Money Buzz 08/03
Even in the best of times, knowing there's money stowed away to cover unexpected circumstances can be a comfort, which is why financial planners recommend establishing an emergency fund to see you through a business lull or stock market downturn. In times of uncertainty, that financial security blanket is even more crucial-and may need to be a tad thicker.
"I used to tell people to establish a fund that will see them through six months of living with no income," says Karen Altfest, a certified financial planner and vice president of New York City-based L.J. Altfest & Co. CFP. "Now I tell families to have enough put away for as much as a year, depending on whether it's a two-income or one-earner household."
Where should you stash your emergency cash? Low risk and liquidity are the key investment criteria, says Altfest. "If you're not satisfied with the relatively low rates you get with a CD or money market, look at short-term bond funds," she suggests. "They're not guaranteed but have proved pretty safe in the short or medium term, and you don't have to worry about due dates. You can get your money when you need it."
Critics have long decried mutual funds for fleecing investors with high fees that eat up returns, but during the market boom, no one seemed to care. Now that market mania has ebbed, Congress is looking into the allegations.
"Over the past 20 years, costs have deprived the average equity fund investor of nearly one-half of the stock market's return," John Bogle, former CEO of mutual fund company Vanguard Group, told the Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises in a recent Congressional hearing. The hearing prompted the subcommittee to investigate the level of transparency in mutual fund fees and costs as well as mutual fund governance. Specific practices of concern include soft-dollar arrangements (in which mutual funds may select brokerages that charge higher commissions in exchange for extra services, such as research reports and access to analysts) and 12(b)1 fees (fees for promoting and marketing a fund that can run as high as 1 percent of net assets).
"We've started a dialogue about mutual fund oversight," says the subcommittee's Peggy Peterson, "but we'll have to evaluate the research before we can discuss the potential for regulation and enforcement."
These days, when you send Junior off to college, chances are you've also sent along a small arsenal of expensive equipment and appliances-a laptop, a cell phone, a stereo, camera equipment, maybe even a PDA. So what do you do if something happens to this pricey personal property? Well, most likely, you replace it-which is why all that stuff your son or daughter toted off to his or her dorm room should be insured.
While your homeowner's insurance may cover the personal property of a dependent college student, buying a separate policy may be a better bet. "Most parents have fairly high deductibles on their homeowner's policies, typically $1,000," explains Karen Gallagher, president of Stillwater, Oklahoma-based National Student Services, an insurer that offers student personal property policies at schools nationwide. "So we recommend parents take out coverage that will at least cover their deductible."
After all, campus theft is far from uncommon. In fact, according to the Federal Education Department, 35,500 property crimes were committed on college campuses in 2000; Gallagher says one in 10 students will experience a theft during their time at school.
With policies starting at $55 annually, parents can insure against loss or damage to personal property owned or leased worldwide-which means Junior's laptop is covered even when he totes it to Europe during spring break. Now if only there were policies to ensure he attends classes and logs library time.
Jennifer Pallet is a New York City-based freelance writer specializing in business and finance.