kiplingers personal finance - may 2013

7/28/2019 Kiplingers Personal Finance - May 2013

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PLUS

PERSONALFINANCE

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OUR 25 FAVORITE MUTUAL FUNDSp 2p

StrikeIt Rich!How to make your ortune in

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MAY 2013


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3

05/2013 KIPLINGERS PERSONAL FINANCE

AHEAD13

Topic A: New tools for adding up

college costs . . . Monopolys money

lessons . . . Correcting credit-report

errors . . . Knight Kiplinger on money

and ethics. PLUS: May money calendar.

20OPENING SHOT Big tech at big

discounts, by james k. glassman.

23GAME PLAN Should I worry

about state estate taxes? by sandra

block.

24YOUR MIND AND YOUR

MONEY Making finances fun,

byanne kates smith.

INVESTING26

26OUR 25 FAVORITE MUTUAL

FUNDS It was a very good year for the

marketsand for the Kiplinger 25. All

but one of our funds made money. But

weve tweaked the list a bit, subbinga stock fund and replacing two big

names in bonds. PLUS: Key fund data

and portfolios to match your goals.

39DIVIDEND ROOKIES TO ADD

TO YOUR LINEUP These six first-

time dividend payers are a good bet

to keep up their winning ways.

36CASH IN HAND Rev up with

energy MLPs, by jeffrey r. kosnett.

38PRACTICAL INVESTING

Small company, great story,

by kathy kristof.

41PROMISED LAND Dont fear

hyperinflation, by andrew feinberg.

37MORE ABOUT INVESTING

Fashion stocks to add pizazz to your

portfolio (37). ETF Spotlight (42).

A newbie Pimco ETF pummels its big

brother (44). Fund rankings (45).

MONEY46

46STRIKE IT RICH No oil field in

your backyard? You can still make

your fortuneby starting a business,

KIPLINGERSPERSONAL FINANCE // FOUNDED 1947

26

CONTENTS

VOL.67, NO.5


6/76

4

KIPLINGERS PERSONAL FINANCE 05/2013

sticking with stocks and investing in

real estate. We suggest low-risk and

high-risk ways to take advantage of

these strategies and introduce you topeople who have profited from them.

54SAY BYE TO YOUR BANK?

You may be able to replace a checking

account with PayPal or a prepaid card,

and a bank loan with a lending site.

But you might not get a better deal.

58RETIREMENT COUNTDOWN

Pay off the mortgage? Maybe not,

by jane bennett clark.

59ASK KIM Kimberly Lankford

explains why buying a long-term-care

policy for a parent could be a wise idea.

61MORE ABOUT YOUR MONEY

Nine ways to make a home offer

irresistible (61). Yields and rates (63).

LIVING64

64DECLUTTER YOUR LIFE Once

youve committed to really cleaning

house, we offer advice on how to toss,

sell and donate all that stuff.

69DRIVE TIME Cheapest 2013 cars

to own, by jessica anderson.

70TECH Smart phones for $50

or less, by jeff bertolucci.

71 LOWDOWN What you need to

know about financial planners,

bysusannah snider.

723 SIMPLE STEPS Automate your

savings.

IN EVERY ISSUE

6FROM THE EDITOR Roads to

riches.

10LETTERS

ON THE COVER: Photo by Nicholas Eveleigh

CONTENTSKIPLINGER.COM

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or call 800-544-0155, Monday through Friday between 7 A.M. and 9:30 P.M. and Saturday between 8 A.M. and 6 P.M. central time,

closed on Sunday. You can also write to Kiplin gers Personal Finance, P.O. Box 3292, Harlan, IA 51593-0472, or e-mail us

([email protected]). Reprints. PARS International Corp. (212-221-9595, ext. 237; e-mail , [email protected]).

Content licensing. E-mail [email protected]. Mailing lists. From time to time we make our subscriber list available to

carefully screened companies whose product s may be of interest to you. If you would rather not receive such solicitations,

send your mailing label to P.O. Box 3292, Harlan, IA 51593-0472 and instruct us to exclude your name.

Log OnIn our new slide show, discover how robots are eliminating

and creating jobs as they make homes, businesses and

classrooms more efficient. kiplinger.com/links/robots

WHAT YOULL FIND ONLY ONLINE

CHEAPEST CARS TO OWN Drive Time columnist Jessica Anderson

crunches the costs of long-term ownershipfuel, repairs, depreciation,

taxes, insurance and moreto help you get behind the wheel for less.kiplinger.com/links/cheapestcars

TAX BREAKS FOR INVESTORS Keep more of the money you make

this year with our guide to tax-savvy investments and tactics. kiplinger

.com/links/investors

FABULOUS PREFABS Factory-built houses dont have to look as if

they came off the assembly line. We highlight six striking homes that will

change the way you think about modular. kiplinger.com/links/prefabs

LIVE CHAT ABOUT THE KIPLINGER 25 Join Kiplingers investing team

on Thursday, April 11, from 1 P.M. to 2 P.M. eastern time, to learn more

about how we picked this years list of our favorite no-load mutualfunds. live.kiplinger.com

LIKE US ON FACEBOOK Become a fan on Facebook to access timely,

trusted online content and interactive features, as well as to share your

insights and opinions with fellow readers. kiplinger.com/facebook


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UPFRONT

Roads to Riches

One of my favorite contestants

on Bravo TVs Top Chef Mas-

ters last summer was Lorena

Garcia. Not only were her food

and her personality appealing, but she

also seemed familiar. Where had Iseen her before? And then it hit me:

on the cover ofKiplingers. In March

2007, Lorena was one of 11 success sto-

ries we profiled in How to Make a

Million. An immigrant from Venezu-

ela, she was making a name for herself

as a chef and restaurateur in Miami

and as a cooking-show host. Five

years later, she was a celebrity chef

in the semifinals of a nationwide U.S.

competition.

You can also see Lorena in commer-cials promoting Taco Bells new Can-

tina Bell menu, a healthier fast-food

alternative that she helped develop.

(I couldnt resist trying the menuI

recommend the cantina bowl with

chicken.) So for this months cover

story on how to strike it rich (see page

46), it seemed natural to follow up with

her to see how she had managed to

become an even bigger success story.

Its been a fantastic ride, says

Lorena, who has opened airport res-taurants in Miami and Atlanta (an-

other one is planned for DallasFort

Worth) and is working on her second

cookbook. But it also means not

sleeping, not having days off and being

away from family, she says. (When

I spoke with her on February 20, she

had just arrived home after being on

the road since December 30.)

The food business is notoriously

backbreaking, but Lorenas recipe for

success applies to other entrepreneurs

who are trying to turn their talent or

their bright idea into a fortune. The

right way to go into business is to

know your craft, she says. If money

is your focus, forget it. You need tolove your business to give it the time

and attention it deserves, and then the

money will come.

Building wealth. The same rule applies

even when youre working for some-

one else and investing your money.

In a survey by Phoenix Marketing

International, 75% of affluent house-

holds said the source of their wealth

was earned income or investment

returns. The best way to build wealthis to get into the habit of saving and

investing early and to keep it up. For

ideas, take a look at our cover story

and also at the Kiplinger 25, the an-

nual list of our favorite mutual funds

(page 26).

In updating our list, investing editor

Manny Schiffres and senior associate

editor Nellie Huang were faced with

an enviable problem: Our funds had

done too darn well over the past year

or, as Manny put it, we have no stink-ers. But given our readers desire for

higher returnsand the risk that

bonds could lose value if interest rates

riseManny and Nellie decided to

buff up the bond funds by adding more

choices and more flexibility.

They start the process by intensively

screening funds, says Manny, then

adding their own analysis and judg-

ment (and often sparring with each

other). For example, they wanted

to add Osterweis Strategic Income,

a go-anywhere bond fund that special-

izes in high-yield bonds with a short-

term focus. But which fund to bounce?

The venerable Loomis Sayles Bond?

Or Harbor Bond, a Pimco Total Return

clone? How can you diss [manager]

Bill Gross? Nellie wondered. In the

end, they removed Loomis Sayles,

historically a more volatile fund.

You can use our funds to create

your own investment mix and followLorenas recipe for success: If you

have a vision and drive, you can con-

quer anything.

Janet Bodnar

FROM THE EDITOR

janet bodnar, editorfollow janets updates at www.twitter.com/janetbodnar.

The best way to build

wealth is to get into

the habit of saving and

investing early.


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10/76

EDITORIAL

EDITOR IN CHIEF Knight A. Kiplinger

EDITOR Janet Bodnar

EXECUTIVE EDITOR Manuel Schiffres SENIOR EDITOR, MONEY/LIVING Mark K. Solheim

MANAGING EDITOR Barbara Hoch Marcus

SENIOR EDITORSJane Bennett Clark, Jeffrey R . Kosnett, Anne Kates Smith

SENIOR ASSOCIATE EDITORS Sandra Block, Nellie S. Huang, Marc A. Wojno (research)ASSOCIATE EDITORS Jessica L. Anderson, Patricia Mertz Esswein, Lisa Gerstner

STAFF WRITER Susannah Snider

CONTRIBUTING EDITORS Andrew Feinberg, James K. Glassman,

Steven T. Goldberg, Kathy Kristof, Kimberly Lankford, Elizabeth Ody, Jeremy J. Siegel

OFFICE MANAGER Glen Mayers

COPY AND RESEARCH

COPY CHIEF Frederic Fane Wolfer

COPY EDITORS Rachel McVearry, Denise E. Mitchell, Elizabeth Whitehouse

REPORTERS Miriam Cross, Kaitlin Pitsker, Anjelica Tan

ART

ART DIRECTOR Stacie A. Harrison

PHOTOGRAPHY DIRECTOR Wendy Tiefenbacher

DESIGNER Yajaira A. Lockhart DESIGN AND PHOTOGRAPHY ASSISTANT Natalie F. Kress

EDITORIAL PRODUCTION MANAGER Kevin ChildersEDITORIAL/DESIGN CONSULTANT Michael Grossman

KIPLINGER.COM

DIRECTOR, NEW MEDIA Douglas Harbrecht

ONLINE MANAGING EDITOR Robert J.M. Long ONLINE SENIOR EDITOR Michael DeSenne

ONLINE EDITORS Andrea Browne, Cameron Huddleston, David Muhlbaum, Stacy Rapacon, Rachel L. Sheedy

ONLINE BUSINESS DEVELOPMENT MANAGER Jenney A. Nalevanko

BUSINESS DEVELOPMENT ASSOCIATE Brian Stoughton

DIGITAL PRODUCT AND DESIGN MANAGER Jenny Cohan

WEB OPERATIONS MANAGER Wade Currie

WEB DEVELOPERS Jonny Jaldin, David Webster JUNIOR WEB DEVELOPER Hernando Cadet

NATIONAL ONLINE SALES DIRECTOR Elizabeth F. Martin

ADVERTISING OPERATIONS MANAGER Andy Nolen

REGIONAL ACCOUNT MANAGERSMaggie Kinsky, Stephanie Lee

INSIDE ADVERTISING SALES REPRESENTATIVE Austin Kaytes

PUBLISHING

PUBLISHER Alex J. McKenna

ASSOCIATE PUBLISHER/ADVERTISING AND CUSTOM CONTENT Paul Vizza

CIRCULATION DIRECTORSandra Cochran Hunt CIRCULATION MANAGERRoseann Ciccarello

DIRECTOR, SINGLE-COPY SALES Wayne Beder

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KIPLINGERS PERSONAL FINANCE (ISSN 1528-9729) is published monthly by THE KIPLINGER WASHINGTON EDITORS INC. Editorial & Executive Offices:1100 13th St., N.W., Suite 750, Washington, DC 20005 (202-887-6400). Subscription Center/Customer Service: Visit us online at kiplinger.com/customerservice, call800-544-0155, or e-mail [email protected]. POSTMASTER: Send change of address to: Kiplingers Personal Finance, P.O. Box 3292, Harlan, IA 51593-0472.GST# 123395253. Volume 67, Issue 5. Copyright 2013 by the Kiplinger Washington Editors Inc. Periodical postage paid at Washington, DC, and at additional mailingoffices. Subscription prices: In U.S. and possessions $23.95 for one year, $39.95 for two years, $54.95 for three years. Additional international postage: $17.00 peryear. Single-copy price: $3.99.

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11/76

As the insatiable thirst for Chinas Silver Panda coins continuesunquenched, the China Mint has continued to set minting recordsfor the last five years. But demand continues to overwhelm supply,even as mintages have reached 8 million during the last two yearsWhy is this silver coin rapidly becoming so popular? Certainly thefact that it is minted in one ounce of 99.9% pure silver is a factor.The Chinese love their silver.

Another factor is that a new and unique Panda design is released

each year, for one year only. The Chinese also love their pandas.That has fueled demand by collectors, both within China andworldwide. And if there is a single factor that drives marketpricing, surely it is demand.

Why You Aint Seen Nothing YetWhile eight million may seem like a big mintage number, let usput this in perspective. The last published mintage for the U.S.Silver Eagle dollar was over 40 millionover five times more thanChinas entire production. And remember: America has less than aquarter of Chinas population!

The reason China produces far fewer silver coins than the U.S.atleast for nowis simple: The silver coin market in China is a mereinfantjust nine years old. China only legalized silver coin own-ership for its citizens in 2004. Chinas coin market is playing catch-up, and fast. Even though China has raised their mintages over thepast five years, the available coins have sold out each and everyyear. Demand is still not being met. When you consider thatChinas population is more than four times the size of the U.S.,its easy to foresee that one day mintages of Silver Pandas couldexceed those of U.S. Silver Eagles. And when that day comes, the2013 mintage will look puny by comparison.

Why should you care?

Because, among collectors, low mintage often means high value.When you look at a list of the most valuable high-grade SilverPandas from the series, they can command staggering values from

$1,200 - $2,700 each. Its no coincidence that the majority of thesemost valuable Silver Pandas are also among the lowest mintagecoins in the entire series.

Forget About 8 Million. How Scarce isNone?Were proud to announce that for 2013 we negotiated anexclusive deal: We bought every single example of the first 2013Silver Pandas struck by the mint, the coins known to collectors asFirst Strikes. Restricted to only the first 50,000 coins struck, theyrepresent less than 1% of all the 2013 Silver Pandas that willbe struck! And collectors often pay a premium for them.

Not Just Any FirstStrikes: Only Near

Flawless GemsWe didnt stop at locking up all of the 2013 Silver Pandas FirstStrikes. We had the entire production of First Strikes shipped byChina directly to the foremost independent grading and authenti-cation service, Professional Coin Grading Service (PCGS) together

with a letter from the Mint certifying the coins as being the firstminted. We asked PCGS to carefully examine each and every cointo see if any would qualify for the high collector grade of MintState 69 (MS69)a pedigree certifying near flawless perfection.Only those coins meeting the most rigid of Mint State standardswere accorded near perfect MS69 status. These are the coins wehave set aside for you. You can now secure a one Troy ounce FirstStrike Silver Pandaa coin with a near flawless grade of MS69for the low price ofonly $79.95 eachbut only while these red-hot First Strike Silver Pandas last! Of course, you are protectedwith our 30-day guarantee.

Buy More and SAVE MORE!Even better, if you buy more, you can save $200 or more:

1-9 coins $79.95 eachplus s/h

10-19 coins $74.95 eachplus s/h Save up to $95

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Call First Federal Toll-FREE today 1-800-973-3098to Reserve Your 2013 China Silver Panda MS69

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Offer Code PAN146-01Please mention this code when you call.

SPECIAL COLLECTOR OPPORTUNITYYour Expert Guide to the Worlds Finest Coins

A Record High 8 Million 2013 Silver Pandas

for ChinaBut Not Even Oneof These!Why cant anyone in China get the most desirable of all 2013 Silver Pandas?Because we bought them all100% of themjust for you.

Actual size is 40 mm

1-800-973-3098

American Numismatic AssociationNicholas BruyerLife Member 4489

Prices and availability subject to change without notice. Past performance is not a predictor of future performance.NOTE: First Federal is a private distributor of worldwide government coin and currency issues and pri-vately issued licensed collectibles and is not affiliated with the United States government. Facts and figures deemed accurate as of January 2013. 2013 First Federal Coin.


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10


Premiums, March). Rather,

they are attempting to align

premium costs with the

actual risk of the individual

or group, and that will also

mean lowering premiums

for some people. For exam-ple, by raising auto premi-

ums on those with lower

credit scores because of the

strong correlation to higher

claim costs, those with bet-

ter credit scores would see

lower premiums.

Dan Feucht

Rosemount, Minn.

ONLINE CHATTER

Readers commented on our story

Smart Ways to Boost Your

401(k), particularly the advice on

how to maximize savings in your

sixties:

In the current interest-rate

environment, the inherent risk in

bonds should push investors to

get income from master limited

partnerships, REITs and business-

development companies. The use

of go-anywhere bond funds is also

advised.

Even the 4% withdrawal rule

should not be a set it and forget it

rule. Its always best to adjust

strategies annually in accordance

with life circumstances.

CORRECTION

Hyundais free maintenance

program applies only to its

Equus model (Drive Time,

April).

LETTERS

Four years at a state school

in New York and four addi-

tional years in optometry

school have led me to be-

lieve that undergraduate

colleges exist only to pro-

vide teaching jobs for PhDs

who wouldnt otherwise

have jobs (Think Outside

the College Box, March).

Most of my undergradprofessors made little or

no time for students. The

faculty in optometry school,

however, made a concerted

effort to ensure that I did

wella welcome change.

As a doctor, I have seen

hundreds of young patients

who have graduated with

no significant skills that

could land them a job in

A professional certificate

gets my vote for the best

route to special training

in the field of your choice.

The key is to choose a presti-

gious school. My experience

in the continuing-educationprogram at New York Uni-

versity was fantastic, with

teachers coming right from

industry into the class-

room. I received a certi-

ficate in journalism two

years ago at a cost of less

than $2,500.

Klea Theoharis

posted on Facebook

Game plan. I am on the finan-cial aid advisory committee

at the university where I

teach, and there are plenty

of ways to fund higher edu-

cation (Game Plan, April).

Many students fresh out of

high school could benefit

from maturing a few years

and working. Or join the

military. Not only does

Uncle Sam provide a job,

food and housing, but youcan also earn financial

assistance for education.

You could also work while

youre in school. By being a

residence hall assistant and

director, our son earned

free room and board on cam-

pus for two years of under-

graduate study and all of his

graduate studies. He also

had no debt (nor did we)

when he finished his MS. Itcan be done!

Albert Batten

Black Forest, Colo.

Predicting risk. I disagree

that actuaries look for tiny

nuances to predict the like-

lihood of a claim solely to

justify charging higher pre-

miums (Who Knew? 5

Things That Can Hike Your

their chosen field. How can

that possibly be?

M.S.

Coral Springs, Fla.

Outside the College Box

LETTERS TOTHE 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, Kiplingers Personal

Finance, 1100 13 St., N.W.,

Washington, DC 20005, fax

to 202-331-7255 or e-mail

to [email protected] include your name,

address and daytime tele-

phone number.

Do you use a prepaiddebit card or othernonbank service?

READER

POLLQ

To learn more about alternativebanking services, turn to page 54.

51%Yes No

49%

i

i

i


13/76

Mobile

1 Fidelity Personal Retirement Annuity (Policy Form No. DVA-2005 et al.) and, for New York residents, Personal Retirement Annuity (Policy Form No.EDVA-2005 et al.) are variable annuities. Fidelity Brokerage Services, Member NYSE, SIPC, and Fidelity Insurance Agency, Inc., are the distributors.

2 Fidelity reserves the right to limit contributions.Fidelity does not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Fidelity insurance products are issued by Fidelity Investments Life Insurance Company (FILI), 100 Salem Street,Smithfield, RI 02917, and in New York, by Empire Fidelity Investments Life Insurance Company, New York, N.Y.FILI is licensed in all states except New York. A contracts financial guarantees are subject to the claims-payingability of the issuing insurance company.Annuities are subject to investment risk. Your principal value may decline.Before investing, consider the investment objectives, risks, charges, and expenses of the annuity and itsinvestment options. Call Fidelity or visit Fidelity.com for a free prospectus or, if available, a summary prospectus

containing this information. Read it carefully. 2013 FMR LLC. All rights reserved. 607993.6.0

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The Fidelity Personal Retirement Annuity 1

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15/76

13


WHENITCOMESTOPREDICTINGhow much youll pay for col-

lege, you might as well con-

sult your local fortuneteller

or learn to read tea leaves.

College promotional book-

lets publish sticker prices,

which most students dont

pay. Financial aid letters

rarely spell out how aid will

change over four years or

translate into monthly loan

payments after graduation.Meanwhile, the price of

college keeps rising, and

student-loan default rates

remain worrisome. To ad-

dress the challenge of find-

ing an affordable college

education, politicians and

educators are launching

tools to shed light on the

murky process.

One of the newest is the

Department of Educations

College Scorecard (www

.collegecost.ed.gov/score

card). The Scorecard is a

sleek, interactive site where

you can search by state,

school size and campus set-

ting, among other criteria,

to find potential schools.

Each college has its own

page with five measurementsof affordability and quality,

including net cost (after

grants and scholarships),

graduation rate, loan-default

rate and median amount

borrowed. (The fifth mea-

sure, data on post-college

employment, is slated to be

added. Arkansas, Tennessee

and Virginia already provide

employment information for

their grads.) A graphics-rich

design is a student-friendly

improvement over previous

text-heavy federal tools.

Meters and charts show how

each school compares with

its peers, and embedded links

lead to net-price calculators

on each schools Web site.

College administrators

are also trying to make thecost of attendance more

transparent. The University

of Dayton, for example, has

announced that next years

incoming freshmen will re-

ceive a two-page prospec-

tus detailing their billable

expenses over four years,

plus a pledge that aid will

increase in line with tuition.

In a pilot program launched

WHAT DOES COLLEGEREALLY COST?NEW TOOLS HELP YOU GET BEYONDTHE STICKER PRICE.

BY ANNE KATES SMITH

TOPIC A

AHEAD


16/76

14

KIPLINGERS PERSONAL FINANCE

AHEAD

this school year, the State

University of New York

system has adopted the stan-

dardized financial aid shop-

ping sheet, developed by the

Department of Education

and the Consumer Finan-cial Protection Bureau, and

beefed up loan-counseling

services at six campuses.

Price transparency is an

increasingly popular notion

in higher-ed circles, but ex-

perts say the current suite of

tools needs tweaking before

students get a truly clear

picture. For instance, loan-

default rates on the College

Scorecard dont mean muchwithout knowing the per-

centage of students who bor-

row. And more schools would

have to adopt Daytons pro-

spectus model for it to be-

come useful in weighing one

offer against another. For

now, the financial aid shop-

ping sheet, which has been

adopted by more than 600

schools nationwide, will go

a long way toward helpingstudents make apples-to-

apples comparisons.

Another challenge for

guidance counselors and

parents is getting students

to pay more attention to

costs early on. Only 35% of

prospective students used

an online net-price calcula-

tor during their college

search, reports a 2012 Col-

lege Board study.Kiplingers has always

focused on value as well

as quality when evaluating

colleges, using data such as

financial aid, graduation

rates and average debt upon

graduation to determine

our college rankings. You

can find the rankings at

kiplinger.com/links/college.

SUSANNAH SNIDER

Game-industry executive

Philip Orbanes is the author

ofMonopoly, Money, and

You: How to Profit From

the Games Secrets of Suc-

cess.He also judges the U.S.,

Canadian and world Monop-

oly championships.

Can Monopolys lessons apply to

real life? Monopoly is almost

a perfect training ground

for financial decisions.

Young people dont neces-

sarily come out of school

with the training or experi-

ence to invest or handle

money, and advice thats

typically offered is rather

abstract. Monopoly can help

them see why the advice

they get really works.

How does Monopoly help us

make good decisions? Buyingproperties teaches diversifi-

cation. The orange proper-

ties are the best group

(theyre landed on the most,

and theyre economical

to purchase and develop),

but theyre not certain game

winners. You have to have

income holdings (railroads)

and defensive holdings

(properties that prevent

other players from building

against you). You also learn

asset management. If you

dont hold back enough cash

to meet inevitable expenses,such as rent, taxes or a $50

distribution to every player,

then the only way to raise

money is to sell houses or

mortgage properties for half

of what you paid. But as the

game progresses, you need

to be invested, and that

means taking risk. If you

stay completely safe in cash,

eventually youll lose.

What about managing debt? In

Monopoly, you can augment

investments in income-

producing properties by

mortgaging properties that

arent important to you.

But if you have to mortgage

to pay off penalties because

you have no reserve and

no ability to raise money,

then you go bankrupt.

What else does the game teach?

Interacting with other hu-

man beings is almost as im-

portant as making the right

financial decisions. You

have a much better chance

of winning if youre the kind

of player that others wont

mind losing to. Show re-

spect in dealing with oppo-

nents. Maintain a pleasant

demeanor. Be assertivebut not aggressive. What

doesnt work, in Monopoly

or in real life: browbeating,

intimidation and rudeness.

How can we enhance Monopolys

money lessons for our kids?

Play to win. If you always

allow kids to get the better

of you in a trade, thats not

preparing them for real life.

INTERVIEW

PASS GOPASS GO.. COLLECTCOLLECTLIFE LESSONSLIFE LESSONSMONOPOLY MAKES A GAME OF SAVING,INVESTING AND OTHER MONEY SKILLS.

PHILIP ORBANES SAYS KIDS CAN LEARN A LOTABOUT MONEYAND LIFEFROM MONOPOLY. OH,AND BUY THE ORANGE PROPERTIES IF YOU CAN.


17/76

Android is a trademark of Google Inc. Use of this trademark is subject to Google Permissions. iPhone and iPad are registered trademarks of Apple Inc.Securities products and services are offered by E*TRADE Securities LLC, Member FINRA/SIPC.System response and account access times may vary due to a variety of factors, including trading volumes, market conditions, system performance and other factors.2013 E*TRADE Financial Corporation. All rights reserved.

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CONNECT SEAMLESSLY TO THE MARKET

WITH THE INDUSTRYS LEADING APPS.

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Voice Recognition | Barcode Scanner | Real-time Quotes


18/76

16


ASTELLARSAFETYRECORD

doesnt always translate

into lower car insurance

rates. A recent survey by

the Consumer Federation

of America compared rates

from five large insurers,

using hypothetical customersof the same age and gender,

and with the same driving

experience and zip code,

seeking identical coverage.

One customer was a sin-

gle receptionist with a high

school education who was

a renter. Shed had no acci-

dents but was without in-

surance for 45 days (for

insurers, a big gap in a driv-

ers history). The other,a married executive with

a masters degree who

owned her home, had con-

tinuous coverage, but had

caused an accident within

the past three years. In each

of 12 cities studied, three

of the five companies

quoted the accident-free

driver a higher rate (one-

third higher, on average)

or wouldnt offer a quote.Even if you think you

have a good rate, shopping

around periodically is

smart. Start with the Na-

tional Association of Insur-

ance Commissioners at

www.naic.org. Click on

the States and Jurisdiction

Map, which connects you

with your state insurance

offices site. Most states of-

fer quotes for hypotheticalbuyers. The NAIC also lists

customer complaint infor-

mation for each company.

KAITLIN PITSKER

DRIVE SAFELY ANDSTILL PAY MORERATES CAN DEPEND ON YOUR JOB,EDUCATION OR MARITAL STATUS.

Q: Im a fortysomething department headin a midsize company. All of the senior execu-tiveswho effectively control the firmare intheir mid sixties and give no indication of plan-

ning to retire. As a matter of fact, some ofthem gloat about their robust health and in-tention to work forever. It seems to us youngermanagers that these men and womenwhostill do their work diligentlydont have thevision and energy to move our company for-ward. To us, they are hogging the top positionsand salaries, to the detriment of our careersand the companys success. I think they havean ethical obligation to step aside and makeroom for new leadership. What do you think?

I am sympathetic to your frustration, which seems more common

today, as many workers stay on well past the traditional retire-

ment age of 65, with strong legal protections against age-based

termination. This is happening for two reasons: They are able to

(thanks to good health), and they want to (due to financial need

and/or genuine pride in their performance). This trend is having

a negative effect on advancement opportunities for younger em-

ployees, and older workers (especially senior executives) should

be sensitive to this. Gloating is certainly unseemly.

But older workers dont have any ethical obligation to step

aside, because there is no clear correlation between age and com-

petence. They should have the self-awareness (admittedly rare)to recognize whether they are past their primeand if so, the in-

tegrity to step asidebefore their subordinates begin to resent

them or leave for better opportunities elsewhere.

Senior executives should continually groom their successors and

give younger colleagues expanded duties and incentives (both finan-

cial and psychological) to stay with the firm. If you and your peers

dont feel this is being done in your workplace, dont just stew about

it. Bring it up with senior management in a constructive way.

MONEY & ETHICS

KNIGHT KIPLINGER

Should olderShould olderexecutivesexecutivesmake waymake wayfor youth?for youth?

INSURANCE

HAVE A MONEY-AND-ETHICS QUESTION YOUD LIKE ANSWERED IN THIS COLUMN?WRITE TO EDITOR IN CHIEF KNIGHT KIPLINGER AT [email protected].

The housing recovery is firmly under waygood news for the econo-

my, as increased construction and sales put more people to work and

feed an upward spiral of income, spending and employment. Makers

and sellers of appliances, furniture and carpets will also benefit,

plus nurseries and landscapers. The average home price will climb

5% this year, 7% next year. (www.kiplingerbiz.com/ahead/homes)

HOUSING HEATS UP

From The Kiplinger Letter

AHEAD


19/76

17


IMAGINETHEFRUSTRATIONOF

paying more than necessary

for a loan because of an er-

ror on your credit report.

According to a recent Fed-

eral Trade Commission

study, that was the case for

5% of consumers, who haderrors on their reports that

could boost borrowing

costs. One in four consum-

ers found errors, although

most werent serious enough

to affect loan terms. Nearly

80% of those who filed dis-

putes were able to resolve

errors, at least partially.

If you spot a mistake, file

a dispute with the credit

bureau. The National Foun-dation for Credit Counsel-

ing recommends that you

focus on account inaccura-

cies, information that isnt

yours, negative info that

remains past the allowed

reporting time (typically

seven years, ten years for

bankruptcies) and credit

limits listed as lower than

they really are.

If you dont get satisfac-tion the first time, you can

dispute an item more than

once, although youll need

new information or docu-

mentation to trigger an-

other investigation. You can

also take disputes directly

to the bank, retailer or other

creditor that provided the

information; theyre obli-

gated to investigate, too.

If, after the investigation,

the negative information

remains, add a statement

to your credit report (youre

allowed 100 words or fewer)

explaining the circum-

stances. Dont pay a credit

repair company to do whatyou can take care of free.

You wont spot errors

if you dont examine your

credit report. Youre enti-

tled to a free copy every

12 months. Stagger requests

to each of the three major

bureaus at www.annual

creditreport.com to see a

report every four months.

A free service at www.credit

sesame.com tracks activityon your Experian report

and alerts you to changes.

BEWARE ERRORS ONYOUR CREDIT REPORT

FOLLOW THESE STEPS TO CLEARUP ANY MISTAKES.

JOHNDUDLEY, OWNEROFUNITEDHOMEEXPERTSANDUNITED

Painting, in Ashland, Mass., has had an office in his home

since 2001 but has never claimed the home-office deduc-tion. I was always told by my accountant that there was

a very high probability of triggering an audit, he says.

Dudley and other self-employed people may want to give

the deduction another chance. Under new IRS rules, tax-

payers will be able to use a simple formula based on the size

of their home offices. The streamlined method, available

for 2013 returns, lets taxpayers deduct $5 per square foot,

up to a maximum of 300 square feet, or $1,500. Taxpayers

who choose this option wont have to fill out a 43-line form

listing actual expenses, such as the percentage of utilities

used in their home office. Dudley estimates that the new

rule would allow him to deduct $720 from his taxableincomea savings of about $200. (In some cases, itemiz-

ing will get you a bigger deduction. Ideally, you should

calculate the deduction both ways to see which delivers

the better break.) The rule doesnt change eligibility re-

quirements. The office must be used regularly and exclu-

sively for business. Employees cant deduct a home office

unless their employer requires them to work from home.

But if you qualify, theres no reason not to claim this tax

break, says consultant Gene Fairbrother, of the National

Association for the Self-Employed. The IRS is giving you

an opportunity. Dont be afraid to take it. SANDRA BLOCK

TAXES

HOME-OFFICE BREAKDEDUCTIONS JUST GOT EASIER FORSELF-EMPLOYED TAXPAYERS.

App-titude

NEVER MISS A

DEDUCTION

Start tracking next years

tax deductions now with

Write It Off, a new app avail-

able for $2.99 for

iPhone and Androidphones. When you

get a receipt for a

deductible purchase

or service, enter the

date, amount and category,

such as medical or child-care

expense, into the app. Then

take a photo of the receipt.

You can find free wallet apps

online, but Write It Off goes

a step further with an export

function that lets you editrecords on your home com-

puter. SUSANNAH SNIDER

JOHN DUDLEYMIGHT FINALLY

DEDUCT HISHOME OFFICE

THIS YEAR.

u

e

BORROWING


20/76


21/76

FRIDAY, MAY 17FRIDAY, MAY 17Celebrate Bike to Work Day with

a two-wheeled, money-saving com-

mute. Traffic congestion alone costs

the average driver $818 a year.

SUNDAY, MAY 19SUNDAY, MAY 19Commencement Day at many col-leges. Book a grad an appointment

with a financial planner to map out

loan repayment, budgeting and in-

vestment plans. Find a planner at

www.napfa.org; expect to pay $100

to $300 per hour. KAITLIN PITSKER

WEDNESDAY, MAY 1WEDNESDAY, MAY 1Sell in May and go away? The Wall

Street adage stems from the fact

that since 1950, the S&P 500 has

returned an average 1.2% per

month from November through

April but only 0.2%

each month from Maythrough October.

SATURDAY, MAY 4SATURDAY, MAY 4Berkshire Hathaway holds its

annual shareholder meeting in

Omaha. Planning to attend? Viewthe visitors guide at www.berkshire

hathaway.com/sharehold.html

for a schedule of events and info

on discounts at Berkshire retail

holdings.

SUNDAY, MAY 12SUNDAY, MAY 12Mothers Day. Treat

Mom to a free cup or

cone at TCBY.

Take advantage

of shoulder-season travel

deals before

summer prices

go into effect

after Memorial

Day. Save 10% to

30% on flights and

hotels; save up to 50%

on entertainment.

*DEAL OF THE MONTH

CALENDAR

05/2013

Consistently among themost competitive ratesin the country

Live, helpful customerservice day or night

Your moneyneeds an Allyevery day of

the year.

allybank.com | 1-877-247-ALLY

2009-2013 Ally Financial Inc.

ISTOCKPHOTO.C

OM


22/76

20


JAMES K. GLASSMAN>Opening Shot

AHEAD //STOCKS

Big Tech at Big Discounts

In the 1990s, a small group of technologycompanies, many of them tiny buds

when the decade began, blossomed into

the biggest roses the U.S. stock market

had ever seen. For example, Microsoft

(symbol MSFT) reached a market capital-

izationthat is, shares outstanding multi-

plied by priceof $586 billion by March

31, 2000. Thats about 50% greater than the

market cap of Apple (AAPL), the worlds

most valuable stock today. Microsoft wasnt

alone. At their peaks in 2000, Cisco Sys-

tems (CSCO) and Intel (INTC) each boremarket caps just shy of a half-trillion dol-

lars, and Oracle (ORCL) and the company

then known as AOL Time Warner were

at about a quarter-trillion.

But the world has changed. Big tech

stocks started declining in the spring

of 2000, and, with a few exceptions, they

still havent recovered. Microsofts market

cap is only $236 billion today, and Cisco

and Intel are worth just over $100 billion.

The very nature of these stocks has

changed as well. In the past, paying a divi-dend was a sign that a company was dowdy;

investors in hot tech firms were only too

happy to let smart executives retain and

reinvest their profits. Now, however,

Microsoft sports a dividend yield of 3.3%

more than Procter & Gamble (PG). Cisco

yields 2.6%; Intel, 4.1%; and Apple, 2.5%.

Moreover, in early March, Apple, Cisco, Intel

and Microsoft each traded at less than 11

times estimated 2013 earnings. Thats con-

siderably lower than the price-earnings

ratios of P&G, Johnson & Johnson (JNJ),Duke Energy (DUK) and Standard & Poors

500-stock index as a whole (all prices

and related data are through March 7).

Unfairly snubbed.In my view, however, thetech giants dont deserve to be ostracized,

because they represent some of the best

values in the stock market. Many of them

still generate double-digit earnings growth,

have beautiful balance sheets and have

shown that they can adapt to a changing

marketplace that, in its latest evolution, isturning from personal computers to com-

puting via mobile devices. At worst, you

can collect your dividends while you wait

for Mister Market to come to his senses.

Stocks of many tech giants are much

cheaper than they were at the nadir of the

200002 bear market. In 2002, for in-

stance, Cisco bottomed at just over $8. That

year, the company, which makes hardware

and software that are critical to the func-

tioning of the Internet, earned $2.9 billion.

Cisco now trades at $22, or about 2.7 timesits 2002 price, yet its annual profits exceed

$10 billion. And because Cisco has been

buying back its stock over the past decade,

it has two billion fewer shares outstanding,

so earnings per share have quintupled.

Theres more. Cisco has $46 billion in

cash, compared with $16 billion in debt

(thats net cash of about $6 per share).

Ciscos net profit margin (earnings as a

percentage of revenues) is a lovely 26%;

P&Gs is 16%, by contrast. Like many tech

companies, Cisco does not have to plow bigchunks of its profits into capital investment

in new plants and equipment. And analysts

on average project that Ciscos earnings

will grow 8.4% annually over the next

few years. Thats not torrid, but its more

than the average large U.S. company. In

short, Cisco is a growth stock that the mar-

ket has priced as an extreme value stock.

So is Microsoft, the worlds largest soft-

ware maker, with a net profit margin of

30% and earnings expected to grow at

the same 8.4% annual pace as Cisco. Mi-crosofts stock bottomed in 2002 at just be-

low $21. Today, it trades at $28, up by about

one-third. Yet profits have more than dou-

bled. As for Intel, its price is up by about

half, but its earnings have nearly tripled,

and analysts predict that they will rise

12.3% annually over the next few years.

The problem with my analysis, you might

say, is that its nothing new. Tech stocks

have been cheap for a long time and seem

to get cheaper by the day as their P/Es

The techgiants dontdeserve tobe ostracized,

because theyrepresentsome of thebest valuesin the stockmarket.


23/76

For more information, visit marketvectorsetfs.com 888.MKT.VCTR

Three-Year and Overall Morningstar Ratings as of 2/28/13.

2013 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and(3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from anyuse of this information. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-AdjustedReturn measure that accounts for variation in a funds monthly performance (including the effects of sales charges, loads and redemption fees), placing moreemphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derivedfrom a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. Of U.S. ExchangeTraded Funds and U.S. Open-End Mutual Funds (as defined by Morningstar), the overall and three-year rating for: SMB was 4 stars out of 140 funds in the

muni national short category; ITM was 4 stars out of 222 funds in the muni national intermediate category; MLN was 4 stars out of 224 funds in the muninational long category; HYD was 4 stars out of 150 funds in the high yield muni category. Past performance is no guarantee of future results.

The risks associated with investments in municipal bonds include, but are not limited to, the following: Municipal bonds are subject to risks related tolitigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in theissuers financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from theassets. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. Municipal bonds may be less liquid than taxablebonds. There is no guarantee that the Funds income will be exempt from federal or state income taxes, and changes in those tax rates or in alternativeminimum tax rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains,if any, are subject to capital gains tax. Some portions of the distributions from HYD may be subject to the Alternative Minimum Tax (AMT).

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interestrates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain aprospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR or visit marketvectorsetfs.com. Please readthe prospectus and summary prospectus carefully before investing.

V A N E C K S E C U R I T I E S C O R P O R A T I O N , D I S T R I B U T O R 3 3 5 M A D I S O N A V E N U E N E W Y O R K , N Y 1 0 0 1 7

HYDHigh Yield Municipal Index ETF

SMBShort Municipal Index ETF

ITMIntermediate Municipal Index ETF

MLNLong Municipal Index ETF

Muni ETFs: Yield

and Performance


24/76

22


At worst,you cancollect your

dividendswhile youwait forMisterMarketto come tohis senses.

contract. It seems investors dont believe the

growth projections, as modest as they are.

Certainly, theres reason to worry. In a

report to clients, analyst Steven Miluno-

vich, of UBS Securities, points out that of

the 15 biggest tech stocks in 1990, only one,

International Business Machines (IBM), isstill in the top 15 today. And IBM could just

as easily have slid into oblivion without a

brilliant rescue orchestrated by former CEO

Lou Gerstner. Eastman Kodak (EKDKQ),

the seventh-largest tech company in 1990,

is now in bankruptcy reorganization. Nokia

(NOK), the fifth-largest tech company as

recently as 2000, with a market cap of $210

billion, now has a value of $13 billion.

Shares of Advanced Micro Devices (AMD),

once a hardy competitor to Intel, have

plunged from $43 in early 2006 to $2.55 asprofits have evaporated. At the end of 2000,

even after a big skid in their share prices,

Hewlett-Packard (HPQ), Yahoo (YHOO)

and Dell (DELL) all had market caps greater

than $100 billion. Today, their combined

market value is less than $100 billion, and

each is undergoing drastic restructuring.

So its not coming up roses for all the tech

giants. Milunovich, drawing from Nassim

Nicholas Talebs bookAntifragile, argues

that the sheer size of these companies

makes them fragilethat is, subject to thestresses and volatility characteristic of in-

novation and shifting consumer tastes. But

innovation and flexibility also render some

big tech companies antifragilethat is, they

thrive on change. Among the leading anti-

fragile techs cited by Milunovich are Ama-

zon.com (AMZN), Google (GOOG) and

IBM. I like all three but would by no means

consider their stocks cheap. Among the

value giants, Milunovich says storage king

EMC (EMC), trading at 13 times estimated

2013 earnings, and Apple, selling at 9 times

estimated earnings, fall in the middle of thefragileantifragile spectrum.

Winning by changing.This formulation makessense. Investors should look for tech com-

panies that constantly reinvent themselves

but offer a degree of protection with their

strong brand names, such as Microsofts

Office software and Xbox video-game

console. I disagree with Milunovichs judg-

ment about Dell, which he sees as very

fragile. In fact, Dell is a great example of

a woefully undervalued big tech company,and if its bid to go private is successful, I

expect it will prove the catalyst for higher

P/Es for tech companies all around. Like

Gerstner, Michael Dell may try to trans-

form the company he founded by getting

out of the low-profit PC business entirely

and concentrating on networking and stor-

ageor maybe on products we cant even

imagine. Its not easy for a large company

to engage in this kind of disruptive change.

But its more likely to happen at big tech

outfits because they generate so much cashand because they have less to lose when

they make a big change compared with, say,

a retailer that decides to shift its focus from

brick-and-mortar outlets to Internet sales.

I like Dell, but Id wait to see how the buy-

out bid plays out before buying. And Id avoid

Intel because of the big bucks needed to

build chip factories. Just focus on five of the

behemoths I mentioned earlier: APPLE, CISCO,

EMC, MICROSOFT and ORACLE. I cant tell you

precisely which of their products will propel

earnings for the next decade, and competi-tive threats will always loom. Just look at

the huge gains South Koreas Samsung has

made in just a few years (its shares dont

trade on U.S. exchanges). But these five U.S.

giants have proved they can innovate and

defend, and they have loyal customers, loads

of cash, solidly rising earnings, great global

markets and absurdly low stock prices.

JAMES K. GLASSMAN IS EXECUTIVE DIRECTOR OF THE GEORGE W. BUSHINSTITUTE, IN DALLAS, WHOSE LATEST BOOK ON ECONOMIC POLICY ISTITLED THE 4% SOLUTION. HE OWNS NONE OF THE STOCKS MENTIONED.

AHEAD //OPENING SHOT

5 TECH BEHEMOTHS AT BARGAIN PRICES

Glassmans Favorites

All of the stocks on this list, save Apple, hit their record-high prices in late 1999 or

early 2000. (Apple reached its apex last September.) At any rate, all of the stocks

look cheap, with price-earnings ratios below the overall stock markets P/E of 14.

Company SymbolRecentprice

All-timehigh

Marketvalue

(billions)

Price-earnings

ratio*

Est. 35 yr.earnings

growth rate Yield

Apple AAPL $431 $702 $404.3 9 19.0% 2.5%

Cisco Systems CSCO 22 80 116.3 11 8.4 2.6

EMC EMC 24 103 50.5 13 13.2 0

Microsoft MSFT 28 58 235.7 9 8.4 3.3

Oracle ORCL 36 46 170.2 13 12.0 0.7

As of March 7. *Based on estimated earnings for 2013. Based on estimated earnings for the four quarters ending January 2014.

SOURCES: Thomson Reuters, Yahoo.


25/76

23


SADLY, YES. ALTHOUGH THE

new $5.25 million exemp-

tion shields the vast major-

ity of estates from federal

taxes, state estate taxes are

alive and well. Currently,

21 states and the District ofColumbia impose some type

of death tax, and most kick

in at a level much lower

than the feds trigger.

In the past, state estate

taxes were a nonissue for

most families. Federal law

provided an estate tax

credit that cut the federal

bill by the amount paid in

state estate taxes. States

were happy to use this pickup tax to collect funds that

would have otherwise gone

to the federal government.

In 2005, though, the

credit was repealed, leaving

states to their own devices.

And in some states that con-

tinue to collect estate taxes,

the difference between the

federal and state tax exemp-

tions is huge. New Jersey

taxes estates worth more

than $675,000. Rhode Is-

land nicks those worth

more than $910,725, and

New Yorks estate tax ap-

plies to estates valued at

more than $1 million. Allthree states impose a top

rate of 16%.

At those thresholds, you

dont have to be a Rocke-

feller to worry about taxes

diminishing the size of your

legacy. Remember, the value

of your home and retirement

accounts is included, notes

Richard Behrendt, director

of estate planning for Bairds

private wealth managementgroup. The proceeds of a

life insurance policy could

count, too, depending on

how the policy is owned and

who gets the money.

Inheritance taxes. Complicat-

ing matters, eight states

impose an inheritance tax.

Unlike an estate tax, which

is levied on the estate before

it is distributed, an inheri-

tance tax is paid by the

beneficiaries. Spouses are

exempt from inheritance

taxes, and in some states, so

are children and close rela-

tives. Maryland and NewJersey impose both estate

and inheritance taxes.

Behrendt says some se-

niors take state death taxes

into account when deciding

where to retire. Florida,

Arizona and Texas, for ex-

ample, impose neither an es-

tate nor an inheritance tax.

If youd rather not move,

you can limit or avoid state

estate taxes with properplanning. Connecticut is the

only state that imposes a tax

on gifts made while youre

alive, Behrendt says. (The

Constitution State taxes

cumulative lifetime gifts

of more than $2 million at a

top rate of 12%.) In all other

states, you could literally

be on your deathbed, give

away your fortune, and die

with less than the threshold

amount, he says. That

does give you a lot of

flexibility.

Since deathbed giving

isnt considered sound

estate planning, its a goodidea to discuss strategies

with an attorney who is

familiar with your states

laws. Keep in mind, too,

that while federal estate

taxes appear settled for

now, state estate and inheri-

tance taxes are a moving

target. That makes it impor-

tant to update your estate

plan periodically. Just last

year, for example, lawmak-ers in Tennessee voted to

gradually increase the

states inheritance tax ex-

emption on the way to phas-

ing out the tax completely

in 2016. Maines estate tax

exemption increased to

$2 million from $1 million

on January 1, but legislation

has been introduced to roll

it back. SANDRA BLOCK

GAME PLAN?Federal estate taxes arent an issue for me. But

should I worry about state death taxes?


26/76

24


Making Finances Fun

No one would disagree that taking thetime to manage your finances is re-

warding, at least in the long run. But

few would call it fun. Thats chang-

ing, however, as financial institutions and

Web sites start to take cues from World of

Warcraft, Farmville and other games. Why?

Consider that more than 180 million people

in the U.S. play video games for an average

of more than 56 hours each month, accord-

ing to a 2012 report from Filene Research

Institute, a credit union think tank. In fact,

in the U.S. games account for nearly half ofthe time spent on mobile apps. By contrast,

consumers spend less than three hours per

month on financial planning and budgeting.

What if you could gamify your finances?

Gamificationand yes, there is such a buzz-

wordrefers to the application of game de-

sign and mechanics to engage audiences and

solve problems. The intent is to harness the

positive chemical reactions that humans

experience when interacting with games.

Gabe Zichermann, author ofGamification

Revolution, lists three main gamificationelements: feedback (think progress bars,

leader boards or badges), friends (collabo-

rating with or measuring yourself against

colleagues, family, friends or the real world)

and fun (almost anything, from completing

a quest to playing a role to participating

in a casino-like slot or scratch-off game).

Big winners. Gamification has been suc-

cessful in a number of areas, including

finance. During a six-month pilot last

year, for example, 14 credit unions en-couraged members to use SaveUp (www

.saveup.com), a site that employs prin-

ciples of game design to reward responsible

behaviors, such as whittling debt, boosting

savings and improving financial literacy

(by watching targeted videos, say, or taking

quizzes). At the end of the pilot, 55% of

users said the program motivated them

to pay down debt, increase savings or both.

Along the way, users watched more than

7,800 videos and nearly 250 won prizes,

among them several $1,000 prize winners.SaveUp users register their various finan-

cial accounts at the site, including savings

and checking accounts, credit cards, stu-

dent loans, IRAs, and so on. (The site

has bank-level encryption, and financial-

account numbers and log-ins are not saved.)

A positive financial action earns you cred-

its. Redeem your credits to play various

games and you might win prizes ranging

from gift cards to a car or vacation to a

$2 million jackpot. And SaveUp periodi-

cally poses challenges to its users. LastJanuary, for example, the site offered one

entry toward $10,000 in cash prizes for

every day that you did not spend money.

A host of other game-savvy sites are

focused on finances. Payoff (www.payoff

.com) aims to help you pare debt and save

money; PiggyMojo (www.piggymojo.com)

and ImpulseSave (www.impulsesave.com)

focus on turning thoughtless spending into

thoughtful saving. Wall Street Survivor is

a virtual stock market game in which users

complete missions (and earn virtual re-wards) by reading articles, watching videos

and taking quizzes about investing con-

cepts before managing a virtual portfolio.

Study up. Before you play one of these games,

make sure the providers interests are

aligned with yours. The potential for manip-

ulationto get you to use a particular ser-

vice or productshouldnt be overlooked,

especially where money is concerned. Just

because an experience is fun and your friends

are doing it doesnt mean you dont have todo your research, cautions Zichermann.

And prepare to engage with your finances

more often. SaveUp CEO Priya Haji says

that some 25% of registered users come to

SaveUps site every day. Look at it this way,

she says: If dealing with your personal fi-

nances is akin to taking your vitamins, then

gamifying your finances is like taking

gummy vitamins.

ANNE KATES SMITH>Your Mind and Your Money

ANNE KATES SMITH IS A SENIOR EDITOR OF KIPLINGERS

PERSONAL FINANCEMAGAZINE.

The intentis to harnessthe positivechemical

reactionsthat humansexperiencewheninteractingwith games.


27/76

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26


INVESTING

Our 25Favorite

MutualFundsAn emerging-markets stock fundand two nontraditional bond

funds join the Kiplinger 25.


29/76

AFTER A YEAR

whennearly every-

thing worked, why

make changes? As the

saying goes, If it aint

broke, dont fix it.

Over the past 12

months, most marketsposted gains. Standard

& Poors 500-stock

index returned 16.2%,

and developed foreign

markets climbed

12.8%. A broad index

of high-quality U.S.

bonds earned amodest 2.7% over the

12-month period, but

high-yield corporate

BY NELLIE S. HUANG

27PHOTOGRAPH BY GINA LeVAY

HARDINGLOEVNERS

MANAGERS MAKENO EFFORT TO

TRACK AN INDEX.FROM LEFT,

CRAIG SHAW,RUSTY JOHNSON

AND RICHARDSCHMIDT.


30/76

28


INVESTING // MUTUAL FUNDS

ries. And we avoided funds with hefty

stakes in long-term government bonds,

which are especially sensitive to rising

rates, and focused instead on funds with

lower average durations, a measure of

interest-rate sensitivity. We also added

a new emerging-markets stock fund.(For more on how we choose all the

funds in the Kip 25, see the box below.)

A NEW STOCK FUND

The managers of some emerging-

markets stock funds start by assessing

the big picture. At HARDING LOEVNER

EMERGING MARKETS, the focus is on find-

ing outstanding companies.

The process starts with screens.

Managers G. Rusty Johnson, Craig

Shaw and Richard Schmidt use filtersto identify growing, high-quality

companiesfirms that boast high and

sustainable profit margins and return

on equity (a measure of profitability),

carry little debt, and exhibit consistent

growth, as measured by rising sales,

profits or dividends. Then they dig

deep, talking to company officials,

competitors and industry analysts

who cover the stock. The managers

make their own sales and profit fore-

casts, which they use to estimatewhat they think a company is worth.

Finally, all of the portfolio managers

and analysts at Harding Loevner,

a Bridgewater, N.J., firm that focuses

on foreign stocks, discuss the com-

panies under consideration. People

beyond the emerging-markets team

are key to the discussion, says John-

son. Collective teamwork provides

insight and minimizes errors.

The resulting 75-stock portfolio

covers 17 of the 21 major emerging mar-kets, such as Brazil, China and India,

as well as a smattering of frontier na-

tions, including Nigeria and Qatar. The

managers avoid real estate and utility

firms, two groups they think fail to

deliver consistent returns. Rather, the

fund is heavy on technology, financial,

industrial and consumer-products

companies, including electronics giant

Samsung and AIA Group, a financial-

services firm based in Hong Kong.

How We Pick the Funds

WE DONT CRAFT A LIST OF 25 NEW FUNDS EVERY YEAR. ONCE A FUND MAKESTHE KIPLINGER

25, we think long and hard before removing itand we have to have a worthy fund with which

to replace it. Indeed, dropping a fund for performance reasons is always a tricky call. But in

some cases, the fund makes it easy for us. We replaced BBH Core Select (symbol BBTEX), for

example, because it closed to new investors in November 2012.All of which leads to how we go about finding a good fund. We start by screening for no-

load funds with above-average long-term performance, low-to-moderate expenses and a

reasonable initial minimum investment. But its not enough to look at a funds long-term

returns. One superb year may make a mediocre fund look better than it really is. So we also

pay attention to year-by-year results. How did a fund weather the catastrophe of 2008? Or

2002? How does a fund stack up against other funds in its peer group? Against its bench-

mark? We want a fund that consistently shows up in the top half of its category.

We pay attention to risk. We look at standard deviation (a measure of volatility) and how

a fund has performed in down markets. And with regard to bond funds in particular, were

trying to make sure that the funds we recommend wont crater once interest rates start to

rise (bond prices and rates usually move in opposite directions). We also look to see that a

funds current manager or team of managers is responsible for the long-term record. But wedont automatically rule out a new manager if he or she has compiled a fine record elsewhere.

Size is important, too. A $10 billion fund that focuses on small firms, for example, wouldnt

pass muster. We make exceptions for incumbent funds on a case-by-case basis. For instance,

Fidelity Low-Priced Stock (FLPSX) has a whopping $37 billion in assets. Size hasnt hindered

lead manager Joel Tillinghast yet, but we probably wouldnt add such a big fund today.

Our final step: a discussion with the managers. Although shareholder letters and annual

reports can be informative, we get a bet ter measure of a manager through direct contact,

either face-to-face or over the phone. Several times in recent years, weve come close to

adding a fund, only to find that a manager is taking on too much risk or relies more on quanti-

tative data than on fundamental research. In short, if the manager interview turns up any

concerns about the fund, we walk away. If it doesnt, then we have a winner.

*The Kip 25

bonds andconvertible bonds produceddouble-digit gains.

As for the Kiplinger 25, the list of

our favorite no-load mutual funds, all

but one (a commodity fund) gained

ground. In one way, that made our

task in compiling this years list easierthan usualwe didnt have to consider

removing any funds for outright aw-

fulness. (For more on how our funds

fared, see page 30; all returns are

through March 8.)

But this year, we decided to take an

extra-close look at the bond funds in

the Kip 25. Bond investing isnt easy

these days. Yields on supposedly low-

risk Treasury bonds remain in the gut-

ter, and the additional interest you

collect from lesser-quality bonds is low

by historical standards. When interest

rates begin to rise in earnest, bonds will

lose value and so will funds that invest

in them (the yield on the ten-year

Treasury bond has already jumped

from a low of 1.4% last July to 2.1%).

Because the Federal Reserve is com-mitted to keeping rates low until the

economy is on sounder footing, we

dont expect that a bear market is

imminent. But in the interest of safety

in a category that is normally the

province of cautious investors, we

wanted to include more bond funds

that are well positioned to withstand

rising interest rates.

In particular, we chose two new

bond funds from the closely related

multisector and unconstrained catego-


31/76

29


Join senior associate editor Nellie S.

Huang and investing editor Manny

Schiffres for a free live online chat on

April 11, from 1 P.M. to 2 P.M. eastern

time. Go to http://live.kiplinger.com.

LEARN MORE ABOUT

THE KIPLINGER 25

SIMON LEE,LEFT, AND CARL

KAUFMAN CANINVEST INALMOST ANYKIND OF BONDFOR OSTERWEISSTRATEGICINCOME.

Says Johnson: We believe in deviat-

ing from the benchmark by buying

more of what we have confidence in.

Since its November 1998 inception, the

fund has gained 14.2% annualized,

outpacing its benchmark by an averageof 1.6 percentage points per year.

BOND PICKERS UNCHAINED

Stephen Kane likes to call METROPOLITAN

WEST UNCONSTRAINED BONDa best ideasfund. Thats because although Kane and

co-managers Laird Landmann and Tad

Rivelle make the big-picture calls, they

rely on their firms deep bench of ana-

lysts and portfolio managers (almost

70 people in all) to supply their best

ideas. The fund is not constrained by

a benchmark, says Kane, so we can

concentrate on our best ideas without

being concerned about owning too

much or too little relative to an index.

Kane and colleagues have built a

portfolio designed to protect against

rising interest rates. For starters, they

have 26% of the funds assets in mort-

gage securities that arent guaranteed

by U.S. government agencies and 14%

in emerging-markets corporate bondsissued in local currencies (the non-

agency mortgages have higher yields

than agency mortgage securities, such

as Ginnie Maes). In addition, the man-

agers have sold short Treasury futures,

a position that will gain in value if bond

yields rise. By doing so, theyve short-

ened the funds average duration to a

superlow 1.3 years. That suggests that

Unconstrained Bond would lose 1.3%

if interest rates rose one percentage


32/76

30


point. The fund yields 2.9%.

Unconstrained Bond has delivered

impressive results in its relatively

short history. Since its launch in Sep-

tember 2011, it has returned a cumula-

tive 27.2%. That beats its average

peernontraditional, or go-anywhere,bond fundsby 18.2 percentage points.

Kane, Rivelle and Landmann

started their careers at Pimco in the

1990s. After a brief interlude at Hotch-

kis & Wiley to launch a fixed-income

division, they founded Met West in

1996. TCW, another California-based

money-management company, bought

Met West in 2010.

PLENTY OF LEEWAY

OSTERWEIS STRATEGIC INCOME doesnt betagainst bonds the way Met West Un-

constrained does, but that doesnt mean

its managers are hemmed in much.

Co-managers Carl Kaufman and Simon

Lee have the freedom to invest large

chunks of the portfolio in almost any

kind of debt, including investment-

grade and junk corporate bonds,

convertibles, U.S. government bonds,

floating-rate debt, foreign IOUs and

preferred stock.

Lately, Kaufman and Lee have fa-vored high-yield debt and convertible

bondsespecially ones with maturi-

ties of three years or less. Thanks to

those short-maturity bonds, the port-

folios average duration is a trim 2.7

years, which implies the fund would

lose 2.7% if rates rose one percentage

point. Of late, Kaufman and Lee have

let cash build to historically high levels

of about 14% of assets, in anticipation

of rising yields (and falling bond prices)

later this year.Osterweiss recent record is one of

lagging in strong markets but hanging

tough in rough ones. In 2008, when

the average multisector bond fund lost

15.4%, Strategic Income surrendered

just 5.5%, beating 95% of its rivals. The

next year, it gained 24.9%, a great ab-

solute return, but four percentage

points less than its typical peer. Even

so, the funds ability to limit losses has

led to superior long-term returns.

The Markets and Our Picks Thrive

WHAT A DIFFERENCE A YEAR MAKES. OVER THE PAST 12 MONTHS, STANDARD & POORS

500-stock index has powered ahead with a 16.2% return. Foreign stock markets, which had

suffered double-digit losses in the year preceding our May 2012 Kiplinger 25 package, climbed

as well: The MSCI EAFE index of stocks in foreign developed countries returned 12.8%. (All

returns are through March 8.)

Our picks from a year ago fared well. The 12 U.S. stock funds edged the S&P 500 by climb-

ing an average of 17.0%. Mairs & Power Growth, which we added to the Kip 25 in late 2012

to replace BBH Core Select after it closed to new investors, led the way with a 23.3% gain.

Dodge & Cox Stock was close behind, with a 22.2% return. And T. Rowe Price Small-Cap Value

and Homestead Small-Company Stock each earned 19.9%. Both outdid the 18.6% return of

the Russell 2000 index of small companies.

On the foreign front, Dodge & Cox Interna-

tional Stock beat the EAFE index with a 14.7%

return. But Harbor International lagged by 4.0

pe

kiplingers personal finance - may 2013

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