Get smart about your money
Financial columnist offers advice
By Anita Thompson
FROM THE VOLATILITY of the stock market to the low returns on savings accounts,
how to handle one’s money is a common challenge these days. We turned to Costco member and New York Times bestselling author
Daniel R. Solin, senior vice president of Index
Funds Advisors (
www.ifa.com), author and
financial columnist with the Huffington Post
and AOL, for his take.
Solin’s national bestsellers, The Smartest
Investment Book You’ll Ever Read and The
Smartest 401(k) Book You’ll Ever Read are
available in trade paperback at Costco warehouses, as is The Smartest Retirement Book
You’ll Ever Read, also available at Costco.com.
The Costco Connection: You stress the
importance of asset allocation as key to maximizing one’s investments. What is asset allocation, and how do you determine what’s best for
Daniel R. Solin: Asset allocation is the division of your portfolio between stocks, bonds
and cash. It’s critical for investors to have the
correct asset allocation in their portfolios. It’s
far more important than stock picking and
market timing, yet investors spend much more
time on these less important factors.
Fortunately, determining the right asset
allocation is not difficult. There are many asset
allocation questionnaires on the Internet. I have
one on my website
Author Daniel R. Solin suggests the order
for withdrawing retirement funds should
be first post-tax accounts, then deferred
retirement accounts—IRAs, SEP-IRAs,
401(k)s and 403(b)s—and Roth IRAs last.
CC: You have a chapter in one of your books
which basically states, “Don’t trust the govern-
ment.” What do you advise instead?
DS: Most investors don’t understand
the awesome power of the government
and how it can affect their retirement
nest eggs. For example, it’s perfectly legal
for the government to pass retroactive
tax legislation going back as far as 10
years! Low-hanging fruit for this kind of
taxation are 401(k) plans and IRAs.
Investors should be aware of the pos-
sibility that the tax rules for these (and
other) investments could change dramati-
cally. It might be prudent not to put all of your
investment eggs in any one retirement basket.
Instead, spread out your investments among
401(k) plans, traditional IRAs, Roth IRAs (if
you qualify) and after-tax accounts.
CC: You write that an immediate annuity is a
good retirement vehicle. Could you explain
what that is and why it’s a good choice?
DS: If you ask most retirees what they fear
most, it’s running out of money. That’s where
immediate annuities come in. With an imme-
diate annuity, you give an insurer a lump sum.
It gives you a monthly, quarterly or yearly
payment for the rest of your life, or for the rest
of your life and your spouse’s life, or for a
specified length of time (like your expected
lifespan plus a stated number of years).
For more on asset allocation, see the
websites for the Securities and Exchange
assetallocation.htm) or the American Association of Inividual Investors (
CC: What is a common mistake people make in
their estate planning, besides not having a will?
DS: There are many mistakes people make in
their estate planning. Here are the most common ones:
• Not taking advantage of trusts to avoid
or minimize probate
• Not naming a beneficiary for retirement accounts (or not having the beneficiary
• Not creating payable-on-death accounts,
or transfer-on-death registrations, which
would automatically transfer ownership of
cash or securities accounts to one’s heirs
• Not having a prenuptial agreement in
place, particularly for second marriages or
marriages that occurred later in life
AUGUST 2010 ;e Costco Connection 25
CC: We’re in a season of turmoil economically.
What’s ahead, and how should people prepare?
What do you see on the financial horizon?
DS: We need to fundamentally change the
way investors invest and even think about
investing. There is no investment guru who
has the ability to predict what will happen to
the markets, to the economy or to the price of
any individual stock.
Markets are random and efficient. What
drives stock prices is tomorrow’s news, and no
one knows what that news will be. Want proof?
British Petroleum started the year with its stock
priced at $60 per share. It’s now hovering
around $30. Obviously, the decline was caused
by the massive oil spill in the Gulf of Mexico.
No one could have predicted that catastrophe.
You need to tune out short-term noise
and focus on long-term data. If you have less
than five years before you will need 20 percent
or more of your invested funds, you should
have no exposure to the stock market. If you
have a time horizon of five to 12 years, you
should take an asset allocation questionnaire
and determine an asset allocation appropriate
for you. It will range from a high of 100 percent stocks to a low of 15 percent stocks. Be
sure your funds are invested in a globally
diversified portfolio of stock and high-quality
bond index funds.
Lastly, ignore the daily financial news.
Just sit tight and benefit from the long-term
returns you earn by participating in the capital markets. C