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The Honolulu Advertiser
Posted on: Thursday, January 9, 2003

Fatten your wallet using proven 3-point strategy

By John F. Wasik
Bloomberg News Service

CHICAGO — It's time to think about the rest of your life again — well, at least the next year — and what you can do to avoid the mayhem that plagued your portfolio last year.

Although your year-end statement will be in your mailbox soon — and maybe you still haven't opened your statements from last year, either — there's much you can do to improve your situation.

First, forget about market forecasts for the coming year. This year's "to do" list is pretty simple: Save more, diversify and keep expenses down.

This tripod strategy works in ways that Wall Street and Washington are loath to admit.

In a low-return environment, saving and expense reduction will work much better than chasing turn-around stocks or betting on bonds.

This financial tune-up plan works every year, although far too many people pay attention to the blabbing on some financial TV networks than this proven wealth creation strategy.

What diversification means in practice:

• Your core holding should be a Wilshire 5000 mutual fund or similar exchange-traded fund. This stock-index fund represents more than 6,000 listed U.S. Stocks.

• To secure your wealth — crucial for those within 10 years of retirement — buy U.S. Treasury Inflation-Protected Securities or TIPS. They are sold though brokers or directly by the Treasury at www.treasurydirect.gov. These guaranteed securities lock in principal and track inflation.

• For your liquid, rainy day money, combine a money-market fund with insured certificates of deposit. Check www.imoneynet.com and www.banxquote.com for the highest rates.

Keep expenses down. The lower your investment expenses, the more money you keep. That applies to everything from your 401(k) to your Roth IRA.

Here's a rule of thumb: The least-expensive stock-index or exchange-traded fund expenses range from 0.09 percent to 0.25 percent per year to manage your money.

So if you are paying 1 percent or more a year, you're grossly overpaying your investment managers, and your returns will suffer accordingly.

Ask your company retirement plan administrator what your plan is paying in expenses. Remember, the employer isn't paying for them. You are.

It's a new year. Why not resolve to take an active role in to improve your retirement plan? Don't want to go it alone? Form a 401(k) club together within your department to talk about savings, expenses, returns and diversification over lunch today. It will make for a profitable conversation.