3 top pieces of financial advice — from capital gains strategies to mixing up your portfolio
Renting in retirement
Older homeowners are often urged to sell their big family house and buy a smaller one. But for some, it might make more sense to rent, said Jeff Brown at The Street. "Clearly, this goes against the grain." But renting requires less cash up front than a purchase, which is appealing if you have "a special need" for extra cash or a "juicy investment opportunity." Renting also gives you flexibility if your health deteriorates and you need to move to an assisted-living facility. The rule of thumb: If there's a good chance you'll stay for 10 years, buy. If the odds favor moving in less than five years, rent. "Between five and 10 years, it's a tougher call and will hinge on a detailed look at the numbers."
The right portfolio mix
Don't let issues like the fiscal cliff distract you when deciding how to divvy up your money between stocks and bonds, said Walter Updegrave at CNN Money. Focus instead on your "personal financial circumstances," including how long you're investing for, what other resources you have, and, "perhaps most important, how much risk you're comfortable taking." If you're likely to need the money in three years or so, stick with cash equivalents such as FDIC-insured money market accounts. As your time horizon expands, add some bonds and maybe some stocks. If you're investing for retirement, check out the ratio of stocks to bonds in "target-date retirement funds" for someone your age. But don't go for a "high-octane blend" if it "gives you agita every time the market heads south."
A strategy for capital gains
The tax rate on long-term capital gains is almost guaranteed to increase from 15 percent to 20 percent next year for high-income investors. What to do? Sell your "long-term stock and mutual fund winners" before year-end and "buy the shares right back," said Bill Bischoff at MarketWatch. Think of the 2012 tax hit as an investment; the payoff is the savings you will reap from "having the gains taxed this year instead of later when rates are higher." Just be sure you hold on to any winners you repurchase for at least a year to avoid higher-taxed short-term capital gains. Granted, this plan isn't perfect. "Nobody knows what the long-term capital gains tax rate will be for next year and beyond." But odds are it'll be higher than it is now.
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