A revealing article appeared not long ago in the Wall Street Journal, titled “Turn Your Nest Egg Into Steady Cash.”  Its author, Staff Reporter Kelly Greene, instructively compared two routes by which retirees might invest their available cash so to obtain a steady flow of income.  The methods offered were predictable: an insurance company annuity or a mutual fund’s payout fund.  Both techniques are highly promoted by their respective industries.  Unfortunately, each presents notable defects that Ms. Greene, a thoroughly competent financial columnist specializing in retirement planning, alluded to in her analysis.

The annuity route, both fixed and variable, does not entice me.  The industry specializes in high fees and burdensome withdrawal penalties.  In addition, the initial cost of the annuity is lost to your forever.  An added disadvantage is that the payments you receive become worth relatively less over time.  In general, the annuity is not a device by which you will grow old in comfort.

The mutual-fund industry’s alternative, referred to as “managed payout” or “target distribution” funds, introduces uncertainties of its own.  Although the management fees are somewhat less, and the amount you invest does not automatically cease to be yours, there are no assurances that cash flow will continue at a predicted rate.  If the mutual fund managers guess wrong in their investment decisions, you may find your income stream reduced to little or nothing . . . with no recourse.

If you now expect me to recommend a technique by which you can realize a predictable annual return on your money of 10 percent or greater, I must disappoint you.  Although I regularly generate this for myself, it constitutes an active and time-consuming business, not passive investment.  Most persons are neither inclined to nor capable of involvement of this sort.  Don’t expect significantly higher yields than are offered by most FDIC-insured institutions.  And by the way, avoid like the plague promoters of programs that offer spectacular returns, sometimes up to 30 percent per month.  No good comes of that.

So what do I suggest?  You’ll be reasonably well off with a mixture of certificates of deposit, bank money market accounts, U.S. Treasury notes, and short or intermediate-term high-grade corporate bonds.  Admittedly, you’ll not beat the world in this way, but neither will the world beat you.  The advantages are that fees and costs are minimal, risk is slight, and your cash flow is easily predictable.  And of equal importance, you need retain no financial advisor to supervise your selections.  It’s a simple program to operate, with little to go wrong.

With Labor Day upon us, all minds are focused on back-to-school. Whether the grade level is pre-kindergarten or high school senior, one fixation seems overriding: College lurks in the offing, with a potentially devastating financial burden on students and family. Current conventional wisdom proclaims that only an educational institution boasting a prestigious reputation—and coincidentally high cost—can possibly be adequate. I’m in complete disagreement with that attitude and will tell you why. But first a disclaimer: For those of you with more money than you know what to do with, you may ignore what I’m about to say.

I advocate college-on-the-cheap, where the student seeks first-rate learning at the lowest cost. My blueprint calls for the first two years at a local community college followed by two years at a state university, commuting from home. Used textbooks can normally be purchased at a fraction of the cost of new ones. Furthermore, the student should spend each summer at a job, so to earn at least a portion of the year’s education costs. There is something about working that adds an important dimension to the learning experience.

Let me acknowledge that there will be many to brand my program an outline for mediocrity. I’m familiar with the claims: Unless a student attends a prestigious university, the education received will be second-rate. Lord knows, the academic community has been repeating that catechism for decades, and many persons believe it to be so. The actual fact is that four years at Harvard or Princeton Universities does not impart, to a talented and dedicated student, learning that is in any way superior to the 4-year program I’ve outlined. Neither the credentials of the professors nor the grandeur of the campus adds an iota of value to learning. This is because scholastic benefit depends more upon the student’s efforts than anything else. Nonetheless, there will be parents who will spend unbelievable sums and deprive themselves of many things, at the risk to their own eventual retirement, so their progeny can attend the idealized institution.

No argument is complete without a testimonial. My mastery of algebra in no way suffered by my classroom being a primitively lighted and ventilated Quonset hut at a city college. Similarly, my grasp of partnership law is sound, despite a one-time nameless and faceless course instructor located in a post office box some two thousand miles away. Admittedly, a smiling and enthusiastic professor in an elegant university adds a touch of stature to the process, but the motivated student who strives to learn will do so regardless of the accouterments.

A concluding thought:
A fortune spent by parents who can ill afford it, jeopardizing their own future, to provide a child with a diploma from a prestigious institution, is a pathetic waste of money. Actually, one of the finest gifts a parent can give a child is to insure that in the later years the child will not have to support their indigent parents.

Over the past year you’ve watched as real estate in your neighborhood dropped in value. It didn’t really hit home, though, until last week when your next door neighbors told you they hadn’t made mortgage payments for five months, that the bank was foreclosing, and that they’d be moving soon. For the first time you’re looking closely at your own home, wondering what the future holds.

Consider a not untypical situation. You purchased your residence three years ago, during the real estate frenzy, for $400,000. Your mortgage balance is $350,000. But as you visit weekend open houses in your area, you see homes like yours offered at $300,000. There’s an unpleasant word to describe this disparity: upside down. So what do you do?

Despite your initial despair, the key to your action involves two fundamental questions. First, do you like the home you live in? Secondly, are you reasonably certain you can afford future mortgage payments with relative ease? If the answer to both these questions is yes, your wisest decision will be to put the smile back on your face and stay where you are.

Let me offer a testimonial of sorts. In the summer of 1989, at the peak of a real estate boom, my wife and I moved into our new home, built on the lot we purchased two years earlier. Upon move-in, comparable houses were selling for about $900,000. By 1993 the market had collapsed, our house having declined in value to $600,000. Though I’ll admit to being somewhat dismayed, we liked where we lived and could easily afford it. So we simply stayed put. Living in this $600,000 house seemed as enjoyable as when it was $900,000. And we’re still here. It’s worth about $2 million now—admittedly, down from $2.5 million a year ago— but who cares? It’s as delightful as ever.

The moral: Only when your residence is unpleasant or beyond your means is its value significant. If where you live is both enjoyable and affordable, you’re home free. When you select your area prudently, values rise as years pass. Over the long haul, the booms and busts result in steady appreciation. So choose your home with care and don’t concern yourself with market gyration.