SUNDAY, JUNE 7, 2015 | WEST HAWAII TODAY 6C Your Money, Your Moves When Ken Kavula of Genesee, Mich., retired from his job as a high school principal at age 53, he decided to manage his own financial life — including his retirement accounts and a mix of stocks and bonds he had either accumulated on his own or inherited. Fifteen years later, Mr. Kavula, now 68, has enough to live off, for now, without even tapping some accounts. Although he had no money management experience or investment credentials, he had been studying investing for years and had been a member of several investment clubs since the late 1980s. “That gave me confidence I could make money on the money I had,” Mr. Kavula said. There are good reasons for retirees to manage their own financial lives: Saving money on fees is one benefit, and more closely aligning investments with personal goals is another. But there is dangerous ground along the way: Taxes, estate planning, rules around gifting to relatives, timing of withdrawals and other issues can be immensely complex and are getting more so. Another alternative for retirees is the model of do-it-yourself investing done through so-called robo advisers. A software program creates a portfolio of low-cost exchange traded funds. It’s a way to avoid paying commissions or being tempted by brokers pushing you into certain investments. One of the biggest concerns that human advisers have when it comes to their algorithmic alternatives is how investors will use them during market downturns. Skittish retirees may make some costly timing decisions by selling at the wrong time. Another issue retirees can face is how to make withdrawals from retirement accounts in the way that minimizes taxes. Few, if any, robo-advisers provide this service, and it is a difficult question for investors, although some automated options do provide tax-loss harvesting services to lower tax bills. But financial transactions with large tax implications often need the guidance of someone with extensive experience in financial planning, especially for investors with multiple retirement accounts. But advisers might create more problems than they solve, in addition to costing more than the solo strategy. A solution could be to combine do-it-yourself management with human help, by using an adviser to set up a portfolio that you would then monitor and control. This approach, using a mix of E.T.F.s and mutual funds, can save money in fees, but the price goes up if you give in to likely efforts from advisers to push you toward more active management. That often translates into higher fees and expensive mistakes. Another option combines the call-in services of a financial adviser with online tools. You will also need to be honest about your ability to stick to your investment policy. Will you sell when the market goes south or buy more stocks? There are many tools online that will help you make the best decisions. Mr. Kavula speaks across the United States to help educate investors. His advice? “Don’t be greedy. Be patient on your way to investing.” After the mortarboards are thrown into the air comes the reality of student loan payments. More than 40 million Americans are repaying more than $1.2 trillion in outstanding student loan debt, according to the government. Most loans come with grace periods — a span of time before you must begin making monthly loan payments — of six to nine months. It’s a good time to get organized and familiar with your loans, so that you don’t miss any payments and incur late fees. Mark Kantrowitz of Edvisors. com, a financial aid site, suggests making a list of your loans, including the amount owed, the name of the lender or servicer and the date the first payment is due. The site offers a free online checklist. If you are unsure about the details of your federal loans — the most common type of student loan, made or backed by the federal government — you can look them up on the Department of Education’s National Student Loan Data System. The Consumer Financial Protection Bureau suggests you contact your school’s financial aid office or review your credit report. And make sure your loan servicer has your correct address and contact information. You are responsible for timely payments, even if you haven’t received a statement. Calm water makes a lifeboat drill much easier. And with the markets relatively calm, now is the perfect time for an investor lifeboat drill. But to get the most out of this drill we need to remember how we felt seven years ago when the markets were getting scary. Remember the days when even smart, reputable people shouted gloom and doom from the rooftops? If not, let me give you the abridged version: It was terrifying. The United States government was bailing out private companies that were “too big to fail.” We were reading shocking headlines on a regular basis: Stocks Take Record Tumble, Down 777 Points For Stocks, Worst Single-Day Drop in Two Decades How Low Can The Stock Markets Go? With those memories and emotions in mind, let’s start the first drill. Take out a blank piece of paper. Grab two Sharpies, one red, one black. Write $250,000 in black in the upper left corner; write $225,000 in the lower right corner. Use the red Sharpie to draw a down arrow from left to right to represent a market drop of 10 percent. How do you feel? It probably feels a little uncomfortable, but you’re prepared. You’ve read about market corrections. During the last 70 years, markets have undergone 27 corrections. You’ll buy stocks through the dip, perhaps through automated purchases through a retirement account. For the second drill, pull out another piece of paper. Write $250,000 in the left corner and $200,000 in the right corner. Draw a scarier red arrow because now we’re talking about a loss of 20 percent. Things are more serious at 20 percent. After all, market declines of 20 percent or more qualify as bear markets. But you’re still O.K. You’ll grit your teeth and continue to buy more stock at regular intervals because you believe Warren Buffett, who says you should be greedy when others are fearful. The third drill will prove the most challenging. We’re going to focus on the “or more” part of the last drill. Think back to the market highs in 2007 and the market lows in 2009. The broad stock market index dropped over 50 percent. Write down those numbers on a third piece of paper. That’s $250,000 and $125,000. What will you do? I understand that this lifeboat drill seems academic, maybe even a little silly. Why do we need to think about what the markets might do? Sure, they’re not really doing anything right now. But that could change at any time. I’m not predicting a correction or stating that we’re in the midst of a bubble.Since 1945, however, we’ve averaged one correction every couple of years. Even if we plan to buy through the next dip, we’re fools if we miss the opportunity to practice how we’ll react. The correction might only be a 10 percent decline. But it might be 40 percent. We don’t know, and that’s the point. Don’t treat this exercise like the fire drill at work where some ignore it. Give serious thought to your investments. How would you react if any of your lifeboat drills became reality? Could you make yourself buy during a scary market? Have a conversation with someone you trust, like your adviser or spouse or best friend, to talk through the options. Build a portfolio with a broad mix of investments that might help keep you from jumping overboard if they all don’t fall at once. If there’s even a possibility that you might have a hard time staying in the boat, now is the time to figure it out. When you get right down to it, it’s my dad’s fault. My relationship with money, I mean. There was a story that got told a lot in my house when I was growing up. When they were courting, back in the day — which, to be just a bit more precise, would be 1958 — my mom and dad went out for dinner one night in Manhattan. A nice place, too. So nice that my mother, even though she was pretty young, knew there was no way my dad could afford it. Sure enough, the bill comes and he can’t pay. From what I gather there was some hemming and hawing, a conversation with the maitre d’ over by the door, and what winds up happening is that my father leaves his watch with the guy, gets my mom home and then comes back the next day to settle up. That’s nobody’s idea of a sensible way to handle your finances, but let’s just say the apple doesn’t fall far from the tree. I like money as much as the next person. I like having enough in my pocket to make a small impulse buy if I want. I like being able to make my mortgage payments. I like being able to take care of my family. What I don’t like is thinking about it. It stresses me out and I’m not good at balancing a checkbook, at tracking incomes and outflows or dealing with mutual funds and investments. That was true when I was young, single and broke, and it’s true now, when I’m not young, not single and not broke. I have no idea what investments my wife and I have. More to the point, though, I just don’t think it’s right for me to be talking about economic policy to 11 million people on the radio every week while being fully cognizant of precisely what kind of skin I have in the game. My wife handles all the money. And I’m totally fine with that. I’ve never gone into a restaurant knowing or even suspecting I couldn’t pay. I have more sense than my dad in that way, I guess. But there is one thing he always did when I was growing up that I find myself doing now with my two teenagers. When one of them is going out for the evening, I always ask, “Hey, you got a couple of bucks in your pocket?” EDUCATION ANN CARRNS LESSONS KAI RYSSDAL SKETCH GUY CARL RICHARDS INVESTING JOHN F. WASIK The risks and rewards of self-managing investment portfolios. 1 Robo-Advisers For those who are reluctant to go it entirely alone, a growing alternative for retirees is the model of do-it-yourself investing done through so-called robo-advisers. After you enter your risk tolerance and other information in an online form, a software program then automatically creates a portfolio of low-cost exchange-traded funds. This provides a way to avoid paying commissions or being tempted by brokers pushing you into investments you do not quite understand. 2 Hybrid Models Yet another option is a model that combines the call-in services of a financial adviser with the ability to use online tools. Such a hybrid model was recently announced by the Vanguard Group, the large mutual fund company. 3 Investor Clubs The nonprofit group BetterInvesting provides educational support on stock investing and investment clubs, and has chapters around the country. Advisers say a little bit of hand-holding can go a long way, as can joining forces with other investors. Finance, A Genetic Dark Hole Now, Paying for All That Knowledge An Investor Lifeboat Drill That Can Help Weather Disasters CARL RICHARDS NATE PESCE FOR THE NEW YORK TIMES SALLY RYAN FOR THE NEW YORK TIMES PAYING UP An inability to manage personal finances may seem to be an inherited problem. AFTER THE CELEBRATION It helps to know all the details of repaying student loans, especially when considering consolidation of more than one. ¶ Should I start making payments before the grace period ends? Making payments right away is sometimes tough to do, but if you can afford to it makes sense to start as soon as possible. ¶ Should I consolidate multiple student loans? Combining federal loans into a new, single loan may make managing your debt easier, since you will have just one payment to make. But be aware that doing so will typically shorten the grace period to no more than 60 days, Mark Kantrowitz of Edvisors. com said. Consolidating can also remove certain benefits available with federal loans, so make sure you understand the details first. The formula used to set the new rate slightly increases the cost of the loans. And when the loans are pooled, you can’t target extra payments to pay down the loan with the highest rate first. If you have private loans, you may want to wait a few years before seeking to consolidate them, Mr. Kantrowitz said. Such loans take your credit score into account and young adults without much of a credit history tend to have lower scores. ¶ What if I can’t afford my student loan payments? If you have federal loans, you may be eligible for repayment options that lower your monthly payment to one that is more affordable, relative to your income. Private loans typically offer fewer options. Some lenders may allow extended repayment plans, which lower monthly payments but lengthen the term of the loan, or graduated plans, which start out with lower monthly payments that increase over time. If you are considering applying for an alternative repayment plan, “Start the process earlier rather than later,” said Andy Josuweit of Student Loan Hero, an online site. Student Loan Repayment Q&A ONLINE: MONEY GETS PERSONAL Find out the pivotal moments in people’s financial lives. nytimes.com Search biggest lesson Kai Ryssdal is host and senior editor of the public radio program “Marketplace.”
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