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Strategic investing takes us beyond the numbers. That’s why over 350 of our experts go out in the field
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or, if available, a summary prospectus containing this and other information, call 1-877-804-2315. Read it carefully.
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IMPORTANT: The projections or other information generated by the Planning & Guidance Center’s Retirement Analysis
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results of any particular investment or investment strategy, and is not a guarantee of future results. Your score does not consider
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Investing involves risk, including risk of loss.
The trademarks and/or service marks appearing above are the property of FMR LLC and may be registered.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2018 FMR LLC. All rights reserved. 861470.1.0
 CONTENTS
KIPLINGER’S PERSONAL FINANCE
FOUNDED 1947
VOL. 73 NO. 1

AHEAD
9 TOPIC A Health insurance options multiply
. . . Why dreamers save more for retirement.

14 SUCCESS STORY These retirees volunteer

abroad, by PATRICIA MERTZ ESSWEIN.

16 MONEY SMART WOMEN Advice for stay-

at-home moms, by JANET BODNAR.

18 OPENING SHOT My top 10 stock picks for

2019, by JAMES K. GLASSMAN.

22 YOUR MIND AND YOUR MONEY How

market cycles drive emotions, by ANNE SMITH.

24 MILLENNIAL MONEY Start saving for

retirement now, by BRENDAN PEDERSEN.

MONEY
26 NEW STRATEGIES FOR SMART
BORROWING Rates are rising, and the new tax
law changes the rules for writing off interest.

34 SOCIAL SECURITY: NOW OR LATER?

You’ll get bigger checks if you wait to claim
benefits, but waiting is not always best.

38 STOP PAYING PESKY FEES Avoiding

them could save hundreds of dollars a year.

37 ASK KIM How to save on prescription

drugs, by KIMBERLY LANKFORD.

42 CREDIT Lock your card if it goes missing.

■ HOW RETIREES
CAN DO EUROPE ON
INVESTING THE CHEAP. PAGE 14

44 COVER STORY
WHERE TO INVEST IN 2019 A bear market
could come in 2019 or later. Either way, it makes
sense to prepare your portfolio. PLUS: 8 stocks
to buy and 5 to sell (52).
56 CASH IS NO LONGER TRASH Higher inter-
est rates have an upside: Cash now generates
more income, with little or no risk.
61 HERE COME THE HOT IPOS Uber and Lyft
ALBERTO ALICATA
54 INCOME INVESTING Stand by your bonds
in 2019, by JEFFREY R. KOSNETT.
59 PRACTICAL INVESTING The upside of a
downturn, by KATHY KRISTOF.
60 MORE ABOUT INVESTING Mutual fund
spotlight (60). Kiplinger 25 update (63).
LIVING
red hot. If you shop around—especially if
you’re willing to change carriers—you can
save big. PLUS: Which plan is best for you.
70 TRAVEL Online reviews you can use.
IN EVERY ISSUE
4 FROM THE EDITOR Loaded for bear?

are among the big names expected to debut.

6 LETTERS FIRE: Not so new.
64 CHOOSE A CHEAPER WIRELESS PLAN
ON THE COVER: Photograph by Alberto Oviedo Competition among cellular providers is 72 TAKEAWAY Are you covered?

01/2019 KIPLINGER’S PERSONAL FINANCE 1

 GET MORE ADVICE FROM KIPLINGER

.com

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2 KIPLINGER’S PERSONAL FINANCE 01/2019

 Income meets
performance.
Fidelity Total Bond Fund has distributed dividend income to investors
and outperformed the benchmark over time.1
If you’re looking for income and a measure of protection from stock market volatility, this fund
presents a great opportunity.

Growth of $100K investment in Fidelity® Total Bond Fund $220,000

Since 10/15/2002
$206,883
$200,000
Fidelity® Total Bond Fund
Bloomberg Barclays U.S. Aggregate Bond Index
$186,242
$180,000

$160,000

$140,000

$120,000

$100,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Average Annual Total Returns Life of Fund

as of 9/30/2018 1 year 3 year 5 year 10 year Since 10/15/2002 Expense Ratio
Fidelity® Total Bond Fund –0.64% 2.70% 2.88% 5.06% 4.66% 0.45%2
Bloomberg Barclays U.S. Aggregate Bond Index –1.22% 1.31% 2.16% 3.77% 3.97%

Performance data shown represents past performance and is no guarantee of future results.
Investment return and principal value will fluctuate, so investors may have a gain or loss when shares
are sold. Current performance may be higher or lower than what is quoted, and investors should visit
Fidelity.com/performance for most recent month-end performance.

Invest today at Fidelity.com/totalbond

FIDELITY TOTAL BOND FUND FIDELITY TOTAL BOND ETF Fidelity.com/totalbond

FTBFX FBND 800.FIDELITY or call your advisor.

Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Life-of-fund figures are reported as of the
commencement date to the period indicated.
In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is
usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers
and counterparties. Lower-quality fixed income securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.
Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds,
ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.
1
The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged broad-based, market value–weighted benchmark that measures the performance of
the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market. Sectors in the index include Treasuries, government-related and corporate
securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS. It is not possible to invest directly in an index.
2
Expense ratio is the total annual fund operating expense ratio from the fund’s most recent prospectus. Expense ratio as of 9/30/2018.
Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses.
Contact Fidelity for a prospectus, offering circular, or, if available, a summary prospectus containing this information. Read it carefully.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2018 FMR LLC. All rights reserved. 833628.4.0
FROM THE EDITOR

Mark Solheim

Loaded for Bear? harness Kiplinger’s expertise to deliver

timely personal finance advice that
you can act on now. We hope to appeal
to a broad audience who may not have
much background in finances but
want to make better money and in-

E
very year at this time, Kiplinger’s
goes through a familiar ritual:
predicting what to expect for the
markets in the coming year and telling
you how to use that information to
position your investments.
Calling the stock market from one
day to the next is tough; predicting
where stocks are headed in the coming
year is nearly as fraught as forecasting
the weather. Yet we take the tempera-
ture of the markets and the economy
and pick the brains of some of the
smartest investing pros we know, then
we synthesize it all into our annual
outlook.
roject to
We entrust this project
executive editor Anne ne Smith.
Anne, who also editss our in-
vesting section, has been
writing the annual forecast,
tlook in
plus the midyear outlook
the July issue, since 2012. And
retty
her track record is pretty
lished
good. When we published
go,
our outlook a year ago,
we didn’t know that
a new tax law would d
pass before the end
al
of the year, but global
economies were
growing in sync and d
corporate earnings
growth looked ro-
bust. Anne called
for a total return for
stocks of 8%, includ--
ing dividends. As of
Federal Reserve’s rate hikes and econ-
omies all over the globe losing steam.
Meanwhile, the markets are volatile.
In late October, stocks flirted with a
correction, then came roaring back
after the midterm elections in Novem-
ber, then lost ground again on Veterans
Day. Anne is cautiously predicting
moderate gains for stock investors in
2019, with more volatility. She advises
investors to choose carefully and re-
balance holdings as different market
sectors and investing styles seesaw
throughout the year.
As for a bear market, don’t totally
count it out. “I do
don’t know if the
com to an end in
bull market comes
lat
2019 or a bit later,” says Anne.
INVESTORS NEED TO
THINK ABOUT THEIR
NEXT MOVES NOW.
“B investors
“But
ne to start
need
p
planning their
next moves
now.” For more
insights and
timely invest-
ment picks,
turn to
page 44.
T podcast is
The
vesting decisions. As such, we will
strive to keep the segments nontech-
nical and free of jargon—and because
we know you’re busy, each weekly
installment will be less than 30 minutes.
You can listen via the Apple Podcasts
app, Google Play or wherever you
get your podcasts; just search for
Kiplinger.
Update for subscribers. We have
switched to a new customer service
bureau in Palm Coast, Fla. For the past
few years, we’ve worked with a service
bureau in Tampa. Starting now, you
will see the Palm Coast address (P.O.
Box 420308, Palm Coast, FL 32142-
0308) on all customer service, sub-
scription and renewal correspondence.
Please watch out for unscrupulous
agents who attempt, without our per-
mission, to solicit subscription and re-
newal payments—at higher prices than
we charge—at various addresses else-
where. The address listed here and
on pages 2 and 8 is the only legitimate
address for sending correspondence
or subscription and renewal payments
for Kiplinger publications. (You can also
visit kiplinger.com/customer-service
to take care of your customer service
needs.) During the transition, any
correspondence or payment you send
to Tampa will be automatically
forwarded to the new Palm Coast
customer service bureau. ■
POON WATCHARA-AMPHAIWAN

mid November, that he We have fi-

here!
forecast was holdingg nall
nally launched our
up pretty well. podc
podcast. Hosted by
This year, the out-- staffer Sandy Block
staffers
MARK SOLHEIM, EDITOR
look is cloudier, due to and Rya
Ryan Ermey, “Your MSOLHEIM@KIPLINGER.COM
trade uncertainties, the Money’s Worth” will TWITTER: @MARKSOLHEIM

4 KIPLINGER’S PERSONAL FINANCE

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LETTERS
FIRE: Not So New
I was fortunate to be able to
Q
retire from Ford Motor Co.
in 2006, early enough to
start a successful delivery
business that is thriving
here in Detroit. Union-
backed jobs have allowed
generations of retirees like
me to experience Financial
Independence, Retire Early
(“Racing to Retirement,”
Nov.). We didn’t have a
name for it. We just used
old-school principles, in-
cluding saving 10% of each
check to pay ourselves first,
limiting credit card spend-
ing, and recognizing how
valuable multiple income
streams were. Many millen-
nials won’t have the luxury
of staying and growing with
6 KIPLINGER’S PERSONAL FINANCE
a company for 30 years and
receiving a pension. But us-
ing FIRE as a goal with ad-
vice from sources such as
Kiplinger’s will lead them
to a successful financial
future.
WILLIAM GRAHAM
DETROIT
Counting the bears. The an-
swer to the quiz question
in “Takeaway” (Nov.) is at
odds with your table in the
cover story. According to
the table, there were 13 bear
markets between 1929 and
2009. That’s once every 6.2
years. But the quiz answer
says bear markets have oc-
curred every three years
and nine months since 1932.
L.R.
VIA E-MAIL
EDITOR’S NOTE: We used two
different sources who count bear
markets slightly differently, and
we didn’t catch the discrepancy.
The data from S&P Dow Jones In-
dices recognizes 13 bear markets
between 1929 and 2009, whereas
InvesTech Research identifies 16.
READER
POLL There is general agreement on the
number of bear markets in the
How will the post–World War II period.
stock market Health insurance. In “Pick
perform in 2019? a Better Health Insurance
Policy” (Nov.), you write
that Iowa “has given the
green light to a controversial
Iowa Farm Bureau plan to
sell policies that don’t com-
ply with ACA regulations.
56%
The plans offer limited bene-
44%
fits, do not meet bench-
marks required by the ACA
and can deny coverage to
people with preexisting
I’m bearish I’m bullish conditions or charge premi-
ums based on a person’s
For Kiplinger’s take on the market
outlook for 2019, turn to page 44. health.” The popular Farm
Bureau proposal simply pro-
01/2019
vides affordable insurance
that does not force people to
pay for expensive mandated
coverages they do not need.
Sounds a lot different when
worded that way, doesn’t it?
JOHN EDWARDS
COON RAPIDS, MINN.
You say that contributions
to a health savings account
will reduce MAGI for calcu-
lating subsidies under the
Affordable Care Act. This
contradicts the information
on the Healthcare.gov web-
site (the section on “Report-
ing Income Deductions”),
where it says, “Don’t report
these [HSA/HRA] deduc-
tions.” Which is correct?
DAVID SAXTON
ERIE, PA.
EDITOR’S NOTE: Our story is cor-
rect. After our article was pub-
lished, Healthcare.gov moved
“HSA contributions” from the list
of items that don’t reduce your in-
come for the subsidy into the col-
umn of deductions that do reduce
your income for the subsidy.
CORRECTION
The new tax law extended the
deadline to repay a 401(k) loan
if you leave your job (“Ahead,”
Nov.). You now have until the tax
deadline for the year in which you
left your job, including tax-deadline
extensions.
LETTERS TO
SOURCE: POLL SURVEYED 266 KIPLINGER’S READERS.
THE EDITOR
Letters to the editor may be
edited for clarity and space,
and initials will be used on
request only if you include
your name. Mail to Letters
Editor, Kiplinger’s Personal
Finance, 1100 13th St., N.W.,
Washington, DC 20005, fax
to 202-778-8976 or e-mail
to feedback@kiplinger.com.
Please include your name,
address and daytime tele-
phone number.
‘—„Ž‡‘—” ‹†‡Ž‹–›‡•–‰‰™‹–Š
‹†‡Ž‹–›ǯ•‘’†‡’‡†‡–š’‡”–Ǩ
‡™‡’‘”–‡˜‡ƒŽ•–Š‡‡•–ƒ†‘”•– ‹†‡Ž‹–› —†•
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 EDITORIAL
EDITOR IN CHIEF Knight A. Kiplinger
EDITOR Mark K. Solheim
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AHEAD
TOPIC A
HEALTH INSURANCE
OPTIONS MULTIPLY
As you navigate new low-cost choices, weigh
the risks. BY KIMBERLY LANKFORD
IF YOU PURCHASE HEALTH
insurance on your own, you
may get some relief in 2019.
Premiums for individual
health insurance have risen
more slowly than in the
past, and more insurers
have reentered the market.
Even so, if you earn too
much to qualify for a govern-
ment subsidy, the cost of
buying your own insurance
can still be prohibitive.
ILLUSTRATION BY BENEDETTO CRISTOFANI
But starting in 2019, you
will no longer be charged
a penalty for not having
“minimum essential”
health insurance, and re-
cent changes to federal reg-
ulations let insurers offer
more policies that aren’t
subject to the Affordable
Care Act (ACA) require-
ments. That has allowed
insurers to offer new plans
that are less expensive but
also carry additional risks.
A rule change that took
effect in October extended
the maximum policy term
for “short-term” health in-
surance policies from three
months to 364 days. These
policies typically cost about
30% less than unsubsidized
ACA policies, but insurers
can reject applicants be-
cause of preexisting con-
ditions and set annual or
lifetime coverage caps. The
policies also aren’t required
to provide benefits man-
dated by the ACA, such as
coverage for maternity and
prescription drugs. Cover-
age can be renewable for
up to three years, but at the
insurer’s discretion. The
policies aren’t eligible for
government subsidies.
Several insurers plan
to introduce these longer-
duration short-term policies
in early 2019. Pivot Health
recently introduced a short-
term policy specifically for
people ages 62 to 64 who
need coverage until they’re
eligible for Medicare. Cov-
erage is capped at $1 million
per term and can be renewed
for up to three years.
Coverage caps for short-
term policies will vary
widely, with some limits
as low as $100,000 over
your lifetime or policy term
or as high as $1 million or
$2 million, says Sean Malia,
of eHealthInsurance.com,
which sells both short-term
and ACA policies. (ACA
policies do not have cover-
age caps.)
01/2019 KIPLINGER’S PERSONAL FINANCE 9
AHEAD
Direct primary care. Subscrip-
tion services that allow
you to pay out-of-pocket
for primary care, rather
than using insurance, are
also becoming more popu-
lar now that the penalty
has been eliminated. These
programs charge a monthly
fee that covers office visits
and basic care. Atlas MD
Concierge Family Practice,
in Wichita, Kan., for exam-
ple, charges $75 per month
for subscribers who are ages
45 to 64, $50 per month for
those ages 20 to 44, and
$10 per month for children
19 and younger. There are
no additional charges for
services the doctors can
perform in the clinic, says
Doug Nunamaker, chief
medical officer for Atlas
MD. For major medical ex-
penses, members generally
buy a high-deductible insur-
ance policy.
Concern that healthy
people would switch to
non-ACA policies or drop
coverage altogether caused
insurers selling ACA poli-
cies to raise premiums an
extra 5% in 2019 on average.
Premiums could rise even
more in 2020 if more healthy
people opt for non-ACA
options. With the House
and Senate controlled by
different parties, you’re un-
likely to see major changes
to federal health care laws
in 2019.
But a few states are set-
ting their own standards,
such as limiting the length
of short-term policies. There
may be more action in the
states after new governors
take office in January, says
Sara Collins, vice president
of health care coverage at
the Commonwealth Fund.
10 KIPLINGER’S PERSONAL FINANCE
INTERVIEW
GETTING A LOAN
COULD GET EASIER
UltraFICO will benefit young people and
retirees with limited credit history.
Gerri Detweiler is a credit
expert and education direc-
tor at Nav, a small-business
financial management
platform.
FICO recently announced a
new credit score called Ultra-
FICO. How is it different from
the traditional FICO score?
Traditional credit scores
rely primarily on informa-
tion from the credit bureaus.
UltraFICO also looks at
how you handle your
banking accounts. Con-
sumers who have a
monthly balance of $400
or more in their checking
or savings account for the
previous three months and
have no bounced checks
or overdrafts could
use their UltraFICO
score to boost their
traditional score.
A consumer gets
to choose the bank
account to be
scored. Presum-
ably, you would
use your pri-
mary account.
It could help
people who don’t
have much of a
credit history, such
as younger adults and
immigrants.
Could some older adults
benefit from this score as
well? Some older adults
don’t have much of a
01/2019
credit record because they’ve
paid off their mortgages and
car loans. If they wanted to
apply for a new auto loan
and take advantage of a low
interest rate, UltraFICO
could show lenders that
they have plenty of money
in the bank.
Can I request that credit
bureaus use an UltraFICO
score instead of a traditional
credit score? No. You don’t
choose the score a lender
uses. The lender will run its
preferred credit score first,
and if there isn’t enough
information to produce a
score or the score is close
to qualifying but not quite
there, the lender can use
the UltraFICO score if the
consumer opts in.
Traditional credit reports
and scores aren’t going any-
where. But we are moving
into an era of using other
data to help lenders make
financial decisions, and that
can help put consumers in
the driver’s seat.
How can consumers improve
their credit scores? Be vigi-
lant about making sure that
everything gets paid on
time. Payment history is
the strongest factor in your
credit score. If you don’t
qualify for a credit card,
consider a secured
credit card, with
which you get a
credit line based
on a cash deposit
you make when
you open the ac-
count. The other
option would be
a credit-builder
loan. With these,
which are usually
offered by credit
unions or commu-
nity banks, you’re
actually borrowing
against a savings
account offered by
the financial institu-
tion. Once the loan is
paid off, the funds are
available for you to use.
RIVAN STINSON
PHOTOGRAPH BY TAMI KEEHN
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AHEAD

E-MAIL FRAUD

DON’T
FALL FOR A
PHISHER’S
BAIT
MIND GAMES guilt, Capital Group says.
Start by imagining what
Whoever said crime doesn’t
pay apparently hadn’t heard
TO SAVE MORE, IMAGINE kind of life you’d like to re-
tire to, instead of looking at
of phishing—the hacking
technique that targets a com-
YOUR RETIREMENT retirement as an escape from
the things you hate about
pany’s e-mail system to steal
Now make your dreams come true by saving work, says Steve Vernon,
personal information or lock more in your tax-advantaged plans. research scholar at the Stan-
it down in exchange for a ran- ford Center on Longevity.
som. According to the FBI, Think beyond the “vaca-
hackers made off with more IMAGINE THIS: YOU’RE to imagine retirement. tion” aspects of retirement,
than $675 million through retired and learning Italian Those who pictured their such as traveling or playing
“business e-mail compro- for a trip to Rome, or you’re retirement first said they golf, that might only add up
mise” in 2017. running along the beach as should save 21.2% of each to several weeks in a year.
Think your employer is too you train for your first paycheck, on average. Instead, consider what you
small to warrant a phishing half-marathon. The other group can do that will provide
expedition? Every type of Whatever said they meaning and the social con-
business is a potential target your life will 2019 contribution limit: should save tacts that work typically
of phishing attacks, the Secu- look like 401(k), 403(b) and 16.2%. provides, he says. Consider
other employer-provided
rities and Exchange Commis- in retire- When whether you’ll downsize
savings plans
sion said in a recent report. ment, people or work part-time—all of
envi-
$19,000 imagine which can have a significant
The fake e-mails don’t have
to be sophisticated to do sioning all the impact on your finances.
serious damage, either. All it it before- UP $500 FROM 2018 positive Once you know what you
takes is for one employee to hand things want to do in retirement,
respond to an offer of a free could spur Catch-up contributions for employees they the next step is to see if
50 and older: $6,000
salted caramel latte to send a you to save (unchanged from 2018) can do in you’ll be able to afford to
company’s computer network nearly one- retirement— support that vision. Invest
into a tailspin. third more than traveling, visiting as much as possible in tax-
To avoid being that em- you would otherwise, grandkids—they are advantaged accounts. In
ployee, stay alert for signs says a new report by in- motivated to save more 2019, you can sock
that an e-mail may be coming vestment manager Capital for those goals, ex- away up to
from an unsavory source. Group, which surveyed plains Heather 2019 contribution $19,000 in
Looking beyond the sender’s 1,200 millennials, Gen Xers Lord, head of limit: IRAs a 401(k)
display name is the most and baby boomers. strategy and or similar
effective way to identify a
phisher, says Debraj Ghosh,
Half of those polled
were first given 15 ques-
innovation
at Capital $6,000
UP $500 FROM 2018
plan, or
$25,000
head of Microsoft Security tions to help them imagine Group. This if you’re
Product Marketing. Closely the activities they would finding may 50 or
Catch-up contributions:
examine the user name and do in their sixties, seventies help the finan- $1,000 (unchanged from 2018) older. Use
domain name, especially and beyond, and then they cial industry an online
the spelling, Ghosh says. If were asked how much they develop ways to calculator
you receive an e-mail from should save from each pay- encourage saving that such as the one
“@amazom.com,” for exam- check for retirement. The are more effective than at www.troweprice.com/ric
ple, mark it as spam and move rest were asked how much the usual nudges that play to check your progress.
along. BRENDAN PEDERSEN to save first and then told on workers’ worries and EILEEN AMBROSE

12 KIPLINGER’S PERSONAL FINANCE 01/2019

 HELP WANTED
CALENDAR
A NEW WAY TO 01/2019
PAY DOWN YOUR
STUDENT DEBT
Companies and rural areas offer
tax breaks and other benefits.

AS THE JOB MARKET CONTINUES TO TIGHTEN,

cities, states and private employers are
offering prospective employees a new perk:
help in paying off their student loans.
Maine, for example, is providing tax
credits to student loan borrowers who
live and work in the state if they graduated
from any U.S. college in 2016 or later. Eli-
gible residents can subtract their loan pay-
ments for the year from their state tax
liability. Borrowers who studied science, resolutions, don’t wait: Schedule it.
technology, engineering or math will ▲ THURSDAY, JANUARY 3
Drowning in unused gift cards after The longer you procrastinate, the
receive a check if they pay more toward more likely you’ll put it off. One of
their student loans than they owe in taxes. the holidays? Instead of letting
them gather dust, exchange them the easiest budgeting apps you can
Other places that offer financial incentives
ISTOCKPHOTO.COM (3)

for cash, Amazon.com credit and use is Mint. After you connect a few
to student loan borrowers include the state
more at www.giftcardgranny.com. accounts, it will categorize expenses
of Kansas and Niagara Falls, N.Y.
The offers you receive will probably and track how well you do against
Private employers are helping with stu-
be less than the card’s retail value, the budgets you set for food, utili-
dent debt, too. Employers that offer the
but you’ll be able to use the money ties, transportation and more.
benefit, including Aetna, Hulu and
PricewaterhouseCoopers, anywhere you like.
typically offer a
THURSDAY, JANUARY 31
Today is the deadline for employers
monthly or an- THURSDAY, JANUARY 10
to mail out W-2 forms to their em-
nual payout Is your state identification compliant
ployees. Filing your taxes early is
over several with new federal rules? Starting to-
years. Last the most effective way to prevent
day and continuing through 2019, the
year, about an identity thief from hijacking your
Department of Homeland Security
4% of com- tax refund. BRENDAN PEDERSEN
will begin reviewing several states’
panies ID-verification processes to see if
offered they comply with federal standards. * DEAL OF THE MONTH
repayment This may affect whether you can Xbox and PlayStation are ex-
benefits, board a domestic flight using only pected to announce new tech
according your state ID. While most states
to the Soci- for their video-game consoles
have overhauled their ID processes
ety of Human in early 2019, says Brittney
since 2013, some have requested
Resource Man- Mayer, of CardRates.com.
extensions. To see where your state
agement. As more stands, go to www.dhs.gov/real-id.
That means prices for existing
companies shy away systems, such as the Xbox One
from salary bumps in favor of S and PS4 Slim, could fall to
MONDAY, JANUARY 14
bolstering benefits, more will likely begin as low as $200 when retailers
If reworking your household budget
to assist with student loans. KAITLIN PITSKER clear out inventory.
made it onto your list of New Year’s

01/2019 KIPLINGER’S PERSONAL FINANCE 13

AHEAD
SUCCESS STORY
These Retirees Volunteer Abroad
They’ve crisscrossed Europe doing everything from picking grapes to teaching English.
PROFILE
WHO: Greg and Betsy Ball, 55
WHERE: Stazzo, Sicily
WHAT: Working for fun and free
room and board
Did you have a plan to do what
you’re doing? Betsy: Not ex-
actly. When we retired in
May 2017 as teachers at
Tarleton State University,
in Texas, we wanted to fig-
ure out how we could afford
to travel a lot. When I heard
about volunteering our labor
in exchange for room and
board abroad, I thought, We
can do that. We love meeting
people, and we want to be
immersed in the culture of
the places we visit.
Where’d you go in your first year?
Greg: Between September
2017 and May 2018, we went
to Denmark, Montenegro,
Croatia, Slovenia, Latvia,
the United Kingdom, Swit-
zerland, Germany, Poland,
Hungary and three times to
Italy. We spent last summer
at a family cottage in Quebec.
What kind of work have you
done? Greg: House-sitting,
pet-sitting, dog-walking and
handyman jobs in wonder-
ful places. We’ve run a gin
bar in England and taught
English in Poland. For
house-sitting, it helps that
we’re a couple in our fifties.
14 KIPLINGER’S PERSONAL FINANCE
Where do you find the gigs?
Betsy: We look for postings
on websites including www
.wwoof.net, www.workaway
.com, www.trustedhouse
sitters.com and www.helpx
.net. We don’t have work
permits, so we can’t be paid.
As Americans with pass-
ports, we’re allowed to be
in most European countries
for 90 days [within a 180-day
period] without a visa.
Do you have a favorite stay
so far? Greg: We love wine,
so we wanted to be in wine
country for the fall harvest.
We’ve twice picked grapes
01/2019
for the same winery in
Dogliani, in northwestern
Italy. We love the owners,
and this fall, we saw some
of the same people we
worked with last year. It’s
amazing to sit at the dinner
table with people speaking
four different languages.
How have the accommodations
been? Betsy: Most have been
nice, and some better than
others, but you judge them
by the bed and the shower.
Greg: We often ask each
other, How many of our
friends would do this? At
a certain age, people may
expect certain niceties.
You sort out a lot of it
beforehand by e-mail and
Skype, so you have an idea
of what you’re getting into.
We are going to help with
building and gardening on
a farm in Kilkenny, Ireland,
next; we’ll stay in the own-
ers’ Airbnb.
How are your finances? Betsy:
We spend about three-
fourths of what we did liv-
ing in Stephenville, Texas.
When we sold our house
in Texas, we took a chunk
of equity to live on and in-
vested the rest. We haven’t
tapped our retirement ac-
counts. Last year, I taught
online for the university
for pay. This year, we’re
focused on expanding our
business, Euro Travel Coach
(www.eurotravelcoach.com).
We create custom itiner-
aries for clients and lead
small-group tours, and we
have some income from
that. We have health insur-
ance through Greg’s retire-
ment plan.
How do you get your mail?
Greg: We try to get as many
things electronically as we
can, but our physical address
is my parents’ home in Ohio.
My dad goes through our
mail and calls me if any-
thing important comes in.
PATRICIA MERTZ ESSWEIN
pesswein@kiplinger.com
PHOTOGRAPH BY ALBERTO ALICATA
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AHEAD Commentary

MONEY SMART WOMEN Janet Bodnar

Advice for Stay-at-Home Moms

W
hen I first met Variny Yim,
she had just had her second
child and moved across the
country to California. But she was still
commuting to Washington, D.C., as
part of her job as director of a non-
profit association. She was considering
leaving that job, and the cross-country
commute, to spend more time with
her children, and she asked me for ad-
vice on balancing work and family. I
completely understood her desire not
to work full-time (I had followed the
same path myself), but I advised
her to “keep one foot in the door.”
Those six little words ended up
making a big impact. “I have literally
lived your advice,” Variny told me re-
cently. She quit her D.C. job, but over
the years she has taken a
series of part-time and
consulting positions—
and even managed
to write a novel (The
Immigrant Princess).
That path, she says,
“has enabled me to
keep my skill set
current while also
giving me flexibil-
ity to be a full-
time mother.”
Taking time
off from the work-
force is emotion-
ally satisfying and
can make economic
sense (no child care
expenses), but it
comes at a cost—not
stand what’s at stake financially for spouse—one rule of thumb is to buy
you and be proactive about planning term life insurance equal to seven to
for it,” says Adrienne Penta, executive 10 times your family income—and in-
director of the Center for Women & surance on your own life to cover child
Wealth at Brown Brothers Harriman. care and other expenses if anything
“It’s important to preserve your earn- were to happen to you. And make sure
ing power to the extent you can.” that you (and your children) are the
That doesn’t necessarily mean beneficiaries of your spouse’s life
working part-time. It can also mean insurance and retirement accounts.
staying in touch with your network or One key way to provide for your
hiring a babysitter so you can attend financial security is to have a spousal
an industry seminar or event. And IRA. Assuming your spouse is work-
don’t sell short any activities unre- ing, he (or she) can contribute up to
lated to your former career. “Women $6,000 to a spousal IRA in 2019, or
don’t give themselves enough credit $7,000 if you’re 50 or older. Spousal
for volunteer activities they’re in- IRAs pack a triple wallop: They help
volved in,” says Penta. you make up for years out of the work-
force, they provide an independent pot
Smart money moves. At-home parents of money that belongs to you should
tend to take on the role of family CFO, anything happen to your spouse (or
but that means more than just pay- your marriage), and they give you an
ing the bills. “Stay-at-home moms opportunity to manage your own re-
need to have access to money they tirement assets.
can spend on whatever they And if, like Variny, you earn money
on the side (she subs as
a certified spinning in-
WHEN TAKING TIME OFF FROM THE structor), you can save a
portion of that for retire-
WORKFORCE, IT’S IMPORTANT TO
ment in an IRA or a solo
PRESERVE YOUR EARNING POWER 401(k)—or as seed capital
AND PLAN FOR RETIREMENT. to build your side gig into
a real business.
The bottom line, says
want,” says Judy Rubin, Variny, is that “you cannot turn a blind
a partner with Plaza eye to finances”—a truth that hit home
Advisory Group, in when she later divorced and became
St. Louis. That a single parent. Tracking her finances
could be a monthly online has been a godsend, and she
amount you and also works with a financial planner.
your spouse agree “As painful as it can sometimes be, I
POON WATCHARA-AMPHAIWAN

only in current in- on or even your own account. absolutely love visiting my dentist, my
come but also in fu- You and your family are auto mechanic and my financial plan-
ture earning power now dependent on the in- ner,” she says. “It’s all about preven-
and retirement come of one earner, so to tion and long-term maintenance.” ■
savings. Before protect that income, you
you make the need disability and life in- JANET BODNAR IS EDITOR AT LARGE OF KIPLINGER’S
PERSONAL FINANCE MAGAZINE. YOU CAN CONTACT HER AT
move, “under- surance coverage for your JBODNAR@KIPLINGER.COM.

16
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AHEAD Commentary

OPENING SHOT James K. Glassman

My Top 10 Stock Picks for 2019

F
or the third year in a row, my standing) is just $4.5 billion—for what’s fund worth watching. Barely a year
10 annual stock choices beat probably the best newspaper brand in old, the fund has returned a sparkling
Standard & Poor’s 500-stock the world. The only drawback is that 23.8% for the past 12 months, thanks to
index. Since we published the 2018 the stock has doubled since Donald the stock picking of Christopher Smith,
list, the picks have returned, on aver- Trump’s election, but shares still trade who has worked for some of the best
age, 15.5%, or 5.3 percentage points at about half of what they did in 2002. hedge funds in the world. The fund is
more than the S&P 500. Don’t get too Terry Tillman, a software analyst not cheap, with a 1.57% expense ratio.
excited about my forecasting ability. at SunTrust Robinson Humphrey, con- But you are free to scan the fund’s top
No one beats the market consistently. tinued his incredible streak in 2018, holdings on its website or the websites
Let me brag, however, about one beating the S&P for the seventh year of trackers such as Morningstar.
selection. Every year for more than in a row. His pick, HubSpot (HUBS), Wasatch World Innovators, one of
two decades, I have drawn up the list a marketing platform to convert web- the best performers on my lists in 2017
by choosing among the selections of site visitors into customers, returned and 2018, got a new investment ad-
experts, and lately I have been throw- 56.4%. This year, among his “buy” viser in September and changed its
ing in a stock of my own. This year, for recommendations is COUPA SOFTWARE first name to Seven Canyons. But it
the first time, that personal stock pick (COUP), which connects businesses with didn’t change its lead portfolio man-
ranked number one among the 10. It suppliers and manages procurement, ager (Josh Stewart) or its symbol
was Lululemon (symbol LULU), the billing and budgeting. Coupa is risky, (WAGTX). Stewart, who searches for
athletic clothing maker and retailer— with profits only on the verge of show- mid- and small-cap technology stocks,
up 123.6%. According to tradition, that ing up. The company says revenues for has scored an annual average return of
gives me the first choice this time. the 12 months ending January 31, 2019, 15.9% over the past 10 years. Although
(Prices and returns are from October will be up about one-third over 2018. his fund’s portfolio is dominated by
31, 2017, through November 9, 2018.) London-based IHS MARKIT (INFO), foreign stocks, surprisingly high
For the 2019 list, I am making a con- which provides data and ana- on the list of holdings is Alabama-
trarian pick: based COMPUTER PROGRAMS AND
the NEW YORK SYSTEMS (CPSI), a provider of
TIMES (NYT). I AM MAKING A CONTRARIAN PICK: software for community hos-
I know, ac- pitals. A micro cap with a
THE NEW YORK TIMES. THE INDUSTRY
cording to market value of just $373 mil-
President IS SAID TO BE DEAD. BUT THE TIMES IS lion, the stock has a great
Trump, the FIGURING OUT HOW TO MAKE MONEY. niche and a price-
Times is “fail- earnings ratio
ing,” and the of just 18, based
industry is said to be dead. But the lytics to financial, on the consen-
Times is figuring out how to make transportation and sus of analysts’
money, mainly by raising prices for energy firms, is earnings
digital and paper subscriptions and one of the most forecasts
by creating advertising opportunities respected com- for 2019.
with products such as a brilliant daily panies in a Fidelity
podcast. The Value Line Investment burgeoning Contra-
Survey notes that earnings have fallen 21st-century fund
POON WATCHARA-AMPHAIWAN

at an annualized rate of 20% for the sector. It is a (FCNTX),

past five years but are estimated to top holding with Will
rise by an average of 42% annually for of Artisan Danoff at the
the next three to five years. The com- Thematic helm since 1990, is
pany has almost no debt. The market (ARTTX), the best mutual fund
value (share price times shares out- a mutual in the world. Danoff

18 KIPLINGER’S PERSONAL FINANCE 01/2019

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AHEAD
has whipped the S&P soundly over
the past two years, but for my 2018 list
I chose Facebook (FB), the number-
one asset in his portfolio at the time,
and it fared poorly. For 2019, I am
going with the fund’s new top holding,
AMAZON.COM (AMZN). Third-quarter
earnings disappointed investors, who
marked the stock down in the fall.
But CEO Jeff Bezos doesn’t care about
short-term profits. He wants to grab
market share. This is the classic buy-
on-the-dip stock, and I still trust Will
Danoff.
My interview with John Rogers Jr.
(“Opening Shot,” Nov.), founder of
Ariel Fund (ARGFX), convinced me
that value investing is alive and well,
despite its lagging growth-oriented
strategies for so long. Rogers likes
bargain-priced companies based in
his hometown of Chicago, and he
has owned one such firm, JONES LANG
LASALLE (JLL), since 2001. Jones Lang,
a global property management com-
pany, has suffered due to worries that
the commercial real estate market may
be weakening. Shares plunged from
$172 in July to $127 in October, before
rebounding some, making them at-
tractive to value mavens.
The List
WHAT’S IN FOR 2019
This year’s picks range from e-commerce titans on two continents to household names
that you might associate with your morning newspaper—and the coffee to go with it.
Company Symbol
Alibaba Group BABA
Amazon.com AMZN
Computer Progs & Sys CPSI
Coupa Software COUP
Home Depot HD
IHS Markit INFO
Jones Lang LaSalle JLL
New York Times NYT
Starbucks SBUX
U.S. Bancorp USB
As of November 9, 2018. *Based on estimated earnings for the next four quarters. NA Not available. — Company does not
pay a dividend. SOURCES: Yahoo Finance, Zacks Investment Research.
20 KIPLINGER’S PERSONAL FINANCE 01/2019
ALTHOUGH STARBUCKS FACES STRONG DOMESTIC COMPETITION,
SALES IN CHINA ARE PERKING UP, AND THE STOCK YIELDS 2.1%.
Only a handful of stocks gain the top shop chain. Shares have languished for
ratings for timeliness and safety as three years, and the company is facing
well as for financial strength from strong domestic competition. But the
the Value Line Investment Survey. One market in China is perking up, and the
is HOME DEPOT (HD), the powerhouse stock yields 2.1%. I almost made Star-
home-improvement retailer whose bucks my own choice for 2019; it’s re-
stock has risen in what I call a beauti- assuring that Dodson likes it so much.
ful line, with earnings per share in- We get a glimpse every quarter, in
creasing every year since 2009. Over federal filings of Berkshire Hathaway,
the next three to five years, Value Line of what chairman Warren Buffett is
projects that Home Depot’s profits buying. The latest report shows that
will rise 12.5% annualized and the divi- the best investor of our time added
dend, now $4.12, will roughly double. no new names but increased his stake
Micron Technology (MU), the in U.S. BANCORP (USB). Morningstar
selection from Parnassus Endeavor notes that, unlike money-center banks,
(PARWX) for my list of favorites for U.S. Bancorp is “primarily funded by
2017, returned 158%. But United Parcel low-cost core deposits from the com-
Service (UPS), the 2018 choice from munities it serves.” The bank has been
Parnassus, by far my favorite socially lagging its peers in share-price gains
conscious investment fund, was a but boosting its dividend aggressively.
clunker. No one, not even Parnassus The stock yields 2.8%.
founder Jerome Dodson, wins them Tariffs are roiling Chinese markets,
all. This year, I’m turning to a major so this is a time to consult a fund that
acquisition Dodson made in June: knows the region well. The top hold-
STARBUCKS (SBUX), the global coffee- ing of Matthews China (MCHFX),
at 10% of assets, is a stock unlikely to
be affected by trade troubles: ALIBABA
GROUP (BABA), which runs China’s most
popular online marketplaces. Because
of worries about the Chinese economy,
shares are down more than 30% since
June despite the company’s sharply
Market Price- rising revenues, presenting what looks
Recent value earnings
Source price (billions) ratio* Yield like a good buying opportunity.
Matthews China $145 $372.5 32 — I’ll conclude with my usual warn-
ings: These 10 stocks vary in size and
Fidelity Contrafund 1,712 837.3 74 —
by industry, but they are not meant to
Seven Canyons World Innov. 27 0.4 18 1.5%
be a diversified portfolio. I expect the
Tillman 64 3.7 NA —
stocks to beat the market in the year
Value Line 186 212.8 19 2.2 ahead, but I do not believe in holding
Artisan Thematic 53 20.9 26 — shares for less than five years, so think
Ariel 140 6.4 13 0.6 of these as long-term investments.
Glassman 27 4.5 30 0.6 I am just offering suggestions here.
Parnassus Endeavor 69 89.8 26 2.1 In the end, the choices are yours. ■
Buffett 53 85.9 12 2.8 JAMES K. GLASSMAN CHAIRS GLASSMAN ADVISORY, A PUBLIC-
AFFAIRS CONSULTING FIRM. HE DOES NOT WRITE ABOUT HIS
CLIENTS. OF THE STOCKS RECOMMENDED IN THIS COLUMN, HE
OWNS AMAZON.COM. HIS MOST RECENT BOOK IS SAFETY NET:
THE STRATEGY FOR DE-RISKING YOUR INVESTMENTS IN A TIME OF
TURBULENCE.
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AHEAD Commentary
YOUR MIND AND YOUR MONEY
How Market Cycles Drive Emotions
M
ost investors are aware that
the stock market rotates
through a number of phases
over the course of an economic cycle,
with various sectors and industries
doing better than others at different
times. Well, investors pass through
a number of emotional stages during
the course of a market cycle—often
to our detriment. Being aware of the
behavioral biases that can hold sway
at different periods can go a long way
toward keeping you—and your port-
folio—on track.
Start at the beginning, just before
a bull market takes off. Having been
mauled by a bear market, investors
have a strong aversion to loss, which
research has shown is twice as painful
as a gain is pleasurable. A phe-
nomenon known as anchoring
makes it hard to let go of the
negative events that precipi-
tate or accompany a bear
market. Persistent worries
about a double-dip reces-
sion or another market
downdraft make it easy
to fall prey to status quo
bias: You’re largely out
of the market, and
inertia and pro-
crastination make
it hard to get back
in, just when the
opportunity is
greatest.
In the middle
stages of a bull
market, the bad
memories start to
fade. FOMO—fear
of missing out—
draws you in. You
see your friends
making money,
and stocks are all
22 KIPLINGER’S PERSONAL FINANCE 01/2019
Anne Kates Smith
over the news. The next thing you
know, you’re part of the herd, subject
to the strong pull of group behavior.
At this stage, “investors view the last
bear market as a one-time aberration,
blamed on a housing bubble or a
financial crisis,” says Jim Stack, of
InvesTech Research. They believe
that everything is now under control.
Confidence kills. In the later stages
of a bull market, investors become
overconfident in their own judgment
and abilities, underestimating risk
and overestimating expected returns,
says Stack. FOMO intensifies. People
put more money in stocks than they
otherwise would, as greed takes over
and long-term risk management goes
out the window.
AS A BEAR MARKET
BEGINS, THE MOST
RECENT MARKET TOP
BECOMES THE TARGET
INVESTORS BELIEVE
THEY NEED TO REACH
BEFORE SELLING.
Two other biases
contribute to spec-
ulation in the later
stages of a bull
market, says
Victor Ricciardi,
a finance profes-
sor at Goucher
College and co-
editor of the book
Financial Behavior:
Players, Services,
Products, and Mar-
kets. A tendency
toward representativeness leads inves-
tors to draw extended conclusions from
a limited sample of evidence—as in,
stocks will keep going up just because
they have been. Familiarity bias causes
investors to concentrate their assets in
the stocks and sectors that have been
doing the best while ignoring under-
performers, which leads to a lack of
diversification.
As a bear market begins to material-
ize, anchoring again comes into play.
The most recent market top becomes
the anchor, or the target that investors
believe they need to reach in order to
sell their shares, says Stack. Finally, as
the downturn crescendos, herding be-
havior comes back in full force. It gen-
erates brutal sell-offs that carry stocks
far below fair value, leading to investor
capitulation and wholesale dumping
at the bottom. About 60% of a bear
market’s declines take place in the final
third of the downturn, notes Stack.
And then the cycle begins again.
You can do a few simple things to
lessen the effects of behavioral biases
on your portfolio. Keep a long-term
chart of the stock market handy to
help you maintain historical perspec-
tive. Determine an asset allocation
that is both diversified and appropri-
ate to your risk tolerance and stage in
life, and then rebalance on schedule,
no matter what the market is doing.
If you’re saving for a long-term goal,
dollar-cost average by investing a
fixed amount on a regular schedule.
That takes the emotion out of buying
and lowers your average cost per
share. If you’re in or close to retire-
POON WATCHARA-AMPHAIWAN
ment, keep enough cash to cover one
to two years of living expenses so you
can ride out any downturns. ■
ANNE KATES SMITH IS EXECUTIVE EDITOR OF KIPLINGER’S
PERSONAL FINANCE MAGAZINE. YOU CAN CONTACT HER AT
ASMITH@KIPLINGER.COM.
A STRAIGHTFORWARD INCOME?
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When investing in municipal bonds,
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of their investment at maturity or earlier
if called, unless the bond defaults. This
is important because many investors,
particularly those nearing retirement or in
retirement, are concerned about protecting
their principal. In June of 2017, Moody’s
published research that showed that rated
investment grade municipal bonds had
an average cumulative 10-year default
rate of just 0.09% between 1970 and
2016.* That means while there is some
risk of principal loss, investing in rated
investment-grade municipal bonds can
be an important part of your portfolio.
2. Potential Tax-Free Income
Income from municipal bonds is not
subject to federal income tax and,
also be exempt from state and local
taxes. Tax-free income can be a big
attraction for many investors.
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bond prices fall, and when interest rates fall, bond prices rise. *Source: Moody’s Investor Service, June 27, 2017 “US Municipal Bond
Defaults and Recoveries”, 1970–2016. Past performance is not a guarantee of future results.
AHEAD Commentary
MILLENNIAL MONEY Brendan Pedersen
Start Saving for Retirement Now
L
ast spring, I packed my bags and
headed to Denver for my first
reporting job after college. We
had everything you might expect at
a scrappy media start-up with four
reporters, including craft beer in the
mini fridge. But like a lot of cash-
strapped start-ups, the company
couldn’t offer much in the way of
employee benefits.
I didn’t care about any of that when
I took the job. If I could pay the bills
and start chipping away at my student
loans, why the heck would I think
about saving for retirement?
Here’s why: Our generation is almost
certain to live longer than our parents,
meaning our money has to last longer
and clear more hurdles on the way.
For starters, no one really knows
what Social Security is going to look
like in 30 or 40 years. No matter how
Congress adjusts the system over the
next decade, younger workers shouldn’t
count on receiving the same benefits
as their parents. “I tell younger inves-
tors to plan as if Social Security will
be nonexistent when they retire,” says
Ryan Fuchs, a certified financial plan-
ner in Little Rock, Ark. “I don’t believe
that will be the case. But if they can
create a successful plan without it,
then any money they do receive will
be icing on the cake.”
The time value of money. After paying
rent and maybe student loans, finding
the money to save for retirement might
seem like an impossible task. In a
2017 survey from GOBankingRates,
more than 60% of millennials reported
having less than $1,000 in a savings
account, and 46% of respondents ages
18 to 24 said they had nothing saved.
But time is the most valuable resource
you have, and you happen to have a lot
of it right now.
24 KIPLINGER’S PERSONAL FINANCE 01/2019
“When we meet with younger clients,
we’ll use simple calculations to show
what saving a few hundred dollars a
month can do for a portfolio when you
extend that growth over 40 years,”
says Nate Creviston, a CFP in Shaker
Heights, Ohio. If you set aside $200 a
month and earn an average annual re-
turn of 7%, you’ll have $480,000 after
40 years. Boost contributions every
time you get a raise, and you’ll have
much more than that. Eventually, you
should aim to save 15% of income.
Putting aside the question of Social
Security, the big difference in the re-
tirement outlook between past genera-
tions and our own is the shift away
from traditional pensions. Most pri-
vate employers have moved toward
defined contribution plans, such as
401(k)s, which allow workers
NO EXCUSES. YOU
DON’T NEED A 401(K)
OR EMPLOYER
MATCH TO SAVE.
to contribute a
certain amount
of their pay-
check into a
pretax account.
According
to Rui Yao,
a personal
finance pro-
fessor at the
University of
Missouri, that
shift began
right before
Generation X
joined the
workforce
and culminated with millennials.
If your employer offers a 401(k)
plan and will match your contribu-
tions up to a certain percentage of
your pay, take it. It’s the closest you’ll
come to getting free money. Even
without the match, a 401(k) is a strong
starting point as long as it offers a
diversified selection of mutual funds
that aren’t hobbled by exorbitant fees.
(Brightscope.com offers a tool that
will rank your 401(k) against its peers.)
If you’re self-employed or your
employer doesn’t offer a 401(k), your
next best bet may be a Roth IRA. In
2019, you can contribute up to $6,000
to a Roth, as long as your income is
less than the IRS’s thresholds. The
money isn’t tax-deductible, but as
long as you wait until you’re at least
59½, all withdrawals—including
earnings—will be tax-free, and
you can withdraw contributions
at any time without paying
taxes or penalties. Many online
brokers offer tools to help you
create a portfolio and set up auto-
matic monthly contributions,
which makes it easier to
start saving as a habit
(see “The Best Online
Brokers,” Oct.).
As for me, I’m
taking advantage of
the Kiplinger 401(k)
plan. I’m fortunate to
have that option, but
retirement isn’t just
for the lucky ones.
Start saving now,
and work toward
the future you
want. You’ll thank
yourself later. ■
RYAN DONNELL
TO SHARE THIS COLUMN, PLEASE
GO TO KIPLINGER.COM/LINKS/
MILLENNIALS. YOU CAN CONTACT THE
AUTHOR AT BPEDERSEN@KIPLINGER.COM.
 99 Tips to Make Your
Retirement More Comfortable
from New York Times best-selling
author Ken Fisher

■ Determine how much you can

take from your investment
portfolio without risking
running out of money. (Tip #10)

Yours ■ Why selecting a benchmark,

FREE! something few people do, can
help you maintain and grow
your portfolio over time in bull
and bear markets. (Tip #19)

Successful Retirement Doesn’t Just Happen ■ Why paying down your

It takes thought, planning and action. To help you get ready for mortgage before you retire
retirement or make your retirement even better, we’ve assembled might not be a good idea.
99 Retirement Tips, gleaned from Fisher Investments’ clients, (Tip #26)
people who have or are successfully navigating the transition from
work to retirement. ■ How to estimate what your
taxes are going to be and look
Retirement Is More Complicated for ways to reduce them in
Than Just Money Management retirement. (Tip #40)
99 Retirement Tips, designed for those with $500,000 or more in
investible assets, will help you better understand the concerns and ■ Why, if you are close to
issues that retired people face. Please claim your copy today, at no retirement or already retired,
cost or obligation, and take a step toward a better retirement. you’ll probably live longer
than you think. (Tip #12)
About Fisher Investments and Ken Fisher
Fisher Investments is a respected money management firm serving ■ How not to get caught in the
over 50,000 successful individuals as well as large institutional inflation trap and the fallacy of
investors.* We have been managing portfolios through bull and bear most asset-allocation advice.
markets for nearly 40 years. Fisher Investments and its subsidiaries (Tip #13)
use proprietary research to manage over $105 billion in client assets.*
Ken Fisher, Executive Chairman and Co-Chief Investment ■ What you should tell your adult
Officer, is a USA Today and Financial Times columnist, as well as children about your finances.
the author of more than 10 financial books, including 4 New York (Tip #23)
Times bestsellers.

Call Now for Your FREE Report!

Toll-Free 1-888-899-2574
©2018 Fisher Investments. 5525 NW Fisher Creek Drive, Camas, WA 98607.
Investments in securities involve the risk of loss.
Past performance is no guarantee of future returns.
*As of 9/30/2018.
MONEY

NEW STRATEGIES
SMART
FOR

BORROWING
Rising interest rates and new tax rules mean taking a different approach to how you shop
for loans and manage your debt. BY MIRIAM CROSS and PATRICIA MERTZ ESSWEIN

PHOTOGRAPH BY NADER KHOURI

 ■ TERESA RUIZ DECKER
REFINANCED HER STUDENT
LOANS TO LOWER HER RATE AND
THEN PAID THEM OFF EARLY.

A lot of financially savvy people make a distinction between good debt and bad
debt. Good debt is used to finance goals that will improve your net worth—such
as a home purchase, a college education or a small business. Good debt is even
better if it carries a low interest rate and is tax-deductible. Bad debt is the kind
you incur to buy things you can’t afford with your paycheck—the big-screen TV
you put on a credit card or the Caribbean trip you paid for with your home-equity
line of credit. In some people’s book, it’s a bad idea to borrow to buy any depreci-
ating asset, including a car.
MONEY
But even good debt turns bad when
you overindulge, as happened in the
years leading up to the financial crisis.
The bursting of the housing bubble
and the stock market bust forced many
Americans to go on a debt diet, and in
the last decade, even though credit has
been historically cheap, we’ve been
pretty careful borrowers. Household
debt has increased since the Great
Recession, but that’s largely a desir-
able side effect of the strong economy
and a healthy relaxation in lending.
Mortgage balances have been rising
(although they are still way below the
peak reached in 2008), and student-
loan, auto-loan and credit card debt
levels have also gone up.
There are a few worrisome trends:
Borrowers age 60 and older now hold
22.5% of total outstanding balances
28 KIPLINGER’S PERSONAL FINANCE 01/2019
for all types of loans, up from 15.9%
in 2008. Older borrowers are also tak-
ing on more student-loan debt to help
pay for the education of children and
grandchildren. The average amount of
student-loan debt owed by borrowers
age 60 and older nearly doubled from
2005 to 2015, to $23,500, according
to the Consumer Financial Protection
Bureau. Another worry: Among
younger student-loan borrowers,
delinquencies are rising.
Now the days of supercheap money
are coming to an end. Interest rates on
consumer credit are rising, buoyed by
Federal Reserve rate hikes designed to
keep the economy from overheating
and higher yields on long-term Trea-
suries. The 30-year fixed mortgage
rate rose by about one percentage
point in 2018, to a national average
PHOTOGRAPH BY REBECCA STUMPF
of 5%, according to Freddie Mac.
The prime rate—the benchmark tied
to home-equity borrowing, credit
card rates and other consumer debt—
also rose one percentage point in
2018, to 5.25% (as of mid November).
Once plentiful 0% offers for auto
loans are now scarce.
More rate hikes are coming: The
Fed ratcheted up the federal funds
rate by one-fourth percentage point
three times in 2018 as of mid Novem-
ber, and Kiplinger expects an in-
crease in December and three more
increases by the end of 2019. (For a
list of key consumer rates, see the
box on page 32.)
Rate hikes aren’t the only trend
changing the borrowing equation:
The new tax law puts a crimp in how
much debt you can deduct. If you’re
in the market for a home with a mort-
gage that exceeds $750,000, new lim-
its on deducting the interest may limit
how much you choose to borrow. And
until 2018, you could deduct interest
on up to $100,000 of a home-equity
loan or line of credit—which made
a HELOC a strategic way to finance
a new car or college tuition or to pay
off credit cards. Now the debt must
be related to acquiring or improving
your home.
YOUR HOME
If you’re a homeowner with a fixed-
rate mortgage, you don’t have to sweat
rising mortgage rates. (If you are
mortgage-free, congratulations.) Even
so, the new tax law may upend the
familiar tax-time ritual of deducting
mortgage and home-equity interest,
■ ADAM P. SMITH AND HIS
WIFE, ELIZABETH (WITH
SONS ALEX AND ASHER),
NAVIGATED RISING
MORTGAGE RATES AND
DENVER’S OVERHEATED
HOUSING MARKET TO BUY
A LARGER HOME.
property taxes, and other state and
local taxes. For many Americans, the
newly doubled standard deduction
will eliminate the need to itemize
deductions. But if you have a high-
priced home in a high-cost area—
notably California, Connecticut, New
Jersey or New York—you may hit a
wall that prevents you from sharing
the cost of homeownership with Uncle
Sam. That’s because of new limits on
deductions for mortgage interest as
well as state and local taxes (see the
box on the next page for details).
Strategies for homeowners. If your
mortgage payments are locked in at
a low rate and you’re still saving for
retirement or college or have other
compelling needs for your income,
you probably want to let your mort-
gage ride, even if you will no longer
deduct the interest. But if you are ap-
proaching or in retirement and being
mortgage-free improves your cash
flow and gives you a psychological lift,
you may want to pay it off.
First, consider your whole financial
picture, says Lyle Benson, a certified
financial planner in Towson, Md. Do
you have high-cost credit card debt?
Do you need to put more money in an
emergency fund? Are you still funding
your children’s or grandchildren’s
education? Will your adult children
and aging parents need your support?
If the answer to those questions is no
and you have savings you could use to
pay off the loan, compare the return
you could get from investing the
money with the after-tax cost of the
mortgage. After taxes and inflation,
the long-term return from investing
may not be much higher than the
“return” you get from paying off your
mortgage. At that point, the decision
hinges on your comfort level.
Short of paying off the mortgage in
one fell swoop, you could accelerate
payments so you retire the loan faster.
Even if you already have a low rate on
your mortgage, you may still come
out ahead if you refinance to a shorter
term of 15 or 20 years before rates go
much higher. Your monthly payments
will increase, but you’ll build equity
more quickly, retire the mortgage
earlier and pay less in total interest.
Or you could prepay your mortgage.
Ask your lender if it offers a biweekly
mortgage payment program in which
you can enroll free. If not, just make
a 13th mortgage payment annually,
which is the equivalent of paying half
of your monthly mortgage payment
every two weeks. Or simply add prin-
cipal to each monthly payment.
If you have a home-equity line of
credit, it’s probably tied to the prime
rate, and each Fed hike boosts your
rate. After the draw phase of the
HELOC—usually the first five or 10
years—you’ll begin repaying principal
as well as interest. But you can make
principal-and-interest payments at
any time during the draw phase. Alter-
natively, most HELOCs allow you
to “lock” a portion of the line with a
fixed rate and term. Lenders typically
set a minimum amount for a lock and
limit the number of locks.
Even if the interest isn’t deductible,
home-equity borrowing is often one
of the cheapest sources of credit. If
you have a HELOC in the draw phase
but you’re not using it, you may want
to keep it open, just in case an emer-
gency pops up. But if you can’t make
any more withdrawals because you’ve
tapped out your line or entered the
repayment phase, consider paying off
the entire balance.
Strategies for home buyers. If you’re in
the market for a new home—perhaps
you’re trading up—even if you aren’t
in a high-cost area, you’ll encounter
higher mortgage rates that have been
pushing payments higher and perhaps
limiting how much house you can
afford.
The prospect of higher rates per-
suaded Adam P. Smith and his wife,
Elizabeth, to move quickly to trade
their family home of 16 years for a
larger one with more space for their
family, including Asher, 3, Alex, 14,
and (when she visits) Lisa, 23. Smith,
01/2019 KIPLINGER’S PERSONAL FINANCE 29
MONEY
Taxes
New Limits on
Homeowners
If you closed on a mortgage on or be-
fore December 15, 2017 (or had a binding
purchase contract for a home by that
date and it closed by April 1, 2018), you
can still deduct the interest on up to
$1 million of mortgage debt. If you took
a mortgage or home-equity loan or line
of credit after December 15, 2017, to
buy, build, improve or refinance a pri-
mary residence or second home, you
can also deduct the interest on $1 mil-
lion of debt. That includes debt on a
home-equity loan or line of credit.
However, interest on home-equity
debt, old or new, is deductible only to
the extent that you used the money to
buy, build or improve your home. If you
used it to buy a car, pay college tuition
or take a vacation, you can’t deduct the
interest. If you refinanced your mort-
gage, cashed out some equity and
didn’t fold the money back into your
home, the interest on the cash-out por-
tion of the loan isn’t deductible, either.
Deductions for any combination of
state and local income, sales or prop-
erty taxes—sometimes known as
SALT—are now capped at $10,000.
“SALT is a good acronym, as in rubbing
salt into a wound,” says certified finan-
cial planner Peter Palion. Palion lives in
the high-cost New York metro area,
where property taxes for even modest
homes often exceed $10,000.
Suppose you took a mortgage of
$1 million with an interest rate of 4.5%
in 2017 or before. You could have de-
ducted nearly $54,000 in interest in-
curred in the first year on the entire loan
amount, and in the 33% tax bracket,
you would have saved about $18,000 in
federal income taxes. If you took the
same mortgage now, you could deduct
about $30,000 in interest on $750,000
of the loan, and in the new 32% bracket,
you’d save about $13,000 in taxes, or
about $5,000 less than before.
30 KIPLINGER’S PERSONAL FINANCE 01/2019
a Denver mortgage broker, was in a
good position to navigate both rising
mortgage rates and the overheated
Denver housing market.
The Smiths sold their three-
bedroom, 2.5-bath home for $480,000
and bought a five-bedroom, 3.5-bath
home for $555,000. With the $240,000
they took from the home sale, they
could have put down nearly half of the
purchase price, but they had a differ-
ent strategy: They committed just
3.5% to the down payment and locked
in a 30-year fixed rate of 3.875% on a
Federal Housing Administration loan.
They used their remaining equity to
pay off other, higher-cost debt and
beef up their retirement accounts.
Smith says he’s aware that if he had
put down 20% or more, he would have
qualified for an even better interest
rate on a non-FHA loan (and elimi-
nated the FHA loan’s up-front and
monthly mortgage insurance pre-
mium). But he believes he’s getting
a better overall return by paying off
debt and investing the rest. Smith
doesn’t know yet whether he will take
the new $24,000 standard deduction
or itemize deductions. It may be a
wash: The interest for the first full
year in the new home will be about
$21,000 and the property taxes will
be about $3,100.
As homes have become less afford-
able and interest rates have ticked
up, mortgage borrowing has slowed
down, says Guy Cecala, publisher of
Inside Mortgage Finance. To compete
for fewer borrowers, lenders have
loosened their underwriting require-
ments, allowing smaller down pay-
ments (as little as 3%) and higher
debt-to-income ratios. For example,
Fannie Mae and Freddie Mac will
allow the total of all monthly debt
payments to reach 45% to 50% of your
before-tax monthly income with com-
pensating factors, such as a big down
payment, a stellar credit score and
plenty of assets.
For most home buyers, it makes
sense to make at least a 20% down
payment to avoid private mortgage
insurance. With a larger down pay-
ment, you may qualify for a lower
interest rate, too. To ensure that your
rate doesn’t rise before you close, ask
the lender to lock the rate for 45 days.
If it wants your business, it should do
it free, says Mat Ishbia, president of
United Wholesale Mortgage.
STUDENT LOANS
For students who borrow to attend
college, the average debt at graduation
is $28,500, according to the College
Board. That doesn’t sound all that
onerous—until you consider how much
the payments on that debt limit the
financial opportunities of millennials
trying to save for retirement, a home
and perhaps a new car. A student who
graduates with this amount of debt
and pays it back over 10 years at an
interest rate of 5% is on the hook for
payments of $302 a month; including
interest, the total comes to $36,274.
You can consolidate federal (but not
private) loans to combine them into
one new loan (see https://studentaid
.ed.gov). But the interest rate of this
new loan will be the weighted average
of the interest rates of the debts you
combine, meaning you won’t save
money on interest. If you go this route,
consider excluding your highest-rate
loan and targeting that one for early
repayment.
To lower your rate, you’ll have to
turn to a private lender. That’s what
Teresa Ruiz Decker, a communica-
tions consultant in Santa Cruz, Calif.,
did. Decker used federal loans to help
fund her undergraduate degree in
communications at Cal Poly Pomona,
graduating with about $14,000 in debt.
Then she earned a two-year master’s
degree in communication manage-
ment at the University of Southern
California, taking on another $40,000
in federal loans. After graduate school,
she combined all of her loans into
one direct consolidation loan. But she
grew concerned when she realized
that at least two-thirds of her monthly
payments were going toward interest,
and she was barely making a dent
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MONEY

in her balance, which had grown to
$60,000. “It was incredible to see that
I would end up paying about as much
in interest as I would for my original
loan,” she says. “That was my wake-up
call to take action.”
Decker earned extra income through
side jobs and as an Airbnb host to ac-
celerate her payments. After her bal-
ance shrank, she refinanced her loans
through CommonBond, a private
lender that also supports education in
developing countries. She snagged a
variable rate of 3.29%, which she later
converted to a fixed rate of 4.58%.
Decker completed her final payment
this past June. “I didn’t want to be
paying off loans when I sent my own
kids to college,” she says.
If you turn to private loans, note
that payments on an initially low vari-
able rate will increase as rates rise.
That may make sense if you plan to
pay off the loan early. But with a fixed-
rate loan, the payments will be more
predictable. Fixed-rate private loans
from reputable lenders recently
ranged from 5% to 15%, depending on
the credit history and income of you
or a cosigner; variable private loans
hovered between 4% and 10% (and
even higher) on StudentLoanHero
.com, a website that offers student-loan
management and repayment tools.
Also compare the term over which
you’ll repay the debt. “The majority of
savings are due to a shorter repayment
term rather than a lower interest rate,”
says Mark Kantrowitz, publisher of
Savingforcollege.com. You can also
shorten the repayment term by direct-
ing extra cash toward your student
loans. For the graduate with $28,500
in loans, adding an extra $100 each
month to payments would retire the
debt nearly three years early and save
$2,435. Signing up for automatic debit
would cut the interest rate by 0.25 per-
centage point and trim $416 in interest
over the life of the loan.
Notify your loan servicer that each
extra payment should be credited to
principal; otherwise your servicer
might—and sometimes must—treat
the extra money as an early payment
of your next installment.
To refinance with a private lender,

Key Rates

You’ll Pay More to Borrow Now

Here are average interest rates on popular loans as of mid November and one year ago—plus how rate hikes have changed a typical payment.

30-YEAR FIXED 15-YEAR FIXED PRIVATE

MORTGAGE MORTGAGE HELOC AUTO LOAN CREDIT CARD STUDENT LOAN

LATEST RATE / TYPICAL MONTHLY PAYMENT

4.9% 4.3% 6.2% 7.4% 17.1% 7.8%

$1,592 $2,264 $155 $538 $138 $241

YEAR-AGO RATE / TYPICAL MONTHLY PAYMENT

ISTOCKPHOTO.COM (6)

3.9% 3.2% 5.4% 5.8% 16.2% 7.0%

$1,415 $2,101 $135 $514 $134 $232
Assumptions: Mortgage payments of principal and interest assume a balance of $300,000. HELOC payment is for interest only on a balance of $30,000 during draw phase. Auto loan assumes a bal-
ance of about $31,400 for a 72-month term. Average credit card rates are “low end” (reserved for the most creditworthy borrowers); typical payments based on minimum due on a $5,700 balance. Stu-
dent loan is variable rate for $20,000 in debt and a 10-year repayment plan. SOURCES: Bankrate, Credible, CreditCards.com, Edmunds, Federal Reserve Survey of Consumer Finances and Freddie Mac.
you will likely need a credit score of
at least 700 as well as a history of on-
time payments to beat the rate you cur-
rently have, says Joe DePaulo, CEO of
College Ave Student Loans, a private
lender. You’ll typically lose such bene-
fits as deferment and forbearance on
your federal loans if you include them
in the mix. To compare options, visit
www.studentloanhero.com or www
.credible.com. Apply to multiple lend-
ers and compare offers; the lowest ad-
vertised rates are reserved for borrow-
ers with the strongest credit histories.
If you or your college-bound student
are planning to apply for financial aid,
max out federal aid first because inter-
est rates are fixed and generally lower
than fixed private loan rates. Under-
graduates can take out federal loans of
up to $5,500 in their first year, $6,500
in their second year and $7,500 in
their third year and beyond (only a
portion of those limits may be in sub-
sidized loans). Parents can borrow
through a PLUS loan up to the cost of
their child’s attendance minus any fi-
nancial aid the child receives. Gradu-
ate students can get up to $20,500 in
unsubsidized loans per year.
Federal loans typically don’t require
a cosigner and come with protections
that private loans may lack, such as
flexible repayment plans and post-
ponement options. The fixed rates on
federal loans reset on July 1 of each
year; in 2018, the rate on undergradu-
ate direct loans disbursed on July 1
or later rose to 5.05%, from 4.45% the
previous year. Parent PLUS loans in-
creased from 7% to 7.6%, and direct
loans for graduate or professional stu-
dents ticked up from 6% to 6.6%.
AUTO LOANS
The annual percentage rate on a new-
vehicle loan in October averaged 6.2%,
the highest level since January 2009,
according to Edmunds, an automotive
information website. Fewer than 4%
of new-car sales snagged 0% finance
deals in October—the lowest level
since 2007.
Auto-loan terms are stretching
longer as well, with five to seven years
becoming more common, says Matt
DeLorenzo, senior managing editor of
Kelley Blue Book. Popular 72-month
loans recently had an average rate of
7.4%. Longer-term loans translate into
lower monthly payments but more in
interest over the life of the loan.
With loan rates ticking up, you’re
usually better off paying cash. But if
you need to finance the vehicle, you’ll
find the best deal, maybe even 0%
financing, by scouring carmaker and
dealership websites. Be sure to look at
all incentives because a low-rate loan
on one vehicle could be outweighed
by a generous rebate on another, says
DeLorenzo. Matt Jones, senior con-
sumer advice editor at Edmunds, notes
that manufacturers as a whole aren’t
in the same rush to sell vehicles as in
past years, but consumers can still find
plenty of hefty rebates.
Banks and credit unions may offer
competitive rates as well—as low as
2.99% from banks and 2.74% from
credit unions for new cars, assuming
you have a good credit score and put
down at least 10%, says Bankrate—and
they may match the best rate your
dealer offers (but not 0%). You can
also negotiate with your dealer for
a lower rate by coming armed with
a preapproval, or evidence of lower
rates at banks or credit unions.
For a low or 0% rate, you will likely
need a credit score of at least 700. If
your credit is on the cusp, you might
be able to qualify for a low rate as a
loyal buyer of the brand or if you come
up with a larger down payment.
CREDIT CARDS
If you carry a balance on your credit
cards, the interest rate is likely to
bump up with each hike in the federal
funds rate. The “low end” of credit
card rates, or the percentage the most
creditworthy customers could snag,
recently averaged 17.14%, according to
CreditCards.com. That’s the highest
“low end” average the site has observed
since it started surveying credit card
rates in 2007. The “high end,” for card-
holders with less than stellar credit,
recently averaged 24.5%.
When you’re paying down debt,
credit card balances should usually be
your highest priority. One way to get
credit card debt under control is to
shift your balance onto a new credit
card that charges no interest on trans-
fers for a set period of time. For exam-
ple, Chase Slate and BankAmericard
offer a 0% rate on balance transfers
and new purchases for the first 15
months, as well as no transfer fee if
you move your money within 60 days
of opening the account (see “Stop Pay-
ing Pesky Fees,” on page 38). The U.S.
Bank Platinum card extends its 0%
balance-transfer deal to 20 months
but charges a 3% transfer fee. This
strategy works only if you have the
discipline to pay off the balance before
the interest-free term expires.
Now is a good time to apply for a
balance transfer because card issuers
are trimming the term for which the
0% rate applies. You can still find 0%
offers with no transfer fees for as long
as 15 months, says Ted Rossman, in-
dustry analyst at CreditCards.com.
But he predicts that after a few more
Fed rate hikes, the best no-interest,
no-fee balance-transfer offers will
shrink to 12 months.
If you don’t qualify for a balance-
transfer card or need more time to
pay off your debt, try negotiating with
your issuer for a lower rate. To bolster
your case, mention your loyalty as a
customer or competing offers that
have come your way.
Or you could pay off the card with
a personal loan from a bank, credit
union or online lender, such as Pros-
per. Personal loans can start at about
5% (the best rates go to the most cred-
itworthy customers, though 5% will
be harder to find as rates rise), and
rates are fixed for the life of the loan—
typically two to five years, according
to NerdWallet. When comparing
offers, watch out for origination fees,
late fees and prepayment penalties. ■
CONTACT THE AUTHORS AT MCROSS@KIPLINGER.COM AND
PESSWEIN@KIPLINGER.COM
01/2019 KIPLINGER’S PERSONAL FINANCE 33
MONEY
RETIREMENT
Social Security:
Now or Later?
Delaying benefits will increase the size of your checks, but it’s not
the best strategy for everyone. BY SANDRA BLOCK
MANY FINANCIAL PLANNERS,
as well as this magazine,
recommend waiting until
at least your full retirement
age—or, even better, until
you’re 70—to claim Social
Security. You’re eligible to
file for Social Security as
early as age 62, but if you do,
your benefits will be perma-
nently reduced by at least
25%. Waiting until full re-
tirement age—66 for most
baby boomers—means you’ll
receive 100% of the benefits
you’ve earned. And if you
continue to postpone filing
for benefits after you reach
full retirement age, your
payouts will grow by 8% a
year until you reach age 70.
That, combined with
cost-of-living adjustments
in most years, is a return
you’re unlikely to get any-
where else. Yet retirees seem
to be ignoring those num-
bers: Nearly 60% of retirees
claim benefits before age 66,
and about one-third of those
retirees claim benefits at 62.
Are they misguided or onto
something?
Figuring out when to file
for Social Security usually
comes down to a question
34 KIPLINGER’S PERSONAL FINANCE
that’s nearly impossible
to answer: How long will
you live? Retirees who wait
until full retirement age
or later will receive fewer
checks over their lifetime,
but the checks will be for
larger amounts. The longer
you live, the more delaying
pays off.
Do the Math
The age at which you come
out ahead by postponing
benefits is known as your
break-even age. For exam-
ple, a 62-year-old top wage
earner would come out
ahead by filing at 66 as long
as he lives past age 77. If
he delays filing for benefits
until age 70, he would need
to live past age 80 to break
even. That’s below the av-
erage life expectancy (84
for men and nearly 87 for
women), but if you don’t ex-
pect to live that long, there’s
no point in postponing your
benefits.
However, if your grand-
mother celebrated her 100th
birthday by playing a few
rounds of golf, and you’re fit
and healthy, you’re probably
better off waiting until at
01/2019
least full retirement age—
or, better yet, age 70—to file
your claim.
If you’re married—even
if your own health or your
family history suggests you
won’t reach your break-even
age—there’s another factor
to consider: survivor bene-
fits. For example, if you’re
the higher earner and you
die first, your spouse will be
able to take over your bene-
fits. Delaying benefits will
boost the monthly benefit
your spouse will receive
after you’re gone (see the
box on page 36).
Single retirees are usually
better off waiting until full
retirement age to file for
Social Security. But because
you don’t have to worry
about survivor benefits—
your benefits will end when
you do—you have a less-
compelling reason to wait
until age 70 to file. Your
decision will come down
to how badly you need the
income and how long you
think you’ll live.
It’s usually not a good
idea to claim benefits before
full retirement age if you’re
still working. In 2019, Social
ILLUSTRATION BY TRACI DABERKO
Security will temporarily
withhold $1 of your benefits
for every $2 you earn over
$17,640 if you haven’t
reached full retirement age.
If you’ll reach the magic
number in 2019, it will with-
hold $1 for every $3 over
$46,920 in earnings in the
months before you hit full
retirement age. After that,
you don’t have to worry
about the earnings test.
Invest Your Benefits?
Before 2010, retirees who
filed for benefits at age 62
and later changed their
mind could withdraw their
application for benefits, re-
pay the total amount they
had received and reapply for
a higher benefit based on
their age. Now, if you want
to withdraw your applica-
tion for Social Security and
repay benefits, you must do
it within 12 months after
signing up, and you can only
do it once. You still have the
option of suspending bene-
fits at full retirement age,
which will allow you to ac-
crue the 8% delayed retire-
ment credit until age 70.
Even with the payback
option eliminated, some
retirees remain convinced
that they can come out
ahead by filing at 62 and in-
vesting their benefits. That
way, they argue, they won’t
leave money on the table if
they die before their break-
even age. This strategy also
appeals to retirees who fear
that a shortfall in the Social
Security trust fund will
force the government to
cut future benefits.
But in order to beat the
guaranteed return you
would get by delaying ben-
efits (plus cost-of-living
increases), you’d need to
invest most of your benefits
in stocks, financial planners
say. That could work out in
your favor—but if the market
turns bearish, you won’t
have years to recover your
losses, says Gifford Lehman,
a certified financial planner
in Monterey, Calif.
Even in the best of times,
this game plan requires you
to resist the temptation to
spend your monthly Social
Security check, says Jim
Blankenship, a CFP in New
Berlin, Ill. “The reality is
that many, if not most, folks
don’t have the discipline
to invest the money, and
before you know it the pro-
jected windfall from filing
early has been eaten up by
lifestyle creep,” he says.
What about worries that
Social Security won’t be
around if you wait? Barring
congressional action, the
trust fund is slated to run
out of money in 2034. It’s
unlikely, though, that Con-
gress will do nothing over
the next 15 years to fix So-
cial Security (see “Ahead,”
Aug.). And at that point,
payroll taxes would still
fund 79% of promised bene-
fits. Any actions Congress
takes to shore up the trust
fund probably won’t affect
current retirees.
How to Bridge the Gap
Some retirees file for Social
Security before full retire-
ment age because they’re
reluctant to tap their retire-
ment plans. Filing for Social
Security benefits early may
allow you to postpone tak-
ing money out of savings,
but that strategy may cost
you more in the long run.
Here’s why: Once you
01/2019 KIPLINGER’S PERSONAL FINANCE 35
MONEY
turn 70½, you must with-
Maximizing Benefits draw required minimum
distributions from all of
If You Are (Or Were) Married your tax-deferred retire-
ment plans, based on your
For married couples, claiming benefits “is a household decision, life expectancy and the bal-
not an individual decision,” says Paula McMillan, a certified finan- ance in those plans at year-
cial planner in Greensboro, N.C. Under a couple of scenarios, it end. Leaving those accounts
makes sense for one spouse (or widowed spouse) to claim bene- untouched until you turn
fits before full retirement age. 70½ will increase the size
of mandatory withdrawals,
You’re the lower-earning spouse. If you were born on or before along with your tax bill.
January 1, 1954, you can still take advantage of a strategy known Depending on your other in-
as restricting an application to increase the combined payout of come, you could find your-
your benefits as a couple. Here’s an example of how it works: One self vaulted into a higher tax
spouse files for Social Security benefits before full retirement bracket. Large RMDs could
age, while the other—who must have already reached full retire- also trigger taxes on up to
ment age—files a restricted application to collect spousal bene- 85% of your Social Security
fits only, which are equal to half of the first spouse’s full benefits. benefits, plus a surcharge
The second spouse waits until 70 to collect his or her own benefit, on your Medicare Part B
thus taking advantage of delayed retirement credits. and Part D premiums.
Even if you’re ineligible for that strategy, it may make sense for By taking withdrawals
the lower-earning spouse to file as early as age 62, says Jim Blan- from your retirement plans
kenship, a CFP in New Berlin, Ill. While that spouse will see a 25% before you hit your seven-
reduction in benefits, the couple can use income from the lower- ties, you can reduce the size
earning spouse’s benefits, along with other sources of income, to of those accounts, which
pay expenses, enabling them to delay the higher earner’s bene- will result in smaller tax-
fits until age 70. able RMDs, says Cindi Hill,
a certified financial planner
You’re eligible for survivor benefits. You can file for Social with CUNA Mutual Group.
Security based on your late spouse’s earnings as early as age 60 You can take money from
(50 if you’re totally disabled). Your benefits will be based on your your tax-deferred accounts
deceased spouse’s benefits when he or she died. If your spouse with a fairly high degree of
died before filing, your payout will be based on the amount your confidence that your sav-
spouse would have earned at full retirement age. ings will last 30 years or
To receive 100% of your late spouse’s benefit, you must wait more—through bear mar-
until your own full retirement age to file; otherwise, it will be re- kets and bouts of inflation—
duced by a certain amount for every month you file your claim if you follow the “4% rule”
before your full retirement age. But whether you wait until full as a starting point. In your
retirement age or file earlier, claiming survivor benefits won’t af- first year of retirement,
fect your own payout. Claiming survivor benefits—even if they’re you withdraw 4% from sav-
smaller than your own—allows your own benefits to continue to ings, and you increase the
grow. At age 70, you can switch to your own benefits, which will dollar amount of your sub-
have been enhanced by the delayed retirement credit. sequent annual withdraw-
Survivor benefits are also available to divorced spouses whose als by the previous year’s
former spouses have passed away, although many don’t realize inflation rate (see “Make
they’re eligible, says Jayson Owens, a CFP in Anchorage, Alaska. Your Money Last,” Oct.).
If you were married for at least 10 years, you can claim benefits You may decide to dial back
as early as age 60 based on your late ex’s earnings record. As is withdrawals once you start
the case with surviving spouses, this strategy offers a way to taking Social Security bene-
postpone claiming your own benefits until age 70, Owens says. fits, but the rule is a good
Remarriage won’t affect your eligibility for survivor benefits as starting point.
long as you’re at least 60 years old (50 if you’re totally disabled). While this strategy is
designed to ensure that you
36 KIPLINGER’S PERSONAL FINANCE 01/2019
won’t outlive your money,
it’s not bulletproof. During
the 2008 economic down-
turn, some retirees were
forced to withdraw money
from depressed portfolios,
inflicting permanent dam-
age to their savings. In that
scenario, filing for Social
Security benefits before age
70 could enable you to post-
pone withdrawals until
your investments have re-
covered. Cary Cates, a CFP
in Denton, Texas, says he
often advises clients to plan
on filing for benefits at age
70 but to be prepared to file
earlier if their investment
portfolio suffers a signifi-
cant decline. “This reduces
the need to sell securities
when the value is de-
pressed,” he says.
Another way to protect
yourself from market down-
turns is to use an immediate
annuity to cover your ex-
penses until you file for
benefits. Suppose you’re 65
but want to wait until you’re
70 to claim benefits—and
that claiming now would
provide $2,093 a month
in benefits. For about
$120,650, you could buy
an annuity that provides
the same amount each
month for five years, at
which point you would file
for Social Security.
Thanks to estimated cost-
of-living adjustments and
the 8% delayed retirement
credit, your benefits would
be worth more than $3,600
a month. If you live until
at least age 83, you’ll come
out ahead. You can shop
for an immediate annuity
and compare rates at www
.immediateannuities.com. ■
YOU CAN CONTACT THE AUTHOR AT
SBLOCK@KIPLINGER.COM.
 ASK KIM Kimberly Lankford

How to Save on Prescription Drugs

I HAVE A HIGH-DEDUCTIBLE HEALTH $150,600 for a family of four), says amount and provide scholarships for
insurance plan and tend to rack up hefty Shanna Barnes, of the Lash Group, a few years.
prescription drug costs each year. Are which administers drug companies’ If you’re setting up a scholarship at
there any good tools or resources to help patient assistance programs. Find out a college, ask the development depart-
me save on prescriptions? about disease-specific programs at ment how much of the criteria you can
R.C., NASHVILLE www.panfoundation.org. specify (such as reserving awards for
engineering students).
Many employers and insurers are Endowing a scholarship. My family would
beefing up their online tools to provide like to establish an engineering scholarship in Taxes on rental income. I’m thinking about
personalized advice that can help you memory of my uncle. How do we set one up? renting out my house for a few weeks while
pay less for prescription drugs. You can E.S., GREEN BAY, WIS. I’m away on vacation this summer. What do I
look up the drug on your smartphone need to know about taxes?
before you leave the doctor’s office You can set up a scholarship directly B.G., NEW ORLEANS
and find out how much it will cost you with a college or support local students
(whether or not you’ve met your de- through a community foundation (see If you rent out your house for 14 or
ductible). You can also see whether www.cof.org/community-foundation- fewer days per year but you live there
you can save money with generics or locator to find one in your area). You the rest of the time, the rental income
therapeutic alternatives, and whether generally need to contribute at least is tax-free (but you can’t deduct rental
you can get your meds at preferred $25,000 to $50,000 to set up an en- expenses). If you rent out your house
pharmacies with lower prices. dowed scholarship, which will pro- for more than 14 days per year, you
You can also get manufacturers’ vide an award every year in the future. must report your rental income when
coupons for thousands of drugs at For example, you need to contribute you file your tax return. You can also
GoodRx’s website or via its smart- at least $25,000 to endow a scholar- deduct rental expenses, generally
phone app, which also alerts you ship at the University of Wisconsin– based on the portion of the year that
to lower-cost alternatives, patient Madison, which would pay out about you rented your home. For details, see
assistance programs and nearby phar- $1,125 per year. Or you may be able IRS Publication 527 at www.irs.gov.
macies offering the lowest cash price. to give a smaller
“You can save hun- College in Europe. My daughter may go to
dreds of dollars by college in Europe next year. Can we use her
doing some research,” 529 college-savings money tax-free outside
says Thomas Goetz,
EMPLOYERS AND of the U.S.?
chief of research at INSURERS ARE OFFERING S.S., LUBBOCK, TEXAS
GoodRx. (Plus, your MORE ONLINE TOOLS
pharmacist can now AND SMARTPHONE APPS Yes. You can use 529 money tax-
provide information free at any college that is elig-
about whether a drug THAT STEER YOU TO THE ible for federal financial aid,
would cost less by pay- LOWEST DRUG PRICES. which includes more than
ing cash than using 400 foreign institutions, says
your insurance.) Mark Kantrowitz, of Saving
You can find out about drug manu- forcollege.com. To look up
facturers’ co-pay assistance programs eligible schools, go to www
POON WATCHARA-AMPHAIWAN

and private foundations’ patient assis- .savingforcollege.com/

tance programs at NeedyMeds.org. eligible_institutions. ■
Some have income cut-offs but may
offer help for families that earn up
GOT A QUESTION? ASK KIM AT ASKKIM@
to 600% of the federal poverty level KIPLINGER.COM. KIMBERLY LANKFORD
ANSWERS MORE QUESTIONS EACH WEEK
(about $100,000 for a couple or AT KIPLINGER.COM/ASKKIM.

01/2019 KIPLINGER’S PERSONAL FINANCE 37

MONEY

NICKELS AND DIMES

STOP PAYING
PESKY FEES
You can save hundreds of dollars a year if you beat back these
irksome charges. BY LISA GERSTNER and KIM LANKFORD

FEES AREN’T JUST ANNOYING—THEY’RE LATE-PAYMENT FEES. You may be

expensive. A few monthly surcharges
can add up to hundreds of dollars a
year. That’s money you could use to
save for retirement, give to charity,
or enjoy a really nice dinner or two.
The good news is that most of these
fees are avoidable, especially if you’re
willing to make a couple of phone calls
and threaten to take your business
elsewhere.
CREDIT CARDS
ANNUAL FEES. The simplest way to
bypass annual fees—which often run
between $50 and $100 but can go
much higher—is to choose cards that
don’t charge them. Plenty of great re-
wards cards, which offer cash back,
miles or points on your purchases,
come with no annual fee; CITI DOUBLE
CASH MASTERCARD and PENFED PATHFINDER
REWARDS AMERICAN EXPRESS are among
our favorites. Cards that carry annual
fees typically offer heightened re-
wards, and the fee may be worth pay-
ing if you gain enough in rewards and
benefits to make up for it. But if you’re
not getting enough bang for your buck,
the issuer may cut you a break. A re-
cent CreditCards.com survey showed
that 70% of those who asked had the
annual fee lowered or waived. Some
cards waive the annual fee the first
year, so you can try out the card free.
charged up to $27 the first time you
make a late payment and up to $38 for
another overdue bill within the next
six billing cycles. Plus, the issuer may
increase your annual percentage rate.
Consider signing up for automatic pay-
ments to ensure you pay the bill on
time. If you slip up and pay late, it’s
well worth asking the issuer to waive
the fee. CreditCards.com says more
than 80% of those who made the re-
quest had the fee waived. DISCOVER
charges no late-payment fee for the
first offense and never increases your
APR for late payments. The CITI SIMPLIC-
ITY MASTERCARD and PENFED PROMISE VISA
impose no late fee or penalty APR.
FOREIGN-TRANSACTION FEES. The num-
ber of major credit cards that charge
currency-conversion fees when you
use them abroad has been shrinking
over the past few years. Still, many
cards impose a fee of about 3% of the
transaction. Some issuers, including
CAPITAL ONE and DISCOVER, charge no
foreign-transaction fees on any of
their cards. Other issuers skip the fee
on certain cards—often travel cards
with annual fees.
BALANCE-TRANSFER FEES. If you move
your balance from one card to another,
the new card typically charges a fee—
an average 3.46%, according to a
CompareCards.com study—and such
fees have been creeping up lately, says
Matt Schulz, chief industry analyst
for CompareCards. Look for cards that
charge no balance-transfer fee and of-
fer an introductory 0% APR (see “New
Strategies for Smart Borrowing,” on
page 26). For example, the AMEX EVERY-
DAY card levies no fee if you request
the transfer within 60 days of opening
an account, and it charges no interest
for the first 15 months (after that it
ranges from 14.99% to 25.99%). Plus,
you’ll get two points per dollar spent
at supermarkets and one point on ev-
erything else, as well as a 20% bonus
on points earned if you use the card
at least 20 times per billing period.
Points are redeemable for gift cards,
travel bookings and statement credits,
among other options.

38 KIPLINGER’S PERSONAL FINANCE 01/2019


BANK ACCOUNTS
MONTHLY SERVICE FEES. Checking
accounts that pay interest charge
an average of $14.35 a month, and
non-interest-bearing accounts charge
$5.57, according to Bankrate.com.
Luckily, these fees are among the
easiest to avoid. Most accounts waive
the fee if you arrange for a direct de-
posit or maintain a minimum balance.
Among accounts at big national banks,
TD BANK’S CONVENIENCE CHECKING re-
quires a minimum daily balance of
only $100 to waive the $15 monthly
fee. Or find a free account with no
strings attached; internet banks and
credit unions are often your best bets.
ATM SURCHARGES. If you withdraw
cash from an ATM outside your bank’s
ILLUSTRATION BY PABLO BERNASCONI
network, both your bank and the
ATM’s operator may hit you with
fees—charging a combined average
of $4.68, according to Bankrate.
Choose a bank with a strong ATM net-
work where you live and commonly
travel. Or pick an account that charges
no out-of-network ATM fees and reim-
burses you for the fees ATM owners
charge. Premium checking accounts
from larger banks often provide such
refunds (you’ll typically have to keep
a large balance to avoid a monthly fee),
and free accounts from some other in-
stitutions—especially internet banks—
do, too. The free ALLY BANK INTEREST
CHECKING ACCOUNT reimburses $10
monthly in out-of-network ATM fees.
OVERDRAFT FEES. Overdrawing your
checking account could result in a fee
as high as $35 to $40 if you opt to let
the bank cover the overdraft for you.
Instead, link your checking account
to a backup savings account from
which the bank can automatically
transfer funds; you may pay a fee, but
it’ll likely be about $5 to $15 instead.
Among big banks, CHASE and U.S. BANK
charge no fees for overdraft transfers
from a savings account with the bank.
Alternatively, you can turn down all
forms of overdraft protection, and
your debit card will be rejected if you
have insufficient funds to cover the
charge (but you could still incur fees
for electronic transfers or checks that
overdraw your account).
TRANSFER FEES. Some banks charge
$3 or so for a standard ACH transfer
to an account with another institution,
which may take a few days to clear.
For a wire transfer—which often goes
through on the same day—your bank
may charge about $25 to $35 to send
money domestically and as much as
$45 or more to wire money interna-
tionally. (Many banks levy fees for in-
coming wires, too—typically less than
$20.) To quickly send money to an-
other person in the U.S., check out a
peer-to-peer payment service, such
as ZELLE . It offers instant transfers di-
rectly to other bank accounts (at least
one member of the transaction must
have an account with a participating
bank), and most banks don’t charge
fees for the service. TRANSFERWISE
(https://transferwise.com/us) is an
inexpensive choice for international
transactions of a couple of thousand
dollars or less, but the transfer may
take a few days. Recently, sending
$500 to someone in Great Britain
incurred a fee of about $5.
PREPAID DEBIT CARD FEES. Some pre-
paid cards stick customers with a mul-
titude of fees, such as monthly fees of
up to about $10, reload fees of about
$5, and $2.50 or so each time you
withdraw cash at a U.S. ATM. Use a
card with minimal fees, such as BLUE-
BIRD BY AMERICAN EXPRESS AND WALMART.
01/2019 KIPLINGER’S PERSONAL FINANCE 39
MONEY
It charges no monthly fee, most meth-
ods of reloading are free, and you can
avoid an ATM surcharge by visiting
machines in the MoneyPass network.
WIRELESS, CABLE & INTERNET PLANS
ACTIVATION AND UPGRADE FEES. When
you start a new line of service with
a wireless phone carrier or upgrade
your phone, you may pay an activation
or upgrade fee, ranging from about
$25 up to $45. Ask the carrier to waive
the fee. Or watch for promotions—
carriers sometimes drop the activation
fee for a limited time, says Tina Chang
of WhistleOut.com, a phone-plan com-
parison website. Sprint, for example,
recently offered a promotion for a year
of free unlimited data, talking and
texting and waived activation fees for
those who switched to the carrier and
brought their own eligible, unlocked
phone to the plan. With some compa-
nies, you may avoid the upgrade fee by
purchasing an unlocked phone from
outside the carrier (say, from the man-
ufacturer or on Amazon.com or eBay).
Verizon Wireless charges no upgrade
fee if you buy an unlocked phone and
put your previous phone’s SIM card
in it yourself (see “Choose a Cheaper
Wireless Plan,” on page 64).
EARLY-TERMINATION FEES. Contracts
with wireless phone carriers have
gone the way of the dodo, but cable
and satellite TV companies still offer
them. If you break a contract, you’ll
likely face an early-termination fee,
which may run about $15 to $20 for
each month left on your contract. If
you’re moving to an area where the
provider doesn’t offer service, it may
not charge the fee. Or if you’re switch-
ing to a competing company, see
whether it will reimburse you. SPEC-
TRUM and VERIZON FIOS will cover up to
$500 of the previous provider’s early-
termination fee for new customers
who sign up for eligible plans.
INSTALLATION AND SERVICE FEES. Cable
companies may tack on fees of $50 to
40 KIPLINGER’S PERSONAL FINANCE 01/2019
$100 or even more to have a tech set
up your home for cable, internet or
landline service or to fix a problem
with your existing service. If your home
is already wired and installation is
limited to connecting basic equipment,
see whether you can do it yourself;
some providers offer self-installation
kits free or for a reduced fee. Or ask
the provider to waive the installation
fee—you’ll have more leverage if you
make the request before you start ser-
vice than if you wait until the fee hits
your bill, says Peter Zimbicki, head of
operations for BillFixers, a service that
negotiates lower bills for consumers.
It’s worth asking the company to re-
move service-call fees, too, especially
if the problem is the provider’s fault.
EQUIPMENT-RENTAL FEES. Renting a
modem from your internet provider
may cost you about $10 to $15 a month.
Instead, buy your own—you may pay
$100 to $200, but you should recoup
the cost within a year or two.
IRAS
ACCOUNT MAINTENANCE FEES. You may
encounter this fee—often $20 or more
per year—when you open a new IRA
or have an IRA balance below $10,000,
says Greg McBride, chief financial an-
alyst at Bankrate.com. But there are
plenty of brokerage firms and mutual
fund companies that do not charge a
fee, and others will waive it if you sign
up for e-mail delivery of account state-
ments, maintain a certain minimum
balance or make a specified number
of trades per year. Fidelity, Charles
Schwab and TD Ameritrade don’t
charge a maintenance fee for their
IRAs. Vanguard charges a $20 annual
fee for accounts with less than $10,000
but waives the fee if you sign up for
e-delivery service for statements, no-
tices and confirmations.
CAR INSURANCE
MONTHLY INSTALLMENT FEES. Insurers
usually give you the option of paying
your bill monthly or in full, but the
installment payments come with an
extra fee. You can usually cut your
premiums by 5% to 10% if you pay
your bill for the full auto insurance
term (usually six months) in a lump
sum, says Bailey Peterson, research
analyst at ValuePenguin, a consumer
research website.
RENTAL CARS
RENTAL CAR LIABILITY INSURANCE.
If you have your own auto insurance
when you rent a car, you may not
need to sign up for supplemental lia-
bility insurance, which can cost $7
to $15 per day for liability coverage
up to $1 million, according to Value-
Penguin. Your car insurance will
cover you up to the liability limits
of your policy if you rent a car in the
U.S. or Canada (but usually not in
other countries).
COLLISION DAMAGE WAIVER. If you
have comprehensive and collision
coverage on your own insurance pol-
icy, it may be redundant to get the col-
lision damage waiver coverage, which
covers physical damage to the rental
car and tends to cost $10 to $20 per
day. However, that extra coverage
may be worthwhile if you have high
deductibles or have dropped collision
and comprehensive coverage on your
own car insurance policy. Plus, you
may be charged an administrative
or loss-of-use fee if you wreck a car
after declining the CDW.
You may also have CDW coverage
from your credit card company,
which will pay your car insurance
deductible if you reserve and pay
for the rental car with that credit
card and decline CDW coverage
from the rental-car company. Find
out about any exclusions; credit cards
usually don’t provide liability cover-
age, and some don’t cover pickup
trucks, truck-based SUVs or certain
sports cars. 
SEND QUESTIONS OR COMMENTS TO FEEDBACK@KIPLINGER.COM.
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MONEY TOP-YIELDING SAVINGS
30-day
Taxable Money Market yield as Minimum Website
Mutual Funds of Nov. 13 investment (www.)
Invesco Premier Port Inv (IMRXX)* 2.25% $1,000 invesco.com
CREDIT
Vanguard Prime MMF Inv (VMMXX) 2.24 3,000 vanguard.com

Lock Your Card If Gabelli US Treas MMF AAA (GABXX) 2.11

Vanguard Federal MMF (VMFXX) 2.11
10,000
3,000
gabelli.com
vanguard.com

It Goes Missing
30-day Tax eq. yield
Tax-Free Money Market yield as 24%/35% Minimum Website
Mutual Funds of Nov. 12 bracket investment (www.)
Vanguard Muni Inv (VMSXX) 1.53% 2.01%/2.35% $3,000 vanguard.com
M. Stanley T-F Daily Inc (DSTXX)* 1.44 1.89/2.22 5,000 morganstanley.com
BNY Mellon Ntl Muni (MOMXX) 1.37 1.80/2.11 10,000 bnymellon.com
Fidelity Municipal (FTEXX) 1.32 1.74/2.03 5,000 fidelity.com
CANCELING AND REPLACING locks, though American
a lost debit or credit card Express lifts a lock after Annual
Savings and Money Market yield as Minimum Website
can be a hassle. After the seven days. Deposit Accounts of Nov. 14 amount (www.)
new card arrives in the You should lock your MySavingsDirect (N.Y.)† 2.35% none mysavingsdirect.com
mail, you need to update card as soon as you notice Northpointe Bank (Mich.)# 2.30 $25,000 northpointe.com
every retailer, streaming it’s gone or find an unfamil- Vio Bank (Fla.)† 2.27 100 viobank.com
service or utility provider iar charge, then investigate
Popular Direct (Fla.)† 2.26 5,000 populardirect.com
that relies on your card further before contacting
number for payments. Now, your bank, says David Certificates of Deposit
Annual
yield as Minimum Website
many banks and credit card Keenan, senior vice presi- 1-Year of Nov. 14 amount (www.)
issuers are adding the op- dent in card products at Greenwood Credit Union (R.I.)‡ 3.00% $1,000 greenwoodcu.org
tion of temporarily “lock- Fiserv, a financial technol- Connexus Credit Union (Wis.)‡ 2.80 2,500 connexuscu.org
ing” your card instead, in ogy company that has a Live Oak Bank (N.C.)† 2.80 1,000 liveoakbank.com
case you want to buy some locking and alert app called Popular Direct (Fla.)† 2.77 10,000 populardirect.com
time to search for your card. CardValet (available at
Fiserv partner banks). If you Annual
Certificates of Deposit yield as Minimum Website
can’t find your card, notify 5-Year of Nov. 14 amount (www.)
RATE UPDATES your issuer. Most issuers Connexus Credit Union (Wis.)‡ 4.00% $5,000 connexuscu.org
For the latest savings yields will send you a new card Greenwood Credit Union (R.I.)‡ 3.75 1,000 greenwoodcu.org
and loan rates, visit kiplinger free, but they may charge United States Senate FCU (D.C.)‡ 3.57 1,000 ussfcu.org
.com/links/rates. For our top a fee for rush deliveries. Popular Direct (Fla.)†& 3.50 10,000 populardirect.com
rewards cards, go to kiplinger If you’re waiting for a *Fund is waiving all or a portion of its expenses. †Internet only. #Money market deposit
.com/links/rewards.
new debit card to arrive account. ‡Must be a member; to become a member, see website. &Georgia Banking Co. offers
a similar yield. SOURCES: Bankrate, DepositAccounts, Money Fund Report (iMoneyNet).
and need to withdraw cash,
A lock can be an on/off a bank branch may provide
switch in the bank’s app or you with a temporary debit TOP CHECKING ACCOUNTS
Must meet activity requirements* Annual
on its website, or it can be a card on the spot. Some issu-
yield as Balance Website
more sophisticated feature ers also help you update High-Yield Checking of Nov. 14 range† (www.)
that allows you to specify, merchants with your new Consumers Credit Union (Ill.)# 5.09% $0–$10,000 myconsumers.org
say, the locations or the types card number. American La Capital FCU (La.)# 4.25 0–3,000 lacapfcu.org
of transactions that are ap- Express will allow most Premier Members CU (Colo.)# 4.00 0–2,000 pmcu.org
proved for your card. A lock recurring payments to go One American Bank (S.D.) 3.50 0–10,000 oneamericanbank.com
will typically prevent new through seamlessly. Bank *To earn the maximum rate, you must meet requirements such as using your debit card several
purchases, ATM activity, of America may provide times monthly and receiving electronic statements. †Portion of the balance higher than the
listed range earns a lower rate or no interest. #Must be a member; to become a member, see
cash advances and balance your new card number to website. SOURCES: Bankrate, DepositAccounts.
transfers, but it will allow merchants with whom you
automatic or recurring have recurring payments, Month- Year- As of November 14, 2018.
payments, returns, credits and Wells Fargo’s Control YIELD BENCHMARKS Yield ago ago ● EE savings bonds purchased
after May 1, 2005, have a
and dispute adjustments. Tower tool will show you U.S. Series EE savings bonds 0.10% 0.10% 0.10% fi xed rate of interest.
For extra security, you can a list of merchants with U.S. Series I savings bonds 2.83 2.52 2.58 ● Bonds bought between
May 1, 1995, and May 1, 2005,
also turn a card “off” that whom you’ve had recurring Six-month Treasury bills 2.52 2.44 1.40
earn a market-based rate
you are leaving behind transactions within the past Five-year Treasury notes 2.95 3.00 2.06 from date of purchase.

while on vacation. Most 12 months. MIRIAM CROSS Ten-year Treasury notes 3.12 3.15 2.38 ● Bonds purchased before
May 1, 1995, earn a minimum
issuers allow indefinite mcross@kiplinger.com SOURCE FOR TREASURIES: U.S. Treasury of 4% or a market-based rate
from date of purchase.

42 KIPLINGER’S PERSONAL FINANCE 01/2019

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INVESTING COVER STORY

WHERE TO
INVEST IN 2019
Making money in stocks won’t be a walk in the park. You’ll need
some protective armor to shine in a market facing a thicket of risks.

BY ANNE KATES SMITH

AT THIS STAGE IN THE STOCK MARKET’S LONG, HISTORIC RUN, investors might want to start
thinking of the market a little differently—as a bear in a bull-market suit, for instance. That’s not
to say that the bull market is over, just that the bear might be closer than it appears, and that it’s
time to prepare accordingly. That means you’ll need to suit up in 2019, too, donning some defensive
armor to survive and thrive in a market facing increasing risks. // For now, the financial backdrop
still supports stocks. The economy will keep growing, albeit at a slower pace; corporate earnings

44 KIPLINGER’S PERSONAL FINANCE 01/2019

ILLUSTRATION BY BENEDETTO CRISTOFANI 01/2019 KIPLINGER’S PERSONAL FINANCE 45
2019 INVESTING OUTLOOK
will increase as well, if not as briskly as
before. The cloud of uncertainty that
hung over the midterm elections has
lifted. “The overarching message is
that the economic and investing envi-
ronment is healthy, but it’s becoming less
favorable,” says David Joy, chief market
strategist at Ameriprise. CFRA chief
investment strategist Sam Stovall says,
“I’m a bull, but a bull with a small b.”
That describes our outlook to a t. We
see moderate gains for stock investors
in 2019, with more volatility and no
guarantee that the market will finish
in December at the high point for the
year. In other words, gains in the mar-
ket may not be linear or monolithic—
you’ll have to choose carefully and
rebalance your holdings religiously as
different market sectors and investing
styles seesaw throughout the year.
We think Standard & Poor’s
500-stock index could reach a level
somewhere between 2950 and 3000
in 2019, which would deliver a total re-
turn, including dividends, of roughly
8% or 9%. A similar price gain would
put the Dow Jones industrial average
in the neighborhood of 27,800. Indexes
could spike higher in a volatile market,
especially earlier in the year. But for
reasons we explain below, we think in-
vestors should rein in any speculative
tendencies and approach the market in
a disciplined way. (Prices and returns
in this story are through November 9,
when the S&P 500 closed at 2781.)
Such a guarded view seems discor-
History Lesson
WATCH OUT FOR FALLING STOCKS
Since World War II, three bear markets were mega-meltdowns, losing 51% and requiring
58 months to recover, on average. Nine lost 26% and recovered in 14 months, on average.
Type of decline Range of decline
Pullbacks 5.0% to 9.9%
Corrections 10.0% to 19.9%
Bear markets 20% or more
SOURCES: CFRA, S&P Global.
46 KIPLINGER’S PERSONAL FINANCE 01/2019
dant with a robust financial backdrop.
The economy grew at a 3.5% annual
rate in the third quarter, according to
the government’s most recent report.
Corporate earnings are on track for
a gain of 20%-plus for 2018. At 3.7%,
unemployment currently is the lowest
it has been since Diana Ross and the
Supremes topped the pop music charts,
and worker raises have topped 3% for
the first time in a decade.
GOOD, BUT NOT BETTER
It would be a big mistake for investors
to extrapolate the blockbuster eco-
nomic picture we’re seeing now into
future stock gains, says Liz Ann
Sonders, chief investment strategist
at Charles Schwab. “The data’s always
great at market tops. When it comes to
the relationship between the economy
and the market, better or worse mat-
ters more than good or bad,” she says.
The market can claim some “decid-
edly bullish attributes,” says John
Linehan, chief investment officer for
stocks at T. Rowe Price. “You have
strong consumer and business confi-
dence, tax cuts and a lot of fiscal stim-
ulus filtering through the economy,
and continued deregulation,” he says.
Balanced against that are “more un-
knowns than we’ve seen in a while.”
And there’s no getting around the
fact that key market drivers are slow-
ing. Topping 2018 growth rates for the
economy and for corporate revenues
and earnings would be “next to impos-
Peak-to-trough declines
Percent Months to
Count change Months recovery
56 –7% 1 2
22 –14 5 4
12 –33 14 25
sible” in 2019, says strategist Ed Yard-
eni, of Yardeni Research, because of
the boost in 2018 from tax cuts and
a jump in government spending.
A survey by Blue Chip Economic
Indicators shows that economists ex-
pect U.S. economic growth to slow from
an annual rate of 3.1% in the fourth
quarter of 2018 to 2.3% for the fourth
quarter of 2019. Kiplinger expects an
overall growth rate in 2019 of 2.7%,
down from 2.9% in 2018. Meanwhile,
profit growth for companies in the
S&P 500 is expected to slow from a
meteoric 24% to 8.8%, according to
analyst estimates from earnings
tracker Refinitiv.
Even those estimates might be too
optimistic, given the building pressure
on corporate profit margins. Expecta-
tions for plumper margins in 2019 are
“lofty,” says Michael Wilson, chief
U.S. stock strategist at Morgan Stanley
Wealth Management. He believes
there’s a good chance that margins
will shrink instead of increase as firms
face higher costs for labor, debt service
and materials, as well as tariffs.
If margins come in below expecta-
tions, so will profits. Chris Hyzy, chief
investment officer of Merrill Lynch
and U.S. Trust, says earnings growth
of 6% to 7% is more realistic for 2019.
That would put earnings per share
for the S&P 500 in the low $170s, com-
pared with estimates of $177 per share
now. When earnings growth peaks, it’s
typically bad news for investors, says
CFRA’s Stovall. A majority of peaks are
accompanied by a bear market (typi-
cally defined as a downturn of at least
20%) or a correction (defined as a drop
of more than 10% but less than 20%).
DENTS IN THE ARMOR
At the top of the list of market risks are
trade tensions and rising interest rates,
both of which will put the economy
and corporate profitability to the test.
“The risk of recession is a little higher
and less distant than what the consen-
sus is jelling around, and the runway
between now and the next recession
could get shorter if the trade battle
 Q&A ALICIA LEVINE
It’s Time to Play Defense
ALICIA LEVINE is chief strategist at BNY Mellon Investment Management.
KIPLINGER’S: What’s your outlook for U.S. stocks?
LEVINE: That’s a simple question but a complicated answer. If the mar-
ket can hold the lows of 2018, at about 2550–2600 on Standard & Poor’s
500-stock index, then I see the market moving higher. But if we breach
that level, then I see a further 10% downturn; that would be a 20% de-
cline from the highs. It’s been a bull market for 10 years, and the market
has pretty much gone straight up. When a market has increased to this
extent for this period of time, the shakeout can be unpleasant.
And if the market muddles through? If the level does hold,
then I see another 15% gain over the first part of the year. We
could see 3100 on the S&P 500 sometime in 2019. If you’re a
trader, we feel comfortable buying here. But for investors,
the risks are stacked on the downside. If you put fresh capi-
tal in, you’re putting it in a 10-year-old bull market with
rising interest rates and slower economic and earnings
growth rates. The message you’re getting from the mar-
ket is that you’re closer to the end than the beginning.
The bull market could limp along another eight to 12
months. But nothing goes up forever. It’s time to think
about protecting your capital and getting more defensive.
What should investors watch out for? We could shoot
ourselves in the foot with trade, or the Federal Reserve
Board could over-tighten. There are concerns that the
projected growth rates in corporate earnings are not
feasible. Most analyst estimates are too optimis-
tic—2018 was the opposite, with several quarters
of earnings that analysts underestimated. But in
2019, we’ll go back to the old normal of overly
optimistic earnings expectations. Over the
year, I expect those to come down. We just
heard in corporate earnings conference calls
that companies are facing higher raw
materials costs, higher labor costs and
tariffs—this is where the trade war
comes in. If companies don’t pass
those costs on, they will have to
eat them, and profit margins that
are now expected to rise will have
to come down.
How can investors position them-
selves more defensively? Make sure you
PHOTO BY ALBERTO OVIEDO
have an allocation to fixed-income investments. I think fixed income
could be at least 40% of a portfolio. Because rates are rising, investors
should consider short-term bonds, which are less sensitive to interest
rate moves. And by the way, with the Federal Reserve Board raising
rates, cash is now an asset class that investors should allocate to. It’s
really important to have dry powder, especially if it’s going to pay you
something. If there’s a big decline, you can take advantage of it. Risk-
tolerant investors can keep up regular contributions to stocks and use
sell-offs as opportunities to lower their average cost.
Which stocks do you favor? We’d be very cautious
on growth-oriented stocks. We prefer value-priced
stocks; there’s a nice entry point for value stocks
now. I’m interested in health care stocks, but not
pharmaceutical firms or biotech—they’re under
threat of regulation. Financials, particularly
money-center banks, have gotten really
beaten up and are good values now. We like
some tech companies, but not the FAANG
stocks. In general, focus on solid companies
with good cash flow and not a lot of debt.
Make sure companies can pay their divi-
dend and service their debt.
How will politics affect the market?
The first two years of the Trump presi-
dency were about deregulation. The next
two could be about further regulation.
We could see it in biotech, pharmaceuti-
cal stocks and large-company tech.
That’s a negative for stock perfor-
mance, and you’re going to wind up
with a lid on the price-earnings ratios
for those stocks. There’s an argument
that drug stocks are cheap enough now,
but you shouldn’t be surprised when
both Democrats and Republicans have
an interest in regulating prices. With Dem-
ocrats in control of the House, the Afford-
able Care Act is safe; that means hospital
companies in general and managed-care pro-
viders focused on Medicaid services should do
well. Trump will be interested in an infrastruc-
ture spending bill, and so will Democrats—I can
definitely see this happening. Construction com-
panies should do well.
01/2019 KIPLINGER’S PERSONAL FINANCE 47
 HIGH CHOLESTEROL MOBILE PAYMENT
Americans with high cholesterol Projected revenue of global mobile
payment market 2015–2019

102
MILLION
+ 140%
Which drug will Which countries are
help the body lower leading the change?
it naturally?

Source: Centers for Disease Control Source: TrendForce; accessed on Statista

T. Rowe Price Investment Services, Inc.

Continued from page 46
escalates further,” Sonders says. She
and other strategists are skeptical of a
comprehensive trade deal with China
coming to fruition. Meanwhile, higher
tariffs and tariffs on more goods are
slated to go into effect in 2019. Adding
up levies that are either in place, pend-
ing or proposed, Sonders figures they
could clip economic growth by one
percentage point. “Taking one point
off growth that’s going back down to
2% to 3% is meaningful,” she says.
Keep your eyes on the Federal
Reserve in 2019. The central bank has
been hiking short-term interest rates
since 2015, and hikes will continue
throughout 2019—but how much and
how often they rise are key to whether
the bull market lives or dies, says Joy,
of Ameriprise. The investing world
is of the view that the Fed will raise
rates just twice in 2019, says Joy, but
the Fed has indicated three hikes,
which is also what Kiplinger expects.
Investors should hope for a letup. “If
the Fed pauses, it might be a signal
that the bull market is not ready to ex-
pire,” Joy says. If the Fed keeps hiking
in a zeal to choke off inflation, it could
choke off the market, too, he says.
BEAR WATCH
When the next bear market will arrive
is anybody’s guess. But consider the
fall swoon that took the S&P 500 down
10% “a dress rehearsal for the real
thing,” says Joy. In fact, the downdraft
was brutal enough to be considered
a bear market for many individual
issues. Over roughly the same period,
Amazon.com fell 25% as investors
took aim at high-tech market leaders;
Advanced Micro Devices fell 49% in
a semiconductor washout.
The question keeping investors
up at night: Is the correction a pause
that will enable a tired bull, which
has already claimed the mantle of
the longest bull market ever, to keep
grinding higher—and celebrate its 10th
birthday in March—or is it the begin-
ning of the end of the bull run?
For most investors, timing the
arrival of the next bear market is far
less important than making sure your
portfolio can stand whatever comes,
meaning it is properly diversified,
with a risk profile that reflects your
stage in life. We may well escape 2019
without getting mauled, and exiting a
bull market early can cost you dearly.
The tendency for the biggest gains
to come in the first tenth and the last
tenth of a bull market argues against
making all-or-nothing bets now, say
Schwab strategists. Even so, few
would disagree that we’re closer to
the end of this bull market than the
beginning. Market tops can be long,
drawn out affairs that take months to
develop. And investors would do well
to remember that bear-market down-
turns precede economic recessions
by six to 12 months, on average.
Still, you can think of the U.S. mar-
ket as the best house on a mostly bad

48 KIPLINGER’S PERSONAL FINANCE 01/2019

 2019 INVESTING OUTLOOK

block. Blue Chip Economic Indicators
economists forecast a slowdown in
growth in Europe, from an expected
2.0% in 2018 to 1.8% in 2019. Emerging
markets are struggling to manage debt
made more onerous by rising rates and
volatile currencies. China’s economy is
expected to grow at a 6% clip, but that’s
down from a 10-year average of 8%.
Nonetheless, diversified investors
can find bright spots even in dicey
markets. “We’re starting to see oppor-
tunities in Europe,” says Linehan.
French oil company TOTAL (SYMBOL TOT,
$57), which trades on the New York
Stock Exchange, is the “best collection
of growth and return of any company
in the industry,” he says. Patient, long-
term investors should not abandon
emerging-markets stocks, which are
trading at an average discount relative
to stocks in developed markets that’s
nearly double its usual amount, says
Hyzy. Market-friendly governments
in Brazil and India bode well for in-
vestments there, says BNY Mellon
chief strategist Alicia Levine (see “It’s
Time to Play Defense,” on page 47).
We recommend BARON EMERGING MAR-
KETS (BEXFX), on the Kiplinger 25 list of
our favorite mutual funds.
Japan is also attractive now, says
Levine. “It has had 20 years of stagna-
tion but several quarters of economic
growth recently—not gangbusters, but
many companies are doing well,” she
says. The consumer sector is interest-
ing, she adds. Unemployment is low,
and wages are growing. FIDELITY JAPAN
SMALLER COMPANIES (FJSCX) has a sizable
stake in consumer-focused stocks.
U.S. stock investors who have done
well by letting their winners ride will
have to take a more hands-on approach
in 2019. “You’ve been rewarded for
being overweight in stocks for the past
couple of years,” says Joy. “But you
should at the very least trim positions
back to neutral. If you’re more con-
cerned about the market, go ahead
and move to an underweight position
in stocks,” he says.
For investors who want to beef up
bond holdings, rising rates present
challenges because bond prices fall
when rates are rising. Kiplinger ex-
pects the yield on 10-year Treasury
notes to end 2019 with a 3.6% yield,
up from an expected 3.2% at the end
of 2018. (For more on our bond out-
look, see “Income Investing,” on page
54.) Short- and intermediate-term
bonds are less sensitive to interest rate
swings, so look for bonds or funds
with a duration (a measure of interest
rate sensitivity) of two to seven years.
“That’s the sweet spot where you
get the most yield for the least risk,”
says Kathy Jones, Schwab’s chief
fixed-income strategist. Kip 25 mem-
ber FIDELITY STRATEGIC INCOME (FADMX),
a go-anywhere fund with a duration

Numbers tell only

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2019 INVESTING OUTLOOK
of 4.3 years and a yield of 3.9%, is a
good choice. (For more, see the “Kip-
linger 25 Update,” on page 63.)
For the first time in years, investors
can plump up their cash cushions
without feeling shortchanged. VAN-
GUARD PRIME MONEY MARKET FUND (VMMXX)
yields 2.21%, compared with a current
1.9% yield on the S&P 500. The highest-
yielding online banks and CDs will
deliver 2.25% to 2.7%. FIDELITY CONSER-
VATIVE INCOME BOND (FCONX) yields 2.2%
and can be considered a cash alterna-
tive, say Morningstar analysts. (For
more strategies and picks, see “Cash
Is No Longer Trash,” on page 56.)
When it comes to the stocks that
you do hold, understand that it’s going
to be a choppy market, as likely to fall
10% as to rally 15%, says T. Rowe
Price’s Linehan. “Try to take advan-
tage of the opportunities,” he says.
Stay diversified and rebalance fre-
quently by paring back winners and
adding to laggards. “Portfolio con-
struction becomes very important late
in the market cycle to make sure your
risk budget doesn’t get out of whack,”
says Hyzy at Merrill Lynch.
You can also tweak your holdings
for a more defensive stance. Strategists
at Schwab recently upgraded their
view of real estate investment trusts
and utilities while downgrading their
outlook for tech and financials. “That
was a message that there are ways to
get defensive without a wholesale
dumping of stocks,” says Schwab’s
Sonders. For now, health care is the
only sector that Schwab believes will
outperform the market.
A MARKET OF STOCKS
Expect pockets of opportunity more
than sweeping market- or sector-wide
moves in 2019. To use an old Wall Street
adage, it will be less a stock market
and more a market of stocks. When
looking for stocks to buy, high quality
should be a touchstone. Hallmarks
include solid brands, strong cash
flows, growing dividends and low
debt levels. Think WALT DISNEY (DIS, $118)
or Kiplinger Dividend 15 member
50 KIPLINGER’S PERSONAL FINANCE 01/2019
JOHNSON & JOHNSON (JNJ, $145).Both are
recommended by analysts at CFRA
and are included in the firm’s High
Quality Capital Appreciation port-
folio. Managers at AKRE FOCUS (AKREX)
are about as choosy as they come.
Top holdings include AMERICAN TOWER
(AMT, $160), a cell tower REIT, and pay-
ments giant VISA (V, $144). We also like
T. ROWE PRICE BLUE CHIP GROWTH (TRBCX),
a member of the Kip 25.
With profit margins getting squeezed,
2018 Update
PRETTY GOOD
Last year’s outlook called for an 8%
total return in the broad stock market,
putting Standard & Poor’s 500-stock
index at roughly 2730. The market re-
turned 10.2% between last January’s
issue and this one, with the index closing
about 50 points above our target, at
2781. We got more bullish as the year
wore on, pushing our midyear target to
2900 or a bit higher on the S&P 500; the
index peaked in September at 2931. Our
bullish call on tech and financials bore
mixed results, with the tech sector
(which got reshuffled in September)
doing well until a fall downdraft, and
financials struggling much of the year.
The eight stocks we recommended
for 2018 returned 7.7%, on average. In-
tuitive Surgical, which develops tech-
nologies, tools and services for robotics-
assisted surgeries, led the way with a
41.9% return. Had you bet on Microsoft,
benefiting from a shift to mobile com-
puting, you would have earned 34.1%.
Insurer United Healthcare rose 33.3%.
Among the duds were auto-parts
company Aptiv (formerly Delphi Auto-
motive), which lost 9.5%, and IT ser-
vices firm DXC Technology, down 24.6%.
Microchip equipment maker Applied
Materials sank 38.5%.
As for the stocks we said to sell, you
would have been smart to jettison Gen-
eral Mills, which surrendered 9.1%. The
four others finished in the black.
companies with a history of consistent
margin strength could pay off. Accord-
ing to Goldman Sachs, one such com-
pany is IDEXX LABS (IDXX, $207), which
makes and distributes diagnostic
products and services for the veteri-
nary market. Another is drug company
CELGENE (CELG, $74), one of our eight
stocks to buy now listed on page 52.
Companies with pricing power that
can pass on increased costs to custom-
ers or withstand an economic slow-
down are positioned well for 2019.
Airlines, for example, have undergone
“tremendous consolidation,” says
Linehan. “You can argue that they
have more pricing power than they
have ever had,” he says. Consider
SOUTHWEST AIRLINES (LUV, $52), which
boasts a rock-solid balance sheet.
In the wake of the U.S. midterm
elections, which resulted in a divided
Congress, rare areas of policy agree-
ment could spell gains for affected
stocks. An infrastructure spending bill
is likely to appeal to both Democrats
and Republicans, potentially boosting
firms that will “redevelop ports,
bridges, utility grids and next-genera-
tion broadband,” says Hyzy. That in-
cludes construction, engineering and
machinery firms, or industrial stocks
in general. Conglomerate HONEYWELL
(HON, $150) and VULCAN MATERIALS (VMC,
$106), which sells construction materi-
als including concrete and asphalt,
are worth exploring. Or consider Kip-
linger ETF 20 member FIDELITY MSCI
INDUSTRIALS INDEX (FIDU, $37).
Value stocks have performed poorly
for much of the bull market as inves-
tors have shunned bargain-priced fare
for growth-oriented names, but that
performance gap should narrow in
2019. One of our favorite value funds,
Kip 25 member DODGE AND COX STOCK
(DODGX), has outsize positions in health
care and financials. Value funds also
tend to lose less in down markets.
Over the past year, for every $1 loss
in the S&P 500, AMG YACKTMAN (YACKX)
has lost less than 41 cents. ■
CONTACT THE AUTHOR AT ASMITH@KIPLINGER.COM.
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2019 INVESTING OUTLOOK
8 STOCKS TO BUY
We think these companies, ranging from a money-center bank to a bargain-basement retailer,
Brookfield Asset Mgt (BAM, $43)
Brookfield
Asset Manage-
ment is what
you buy when
you want to
invest in some-
thing other than
stocks and bonds. Brookfield owns a global
portfolio of office, apartment and retail
properties; it also owns 840 power plants
that run on hydroelectricity, wind and other
renewable technologies. Its infrastructure
division invests in ports and railroads, and
its private equity unit offers limited part-
nership stakes in real estate and energy.
Brookfield benefits from large inflows from
institutional investors, says Brian Milligan,
of Ave Maria Growth Fund. “It has plenty
of money to put to work.”
Intel (INTC, $48)
Shares in Intel,
one of the
world’s largest
semiconductor
firms, sell for 11
times the aver-
age of analysts’
estimates for year-ahead earnings, com-
pared with 17 times earnings for the aver-
age tech-sector stock. Intel is little changed
over the past year, despite posting record
earnings in the third quarter—up 47% from
the same period 12 months ago. Although
growth in PC chips is sluggish, Intel’s other
chips are picking up the slack. For instance,
the firm’s chips and associated hardware
help power the fast-growing Internet of
Things, and Intel’s IoT sales reached record
levels in the third quarter.
52 KIPLINGER’S PERSONAL FINANCE 01/2019
Celgene (CELG, $74)
This biopharmaceutical firm has a variety
of drugs that fight cancer and autoimmune
diseases. Celgene’s biggest seller, Revlimid,
treats multiple myeloma; analysts at re-
search firm CFRA believe the blockbuster
drug can maintain sales growth rates in
the teens through 2021. The firm also has a
robust pipeline of new drugs, and Celgene
bulls base their positive outlook for the
stock on new-product launches expected
in 2019 and 2020 that should diversify the
company’s revenues. CFRA analysts rate
the stock a
“strong buy”
and say the
market is under-
estimating the
strength of Cel-
gene’s lineup.
JPMorgan Chase (JPM, $111)
Higher interest rates, lower tax rates,
friendlier banking regulations and a strong
U.S. economy have JPMorgan Chase “firing
on all cylinders,” says Morningstar’s Eric
Compton. Nearly half of all U.S. households
do business with Chase. It’s the country’s
biggest credit card issuer, top-ranked in
global investment-banking fees and a
leader in stock and bond trading. JPMorgan
is “setting the pace and raising the bar,”
says Credit Suisse’s Susan Roth Katzke.
Expect more of the same in 2019, given
a robust invest-
ment-banking
pipeline and
decent loan
growth. JPM
shares yield
2.88%.
Cognizant Technology (CTSH, $70)
This IT consult-
ing and services
firm isn’t the
small, meteoric-
growth name it
once was, but
the company
still finds ways to steadily boost earnings
and revenues. Cognizant is focusing on its
lucrative digital business, which helps clients
with analytics, cloud computing and cyber-
security. The firm’s digital revenue logged a
growth rate of more than 20% in the third
quarter of 2018 compared with the same
period a year earlier, but it still represents
just 30% of Cognizant’s overall sales. That
implies a “long runway of growth ahead”
for Cognizant, according to CFRA, which
rates the stock a “strong buy.”
Ollie’s Bargain Outlet (OLLI, $91)
When e-com-
merce giants
put brick-and-
mortar retailers
out of business,
Ollie’s stands
to gain. The re-
tailer, with 285 stores in 22 states, sells close-
out and overstocked merchandise at dis-
counted prices. Store closings present Ollie’s
with prospective retail space to move into
and low-cost inventory to sell, says Hodges
Small Cap fund manager Eric Marshall. The
chain can expand its locations by 10% per
year over the next few years, he says. Ollie’s
is richly priced, trading at 44 times estimated
ISTOCKPHOTO.COM (9)
earnings for the fiscal year that ends in Jan-
uary 2020. But analysts at Credit Suisse say
the “near Amazon-proof” stock is worth it.
NOW
have solid prospects in 2019.
DowDuPont (DWDP, $59)
The chemical giant will split into three in
2019. The agricultural group will break off
as Corteva Agriscience, the materials divi-
sion will be called Dow, and the specialty
products businesses will be DuPont. Buy
DowDuPont now, and you’ll receive shares
in all three new firms. That’s a good thing:
Spin-off shares tend to beat the market
over the first two years, with the sum of
the parts often adding up to more than the
value of the whole. Even pre-split, the firm
has good prospects. Analysts expect 16%
profit growth
in 2019 for the
consolidated
firm. The shares
trade at just 12
times expected
2019 earnings.
Thermo Fisher (TMO, $243)
Record spending on biotech drug research
is fueling demand for Thermo Fisher’s lab
products and services, gene-sequencing
instruments, analytical tools, and diag-
nostic kits. A string of smart, well-executed
acquisitions by the company has boosted
sales and earnings at a 10% annualized
rate since 2013. The firm’s long-term debt
has risen, too, but in the past, “TMO has
done a good job paying down debt,” says
Bryn Mawr Trust’s Ernie Cecilia. Analysts
expect 11% profit growth in 2019. The stock
trades at 20
times estimated
earnings, com-
pared with an
average multi-
ple of 25 for its
peers.
...AND 5 TO SELL
In a bull market closer to its end than its beginning, investors need to be choosy, trimming
winners and tossing losers. Here are some candidates to cull.
1. Executives at COLGATE-PALMOLIVE (CL, $64) have chalked up recent struggles to
challenges in foreign markets, from which the maker of dental, hygiene and household
products derives about three-fourths of its revenues. Weakening currencies are partly to
blame. But even accounting for currency swings, the firm faces challenges from local com-
petitors in foreign markets and from other multinationals, say JPMorgan analysts. They
see the firm boosting earnings by only 2% in 2019 and say the shares could fall by 15%.
2. SEAGATE TECHNOLOGY (STX, $43) makes great computer hard drives. Unfortunately, the
industry is moving toward faster, solid-state drives. Seagate is moving into that business,
too, but it’s got stiff competition. And though Seagate has some big customers—HP Inc.
and Dell each account for 10% of sales—they could easily jump to firms with better solid-
state offerings. Trading at eight times estimated earnings for 2019, Seagate’s stock is
cheap, but it’s no bargain, especially considering that the dividend has been flat since 2015.
3. Shares in quick-serve burger shop SHAKE SHACK (SHAK, $51) were sizzling until an August
earnings report with mixed results sent them tumbling. But the stock still trades at a whop-
ping 70 times expected earnings in 2019, or more than three times the average restaurant
stock multiple. Meanwhile, diner traffic is down at stores open at least 12 months, higher
labor costs are squeezing profit margins, and new store openings—the main driver of
growth—are delayed, in part because of labor shortages. Investors should take a healthy
serving of profits off the table.
4. TEGNA (TGNA, $12) operates 47 television stations and two radio stations in 39 markets,
and it offers marketing services through Tegna Marketing Solutions. Tegna does much
better in election years than in nonelection years; the red-hot 2018 elections generated a
51% increase in political ad revenues from the previous midterms, for a record $60 million
in the third quarter. But 2019 isn’t an election year, and the rest of Tegna’s business isn’t
going like gangbusters. Earnings comparisons with 2018 won’t be pretty in 2019, and the
shares are likely to suffer.
5. Even after a spike in late 2018, shares of UNDER ARMOUR (UA, $21) are far from their 2015
high. Investors hoping for a turnaround were impressed by the sportswear and apparel firm’s
third-quarter earnings. But competition remains steep, with Nike, Adidas and Lululemon
vying for the same
American customers.
Analysts at Canaccord
Genuity say they’ve yet
to see product-line inno-
vations that would pro-
pel the company back
to consistent growth
in North America. They
believe the stock is over-
priced at 83 times esti-
mated 2019 earnings and
recommend selling it.
INVESTING Commentary
INCOME INVESTING Jeffrey R. Kosnett
Stand By Your Bonds in 2019
F
or bond investors, 2019 will not
be a time for sweeping changes—
and perhaps not even mild adjust-
ments—to your fixed-income plan.
Bonds and other debt investments are
doing what they’re supposed to: pay-
ing interest in full and on time, and
smoothing out swings elsewhere.
So, with just a couple of exceptions,
there’s no reason to quit the bond mar-
ket in 2019. The exceptions are long-
term Treasuries of 10 years or more,
which don’t yield enough relative to
other opportunities, and bonds in suf-
fering emerging markets, which you
should absolutely avoid.
Outside of those two categories, U.S.
dollar–denominated debt should de-
liver a total return, including the yield
and any price changes, that’s a per-
centage point or two better in 2019
than it was in 2018. Let’s cut to the
call: I predict that you will finish 2019
up or down 1% or less on a diversified
collection that includes high-yield
“junk” bonds and municipals, as well
as short-term and intermediate-term
Treasuries, bank loans and high-grade
corporates.
You may scoff, recalling that wary
traders and forecasters still imagine
that continuing growth and creeping
inflation will push interest rates higher
for 2019, slicing deeper into the value
of many bonds and bondlike alterna-
tives. But I was correct that this past
year’s red ink would be a lighter shade
of pink, with losses coming in at a
modest 2%. From the start of 2018
through November 9, the Bloomberg
Barclays Aggregate index, which
includes Treasury, mortgage and
investment-grade corporate bonds of
various maturities, fell 2.4%. Because
the Agg, as financial folks endearingly
call this benchmark, omits junk bonds
and tax-exempts, both of which out-
54 KIPLINGER’S PERSONAL FINANCE 01/2019
performed Treasuries, readers who
follow this column should be in line
to lose exactly 2%.
With risk-free cash now paying 2%
or more, a few readers have wondered
why I haven’t advised you to park all
of your money in greenbacks or the
equivalent, especially given the Fed-
eral Reserve’s repeated short-term
rate bumps and talk of further tight-
ening. And, sure, if the lottery were
to hand you a surprise $10,000 tomor- tax payments. FIDELITY INTERMEDIATE MUNI
row, I’d be the first to say put it in the
bank. (For the highest yields, see the
table on page 42.)
But I don’t feel the urgency—and
neither do the advisers and bond strat-
egists I consult—to convert existing
bond holdings (including funds and
ETFs) into cash and to take the loss
that would entail. The yield on those
holdings is likely
to be higher
than what
you’ll find
at the bank,
many
funds are
raising dis-
tributions,
and bonds are a proven buffer against
stock market dives—which have again
become uncomfortably common.
Other technical and fundamental
factors remain favorable or at least
neutral for bonds. Municipals are far-
ing well because the supply of new
issues is tight while demand is bur-
geoning from high-income investors in
high-tax states, who face a new federal
cap on deductions for state and local
(SYMBOL FLTMX), a Kiplinger 25 fund, is
a fine choice for fund investors.
High-yield bonds are also prized
now as a short-term or medium-term
investment. Junk-heavy funds, such
as OSTERWEIS STRATEGIC INCOME (OSTIX, YIELD
3.7%) and PGIM SHORT DURATION HIGH YIELD
(HYSAX, 5.2%), have a duration—a mea-
sure of interest-rate sensitivity—of
2.3 or less. That means if interest rates
rise by one percentage point, the
YIELDS ARE MOSTLY HIGHER THAN
WHAT YOU’LL FIND AT THE BANK,
FUNDS ARE RAISING DISTRIBUTIONS,
AND BONDS ARE A BUFFER AGAINST
STOCK MARKET DIVES.
funds’ value will fall by (roughly)
2.3% or less. Carl Kaufman, who
runs Osterweis, says, “I think
rates will oscillate on a slightly
rising path” in 2019. But
given yields on these funds
that are more than twice
POON WATCHARA-AMPHAIWAN
their duration, we expect
they will stay in the green
in the year ahead. ■
JEFF KOSNETT IS EDITOR OF KIPLINGER’S
INVESTING FOR INCOME. YOU CAN CONTACT
HIM AT JKOSNETT@KIPLINGER.COM.
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INVESTING
HIGHER RATES
Cash Is No Longer Trash
We find low-risk yields that rival dividends and can keep up with inflation.
BY JOHN WAGGONER
FOR SAVERS, SEARCHING FOR YIELD OVER
the past decade has been like fishing
in the Sahara. But the Federal Reserve
Board has been pushing up short-term
interest rates since December 2015,
and savers are finally reeling in some
nice catches.
Yields on most savings vehicles,
such as bank deposit accounts and
money market mutual funds, track the
Federal Reserve’s federal funds rate.
For seven miserable years, from 2008
to 2015, the fed funds rate was tanta-
mount to zero—and that’s about what
you got from your savings.
As the Fed has raised its benchmark
rate, savings rates have risen with it.
“This is a huge revelation to my clients,”
says Jonathan Pond, a Newton, Mass.,
certified financial planner. “They are
actually earning money on cash.”
Kiplinger expects the Fed to raise
rates three times in 2019. Although
interest rates on savings are still low,
they have caught up with inflation and
beat the dividend yield of Standard &
Poor’s 500-stock index. And although
cash may not yet be king when it comes
to yields, it’s important to remember
that the income it generates comes
with little or no risk—providing a bit
of respite from volatile stock and bond
markets. We found a number of op-
tions that will be a big improvement
over your piggy bank. Yields and
prices are as of November 9.
MONEY MARKET ACCOUNTS
Don’t be discouraged if yields on your
bank’s savings account and money
market deposit account are still at rock-
bottom. The national average savings
56 KIPLINGER’S PERSONAL FINANCE 01/2019
account yields a miserly 0.09%, and
the average MMDA pays just 0.20%,
according to Bankrate.com. But you
can find higher yields by shopping
around—particularly at online banks
and credit unions, which have lower
overhead than traditional banks and
can afford to pay a bit more.
For example, the online bank
MEMORYBANK (www.mymemorybank
.com) is a division of Republic Bank
and Trust Co. Although it has no branch
offices, you can access your money
online and via 92,000 ATMs here and
abroad without a surcharge. Memory-
Bank offers an MMDA that yields
2.25% and has no minimum balance
requirement. The account does not
offer check writing.
MYSAVINGSDIRECT (www.mysavings
direct.com), another online bank, offers
a savings account yielding 2.25%. Both
savings accounts and MMDAs allow
up to six withdrawals per month, but
MMDAs can also offer account access
via checks or debit cards.
Most important for conservative
investors, both MMDAs and savings
accounts are covered by the Federal
Deposit Insurance Corp. Combined
account balances at a single qualifying
institution for an individual account
owner are insured up to $250,000.
Joint accounts are insured up to
$250,000 per person. To see whether
your money is fully covered, use the
estimator at www5.fdic.gov/edie.
MONEY MARKET FUNDS
These mutual funds invest in short-
term, high-quality securities, such as
certificates of deposit and Treasury
ISTOCKPHOTO.COM
bills. Unlike other mutual funds, whose
share prices vary daily, money funds
keep their share price constant at $1
and pay interest by issuing new shares
or fractions of shares.
A money fund’s yield equals its earn-
ings minus expenses, and it closely
tracks short-term interest rates. The
funds’ average 30-day yield is currently
1.82%, according to iMoneyNet. Most
let you write checks on your account.
Choose funds with low expenses,
because anything you pay for fund
management comes out of your yield.
A favorite: VANGUARD PRIME MONEY MAR-
KET FUND (SYMBOL VMMXX), which charges
just 0.16% a year in expenses and cur-
rently yields 2.21%.
Savers in higher tax brackets should
consider tax-free money funds, which
invest in extremely short-term munic-
ipal IOUs. Because the interest is free
from federal income taxes, the yields
offered by tax-free money funds are
lower than the yields of taxable money
funds. VANGUARD MUNICIPAL MONEY MARKET
FUND (VMSXX), for example, currently
yields 1.53%. But for savers in the top
40.8% tax bracket (for those subject to
the surtax on net investment income),
that’s the equivalent of 2.58%, or 2.43%
for savers in the 37% bracket, so it
makes sense for them to invest in Van-
guard’s tax-free offering. Savers in the
24% tax bracket or lower, however,
would be better off with Vanguard’s
taxable money fund. Typically, a bro-
kerage sweep account will sweep you
into a money fund (or bank money
market account) that pays less than
what the broker’s other money funds
offer. To get the higher-yielding
money fund, you’ll have to move your
money there after a trade.
Money funds aren’t covered by fed-
eral deposit insurance, but the funds
have an impressive safety record. Few
money funds have ever allowed their
share price to drop below $1—“break-
ing the buck,” in fund parlance.
CERTIFICATES OF DEPOSIT
If you want a bit more interest than
you can earn from MMDAs, savings
accounts and money funds, consider
certificates of deposit. In return for
a higher interest rate, you agree to
keep your money on deposit for a set
amount of time. Typically, the bank
will charge three months’ interest
for early withdrawals from CDs with
maturities of one year, and six months’
interest for withdrawing from CDs
with longer maturities. (The penalty
is tax-deductible, and banks will often
waive penalties due to the death or
incapacity of the account owner.)
Usually, the longer the maturity, the
higher the rate.
Be careful when choosing maturities.
Currently, “one or two years is the sweet
spot,” says Greg McBride, chief finan-
cial analyst at Bankrate.com. The aver-
age two-year CD yields 0.94%, for
example, and the average five-year CD
yields 1.29%. The extra 0.35 percentage
point probably isn’t worth locking up
your money for half a decade, particu-
larly when interest rates are likely to
rise (see the box on page 58 for a strat-
egy to take advantage of rising rates).
It pays to shop around for CDs, too.
Although the average one-year CD
yields 0.72%, the highest-yielding one-
year CD with no minimum investment
required, from CAPITALONE 360 (www
.capitalone.com), yields 2.60% with no
annual fees. CapitalOne 360 also offers
a two-year CD yielding 2.70%. (For
the highest CD yields available with
minimum deposits up to $25,000, plus
more top-performing money funds
and savings accounts, turn to page 42.)
You can also buy CDs through a
broker. Charles Schwab, Fidelity and
Vanguard, for example, all offer CDs
through a network of banks. You get
to choose from a list of institutions,
which makes shopping easy, and you
can sell your CDs on the secondary
market. Brokered CDs are fully FDIC-
insured, and you can invest in several
CDs from different banks, increasing
the amount that’s protected by fed-
eral insurance. The minimum invest-
ment at most brokerages is $1,000.
If you buy a newly issued CD through
the brokerage, you won’t pay a com-
01/2019 KIPLINGER’S PERSONAL FINANCE 57
INVESTING

mission. You can sell your brokered They are sold at a discount from face nually. You can also buy them without
CDs before they mature, but, as with value, and the difference between a fee through Treasury Direct.
bonds, you could lose interest and even what you pay and the face value of the
principal on the deal if rates have risen bill is your interest. SAVINGS BONDS
since you bought the CDs. Investing in T-bills comes with Savings bonds pay relatively little,
some attractive tax benefits. First, in- but they have a few tax benefits. Like
TREASURY BILLS AND NOTES terest is free from state income taxes. Treasury bills, savings bonds pay in-
In June 2011, three-month Treasury If you live in a high-tax state, such as terest that is free from state taxes. You
bills yielded as little as 0.01%. Thank- California or New York, the state-tax can choose to report income to the IRS
fully, those days are gone, and the savings can be substantial. And be- annually or pay taxes when you cash
three-month T-bill now sports a re- cause T-bills don’t pay interest until them in. (You can even wait until they
spectable 2.36% yield. they mature, you don’t owe taxes on stop paying interest in 30 years.) If you
Yields get better as maturities that interest until the year they ma- use the proceeds for qualified educa-
lengthen: A one-year T-bill yields 2.73%. ture. If you buy a one-year T-bill in tion expenses, the interest is tax-free.
A 10-year T-note yields just 3.19%. As 2019, your interest won’t be taxable But it’s probably best to skip savings
with CDs, the best deals in Treasury until the 2020 tax year. bonds as part of a college savings pro-
securities are in shorter maturities. Although you can buy T-bills from gram for a young child (see “Savings
Ten years is a long time to tie up your a broker, you can also buy them with- Bonds for the Holidays?” Dec.).
money for an additional 0.46 percent- out a fee at www.treasurydirect.gov, The interest rate on savings bonds
age point of yield. the government’s auction portal for isn’t great: 0.10% a year, although the
For conservative investors, T-bills individual investors. Treasury guarantees you’ll double your
are one of the safest investments on You can boost your yield slightly by money in 20 years, which works out to
the planet. The federal government investing in Treasury notes, which ma- about 3.5%. There is a three-month in-
guarantees timely interest and princi- ture in two to 10 years. A two-year note terest penalty if you cash in a savings
pal payments on Treasury securities. yields 2.94%. Unlike T-bills, however, bond in the first five years you own it.
T-bills do have one unusual feature. Treasury notes pay interest semian- A better deal for savers might be
I-bonds, which are savings bonds
that are guaranteed to beat inflation.
I-bonds pay a fixed rate of 0.50% plus
Hedge Your Bets an adjustment in principal value based
on the Consumer Price Index. The
Build a CD Ladder current composite rate is 2.83%. Al-
though inflation might overtake the
fixed return from a savings bond, the
Rate regret—locking in an interest rate now that looks puny later—is the biggest downside
government guarantees that you’ll
of certificates of deposit. If you want to beat rate regret, you’ll need a ladder.
whip inflation with an I-bond.
To create a CD ladder, stagger the maturities of CDs so a portion of your holdings matures
at regular intervals. Say you have $15,000 to invest. Put $5,000 into three CDs: one that
ULTRASHORT BOND FUNDS
matures in 12 months, one that matures in two years and one that matures in three years.
These funds usually invest in securi-
When the 12-month CD comes due, reinvest the proceeds in a new three-year CD. Do the
ties that mature within one year. Typi-
same when the others come due, so that after three years you have three three-year CDs,
cal ultrashort funds yield a bit more
one of which matures every year, giving you a penalty-free window for one-third of your
than money market funds. Unlike with
money once a year.
money funds, the share prices of ultra-
If rates are rising, you’ll reinvest at a higher rate at least once a year.
short funds can and do fluctuate. If
If rates are falling, you’ll be able to hang on to some of
you can’t stand the thought of losing
your higher yields for three years—or however long your
money, an ultrashort fund isn’t for you.
ladder is. The same technique works
Nonetheless, we like VANGUARD ULTRA-
for a portfolio of Trea-
SHORT-TERM BOND (VUBFX). It charges
sury notes and bills.
just 0.20% in expenses and yields
2.59%. The fund’s only losing quarter
ISTOCKPHOTO.COM

was a tiny 0.1% loss in the fourth quar-

ter of 2015. 

YOU CAN REACH THE AUTHOR AT JWAGGONER@KIPLINGER.COM.

 PRACTICAL INVESTING Kathy Kristof

The Upside of a Downturn

W
hen I make plans and execute to see. My niece had a baby, and I went When you look at a stock that’s down
them, they may or may not on a business trip. In short, life inter- 26% from when you last considered
work out. When I neglect my vened. The prospectus got buried un- buying it, you ask yourself, What does
portfolio, it’s usually a winning move. der a pile of junk mail. the market know that I don’t know? Sure,
Consider, for instance, what hap- part of the market’s sudden skittishness
pened with AV Homes. I wrote in the The default option. Then one day I is about rising interest rates. Rising
September issue that my plan was to noticed that there was a bunch of ad- rates make houses less affordable. At a
convert my shares in the residential ditional cash—$12,647 to be precise— 4% interest rate, the monthly payment
development company into shares in the Practical Investing portfolio. on a $250,000, 30-year mortgage is
of TAYLOR MORRISON HOME CORP. (SYMBOL And instead of AV Homes shares, I $1,194. But if rates were to pop up to
TMHC, $16), which had proposed a buy- had 403 shares of Taylor Morrison. 6%, that $250,000 mortgage would
out that gave AV Homes investors the What happened? I got the default cost you almost $1,500 per month.
choice of taking all cash, all stock, or selection of roughly four-tenths of Rising rates also hit the supply side
part stock and part cash. I was waiting a Taylor Morrison share plus $12.64 of the equation, tamping—and, eventu-
for the prospectus that would spell out for each AV share I owned. ally, stamping—down housing prices.
the tax implications and other details. Coincidentally, the market took a Lower demand and lower housing
But as often seems to be the case deep dive at almost the same point, prices would be bad for Taylor Morri-
these days, the prospectus arrived and those Taylor Morrison shares son. I think we’re a long way from that
when I was in the middle of doing I was willing to pay $21.50 for a few stage of the cycle, though. Employment
something else. This time, I was months earlier were now selling is strong, and wages are rising—a situ-
packing for vacation. For a few dark for less than $16. Now the question ation that is generally good for
moments, I contemplated taking the was: Should I use the $12,647 housing. I also still like
inch-thick prospectus on the plane in AV Homes proceeds to Taylor Morrison as a
with me to Peru. I could read it on the buy Taylor Morrison company. So, the day
flight, I thought. Then before Taylor Morri-
my rational mind son reported quar-
kicked in and said, Yes, terly results, I
THE TAYLOR MORRISON SHARES
but you could also watch bought 820 shares
a movie or read a book, I WAS WILLING TO PAY $21.50 for $15.73 a share.
which sounds much FOR A FEW MONTHS EARLIER It’s a little risky
more enjoyable and WERE SELLING FOR LESS THAN to buy on earnings
vacation-like. eve. But I expected
The prospectus re-
$16. I BOUGHT 820 SHARES. earnings to be good
mained on the dining and the stock to
room table. Instead, I rise in response,
read the book selected by my book shares, as I origi- which actually did
club: Ghost Soldiers, a historical ac- nally intended? happen. I wanted
count of a daring rescue of American After all, if I the bargain price, so
prisoners of war in the Philippines thought the I had to move quickly.
during World War II. (I highly recom- shares were This month, I guess I
mend it.) reasonably can chalk up a win in
POON WATCHARA-AMPHAIWAN

I justified setting the prospectus priced at the “plan and execute”

aside by reminding myself that I would $21.50, I should column, too. ■
be back in early September, which gave be champing at the
me plenty of time to read it before the bit to buy them now. KATHY KRISTOF IS A CONTRIBUTING
EDITOR AT KIPLINGER’S PERSONAL
annual meeting. But when I got home, Of course, it’s FINANCE AND EDITOR OF SIDEHUSL
.COM. YOU CAN CONTACT HER AT
I had work to catch up on and friends never that easy. KKRISTOF@KIPLINGER.COM.

KIPLINGER’S PERSONAL FINANCE 59

INVESTING

MUTUAL FUND SPOTLIGHT consistently raise their

dividends, by at least 6%

Play Defense With Utilities per year, over those that

After years in the cold, this sector is starting to heat up.
SINCE THE BULL MARKET
began in 2009, shares in UTILITIES STOCK FUNDS
utilities—water, gas and Ranked by one-year returns
Annualized Max.
power providers—have total return sales Exp.
Rank/Name Symbol 1 yr. 5 yrs. charge ratio
lagged Standard & Poor’s
1. Fidelity Telecom and Utilities@ FIUIX 11.1% 9.0% none
500-stock index. But recent
2. Fidelity Select Utilities@ FSUTX 9.9 10.6 none
rockiness in the stock mar-
3. Fidelity Advisor Utilities A FUGAX 9.6 10.2 5.75%
ket bodes well for the tradi-
4. American Century Utilities Inv@ BULIX 5.6 8.3 none 0.67
tionally defensive sector.
5. Wells Fargo Util and Telecomms A EVUAX 4.2 8.1 Max. 1.14
5.75
From the S&P 500’s peak in sales
6. ICON Utilities A ICTVX 3.1 10.1 charge 1.69
5.75
late September to late Octo-
ber, the index surrendered 7. Rydex Utilities Inv RYUIX 3.0 9.6 none
7.6%, including dividends. 8. MFS Utilities A MMUFX 2.8 5.2 5.75
But shares in utilities firms 9. Gabelli Utilities AAA GABUX 1.6 5.9 2.00 r
returned 3.3%. 10. PGIM Jennison Utility A PRUAX 1.3 8.3 5.50
As slow-growing, steady CATEGORY AVERAGE 2.7% 7.6%
dividend payers, utilities
are quintessential safe- when rates are rising. for instance, utilities stocks
haven stocks, which ex- But sentiment might be lost 45.5%, or 9.75 percent-
plains why they were turning in favor of utilities. age points fewer than the
overlooked for much of the As questions about the bull S&P 500 lost.
stock market’s historic rise. market’s longevity arise, in- FIDELITY SELECT UTILITIES
Rising interest rates didn’t vestors are becoming more aims to beat its benchmark
help. Utilities must compete interested in defensive sec- utilities index by focusing
for investor attention with tors. Historically, utilities on faster-growing firms
climbing market yields. have bested the broad mar- trading at reasonable
Often called bond proxies, ket during bear runs. Dur- prices. Manager Douglas
utility shares can struggle ing the 2007–09 downturn, Simmons favors firms that
shell out the biggest pay-
outs. He sees opportunities
in companies at the fore-
front of renewable energy,
which he says are poised
to boost earnings and divi-
dends at a faster rate than
the rest of the sector. One
such firm, NextEra, is the
top holding in the fund’s
0.54%
30-stock portfolio. The
0.77
fund yields 1.56%.
1.12
AMERICAN CENTURY UTILITIES
isn’t a pure utilities fund.
The managers start with
the Russell 3000 Utilities
1.38 index, which tracks 85
1.01 stocks, including a big slug—
1.37 30% of the bogey—in steady,
0.83 high-yielding communica-
tions-services companies.
They whittle the index
down to a 35-stock, actively
managed portfolio, favoring
bargain-priced stocks with
rising share prices and high
dividend yields. Though
utilities firms make up most
of the portfolio, communi-
cations giants AT&T and
Verizon represent 25% of
assets. RYAN ERMEY
rermey@kiplinger.com

20 LARGEST STOCK AND BOND MUTUAL FUNDS Ranked by size. See returns for thousands of funds at kiplinger.com/tools/fundfinder.
Annualized Max. 1-year Max.
STOCK MUTUAL FUNDS Assets† total return sales BOND MUTUAL FUNDS Assets† total Current sales
Rank/Name Symbol (billions) 1 yr. 5 yrs. charge Rank/Name Symbol (billions) return yield charge
1. Vanguard Total Stock Market Idx Inv VTSMX $608.1 9.1% 11.1% none 1. Vanguard Total Bond Market Index Inv VBMFX $163.3 –2.4% 3.3% none
2. Vanguard 500 Index Inv VFINX 331.8 9.6 11.6 none 2. Pimco Income A PONAX 111.4 –0.1 3.8 3.75%
3. Vanguard Total Intl Stock Idx Inv VGTSX 325.2 –7.5 2.5 none 3. Vanguard Total Intl Bd Idx Inv VTIBX 99.3 1.5 1.0 none
4. American Growth Fund of America A AGTHX 184.3 8.9 12.1 5.75% 4. Metropolitan West Total Return Bd M MWTRX 70.5 –2.2 2.8 none
5. Fidelity 500 Index Inv FUSEX 157.0 7.5 11.3 none 5. Pimco Total Return A PTTAX 68.3 –2.2 2.2 3.75
6. American EuroPacific Growth A AEPGX 149.1 –9.9 3.6 5.75 6. Vanguard Short-Term Inv-Grade Inv VFSTX 58.5 –0.2 3.3 none
7. American Balanced A ABALX 129.6 4.5 7.9 5.75 7. Vanguard Interm-Term Tax-Ex Inv VWITX 58.1 –1.2 2.7 none
8. Fidelity Contrafund FCNTX 120.6 9.4 12.5 none 8. Dodge & Cox Income@ DODIX 56.2 –0.9 3.4 none
9. American Washington Mutual A AWSHX 108.9 9.6 10.6 5.75 9. DoubleLine Total Return Bond N DLTNX 47.7 –0.6 3.6 none
10. American Income Fund of America A AMECX 106.5 1.9 6.4 5.75 10. Lord Abbett Short Duration Income A LALDX 40.7 0.7 3.0 2.25
S&P 500-STOCK INDEX 9.7% 11.7% BLOOMBERG BARCLAYS US AGGREGATE BOND INDEX –2.2% 3.6%
MSCI EAFE INDEX –5.6% 2.7% B OF A MERRILL LYNCH MUNICIPAL MASTER INDEX –1.3% 3.0%
As of November 9, 2018. @Only share class. Unless otherwise indicated, funds come in multiple share classes; we list the share class that is best suited for individual investors. rMaximum redemption fee.
†For all share classes combined. MSCI EAFE tracks stocks in developed foreign markets. SOURCES: Bank of America Merrill Lynch, Morningstar Inc., Vanguard.

60 KIPLINGER’S PERSONAL FINANCE 01/2019

 DEBUTS
Here Come the Hot IPOs
Investors could buy shares in big-name firms, including Uber and Lyft, in 2019. BY RYAN ERMEY
THE CHINESE ZODIAC TELLS US THAT 2019
is the year of the pig, but investors
in initial public offerings may begin
calling it the year of the unicorn. The
mythical beast is also the nickname
for privately held start-up companies
valued at $1 billion or more, and a
herd of them may be galloping to the
public market this year. Analysts at
Renaissance Capital, a provider of
IPO-themed exchange-traded funds
and research, say that companies
on track for 2019 IPOs include ride-
sharing companies Uber and Lyft,
photo-sharing app Pinterest, popular
workplace messaging app Slack and
stationary bike seller Peloton. Renais-
sance says offerings are also possible
from home-rental platform Airbnb,
Elon Musk–led aerospace firm SpaceX
and Greek-yogurt maker Chobani.
A huge year for IPOs in 2019 would
represent a continuation of 2018’s tor-
rid tempo. Through the first three
quarters, 156 companies had gone
public—50 more than the same period
in 2017—and the $39.8 billion those
companies raised was 62% more than
the take the year before. At that pace,
2018 will likely have been the biggest
IPO year since 2014 and just the third
year in the past decade to surpass 200
IPOs, says Renaissance.
Market slides can disproportion-
ately affect recent IPOs, and if they
PHOTOS COURTESY OF THE COMPANIES
perform poorly, the pace of new issues
could slow. “These stocks tend to be
more volatile than more-established
names,” says Renaissance principal
Kathleen Smith. “When there’s a big
market drop, investors tend to sell off
or avoid recent IPOs to move to safer
corners of the market.”
Peloton
Slack
Chobani
But even persistent market choppi-
ness in the year ahead probably
wouldn’t deter the likes of Uber
and Lyft from going public, says Josef
Schuster, founder of IPOX Schuster,
an investment research firm and fund
provider that specializes in IPOs.
A full-fledged bear market, however,
would likely force companies to lower
their prospective offering prices sig-
nificantly, which could sideline even
the largest companies. “Many of these
firms with multi-billion-dollar valua-
tions are already well funded. They
can afford to wait things out so exist-
ing investors don’t have to take a hair-
cut on their shares,” he says.
How to play. From 1980 through 2017,
IPO stocks rose an average of 18%
from their offering price on the first
day of trading, according to data from
Jay Ritter, a finance professor and
IPO expert at the University of Flor-
ida. But individual investors rarely
receive offering-priced shares, which
are typically reserved for institutional
investors, prized clients of the issuing
brokerage firms, and the company’s
“friends and family,” which include
employees and their relatives. Clients
at major online brokerages, such as
Fidelity and TD Ameritrade, can apply
to receive early IPO shares if they
meet certain requirements, but there
are no guarantees.
That leaves most investors in the
position of having to invest in IPOs
after they hit the open market—a risky
proposition, says Schuster. Due to
their potential to shoot up or plummet
in a single day, “any investment in an
IPO should have a very conservative
weight in your portfolio,” he says.
Once shares hit the open market,
there are few predictable patterns in
IPOs’ behavior. Analysts tend to initi-
ate ratings on a stock 25 days after an
IPO, at which time positive sentiment
might boost a stock’s price, Ritter
says. After 180 days, a stock’s “lock-up
period” expires, allowing pre-IPO in-
vestors to sell their shares. That can
01/2019 KIPLINGER’S PERSONAL FINANCE 61
INVESTING
trigger a sell-off. Schuster says share
prices tend to settle down after firms
issue their first earnings reports, but
the stocks still carry more volatility
than more-established securities.
To help mitigate some of the risk of
investing in IPOs, read the literature
that companies must file with the
Securities and Exchange Commission
in advance of the offering. One measure
to consider, says Schuster, is float, or
the percentage of a firm’s stock made
available to the public. Companies that
drum up demand for a very small
number of shares can build momen-
tum and shoot up quickly, but the re-
sult is an extremely volatile stock. Any
IPO that makes less than 15% of its
shares available should give investors
pause, he says.
Once a stock begins trading, pay
attention to its first-day return. Com-
panies that post negative returns on
the first day are likely to carry nega-
tive momentum in the market, while
companies that immediately skyrocket
may have trouble living up to the hype.
Schuster looks for first-day returns
that fall between 0% and 65%.
Would-be IPOs must disclose infor-
mation about their revenues, and those
with a proven track record tend to do
best. From 1980 through 2016, firms
with less than $100 million in annual
Big Deals
A MIXED BAG FOR THE BIGGEST IPOs
The past decade’s largest initial public offerings include social media darlings and an old-line
carmaker. Stock returns have ranged from delightful to disastrous for those who bought in.
Company Symbol
Alibaba Group BABA
Visa V March 8, 2008
Facebook FB
General Motors GM
Banco Santander (Brasil) BSBR
HCA Holdings HCA
Snap SNAP
Citizens Financial Group CFG
As of November 9, 2018. SOURCES: Renaissance Capital, Yahoo Finance.
62 KIPLINGER’S PERSONAL FINANCE 01/2019
2019, there are a few that investors
Lyft
should keep an eye on. Smith cites
Slack, eyeglass seller Warby Parker
and online sportswear retailer Fanat-
ics as potential IPO successes. “These
companies all appear to be growing
sustainably, which means there is less
risk associated with them,” she says.
Ritter is bullish on the ride-sharing
giants even at their rumored lofty val-
uations—proposals from investment
banks purportedly value Uber at $120
SpaceX
billion; Lyft’s most recent valuation is
a more modest $15 billion. “Companies
like Uber and Lyft operate in winner-
take-all markets where one or two
companies can dominate a business
and be very profitable,” he says. In
that context, the high valuations
accorded by investors make sense, he
says. Ritter believes the stocks’ high
price tags could be justified in future
sales posted an average three-year re- years by the introduction of autono-
turn (after the close of the first trading mous vehicles, which will significantly
day) of 11.9%; those with more than cut the firms’ labor costs.
$100 million returned 38.4%, accord- Palantir Technologies, a software
ing to Ritter. “Companies that have company specializing in data analyt-
demonstrated that they have a product ics, is a tech giant to watch. The firm,
or service that people are willing to founded in 2004, is seasoned as far
pay for have, on average, been fairly as IPOs go, says Schuster, and enjoys
valued by the market,” he says. a predictable revenue stream from a
growing, diverse client base, ranging
What to consider in 2019. Among com- from private firms to federal, state and
panies rumored to be going public in local governments. What’s more, de-
mand for data analytics is growing and
stable, and the firm should be less af-
fected by swings in the economy than
other tech firms, he says. Investors
should consider the shares if they’re
priced reasonably relative to sales,
Schuster says. “Anything between 10
and 15 times sales could be attractive.”
Offer IPO size Offering Current Schuster is also enthusiastic about
date (billions)price price Sector
Beyond Meat, a vegan food company
Sept. 18, 2014 $21.8 $68.00 $145 Internet retailer
that makes meat substitutes, such as
17.9 44.00 144 Financial
its popular line of burgers, that appeal
PHOTOS COURTESY OF THE COMPANIES
May 17, 2012 16.0 38.00 145 Internet media
to omnivores who want vegan offer-
Nov. 17, 2010 15.8 33.00 36 Automobile
ings that closely mimic the taste and
Oct. 6, 2009 4.0 13.40 11 Financial texture of meat. Schuster thinks the
March 9, 2011 3.8 30.00 144 Health care company could become a market
March 2, 2017 3.4 17.00 7 Internet media leader among firms that encourage
Sept. 24, 2017 3.0 21.50 38 Financial healthier eating. ■
CONTACT THE AUTHOR AT RERMEY@KIPLINGER.COM.
 KEY DATA FOR OUR MUTUAL FUND PICKS
Kiplinger 25 funds are no-load; you can buy them without sales
charges. For more about the funds, visit kiplinger.com/links/kip25.
THE KIPLINGER 25 UPDATE
Annualized total return Added to

Betting on U.S. U.S. Stock Funds

Dodge & Cox Stock
Symbol

DODGX

FMILX
1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25

9.9% 12.9% 10.7% 14.2% May 2008

7.2 11.0 9.4 14.9 May 2014

Economic Growth
Fidelity New Millennium

Mairs & Power Growth MPGFX 9.3 11.2 9.0 13.0 Jan. 2013

Parnassus Mid Cap PARMX 4.5 10.2 9.4 14.3 Aug. 2014

T. Rowe Price Blue Chip Growth TRBCX 13.4 15.2 14.8 17.6 May 2016

T. Rowe Price Dividend Growth PRDGX 10.2 12.3 11.3 13.7 Oct. 2016
A PORTFOLIO OF DIFFERENT bonds, and 5% in floating-
T. Rowe Price QM US Sm-Cp Gro PRDSX 9.3 11.8 10.6 16.9 May 2015
kinds of bonds that do well rate securities (loans with
at different times can out- variable rates that reset T. Rowe Price Sm-Cap Value PRSVX 3.7 11.9 8.0 13.0 May 2009

perform the broader bond every 30 to 90 days). But T. Rowe Price Value TRVLX 1.9 9.1 8.8 13.5 May 2015
market over the long haul. the fund managers can Primecap Odyssey Growth POGRX 12.1 15.2 13.9 16.8 May 2017
That’s the thinking be- stray from those guide-
Vanguard Equity-Income VEIPX 6.4 11.3 10.0 12.9 Jan. 2017
hind FIDELITY STRATEGIC rails depending on their
Wasatch Small Cap Value WMCVX 9.3 12.7 10.4 16.3 Nov. 2018
INCOME . The fund balances view of the economy and
government bonds and the market.
International Annualized total return Added to
high-quality, investment- The portfolio is posi- Stock Funds Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25
grade corporate bonds tioned for moderate U.S.
AMG TimesSquare Intl Sm-Cap TCMPX –13.2% 6.9% 7.2% — May 2018
with junkier, higher-yield- economic growth and
ing bonds to deliver pro- higher interest rates in Baron Emerging Markets BEXFX –15.3 5.3 2.4 — Oct. 2016

tection in down markets 2019. At last report, the Fidelity International Growth FIGFX –4.4 5.2 4.4 9.9% Feb. 2016
and a fatter income stream fund held about 40% of Oakmark International‡ OAKIX –14.4 4.0 1.9 10.3 July 2017
than the Bloomberg Bar- assets (its target amount)
clays U.S. Aggregate Bond in U.S. high-yield debt, Specialized/ Annualized total return Added to
index delivers. and another 9.5%—nearly Go-Anywhere Funds Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25

The strategy has worked double the typical expo- Vanguard Health Care VGHCX 12.1% 7.1% 12.9% 15.7% May 2016
over the past year. The Agg, sure—in floating-rate loans. Vanguard Wellington‡ VWELX 4.3 8.5 7.8 10.7 May 2016
a broad U.S. bond market “Every time the Fed raises
index, declined 2.2% over rates, we get more income,” Annualized total return Added to
the past 12 months, but says O’Neil. Bond Funds Symbol 1 yr. 3 yrs. 5 yrs. 10 yrs. Kip 25

Strategic Income held up But the managers have DoubleLine Total Return N DLTNX –0.6% 1.7% 2.6% — May 2011
slightly better, with a 1.0% pared back emerging- Fidelity Intermed Muni FLTMX –1.0 1.6 2.5 3.6% May 2004
loss. The fund’s yield, markets debt. A stronger
Fidelity New Markets Income FNMIX –5.3 4.8 4.2 9.7 May 2012
3.92%, also edges the Agg dollar is trouble for coun-
Fidelity Strategic Income FADMX –1.0 4.2 3.2 7.1 May 2018
index yield of 3.64%. tries in the developing
Lead managers Ford world, many of which Met West Total Return Bond M MWTRX –2.2 1.1 1.7 5.6 May 2016
O’Neil and Adam Kramer borrow in U.S. dollars. It Vanguard High-Yield Corporate VWEHX 1.3 5.2 4.4 9.5 May 2016
make the big-picture means those countries Vanguard Sh-Tm Inv-Grade VFSTX –0.2 1.6 1.5 3.4 May 2010
decisions and leave the must fork over more of
bond picking to experts— their home currency to Annualized total return
other Fidelity fund man- buy dollars to pay their Indexes 1 yr. 3 yrs. 5 yrs. 10 yrs.
agers—in each bond sub- debts. And countries seek- S&P 500-STOCK INDEX 9.7% 12.5% 11.7% 14.0%
sector. Strategic Income ing new loans face higher
RUSSELL 2000 INDEX* 6.4 10.9 8.6 13.4
typically invests about borrowing costs because
MSCI EAFE INDEX† –5.6 4.8 2.7 7.0
40% of the fund’s assets of higher U.S. interest rates.
in U.S. high-yield debt, “Those are two head- MSCI EMERGING MARKETS INDEX –11.8 7.5 2.0 8.2
25% in U.S. government winds for emerging mar- BLOOMBERG BARCLAYS AGG BND IDX# –2.2 1.3 2.0 3.8
and investment-grade kets,” says O’Neil. “That’s
debt, 15% in emerging- why we’re cautious there.” As of November 9, 2018. ‡New investors must purchase directly from the fund company.
*Small-company U.S. stocks. †Foreign stocks. #High-grade U.S. bonds. —Fund not in existence
markets bonds, 15% in for- NELLIE S. HUANG for the entire period. SOURCE: © 2018 Morningstar Inc.
eign developed-markets nhuang@kiplinger.com

01/2019 KIPLINGER’S PERSONAL FINANCE 63

LIVING

64 KIPLINGER’S PERSONAL FINANCE 01/2019

 CHOOSE
A CHEAPER
WIRELESS PLAN
If you haven’t re-shopped your wireless phone plan in a few years, you’re
probably paying a steep price for your loyalty. BY KAITLIN PITSKER

ILLUSTRATIONS BY DEANNA HALSALL

As cellular providers continue to vie for customers, many are revamping their
plans and pricing structures and beefing up their plans’ appeal with perks
and extras for customers who make the switch. And regardless of how
you use your phone or which plan features matter most to you, you’ll
likely find more options and better deals than in years past. //
“Carriers make changes all the time, so to get the best deals,
people should re-shop their plan twice a year,” says Toni
Toikka, president of Alekstra, a New York City–based

01/2019 KIPLINGER’S PERSONAL FINANCE 65

LIVING
research firm that analyzes wireless
bills. Most people are overpaying by
about 30%, he says. But picking the
right plan could save a family of four
$1,400 to $2,000 a year, says Toikka.
The days of selecting a package of
minutes, number of text messages and
bucket of data are largely over. And
although you’re no longer tethered
to a two-year contract with a built-in
phone upgrade every few years, you
can’t count on getting a new phone
subsidy, either. Rather, you’ll generally
pay the full retail price of your new
smartphone, either up front or in
monthly installments. And data gob-
blers rejoice: Unlimited plans, which
were on the brink of extinction a few
years ago, are back.
Shopping for a phone and phone
plan today can leave even the savviest
customers confused. But you’ll be re-
warded if you take the time to review
your service and navigate the other
offerings on the market.
To get the best deal, you’ll probably
need to switch carriers. Current cus-
tomers usually aren’t eligible for pro-
motions or even some of the newer
plans, says Tina Chang, of WhistleOut
.com, a phone-plan comparison web-
site. If you’d rather stick with your
provider, ask about cheaper plans
that match your needs. You may have
more bargaining clout if you’ve been
with your carrier for a long time and
threaten to take your business else-
where. Or look for other ways to save
that you may have overlooked, such as
a break for automatic bill payment or
employer discounts.
As you re-shop your plan, keep in
mind that the best plan for you will
hinge on several factors, including
how you use your phone, where you
live and other details. To get you
started, we identified a few of the most
important factors and selected plans
that offer a great value for those needs
(see the box on page 68). For more
help choosing a plan, visit WhistleOut
.com or Wirefly.com. Both sites offer
detailed search tools that allow you
to compare plans and current promo-
66 KIPLINGER’S PERSONAL FINANCE 01/2019
tions from dozens of carriers.
No matter which plan you choose,
the phone you use is generally a sepa-
rate issue. You could buy a new phone
(and pay full price), or you could
choose to take your old phone to your
new carrier (see the facing page for
an overview of your options).
DON’T PAY FOR MORE
DATA THAN YOU NEED
Start by reviewing how you and others
on your plan use your phones. With
most of today’s plans, talk and text
come cheap and high-speed data
drives up the bill.
“People are quick to say that they
need an unlimited data plan,” says
Chang. But, she says, you may not
be using enough data to warrant an
unlimited plan, especially when you
think about how often you’re con-
nected to Wi-Fi. Families sharing
a plan and people who frequently
use their phones to stream content
or as mobile hot spots use gobs of
data—maybe 20 gigabytes or more
each month. But people who mostly during
stick to calling, texting and using a few a typical
apps may only need 1GB of data or less month. If you
a month (for plans for light users, see need a little extra
the box on page 69). Most smartphone high-speed data now and then, the
users fall somewhere in between— fees your provider charges won’t break
using around 6GB of cellular data each the bank. At Sprint, for example, you
month, according to recent studies by have the option of continuing to use
NPD Group, a market research firm. data at slower 2G speeds until your
Data use tends to be higher for people next billing cycle or adding more high-
with phone screens larger than 5.5 speed data for $15 per gigabyte. And
inches because they are more likely to some plans allow you to bank unused
stream video. They average about 9GB data for future use. AT&T and Veri-
of data each month, says NPD. zon, for example, let you roll remain-
To see how much data you and ing data forward to use the following
others on your plan use, log into your month, and some T-Mobile users with
wireless account online or through an allowance of 6GB or more of high-
your carrier’s mobile app. Consider speed data each month can carry over
how your data usage might change unused data for up to a year.
if, say, you’re kicking your grown kids
off the family plan or upgrading to a
phone with a larger screen.
DATA GOBBLERS,
If your data use fluctuates a bit— GO UNLIMITED
maybe creeping up when you travel— If you or others on your plan are heavy
you’ll still want to pick a plan that data users, an unlimited plan is proba-
most closely fits your data needs bly the way to go. All four of the major

carri-
ers—
AT&T,
Sprint, T-
Mobile and
Verizon—offer
unlimited plans with
unlimited calls, texts
and data. And many smaller
carriers have similar options. But
a number of carriers offer two or even
three tiers of unlimited service, each
with its own rules, features and other
differences in service.
Even on an unlimited plan, carriers
can force you into the slow lane by re-
ducing your data speeds. When that
happens generally depends on how
much you’re paying for your unlimited
service. A network’s pricier unlimited
plans will typically allow users to
cruise at high speeds for longer before
pumping the brakes. For example,
AT&T’s cheapest unlimited plan ($70
a month for a single line) can slow data
speeds anytime the network is busy—
regardless of how much data you’ve
used. But users of the company’s more
expensive unlimited data plan ($80
a month for a single line) won’t have
data speeds reduced until after they’ve
used 22GB of data during the billing
cycle, according to AT&T. Verizon
offers three unlimited plans. For the
cheapest plan ($75 a month for a single
line), data slows during times of con-
gestion. The mid-tier ($85) plan can
slow data speeds after 22GB. For the
priciest ($95) plan, the company says
you won’t be kicked into the slow lane
until you’ve used a whopping 75GB
of data.
People who want to use their phone
as a mobile hot spot to connect their
laptop or other devices will likely find
the extra cost of a top-tier unlimited
plan worthwhile, says Chang. For ex-
ample, customers who select Verizon’s
lowest tier of unlimited service stream
video in standard definition and have
to endure mobile hot-spot speeds that
top out at a glacial 600Kbps. The qual-
ity of video streaming and the amount
of high-speed data that you can use
as a mobile hot spot improve with the
mid-range and top-tier plans, which
receive HD video streaming and 4G
mobile hot-spot speeds—8 to 20 times
faster than with the cheapest plan.
SAVE WITH A
SMALLER CARRIER
You may gravitate toward the four
major carriers, but there’s no shortage
of other options—often at much lower
prices. If you’ve been happy with the
coverage you’re getting from a major
carrier, you might consider a plan
from another carrier that uses the
same network.
The strength of a network used to
vary from one area to the next, but,
says Brad Akyuz, a director at NPD
Group, “the differences in power and
coverage between networks is mini-
mal these days.” All four of the major
carriers run spin-off brands. Cricket,
for example, is owned by AT&T; Boost
Mobile is Sprint’s prepaid plan; Metro
is run by T-Mobile; and Verizon runs
Visible. These brands, along with other
small providers, typically run on the
networks of larger carriers.
Still, it’s important to check the
quality of coverage that you’ll receive.
To make sure you’ll have a strong sig-
nal, speedy data and reliable phone
service, ask friends, neighbors and
family who have service with carriers
that you’re considering about their
reception. Or visit RootMetrics.com
to check the coverage maps for your
area and any area that you travel to
frequently.
WEIGH FEATURES
AND PERKS
Carriers are sweetening the deal
with extras ranging from streaming
that doesn’t count against your data
allowance to memberships to sub-
scription services and more. Sprint’s
Unlimited Basic plan, for example,
includes a subscription to Hulu (nor-
mally $8 a month). Its mid-tier unlim-
ited plan also tacks on a Tidal music
streaming subscription (normally $10
a month), and the top-tier plan includes
Amazon Prime (a value of $119 a year)
as well. T-Mobile’s perks range from
an hour of free Wi-Fi and unlimited
texting on GoGo-equipped flights to a
standard-quality Netflix subscription
(normally $11 a month) and unlimited
video streaming from dozens of pro-
viders that doesn’t count against your
high-speed data limits. And Metro
by T-Mobile’s unlimited plan ($60
a month for a single line) includes
an Amazon Prime membership.
Carriers typically pack the most
incentives into their unlimited plans
and offers for new customers, but
you’ll find other plans with add-ons as
well. For example, Boost Mobile’s data
plans include unlimited streaming
from some digital music services, in-
cluding Pandora and iHeartRadio.
PICK THE RIGHT PHONE
Now that phones and plans are mostly
untethered, you have more choices of
where to buy and how to pay for your
device—and you may be able to take
your old phone to a new carrier.
When you buy a new phone, you
usually have three options: Buy the
phone outright from your carrier, the
manufacturer or a third-party, such as
BestBuy or Amazon.com; pay your
01/2019 KIPLINGER’S PERSONAL FINANCE 67
LIVING

WHICH PLAN IS BEST FOR YOU?

Answering a few key questions can help you find the right cell-phone you switch providers, ask friends, co-workers and family who use
plan, based on data usage, the number of family members on your the carrier you’re considering about the coverage in your area. Or use
plan and even your age (note that the best-value plans for heavy- the coverage map at RootMetrics.com to see how each carrier per-
data users don’t offer a discount if you’re 55 or older). But before forms in your area.

HOW MUCH DATA DO YOU (AND OTHERS ON YOUR PLAN) USUALLY USE EACH MONTH?

MORE THAN 5GB LESS THAN 5GB

WHO’S ON YOUR PLAN? WHO’S ON YOUR PLAN?

JUST ME TWO OF US WHOLE FAMILY JUST ME TWO OF US WHOLE FAMILY

IS ONE OF YOU
55 OR OLDER? Build your own plan with
Tello, which uses Sprint’s With a family, it’s
ARE YOU 55
network. You’ll pay $29 hard to beat T-Mobile’s
OR OLDER?
a month for a plan with Essentials plan–even if
unlimited calls and you don’t need unlimited
texting and 4GB of data data. You’ll pay $35 per
(with unlimited 2G data line for three lines or
Consider Sprint’s after that). $30 per line for four lines
Unlimited Basic with unlimited talk,
US Mobile’s plan texting and data–and
plan. You’ll pay
costs $55 a month you won’t have to worry
$100 a month for
for unlimited talk, if your teen goes on a
two lines with
texting and data Boost Mobile, which runs streaming binge.
unlimited talk,
with the fastest on Sprint’s network,
texting and data.
speed on a single offers unlimited calling
line. The company and texting, plus 5GB of
uses Verizon and data, for $70 a month
With T-Mobile’s Essentials for two lines.
T-Mobile networks.
plan, you’ll pay $35 per line
for three lines or $30 per
line for four lines with
unlimited talk, texting and
With T-Mobile’s One data (speeds may be
Unlimited 55+ plan, reduced after you surpass
you’ll get unlimited 50GB of data usage in a NOTE: Data speed is the fastest 4G LTE speed,
calling, texting and month). except where otherwise noted. Listed prices do
data for $50 a month not include the cost of the phones, taxes or fees.
on one line, or $70 a Many plans require you to make automatic
payments to qualify for the best price.
month for two lines.
 carrier for the phone with monthly
payments; or lease the device from
your carrier or Apple. The option that
makes the most sense for you will
depend on the carrier, the phone you
want and how often you tend to up-
grade your device.
If you prefer to upgrade to the newest
smartphone every year or two, you’ll
save money by leasing your phone.
Sprint and T-Mobile offer leasing
options for certain phones. Customers
who join the leasing programs pay a
fixed monthly fee for their device and
have the option to upgrade to a new
device every 12 to 18 months with
Sprint or every 30 days with T-Mobile.
You won’t own the phone at the end
of the lease, but you can generally buy
it for the remaining balance. Apple
aficionados who want a new iPhone
every year should consider Apple’s up-
grade program. The program spreads
the cost of a device over two years,
with the newest iPhones costing $40
to $70 a month. Participants are eligi-
ble to upgrade to a new phone after
making a year’s worth of payments.
All of the major carriers offer plans
that allow customers to pay off the
cost of a phone in installments, gener-
ally between $30 and $50 a month
over several years. If your credit is in
good standing, you should be able to
finance a device with no down pay-
ment and no interest charges. And
once you pay off the phone, you’re
no longer committed to the carrier.
Don’t expect to see deals on popular,
newly released smartphones. But if
you’re willing to forgo the latest model
in favor of its slightly older—or less
feature-packed—sibling, you may save
hundreds. For example, Samsung’s
Galaxy S9+ starts at $840. The S9,
which has a slightly smaller screen
and less storage but is still a solid up-
grade option from the older models,
starts at $720. The new iPhone XS
starts at $1,000, while the new iPhone
ISTOCKPHOTO.COM
XR starts at $750. Despite the $250
price difference, the features on the
two models are similar, with the XS
model boasting better screen quality
and additional camera features. And
users who are ready for an upgrade
but don’t care about all the newest
bells and whistles can get an iPhone 7
starting at $450 or an iPhone 8 start-
ing at $550. Another way to save: Buy
a model that was refurbished by the
manufacturer and carries a manufac-
turer-backed warranty.
Many people are keeping their
phones longer, with the average smart-
phone user upgrading his or her phone
roughly every three years. If you buy a
new phone and plan to hold on to it for
at least three years, choose an upper-
tier device rather than a low-budget
model, says Akyuz. Almost all of
today’s flagship phones feature top-
notch processing speeds, battery life,
screens, cameras and storage capacity
and will be more likely to continue to
run smoothly over the long term than
a low-end device, he says.
Carriers are increasingly offering
incentives to customers who supply
their own devices or buy their phones
outright, says Akyuz. Sprint, for exam-
ple, will reduce the price of some of
its unlimited plans by $10 a month per
line if you bring your own phone. And
small carriers typically require you to
purchase a phone up front or bring it
with you.
If you are bringing your own phone,
make sure it’s “unlocked.” All four of
the major carriers will unlock devices
that you bought through them after
you finish paying for the phone. But
an unlocked phone won’t necessarily
work with every carrier. Many older
phones are tied to one of two network
technologies that carriers use (known
as CDMA and GSM) and may not work
well on another carrier’s network.
Many newer phones, however, are
made to be compatible with all of the
major networks, so bringing your
phone to a different carrier is getting
easier, says Akyuz. Contact the car-
rier before you switch to make sure
your phone will be fully functional
on its network. ■
CONTACT THE AUTHOR AT KPITSKER@KIPLINGER.COM.
KIPTIP
Deals for Light
Data Users
If you mostly use your phone for making
calls, sending text messages and using
a few apps to, say, check e-mail or look
up information online, there’s no reason
to pay for a boatload of cellular data.
Rather, choose a wireless provider that
allows you to build a plan that’s tailored
to your needs. Several companies, in-
cluding Tello, Ting and US Mobile, allow
customers to select the number of min-
utes and text messages and the
amount of data they need.
Tello, which uses Sprint’s network,
serves up the best deals for light data
users and allows you to make changes
at any time. A plan with unlimited talk
and text and 1GB of data at 4G speeds
costs $14 a month. Have a feature
phone that you don’t use to access the
internet? A bare-bones plan with 100
minutes, unlimited texting and no data
costs $5 a month. The online-only car-
rier allows users to bring their own un-
locked phone that works on the Sprint
network or to buy a device, ranging
from a feature phone to the iPhone 8,
from its website.
If you live in an area where Sprint
doesn’t have strong coverage but still
want a budget-friendly plan that
doesn’t come with a lot of data, con-
sider US Mobile, which uses the Verizon
and T-Mobile networks. A package with
4,000 minutes, 1,000 texts and 1GB of
data costs $24 a month, and you can
add more data, minutes or texts.
01/2019 KIPLINGER’S PERSONAL FINANCE 69
LIVING
TRAVEL
Online Reviews You Can Use
To find reliable advice, you may need to disregard over-the-top (or fake) complaints and praise.
WHEN YOU’RE SPLURGING ON A VACATION,
other travelers’ opinions can help you
decide where to go. Their online re-
views can point you toward hotels with
great ambiance and ultra-comfortable
beds and away from those marred by
poor upkeep and noisy surroundings.
Online reviews are more up-to-date
than print guidebooks and reflect a
more realistic experience than Insta-
gram-famous travel “influencers.”
But scrolling through comments
from strangers online has downsides:
You might have to wade through doz-
ens of overblown complaints—“Beach
is too sandy,” for example—or vague
praise—“I loved it”—to glean valuable
information. Or a suspiciously effusive
review could be a plant by the business
owner, a friend or a hired promoter.
The problem with reviews. Travel web-
sites Airbnb, Booking.com, Expedia,
HomeAway, Hotels.com, Priceline
and Viator allow only “verified” re-
views, meaning the writers must have
reserved through the site and com-
pleted their stay or activity before
their assessment is posted.
But at TripAdvisor and Google,
reviewers don’t need to prove they
70 KIPLINGER’S PERSONAL FINANCE 01/2019
experienced whatever they’re evaluat-
ing. Both sites say they look for and
remove bogus reviews; TripAdvisor
even participated in an investigation
that resulted in a fake-review peddler
in Italy being sentenced to prison last
June. Also, phony reviews have less
impact today than several years ago
because they’re crowded out by the
huge volume of legitimate reviews.
Sean O’Neill, an editor at Skift, a travel
industry news site, says the most-
reliable surveys report that as much
as 15% of TripAdvisor reviews are
suspect, so “even in the worst case,
most reviews are legitimate.”
Look beyond the stars. Sites often rate
hotels and destinations using a star
or numerical system, but this only tells
part of the story. “Those scores are a
great way to weed out the chaff,” says
Chris Anderson, a professor at Cornell
University’s School of Hotel Adminis-
tration. “But a 4.2 versus a 4.0 is use-
less.” A classic old hotel, say, may
receive a middling score because some
visitors loved the historical experience
while others expected modern ameni-
ties. You wouldn’t know that unless
you read the reviews.
Sort reviews by date because things
in the hospitality industry change fre-
quently, says Ulrike Gretzel, of the Uni-
versity of Southern California’s Center
for Public Relations. Focus more on re-
viewers whose travel style is similar to
yours than on authors who contribute
a lot of reviews, she says. On Booking
.com, TripAdvisor and other sites, you
can filter by reviewers who traveled as
a family, a couple, solo or for business.
Your best bet is to cross-check the
same hotel, activity or tour on multiple
sites for consistent observations. A few
lesser-known review sites are worth a
look as well. Oyster.com sends profes-
sional “investigators” to review hotels
in 76 countries and cruises on about
100 ships. For a highly curated look
at hotels and resorts in 100 countries,
Andrew Harper’s Hideaway Report
sends anonymous reviewers to luxury
hotels and resorts and recommends
only its favorites. You’ll pay a steep
$395 per year ($250 for a digital-only
membership) but receive services such
as updated online reviews, a printed
monthly report, regional guidebooks
and exclusive perks when booking
through a partner travel agency.
MIRIAM CROSS mcross@kiplinger.com
ILLUSTRATIONS BY TRACI DABERKO
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1. Yes. Hitting an animal, wild or domesticated, is one of the “nonaccident” events that comprehensive insurance covers. 2. Yes. Theft of your personal property is covered
under your homeowners or renters policy. But note that the insurance company will probably want proof of your loss. 3. Yes. Generally, your auto insurance will cover a friend
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neighbors’. 5. No. Family members living under the same roof aren’t treated the same as someone who borrows your car on occasion, so she should be kept on the policy.
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ILLUSTRATIONS BY DAVE URBAN
____ No ____ Yes ____ No ____ Yes ____ No ____ Yes
you covered then? you drop her from your policy? Does your auto insurance cover him?
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and won’t have a car. She’ll use your
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____ No ____ Yes
are at lunch. Are you covered?
but someone steals them when you
____ Theirs ____ Yours mall, you put the goods in your car,
2. After a shopping spree at the
____ No ____ Yes
covers the damage?
cover you for earthquake damage? tree falls on your house. Whose policy
7. Does your homeowners policy 4. During a storm, your neighbors’
____ No ____ Yes
cover the damage?
____ No ____ Yes Will your comprehensive insurance
collision coverage on the vehicle.
against her?
pickup, but you no longer have
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