply for the
program at Ole Miss that
allows retirees to fill in for
absent professors.
Oxford sits among rolling
hills, unlike the flat terrain
of the Delta or Gulf area.
Summers are hot, but Ox-
ford has four seasons and
no hurricanes. Before set-
tling there, be sure you
know how to pronounce
Lafayette, the county name:
The accent is on the second
syllable—so you render the
name in a drawl that’s pa-
tient and unhurried. —Mark
Solheim
ANN ARBOR
COLLEGE: University of Michigan
POPULATION: 117,025
MEDIAN HOME PRICE: $226,500
COST OF LIVING: 102.4
What makes this college
town so attractive that
retirees will endure Michi-
gan’s fierce winters?
Intellectual engagement
is one big draw. The Osher
Lifelong Learning Insti-
tute—one of a number of
university-based noncredit
educational programs for
adults 50 and older—offers
lectures, classes and study
groups on philosophy, reli-
gion, history and the arts.
The institute is located in
the University of Michigan’s
Turner Senior Resource
Center, which offers a vari-
ety of wellness and fitness
programs. The three-week
Ann Arbor Summer Festival
showcases more than 100
events, including dance,
local bands, comedy and
outdoor movies.
Ann Arbor is home to
dozens of restaurants, from
Caribbean to vegetarian
to Tex-Mex. Transplanted
New Yorkers will feel right
at home sampling the bagels
and pastrami at Zinger-
man’s Deli, an Ann Arbor
institution since 1982.
Ann Arbor’s health care
facilities attract people from
across the U.S. and around
the world. The
University
of Michigan
Health System
is one of the
largest hospi-
tals in Michi-
gan and offers
a broad range
of specialties,
including
geriatrics.
All those
assets help
make Ann
Arbor one
of the more
expensive
communities
in Michigan.
Retirees can find more af-
fordable options if they’re
willing to live at least five
miles outside the popular
downtown area, says Frank
Moore, a certified financial
planner who has lived in
Ann Arbor for 35 years and
plans to retire there. Michi-
gan has a mixed tax picture:
Social Security benefits
08/2014
aren’t taxed, but residents
born after 1945 may have
to pay state taxes on some
of their pension income.
For retirees who want
to escape the cold winter
months (or the crowds
headed to the Big House
during U of M football
games), Detroit Metro Air-
port is only 25 miles away.
ASHeVILLE
COLLEGE: University of North
Carolina–Asheville
POPULATION: 87,236
MEDIAN HOME PRICE: $215,000
COST OF LIVING: 105.7
UNC-Asheville is a small
campus of about 3,700 stu-u-
ze
dents, but it has an outsize
he
influence on retirees. The
HIKERS ENJOY
THE VIEW
FROM CRAGGY
GARDENS, NEAR
ASHEVILLE, N.C.
Osher Lifelong Learning
Institute offers more than
300 courses a year, usually
in six- to eight-week terms.
One of the institute’s most
popular programs, says di-
rector Catherine Frank, is
its Creative Retirement Ex-
ploration Weekend, designed
for working people who are
considering relocating when
47
KIPLINGER’S PERSONAL FINANCE
6/6/14 2:41 PM
 » MONEY // COVER STORY
MUSICIANS JAM
AT THE ATHENS
MUSIC AND ARTS
FESTIVAL.
they retire. Many of those
who attend the weekend
end up moving to Asheville,
Frank says.
It’s not hard to see why.
In addition to the exten-
sive educational offerings
through the Osher Insti-
tute, Asheville has a world-
class symphony, a vibrant
local arts scene, and lots of
breweries and restaurants.
There are quirky pleasures,
too. Every Friday during
the warm-weather months,
locals bring their drums to
Pritchard Park to partici-
pate in a drum circle, an
Asheville tradition since
2001. The event attracts
a surprisingly large number
of seniors, Frank says.
“When you go out to a
concert or drum circle or
restaurant, you see a wide
range of ages,” she says.
In North Carolina, Social
Security benefits are ex-
empt from state taxes, but
some other types of retire-
ment income are taxable.
Homeowners age 65 and
48
KIPLINGER’S PERSONAL FINANCE
K8L-RETIRE COLLEGE TOWN.1.indd 48
older may qualify for a
homestead exemption of
me’s
$25,000 or 50% of the home’s
appraised value, whichever
is greater. Asheville’s ex-
tensive health care network
dates to the late 1800s, when
wealthy northerners such as
industrialist George Wash-
ington Vanderbilt came
for the healing benefits of
mountain air and never left.
His home, Biltmore Estate,
is open to visitors.
Athens
COLLEGE: University of Georgia
POPULATION: 119,980
MEDIAN HOME PRICE: $137,000
COST OF LIVING: Not available
Les and Bobbi Shindleman
have lived in Atlanta and
Chicago, so they’re used
to city life. But since moving
to Athens last year, they’ve
never been bored.
Bobbi, 67, teaches a class
in knitting and crocheting
at the University of Georgia.
Les, 68, a retired manage-
ment consultant, teaches
08/2014
semin
seminars at the university’s
busin
business school. Both are
aactive
ac tiv in the Osher Lifelong
Leaa
Learning Institute program
at UGA, which offers classes
and lectures on everything
from tai chi to Civil War
history. At night, the couple
attend concerts and plays
and check out local farm-to-
table restaurants. “The food
in Athens is phenomenal,”
Bobbi says.
Athens is also the center
of a lively and diverse music
scene. Locals hoping to
catch the next R.E.M.—
which, along with the B-52s
and Widespread Panic, got
its start in Athens—can
check out up-and-coming
bands at the 40 Watt Club
or the Georgia Theatre.
Athens offers a variety of
housing, from older homes
in historic neighborhoods
to new condos downtown.
Georgia is tax-friendly for
retirees: Social Security
benefits, along with up to
$35,000 in most other types
of retirement income, are
exempt from state taxes.
Residents have access to
health care through the
Athens Regional Medical
Center or St. Mary’s Health
Care System. Atlanta, 70
miles away, offers a more
extensive hospital network
(along with an interna-
COURTESY OF ATHENS CONVENTION & VISITORS BUREAU; DARVIN FAN/GETTY IMAGES; COURTESY VIRGINIA TOURISM CORPORATION
tional airport).
Boise
COLLEGE: Boise State University
POPULATION: 214,237
MEDIAN HOME PRICE: $209,450
COST OF LIVING: 95.3
Boise’s 25-mile bicycle
and pedestrian pathway
and proximity to scenic
hiking trails make this city
a magnet for active adults,
including retirees. But the
intellectual challenges keep
residents on their toes as
well. At Boise State, the
Velma V. Morrison Center
for the Performing Arts
features symphony con-
certs, dance and Broadway
musicals. The Osher Life-
long Learning Institute
offers college-level classes
on everything from Photo- o-
shop to philosophy.
Annual cultural events
MILD WINTERS ALLOW
RESIDENTS OF BOISE,
IDAHO, TO ENJOY THE
OUTDOORS YEAR-
ROUND.
6/6/14 3:35 PM
 include the Gene Harris
Jazz Festival and the Idaho
Shakespeare Festival. Re-
flecting a large Basque pop-
ulation, whose ancestors
(from the region encom-
passing north-central Spain
and southwestern France)
came to Idaho as sheep
COURTESY OF ATHENS CONVENTION & VISITORS BUREAU; DARVIN FAN/GETTY IMAGES; COURTESY VIRGINIA TOURISM CORPORATION
plain keeps winters mild
and humidity low. The city
is served by two major med-
ical centers and several
smaller hospitals.
Charlottesville
COLLEGE: University of Virginia
POPULATION: 44,349
Charlottesville is situ-
ated in the foothills of the
Blue Ridge Mountains, so
options for hiking, biking
and paddling abound. If you
prefer working out in the
great indoors, apply for
membership to the tony
tax Social Security benefits.
Other retirement income is
taxable, but seniors 65 and
older can deduct up to
$12,000, subject to certain
income limits. The state
doesn’t levy an estate tax.
—Mike DeSenne

herders, Boise has a number LOCALS ENJOY THE

of restaurants that serve
traditional Basque food.
(Try the solomo sand-
wiches—marinated pork
loin and pimiento on bread—
at Bar Gernika Basque Pub
and Eatery.) It’s also the
home of the only Basque
museum in the U.S.
Boise State’s football and
basketball teams attract the
kind of community support
that larger cities reserve for
professional sports. The city
is also home to the Boise
Hawks, a farm team for the
Chicago Cubs.
Idaho is a tax-friendly
state: Social Security bene-
fits aren’t taxed, and resi-
dents age 65 and older are
eligible for a deduction of
up to $45,234 for other re-
tirement benefits. Boise has
four distinct seasons, but its
location on a high desert
MEDIAN HOME PRICE: $244,250 ,250
WINE TASTING AND
COST OF LIVING: 102.4
SCENIC BEAUTY OF
CHARLOTTESVILLE, VA.
If you think orange is the
ht in
new black, you’ll fit right
with the rest of the folks in n
Charlottesville. Orange and
dark blue officially represent
the University of Virginia
and unofficially influence
the dress code of the locals—
down to the orange-and-
blue rep ties still seen at
Cavaliers football games.
The hometown universi-
ty’s appeal to retirees goes
well beyond fashion. Resi-
dents 60 and older can take
noncredit classes tuition-
free at UVa and other area
schools, including Piedmont
Community College. Con-
tinuing your education puts
you in good company: An
impressive 48% of Charlot-
tesville residents age 25 and
up hold a bachelor’s degree
or higher.
For cultural stimulation,
attend the annual Virginia
Festival of the Book in the
Boar’s Head Sports Club.
Housing in Charlottes-
Fort Collins
COLLEGE: Colorado State University
spring and the Virginia ville can be pricey. Retirees POPULATION: 152,061
Film Festival in the fall. with a budget under MEDIAN HOME PRICE: $280,000
Music lovers can catch $500,000 might like Lake COST OF LIVING: Not available
free Fridays After Five con- Monticello, 25 minutes
certs at the Downtown southeast of town. Homes With more than 30,000 Col-
Mall from April to Septem- in upscale country-club orado State students, Fort
ber. Oenophiles won’t have communities such as Glen- Collins is a city teeming
to venture far to sniff, swirl more can easily top $1 mil- with young adults. But the
and sip worthy vintages. lion. Homeowners 65 and characteristics that make it
Try Trump Winery (yes, older can apply for relief attractive to twentysome-
that Trump) or Barbours- from real estate taxes. things are luring retirees,
ville Vineyards, which is Overall, Virginia’s tax- too. The city is blessed with
located 18 miles northeast friendliness toward retirees more than 300 days of sun-
of Charlottesville. is mixed. Virginia doesn’t shine a year, offering plenty

49
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 » MONEY // COVER STORY
FORT COLLINS,
COLO., HAS 20
MILES OF HIKING
AND BIKING
TRAILS.
of opportunities for resi--
han
dents to enjoy its more than
600 acres of parks and 20 0
miles of walking and bikinging
trails. For more adventur--
ous outings, residents can
hike in the nearby Rocky
Mountain National Park.
Retirees who enjoy urban
pursuits head to Fort Col-
lins’s lively downtown,
home to coffee shops, out-
door cafés, brew pubs and
live-performance venues.
On the third Friday of every
month, the city hosts a
Foodie Walk in its historic
pedestrian center so resi-
dents can sample local
culinary specialties (a re-
cent theme for the walk
was barbecue).
The median home price
of $280,000 is above the
national median ($201,700)
but lower than the price of
homes in other parts of Col-
orado (in nearby Boulder,
the median home price is
$418,700). Colorado is a tax-
friendly state for retirees:
Residents 55 and older get a
generous retirement-income
exclusion from state taxes
and may qualify for a home-
stead exemption of up to
50
KIPLINGER’S PERSONAL FINANCE
K8L-RETIRE COLLEGE TOWN.a.indd 50
5
50% of property value.
Poudre Valley Hospital,
a 270-bed community re-
gi
gional medical center, is
loc
located in Fort Collins. Den-
ver, which offers a broader
range of medical options, is
about an hour’s drive away.
Gainesville
COLLEGE: University of Florida
POPULATION: 35,533
169,287
MEDIAN HOME PRICE: $169,287
COST OF LIVING: 99.1
BEN HILL GRIFFIN
STADIUM, IN
GAINESVILLE, FLA.,
IS A MAGNET FOR
FOOTBALL FANS.
08/2014
Gainesville is smack in the
middle of the state, which
means it’s 75 miles from the
ocean. But during hurricane
season, that’s not such a bad
place to be. And the home
of the University of Florida
offers many benefits for
retirees looking to escape
the cold and the high cost
of living up north.
In addition to Florida
Gators football and basket-
ball, the city offers 13 muse-
ums and galleries and a
thriving downtown. Resi-
dents age 60 and older can
enroll in courses at the Uni-
versity of Florida at no cost
on a space-available basis.
In addition, the Institute for
Learning in Retirement at
Oak Hammock, a retire-
ment community affiliated
with the University of Flor-
ida, offers an extensive
roster of courses, many of
them taught by university
professors. (Seniors don’t
have to live in the commu-
nity to participate.) One of
the most popular courses,
says Walter Kalaf, an Oak
Hammock resident who
has served on the curricu-
lum committee, covers the
conditions that led up to
World War II.
Florida is one of the most
tax-friendly states in the
country for retirees. There
is no state income tax, and
permanent residents are
eligible for a homestead ex-
emption of up to $50,000.
Seniors may qualify for an
additional exemption.
Gainesville was founded
as a health care resort.
Now, medical care is avail-
able through the universi-
ty’s Shands Hospital and
the North Florida Regional
Medical Center.
LEXINGTON
COLLEGE: University of Kentucky
POPULATION: 308,428
MEDIAN HOME PRICE: $145,000
COST OF LIVING: 89.6
There’s more to the
Bluegrass State than
bourbon, basketball and
beautiful horses, although
all three play a major role
JORDAN SIEMENS/GETTY IMAGES; STACY REVERE/GETTY IMAGES
6/6/14 2:42 PM
 Best and Worst States for taxes
NO MATTER WHERE YOU RETIRE, YOU’LL
owe the same amount to Uncle Sam in
federal taxes. But whether you stay put or
relocate can have a significant impact on
what you’ll owe in state taxes.
If you’re thinking of pulling up roots, com-
pare the taxes in potential retirement states
with those in your current state. Wherever you
retire, you may be eligible for senior-related
tax breaks on retirement income. (A state
with no income tax is appealing, but don’t
forget about sales and property taxes.)
After analyzing the tax laws of the 50
states and the District of Columbia, we’ve
come up with a list of the ten most and the
ten least tax-friendly states for retirees.
The map below offers a quick snapshot.
For details on the tax rules in all the states,
visit kiplinger.com/links/retireetaxmap.
RETIREMENT INCOME
Looking for a state that doesn’t tax income?
Try Alaska, Florida, Nevada, South Dakota,
Texas, Washington or Wyoming. A couple of
others, New Hampshire and Tennessee, tax
only dividends and interest. But Tennessee
exempts taxpayers 65 and older who have
total annual income of $33,000 or less for
single filers ($59,000 for joint filers). New
Hampshire offers a $1,200 exemption for
taxpayers 65 and older.
Of the 41 states plus the District of
Columbia that have a broad-based income
JORDAN SIEMENS/GETTY IMAGES; STACY REVERE/GETTY IMAGES
4 6
9 1 | Alaska
8
2 1
3 3
10
5 10
6 7
8
1
K8L-RETIRE COLLEGE TOWN.1.indd 51
tax, most offer breaks to protect some (and,
in a couple of cases, all) retirement income.
The most generous states are Mississippi and
Pennsylvania, which make all retirement
income tax-free, including public and private
pensions and distributions from retirement
accounts, such as IRAs and 401(k)s.
Most other states allow retirees to exclude
part of their retirement income. Georgia
offers the largest such retirement-income
exclusion, at $65,000 for a taxpayer 65 or
older (couples can shelter $130,000). For
a taxpayer age 62 to 64, the first $35,000
of retirement income is tax-free. Kentucky
allows exclusions of up to $41,110 of military
retirement pay, qualified private pensions,
annuity income, and civil-service and state
and local government pensions.
Six states offer no safe haven for
retirement income: California, Minnesota,
Nebraska, North Dakota, Rhode Island and
Vermont. Connecticut excludes 50% of
military retirement pay from tax, but it offers
no other retirement-income breaks.
SOCIAL SECURITY BENEFITS
States are pretty generous when it comes to
Social Security. While Uncle Sam taxes up to
85% of your benefits, they’re 100% tax-free
in most states. Besides the nine states that
don’t have a broad-based income tax, 27
states and the District of Columbia grant
Social Security benefits tax-free status.
MOST TAX-FRIENDLY
5 2 | Wyoming
3 | Nevada
2 3 | Nebraska
7
9
4 | Florida
5 | Arizona
6 | Mississippi
7 | Georgia
8 | Louisiana
9 | Delaware
4 10 | South Carolina
The rest of the states tax Social Security
to some extent. Rhode Island and West
Virginia, for instance, tax benefits the same
as the federal government does. Connecti-
cut, Kansas and Missouri tax benefits when
a taxpayer’s income exceeds certain thresh-
olds (which are above the federal levels).
Some of the states, including New Mexico,
allow benefits to qualify for a tax break un-
der a broader retirement-income exclusion.
ESTATE TAXES
Although many states don’t impose estate
or inheritance taxes (Indiana, Ohio and
North Carolina repealed their death taxes as
of 2013), 19 states and the District of Colum-
bia have at least one or the other; Maryland
and New Jersey impose both levies.
An estate tax hits the estate before as-
sets are distributed, while an inheritance tax
is paid by the heirs. Tennessee, which taxes
estates of more than $1.25 million, is phasing
out its tax by 2016.
A key factor is how large an estate can
be before triggering the tax. Often these
exemptions are lower than the federal
estate tax exemption, which for 2014 is
$5.34 million. For example, in New Jersey,
the exemption is $675,000.
In addition to an estate tax, Connecticut
has a gift tax with a lifetime exclusion of
$2 million. Minnesota enacted a gift tax in
2013 but repealed it in March.
LEAST TAX-FRIENDLY
1 | Rhode Island
2 | Connecticut
4 | Montana
5 | New York
6 | Vermont
7 | New Jersey
8 | Minnesota
9 | Oregon
10 | California
51
08/2014 KIPLINGER’S PERSONAL FINANCE
6/6/14 3:35 PM
 » MONEY // COVER STORY
in the Lexington region.n.
Home to the Universityity
of Kentucky, along with h
Transylvania Universityy
and several other higher-
education institutions, Lex-
ington ranks 12th in the
nation among cities its size
for the percentage of resi-
dents with a college degree.
“The intellectual level of the
town is high,” says Darby
Turner, a Lexington native
and partner with the law
firm Bingham Greenebaum
Doll. UK attracts talent to
the city and helps produce
an educated workforce, he
says. The university offers
two free programs for older
adults: the Donovan Fellow-
ship and the Osher Lifelong
Learning Institute.
The horse industry plays
a major role in bringing
people from around the
world to Lexington, giving
the city an international
flavor. Keeneland Race
Course has thoroughbred
racing in April and October
and four annual thorough-
bred sales that attract buy-
ers from nearly every state
and 50 countries.
Surrounded by horse
52
KIPLINGER’S PERSONAL FINANCE
K8L-RETIRE COLLEGE TOWN.a.indd 52
THE HORSE
INDUSTRY IS A
MAJOR DRAW FOR
LEXINGTON, KY.
fa
farms on rolling country-
si
side, the city has more than
10
100 parks, six public golf
co
courses and a 734-acre
nature preserve with more
than ten miles of hiking
trails. With two ballet
companies, an orchestra, a
minor-league baseball team,
a performing arts center,
weekly big band and jazz
concerts in the summer,
and gallery hops through-
out the year, there’s no
shortage of things to do.
You might even be able to
score tickets to watch the
NCAA championship men’s
basketball team play.
Health care is easily
accessible: The area has
13 hospitals and 249 physi-
cians’ offices. Although Lex-
ington offers many of the
amenities of a large city, the
cost of living is below the
national average, as is the
median home price. Ken-
tucky is a tax-friendly state
for retirees: It exempts So-
cial Security benefits from
income taxes and offers
homeowners 65 and older
a tax exemption for part of
the value of their property.
—Cameron Huddleston
08/2014
State College
COLLEGE: Pennsylvania State
University
POPULATION: 41,757
MEDIAN HOME PRICE: $270,250
COST OF LIVING: Not available
This town may not be close
to any major cities or the
beach, but it’s popular with
retirees who like the lively
downtown, the cultural
activities and, of course,
Penn State football.
Kathleen Collins, 63, and
her husband, Skip, 65, have
owned a condo just outside
State College since 2004,
and they divide their time
between Washington, D.C.,
and Happy Valley. Kathleen,
a semi-retired lawyer and
Penn State alum, teaches a
course in banking regula-
tion at the university’s law
school during the fall semes-
ter. Kathleen appreciates
State College’s beautiful set-
ting. With mountains and
trout streams, “it’s so dis-
similar to city life.”
But rural doesn’t mean
dull. The Center for the Per-
forming Arts at Penn State
features chamber music
concerts, ballet and Broad-
way shows. The Palmer
Museum of Art, part of the
College of Arts and Archi-
PENN STATE
UNIVERSITY
ATTRACTS
CULTURAL
EVENTS
TO STATE
COLLEGE, PA.
tecture at Penn State, is
home to 11 art galleries and
an outdoor sculpture gar-
den; admission is free. Resi-
dents age 60 and older can
take undergraduate courses
at Penn State free on a
space-available basis.
In addition to bars and
pizza joints for the college
crowd, State College offers a
variety of locally owned and
high-end restaurants, along
with three microbreweries
and a 24-hour Wegmans.
At $270,250, the median
home price is above the me-
dian for the U.S. and Penn-
sylvania. There are several
retirement communities in
the area, including The Vil-
lage at Penn State, which
provides free transportation
to football games and other
university events.
Pennsylvania is a tax-
friendly state for retirees.
Social Security benefits,
public and private pensions,
and distributions from re-
tirement accounts are tax-
free. Health care is available
through the well-regarded
Mount Nittany Medical
Center. The Penn State Uni-
versity Milton S. Hershey
Medical Center is located
about an hour and 45 min- n-
utes away, in Hershey, Pa.a. ■
ISTOCK.COM; COURTESY VISITPENNSTATE.ORG
6/6/14 3:07 PM
 KIMBERLY LANKFORD > Ask Kim
Tax Records You Can Toss
I WANT TO GET RID OF SOME OF
my tax files. What can I safely pitch?
H.T., Mil waukee
Keep your actual tax returns indefinitely.
They can help prove your income when,
say, you are applying for a mortgage, or
they can help establish the cost basis of
assets. In most cases, you can safely shred
the supporting documents three years after
the tax-filing deadline, which is how long
the IRS usually has to initiate an audit.
The IRS has up to six years to audit people
who neglect to report more than 25% of
their income, so if you are self-employed
or have a complex tax situation, keep re-
cords at least that long. Laurie Ziegler, an
enrolled agent in Saukville, Wis., says she
usually keeps her tax files for seven years,
to be safe.
Also keep records showing the purchase
date and price of stocks and mutual funds
in taxable accounts until you sell the
investments. Keep Form 8606, on which
you report nondeductible contributions to
a traditional IRA, until you withdraw all
of the money.
Shred pay stubs if the information
matches your W-2 for the year (unless you
made charitable contributions via payroll
deduction) and monthly brokerage state-
ments when they match your year-end re-
port. Most credit-card receipts and utility,
phone and cable bills can also go unless you
need them for tax purposes, such as to doc-
ument home-office or business expenses.
Price of a ticket. I just got a ticket for a moving
violation. How much will my car insurance
premiums increase?
J.W., Sa n Fr a ncisco
It depends on the type of ticket and the se-
riousness of the violation, as well as your
LISE METZGER
insurer and state. After a speeding ticket,
your rate will increase an average of 21%
for driving 1 to 15 miles per hour over the
K8M-ASK KIM.indd 53
speed limit, 28% for driving 16 to 30 mph
over the limit, and 30% for driving more
than 30 mph over the limit, according to
InsuranceQuotes.com. In some states, driv-
ing 30 mph over the limit constitutes reck-
less driving, bumping up your rate by 82%,
on average. A DUI violation boosts your
premium by 93%, on average; in California,
the average rate jumps by 183%.
A ticket could affect your premiums for
three to five years (or longer for a DUI),
depending on the state. Some states forgive
tickets or erase points on your driving re-
cord if you complete a driving class. Shop
around after your insurer hikes your rate to
see if another company is more forgiving.
“
Grandparent-owned 529. My mother has a 529
college-savings plan for my daughter. Will it
affect my daughter’s chances for financial
aid? In most
J.C., Ta kom a Pa r k, Md.
cases, you can
A grandparent-owned 529 is not reported
as either a parent’s or a student’s asset on safely shred
the Free Application for Federal Student
Aid (FAFSA). But distributions must be
supporting
reported as student income on the next
year’s FAFSA, and students are expected
documents
to contribute 50 cents of every dollar of three years
income toward the college bills (after an
allowance of about $6,000). after the
To minimize the impact, you could wait
to withdraw money from the grandparent- tax-filing
owned 529 until the last financial aid form
has been filed. Or find out whether you can
deadline.”
switch the owner to a parent. Assets in
parent-owned 529s are tapped at up to
5.6%, after an allowance, but withdrawals
are not reported as income. Some 529
administrators, including TIAA-CREF,
let you switch account owners by filling out
a form. If yours doesn’t, you can move the
money to a 529 that lets you switch the
owner from the grandparents to the par-
ents. See www.savingforcollege.com. ■
GOT A QUESTION? ASK KIM AT KIPLINGER.COM/ASKKIM. KIMBERLY
LANKFORD ANSWERS MORE QUESTIONS EACH WEEK ON KIPLINGER.COM.
53
08/2014 KIPLINGER’S PERSONAL FINANCE
6/4/14 6:33 PM
 » MONEY
FAMILY FINANCES »
9 Crucial Credit Secrets
We help you navigate the blind curves of the credit world. BY LISA GERSTNER
CREDIT IS COMPLICATED AND, SOMETIMES,
counterintuitive. For example, being
debt-free can result in a dismal credit
score, and having high limits on your
credit cards may boost your score
despite the extra temptation to spend.
Dozens of credit scores measure the
activity on your credit reports, and
everyone from your cable company
to your employer may be checking up
on your credit.
Learning nine key credit facts may
help you get a better rate on a mort-
gage, negotiate a better deal from your
card issuer, or even land a job.
A little debt is desirable. When Teresa
1 Doseck of Wapakoneta, Ohio, was
looking for the money to start a home
health care business in 2007, her
credit union and the Small Business
Administration declined to give her a
loan because she had insufficient col-
lateral. So she borrowed the money
from her father and avoided all other
debt, including credit cards. “I wanted
to prove I didn’t need their money,”
says Doseck, 46. Her business took
off, and by last year she was paying
herself an annual salary of more than
$300,000. But when she and her hus-
band shopped for a mortgage in 2012,
she was shocked to learn that her
credit score was only 535 out of 850.
Doseck discovered that a thin credit
history can lead to a poor credit score.
“I have pretty much always tried to
live within my means,” she says. She
even shunned personal credit cards for
many years. To help beef up her credit
history and boost her score, she now
54
KIPLINGER’S PERSONAL FINANCE 08/2014
K8M-CREDIT.indd 54
JAMES FOSTER
uses three credit cards regularly, and
last time she checked, her score had ■ TERESA
DOSECK LEARNED
increased by more than 100 points. THAT A THIN
Retirees may run into similar issues CREDIT HISTORY
if they pay off their mortgage and CAN LEAD TO A
POOR CREDIT
other loans and stop using credit SCORE.
cards. To maintain a credit history,
continue to make one or two pur-
chases per month on a credit card.
2 You can negotiate with your credit card
issuer. Sure, your credit card
comes pre-equipped with a due date,
an annual percentage rate and a group
of fees that the issuer sets. But they’re
usually not set in stone. “Almost all
card issuers will let you change the
due date” to better fit your cash flow,
says Beverly Harzog, a credit expert
and author of Confessions of a Credit
Junkie. You may also be able to negoti-
ate a lower interest rate or minimum
payment. “If you have a great credit
score, you’re in the driver’s seat,”
Harzog says.
You may have some leeway with
fees, too. If you make a late payment
for the first time and get slapped with
a fee, call and ask to have it waived.
Your good payment history could be
enough to catch you a break. You may
be able to get an annual fee waived for
at least a year if you threaten to cancel
your card. With a new rewards card,
you may even be able to capture some
extra points. If you find out—perhaps
through social media or acquain-
tances—that other people have been
offered a larger sign-up bonus, ask
the issuer if it will increase your initial
reward to match.
6/5/14 12:47 PM

3 Hundreds of consumer-reporting
agencies may be tracking you. Reports
from the three major credit bureaus
(Equifax, Experian and TransUnion)
are commonly used to assess credit-
worthiness. But many more agencies
track everything from how you’ve
managed bank accounts to your history
as a tenant. (See a list of some of them
JAMES FOSTER
at http://files.consumerfinance.gov/f/
201207_cfpb_list_consumer-reporting-
agencies.pdf.) Many of these lesser-
K8M-CREDIT.indd 55
known agencies focus only on nega-
tive information. So, for example, if
you’ve ever bounced a check or other-
wise mismanaged a bank account,
you may have data on file with Chex-
Systems, which collects information
on checking and savings accounts.
National agencies must provide you
with one free report per year, and all
must provide a report for a reasonable
fee ($11.50 or less). But rather than
attempt to track all of them, you may
want to check them in relevant
situations. If you’re about to
shop for homeowners insur-
ance, for example, get your
C.L.U.E. personal property
report from LexisNexis, which
lists losses related to your per-
sonal property. LexisNexis also
provides a C.L.U.E. auto loss
history report. If you’re shop-
ping for apartments, see if
anything comes up on tenant-
screening databases, such as
CoreLogic SafeRent.
Your FICO score could drop
4 when a black mark disappears
from your credit report. FICO,
which produces the most
widely used credit scores, uses
“scorecards” to group consum-
ers into categories. If you’ve
had a delinquency, such as a
bankruptcy, FICO may put you
on a scorecard that evaluates
your risk in part by how much
time has passed since your
most recent delinquency, the
number of delinquencies
you’ve had and the severity
of your worst delinquency, says
Barry Paperno, a credit indus-
try expert. Scorecard catego-
ries are based on information
in your credit report, such as
how many accounts you have,
the age of your accounts and
other factors.
So your credit score could
fall when you move from one
scorecard to another—even if
it’s ultimately a positive switch.
For example, if a bankruptcy comes
off your credit report, you may trans-
fer to a “cleaner” scorecard and be
compared with customers with better
credit than those on your previous
scorecard. “The good news for con-
sumers is that any such score drops
are temporary,” says Paperno. Over
time, your score will rise more with-
out the black mark than with it.
5 You may never see the score your lender
is viewing. FICO produces many
versions of its credit score. Some of
them are designed for certain types
of lenders, and those scores place more
weight on, say, your mortgage, auto-
loan or credit-card payment history
than the base score does, says Anthony
Sprauve, senior consumer credit spe-
cialist for FICO.
You’ll see these scores only if a
lender has declined to grant you credit
and discloses the score to you as re-
quired by law, says John Ulzheimer,
credit expert with Credit Sesame. But
as long as you have been responsible
with your credit in general, the history
that you’ve created will have a positive
impact on all of your scores.
To get a general idea of where your
credit score stands and how you might
improve it, you can use the free tools
at Credit.com, CreditSesame.com and
CreditKarma.com. If you’re thinking
of taking out a loan soon, consider re-
viewing your base FICO score ($19.95
at www.myfico.com) because it may
come closest to the score that your
lender will view.
6 Opening a new account isn’t likely to
ding your score much. You may have
heard that if you apply for several
credit cards at once, you’ll take a hit
to your credit score because the lend-
ers make inquiries on your credit re-
port. Even an inquiry from a single
lender can shave points from your
score. But an inquiry counts for a rela-
tively small portion of your score.
If you have strong credit and want
to snag great offers on credit cards
once in a while, don’t fret over the
55
08/2014 KIPLINGER’S PERSONAL FINANCE
6/5/14 12:47 PM
 » MONEY
impact on your score. (You may want
to hold off if you plan to apply for a
loan in the next few months.) “You
don’t need to be held hostage by a credit
card that isn’t working for you any-
more,” says Gerri Detweiler, director
of consumer education for Credit.com.
When it comes to mortgage, student
and auto loans, you have more free-
dom to shop for rates without sinking
your credit score. For each type of
loan, FICO ignores lenders’ inquiries
that occur within 30 days of each
other. In addition, inquiries that occur
within 45 days of each other count as
a single inquiry. That rule also applies
when rental properties check the
credit reports of potential tenants—
meaning your score should stay in
good shape as long as you find a home
within 45 days.
7 But closing credit cards could hurt.
When you want to declutter your
financial life, eliminating credit card
accounts feels good. And if you find
that you can’t control your spending
when you have credit cards, shutting
them down is probably a good idea.
But if you have the willpower to
simply leave them in a drawer, that’s
the best move.
Say you have three credit cards,
each with a $5,000 limit. Two of the
cards have zero balances, and one has
a $4,000 balance. If you close the two
cards with no debt, the overall ratio of
your debt compared with your credit
limits jumps from 27% to 80%. That
percentage, called credit utilization,
is part of the “amounts owed” portion
of your FICO score, which accounts
for nearly one-third of the score. A
high utilization has a negative impact.
To minimize the effect on your score,
you’d be better off leaving all of the
cards open, keeping zero balances on
the first two and whittling down your
balance on the remaining card. (Your
utilization is calculated both for indi-
vidual cards and your overall credit.)
If you keep relatively low balances
on all of your credit cards, closing
some of them may not inflict much
56
KIPLINGER’S PERSONAL FINANCE 08/2014
K8M-CREDIT.1.indd 56
damage on your score. Retail cards
tend to have low limits, says Harzog,
so those could be prime candidates
for cutting, especially if you own other
major cards with high limits. And
closing a card won’t immediately
shorten your average account age,
another segment of your credit score.
The history you’ve created with the
card will remain on your credit report
for about seven years after you’ve
closed it.
8 Poor credit? Utilities may require a de-
posit. Utilities and cable, Internet
and wireless providers may check your
credit report, and you may have to put
down a deposit if you have a checkered
payment history. (Often, accounts
* KipTip
Master the Basics
■ Pay all of your bills on time. Your
history of on-time payments accounts
for the largest portion of your FICO score.
Even an unpaid parking ticket could cause
serious damage if it goes into debt
collection.
■ Keep credit card balances low. Using
a high percentage of the credit available
to you on a credit card drags down your
score. Try to keep the balance on each
card at 20% or less of its limit.
■ Take out new credit judiciously. Apply-
ing for several credit cards at once sends
a signal that you may pose more risk to
lenders.
■ Review your credit reports regularly.
At www.annualcreditreport.com, you
can get a free report annually from each
of the three major bureaus: Equifax,
Experian and TransUnion. Pull all of
them at once or get one report every
four months if you’d like to stagger
them. Check for any errors, such as a
listing of an account you never opened.
If you find a problem, file a dispute with
each bureau that included the error
on its report.
with such services will appear on your
credit report only if they have gone
into default or collection.) They may
also check specialized credit scores or
assessments attuned to how much risk
you present as a customer.
With Verizon Wireless’s Edge pro-
gram, for example, which allows you
to upgrade your phone more often
than with standard plans, you may
have to make a down payment on your
phone if your credit doesn’t meet
certain standards. Some services,
including Sprint and T-Mobile, will
forgo the credit check with certain
plans if you bring your own phone. If
you have poor credit, some providers
may be willing to work with you by, say,
requiring you to prepay for service.
9 Your credit history could scuttle your
job prospects. A potential (or cur-
rrent) employer may want to take a
p
o
peek at your credit report. Some 34%
of organizations perform credit checks
oon certain job candidates, and 13% re-
vview all candidates, says the Society
ffor Human Resource Management.
CCandidates most likely to be screened
aare those who would have financial
rresponsibilities, hold senior positions
oor have access to confidential em-
pployee information.
In ten states, employers are limited
iin how they can use a credit report
tto make decisions about job applicants.
IIn California, for example, employers
ccan pull credit reports only to review
ppeople for certain positions, such as
tthose in law enforcement or manage-
mment. And legislation to restrict em-
pployer access is pending in several
mmore states. No matter where you are,
tthe employer must ask your permis-
ssion before pulling your credit report.
AAnd it will not see your credit score.
Before you hunt for a job, review
yyour credit report (to find out where
tto get it, see the box at left). If you see
aanything that could raise questions,
ssuch as an account that went to collec-
ttion, prepare an explanation. “Half
tthe time, it’s a test to make sure you’re
bbeing honest,” says Ulzheimer. ■
6/5/14 7:43 PM
 INSURANCE »
Protect Your
College Student
As your child leaves the nest, make
sure there’s a safety net in place.
BY KIMBERLY LANKFORD
TUITION MAY NOT BE THE ONLY
check you need to write if
you’re sending a kid off to
school this fall. Take stock
of your health, homeowners
and auto insurance to see
which situations are cov-
ered and which aren’t, and
when you might need to buy
more protection.
Health insurance. Adult chil-
dren can generally stay on
their parents’ health insur-
ance policy until age 26. But
check to see whether your
plan’s network of doctors
and hospitals extends to the
area where your student will
live while at school. Many
policies provide little or no
coverage for out-of-network
care, except for emergencies.
Your child may be able to
buy a student health insur-
ance policy. Many of these
policies are more robust
than in the past and no lon-
ger set annual and lifetime
maximums. Others may
have only basic coverage
for the campus clinic and
an affiliated nearby hospi-
tal. But that can be a good
FUSE/GETTY IMAGES
supplement to a parent’s
policy that has little or no
in-network coverage near
the college, says Hector
K8M-INSURE COLLEGE KID.1.indd 57
policies off the exchanges,
so it’s best to check out both
options.) If your student is
still a dependent for tax
purposes, he won’t qualify
for a premium subsidy.
On-exchange and off-
exchange policies cover
the same ten essential
health benefits and fall
within the four metal tiers
(platinum, gold, silver and
bronze). Insurers may also
offer catastrophic policies
that have higher deductibles
in exchange for lower pre-
De La Torre, executive di- miums. People ages 18 to
rector of the Transamerica 24 paid an average monthly
Center for Health Studies. premium of $144 in the
Another alternative is first quarter of 2014 for
for your student to buy an policies purchased at
individual policy through eHealthInsurance.com,
the local health insurance with most people in that age
exchange (go to www group choosing catastrophic-
.healthcare.gov for links) level policies. Open enroll-
or directly from an agent, ment for individual policies
insurer or Web site such is closed until November 15,
as eHealthInsurance.com. but students who move to
(Some insurers only sell a new state may qualify for
■ PARENTS’
POLICIES MAY
LIMIT OUT-
OF-NETWORK
HEALTH CARE
COVERAGE.
KIPLINGER’S PERSONAL FINANCE
a 60-day special enrollment
period.
Renters insurance. Most kids
leave home with a boatload
of electronic gear, clothes
and other stuff. If your child
lives in an on-campus dorm,
your homeowners insur-
ance will usually provide
coverage. Liability limits
will be the same, but note
that there may be a 10%
limit on possessions cover-
age because the items are
not in your home.
You may be able to add
coverage for PCs, tablets and
other pricey items—with
higher limits and coverage
for accidental damage—for
about $50 to $100 per year,
says Spencer Houldin, an
independent agent in Wash-
ington Depot, Conn. If your
student moves to off-campus
housing, you may need to
buy a basic renters policy,
with $15,000 of property
coverage and $500,000 of
liability coverage, for $125 to
$150 per year, says Houldin.
Unrelated roommates may
need separate policies.
Car insurance. If your child
moves more than 100 miles
away from home and doesn’t
take a car, your premiums
could drop by as much as
30% or 40%, and she will
still be covered when she
drives your car at home.
If she takes a car with her,
your premiums may in-
crease or decrease depend-
ing on where she moves,
says Bill Wilson, of the Inde-
pendent Insurance Agents
and Brokers of America.
Students who maintain a
B average or better qualify
for a good-student discount
of 5% to 15%. ■
57
6/5/14 7:44 PM
 » MONEY
JANE BENNETT CLARK > Rethinking Retirement
How Much You Really Need
ack when I was packing lunches for
B  three kids, the deli counter was a
regular stop on my circuit around
the grocery store. Inevitably, I found
myself in line behind one or another older
couple who took what seemed like for-
ever—sampling this, discussing that—
before making their selection. (“One-eighth
of a pound of ham, please. Thinly sliced!”)
I may have been in a hurry, but these folks
had all the time in the world.
That leisurely approach explains, in part,
why you may be better off in retirement
than you expect. In several studies on
household consumption, Erik Hurst, of the
University of Chicago, and Mark Aguiar, of
Princeton University, report that spending
“
on food drops significantly in retirement,
not because retirees are eating less but
because they have more time to shop and
compare prices (and, apparently, agonize
Spending on over choices at the deli counter).
food drops in The savings don’t extend only to meals
eaten at home. Retired people spend 31%
retirement, less on eating out than the still-working,
according to Hurst and Aguiar, not because
not because they’re scrimping but because they no
longer grab $8 sandwiches at lunch places
retirees are or stop for takeout on the way home from
work. Instead, they reserve their eating-out
eating less but dollars for table-service restaurants.
because they As for other expenses, retirees spend
less on costs connected to commuting and
have more wardrobe maintenance, such as dry clean-
ing, but as much or more (at least at first)
time to shop on leisure activities, such as going to the
movies, golfing and travel. Because the
and compare savings in some categories outweigh the
spending in others, “on average, people
prices.” are doing pretty well,” says Hurst.
Make it personal. That’s reassuring, but it
also reinforces a concept long studied by
researchers and already known to the rest
of us: Consumption depends on your situa-
tion. When you have teenagers, you spend
more on food, clothes and education than
58
KIPLINGER’S PERSONAL FINANCE 08/2014
K8M-RETHINK RETIRE.indd 58
you do as an empty nester. When you’re
paying a mortgage, you spend more on
housing than you do once your home is paid
off. When you’re throwing everything you
have at retirement saving, you’re not jetting
off to Europe. In retirement, you may
splurge on travel at first; later, you pay
more for health care.
To some extent, retirement planners
take such considerations into account. For
instance, many recommend that you save
enough to replace 80%—not 100%—of your
preretirement income over a 30-year retire-
ment. The formula assumes that you will
no longer be paying payroll taxes, saving
for retirement or covering work costs, and
that you may be in a lower tax bracket.
It also assumes that your spending
will stay constant (adjusted for inflation)
throughout a 30-year span, as opposed
to fluctuating according to your circum-
stances. That assumption is no truer after
you retire than it is before, says David
Blanchett, head of retirement research
at Morningstar, and it can lead you to
overestimate your income target. In fact,
many families can get by on only 60% of
preretirement income.
For my part, I mostly bring my lunch
to work and prepare my other meals, so I
don’t see my food costs going down much.
Few would accuse me of spending lavishly
on work outfits—no savings there. Because
my company subsidizes my commute, my
transportation costs could actually go up.
But since I plan to downsize and retire
my mortgage, my housing expenses will
certainly go down. Overall, I think my
own replacement rate will be closer to 70%.
I am going to run the numbers to be sure.
And that’s what all of us should be doing,
says Blanchett. “Retirement is the most
expensive purchase you’re ever going to
make. It makes sense to figure out what
LISE METZGER
it’s really going to cost.” ■
JANE BENNETT CLARK IS A SENIOR EDITOR AT KIPLINGER’S PERSONAL FINANCE.
6/5/14 12:48 PM
 TOP-YIELDING MONEY MARKET ACCOUNTS
30-day Min.
yield as invest- Web site
CREDIT » Taxable Funds of May 27 ment (www.)
Meeder Money Market Retail (FFMXX)* 0.06% $2,500 me eder
f inancial.com

Where to Get Davis Govt MMF A (RPGXX)*

Direxion US Govt MMF A (DXMXX)*‡
0.05
0.03
1,000
25,000
davisfunds.com
direxionfunds.com

Free Checking HSBC Prime MMF D (HIMXX)*‡

NATIONAL AVERAGE
0.03
0.01%
30-day Tax. eq. yield Min.
yield as 25%/39.6% invest-
1,000 us.hsbc.com

Web site
Tax-Free Funds of May 26 bracket ment (www.)
FREE CHECKING IS GETTING the Allpoint and Capital Alpine Municipal MMF (AMUXX)* 0.03% 0.04%/0.05% $2,500 alpinefunds.com
harder to come by. Only 59% One networks. PNC Tax-Ex MMF A (PXAXX)* 0.02 0.03/0.03 1,000 pncfunds.com
of the financial institutions The free Ally Bank Inter- American Cent T-F Inv (BNTXX)*‡ 0.01 0.01/0.02 2,500 americancentury.com
surveyed by Moebs Services est Checking requires no BMO Tax Free MMF Y (MTFXX)*‡ 0.01 0.01/0.02 1,000 bmo.com
at the beginning of 2014 minimum balance, pays NATIONAL AVERAGE 0.01% 0.01%/0.02%
offered free checking with- 0.6% on balances of $15,000 Annual
out conditions, compared or more (0.1% on lower bal- yield as Min. Web site
Deposit Accounts# of June 2 amount (www.)
with 82% in 2009. At many ances) and includes remote EverBank (Fla.)† 1.01% $1,500 e verbank.com
banks, you may be asked check deposit. Ally reim-
Synchrony Bank (N.J.)† 0.95 none myoptimizerplus.com
to jump through certain burses fees that other
CIT Bank (N.Y.)† 0.95 25,000 bankoncit.com
hoops, such as setting up institutions charge when
Barclays Bank (Del.)†§ 0.90 none banking.barclaysus.com
direct deposit. you withdraw money from
NATIONAL AVERAGE 0.11%
Still, we found several their ATMs. Alliant Credit
*Fund is waiving all or a portion of its expenses. #Deposit accounts include money market deposit accounts
attractive, no-strings- Union’s Free Checking and high-yield savings accounts. †Internet only. ‡Various fund companies offer similar yields. §Similar yields are
available at iGoBanking.com, GE Capital Bank, Palladian Private Bank and Sallie Mae Bank. SOURCES: Bankrate.com;
attached checking accounts requires no minimum Money Fund Report, iMoneyNet Inc. (508-616-6600; www.imoneynet.com).

that may even pay you in- balance, and you can with-
TOP-YIELDING CERTIFICATES OF DEPOSIT
draw money from more
Annual
●● Kiplinger.com than 80,000 ATMs in par- yield as Min. Web site
ticipating networks without 1-Year of June 2 amount (www.)

RATE a surcharge. (Make a dona- EverBank (Fla.)† 1.10% $1,500 e verbank.com

UPDATES tion of at least $10 to Foster GE Capital Bank (Ill.)† 1.10 500 gecapitalbank.com

Care to Success to become Synchrony Bank (N.J.)† 1.10 25,000 myoptimizerplus.com

For the latest savings yields
an Alliant member.) VirtualBank (Fla.)† 1.07 10,000 virtualbank.com
and loan rates, visit kiplinger
.com/finances/yields. Sometimes free checking NATIONAL AVERAGE 0.23%
Annual
is a perk with brokerage yield as Min. Web site
accounts. For Fidelity 5-Year of June 2 amount (www.)
terest. Capital One 360 customers, the Fidelity Synchrony Bank (N.J.)† 2.30% $25,000 myoptimizerplus.com

Checking has no monthly Cash Management Account VirtualBank (Fla.)† 2.28 10,000 virtualbank.com
fees or minimum-balance requires no monthly fee Barclays Bank (Del.)† 2.25 none banking.barclaysus.com
requirements and pays or minimum balance, reim- GE Capital Bank (Ill.)† 2.25 500 gecapitalbank.com
0.2% to 0.8%, depending burses ATM fees charged NATIONAL AVERAGE 0.79%
on your balance. Plus, you worldwide and offers mo- †Internet only. SOURCE: © 2014 Bankrate.com, a publication of Bankrate Inc., 11760 US Highway 1, N. Palm Beach,
Fla. 33408 (800-327-7717, ext. 11410; www.bankrate.com/kip).
can deposit checks remotely bile check deposit. Balances
by using a mobile app or recently earned 0.07%. The LOW-RATE CREDIT CARDS
your computer to send the Schwab Bank High Yield Rate
as of Annual Late Web site
bank images of the checks. Investor Checking Account Issuer May 30* fee fee (www.)
You pay no fee for with- has the same features but First Command Bank (P) 6.25% none $25† firstcommandbank.com
drawals from ATMs in pays 0.1%. LISA GERSTNER Lake Michigan Credit Union (P) 6.25 none# 25† lmcu.org
Simmons First Bank (P) 7.25 none 25† simmonsfirst.com
As of May 30. *EE savings bonds
Month- Year- purchased after May 1, 2005, have
YIELD BENCHMARKS Yield ago ago a fixed rate of interest.
CASH-REBATE CARDS
U.S. series EE savings bonds* 0.50% 0.50% 0.20% ● Bonds purchased before
May 1, 1995, earn a minimum of 4% Rate Rebate
U.S. series I savings bonds 1.94 1.94 1.18 or a market-based rate from date of as of Annual earned Web site
purchase. Issuer June 3* fee Category/Other (www.)
Six-month Treasury bills 0.05 0.05 0.07 ● Bonds bought between
May 1, 1995, and May 1, 2005, AmEx Blue Cash Preferred 12.99% $75 6 %/1%‡ americanexpress.com
earn a market-based rate from
Five-year Treasury notes 1.54 1.69 1.05 date of purchase. Discover It 10.99 none 5/1& discover.com
SOURCES FOR TREASURIES:
Ten-year Treasury notes 2.47 2.67 2.16 Bloomberg, U.S. Treasury.
Chase Freedom 13.99 none 5/1& chase.com
Rates are adjustable. *If you do not qualify for this interest rate, the issuer will offer a higher-rate card. (P) Plati-
num card. †$35 if late more than once in 6 months. #Must be a credit union member. ‡6% groceries up to $6,000 per
calendar year (1% thereafter); 3% gas/retail; 1% other purchases. &Categories change quarterly on up to $1,500 of
spending. SOURCE: Bankrate.com. Banks may offer lower introductory rates. 59

K8M-CREDIT YIELDS.1.indd 59 6/5/14 7:46 PM

 » LIVING

■ BRIAN STYLES AND

SAMANTHA STYLES OWN
A STABLE OF 20 PONY
CARS FROM THE 1960S
AND 1970S .

K8L-COLLECTIBLES.1.indd 60 6/6/14 5:02 PM

 A Passion for
Collecting
Four successful collectors tell us about the joys and
pitfalls—and the potential for profits.
BY JESSICA ANDERSON AND SUSANNAH SNIDER

PHOTOGRAPH BY JEFFERY SALTER/REDUX

61
08/2014 KIPLINGER’S PERSONAL FINANCE

K8L-COLLECTIBLES.1.indd 61 6/6/14 4:59 PM

 » LIVING
M
ANY COLLECTIBLES HAVE SEEN RUN-UPS IN VALUE THAT MIGHT MAKE YOU
think you’re missing out on a sure bet. For example, over the past ten
years collectible cars have appreciated more than 450%, and fine art
is up nearly 200%, according to the Knight Frank Luxury Investment
Index, which tracks baskets of selected collectibles. Meanwhile, Standard & Poor’s
500-stock index has returned 111%. // But to make money in collectibles, you have
to have the knowledge and skill to
choose wisely and ride out the fads.
You usually have to hold your pur-
chase for several years before it appre-
ciates, tying up an often substantial
amount of money in a volatile, unpre-
dictable asset. To realize a profit, you
have to sell—and it can take months to
unload an item, assuming you haven’t
grown so attached to your darling that
you can’t bear to part with it.
Many collectibles are bought at re-
tail prices and sold back to a dealer at
wholesale. If you sell at auction, you’ll
get closer to retail prices, but commis-
sions and fees take a big bite out of the
sale price. On top of that, you’ll need
to insure your collection, store it, and
hand over a portion of your profits to
Uncle Sam (see the box on page 65).
If you’re still interested, consider
collecting as a supplement to your core
investments, as an inflation hedge
and, above all, as something that you
can enjoy.
hot
Wheels
Cars
When he was a kid, Brian Styles had
the biggest Hot Wheels and Matchbox
car collections on the block. Thirty
years later, after he sold the software
company he started, the cars of his
youth still called to him. His collection
began with an impulse buy ten years
ago—a 1970 Ford Mustang Mach 1—
but it has grown into a stable of 20 pony
cars from the 1960s and ’70s. Styles
and his girlfriend, Samantha Styles
(no relation), share the collection,
from the thrill of the hunt to caring for
62
KIPLINGER’S PERSONAL FINANCE 08/2014
K8L-COLLECTIBLES.indd 62
their cars and entering them in shows.
Collectible cars aren’t just objects to
admire. Part of the fun is that you have
to drive them to keep them in good
condition. “Buy what you have a pas-
sion for, and the investment side is the
icing on the cake,” says David Kinney,
publisher of the Hagerty Price Guide,
one of the bibles of car collectors.
While Styles’s fleet has matured to
include more valuable cars, the Delray
Beach, Fla., entrepreneur sees himself
and Samantha more as caretakers
than investors. “It’d be nice to realize
a gain if these cars ever leave us,” he
says. “But if not, I’m okay with that.
The primary benefit is that it makes
me happy.”
X How to get started. You don’t have
to be super-rich to get into the classic-
car market, but it helps if you have a
pile of money to play with. You can
find vintage Chevrolet Corvettes and
Ford Mustangs for less than $30,000.
But unless you are a do-it-yourselfer,
you could pay a king’s ransom for
restoration. Just the chrome on a
1950s-era Cadillac could cost $25,000,
and a full restoration of most classics
runs into six figures.
Start with makes and models you
are interested in. Consider joining
a car club to learn more about them
and network with owners. Styles
eventually focused his collection on
convertibles with big engines; it’s
rare to find that combination today.
“Where rarity and desirability inter-
sect, you have value,” Styles says.
Case in point is the jewel of his collec-
tion: a candy-apple-red 1967 Shelby
GT500 convertible that belonged to
Carroll Shelby, famed automotive
designer and race-car driver.
You can get an idea of what to pay
from the Hagerty Price Guide (prices
are also available at Hagerty.com).
Collector car dealers can help locate
what you’re looking for, or you can try
an auction—but get someone knowl-
edgeable to join you.
Besides the car’s looks, you need
to know its history. Has it been well
maintained? How many owners has it
had? Has it been shown or won awards?
If it has been restored, when was it
done and by whom? Unless you have a
lot of money, steer clear of cars need-
ing bodywork.
X What’s hot. As with any collectible,
there are blue-chip examples of collec-
tor cars. Don Rose, car specialist at
RM Auctions, says prewar classics,
such as Duesenbergs, Packards and
Bugattis, still have cachet, but postwar
European sports cars are exploding.
Ferraris are most notable for their
recent run-ups in price (seven figures
at minimum), but nearly anything Ital-
ian with some age on it is hot. Prices
for Lamborghinis and Maseratis are
likely to follow those for Ferraris fairly
quickly.
German cars are rising in value as
well. Porsche 911s from the late 1960s
and early 1970s have spiked lately. One
of the most iconic collector cars, the
Mercedes-Benz 300SL, with its gull-
wing doors (hinged from the top of the
car), has been in demand since its
1950s debut. Prices today top $1 million.
Muscle cars are among the most
affordable classic cars. Although they
took the hardest hit in the last eco-
nomic downturn, values are returning
to pre-recession levels.
6/6/14 4:42 PM

Art Deco
Detective
Antiques
The art deco antique furniture that
Ray Arondoski collects wouldn’t look
out of place in The Maltese Falcon or
The Big Sleep. So it makes sense that
Arondoski’s collecting style resembles
that of a film noir detective. He’s a
sleuth with a lot of patience, a keen
eye for quality and a love of the chase.
Arondoski, of Grosse Pointe Park,
Mich., whose day job is restoring cars
produced before World War II, fo-
cuses on hard-to-find furniture made
JAMES FOSTER
about the same time: the late 1920s
and mid 1930s. He sometimes spends
hours flipping through old magazines,
K8L-COLLECTIBLES.indd 63
somewhere between
$25,000 and $35,000.
X How to get started.
Anybody can list a hand-
me-down desk as an “an-
tique” on Craigslist or
eBay, but truly valuable
items are tough to find.
Successful collectors
avoid the bottom of the
barrel, focusing on the
high-end and the rare.
“You should buy the best
that you can afford,” says
Neil Ingber, an antiques
dealer in Connecticut.
If a must-have item is
pricey, dealers will typi-
cally work with you to
pay for it in installments.
To develop a sense of
what’s high-end and
what’s overpriced, you
need to get to know the
furniture market. “Noth-
ing beats hands-on expe-
rience,” says Dan Farrell,
■ RAY ARONDOSKI an independent ap-
COLLECTS HARD-TO- praiser and art adviser
FIND FURNITURE MADE for Antiques Roadshow.
IN THE LATE 1920S AND
MID 1930S . Head to garage sales,
flea markets and auc-
tions to scope out the of-
taking note of the furniture in the ads. ferings. Ask antiques dealers questions
Next, Arondoski scours the Web for about their products so that you can
pieces he has identified to see whether build knowledge before building your
they’re hard to find. If so, he knows
that they’re worth scooping up.
collection. Arondoski’s collecting
“started as decorating my home and
For example, Arondoski discovered escalated,” he says.
a Walter von Nessen lamp made be- You can sell antiques through a
tween 1928 and 1932 on eBay for $850. direct private sale, auction house or
He suspected that it was an original dealer. Expect middlemen to take a
because he’d seen its picture in a mag- cut of the selling price, starting some-
azine, but the designer’s signature where in the 20% range—though auc-
was on the inside tier of the base, tioneers and dealers charge a lower
meaning he’d have to take it apart to percentage for more valuable items,
verify its authenticity. His hunch paid says Farrell. Auction houses also
off. When the lamp arrived, Arondoski charge a buyer’s premium of about
removed the outer layer and uncov- 20% to 25% of the selling price.
ered the original markings. “It takes
a keen eye and a certain level of risk,” X What’s hot. Styles of antiques go in
says Arondoski. He has held on to the and out of fashion, with fluctuating
lamp and estimates that it’s valued prices to match. Certain standbys,
63
08/2014 KIPLINGER’S PERSONAL FINANCE
6/6/14 4:42 PM
 » LIVING
such as glass-shaded Tiffany lamps,
have maintained their value. Mid-
century modern, as well as the style
that Arondoski collects, is big. Other
periods, such as 18th-century and
Victorian-era furniture, have fallen
out of favor. “The very top end, the
very expensive pieces, are doing just
fine, even appreciating in value,” says
Farrell. Demand for lower-end antiques
“is dying on the vine,” he says.
Art Art Scene
The Local
If you picture art collectors as globe-
trotting one-percenters throwing mil-
lions at recently discovered Picasso
gems, then Mike Lightsey has some
news for you. “Everyone can afford
original art,” says Lightsey, the presi-
dent of the Mississippi Federal Credit
Union, in Madison, Miss., who has
collected paintings for 40 years. “It
comes at all price points.”
Lightsey’s introduction to art col-
lecting was nothing fancy. He took
a painting course with a local artist
whose work he admired. Lightsey pur-
chased a painting from his teacher for
a few hundred dollars, and it is still
among his favorites. Today it is worth
a couple of thousand dollars.
For Lightsey, collecting has been an
investment in his art community and
his living space, not a supplement to
his retirement account. He displays
his finds, some of which cost as little
as $5, on the walls of his home.
X How to get started. You can start
small, spending just a few hundred
dollars on original artwork, as you
develop relationships with galleries
and an eye for quality. For good-
value art, check out photographs and
prints, which tend to be cheaper be-
cause they’re produced in multiples.
Or head to a graduate student art
show or studio open house. “That’s
where you’ll discover the next genera-
tion of artists who will be in galleries
64
KIPLINGER’S PERSONAL FINANCE 08/2014
K8L-COLLECTIBLES.indd 64
and museums one day,” says Ginger
Shulick Porcella, director of Big Deal
Arts, which offers advice to collectors
and artists. Revisit works that intrigue
you to see whether they still captivate
you after repeated viewings.
Talk to gallery workers and research
promising artists by reading show re-
views and clicking through their Web
sites. Ask yourself whether a young
artist has staying power and whether
he or she is serious about art as a
career. “Buying art is like buying a
stock,” says Alan Bamberger, author
of The Art of Buying Art. “You want to
read the company’s annual statement
before you buy any shares.”
Hone your search by collecting work
that represents a specific theme, tech-
nique or geographical location. Light-
sey collects landscapes and scenes
depicting the region where he lives.
It’s generally frowned upon for
buyers to haggle with a gallery or an
artist. But ask about a collector’s dis-
count, which is typically about 10%.
Many collectors pay in three- to six-
month installments.
X What’s hot. The works of blue-chip
artists, such as Pablo Picasso and
Andy Warhol, typically hold their
value. Their most famous works are
out of reach for most buyers, but their
etchings, lithographs or drawings are
usually more affordable. For example,
Picasso ceramics recently sold for sev-
eral thousand dollars at auction.
■ COLLECTOR
MIKE LIGHTSEY
BOUGHT "PEARL
RIVER #5" FROM
MISSISSIPPI
ARTIST JERROD
PARTRIDGE FOR
$2,700 IN 2012.
Among genres, collages and found
objects are big this year, says Porcella.
But only time will tell which works
run up in value. The goal is to appreci-
ate your collection enough to mount
it on your walls or display it on your
shelves for the long haul.
Liquid
WineAssets
Mike Benvenuti started his wine col-
lection 20 years ago, using a bonus he
received from work. He went to a local
wine merchant in Orange County, Cal.,
with a friend who had a 10,000-bottle
collection. As Benvenuti pushed the
cart, his friend loaded three mixed
cases of 1989 to 1993 Bordeaux and
a case of 1991 Dominus, a Bordeaux
blend from Napa Valley.
Benvenuti now has a 2,000-bottle
collection that fills a room customized
for wine storage in his Newport Coast,
Cal., home. Benvenuti, the chief oper-
ating officer for a chain of beauty
schools, has bottles that have appreci-
ated tenfold, but he doesn’t trade his
wine for profit. He sells parts of his col-
lection when he runs out of space or
his tastes change. For example, he
COURTESY MIKE LIGHTSEY
started collecting Bordeaux and Cali-
fornia cabernet sauvignon, but he now
prefers Burgundy and pinot noir. His
axiom: “Buy what you like and share
it with friends.”
6/6/14 4:42 PM
 X How to get started. You have to strike
a balance between enjoying your col-
lection and drinking it (the average
drinking age for investment-grade
wines is ten to 15 years). Consider buy-
ing two cases at a time—one to drink,
the other to sell down the road. A full
case carries a premium, as does one
in its original wooden box from the
vineyard.
Peter Meltzer, auction correspon-
dent for Wine Spectator and author
of Keys to the Cellar: Strategies and
Secrets of Wine Collecting, recom-
mends establishing a relationship
with a wine merchant who can help
assemble mixed cases to both cultivate
your tastes and see which wines you
want to acquire by the case. You can
also buy at auction; Sotheby’s and
Bonhams have wine specialists and
run auctions January through June
and September through December.
Wines sold at auction tend to be the
finest or rarest vintages.
Look for well-known vintages
and high scores from wine critics.
For scoring, Robert Parker has been
the go-to expert for more than 30
years. Scores above 95 are considered
investment grade, but you’ll see the
biggest appreciation among wines
that achieve a perfect 100. The vintage
matters less in California, where the
climate is fairly steady year to year,
than it does in France, where temp-
erature swings can make some years
perfect for growing and other years
terrible.
If you store your collection at home,
you’ll need a temperature- and
humidity-controlled cellar, with a
backup system in case of a power
outage. Major metro areas and
other big cities offer wine-storage
facilities, where you’ll pay $20 to
$40 per year, per case—and
they’ll help you catalog your
COURTESY CHÂTEAU LATOUR
COURTESY MIKE LIGHTSEY
■ 1982 WAS A VERY
GOOD YEAR FOR
BORDEAUX. THIS
PAUILLAC DE CHATEAU
LATOUR SELLS FOR AS
MUCH AS $2,000.
K8L-COLLECTIBLES.1.indd 65
collection so you’ll know what you have and 2009. There is a price premium for
and when it will be ready to drink. wines at, or approaching, their drink-
ing age. For example, a bottle of 1990
X What’s hot. For wines proven to ap- J.L. Chave Hermitage, from the Rhône
preciate over time, look to France first. region of France, cost $50 when it was
Rating systems for the vineyards in new and now sells for about $600.
the Bordeaux and Burgundy regions Although Napa Valley doesn’t have
let you know what is historically best— the long history of French wines,
the “first growth” Bordeaux vineyards limited-production runs coupled with
include Chateau Latour and Chateau long waiting lists of buyers have made
Margaux; the most collectible “Grand wines from Screaming Eagle and
Cru” Burgundy vineyard is Domaine Harlan Estate in demand. Benvenuti
de la Romanée-Conti. drank all of his 1993 Harlan but sold
Among the best recent vintages for his 1994, purchased for $110 a bottle,
Bordeaux are 1982, 1990, 2000, 2005 for $750 a bottle. ■
CAVEATS FOR COLLECTORS
THE THRILL OF THE CHASE AND THE JOY OF BRINGING A NEWFOUND TREASURE
home can overshadow the more mundane—and expensive—aspects of collecting.
Commission. It’s common practice to use a merchant, broker or auction house to buy or sell
(though cars are usually bought and sold directly). If you buy through a broker or at auction,
you may pay less than you would from a merchant who charges retail prices—but then fees
come into play. Auction houses charge a buyer’s premium of about 20% of the winning bid
(10% for cars). You typically sell to a broker (at wholesale) or at auction, where seller’s fees
are on a sliding scale depending on the value of the item and how much work has to be done
to prepare it for sale.
Paperwork. Documentation on a piece’s provenance (where it has been and how it has been
stored, if it was owned previously by anyone famous, and whether it has been published,
exhibited or sold at a major auction) helps determine its worth and whether it’s the real deal.
Save receipts, certificates of authenticity, images of the piece and records of how it was cared
for. This will help if you need to make an insurance claim, you decide to sell, or you leave part
of your collection to your heirs.
Insurance. Consult your insurance agent about the coverage limits for your collectibles—
you’ll likely need to purchase a rider to cover their value. A typical homeowners policy covers
$2,500 or less for select valuable items, and that doesn’t include breakage—a concern for
collectors of antiques, sculpture or wine.
A rider may add perks, such as a zero deductible, coverage for breakage and mysterious
disappearance, and reimbursement for claims at replacement cost rather than at actual
cash value. Riders aren’t terribly expensive; to cover a wine collection with a Chubb policy,
for example, you’ll pay 42 cents per $100 of value. Insuring a classic car costs about one-third
of the cost to insure a new vehicle—$600 to $700 a year for a $100,000 car.
You may need an appraisal if the item wasn’t purchased recently. Jim Fiske, U.S. mar-
keting manager for Chubb, recommends updating values every three to five years—or
every year if your collection is in a hot market in which values are appreciating rapidly.
Taxes. Expect Uncle Sam to take a bite out of any profits from the sale of your collect-
ibles. If you hold them for a year or less, your gain is taxed at regular income tax rates.
For items held more than a year, you’ll be taxed at a maximum of 28%. As with other
investments, you can offset gains with losses.
65
08/2014 KIPLINGER’S PERSONAL FINANCE
6/6/14 5:18 PM
 » LIVING
TECH »
Pimp My Bike
High-tech cycling gear will make your ride safer
and more fun. BY JEFF BERTOLUCCI
EVER SINCE YOU ATTACHED
a bell or fastened plastic
streamers to the handlebars
of your Schwinn, you’ve
known that the right acces-
sories make bicycling better.
Here are some high-tech
add-ons to make your cur-
rent ride more enjoyable.
Bike locks. The TIGR LOCK BOW
(www.tigrlock.com; $145 to
$220) is a sturdy titanium
unit that manages to be
both tough and elegant, and
the 30-inch model is long
enough to secure both
wheels on most mountain
and touring bikes (it straps
to the bike frame when not
in use). Too big? TiGr sells
24-inch and 18-inch lock
bows, too.
If security concerns take
precedence, check out the
KRYPTONITE NEW YORK FAHGETTA-
(www.kryptonite
BOUDIT MINI
lock.com; $110), the gold
standard of U-shaped locks.
66
KIPLINGER’S PERSONAL FINANCE
K8L-TECH.indd 66
The Mini’s extra-thick,
18-millimeter steel shackle
provides good protection
in high-crime areas. The
downside: It’s heavy and
bulky, making it difficult
to snug up to the frame
when not in use.
The ABUS BORDO GRANIT
X-PLUS 6500 (www.abus.com;
$170) offers the convenience
of a folding lock with the
security of a U-lock. Its
strong steel bars fold into
a compact holster that at-
taches to the bike’s frame.
GPS. Gadget freaks will love
the GARMIN EDGE 500 (www
.garmin.com; $200), a top-
notch cycling computer that
tracks and saves your dis-
tance, elevation, location,
speed and calories burned.
But wait: Your smart phone
has GPS. If you don’t want
another gadget in your life,
download a cycling app,
such as MAPMYRIDE (www
08/2014
.mapmyride.com; free, or
$3 for the premium version),
STRAVA (www.strava.com;
free, or $6 per month) or
RUNTASTIC ROAD BIKE (www
.runtastic.com; free, or $5
for premium). The free ver-
sion of each app will record
your workout details, but the
paid versions do a whole lot
more. For instance, the ad-
free edition of MapMyRide
(with monthly membership)
gets you a real-time tracking
tool that lets friends and
family monitor your bike
workout. The one big advan-
tage of a stand-alone GPS,
however, is its superior bat-
tery life. The Garmin Edge
500 runs up to 18 hours be-
tween charges. Can your
smart phone do that?
Bike lights. If you ride at
night, front and rear lights
are a must. The NITERIDER
LUMINA FLARE (www.niterider
.com; $170) is a clever, dual-
purpose unit that attaches
to your helmet; a bright,
650-lumen headlamp lights
up the road ahead, and a
flashing, 1-watt taillight
covers your backside. The
Flare recharges in six hours;
the front light lasts 1.5 hours
on high, 3 hours on medium
and 5.5 hours on low.
Speaking of night riders,
how about a road bike that
glows after dark? The LUMEN ,
by Mission Bicycle, in San
Francisco (www.mission
bicycle.com; starting at
$1,245), features a patented
retro-reflective coating on
its frame and wheel rims
that bounces light back to
its source rather than scat-
tering or diffusing it.
Airbag helmet. The HÖVDING
(www.hovding.com; 299
euros, or about $400) is
a head-and-neck protector
that can detect an accident
and signal the loose-fitting
collar to inflate—just like
the airbags in your car. It
comes in three stylish pat-
terns as well as basic black.
Granted, the Hövding is
pricey, but it’s nirvana for
cyclists who can’t tolerate
helmet hair. ■
TOP IMAGE: COURTESY TIGR; BOTTOM IMAGE: COURTESY HÖVDING
■ UNINFLATED, THE
HÖVDING HELMET IS
DISCREET. BUT IT’S GOT YOU
COVERED IN AN ACCIDENT.
6/5/14 12:49 PM
 TRAVEL »

Dodging Airline Fees — the Hard Way

Our travel writer faced the ultimate challenge: Fly Spirit Airlines without paying
a single fee. BY SUSANNAH SNIDER

FEES FOR EVERYTHING FROM CHECKED

baggage to a few extra inches of leg-
room account for a generous portion
of airline revenue. In 2013, U.S. air-
lines pulled in $3.4 billion, or 1.7%
of total operating revenue, in baggage
fees alone. But no airline levies fees
with the same gusto as Spirit Airlines.
In 2013, Spirit collected $276 million
in baggage fees, or 17% of its total
operating revenue, according to com-
pany data.
How does Spirit manage to collect
ten times the industry average? After
leading the way with a fee for checked
bags in 2007, it began to charge for
carry-on bags in 2010. Spirit’s fee-for-
all doesn’t end there: It also charges
you to buy your ticket online, select
a seat or order a soft drink in flight
(see the box on page 68).
Other airlines are eyeing Spirit’s a la was $222. If I could avoid extra fee is manageable if you can pack light,
carte model. Frontier Airlines intro- charges, I’d be $44 ahead. in a bag that fits below the seat in front
duced similar fees last spring, includ- First hurdle: When I was about to of you. Any backpack or small roll-
ing charges for carry-on bags and seat click to buy my ticket online, I noticed aboard would work, but you can also
selection. Allegiant Air also makes you that I’d have to pay a “usage fee” of invest in a bag custom-made for Spirit
pay for both. Brett Snyder, of Cranky- $34; to avoid it, I’d have to go to an air- flights. I borrowed one model, the
Flier.com, says the biggest U.S. airlines port ticket counter. So I took a com- CarryOn Free, an $80 bag designed
may follow suit, possibly charging for muter train from Kiplinger’s offices in to fit precisely under Spirit’s seats
carry-on bags and seat assignments. downtown Washington, D.C., to BWI (personal items can be no larger than
Airport. The train fare ran $12 round- 16 inches by 14 inches by 12 inches).
The Spirit Challenge If Spirit’s barrage trip. I was still ahead, but the two Another option, albeit a less-fashion-
of fees is a harbinger of industry prac- hours I spent getting to the airport able one, is a wearable suitcase (you
tices to come, do you have a fighting and back was an annoyance—which wear it on the plane, but it converts to
chance to avoid being nickel-and- might be exactly the reaction Spirit a duffle). Several Jaktogo designs, for
dimed? To find out, I challenged hopes for. example, recently sold for $70.
myself to fly Spirit without paying I prepared for my flight by research- Skeptical gate agents had me mea-
MAXWELL HOLYOKE-HIRSCH

a single avoidable fee.
I chose a round-trip from Baltimore
(the nearest Spirit-served airport) to
Fort Lauderdale, Fla. Base price: $178.
The next-cheapest flight (on Delta)
ing options for bringing luggage on
board without paying the $35 carry-
on bag fee or the $30 checked-bag
fee (those prices are $15 higher at the
ticket counter). Dodging the carry-on
sure my bag on the return flight. If it
hadn’t been the right dimensions, I
would have owed a $100 baggage fee.
Once aboard, no one stopped me from
stashing my bag in the overhead bin.

67
08/2014 KIPLINGER’S PERSONAL FINANCE

K8L-FEE-FREE FLYING.indd 67 6/5/14 12:55 PM

 » LIVING
In order to avoid the fee for choos-
ing a standard seat, I let Spirit select
one for me. On the outbound flight, I
landed an aisle seat in the second row
from the back, where I had to with-
stand a parade of passengers heading
to the restrooms. On the return flight,
I was closer to the front but in the
dreaded middle seat.
In the spirit of eschewing all fees,
I satisfied my hunger pangs with trail
mix purchased at my local grocery
store, avoiding the $3 muffin-and-
hot-drink combo and $7 glass of wine.
Dodging the rest of the fees, many
of which other airlines also charge,
was no sweat. I didn’t change my
flight itinerary ($115 online, $125 at
the gate), fly standby ($25 each way
for an earlier flight) or bring a pet on
board ($100 per pet container).
How to Fight Back Whether or not you’re
flying Spirit, there are tricks to avoid
fees. First, keep fees in mind when
comparing fares from different carri-
K8L-FEE-FREE FLYING.indd 68
ers. On my flight, Spirit’s $34 online
booking fee would have nearly wiped
out my savings over the pricier Delta
flight, and the $50 fee at the counter
* Extreme Fees
Mean-Spirited
IN A FEE-HAPPY INDUSTRY, SPIRIT
leads the way. The peskiest fees include
charges for booking online (up to $17
each way) and carry-on luggage. The fee
structure for carry-ons is tiered: $35 if
you pay online before check-in, $45 if you
pay while checking in online, $50 at
the airport counter and $100 if you wait
until boarding. (Members of Spirit’s
loyalty program, the $9 Fare Club, pay
$9 less in baggage fees online.)
Want to choose your seat? That
costs $1 to $50, depending on your
flight and seat choice. If you want a soft
drink, you’ll pay $3.
for a carry-on bag would have pushed
the total $40 higher than Delta’s.
Check out the fee chart on Kayak
at www.kayak.com/airline-fees, but
double-check your airline’s Web site
for any updates. To avoid baggage fees,
fly Southwest (two free bags) or Jet-
Blue (one free bag). Measure and
weigh your bags before a trip to avoid
a surprise overweight-luggage charge
(at least $25 for bags that are more
than 40 pounds and as high as $150 for
bags that are longer than 80 inches).
Spirit at least acknowledges that its
fees are unloved. It recently began
trying to make its pricing model more
palatable, renaming airfares “Bare
Fares” and fees “Frill Control.” At
least the nickel-and-diming has a cute
name and Spirit fliers understand why
it’s happening. And the airline’s carry-
on bag fees have a silver lining: On my
flights, very few passengers brought
luggage aboard, and the boarding
process was one of the fastest I’ve
experienced in years. ■
6/5/14 12:55 PM
 JESSICA ANDERSON > Drive Time
What’s Behind All the Recalls
f you think you’ve heard more news
I about recalls lately, you’re right. Gen-
eral Motors alone has recalled more
than 13 million vehicles since January—
including a highly publicized recall for
faulty ignition switches that prevented air-
bags from deploying in a handful of models
and led to 13 deaths. GM agreed to pay a
$35 million civil penalty (the most possible)
after a government investigation found that
the automaker knew about the problem
in 2009 and failed to report it. In March,
Toyota agreed to pay a $1.2 billion penalty
to settle a criminal probe by the Justice
Department for failing to report defects
that led to the unintended acceleration
recalls of 2009 and 2010.
Such high-profile cases obscure the
fact that nearly every major automaker
has issued recalls. The tally for all auto-
makers was more than 21 million in the
first five months of this year. The numbers
sound scary, but not all recalls are safety-
related. Automakers may find that the seat
stitching on a run of vehicles comes undone
or that paint starts to peel. Even a typo in
the owner’s manual—giving the wrong tire
inflation, say—can prompt a recall.
One explanation for the surge in recalls
is that manufacturers increasingly use
a single platform to build multiple models.
Sharing platforms means sharing parts,
so one bad part can affect a number of
models in many countries, totaling hun-
dreds of thousands of cars.
The government’s more proactive safety
stance in recent years may be increasing
the number of recalls as well. The National
Highway Traffic Safety Administration
(NHTSA) instituted an early warning sys-
tem that requires automakers to notify
NHTSA about consumer complaints more
quickly than in the past—which has paved
the way for faster recalls.
LISE METZGER
John O’Dell, senior editor at auto in-
formation site Edmunds.com, says auto-
makers have been stepping up to the plate.
K8L-DRIVE TIME.1.indd 69
“Companies have come to learn that a
recall can actually bolster their image
with the consumer,” he says.
How recalls work. Recalls usually stem from
consumer complaints—either to dealers or to
NHTSA. Once an issue arises, manufacturers
investigate. If the issue is safety-related but
didn’t originate with NHTSA, carmakers
are legally required to involve NHTSA.
Either party can order a recall. For ex-
ample, last summer NHTSA prompted
Chrysler to recall Jeep Grand Cherokee
and Liberty models after an investigation
discovered that the placement of fuel tanks
“
increased the risk of fire. And this spring,
Toyota, acting on its own, ordered two sep-
arate recalls affecting six million vehicles.
After a recall is ordered, a manufacturer
must fix the problem on every vehicle af- One bad part
fected. Working with companies that track
vehicle ownership, the automaker mails mul-
can affect
tiple notices to current owners stating the a number
problem, the risk (how it may affect your
vehicle) and the remedy. Repairs are free of models
at the dealer, paid for by the manufacturer.
Some dealers have been sending out in many
mailings that look like recall notices but
are really an effort to lure customers into
countries,
dealerships. If the notice fails to explain totaling
the details of the recall, that’s a red flag.
Recall notices from automakers now hundreds of
have to bear a standard red label that says
Important Safety Recall Information, Issued thousands
in Accordance With Federal Law.
If you’re unsure whether recall work of cars.”
has been completed on your car, or you
are buying a used car, go to SaferCar.gov
and search by vehicle identification num-
ber. One-third of consumers don’t have
recall work completed. Starting in August,
NHTSA is requiring all automakers to have
online search tools to tell consumers which
recalls affect their vehicle and the fixes
that have been completed. ■
ASK JESSICA A QUESTION AT JANDERSON@KIPLINGER.COM, OR
FOLLOW HER ON FACEBOOK OR TWITTER AT JANDERSONDRIVES.
69
08/2014 KIPLINGER’S PERSONAL FINANCE
6/6/14 1:28 PM
 » LIVING
LOWDOWN
What You Need
to Know About
Timeshares
Tighter regulations and a wider choice of
locations make buying in more attractive.
BY PATRICIA MERTZ ESSWEIN
1. WHAT YOU GET. You are pur-
chasing the privilege to use
a luxury accommodation
in a resort or hotel, usually
for one week per year. You
get the comfort and conve-
nience of a vacation home
with the luxury of a resort,
says Howard Nusbaum,
president of the American
Resort Development Asso-
ciation (www.arda.org;
see ARDA’s guide, “Under-
standing Vacation Owner-
ship”). Most timeshares
are developed or managed
by big-name hospitality
companies, such as Disney,
Hyatt, Marriott and Wynd-
ham. Urban timeshares are
a new variation that have
taken off in several cities,
including New Orleans,
New York City, San Fran-
cisco and Washington, D.C.
2. WHAT YOU’LL PAY. The
upfront price is based on
location, unit size (from a
studio to three bedrooms),
amenities and the season
you select. A week in a new,
upscale two-bedroom unit
with a view averages about
$20,000, although you could
70
KIPLINGER’S PERSONAL FINANCE
K8L-LOWDOWN.1.indd 70
pay as much as $40,000
in New York City, says
Nusbaum. Most buyers
pay cash. Developers offer
financing but charge a high
rate of interest (typically
15%), says Judi Kozlowski,
an agent in Orlando who
specializes in timeshare
resale. You’ll also pay an
annual maintenance fee
of $800 to $1,200, she says.
3. SAME TIME, SAME PLACE?
With fixed ownership, you’re
locked in to a specific week
each year. With floating
ownership, which is more
common, you can reserve
your vacation time on a first-
come, first-served basis. You
gain flexibility, but popular
destinations, such as Maui
in winter, may be hard to
get. Depending on the “ex-
change value”—the desir-
ability of your timeshare—
you may be able to switch to
another venue within your
home resort’s portfolio of
properties, says Nusbaum.
Or you may be able to trade
through an exchange com-
pany, such as RCI or Inter-
val International.
08/2014
4. BUY FOR LESS. If you buy a
timeshare from the resort,
you may be offered incen-
tives (say, free membership
in an exchange company),
and you may enjoy greater
consumer protections. But
if you buy from a current
owner, you’ll likely pay one-
third to half as much, or
even less. In May, an owner
at Marriott’s Cypress Har-
bour, in Orlando, listed a
two-bedroom, two-bath
unit for $3,000, with a
$1,208 maintenance fee.
To search resale listings, try
www.redweek.com, www
.vacatia.com, Timesharing
Today (www.tstoday.com)
and the Timeshare Users
Group (www.tug2.net).
5. WHAT HAPPENS IF YOU WANT
OUT? The industry is better
regulated than it was, say,
a decade ago. Most states
allow you to cancel a time-
share contract, usually
within five to seven days.
To sell a timeshare, your
best bet is to list it with
a reputable resale broker
(go to www.licensedtime
shareresalebrokers.org);
brokers generally charge
10% to 30% commission.
During the last recession,
some owners who could
no longer afford their units
fell prey to scamsters who
promised quick sales and
collected upfront fees.
(For more on potential pit-
falls, search “timeshares”
at www.consumer.ftc.gov.)
6. BOTTOM LINE. Timesharing
is almost certainly cheaper,
with fewer hassles (in terms
of property management)
and more flexibility, than
buying a vacation home or
condo. But don’t think of
it as an investment; a time-
share doesn’t appreciate.
The value lies in using it,
and if you’re lucky it may
have some residual value
when you sell it. ■
MAXWELL HOLYOKE-HIRSCH
6/5/14 7:44 PM
a
What Your Annuity Salesman
Doesn’t Want You To Know
What You Might Not Know About Annuities Could Come Back To Haunt You
Before you put your hard-earned money into an annuity, or if you already own one, please
call 1-800-695-5929 for a special report, Annuity Insights: Nine Questions Every Annuity
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What You’ll Learn From This Free Report one, I urge you to call for your
• The different types of annuities and the advantages and disadvantages of each free report. Annuities can lock
• Why annuities can be complex to understand you into low returns, complicate
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 3 SIMPLE STEPS Make the Most of Your 401(k)

STEP 1
Contribute at least enough to get
the company match, and aim to
kick in 15% of your salary (including
the match), up to the annual max
of $17,500, or $23,000 for people
50 and over. If that’s a stretch, raise
the amount you contribute by one
percentage point a year until you hit
the target.

STEP 2
Review your plan’s annual state-
ment, which lists the investments,
their performance and their annual
expenses. Go to BrightScope
.com to compare your plan’s fees
with those of plans at similar-size
companies, and talk to your plan
manager if you don’t like what
you see. Consider changing invest-
ments if another choice with lower
expenses has comparable returns
or better.

STEP 3
Check your portfolio annually
to see that your asset allocation
hasn’t drifted off course, and
rebalance if necessary. Some plans
offer automatic rebalancing. In
your twenties and early thirties,
you should have at least 80% in
stocks, with the rest in bonds. As you
approach retirement, lighten up on
stocks.

THE PAYOFF
You’ll have plenty of
money for a secure
retirement.

72
KIPLINGER’S PERSONAL FINANCE 08/2014 ILLUSTRATION BY JOE WALDRON

K8-SIMPLE STEPS.indd 72 6/4/14 6:39 PM

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