-- Millions of U.S. workers who under new Labor Department rules are automatically enrolled in their companies' 401(k) plans and invested in "default" diversified portfolios of stocks and bonds will actually take the time to read over plan documents and understand their investments.
IN THIS PACKAGE
- Mending your 401(k)
- Finding bargains can be all in the timing
- Some investors seek foreclosures, tax liens
- The savings game
- The Leckey file
- Getting started
- Spending smart
- Taking stock
- Emerging-market stock funds have offered rewards, risk
- The week ahead
Jan. 13: Dreams can come true, with knowledge
Jan. 6: Impulse buys compound low savings
- State Budgets
See more topics »
Here is my fear: During November's stock market swoon, a popular diversified fund designed for workers retiring in or around 2040 lost 6.3 percent of its value in three weeks. Even a more conservative fund intended for those retiring in or around 2010 fell 4 percent.
Without at least a basic understanding of historical market returns and of dollar-cost-averaging (buying more shares with their contributions when prices are down), many workers may opt out of good funds at the wrong time, such as when they receive their account balance after a poor-performing quarter.
-- Consumers, who, of course, never charge for purchases they can't afford, will pay off all their holiday credit card bills in January.
That would be quite a change. According to a nationwide survey in November by Ft. Lauderdale-based Consolidated Credit Counseling Services, 319 of 974 people who answered the question said they were still paying off holiday debt from 2006 (26 people skipped the question).
Of those 974 people, only 39, or 4 percent, expected to pay this year's credit card bills right away, and 59, or 6 percent, expected it would take them as much as a year.
-- Taxpayers will come to the tax-filing deadline of April 15 each year without owing the government too much or being owed a large refund.
There has been much hand-wringing about how failure by Congress to pass alternative-minimum-tax legislation until Dec. 19 would delay the printing and distribution of tax forms and force millions of Americans to wait longer for their tax refunds, which last year averaged $2,291. This delay could cause "financial strain for Americans who rely on their refunds to pay holiday bills, rent, utilities and other necessities," lamented tax-preparer H&R Block.
But waiting for tax refunds to pay the bills is as silly as overpaying your electric bill every month just to receive cash back at the end of the year. For some taxpayers, big refunds are unavoidable because of unpredictable incomes or the affect of the earned income credit. But for the most part, Americans simply have too much money withheld from their paychecks, needlessly crimping their cash flow and in some cases leading to debt.
Most people I've talked to don't know they can easily reduce their withholding and increase their take-home pay by filling out a new W-4 form with their employers.
The tired argument in favor of large refunds is that they are a form of "forced savings." But it's much smarter, and effective, to increase your take-home pay and direct the extra money automatically into savings or investment accounts, such as an individual retirement account, or pay off debt.
Consider: A recent survey of 2,338 adults conducted by Harris Interactive for TD Ameritrade found 76 percent anticipate a tax refund, and, among them, 85 percent plan to invest it, pay off debt or save it. If they had lowered their withholding, maybe they would have no debt to begin with.
Humberto Cruz is a columnist for Tribune Media Services. E-mail him at email@example.com.