Money spoke to five families who face challenges that could keep them from meeting their financial goals. With a few tweaks to their game plan, they can get back on course. Here, the DiSilverios' story -- and the recommended financial fixes.
Managing the Family Finances: 'Spying Was Easier'-From Money
Laura DiSilverio knows how to get to the bottom of things. She spent 20 years as an Air Force intelligence officer before retiring in 2004 to write mystery novels.
Today Laura is flummoxed by the job of managing 11 investment accounts. She and her husband, Tom, are unsure whether they're on track for him to retire in 15 years and help pay for college for their daughters, Lily, 14, and Ellen, 12. As Laura puts it, "Spying was easier."
Fortunately Laura is assured of having $36,000 a year in an Air Force pension. (Tom will qualify for $18,000 at age 60 for being a reservist.) However, they estimate needing about twice that once they retire.
Their retirement accounts are 75% in stocks, with the rest evenly divided between bonds and cash. The DiSilverios' 529 college savings plans, 100% in equities, have been on a roller-coaster ride for the past few years, ending up about even. "We might as well have hidden the money in a mattress," Laura says.
Best New Money Moves
Their Finances
Income: $163,000
Assets: $428,500 in retirement savings, $38,000 college savings, $34,000 cash, $130,000 in home equity
Goals: Retire at 68 (Tom); fund college for kids
The Problem
The DiSilverios have too many accounts, says Clarissa Hobson, a financial planner in Colorado Springs, and their portfolio is not diversified enough.
Also, since their oldest daughter is just four years away from college, the all-stock 529 plan is far too risky.
The Advice
Consolidate. Tom and Laura should roll the seven old 401(k)s and IRAs into two IRAs and move all accounts to a single brokerage. "That would be less overwhelming," says Laura.
Get a better 529. The DiSilverios should switch from their high-fee 529 to the Colorado Direct Portfolio college savings plan, which offers low-cost Vanguard funds. They should select the age-based investment options, which automatically become more conservative as the girls approach college.
Re-allocate. The DiSilverios should keep more in stocks than the average fiftysomethings, says Colorado Springs financial planner Susan Strasbaugh, since they can rely on pensions.
Still, 63% in large U.S. stocks is too risky. Strasbaugh suggests cutting the large U.S. stock holdings to 31% of their portfolio and adding some international and REIT funds.
Refinance. Tom and Laura will add only $50 to their monthly payment if they refinance to a 15-year loan, allowing them to retire debt-free.
2) In the Markets today:
Stocks pared losses Monday afternoon but still finished the day in the red, as investors focused on the standoff between Greece and its private creditors and a surge in Portugal's borrowing costs.
Stocks slip as investors wait for Greece, EU-From USA Today
Stocks closed slightly lower and yields for ultra-safe U.S. government debt fell to their lowest level this year Monday while financial markets around the world waited for Greece to nail down a deal to reduce its crushing debt
Greece and the investors who bought its national bonds were close to a deal over the weekend. The investors would swap their bonds for replacements with half the face value.
Greece needs the deal to secure a crucial installment of bailout loans and avoid missing an upcoming bond payment. But the deal has been in the works for weeks and could still fall apart.
The Dow Jones industrial average dipped 6.74 points, or 0.05%, to 12,653.70. Financial stocks were the worst performers in the broader market, with Bank of America (BAC) down 3%. The Standard & Poor's 500 index lost 4.61, or 0.25%, to 1,313.02. The Nasdaq composite index slipped 4.61, or 0.16%, to 2,811.94.
Nearly two stocks fell for every one that rose on the New York Stock Exchange. Trading volume was light at 3.5 billion shares.
US Treasury prices rose, pushing yields to their lowest level this year. The euro dropped 0.6% against the dollar, and European stocks sank.
Borrowing costs for European countries with the largest debt burdens shot higher Monday. The two-year interest rate for Portugal's government debt jumped to 21% after trading around 14% last week.
In addition to the Greek debt problem, European leaders gathering in Brussels hope to focus on how to stimulate economic growth and create jobs at a time when huge government spending cuts threaten to push many countries back into recession.
The latest data showed Spain was a step closer to recession after its economy shrank in the last three months of 2011.
Experts say Europe's efforts to cut its high levels of debt will be for nothing if its economies remain uncompetitive. The leaders will also discuss a new treaty on tightening budget controls and setting up a permanent bailout fund.
But the meeting will be dominated by another topic that is not officially for discussion — Greece's debt problem.
Greece has reached a tentative deal with its private creditors that could avert a disastrous default this spring. Investors holding €206 billion ($272 billion) in Greek bonds would exchange them for bonds with half the face value. The replacement bonds would have a longer maturity and pay a lower interest rate. When the bonds mature, Greece would have to pay its bondholders only €103 billion.
But because Greece has been in recession for years, some experts fear it could need more rescue loans from its bailout partners — other eurozone countries and the International Monetary Fund— if it is to remain solvent.
Richer countries like Germany, however, are losing patience with giving Athens loans, saying the Greek government is not implementing reforms and austerity cuts quickly enough.
A German official even proposed to have an EU official directly oversee Athens' government spending. The idea was quickly rejected, however, by both the European Commission and Greek leaders.
Despite progress in Greece's debt talks with private creditors, the continued uncertainty over its finances pushed markets lower Monday.
Britain's FTSE 100 fell 1.1%. Germany's DAX was off 1%. France's CAC-40 shed 1.6%.
Sentiment, which has been relatively buoyant so far this year on hopes for a recovery in the U.S., was also dented by Fitch Ratings agency's announcement late Friday that it had downgraded five eurozone countries, including Italy and Spain.
Looking ahead, investors will keep an eye on an Italian bond auction and more earnings, which were mixed Monday in Europe — airline Ryanair beat expectations but appliances maker Philips disappointed.
In Asia, most indexes closed lower as investors there reacted to Friday's release of data showing the U.S. economy grew more slowly than expected in the last three months of 2011. The U.S. economy grew at an annual rate of 2.8% in the October-December quarter, lower than the 3% that economists were expecting.
Japan's Nikkei 225 index shed 0.5% to close at 8,793.05. South Korea's Kospi was 1.2% lower at 1,940.55 and Hong Kong's Hang Seng dropped 1.7% to 20,160.41. Australia's S&P/ASX 200 lost 0.4% at 4,272.70.
Benchmarks in mainland China, Singapore, Indonesia, India and the Philippines also fell. Taiwan and New Zealand rose.
Japan's Mitsubishi Electric plummeted 14.8% after the Defense Ministry and the Cabinet Satellite Intelligence Center said they would not sign contracts with the electric machinery manufacturer, which acknowledged it had overcharged on defense and space-related projects, Kyodo News agency reported.
Traders are awaiting more data this week for clues about which way the U.S. economy is headed. On Wednesday, the Institute for Supply Management will release its manufacturing index for January and the U.S. Labor Department will release monthly employment data Friday.
"Because the market has been expecting rather good economic data from the U.S. … I am afraid if those figures disappoint the market, it may trigger further correction in the stock market," said Louis Wong, dealing director of Phillip Securities Ltd.
Benchmark oil for March delivery fell 78 cents to $98.78 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 14 cents to end at $99.56 per barrel on the Nymex on Friday.
In currencies, the euro fell to $1.3127 from $1.3208 late Friday in New York. The dollar fell to 76.18 yen from 76.72 yen.
3) Top financial story of the day:
Deflation, not inflation, may be the theme for 2012.
Demand for Bank Loans Hints at Deflation-From The Wall Street Journal
Deflation is no imaginary threat.
Yes, the cost of gasoline is up nearly 10% from a year ago. Many Americans are still facing sticker shock in the grocery aisle. And plenty of companies have been dogged by an unpleasant run-up in their commodity costs. That said, the stronger force in the U.S. economy today is actually a deflationary one. A quarterly survey of credit conditions, which the Federal Reserve is expected to release Monday afternoon, may help illustrate this.
The loosening of the credit spigot that helped get the recovery going in mid-2009 has largely come to a halt. After seven consecutive quarters of easing standards on business loans for large and medium-size firms, banks started to tighten them in the fourth quarter as Europe's debt crisis came to a head. A similar change has occurred for lending to small firms, where standards actually began to tighten last summer. Monday's release will show whether this tightening continued at the start of the first quarter.
To be sure, banks can't keep loosening standards forever. And to say they have stopped getting easier with credit terms isn't to say they have slammed the credit window shut. Business-loan growth, in fact, has been a bright spot for banks in recent months. Through December, commercial and industrial loans outstanding were up about 10% year on year, according to the Fed. So far, though, that hasn't translated into much of a pickup in economic growth.
And that is why the U.S. can ill afford any further tightening of credit terms now. After all, demand for loans hasn't exactly been surging. In fact, the Fed's survey suggests the opposite is happening. In the third quarter, the net percentage of banks reporting stronger demand for business loans from large and medium-size firms was 20%. By the fourth quarter, that had fallen to a net 16% reporting weaker demand. Business-loan demand from small firms fell by even more.
It may be that companies have enough cash on hand that they simply don't need to borrow, or that they are raising funds in the bond market instead. Even if that holds for the biggest firms, though, smaller ones still rely on bank loans. Their weaker demand is a cautionary sign for economic growth after a disappointing 1.7% increase last year.
And it suggests that deflation, not inflation, may be the theme for 2012.
4) Quote of the Day from Dave Ramsey.com:
It always seems impossible until it's done. — Nelson Mandela
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