Smart Money Moves For The New Year

Putting things in place now can enhance your portfolio in 2006

a new car or some home improvements.

SAVE MONEY
Shop in January. Richard Booth, president and CEO of FindSavings.com, a Website that aggregates shopping Websites and coupon providers, recommends stocking up on gifts for 2006 holidays during online clearance sales in January. Most sites offer free shipping, or at least 10% off. Check out www.over stock.com and www.buy.com, says Booth.

Increase your savings by 1%. Although most incomes have been flat for the last few years, Hinson advocates saving a small additional sum every year as a wealth-building goal. You can use a portion of your raise if you receive one, your tax return, or you can commit to having an additional amount deducted from your paycheck. “Interest rates are increasing, so you will be able to get higher yields for savings accounts,” Hinson notes.

Downsize your car. “If you have a gas-guzzling car, downsize it,” says Hinson. “Gas prices have come down, but we’ve seen where they can go.” If you drive to work on a regular basis, using a more fuel-efficient vehicle can add significant savings. (See “Don’t Be a Fuel Fool,” Shopsmart, this issue.)

Lock in a fixed rate. Wherever possible, change your adjustable rate mortgages and adjustable rate credit cards to a fixed rate. Depending on your credit rating and the cost of refinancing your mortgage, you could still see significant savings. Go to www.card web.com.

INVEST WISELY
Maximize your 401(k) contribution. Review your contribution to your employee retirement plan. “The new 401(k) rules allow you to save $15,000 for 2006,” says Hinson. “Make sure you adjust your contribution for additional pre-tax savings.”

Stay away from long-term bonds. As bond yields increase, bond prices decrease. “Interest rates are going up and longer-terms bonds get hit hard when interest rates continue to rise,” says Steven L. Sanders, CEO of 1st Genesis Financial Group. Sanders recommends investing in AAA-rated, high-quality corporate bonds, shorter-term government bonds, and intermediate corporate bond funds. “You don’t want to run away from bonds,” he stresses. Conservative investors can purchase inflation-adjusted bonds (e.g., TIPS, I-Bonds).

Choose large-value, dividend-yielding stocks. When talking equities, Sanders prefers large established companies that give investors a dividend. “The dividend yield helps investors a lot. They get a two-pronged positive hit — they receive the yield as well as the appreciation on the stock.”

Look at small-cap and mid-cap value stocks for growth. Smaller firms have learned to run more efficiently in the tough economic environment and have become very good values. “Some of these mid-cap companies may turn out to be great targets for acquisitions of larger companies,” says Sanders. “Larger corporations that are looking for a strategic advantage in the marketplace will look at some of those companies as a way to help them get there.”

Many larger corporations are now willing to use cash they’ve accumulated over the last few years to pay a higher price for acquiring strategically valuable firms. Sanders reports that there was an increase in mergers and acquisitions in the last half of 2005 that may continue through 2006 and 2007. Mutual funds that

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