Dealing with Credit Reports

Someone I know recently wanted to know how to check their credit report. Rightfully scared of all of the potential scams related to getting credit reports they asked me how I would do it. I dug up this article from Kiplinger's to help answer their question.

The article details one person's fight to get a bad mark off of their credit record. Most importantly it shows how to get your free copy of your credit report.

You can get a free copy of your credit reports at the three major credit bureaus -- Equifax, Experian and TransUnion -- once a year at AnnualCreditReport.com. You can also get a free report if you've been denied credit based on information in your report.

Start at the source. As long as the credit bureaus comply with the Fair Credit Reporting Act and verify that they're correctly reporting the information they received from a lender, they consider their job to be done. So your first call should be to the lender. When you have enough information from the lender to correct the mistake, start your challenge.

As always see my disclaimer.

Stand Pat or Sale

I have seen and heard a number of Finance industry pundits recently answering the question of should investors "hold or sale." They normally go through the typical discussion of the investors time horizon and chance the stock prices will recover, etc.

What I find remarkable is that not one of these discussions has suggested the investor consider the quality of the companies in which the investor owns stock. At a bare minimum you should consider whether the companies you invested in are close to bankruptcy or not. If you have invested in highly leveraged industries, banking, automotive you really need to ask yourself if this company going to survive the down turn to participate in the recovery.

Just a few years ago leverage (borrowing money) was a way of producing killer profits, but when credit is hard to come by, that debt can kill the company. As always see my disclaimer, and if you are confused seek professional advice on your individual situation.

Rolling over 401Ks

With the sharp increase in people switching jobs or losing jobs in the current economy I have been asked more and more recently about what to do with the 401(k) left with a previous employer. There are 4 major options:

1. You can leave the 401(k) right where it is in the employer's plan, assuming the employer is still around. However, it is probably a good idea to move it because most 401(k) plans restrict what you can invest in to a small set of mutual funds that may not offer very good investments.
   
2. You can take it and spend it. The WORST possible option. Really you should only consider cashing out if you are over 59.5; to pay for medical treatment against some life threatening problems; Tony Soprano is after you. And if Tony is just going to break your legs, you might want to think about going that route.
   
3. Roll the 401(k) over into an IRA. This may be the best option.
   
4. If you are moving to a new job, you can move the old 401(k) to one at the new company if offered. Restrictions may apply depending on the details of the new 401(k) plan.

The big advantage of IRA's is the vast number of options, however those options can be over whelming. Sticking to the basics what I would do is check out the offerings from Fidelity, Vanguard, TD Ameritrade, or E-Trade.

Each of these 4 companies offer IRA's that will allow you to invest in a very wide range of mutual funds and individual stocks. If you plan to focus on mutual funds in the IRA I would go with look at Fidelity and Vanguard. These two fund companies offer a wide range of mutual funds. Look through the family of funds and go with the company where you most like their funds and policies. It will be cheaper to buy funds in the fund family where you have your IRA than buying funds from other companies.

If you want to take a little more control you should look at on-line brokerages for their low fee's on trades. While there are other online brokers, TD Ameritrade and E-Trade are probably the best known, and the ones I have used in the past. You will want to focus on fees, policies, ease of use, etc. when picking the right one for you. E-trade does offer international trades on foreign stock exchanges, which is a nice advanced feature for a low cost on-line trading platform.

If you still feel overwhelmed, then perhaps a retirement fund of funds is for you. These funds of funds are intended to be one stop shopping for retirement savings. For example if you are 35 you might consider looking at the Vanguard Target Retirement 2035 Fund. The idea is that the target retirement fund maintains a stock, bond, cash balance that "appropriately" manages risk as you approach retirement. Vanguard offers a range of the funds to fit the needs of people at different ages. Fidelity has similar options called Freedom Funds.

There are also more complex IRA options, for example using an IRA to buy real estate. If you are a real estate professional, home builder, or just an experienced real estate investor, that might be a good options for you.

See my disclaimer as I am not a financial professional.

New 401K Limits

For 2009 the 401K limit is now $16,500, with catchup limits for those over 50 bumping to $5,500 (for a total of $22,000).

That means many people will have free range to save as much as they can. Even at $100K a year this is 16% (or 22%) of income which is a lot for even stingy savers.

The IRA limit raises to $5000, which is good, but many folks myself included think IRA limits and 401K limits should have parity.

For more info:
Read this IRS posting, if you can.
This article at SmartMoney.
Wikipedia also has good articles: IRA and 401K

Not a CFP

I am not a certified financial planner. Really I'm not a certified anything. How ever as I listen to financial shows and read finance magazines, I realize over the years I've picked up quiet a bit of knowledge about personal finance that some people just don't know. So I hope to share a little knowledge a few times a month.