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 CONTENTS
KIPLINGER’S PERSONAL FINANCE
FOUNDED 1947
VOL. 75 NO. 9

AHEAD
DEFEND YOUR
INVESTMENTS
AGAINST RISING 9 TOPIC A Long-term rates will edge higher ...
PRICES. PAGE 30 Many workers want to stay home ... States boost
529 college savings plan incentives.

16 BRIEFING Exercise saves seniors money on

health care ... Credit card issuers cut limits.

COVER STORY
INVESTING
18 HOW TO PROFIT FROM ETFS Exchange-
traded funds have low expenses, they’re easy to
trade, and they’ve never been more popular. They
also come in a dizzying variety, from broad index
funds to niche products that track the latest
“meme.” Use our guide to see how ETFs can ben-
efit your portfolio. PLUS: A detailed look at the
Kiplinger ETF 20, the list of our favorite ETFs.

30 SHIELD YOUR PORTFOLIO FROM IN-

FLATION The consumer price index rose 5.4%
in June compared with June 2020. Even if that
torrid pace cools, it makes sense to protect your
investments from the effects of rising prices.

34 INCOME INVESTING Readers find some

weird winners, by JEFFREY R. KOSNETT

39 STREET SMART I still like the trillion-dollar

stocks, by JAMES K. GLASSMAN.

35 MORE ABOUT INVESTING Mutual fund

spotlight (35). News of the Kiplinger 25 (38).

MONEY
42 THE BANK DISRUPTERS “Fintechs” offer
higher yields and lower fees than many brick-and-
mortar banks—but little in the way of customer
NEIL WEBB

service. If you’re comfortable doing your banking

digitally, here are some fintechs worth a look.

ON THE COVER: ILLUSTRATION BY JUSTIN METZ 09/2021 KIPLINGER’S PERSONAL FINANCE 1

CONTENTS CONTINUED
47 CREDIT/YIELDS New perks from our best
rewards cards.
48 MONEY SMART WOMEN How to boost your
financial savvy, by JANET BODNAR.
49 MAKE A PLAN TO START REPAYING
STUDENT LOANS The payment pause ends
soon, but borrowers still have options.
RETIREMENT
52 PLAN NOW FOR LONG-TERM CARE When
should you buy long-term-care insurance, and
HOW TO HELP A FIRST-
TIME HOME BUYER.
PAGE 70
2 KIPLINGER’S PERSONAL FINANCE 09/2021
when should you self-insure? We help you weigh
the factors to determine what’s best for you.
58 LIVING IN RETIREMENT Retirement can
keep you busy, by JANET BODNAR.
FUNDAMENTALS
60 PRACTICAL PORTFOLIO To capitalize on
the next market downturn, first identify the
stocks you want to buy when their price drops.
62 MILLENNIAL MONEY Find health insurance
you can afford, by EMMA PATCH.
REWARDS
64 HOW TO WIN IN A RED-HOT HOUSING
MARKET Both buyers and sellers can take
steps to increase their chances of success.
70 GIVE A FIRST-TIME BUYER A HAND
Provide financial help—but do it the right way.
IN EVERY ISSUE
5 READER FEEDBACK A booming economy.
6 FROM THE EDITOR Is inflation really back?
72 MAKING IT WORK Tying the knot post-
pandemic.
IKER AYESTARAN
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4 KIPLINGER’S PERSONAL FINANCE 09/2021

READER FEEDBACK

A Booming Economy Credit card perks. You omitted

a valuable benefit of the
Chase Sapphire Reserve
family but do not define
that (“Briefing,” July). I am
a retired professor from a
In “From the Editor” (July), the sentence containing “and employers Visa card: the travel insur- community college in which
are having trouble filling some jobs” caught my eye. I live in New ance (“The Best Rewards nearly two-thirds of the
England in a small former mill town that has had its share of eco- Cards for You,” June, and adult students were foreign,
nomic challenges. Almost every employer in the area is hiring—but “Credit Card Perks for Car and many of them were
they’re struggling to find employees, even with advertised sign-on Rentals,” July). I switched Black (the top five countries
bonuses. I’ve never seen so many employers advertising for help or from the Amex Platinum of origin at that time were
single-family homes selling so quickly, often the same day they’re card to the Chase card Nigeria, Ethiopia, Camer-
listed (above asking price and without the customary home inspec- because of its generous oon, El Salvador and Ja-
tion). And if you are looking for a contractor to help with a home points policy and the travel maica). One cannot expect
project, they are scheduling six to 12 months out, provided you can insurance benefit. any immigrant population,
get them to return your phone call. Yes, the economy is chugging GERALD SANDERS regardless of their color, re-
along, especially here in New Hampshire. VIA E-MAIL ligion or native language, to
DAVID MCCRILLIS achieve the lifestyle of those
NEWPORT, N.H. Editor’s note: Actually, both who have lived in this coun-
Chase Sapphire Reserve and try for generations.
Biden tax hikes. After grad- more of a political approach Amex Platinum offer a travel ROSANNE BENN
uating with a business de- than a nonbiased, analytical insurance benefit. However, the BOCA RATON, FLA.
gree from the University approach. Frankly, I do not Chase card insurance is more gen-
of Illinois in 1983, it soon need anyone at Kiplinger’s erous, with a trip cancellation/ Editor’s note: The study we
became apparent to me that to tell me what to sweat or interruption benefit and coverage summarized that analyzed the
I needed to learn more about what not to sweat. Just re- up to a $10,000 limit per person, gap in housing wealth between
the stock market and invest- port the projected proposals instead of per trip. For an update U.S. whites and Blacks used data
ing principles. I subscribed and let me decide if it is on perks from several cards fea- from Realtor.com and Zillow.com,
to Money magazine, which something I need to worry tured as best rewards cards in as well as the U.S. Census. Demo-
suited its purpose quite about. I am on the alert for our June issue, turn to page 47. graphic information came from
nicely until the mid 1990s, additional unsolicited polit- the Census’s American Commu-
when a noticeable political ical content. Wealth gap. In “The Racial nity Survey. Because of the way
bent began to appear in BOB WEGNER Wealth Gap in Housing,” the Census collects data, the
what previously had been NAPERVILLE, ILL. you refer to a typical Black study included people who re-
unbiased reviews of finan- ported only Black (or African
cial news and principles. As American) as their race—that is,
Money shifted its focus, I READER POLL they did not report more than one
canceled my subscription. race. The percentage of people in
Shortly thereafter, I was
introduced to Kiplinger’s.
Do you (or you and your spouse) 2020 reporting their race as
“Black or African American,
I immediately liked the have long-term-care insurance? alone” (not a mix of races) was
format and content, and 13.4%. And according to data
I became a subscriber. The No, I (we) compiled by Pew Research
contributors have always plan to Center, about one in 10 of that
self-insure if
appeared to have solid back- necessary. population is foreign-born.
grounds and experience
73%
in the financial world, and Yes, but I CONTACT US
the guidance provided has (we) have a Reader Feedback may be edited
helped me to be a better and policy with
for clarity and space, and initials
lower bene-
more knowledgeable inves- fits and we will be used on request only if
tor. That being said, it feels will supple- 23% you include your name. Send to
as if history is beginning to ment care Yes, I (we) have a Kiplinger’s Personal Finance,
with our own policy that covers 1100 13th St., N.W., Suite 1000,
repeat itself as articles such 4% at least three
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as “Don’t Sweat the Biden years of care. to feedback@kiplinger.com. Please
Tax Hikes” (“Briefing,” For more on buying long-term-care insurance, turn to page 52. include your name, address and
July) seem to be taking daytime telephone number.

09/2021 KIPLINGER’S PERSONAL FINANCE 5

FROM THE EDITOR
Mark Solheim
Is Inflation Really Back?
I
went to high school and college in the 1970s, transitory—chiefly supply-chain disruptions
and one of my first experiences as a new
driver was waiting in a long line to gas up
the family’s Ford station wagon. OPEC’s oil
embargo had created severe gas shortages.
Gas and oil prices spiked, and the U.S. suddenly the focus of a couple of articles in this issue.
faced an energy crisis.
That’s often cited as the root of the high in- page 30, associate editor Adam Shell suggests
flation that rocked the economy over the next
decade. But the Federal Reserve’s easy-money
policy and a variety of other factors helped
fuel the era’s mix of high inflation and eco-
nomic stagnation known as stagflation. Amid
continued shortages, energy prices kept rising.
Congress lowered the speed limit to 55 miles
per hour, and President Jimmy Carter called on
the American
public to turn
down the heat
and put on a INFLATION AFFECTS
sweater. FAMILY BUDGETS TO
By 1980,
VARYING DEGREES, AND
inflation was
running at nearly SOME HOUSEHOLDS
15%. By 1981, ARE BARELY
rates for 30-year FEELING THE PINCH.
fixed mortgages
soared to more
than 18%. The
spiral didn’t stop until Fed chief Paul Volker
kicked the wind out of inflation in the early
’80s by raising short-term rates as high as
20%, which sparked a recession but
eventually allowed the economy to reset.
Since then, inflation has been mostly tame,
tempered by a more nuanced Fed policy. In
August 2008, the consumer price index spiked
5.4% from the prior year, but the Great Reces-
sion smothered the inflation embers. Now,
inflation is rearing its head again. The
CPI hit 5.4% in June, and the May
figure was 5%. The Fed maintains
that the forces contributing to the
recent price spikes are mostly
6 KIPLINGER’S PERSONAL FINANCE 09/2021
and labor shortages—that will work them-
selves out.
Your personal inflation rate. Inflation is
In “Shield Your Portfolio From Inflation,” on
a range of investments that will mitigate the
effect of rising prices on your portfolio. And in
“Ahead,” on page 9, senior editor Sandy Block
tackles inflation’s effect on consumer interest
rates for both borrowers and savers.
Retirees in particular have reason for con-
cern. As Adam points out in the inflation story,
if inflation increases 3% every year, a retiree
who has enough saved today to spend
$50,000 a year would need just over $67,000
a year by 2031 and more than $90,000 by 2041
to fund the same lifestyle. On the other hand,
Social Security benefits track inflation. And if
inflation stays hot, the Fed will likely raise
rates, boosting yields for savers.
To calculate the CPI, data collectors from
the Bureau of Labor Statistics visit or call
thousands of stores and establishments to
verify the prices of roughly 80,000 items each
month. Of course, inflation affects family
budgets to varying degrees, and some house-
holds are barely feeling the pinch.
For example, used car prices soared 45%
in June from a year earlier, and that accounts
for a big chunk of total inflation. On the other
hand, new car prices rose 5.1%, so if you’re
trading in a car to buy a new one, that will
offset much of the increase in new car prices.
Vacationers are feeling squeezed because of
spiking demand (and prices) for air travel,
hotels, rental cars and gasoline. If you’re driving,
say, 1,500 miles on summer vacation and your
vehicle gets 30 miles per gallon, you would
have recently paid $158, compared with $110 a
year ago. Some items at the grocery store have
also risen more than the overall CPI. For exam-
ple, some fruits and vegetables are more ex-
pensive because of labor shortages, but over-
all, groceries cost 0.9% more than a year ago.
Median home prices rose 15.4% in the past
year, according to one gauge of home prices
(see “How to Win in a Red-Hot Housing Market,”
on page 64). That’s bad news for home buyers.
However, sellers are in the catbird seat, and
if you have owned your home for a while and
locked in a low mortgage rate, your home pay-
ment is likely to be affordable.
The good news for everyone is that if the
Fed is correct, most of the pricing pressures
will moderate as the labor market and supply
chains return to normal. And the U.S. has
plenty of oil, so ’70s era gas lines are definitely
in the rearview mirror. Q
POON WATCHARA-AMPHAIWAN
MARK SOLHEIM, EDITOR
MARK _ SOLHEIM@KIPLINGER.COM
TWITTER: @MARKSOLHEIM
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From Investor's Business Daily, October 12, 2020, ©2020 Investor's Business Daily, Inc. All rights reserved.
©2021 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0621-1N90) ADP115182-00

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EDITOR Mark K. Solheim
EXECUTIVE EDITOR Anne Kates Smith
MANAGING EDITOR Frederic Fane Wolfer
SENIOR EDITOR Sandra Block
EDITOR AT LARGE Janet Bodnar
SENIOR ASSOCIATE EDITOR Nellie S. Huang
ASSOCIATE EDITOR Adam Shell
CONTRIBUTING EDITORS Lisa Gerstner,
James K. Glassman, Jeffrey R. Kosnett
STAFF WRITERS Emma Patch, Rivan V. Stinson
INTERN Michael Korsh
ART
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SALES
PUBLISHER Paul Vizza
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AHEAD

TOPIC A

LONG-TERM RATES
WHEN THE FEDERAL RESERVE
signaled in June that it expects to
raise short-term interest rates by

WILL EDGE HIGHER the end of 2023—sooner than an

Yields on bank savings accounts will stay low. Home
mortgage rates will remain affordable. BY SANDRA BLOCK
earlier forecast—the response was
immediate and fierce. The Dow
Jones industrial average dropped
more than 800 points, and the
price of the 10-year Treasury note
also dropped, increasing the yield

ILLUSTRATION BY NEIL WEBB 09/2021 KIPLINGER’S PERSONAL FINANCE 9

AHEAD
to nearly 1.6%. Rates on 30-year mort-
gages rose above 3% for the first time
since April.
The backdrop to all this worrisome
news was rising inflation, which
prompted some to recall the dark
days of the early 1980s, when the Fed
raised interest rates sharply to curb
it. Back then, home buyers were lucky
to lock in a 30-year mortgage for less
than 12%.
But something strange has hap-
pened in the weeks since the Fed an-
nouncement: 10-year Treasury note
yields have fallen back, and with them,
rates for 30-year mortgages. As of
July 15, the average rate for a 30-year
mortgage was 2.88%.
Economists attribute the lull in
mortgage rates to several factors,
ranging from worries about whether
the rise in the COVID-19 Delta variant
could curb economic growth to a
growing consensus that the inflation
spike is a short-term phenomenon.
“Investors are buying into the idea
that a lot of the very strong inflation
figures are due to transitory factors,”
such as slowdowns in supply deliver-
ies, says Matthew Speakman, an econ-
omist for real estate website Zillow.
Still, interest rates will eventually
head higher (although nowhere near
what we saw in the 1980s). The Kip-
linger Letter is forecasting that the
10-year Treasury will rise to 1.8% by
the end of 2021 and 2.3% by the end
of 2022. The average rate for a 30-year
mortgage is expected to rise to 3.3%
by the end of 2021 and move up to
3.8% by the end of 2022.
That means home buyers, who are
dealing with limited supply, probably
don’t need to scramble to lock in a
rate (see “How to Win in a Red-Hot
Housing Market,” on page 64).
Short-term interest rates, which
determine rates on credit cards and
home-equity lines of credit, are ex-
pected to remain near zero through
2022. That’s good news for borrowers—
assuming they can get a loan. Several
major banks, including Wells Fargo,
JPMorgan Chase and Citibank, halted
10 KIPLINGER’S PERSONAL FINANCE 09/2021
new home-equity lines of credit during
the pandemic and have yet to resume
their offerings.
Credit card issuers, on the other
hand, are eager to sign up customers,
particularly since many borrowers
used their stimulus checks or savings
on canceled vacations to pay off bal-
ances during the pandemic. Credit
card rates are still much higher than
rates on other loans—the average rate
is about 16%—but many issuers are
looking to entice new customers by
expanding their rewards programs
(see “New Perks From Our Best
Rewards Cards,” on page 47).
No relief for savers. Meanwhile, the
only good news for savers is that rates
on savings accounts, certificates of
deposit and other safe parking places
probably won’t fall any more, says Ken
A BIG RAISE
FOR SENIORS
Inflation can be particularly tough
on retirees who are living on a fixed
income, but the recent price spikes
have an upside. The Kiplinger Letter
is forecasting that the annual cost-
of-living adjustment for Social
Security benefits for 2022 will be
6.3%, the biggest jump since 1982,
when benefits rose 7.4%.
The projected increase reflects
the rebound of consumer prices
that were depressed during the pan-
demic. COLAs are calculated using
the consumer price index for urban
wage earners and clerical workers.
Tumin, founder of DepositAccounts
.com. The average rate for bank online
savings accounts is about 0.45%, and
major brick-and-mortar banks are
paying even less than that. Locking
up your money in a CD won’t boost
your yield: The average rate for a one-
year CD is just 0.17%, and you’ll get
only 0.31% on a five-year CD, accord-
ing to Bankrate.com.
It’s not just interest rates that are
keeping yields low, Tumin says. The
personal savings rate soared during
the pandemic as consumers lowered
their spending and banked their
stimulus checks for a rainy day. In
the first quarter of 2021, bank loans
accounted for only about 58% of
deposits, says Tumin, down from
69.5% in 2020. That indicates banks
have plenty of money to lend and will
be in no hurry to raise rates to attract
more deposits, even after the Fed
hikes short-term rates.
There are steps you can take to earn
a higher return on money you can’t af-
ford to lose. Some high-yield rewards
savings accounts offered by local
banks and credit unions offer rates as
high as 5%. The trade-off is that they
typically cap the amount of deposits
eligible for the high rate and require
you to meet certain criteria, such as
using the institution’s debit or credit
card a certain number of times each
month, having your paycheck direct
deposited, and conducting all of your
business online. For example, Con-
sumers Credit Union (Illinois) pays
4.09% on up to $10,000 if you spend
at least $1,000 a month on one of its
credit cards, have direct deposit and
meet other requirements.
Another option for money you don’t
expect to need right away is a Series I
savings bond. The composite rate on
Series I bonds issued through October
is 3.54%. The rate consists of a fixed
rate—currently 0% on new bonds—and
an inflation rate, which is based on the
government’s consumer price index
ISTOCKPHOTO.COM
and adjusts every six months from the
bond’s issue date (see “Earn 3.54%
With Series I Bonds,” Aug.).
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OUT OF OFFICE
EMPTY CUBICLES? MANY
WORKERS WANT TO STAY HOME
Saving money is one reason employees prefer remote work.
SEPTEMBER MARKS THE
beginning of a new school
year, and children who have
been learning remotely
won’t be the only ones
adjusting to a new environ-
ment. Millions of employees
are returning to work as
companies reopen their
physical offices. But many
employees are hesitant to
return to the office—either
because of pandemic-related
concerns or because they’ve
discovered they prefer work-
ing from home.
A survey by FlexJobs.com
found that 58% of workers
said they’d look for a new
job if they cannot continue
remote work in their cur-
rent role. But before you
give notice, there are steps
you can take to navigate
changes to your workplace—
and your budget.
If you want to continue
working from home, you’ll
need to negotiate that with
your supervisor. But first,
12 KIPLINGER’S PERSONAL FINANCE
prepare talking points that
highlight how your remote
work will benefit your em-
ployer, says Toni Frana,
a career coach at FlexJobs.
Instead of explaining how
working from home will
help you, she says, focus on
how it will increase your
productivity.
Your employer may also
be more receptive to an
arrangement in which you
work remotely part of the
time rather than full-time.
In May, Google announced
that it would adopt a hybrid
work week, requiring in-
person office work for only
three out of five days start-
ing in September. Other
companies—especially in
the technology sector—are
also developing hybrid work
models.
Still, while some com-
panies are open to hybrid
work schedules, others
want their employees back
in the office full-time. If
09/2021
your employer falls into that
group, leverage your bar-
gaining power, says Alison
Green, founder of the Ask
a Manager website and
author of Ask a Manager:
How to Navigate Clueless
Colleagues, Lunch-Stealing
Bosses and Other Tricky
Situations at Work. At a time
The Upside of Working Remotely
Amount workers say they’ve saved each week.
21%
8%
3%
Saved Less $26–$50 $51–$100 $101–$200 More
nothing than $25
SOURCE: FlexJobs
when many companies are
struggling to fill open jobs,
managers may be forced to
be more receptive to your
concerns, she says.
Anticipating a changing
budget. Nearly 60% of
Americans who worked
from home at some point
during the pandemic said
it had a positive effect on
their personal finances,
according to a survey by
Bankrate.com. People who
were able to work remotely
saved money on expenses
such as transportation,
lunches, workplace attire
and child care, says Bankrate
analyst Ted Rossman. To
cut your back-to-work costs,
ask your employer if it plans
to offer (or reinstate) sub-
sidies for parking or mass
transit. If you have unused
funds in a pretax commuter
benefits account, make sure
to use them. And now that
you’ve learned how much
money you can save by cook-
ing at home, you may be in-
spired to start bringing your
lunch to work. MICHAEL KORSH
30%
21%
17%
ISTOCKPHOTO.COM
than $200
INTERVIEW
COVID SPARKED A SURGE OF GENEROSITY
One big focus among donors: charities that address food insecurity.
Pamela Norley is president
of Fidelity Charitable, the
largest donor-advised fund
in the U.S. Fidelity recently
published “Women and
Giving,” an analysis of
how the pandemic affected
women’s philanthropy.
Since her divorce from Amazon
founder Jeff Bezos, MacKenzie
Scott has given away more than
$8 billion. What can women—
and donors in general—learn
from Scott’s philanthropy?
It’s really exciting to see her
sense of urgency with re-
spect to giving. She’s doing
it very quickly, with a rec-
ognition of the need that’s
out there because of the
pandemic. Scott has been
identifying charitable orga-
nizations that generally
have not been well funded.
They don’t do a lot of mar-
keting or have a lot of pub-
licity. But the big thing she’s
doing, which is very well
received in the nonprofit
community, is making un-
restricted donations. When
people make unrestricted
donations, they’re allowing
the management of the non-
profit to use the money in
the way that they deem best
to address their mission.
How did the pandemic affect
charitable giving by women,
and philanthropy in general?
The pandemic has rein-
forced for both men and
women what really matters,
which is helping others.
PHOTOGRAPH BY STACY HOWELL
Women have always had a consumers to give money are receiving millions in dona-
high commitment to giving, to brands that are making tions. Inevitably, some scam-
but it increased during the a difference in the world. mers will try to exploit the
pandemic. We have been Third, they’re doing impact disaster. What’s the best way
doing a study for a while investing. And fourth, they to help victims of disaster?
that asks, How important are generous, even though You should give to organi-
is giving as part of your they may not have a lot of zations that are very well
life? Post-pandemic, 84% money. Charitable giving versed in responding to
of women said it’s a signi- has become charitable disasters. Big organizations
ficant part of their lives. living for that generation. that are used to delivering
That’s up nine points from to a community that’s faced
the last time we did that The victims of the condomin- with a disaster have scale,
survey. Post-pandemic, ium collapse in Surfside, Fla., technology and volunteers
81% of men said giving is that allow the highest level
a really important part of of service to be achieved in
their lives. That’s up 12 a short period of time. Di-
points from the last survey. sasters create a significant
Donors also were moved to opportunity for people
address the economic im- to take advantage of the
pacts of the crisis. Every generosity of Americans.
year we list the top 20 orga- That’s why we generally
nizations our donors sup- point people to larger
port. In 2020, we had three nonprofits that have a
food-focused organizations history of success in
on that list for the first time helping people.
ever. People recognize SANDRA BLOCK
there is an enormous need
for basic nutrition, which is
necessary for people to live
their lives.
What giving trends have you
seen among millennials?
We just did a report a
couple of months ago on
the future of philan-
thropy, and the big insight
we gained through this re-
search is that millennials
are taking a very holistic
approach to philanthropy.
First, they’re focused on
working for a company
that aligns with their
values. Second, they’re
making decisions as
13
AHEAD
COLLEGE AID
STATES BOOST 529
PLAN INCENTIVES
STATES HAVE LONG OFFERED TAX BREAKS TO
parents who contribute to 529 college-savings
plans. Now, they’re increasingly offering an
even more straightforward incentive: cash.
Fifteen states offer matching contributions,
seed money, or other forms of financing to
encourage residents to sign up.
Money stashed in a 529 account grows
tax-free, and withdrawals are tax-free as
long as the funds are used for qualified edu-
cational expenses. While you can invest in
any state’s plan, many states provide a tax
break for residents.
The new financial incentives could also
make investing in your own state’s plan
more appealing, although the most gener-
ous grants are income-based. Colorado’s
CollegeInvest 529 plan will match contribu-
tions up to $500 a year for five years as long
as the beneficiary is 8 years old or younger
when parents sign up and the family’s ad-
justed gross income is 400% or less of the
federal poverty level ($106,000 for a family
of four). Other states have no income restric-
tions, but their offerings are smaller—$50 or
$100 for parents of newborns.
Although these incentives may encourage
more families to opt for a 529 plan, investors
should still shop around, with a focus on
plans with low fees and solid investment
options, says Emory Zink, an associate
director at research firm Morningstar. To
find Morningstar’s top-rated plans, go to
www.morningstar.com/articles/1006084/
the-top-529-college-savings-plans-of-2020.
SANDRA BLOCK
14 KIPLINGER’S PERSONAL FINANCE 09/2021
CALENDAR
09/2021
WEDNESDAY, SEPTEMBER 1
September is National Literacy
Month. In addition to exploring
your local library’s resources,
you can also download Libby by
OverDrive to check out an array of
e-books and audiobooks. The app
is free; you just need a library card
(Libby works with more than 43,000
libraries and schools worldwide).
▲ MONDAY, SEPTEMBER 6
Taking time off for Labor Day
weekend? Consider using your
downtime to do some home
improvements. Lowe’s, Home
Depot and Best Buy are expected
to offer 35% to 40% off large
appliances. Meanwhile, retailers
such as US-Mattress and Macy’s
are expected to offer discounts
on mattresses of 50% to 60%.
TUESDAY, SEPTEMBER 14
If you’re in a Medicare plan, be on
the lookout for your Annual Notice
of Change. The document lists any
changes in plan coverage, service
area or cost that will go into effect
in 2022, and it can help you decide
whether your current coverage still
meets your needs.
SATURDAY, SEPTEMBER 25
The holidays are three months
away, but it’s not too soon to start
shopping for gifts. The pandemic
has caused numerous delivery
bottlenecks that probably won’t
be resolved by December (see
“Briefing,” on page 16). If you want
your gifts to arrive on time, buy
them now.
THURSDAY, SEPTEMBER 30
Unless it’s extended, the mora-
torium on federal student loan pay-
ments and interest accrual ends
today. See our story on page 49
for advice on repayment strategies,
including what to do if you can’t
afford payments. EMMA PATCH
* DEAL OF THE MONTH
Look for 60% to 75% off
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back-to-school supplies at
big retailers such as Amazon
.com and Staples, along
with buy-one-get-one-free
deals at Target, says Julie
Ramhold, consumer analyst
for DealNews.
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AHEAD
BRIEFING
I N F OR M AT ION A B OU T T H E M A R K ET S A N D YOU R MON E Y.
EXERCISE SAVES SENIORS
MONEY ON HEALTH CARE
H ealth care costs later in
life were significantly
lower for adults who main-
tained moderate or high
physical activity levels,
according to a new analysis
of claims data linked to
the National Institutes
of Health–American Asso-
ciation of Retired Persons
(NIH-AARP) Diet and
Health Study. The new
study, published in BMJ
Open Sport & Exercise Med-
icine, examined various
levels of participation in
physical activity through-
out adulthood and how
activity affected Medicare
claims. Among the find-
ings: Exercisers with a
moderate level of activity
had health care costs $1,200
16 KIPLINGER’S PERSONAL FINANCE
a year lower after age 65
compared with adults who
were consistently inactive
from adolescence into mid-
dle age (moderate exercise
involved walking or other-
wise being in motion for
a few hours most weeks).
The health costs of those
with a high level of activity
were $1,350 lower per year.
But even late starters bene-
fited: Waiting until middle
age to increase activity still
led to cost reductions of
$824 per year.
Adults who increased
physical activity levels
in their twenties experi-
enced the most dramatic
reductions in health costs:
$1,874 lower per year. Even
if some of those exercisers
09/2021
decreased activity during
middle age, reducing how
often they worked out in
their forties and fifties,
they still spent about $860
less on health care per
year than people who
were sedentary for most
of their lives.
Participation in physical
activity was associated
with lower risk for several
diseases, including cardio-
vascular disease, type 2
diabetes, depression, de-
mentia and several can-
cers, as well as lower risk
of premature death. In the
U.S., physical activity lev-
els that don’t meet current
guidelines are associated
with annual health care
expenditures of approxi-
mately $117billion, accord-
ing to a study published
the journal Progress in
Cardiovascular Diseases.
SOCIAL SECURITY
STATEMENT LITE
The Social Security Administration
kicked off a “soft launch” for a
redesigned Social Security state-
ment aimed at a small percentage
of mySocialSecurity online ac-
count users who aren’t currently
receiving benefits, according to
ThinkAdvisor, a publication for
financial advisers.
Jeffrey Levine, chief planning
officer at Buckingham Wealth
Partners, received a redesigned
statement and tweeted details
of the new format. The reworked
statement is two pages instead
of the current four and shows the
effects of starting benefits each
year between age 62 and 70 and
the range of benefits you receive
by claiming at each of those ages.
The soft launch is the first step
in rolling out a new format, which
should make it easier to find key
information at a glance, a Social
Security spokesperson told
ThinkAdvisor. “We will continue
to gather feedback,” she added.
21.6%
The average annual hike
in auto insurance after
receiving a ticket for
texting and driving.
Speeding tickets
ISTOCKPHOTO.COM
pushed up premiums
23.8%, on average, and
tickets for an illegal
turn hiked rates 22.8%.
SOURCE: The Zebra
 HOW DEMENTIA REDUCES
WHY PEOPLE ARE LEAVING THEIR JOBS HOUSEHOLD WEALTH
Half of workers say that the pandemic has made them reevaluate their Many people in the early stages of dementia
career goals and given them more control in deciding the direction of their start losing their ability to manage their fi-
career, according to Prudential’s Pulse of the American Worker Survey. nances, studies show. Mental health experts
Some 24% of workers are planning to look for a new job post-pandemic. say the COVID pandemic may have masked
Those planning to leave their current job cite the following reasons: such early lapses during the past year, as older
people have remained isolated from loved ones
who might be the first to notice unpaid bills
50% Compensation or unopened bank notices, according to Kaiser
Health News.
A study examining the effects of early-stage
38% Work/life balance challenges Alzheimer’s disease on household finances,
published in the journal Health Economics,
34% Lack of growth opportunities found “robust evidence that early-stage
Alzheimer’s disease places households at
significant risk for large adverse changes
24% Tired of working on the same things in liquid assets.” It also found evidence that
early-stage Alzheimer’s disease reduces net
wealth, as financial vulnerability during
23% Lack of learning opportunities the disease’s early stage impacts the ability
to pay for care in the disease’s later stage.

CREDIT CARD ISSUERS

KNOCK DOWN LIMITS
About one-third of credit card holders had a card’s
credit limit slashed—or had an account closed
altogether—during the first four months of 2021,
according to a new survey from LendingTree.
Card issuers have targeted dormant or little-used
credit cards throughout the pandemic to reduce
their risk during a time of high unemployment
and economic uncertainty. Inactivity is the main
driver behind involuntary card closures and limit
cuts, followed by a credit score drop. Recent late
payments were another common factor. Among
the key findings:
f Nearly one in three cardholders say an issuer
slashed their credit limit and/or closed one of From The Kiplinger Letter
their cards in 2021. Millennials and Gen Zers were
hit hardest.
EXPECT HOLIDAY SHIPPING DELAYS
f Fewer cardholders are victims of involuntary One reason for retailers to fret before the holidays: Shipping delays are
cuts and closures now than at the onset of the on tap. A continuing high level of imports and a likely strong back-to-
pandemic. From late March to mid July 2020, school retail season will further strain transpacific capacity during the
more than 1.1 million cardholders per day were usual peak summer shipping rush that precedes the holidays. A partial
impacted, while from January to mid April 2021, shutdown of the key Chinese port of Yantian because of COVID-19
fears is shaping up to be a bigger mess for ocean shipping than the
SHUTTERSTOCK.COM

about 558,500 per day were affected.

f Some 30% of cardholders say they started Suez Canal blockage was in March. This will add to shipping delays
using a little-used card during the pandemic to and cause some retailers to scramble.
help avoid a closed credit card account.

09/2021 KIPLINGER’S PERSONAL FINANCE 17

INVESTING
HOW
TO
PROFIT
FROM

ILLUSTRATION
BY JUSTIN METZ

18 KIPLINGER’S PERSONAL FINANCE 09/2021

These funds are a huge hit
with investors. Plus, everything
you need to know about the
Kiplinger ETF 20, our favorite
exchange-traded funds.
BY NELLIE S. HUANG

Exchange-traded funds have

never been hotter. Investors are pouring
a record amount of money into ETFs,
which hold baskets of securities like
mutual funds do but trade like stocks.
“It’s just explosive growth,” says Armando
Senra, head of iShares America at Black-
Rock. Nearly as much new money has
flowed into ETFs over the first half of
2021 than in all of 2020—which itself was
a record year for inflows. “The pace has
smashed the prior record to smither-
eens,” says Ben Johnson, director of
global exchange-traded fund research
for Morningstar. // In this age of skyrock-
eting “meme” stocks, it’s notable that
much of the new ETF money is going—
sensibly—into “boring, broadly diversi-
fied products,” such as S&P 500 index
funds, says Todd Rosenbluth, head of
ETF research at Wall Street firm CFRA.
Investors use these ETFs as primary port-
folio holdings; they spice up returns with
sector or “thematic” ETFs, he says. Inter-
est is broad: Individuals, advisers and
institutions are all buying ETFs. «
INVESTING
Some of the draw, as always, stems
from how these funds work. Compared
with mutual funds, ETFs charge lower
annual fees. They also have no initial
investment minimum, and they trade
like stocks—meaning you can buy and
sell shares throughout the day, buy on
margin, and even sell them short. And
because they dish out less in capital
gains distributions to shareholders
than mutual funds do, ETFs tend to be
more tax efficient (more on that later).
But a new batch of investing trends—
including the growing prominence
of environmental, social and corporate
governance concerns and the increas-
ing number of actively managed and
specialized ETFs—are also fueling
interest in these funds.
Against this backdrop, we conducted
our annual review of the ETF industry
and the Kiplinger ETF 20, the list of
our favorite exchange-traded funds.
Our Kip ETF 20 roster gets a trio of
changes this year, which we explain
in the box on page 24. For investors
just getting to know ETFs, we’ve
included a guide to different types
of exchange-traded products in the
box on page 23, as well as a few tips
for trading these funds in the box
on page 28. Finally, we briefly explain
each fund in the Kip ETF 20, begin-
ning on page 22. Vital stats for the
funds appear in a table on page 27,
and you’ll find model portfolios that
incorporate the funds on page 26. All
returns and data are through July 9,
unless otherwise noted.
SETTING TRENDS
ETFs aren’t just a side dish anymore.
For many investors, especially those
between 25 and 39 years old, they’re
the main course. These funds make
up nearly one-third of millennial in-
vestors’ portfolios today, according to
the latest annual Charles Schwab ETF
Investor Study. Looking ahead, nearly
70% of millennial investors who have
bought or sold an ETF over the past
two years said they think these funds
will be a primary investment type in
their portfolio. Only 30% of investors
20 KIPLINGER’S PERSONAL FINANCE 09/2021
between 56 and 74 who have held an
ETF shared that sentiment—but that’s
changing, too. Wider acceptance
combined with innovative new funds
are making ETFs more attractive to
older investors, too. And new develop-
ments are drawing investors of all
sorts to the explosive ETF industry.
Bond investors are embracing ETFs.
Investors—including the U.S. govern-
ment—are increasingly buying bond
ETFs in place of bond mutual funds
and individual bonds. Last year, the
Federal Reserve snapped up shares in
16 corporate bond ETFs to shore up
the fixed-income market. At last re-
port, the government’s ETF holdings
had a market value of $8.6 billion.
In 2020, for the second year in a
row, bond ETFs picked up more new
money—$186.4 billion—than did stock
ETFs. “As we were in the throes of
COVID-19, bond ETFs became a go-to
vehicle for investors for the liquidity
that they provide,” says CFRA’s Rosen-
bluth, referring to the ease with which
shareholders can buy and sell shares
in ETFs. “These bond ETFs are still
in demand in 2021, even as stock prod-
ucts have become more popular.”
They’re attracting an ESG crowd. In 2020,
the pandemic, climate-change worries
and the movement for racial justice
intensified an already healthy interest
in ESG funds, which focus on compa-
nies that meet distinct environmen-
tal, social and corporate governance
measures.
Inflows into ESG-focused and sus-
tainability-oriented mutual funds and
ETFs more than doubled in 2020 from
the previous year, to $51 billion. ETFs
took in most of that new money (nearly
$34 billion). Naturally, a profusion of
new ESG funds sprang up to meet de-
mand. Over the past 18 months, nearly
50 new ETFs have launched with a
focus on ESG or sustainability.
There’s an ETF for every theme. Thematic
ETFs offer investors a way to invest in
long-term trends that will change the
way we live and work. You can choose
among funds that focus on online
shopping, for example, or machine
learning and robotics, or genetics
and immunology. Occasionally, a new,
attuned-to-the-zeitgeist fund comes
along that’s even more nichey. “From
space to cannabis to veganism, we’ve
seen continued interest in all things
thematic,” says Johnson.
The pandemic lockdown, for in-
stance, spawned a number of work-
from-home funds. Even buzzy meme
stocks are getting their day with
the FOMO ETF (for “fear of missing
out”). Other times, says Johnson,
“the themes are a reflection of where
the economy might be headed.” Since
April, a number of ETFs focused
on hotels, restaurants, airlines and
cruises have launched as a way to
play the economic reopening.
These funds are popular, but they
can be volatile, and some don’t sur-
vive for long. The Obesity ETF, which
invested in companies focused on
fighting fatness, opened in 2016, but
it closed earlier this year.
Some are using hedge-fund strategies.
Techniques once accessible principally
to wealthy individuals are now avail-
able in ETFs. “It’s part of the democra-
tization of investing,” says Simplify
Asset Management cofounder Paul
Kim. Simplify has launched 12 ETFs
since last September. All of the strate-
gies use options to enhance returns or
to protect against losses. Kim says the
firm’s biggest fund, Simplify US Equity
PLUS Downside Convexity ETF, is “an
S&P 500 index fund with seat belts.”
Then there are buffered ETFs,
which use strategies once limited to
so-called “structured” products usu-
ally sold by banks. Like those prod-
ucts, buffered ETFs track an index and
use options to protect capital against
a portion of market losses in exchange
for a slice of upside returns. Says
Morningstar’s Johnson, “They’re not
as costly as structured products, you
can get out when you want and you
still maintain tax efficiency.” The
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INVESTING
ETFs appeal to retirees who want to
hold stocks but also want to limit the
risk. All told, 74 buffered funds are now
available—most launched over the past
12 months—and they have garnered a
total of $6.1 billion in assets.
But these strategies take some ex-
plaining (see “Limit Losses With These
ETFs,” June 2021). For now, they are
selling mostly through advisers, who
can explain the risks and benefits to
their clients before they buy.
Active ETFs arrive. The world of actively
managed ETFs is opening up, thanks
to an SEC rule adopted in 2019 that
enabled certain active ETFs to be “non-
transparent.” In other words, unlike
most ETFs, nontransparent ETFs don’t
have to disclose detailed portfolio
holdings every day. Instead, full reports
are made quarterly. “Having to dis-
close portfolio holdings daily was pre-
venting active managers from offering
ETFs to investors because they had to
share too much of their stock-selection
process,” says Rosenbluth.
Now a number of well-known mutual
fund firms have launched active ETFs,
both transparent and nontransparent.
A Guide to the Kiplinger ETF 20
The Kiplinger ETF 20 includes a mix
of funds that can be used to build a core
portfolio, as well as funds with targeted
strategies to boost returns. Some of the
ETFs touch on the trends we mentioned
above. Read on for more about each
member of the Kip ETF 20. Again, all
returns and data are through July 9.
CORE STOCK FUNDS
ISHARES CORE S&P 500 (SYMBOL IVV, $437,
EXPENSE RATIO 0.03%) As a portfolio main-
stay, you can’t go wrong with this ETF,
which tracks the S&P 500. The fund
holds all 505 stocks in the benchmark.
That represents 80% of the U.S. stock
market, giving you broad exposure.
22 KIPLINGER’S PERSONAL FINANCE 09/2021
Fidelity has launched 11 new active
ETFs over the past 18 months. Three
are clones of well-known mutual
funds, including Fidelity Blue Chip
Growth ETF (its similarly named
mutual fund sibling is a member of the
Kiplinger 25, the list of our favorite no-
load funds). T. Rowe Price launched
new ETF versions of its mutual funds
Blue Chip Growth, Dividend Growth
(another Kiplinger 25 fund), Equity
Income and Growth Stock late last
summer. Putnam and American Cen-
tury also recently launched active,
nontransparent ETFs. “The growing
supply of active ETFs has made it eas-
ier for investors who believe in active
management to have strong choices to
consider,” says Rosenbluth.
They’re tax efficient. Tax efficiency has
always been a draw for investors to
ETFs. Some of that efficiency is due to
low portfolio turnover, at least for many
index ETFs. But it also has to do with
the way ETF shares are created and
redeemed. Mutual funds must some-
times sell underlying securities to meet
shareholder redemptions. This can trig-
ger a capital gains distribution, which
Most of the companies are giant-size;
portfolio holdings have an average
market value of $200 billion. Informa-
tion technology, financial services and
health care sectors make up half of the
portfolio, in step with the benchmark.
ISHARES CORE S&P MID-CAP (IJH, $270, 0.05%)
This fund tracks midsize companies
(firms with a market value between
$2.4 billion and $8.2 billion at the time
of inclusion, which represent 7% of
the U.S. stock market), and midsize
companies are on a roll. The ETF has
gained 57% over the past 12 months,
which beat the large-cap S&P 500. We
like to match up this fund and iShares
Core S&P Small-Cap (see right) with
is shared by all fund shareholders. But
ETF sponsors don’t actually buy and
sell the underlying securities in their
portfolios. Third parties—institutional
investors and market makers called
authorized participants—do that for
them, making money on the transac-
tions they complete.
This process is called an in-kind
transaction because no cash changes
hands between the ETF and the au-
thorized participants. Instead, the
ETFs hand over baskets of securities
to the authorized participants for
redemptions (or the funds receive
baskets of securities when new shares
are created). Because the ETF itself
doesn’t make any cash transactions, it
isn’t as likely as a mutual fund to make
a capital gains distribution. (You’re
still liable for capital gains taxes when
you sell shares.)
The SEC now allows portfolio man-
agers to customize the baskets of secu-
rities they give to the authorized par-
ticipants, choosing which share lots of
certain securities in their portfolio the
authorized participants will sell. “This
gives them a chance to dramatically
improve tax efficiency,” says Johnson.
iShares Core S&P 500, because there’s
no overlap among the portfolios.
ISHARES CORE S&P SMALL-CAP (IJR, $112,
0.06%) Small-company stocks have been
the place to be of late. This ETF has
soared 72% over the past 12 months,
and many market watchers expect the
run to continue. The fund offers expo-
sure to the smallest firms in the U.S.—
companies with a market value be-
tween $600 million and $2.4 billion at
the time of inclusion, which make up
roughly 3% of the U.S. stock market.
ISHARES MSCI USA ESG SELECT (SUSA, $97,
0.25%) There’s a dizzying array of ESG
U.S. stock funds available these days,
and it can be hard to parse their differ-
ences. But this one is still our favorite.
It holds stocks in more than 200 com-
panies, ranging from midsize firms to
mega-caps, that are mindful of their
environmental impact, treat custom-
ers, employees and their community
well, and boast a diverse pool of ethi-
cal managers who consistently act
in the best interests of shareholders.
These characteristics, among others,
define high-quality companies that
should perform better over time.
So far, so good, for MSCI USA ESG
Select. It held up much better than
the S&P 500 and its ESG US stock
fund peers (large-company funds
that invest in both growth and value
stocks) in the pandemic sell-off. And
it beat the S&P 500 and its typical peer
fund over the past one, three and five
years. It’s a standout.
VANGUARD TOTAL INTERNATIONAL STOCK
(VXUS, $66, 0.08%) This fund makes in-
vesting abroad easy. For less than $70,
you can own a small piece of nearly
every foreign stock in the world and
pay an ultralow annual expense ratio.
International investing has played
bridesmaid to the bride—U.S. stocks—
for nearly a decade. But it’s important
to consistently maintain some foreign-
stock exposure. And recent returns—
the fund has gained 32% over the past
12 months—have been quite tidy.
DIVIDEND STOCK FUNDS
SCHWAB US DIVIDEND EQUITY (SCHD, $76,
0.06%) Companies in this fund have
to check a lot of boxes. They must pay
high dividends, have at least a 10-year
history of payouts and compare well
relative to peers on a variety of mea-
sures, including their ratio of cash
flow to debt, as well as their dividend
yield, dividend growth and profitabil-
ity. The end result is a portfolio of 100
stocks, weighted by market value, in
mostly large, value-priced companies.
Real estate investment trusts are ex-
cluded. Three health care companies—
Merck, Amgen and Pfizer—stand
among the fund’s top 10 holdings, as The difference is minimal. High-
do BlackRock, Home Depot and Texas dividend-yielders are still removed,
Instruments (the last two are mem- for instance. But according to Morn-
bers of the Kiplinger Dividend 15, our ingstar analyst Lan Anh Tran, the
favorite dividend stocks). The ETF S&P index has additional screens to
currently yields 2.9%. address financial stability. At last re-
port, the fund’s top holdings—JPMor-
VANGUARD DIVIDEND APPRECIATION (VIG, gan Chase, Microsoft and Johnson &
$158, 0.06%) Companies with at least 10 Johnson—matched those of the S&P
years of consistent dividend increases Dividend Growers index.
are the focus here. The fund currently
yields 1.7%. At the start of October, WISDOMTREE GLOBAL EX-US QUALITY DIVI-
Vanguard Dividend Appreciation will DEND GROWTH (DNL, $42, 0.58%) Dividend
track a new index, the S&P Dividend payers were a bit of a downer last year
Growers index, instead of the Nasdaq because many companies suspended
US Dividend Achievers Select index. or trimmed payouts during the global
Variations on a Theme
Other Exchange-Traded Products
Exchange-traded investment products come in a few different flavors, with important
differences. For example, ETFs, shorthand for exchange-traded funds, and ETNs, the acro-
nym for exchange-traded notes, sure sound a lot alike. But they’re very different products.
ETFs invest in a basket of securities and trade on an exchange like a stock. Your main
risk is the assets in the ETF declining in value. But ETFs are structured in a way that keeps
your investment safe even if the company behind the ETF runs into financial trouble.
ETNs don’t offer that protection. An ETN is a bond, or unsecured debt, issued by a bank
or financial firm. Unlike traditional bonds, ETNs don’t pay interest, nor do they invest in
the underlying securities of the indexes they track. The bank promises to pay the ETN
holder the return on a market index, minus fees.
That promise comes with risk. The issuer’s creditworthiness is key. If the bank goes
bankrupt (a rarity) or breaks its promise to pay in full, you could be stuck with a worthless
investment, or one worth a lot less. The ETN’s value could fall if the issuer’s credit rating
is downgraded. ETNs may also be thinly traded, which can make it harder to get favorable
pricing when you buy or sell. And if the ETN is closed before its maturity date, you could
end up receiving the current market price, which could be less than your purchase price.
Closures have been on the rise: 98 ETNs shuttered last year, according to CFRA Research.
On the plus side, many ETN issuers are financially strong—such as JPMorgan and Barclays,
to name a couple—and run ETNs that have been around a dozen years or more. And ETNs
offer the ability to invest in niche asset classes, such as commodities or currencies, and
deliver a tax break (because ETNs don’t distribute dividend or interest income).
A name you can trust? You might also wonder about ETFs that have “trust” in their names,
such as SPDR S&P 500 ETF Trust, the largest diversified U.S. stock fund in the country.
They’re among the earliest ETFs and are structured as unit investment trusts (as opposed to
today’s more common registered investment company structure), says Matthew Bartolini,
head of SPDR Americas Research at State Street Global Advisors. “There’s a different set
of rules, but the differences are minor, and performance variations are minimal,” he says.
UITs have less flexibility than RICs, as they are bound to hold every security in an index,
they can’t lend out shares to short sellers, and they can’t reinvest dividends paid out by
the underlying companies, to name a few examples. ADAM SHELL
09/2021 KIPLINGER’S PERSONAL FINANCE 23
INVESTING

pandemic—and some have been slow top holdings. But we still stand behind INVESCO S&P 500 EQUAL WEIGHT FINANCIALS
to reinstate them. But however slow manager Catherine Wood and the (RYF, $60, 0.40%) We went back to the
the economic recovery is in different fund’s mission to invest in the firm’s drawing board to find a diversified
pockets of the world, it is helping this best ideas in long-term growth areas— financial ETF that would offer inves-
fund, which focuses on high-quality genomics, automation, next-gen inter- tors another way to play the economic
foreign dividend payers with depend- net and financial technology. Expect recovery but could still stand steady
able profits. Holdings are weighted by a bumpy ride. Despite dismal returns as a long-term holding. Invesco S&P
payout—the bigger the dividend, the since the start of 2021, the fund’s five- 500 Equal Weight Financial fits the
bigger the stock’s share of the fund’s year annualized gain was a chart- bill. It spreads assets equally among
assets. What’s more, the fund’s record topper—it beat all but one tech stock 65 stocks—all of them S&P 500
over the past three years beat the fund (its sibling ARK Next Generation constituents—in a variety of financial
MSCI EAFE—with less volatility, too. Internet ETF), as well as every diversi- industries, including insurance, banks,
Taiwan Semiconductor Manufactur- fied U.S. stock fund or ETF. capital markets, consumer finance and
ing, Rio Tinto and Unilever were top diversified financial services. Over the
holdings at last report. FIDELITY MSCI INDUSTRIALS (FIDU, $55, 0.08%) past one, three, five and 10 years the
The U.S. economy is booming, which ETF has outperformed the typical
STRATEGIC STOCK FUNDS makes it a good time to hold industri- financial sector stock fund, with less
als. Companies in this sector typically volatility in each of those periods.
ARK INNOVATION (ARKK, $126, 0.75%) This include construction equipment busi- That packs a good punch.
actively managed fund has gotten a nesses, factory machinery makers,
lot of attention in recent months, first and aerospace and transportation INVESCO S&P 500 EQUAL WEIGHT HEALTH
for its whopping 153% gain in 2020, firms, all of which do well in the early CARE (RYH, $299, 0.40%) This fund invests
then for its sharp reversal this year. days of an economic recovery. To wit: in all of the health care stocks in the
The fund has lost 20% since it peaked Over the past 12 months, the fund has S&P 500 index—64 at last count—in
in February, thanks in part to big price gained 58%—well ahead of the broad equal shares of the fund’s assets. (The
drops in Tesla, Roku and Square, all market’s 41% return. fund rebalances quarterly.) This equal-
weight construction has been a boon
lately for the Invesco ETF, because
What’s In, What’s Out shares in smaller companies have out-
performed their large counterparts.
New This Year in the ETF 20 And it explains why the fund’s 35%
return over the past 12 months has
This year brings three changes to the Kiplinger ETF 20 roster. Well, three-and-a-half. surpassed that of the market-value-
In a nod to the wider popularity of ESG investing, we promoted an ESG fund on our list, weighted Health Care Select Sector
iShares MSCI USA ESG Select, to the Core category. To make way for it there, we removed index, which climbed 30%.
Vanguard Total Stock Market ETF. We still like that fund—we repeat, we still like Vanguard
Total Stock Market—but it seemed redundant given the other U.S. stock funds in the Core INVESCO WILDERHILL CLEAN ENERGY (PBW,
category. Investors should confidently invest in Vanguard Total Stock Market if they want $88, 0.70%) Clean-energy stocks are a
a one-and-done fund for U.S. stocks. We just prefer the flexibility that the three iShares long-term bet on the future. But some-
Core funds provide for mixing in large-, small- and midsize-company stocks. times bets on far-away outcomes can
Another fund we stripped out of the list is Invesco Financial Preferred. We added the get ahead of themselves. That’s a little
fund to the Kip ETF 20 last year, hoping in the middle of a volatile stock market that a pre- of what happened with renewable-
ferred financial fund would let us maintain exposure to financials but with more stability energy stocks last year—and why the
and a higher yield. We got the stability—the preferred fund was two-thirds less volatile shares are down this year. WilderHill
than the typical financial stock fund—and the higher yield (4.56%, compared with 2.07% Clean Energy ETF gained a mind-
for the typical financial stock ETF). But with a healthy economic recovery under way, we’re blowing 205% in 2020, but since the
opting to add a traditional financial stock fund back into the fold—one that includes ex- start of this year it has slipped 15%.
posure to a mix of industries. Enter Invesco S&P 500 Equal Weight Financial. We aren’t discouraged. We view this
We also added a tactical fund to the Strategic Stock Funds category—Vanguard FTSE as a better time to get in than, say, in
Europe. It’s a play on the economic recovery over there, which is expected to be robust late 2020. Just buckle up for the ride.
through 2022. Pimco Active Bond is out, too, to make way for Fidelity Total Bond. Both
funds are strong performers. But the Fidelity fund offers more bang for the risk it takes VANGUARD FTSE EUROPE (VGK, $68, 0.08%)
on, and it comes with a lower expense ratio, too. A strong summer recovery is expected
in Europe, which makes this fund a

24 KIPLINGER’S PERSONAL FINANCE 09/2021

“ RETIREMENT?
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SOME GOOD PEOPLE
WORKING ON THAT!”
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and one-to-one service. These time-tested values drive us and the
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We’ll use our decades of experience in retirement income
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involves risk including possible loss of principal.
INVESTING

timely investment. Senior economist

Winning Combinations Marion Amiot, of S&P Global, fore-
casts 4.4% gross domestic product
Four Portfolios to Reach Your Goals growth in the eurozone this year and
4.5% in 2022. We like that the fund
Use these portfolios as a starting point, tweaking as necessary to align with your invest-
tracks a FTSE index that includes
ment time horizon and risk tolerance. Spice up returns, if your time frame and appetite
companies of all sizes—stocks in
for risk allow, by incorporating one or more of our strategic stock ETFs or opportunistic
smaller companies tend to bounce
bond ETFs into the portfolios, carving out a small slice from a core holding to make room.
higher in the early stages of a recov-
ery—in 16 countries. And its top three
70% Stock sectors, financial services, industrials
and consumer-cyclical companies,
50% iShares Core S&P 500 tend to be big early-economic-recov-
20% Vanguard Total International Stock ery plays, too. Over the past five years,
Simple 30% Vanguard Intermediate-Term Bond the fund’s 11.5% annualized return
beat the typical Europe stock fund.

30% Bond
CORE BOND FUNDS

FIDELITY TOTAL BOND (FBND, $54, 0.36%) The

team that runs this actively managed
80% Stock fund, which has leeway to invest in a
15% ARK Innovation
wide variety of bonds and up to 30%
15% iShares Core S&P 500
of assets in high-yield debt, is led by
10% Invesco S&P 500 Equal Weight Health Care
Ford O’Neil and Celso Munoz. They
10% iShares Core S&P Mid-Cap
Growth have a “gradual contrarian” invest-
10% iShares Core S&P Small-Cap
ment approach, says O’Neil, which led
10% Vanguard Dividend Appreciation
them to load up on out-of-favor high-
10% WisdomTree Global ex-US Qual Dividend Growth
yield bonds and emerging-markets
20% Fidelity Total Bond
20% Bond debt during the bond sell-off in early
2020. Those bond sectors rallied in
late 2020 and early 2021. Keeping the
60% Stock portfolio lighter than its peers did in
25% Shares MSCI USA ESG Select Treasuries, high-quality corporate
20% Schwab U.S. Dividend Equity bonds and mortgage-backed IOUs
10% WisdomTree Global ex-US Quality Div. Growth helped, too. The fund gained 9.4% in
5% Total International Stock 2020. Its three-year annualized return
Balanced 15% Vanguard Intermediate-Term Bond of 6.4% beats all but 22% of its peers.
15% SPDR DoubleLine Total Return Tactical The fund yields 1.48%.
5% Vanguard Total International Bond
5% Invesco Senior Loan SPDR DOUBLELINE TOTAL RETURN TACTICAL
40% Bond
(TOTL, $48, 0.55%) The DoubleLine man-
agers behind this actively managed
25% iShares MSCI USA ESG Select bond fund—Jeffrey Gundlach and
40% Stock
5% Vanguard Dividend Appreciation Jeffrey Sherman—are practically fixed-
5% Vanguard Total International Stock income royalty. In this fund, they have
5% WisdomTree Global ex-US Quality Div. Growth latitude to invest in a wide variety of
15% Fidelity Total Bond debt of any credit quality. But they
Conservative
15% Vanguard Intermediate Term-Bond tend to stick to what they know best—
15% SPDR DoubleLine Total Return Tactical mortgage-backed securities—even in
5% BlackRock Ultra Short-Term Bond rough markets. Those kinds of loans,
60% Bond 5% Invesco Senior Loan residential and commercial, made up
5% Vanguard Total International Bond more than half of the fund’s assets,
which goes some way to explain why

26 KIPLINGER’S PERSONAL FINANCE 09/2021

Vital Stats

THE KIPLINGER ETF 20 AT A GLANCE

Share Annualized total return Expense
CORE STOCK FUNDS Symbol price 1 yr. 3 yrs. 5 yrs. Yield ratio Comment

iShares Core S&P 500 IVV $437 40.7% 18.3% 17.6% 1.1% 0.03% A portfolio mainstay that covers 80% of the U.S. market.

iShares Core S&P Mid-Cap IJH 270 56.8 12.2 14.0 0.9 0.05 Midsize U.S. firms in a diverse mix of sectors.

iShares Core S&P Small-Cap IJR 112 72.0 10.3 15.1 1.3 0.06 A solid, no-frills, small-company stock fund.

iShares MSCI USA ESG Select SUSA 97 44.4 20.8 18.9 1.1 0.25 Firms that pass environmental, social and governance criteria.

Vanguard Total International Stock VXUS 66 32.4 9.1 11.2 2.4* 0.08 Developed and emerging-markets stocks all in one.

DIVIDEND STOCK FUNDS

Schwab US Dividend Equity SCHD $76 56.1% 18.8% 16.2% 2.9% 0.06% Companies that pay consistent, high dividends.

Vanguard Dividend Appreciation VIG 158 35.7 17.1 15.5 1.7 0.06 Consistent dividend increases are the focus.

WisdomTree Glbl ex-US Qual Div Grwth DNL 42 30.6 15.0 14.5 1.3 0.58 Foreign dividend stocks with good growth prospects.

STRATEGIC STOCK FUNDS

ARK Innovation ARKK $126 57.6% 41.2% 46.4% 0.0% 0.75% Best ideas among companies at the forefront of change.

Fidelity MSCI Industrials FIDU 55 57.9 14.7 14.9 1.1* 0.08 Industrial giants poised to prosper in a growing economy.

Invesco S&P 500 Eql Wt Fin RYF 60 69.9 13.8 16.9 1.5 0.40 A diverse group of financial firms in equal proportions.

Invesco S&P 500 Eql Wt Health Care RYH 299 34.6 17.1 14.7 0.5 0.40 Dozens of health companies in the S&P in equal proportions.

Invesco WilderHill Clean Energy PBW 88 95.7 52.4 37.3 0.0 0.70 Renewable-energy stocks fill this fund.

Vanguard FTSE Europe VGK 68 36.7 8.9 11.5 0.0 0.08 A bet on an improving economy in Europe.

CORE BOND FUNDS

Fidelity Total Bond FBND $54 2.5% 6.5% 4.2% 1.5% 0.36% A diverse bond fund, with income a priority.

SPDR DoubleLine Total Ret Tactical TOTL 48 0.7 3.9 2.5 2.5 0.55 High-grade mortgage debt anchors this fund.

Vanguard Intermediate-Term Bond BIV 90 –0.1 6.8 3.4 1.5 0.05 A core bond fund holding Treasuries and cash.

OPPORTUNISTIC BOND FUNDS

BlackRock Ultra Short-Term Bond ICSH $51 0.5% 2.1% 1.9% 0.3% 0.08% Short-term corporate bonds and cash in an active fund.

Invesco Senior Loan BKLN 22 6.7 3.0 3.4 2.6 0.65 Bank loans hold their value when interest rates rise.

Vanguard Total International Bond BNDX 57 0.3 4.1 2.8 0.5 0.08 High-quality foreign debt, hedged for currency risk.

INDEXES

S&P 500 INDEX (LARGE U.S. STOCKS) 40.8% 18.4% 17.7% 1.4%

MSCI EAFE INDEX (FOREIGN STOCKS) 30.9 7.9 10.6 2.3

BLOOMBERG BARCLAYS US AGGREGATE BOND INDEX –0.6 5.4 3.0 1.5

As of July 9. *12-month yield. SOURCES: ETF companies, Morningstar Direct, MSCI, S&P Dow Jones Indices.

09/2021 KIPLINGER’S PERSONAL FINANCE 27

INVESTING

the fund’s recent returns have lagged
those of its peers (intermediate-term
core plus bond funds). In 2020, its
3.6% return trailed 93% of its category.
But this fund held up much better
than its peers during the drawdown
in bond markets in March 2020—and
so far in 2021, too. We think this fund
is misunderstood by critics. It’s not a
“knock the ball out of the park” kind of
fund; it’s slow and steady, with super-
low volatility. The fund yields 2.50%.
VANGUARD INTERMEDIATE-TERM BOND (BIV,
$90, 0.05%) Vanguard Intermediate-
Term Bond beat the Bloomberg Bar-
clays U.S. Aggregate Bond index over
the past 12 months but still lost ground.
The fund targets investment-grade
Trading Strategies
debt with five- to 10-year maturities.
It holds more than 56% of assets in gov-
ernment bonds and 43% in corporate
IOUs. It takes on a little more credit risk
than its intermediate-term core bond
fund peers: The fund holds about 25%
of assets in triple-B debt, the lowest
grade in the high-quality-credit world.
(The typical core bond fund holds 19%
in triple-B debt.) That lifts its yield,
however, to 1.53%, which is higher
than the average 1.10% yield among
intermediate-term core bond funds.
OPPORTUNISTIC BOND FUNDS
BLACKROCK ULTRA SHORT-TERM BOND (ICSH,
$51, 0.08%) In late 2020, BlackRock
adopted a new branding system to
differentiate between its passive and
active ETFs. Its index funds will be
called “iShares” ETFs; its active funds,
“BlackRock.” That’s why this fund, a
Kip ETF 20 veteran, has a new name.
The fund is managed by BlackRock’s
Cash Management Team to provide
income by investing in a range of
short-term, investment-grade fixed-
and floating-rate debt and money mar-
ket instruments. But this fund is not a
money market fund; it takes on a little
more risk. It yields 0.26% and has re-
turned 0.5% over the past 12 months.
INVESCO SENIOR LOAN (BKLN, $22, 0.65%)
With an economic recovery under way
and a higher likelihood of rising short-
term interest rates, the bond sector
this fund invests in is having its day
in the sun. Senior loans pay an interest
rate that adjusts every few months in

Tips on Buying and Selling ETFs step with a short-term-bond bench-

mark. When yields rise, most bond
prices fall. But senior loans, often
Exchange-traded funds trade commission-free at most online brokers these days. But called floating-rate loans, retain their
placing actual trades takes some care. Here are a few tips. value. Over the past 12 months, this
ETF has returned 6.7%. That’s 2.9
Use limit orders. Limit orders allow you to specify the price at which you are willing to percentage points behind its peers but
buy or sell shares. It doesn’t guarantee instant execution, but it ensures that your order ahead of the broad bond market, as
will be filled at the price you designate or better, an important protection during periods measured by the Bloomberg Barclays
of unexpected price volatility. A buy limit order will only be executed at the limit price that U.S. Aggregate Bond index, by more
you set or lower. For example, if iShares Core S&P 500 has a current market price of $425, than seven percentage points.
set your limit price at $425. On the flip side, when you set a limit order to sell shares, the
order will only be executed at the limit price or higher. Market orders are filled at the next VANGUARD TOTAL INTERNATIONAL BOND
available price—whatever it is. (BNDX, $57, 0.08%) It’s hard to justify
investing in international bonds, espe-
Be mindful of the fund’s premium/discount, especially when you’re deciding to buy cially with negative interest rates still
or sell. ETFs have two prices—the market price per share and the net asset value (or NAV) prevalent in many foreign nations.
per share, which is the value of the underlying securities in the fund. These prices can di- Even so, diversification benefits can
verge. If the share price is above the NAV, the ETF trades at a premium. If the price is below trump yield, and putting even a small
the NAV, it trades at a discount. The premium/discount can shift, especially when market stake of your bond portfolio in foreign
volatility is high. The iShares Core S&P 500 ETF had a typical premium/discount of 0.02% debt can dampen risk and boost re-
recently, but during the early 2020 sell-off, it rose to 0.43%. Foreign-stock ETFs are vulner- turns. Last year, for instance, Total
able to a high premium/discount because the underlying securities trade on exchanges in International Bond, which tracks a
different time zones. So, too, are active ETFs that don’t disclose holdings on a daily basis. global aggregate bond index from
Bloomberg Barclays, experienced less
Time your trades well. Don’t trade on volatile days. “Waiting until the chaos ends will volatility than the Bloomberg Barclays
be worth it,” says CFRA’s Todd Rosenbluth. Also avoid trading within the first or last half- U.S. Aggregate Bond index. And de-
hour of the trading day because volatility tends to be higher then. And never buy or sell spite a slim gain of 0.3% over the past
when the market is closed. That may be okay to do with a mutual fund, which settles at 12 months, the ETF outpaced the Agg,
the end of every trading day, but opening prices might catch you off guard if you do that too. The fund currently yields 0.46%. Q
with an ETF.
YOU CAN CONTACT THE AUTHOR AT NELLIE_HUANG@
KIPLINGER.COM.

28 KIPLINGER’S PERSONAL FINANCE 09/2021

 Learn 99 essential retirement tips—including ways to minimize taxes,
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Past performance is no guarantee of future returns.
INVESTING
PORTFOLIO
Shield Your Portfolio
From Inflation
Use our picks to hedge against rising prices that can eat into
your investment returns. BY ADAM SHELL
INVESTORS FEAR INFLATION
in the same way Superman
dreads a pile of kryptonite.
Just as the mysterious sub-
stance weakened the Man
of Steel, a persistent rise
in prices can diminish the
strength of an investment
portfolio. Inflation eats into
returns and reduces the
buying power of assets in
investment accounts, such
as 401(k)s. “Inflation has
a scary connotation,” says
Axel Merk, president and
chief investment officer
of Merk Investments.
Rising prices are espe-
cially scary for retirees with
larger holdings of lower-
return assets, such as cash
and bonds. If inflation rises
3% every year, for example,
a retiree who has enough
saved today to spend $50,000
a year would need just over
$67,000 a year by 2031 and
more than $90,000 per year
by 2041 to fund the same
lifestyle, according to an
analysis by Kendall Capital.
Wall Street is certainly
scared of inflation, at least
in the short run. The re-
opening of the economy
30 KIPLINGER’S PERSONAL FINANCE
has created a boom as pan-
demic headwinds subside,
with price hikes driven by
supply-chain bottlenecks
and product shortages at
a time when pent-up con-
sumer demand has been
fueled by government stim-
ulus checks. Following a
40-year period during
which inflation was mostly
in hibernation, the nation
is living through the biggest
spike in prices in more than
a decade for stuff such as
gas, groceries and used cars.
In June, the consumer
price index, the govern-
ment’s main measure of
inflation, saw a year-over-
year increase of 5.4%, the
largest rise since 2008. The
prices that suppliers charge
businesses (so-called pro-
ducer prices) also rose in
June at the fastest annual
pace since 2010, and em-
ployers are boosting worker
pay amid a tight labor mar-
ket. Fund managers now say
inflation is the biggest mar-
ket risk, a Bank of America
Securities survey found.
The $64,000 question
(which was worth $60,726
09/2021
a year ago, according to the
government’s inflation cal-
culator): Is higher inflation
temporary, or is it here to
stay? Federal Reserve chief
Jerome Powell insists that
the forces driving prices
higher will wane and proj-
ects that inflation will fall
back to around 2% in 2022.
Powell downplays a repeat
of 1970s-style inflation,
when the CPI topped 13%,
saying, “It’s very, very un-
likely.” Most investment
pros agree. Still, Kiplinger
expects inflation to reach
5.5% by December, com-
pared with December of
2020, and to average 4.3%
for 2021 overall.
It’s worth noting that
the stock market’s average
annual gain of 10% has out-
paced inflation over the long
run. But don’t let your guard
down. Historically, inflation
spikes (such as the current
episode), during which the
CPI suffers one-month in-
creases of 0.5% or more for
at least three months in a
row, have been a headwind
for stocks, according to
Bespoke Investment Group.
ILLUSTRATION BY NEIL WEBB
INVESTING
In five of the previous seven
such spikes since 1973, the
S&P 500 index declined, suf-
fering a median drop of 7.8%.
And don’t dismiss a com-
mon secondary effect of in-
flation: rising interest rates.
Upward price pressures
eventually prompt the Fed
to increase borrowing costs
and dial back bond-buying
programs to cool a too-hot
economy, a policy shift that
can weigh on asset prices
and spark volatility. In June,
the Fed indicated that rate
hikes could come next year,
sooner than the 2024 start
date it forecast in March.
The best inflation strategy
is to hope for the best but
plan for the worst. Judging
from past inflationary peri-
ods, the investments below
should provide a hedge
against a persistent period
of rising prices. (Prices are
as of July 9.)
CLASSIC
INFLATION PLAYS
Fight higher inflation di-
rectly by buying Treasury
inflation-protected securi-
ties. The appeal of TIPS is
that in inflationary periods,
they “pay out more in inter-
est and increase in value,”
says Morningstar portfolio
strategist Amy Arnott. The
principal value (the initial
price you pay for the bond)
adjusts higher when infla-
tion, measured by the CPI,
increases. The interest you
receive also rises because
it’s based on the adjusted
principal. You can purchase
TIPS directly from Uncle
Sam at www.treasurydirect
.gov or invest in SCHWAB U.S.
TIPS ETF (SYMBOL SCHP, $63), a
low-cost way (the expense
ratio is 0.05%) to own a
32 KIPLINGER’S PERSONAL FINANCE
Property prices and rents
Price Hikes charged by landlords typi-
INFLATION HEATS UP cally go up during inflation-
ary periods, making real
Prices have been on a dramatic upswing for the 12 months
estate a popular investment
ending in June, with some of the biggest increases in energy
if you want to outrun infla-
and travel costs.
5.4% tion. Over the past 30 years,
an index of U.S. real estate
5%
investment trusts posted
Change in consumer prices compared bigger gains than the S&P
4
with the same month a year earlier* 500 in five of the six years
3 when inflation was 3% or
higher, according to data
2 from fund company Neu-
1
berger Berman. Consider
VANGUARD REAL ESTATE ETF
0 (VNQ, $105). It owns publicly
June Aug. Oct. Dec. Feb. April June
2020 2020 2020 2020 2021 2021 2021 traded REITs including
Crown Castle, which leases
*Not seasonally adjusted. SOURCE: Bureau of Labor Statistics
communications infrastruc-
ture such as cell towers, and
broad basket of TIPS. bullion itself, consider Equinix, which specializes
Gold has a reputation ISHARES GOLD TRUST (IAU, $34), in data centers.
for retaining its value when which tracks the daily price Dan Milan, managing
the dollar declines or loses movement of the yellow partner at Cornerstone
purchasing power. Although metal. Or you might invest Financial Services, is bull-
the precious metal gets in gold-mining stocks, says ish on SIMON PROPERTY GROUP
kudos as an inflation hedge, Merk. When the price of (SPG, $130). Simon’s upscale
its performance during in- gold is rising, he says, the malls, he says, have held
flationary times is mixed. profits of gold miners in- up better and can command
Gold tends to perform best crease because the cost higher rents than lower-
during bouts of extreme in- of getting the gold out of end malls. Investment firm
flation, such as in the 1970s the ground remains fixed. Stifel is bullish on self-
when oil prices soared. It Mining company NEWMONT storage REITs, such as CUBE-
fares less well during more (NEM, $64) is a pro-inflation SMART (CUBE, $49) and EXTRA
muted inflationary periods. stock recommended by BofA. SPACE STORAGE (EXR, $173).
“Gold seems to outper- Bitcoin has been growing
form when chaos reigns in popularity as an inflation STOCKS AND
supreme,” says Thomas hedge, held out as an alter- COMMODITIES
Tzitzouris, managing di- native to gold. But it’s best Stock sectors that tend to
rector at Strategas, an in- for investors who have a do well when the economy
dependent research firm. speculative bent and are is booming—and inflation is
And gold’s performance able to stomach massive often rising—include energy
turns “poor … almost in- volatility, and it should (think big oil companies);
stantaneously at first sight be limited to the smallest industrials (heavy machin-
of tighter [Fed] policy,” of slices of your portfolio. ery, building products and
Tzitzouris warns. Still, Most brokerages don’t allow aerospace firms); and mate-
earmarking a small portion clients to buy bitcoin directly, rials, or companies that
of your portfolio to gold but you can gain exposure provide commodity-related
makes sense as an insurance through Coinbase, a crypto materials to businesses
policy in case the inflation exchange, on the Robin- (such as suppliers of chemi-
dragon reappears and the hood trading app or via cals, steel and other metals).
Fed waits too long to tame it. products such as GRAYSCALE To gain exposure to a
To get exposure to gold BITCOIN TRUST (GBTC, 28). broad range of raw material
09/2021
producers, consider MATERI-
ALS SELECT SECTOR SPDR (XLB,
$83). Top holdings include
chemical company Dow
and paint maker Sherwin-
Williams. Michael Cuggino,
president and portfolio
manager of Permanent
Portfolio, recommends
copper producer FREEPORT-
MCMORAN (FCX, $37). Goldman
Sachs analysts cite paint
producer PPG INDUSTRIES
(PPG, $171) and SCOTTS MIRACLE-
GRO (SMG, $183), which sells
lawn, garden and pest con-
trol products, as firms with
pricing power and a history
of turning a large slice of
revenues into profits.
Top holdings in the
ENERGY SELECT SECTOR SPDR
ETF (XLE, $53) include oil giant
ExxonMobil, oilfield services
provider Schlumberger and
energy exploration firm
Pioneer Natural Resources.
A good option for industrial
companies is FIDELITY MSCI
INDUSTRIALS INDEX ETF (FIDU,
$55), which owns heavy ma-
chine manufacturers such as
Caterpillar and John Deere.
To take advantage of ris-
ing demand and prices for
commodities such as oil and
gas, gold, corn, soybeans,
sugar, wheat, and copper,
consider INVESCO OPTIMUM
YIELD DIVERSIFIED COMMODITY
STRATEGY NO K-1 ETF (PDBC, $20).
It’s the biggest, most liquid
fund of this kind, has a rea-
sonable expense ratio of
0.59%, skips the trouble-
some K-1 form at tax time
and is outpacing 96% of its
peers so far this year.
The ideal companies to
own in any sector are ones
that can pass along higher
costs to customers because
of strong demand for their
products, says Milan, at
Cornerstone. That “helps
companies protect their
profits,” he says. Stocks that
Goldman Sachs analysts say
check those boxes include
ADVANCE AUTO PARTS (AAP,
$213), whose sales of auto
parts to do-it-yourselfers
and professional mechanics
will benefit from commut-
ers returning to work and
Americans hitting the na-
tion’s roads to travel again;
ETSY (ETSY, $195), which Gold-
man Sachs says turns 74%
of its total revenues into
profit (the highest gross
margin of the consumer
discretionary stocks listed
in Goldman’s “high pricing
power” screen) from its
e-commerce site that sells
unique handmade and vin-
tage items; and PROCTER &
GAMBLE (PG, $137), which owns
brands such as Pampers and
Tampax and has already an-
nounced coming price hikes
for some products to offset
rising commodity costs.
INDIRECT
BENEFICIARIES
Inflation can be insidious
for bond investors, whose
Pressure Points
COST OF LIVING:
A MIXED BAG
The consumer price index is up 5.4% from a year
ago. But some components have spiked much
higher.
12-month change
from June 2020
0.4% 4%
Medical Dining out
care
Not seasonally adjusted. SOURCE: Bureau of Labor Statistics
fixed interest payments in-
creasingly lose purchasing
power and whose bond
prices often decline as in-
terest rates rise in response
to inflation. Investing in
business bank loans that
have interest rates that reset
higher when market rates
rise is a good strategy for
avoiding that dynamic.
Unlike fixed-rate loans,
which always pay the
same coupon (or income),
floating-rate debt allows
the bond holder to earn
more when rates rise. These
loans are typically made
to firms with less-than-
pristine credit, which
means the risk of default
is higher. A couple of
choices to consider are
INVESCO SENIOR LOAN ETF
(BKLN, $22), a member of
the Kiplinger ETF 20 (for
more on the ETF 20, see
page 20), and T. ROWE PRICE
FLOATING RATE (PRFRX).
During periods of rising
inflation since 2000, small-
company stocks have out-
performed large-cap shares,
according to the Wells
Fargo Investment Institute.
88%
45% 45%
Gasoline Used cars Car and
and trucks truck rental
Small companies tend to
shine when the economy
is growing rapidly, as it is
now. Plus, they currently
have better profit-growth
prospects and trade at
cheaper valuations relative
to large-cap shares, accord-
ing to investment bank UBS.
Consider Kip ETF 20 mem-
ber ISHARES CORE S&P SMALL-
CAP ETF (IJR, $112).
To better capitalize on
the growth that stocks pro-
vide, Milan touts companies
that regularly boost the size
of their dividends. The big-
ger the increase over time,
the greater the chance of
outpacing inflation, he says.
He likes home improvement
retailer HOME DEPOT (HD, $322),
which recently hiked its
dividend by 10%. It’s a mem-
ber of the Kiplinger Divi-
dend 15 list of our favorite
dividend stocks. Milan also
favors snack and soda giant
PEPSICO (PEP, $149), which cur-
rently yields 3.5%.
Finally, given that in-
flation is a bigger issue in
the U.S. than abroad, make
sure you’re diversified over-
seas. Gina Martin Adams,
chief equity strategist at
Bloomberg Intelligence,
is bullish on emerging-
markets stocks, particularly
in commodity-producing
nations such as Brazil
and Russia. “Commodity-
sensitive emerging markets
are a good place to hide,”
she says. BARON EMERGING
MARKETS (BEXFX) has expo-
sure to both Brazil and
Russia; it’s a member of
the Kiplinger 25, the list
of our favorite actively
managed, no-load mutual
funds. ■
YOU CAN CONTACT THE AUTHOR AT
ADAM_SHELL@KIPLINGER.COM.
09/2021 KIPLINGER’S PERSONAL FINANCE 33
INVESTING Commentary

INCOME INVESTING Jeffrey R. Kosnett

Readers Find Some Weird Winners

B
ond rates are plunging, banks an annual rate of 16.2%, I need to eval- junk-bond fund, has a one-year return
pay next to nothing, and stocks uate each idea individually. Most of the of 43.0% and pays $2.19 annually on
are so rich that the S&P 500 in- time, I find flaws, such as high fees or a $22 share price. About 60% of that
dex yields a paltry 1.4%. My mailbox madcap trading. But sometimes oddi- is returned capital, but there is enough
is thus brimming with queries about ties have their day—or days—of glory. actual income to yield 3.9%. Corner-
offbeat, high-distribution invest- stone Strategic, which owns stocks
ments. Many are leveraged funds, Triple play. Of late, this reader-chosen ranging from Amazon.com and Apple
rely on options and futures trading, trifecta is successful, even stunningly to small-company shares, as well as
or extend high-rate loans to less- so. SLVO, which is linked to a silver in- some closed-end funds, has a 33.9%
creditworthy borrowers. Some aug- dex and sells covered call options on one-year total return, mostly capital
ment regular income payments with that index for income, has a one-year gains. The income layer of its fixed
periodic returns of capital. That is return of 24.6%. Because silver is ram- monthly distribution is only 1.6%.
tolerable when a fund manufactures paging, the value of the call options Thomas, the rest of your cash inflows
enough trading profits or capital gains SLVO sells is way up, and so it has is- are returned capital or trading gains.
to cover these emoluments. But re- sued monthly distributions of 11 cents Guggenheim and Cornerstone, like
turned capital does not count as “yield” to 20 cents so far in 2021. That’s a pace so many closed-ends, owe much of
and is not a dividend. (It does post- above 20% annualized, based on the their good fortune to the ascension
pone a possible capital gains tax bill.) July 9 closing price of $6. But I would of their share price to a high premium
Which of this high-test stuff is safe never count on anything linked to gold over the value of their underlying as-
and timely? Generally, I am all-in or silver for essential income. sets. Neither fund has a great long-
on striving for extra yield, evidenced Guggenheim Strategic, a leveraged term performance record, but kudos
by the strong to readers who sussed out these or
multiyear returns similar opportunities a year ago, when
in high-yield premiums were small or shares traded
corporate and
MOST OF THE TIME, I at a discount. There is a reasonable
municipal bonds, FIND FLAWS IN OFFBEAT argument that it is wiser to pick up
preferred stocks, INVESTMENTS WITH a mediocre CEF at a cheap price than
most leveraged HIGH DISTRIBUTIONS. a good fund that trades at a premium.
closed-end bond Not every unusual income fund is a
and income funds, BUT SOMETIMES winner. Another reader named Richard
and pipeline and ODDITIES HAVE THEIR bragged on IVOL, the Quadratic Inter-
infrastructure DAY OF GLORY. est Rate Volatility and Inflation
partnerships. Hedge ETF. Rates are volatile
These are all and inflation hedges are in
straightforward vogue, so this fund sounds
and understandable. But the income exactly right. But its fortunes
marketplace is also full of gadgets and depend on the use of deriva-
thingamajigs, so when Richard writes tives to profit from market
in to extol Credit Suisse X-Links stress. That is hard to sustain.
Silver Shares Covered Call ETN After a strong debut in 2020,
(symbol SLVO), or Steve asserts IVOL has a total return of 1.1%
POON WATCHARA-AMPHAIWAN

that Guggenheim Strategic Op- for 2021 through July 9 and has
portunities Fund (GOF) “seems lost 3% in the past two months. It
too good to be true,” or Thomas might be too much of a contraption
wonders how I have overlooked Cor- to work over time. Q
nerstone Strategic Value Fund (CLM)
JEFF KOSNETT IS EDITOR OF KIPLINGER’S INVESTING FOR
when it “pays a monthly dividend” at INCOME. REACH HIM AT JEFF_KOSNETT@KIPLINGER.COM.

34 KIPLINGER’S PERSONAL FINANCE 09/2021

MUTUAL FUND SPOTLIGHT and Treasuries, about three
percentage points, are near

How to Play the High-Yield Rally decade lows, too.

Time for caution. That has

Junk bonds have been on a tear, so this fund has shifted to defense.
HIGH-YIELD BONDS HAVE BEEN
on a roll. Over the past 12 HIGH-YIELD BOND FUNDS
Annualized Max.
months, funds that invest Ranked by three-year returns total return sales Exp.
in junk-rated debt—credit Rank/Name Symbol 1 yr. 3 yrs. charge ratio
rated double-B to triple-C— 1. Diamond Hill High Yield Inv DHHAX 16.4% 10.3% 0.00%
have gained 14%, on aver- 2. Westwood High Income A WSDAX 20.7 9.9 3.00
age, more than any other 3. Fidelity Capital & Income FAGIX 26.0 9.7 0.00
bond-fund category. As a re- 4. Payden High Income PYHRX 16.7 8.8 0.00
sult, investors have poured 5. Fidelity Advisor Hi Income Advtg A FAHDX 25.9 8.7 4.00
more money into high-yield 6. Artisan High Income Investor ARTFX 18.2 8.3 0.00
bond funds in the first half 7. Victory High Yield A GUHYX 18.3 8.3 2.25
of 2021 than in all of 2020. 8. Metropolitan West Hi Yield Bond M MWHYX 10.4 8.3 0.00
That might make you 9. Great-West High Yield Bond Inv MXHYX 14.4 8.1 0.00
wary. But investors with 10. Timothy Plan High Yield Bond A TPHAX 15.1 8.1 4.50
a long-term view should ICE BOFA US HIGH YIELD 14.7% 7.2%
consider METROPOLITAN WEST CATEGORY AVERAGE 14.3% 6.3%
HIGH YIELD BOND. The fund’s
managers run it with a
full market cycle in mind. spreads are high, the man- delivered above-average
They’re conservative, they agers take on more risk. returns with below-average
like a bargain, and they let When the opposite is true, volatility.
bond prices and the differ- they reduce risk. “We try These days the percent-
ence between yields in junk to insulate the fund from age of junk bonds that trade
bonds and Treasuries— downdrafts by being more cheaply (below 90 cents on
known as the spread—influ- conservative” when prices the dollar) is less than 1.5%,
ence when to dial up or pull are high, says comanager the lowest it has been over
back on risk. Laird Landmann. Over the the past 20 years. Current
When prices are low and long haul, this approach has spreads between junk bonds
the fund managers on the
defensive. Bank loans now
make up about 18% of the
fund’s assets—a “max posi-
tioning” for the fund, says
comanager Jerry Cudzil.
These securities have se-
0.96% niority in the capital struc-
0.48 ture—they get paid first—
0.68 and interest rates that
0.62 adjust in line with a short-
1.00 term benchmark.
0.96 The managers have also
1.00 shifted into more defensive
0.85 industries, such as cable,
1.10 food and beverage, and
1.29 managed health care. “To-
day, you’re not being com-
pensated to take on more
risk,” says Cudzil. “These
sectors will experience less
volatility from an earnings
perspective.”
The fund’s 8.3% three-
year annualized return
ranks among the top 8%
of all high-yield bond funds.
It was one-third less volatile
than its peers over that
stretch, too. NELLIE S. HUANG
Nellie_Huang@kiplinger.com

20 LARGEST STOCK AND BOND MUTUAL FUNDS Ranked by size. See returns for top funds in 12 categories at kiplinger.com/kpf/funds.
Annualized Max. 1-year Max.
STOCK MUTUAL FUNDS Assets† total return sales BOND MUTUAL FUNDS Assets† total Current sales
Rank/Name Symbol (billions) 1 yr. 5 yrs. charge Rank/Name Symbol (billions) return yield charge
1. Vanguard Total Stock Mkt Idx Adm VTSAX $1,005.2 43.9% 17.8% none 1. Vanguard Total Bond Market Index Adm VBTLX $233.6 –0.58% 1.32% none
2. Vanguard 500 Index Adm VFIAX 520.8 40.8 17.6 none 2. Pimco Income A PONAX 140.2 8.67 2.26 3.75%
3. Vanguard Total Intl Stock Index Adm VTIAX 356.6 32.4 11.2 none 3. Metropolitan West Total Return Bd M MWTRX 90.2 0.80 0.90 none
4. Fidelity 500 Index@ FXAIX 343.3 40.8 17.7 none 4. Vanguard Interm-Term Tax-Ex Inv VWITX 86.3 4.10 0.72 none
5. American Growth Fund of America A AGTHX 280.5 37.7 20.8 5.75% 5. Vanguard Short-Term Inv-Grade Inv VFSTX 78.8 2.02 0.77 none
6. American Balanced A ABALX 209.1 22.4 10.9 5.75 6. American Bond Fund of America A ABNDX 74.6 0.81 0.96 3.75
7. American EuroPacific Growth A AEPGX 194.7 32.9 14.0 5.75 7. Vanguard Total Intl Bond Index Adm VTABX 73.6 0.26 0.47 none
8. American Washington Mutual A AWSHX 158.1 37.8 14.4 5.75 8. Dodge & Cox Income @ DODIX 69.8 2.83 1.68 none
9. Fidelity Contrafund FCNTX 142.4 34.2 21.7 5.75 9. Pimco Total Return A PTTAX 69.2 0.96 1.04 3.75
10. American New Perspective A ANWPX 142.1 40.3 19.2 none 10. PGIM Total Return Bond A PDBAX 60.9 1.98 1.77 3.25
S&P 500 INDEX 40.8% 17.7% BLOOMBERG BARCLAYS US AGGREGATE BOND INDEX –0.6% 1.45%
MSCI EAFE INDEX 30.9% 10.6% ICE BOFA AAA US MUNICIPAL SECURITIES INDEX 3.3% 0.74%
As of July 9, 2021. @ Only share class. Unless otherwise indicated, funds come in multiple share classes; we list the share class that is best suited for individual investors. †For all mutual fund
share classes combined. MSCI EAFE tracks stocks in developed foreign markets. SOURCES: ICE Data Services, Morningstar, Vanguard.

09/2021 KIPLINGER’S PERSONAL FINANCE 35

 Invest in your child’s
a love of reading that
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INVESTING

KEY DATA FOR OUR MUTUAL FUND PICKS

Kiplinger 25 funds are no-load; you can buy them without sales
charges. For more about the funds, visit kiplinger.com/links/kip25.
THE KIPLINGER 25 UPDATE
Annualized

The Case for

total return Expense
U.S. Stock Funds Symbol 1 yr. 5 yrs. 10 yrs. Yield ratio

American Century Sm Cp Val ASVIX 92.5% 16.2% 12.0% 0.2% 1.25%

Investing Overseas DF Dent Midcap Growth

Dodge & Cox Stock

DFDMX 31.1

DODGX 61.5
21.3

17.1
16.2

13.8
0.0

1.3
0.98

0.52

Fidelity Blue Chip Growth FBGRX 48.9 29.3 20.1 0.0 0.79

Mairs & Power Growth MPGFX 45.5 15.3 14.0 0.7 0.64

Parnassus Mid-Cap PARMX 38.2 13.2 12.2 0.2 0.98

A PORTFOLIO WITHOUT approval of two COVID-19
foreign stocks would be vaccines fueled a shift in T. Rowe Price Dividend Growth PRDGX 36.9 15.7 14.0 0.9 0.63

like “fighting an invest- market sentiment away T. Rowe Price QM US Sm-Cp Gro‡ PRDSX 40.4 16.5 13.5 0.0 0.78
ment battle with one arm from steady Eddies. As a T. Rowe Price Small-Cap Value PRSVX 63.7 14.6 11.4 0.3 0.80
tied behind your back,” result, some fund holdings
Primecap Odyssey Growth POGRX 41.4 19.0 15.0 0.3 0.65
says Jed Weiss. He’s bi- that had done well earlier
ased, of course, as man- in the year suddenly be- Vanguard Equity-Income VEIPX 40.9 12.1 12.3 2.2 0.28

ager of FIDELITY INTERNA- came laggards, including Annualized

International total return Expense
TIONAL GROWTH fund. But Roche and Nestlé, defen- Stock Funds Symbol ratio
1 yr. 5 yrs. 10 yrs. Yield
he has a point: Foreign sive businesses with
Baron Emerging Markets BEXFX 28.3% 11.7% 7.1% 0.0% 1.35%
stocks make up about half strong balance sheets.
of the global stock market. Brown Cap Mgmt Intl Sm Co BCSVX 36.6 20.9 — 0.0 1.33

Over the past 12 months, A tilt toward survivors. Life Fidelity International Growth FIGFX 28.7 14.3 9.5 0.1 1.01
International Growth is returning to normal Janus Henderson Glbl Eq Inc HFQTX 26.3 7.2 6.0 7.3 0.95
gained 28.7%, trailing the now, and that bodes well
Annualized
30.9% return of the MSCI for International Growth. total return Expense
EAFE index, which tracks “The market has started Specialized Funds Symbol 1 yr. 5 yrs. 10 yrs. Yield ratio

foreign stocks in devel- to focus on firms that will Fidelity Select Health Care FSPHX 24.3% 17.4% 18.2% 0.5% 0.69%
oped countries. The fund come through this period Vanguard Wellington‡ VWELX 26.1 11.8 10.4 1.7 0.24
shone for most of the year, stronger, and that’s what
Annualized
but November and Decem- my investment process total return Expense
ber were a challenge. is geared toward,” says Bond Funds Symbol 1 yr. 5 yrs. 10 yrs. Yield ratio

That’s not surprising: Weiss. He’s upbeat about DoubleLine Total Return Bond DLTNX 1.3% 2.6% 3.8% 2.9% 0.73%
The fund tends to thrive luxury companies that Fidelity Interm Muni Income FLTMX 4.2 2.9 3.5 0.5 0.34
during stretches of market have gained market share.
Fidelity Strategic Income FADMX 11.2 5.5 4.6 2.0 0.67
uncertainty, thanks to “Not all did well,” says
Weiss’s penchant for what Weiss. LVMH Moët Hen- Met West Total Return Bond M MWTRX 0.8 3.3 4.1 0.9 0.68

he calls share gainers— nessy Louis Vuitton is a top TIAA-CREF Core Impact Bond TSBRX 1.3 3.2 — 1.1 0.64
financially healthy compa- holding. Weiss sees oppor- Vanguard Emerg Mkts Bond VEMBX 9.2 8.8 — 3.0 0.60
nies with strong positions tunities, too, in hard-hit
Vanguard High-Yield Corporate VWEHX 10.7 6.2 6.1 2.8 0.23
in their industry that can industries such as aero-
Vanguard Sh-Tm Inv-Grade VFSTX 2.0 2.7 2.5 0.8 0.20
raise or keep prices steady space and commercial
even in troubled times. catering. Earlier this year, Annualized
total return
Semiconductor companies he picked up shares in the Indexes 1 yr. 5 yrs. 10 yrs. Yield
such as ASML Lithogra- U.K. catering company
S&P 500 INDEX 40.8% 17.7% 14.8% 1.4%
phy, Lam Research, Laser- Compass Group.
RUSSELL 2000 INDEX* 64.7 15.6 11.9 1.0
tec and TSMC were among Weiss’s focus on market-
the fund’s big winners share gainers has served MSCI EAFE INDEX† 30.9 10.6 5.9 2.3
over the past year. investors well. The fund’s MSCI EMERGING MARKETS INDEX 24.4 12.2 3.7 1.9
But when the stock mar- five-year annualized re- BLOOMBERG BARCLAYS AGG BND IDX# –0.6 3.0 3.4 1.5
ket makes a sharp upward turn, 14.3%, beat the 10.6%
As of July 9, 2021. ‡Open to new investors if purchased directly through the fund company. *Small-company U.S.
turn, the fund typically annual return of the MSCI stocks. †Foreign stocks. #High-grade U.S. bonds. —Fund not in existence for the entire period. SOURCES: Fund
lags. That’s what hap- EAFE index. NELLIE S. HUANG companies, FTSE Russell, Morningstar Inc., MSCI, S&P Dow Jones Indices. Yields listed for bond funds are SEC
yields, which are net of fees; stock fund yields are the yield for the past 12 months. NA indicates not available.
pened in late 2020. The Nellie_Huang@kiplinger.com

38 KIPLINGER’S PERSONAL FINANCE 09/2021

 Commentary

STREET SMART James K. Glassman

I Still Like the Trillion-Dollar Stocks

“I
t may be a matter of months, or umn as of July 9), we’re including it capital investments that keep them far
more likely a few years,” I wrote in the trillionaires club for now. Plus, ahead of competitors, whether actual or
in the September 2017 issue of there are two stocks whose market potential. Last year, Amazon pumped
Kiplinger’s, “but sometime soon a caps have breached two trillion dol- $40 billion back into its own business,
U.S. company will breach the trillion- lars: Apple and MICROSOFT. making the company by far the largest
dollar mark.” By June 2021, to my I’ve now disclosed the punch line capital investor in the U.S. Alphabet
pleasant surprise, all five companies I to this column in the boldfaced names and Microsoft rank first and second
highlighted had become trillionaires. (as usual, stocks I like are in boldface). among U.S. companies in spending on
The question now is how high these I’m doubling down and recommending research and development.
stocks can go. Big is not beautiful to them all. As for the trustbusters: If the All five trillionaires have excep-
many regulators and elected officials worst happens, and Google is forced to tional balance sheets. Microsoft is one
(of both parties), and President Biden divest YouTube, Facebook has to shed of only two U.S. firms (the other being
is developing an executive order to rein Instagram, or Amazon has to spin off Johnson & Johnson) with a credit
in businesses that dominate their sec- its cloud business, well, so what? As a rating of AAA from Standard & Poor’s.
tors. The Federal Trade Commission shareholder, you will get stock in the That’s higher than the U.S. govern-
lost an antitrust case against FACEBOOK new stand-alone companies, too. ment is rated. Alphabet has $135 bil-
in June, but the setback lion in cash and securities
merely convinced many in and $28 billion in debt.
Congress that tougher laws UNLIKE THE HIGHFLIERS OF THE Only two trillionaires
are needed. pay dividends: Micro-
Another constraint is
LATE 1990S, THESE TRILLIONAIRES soft and Apple, both
a sort of law of financial MAKE TONS OF MONEY. components of the Dow
gravity. It’s not hard to Jones industrial average.
imagine a stock with a mar- Neither yields more than
ket capitalization (stock price times The most important fact about 1%, but you don’t invest
shares outstanding) of about $100 bil- these trillionaires is that, in stocks like these
lion becoming what the great mutual unlike the highfliers for the payout.
fund manager Peter Lynch called a of the late 1990s, They can earn
four-bagger—that is, quadrupling in they are making far more by in-
value. That could happen with UBER, tons of money. vesting their
SQUARE or Zoom Video Communica- Their profit mar- profits than
tions. But APPLE? As a four-bagger, it gins are spec- you can.
would have a market cap of $9 trillion, tacular. For Apple’s
roughly the same as the gross domes- every three return on
tic products of Germany and Japan dollars common
combined. Investing in giant compa- in reve- equity over
nies may considerably limit your upside. nues, for the past
Then again, a few years ago the example, 12 months
whole concept of a trillion-dollar stock Microsoft was 103%.
was alien, even nutty. Now, we have and Facebook drop Let’s take
AMAZON.COM , which hit the mark just about a dollar to the a deeper dive on
POON WATCHARA-AMPHAIWAN

a year after my 2017 column, and bottom line. Alphabet. Its main
ALPHABET, the parent of Google, which business is selling
exceeded $1 trillion in January 2020. Hand over fist. The highly effective,
Facebook hit the milestone in June. trillionaires are so targeted adver-
Although it has since retreated some profitable that they tising. Revenues
(based on data calculated for this col- can make massive took a modest hit

KIPLINGER’S PERSONAL FINANCE 39

INVESTING Commentary
because of the 2020 pandemic, so
they rose 13% for the year—which for
most companies would be sensational.
Alphabet is now recovering smartly,
with revenues jumping 34% in the first
quarter of 2021 compared with the
same period a year ago. Google’s sales
this year will easily exceed $200 bil-
lion, up from $38 billion 10 years ago.
The consensus estimate is that prof-
its will rise roughly 50% this year, then
settle down to something that has be-
come normal for Alphabet: about 20%
annualized. That means close to $100
in earnings per share for the next 12
months. At $2,510 a share, the stock is
underpriced. Where else can you buy
such consistent growth?
The answer is other trillion-dollar
stocks, of course. They’re all increas-
ing their profits by double digits. For
the year ahead, Apple is forecast to
earn $5.12 a share, for a forward price-
earnings ratio of 28. Like Alphabet
and Apple, Facebook has a P/E in the
high 20s. That’s not that much more
than the average for the S&P 500 as
a whole, currently 24. Amazon is the
outlier, at nearly 65, but that’s down
Highfliers
THE TRILLIONAIRES CLUB
The stocks below have hit the market-value milestone of $1 trillion—or could be future members
of that exclusive club. Find several of them in the funds listed.
Company Symbol
Alphabet GOOGL
Amazon.com AMZN
Apple AAPL
Facebook FB
Microsoft MSFT
Square SQ
Tesla TSLA
Uber UBER
Funds Symbol
Invesco QQQ QQQ
Red Oak Tech ROGSX
S&P 500 INDEX
As of July 9. —Not publicly traded. SOURCES: Morningstar, S&P Capital IQ.
40 KIPLINGER’S PERSONAL FINANCE 09/2021
THESE BIG COMPANIES CAN MAKE MASSIVE CAPITAL
INVESTMENTS THAT KEEP THEM FAR AHEAD OF COMPETITORS,
AND ALL HAVE EXCEPTIONAL BALANCE SHEETS.
considerably from 186 four years ago, makers, regulators and interest groups,
and Amazon deserves a high P/E. An- but attempts to constrain the trillion-
alysts foresee annual average earnings aires have so far been unsuccessful.
growth of 38% for the next five years. The recent FTC suit against Facebook,
said the judge in the case, did not pro-
Flexibility pays off. Amazon was a huge vide enough support for claims of mo-
beneficiary of the change in retail nopoly. After all, Facebook’s share of
shopping behavior, reinforced by the the digital ad market is 25%, compared
pandemic. The company’s U.S. e-com- with 29% for Google and 10% for fast-
merce sales increased 44% in 2020, rising Amazon. One of the FTC’s alle-
and its market share is forecast to rise gations was that Facebook bought up
just above 40% this year; Walmart is potential rivals, including WhatsApp
second in share at 7%. As I pointed and Instagram, thus eliminating com-
out four years ago, what makes a tril- petition. But Instagram had just 30
lionaire like Amazon attractive is its million users in 2012 when Facebook,
flexibility. Its Web Services subsidiary, then with about 1 billion users, ac-
which sells cloud storage, contributed quired the company for $1 billion.
more to operating income in 2020 Today, Instagram has 1.3 billion users
than did retail sales. In addition, Ama- and Facebook has 2.8 billion. All of
zon produces movies and TV shows, the trillionaires make acquisitions;
and digital advertising is soaring. some work out very well.
Size attracts the attention of law- Will any other stocks join the tril-
lionaires club? Currently, there’s a big
drop-off from Facebook, at $994 bil-
lion, down to the sixth-largest U.S.
company, TESLA , at $633 billion, fol-
lowed by Berkshire Hathaway and
Visa. I’m betting Tesla will make the
club in the next two or three years.
Market value Annualized total return If you want to buy the five trillion-
Price (billions) 1 yr. 3 yrs. 5 yrs.
aires as a group, a good choice is RED
$2,510 $1,709 65.3% 29.1% 28.5%
OAK TECHNOLOGY SELECT, a managed
3,719 1,876 16.9 28.8 37.9 mutual fund that owns just 27 stocks,
145 2,422 52.5 45.7 43.8 with the five trillionaires accounting
350 994 43.3 19.6 24.5 for the top five holdings and repre-
278 2,093 30.7 40.7 40.6 senting 33% of assets. For more con-
centration, consider INVESCO QQQ TRUST,
242 110 87.0 53.8 91.9
an exchange-traded fund that mimics
657 633 135.6 117.7 72.2
the Nasdaq 100, the largest stocks on
49 92 48.0 — — that exchange. The trillionaires repre-
Expense Annualized total return sent roughly 40% of QQQ’s assets—
ratio 1 yr. 3 yrs. 5 yr.
and you get Tesla to boot. Q
0.20% 38.6% 27.7% 27.8%
0.94 32.0 21.1 24.7 JAMES K. GLASSMAN CHAIRS GLASSMAN ADVISORY, A
PUBLIC-AFFAIRS CONSULTING FIRM. HE DOES NOT WRITE
40.8% 18.4% 17.7% ABOUT HIS CLIENTS. HIS MOST RECENT BOOK IS SAFETY NET:
THE STRATEGY FOR DE-RISKING YOUR INVESTMENTS IN A
TIME OF TURBULENCE. OF THE SECURITIES MENTIONED, HE
OWNS MICROSOFT, AMAZON.COM, TESLA, UBER AND QQQ.
CONTACT HIM AT JAMES_GLASSMAN@KIPLINGER.COM.
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 MONEY

The Bank
Disrupters
Fintechs offer mostly free accounts with
tantalizing yields and slick features, but don’t
expect much hand-holding. BY RIVAN STINSON

W
ith the invention of the smartphone and the ascendancy of
app-based services, financial technology companies—better
known as fintechs—have been disrupting traditional banking,
offering attractive features to new customers who aren’t
tied to traditional banks. These challenger banks (or neobanks, as they’re
sometimes called) tout higher rates, quicker access to paychecks, real-time
spending data and, for the most part, coverage by the Federal Deposit In-
surance Corp.—all while charging low (or no) fees and being mobile-centric.
Consumers are taking notice, especially since COVID-19 made banking
at a physical branch more difficult. In a December survey from consulting
firm McKinsey & Co., 36% of respondents who were thinking about open-
ing a fintech account said that these accounts were easier to use than a
traditional bank account. Fintechs tend to target younger consumers,

42 KIPLINGER’S PERSONAL FINANCE 09/2021

QFINTECHS CHALLENGING
TRADITIONAL BANKS
INCLUDE (CLOCKWISE
FROM TOP LEFT) LILI, SOFI,
VARO, CURRENT AND DIGIT.

09/2021 KIPLINGER’S PERSONAL FINANCE 43

MONEY
who may not have a loyal banking rela-
tionship, and other demographics that
the companies believe are not well
served by traditional banks.
For example, challenger bank First
Boulevard is directly targeting Black
consumers with an account that will
offer 15% cash back on purchases
from Black-owned businesses that
participate in its rewards network,
as well as automated savings via a
purchase round-up feature and early
payday access. There are no overdraft
or account-maintenance fees, nor is
a minimum balance required. Green-
wood Bank, which targets Black and
Latino consumers, has similar offer-
ings. Currently, both fintechs require
you to get on a waiting list before you
gain access. Targeting people in the
lesbian, gay, queer and transgender
communities, Daylight allows custom-
ers to choose the name they want dis-
played on their debit card and have
access to an assigned financial coach.
Daylight charges no monthly fees.
But while the conventional wisdom
is that almost all fintech users are
members of Generation Z or millen-
Banking 2.0
Who Uses Fintech Accounts
McKinsey & Co. asked survey respondents to select the apps they use from a list of well-known fintech companies, including Venmo, Varo,
Credit Karma, SoFi, Betterment and others. It also asked respondents if they had signed up for an account before or during the pandemic.
Percentage of respondents with financial technology
accounts during the pandemic
Gen Z
ages 18-23
52
36
44
14
SOURCE: MCKINSEY FINANCIAL INSIGHTS PULSE SURVEY
44 KIPLINGER’S PERSONAL FINANCE 09/2021
nials, older customers are getting in
on the action, too. According to the
McKinsey survey, 26% of baby boomers
and 44% of Gen Xers have some type
of fintech account.
Before you decide to leave your
traditional bank for something more
hip or sleek, see whether the features
of a challenger bank you’re interested
in meet your needs.
HOW THEY WORK
Traditional banks can’t operate with-
out a bank charter. Under a charter,
banks agree to federal oversight to
keep accounts safe, insured and acces-
sible. Fintechs currently don’t operate
under such rules, mostly because keep-
ing up with ever-changing regulations
is expensive and slows their ability to
bring a new product to market.
To get around the regulatory issue,
fintechs “rent” the compliance or reg-
ulatory function of a bank. In return,
the bank gains access to the fintech’s
technology, helping the bank become
more digitally focused without need-
ing to buy a technology company or
build its own app or online interface.
Millennials Gen X
ages 24-39 ages 40-55
48
56
8 7
From there, the fintech is allowed
to accept deposits, and funds are held
at the FDIC-insured bank.
“It’s not big banks like J.P. Morgan
or Citibank that are taking part in
these partnerships, but smaller, re-
gional banks that may not have the
money to spend to directly compete
with fintechs or even bigger banks,”
says Drew Pascarella, founder of
Cornell’s FinTech Intensive academic
program. For example, Dallas-area
MapleMark Bank recently announced
a new partnership with Raisin, a
German fintech specializing in cert-
ificates of deposit. As Raisin’s first U.S.
bank partner, MapleMark has given
Raisin access to the American market.
With Raisin’s technology, the bank
can offer three different CD options,
including a CD ladder, to its customers
while marketing its offerings to new
customers as well.
Some fintechs have applied for and
received their own bank charters.
The first to do so was Varo Money,
which launched in 2017. It received
regulatory approval in July 2020 to
relaunch as Varo Bank, after which it
Existing users
New users
Non-users
Baby Boomers
ages 56-74
ALL PHOTOS COURTESY OF THE COMPANIES
37 24
74 2
invited former Varo Money customers
to open accounts at Varo Bank and
move their funds.
SoFi, which pioneered student loan
refinancing and now offers an interest-
bearing checking account and other
products, is hoping to do the same.
The company received preliminary
approval from regulators in October
but is now working on buying a com-
munity bank to secure a charter.
Fintechs can also decide to go it
alone. The drawback is that if a fintech Fintech Snafu
doesn’t partner with a bank, the ac-
count isn’t covered by FDIC insurance. Chime Strikes a Sour Note
Currently, some fintechs specializing
As Americans received stimulus money, unemployment checks and tax refunds, Chime
in cryptocurrency operate this way,
ran an aggressive marketing campaign inviting new customers to sign up for accounts.
says Ken Tumin, founder of Deposit
But as the money rolled in, Chime began closing some accounts. When the customers
Accounts.com, a deposit account com-
with frozen funds e-mailed Chime to ask why, they received responses noting that the
parison website. BlockFi, for example,
deposits had been flagged as “unusual activity,” according to a report from ProPublica,
offers an interest-bearing cryptocur-
a nonprofit investigative publication.
rency account in which you can earn
Chime requested that these customers send in identification and proof that the stimu-
up to 7.5%, depending on the type of
lus checks and unemployment checks were legitimate. Yet some customers had to wait
cryptocurrency deposited.
months to gain access to their money, ProPublica reports. (At press time, Chime had not
yet responded to our request for comment.) Chime noted (as reported by ProPublica)
CAVEAT DEPOSITOR
that the company, along with its partner banks Bancorp and Stride, was aware of in-
The biggest benefit fintechs offer is
creased scam activity spurred by the various stimulus packages and that the accounts
their variety of free or mostly free
were suspended as part of its fraud-prevention methods.
features—typically with no overdraft
“A lot of people out there are trying to get a U.S. bank account for the wrong reasons,
fees. (Big financial institutions charge,
so there are valid reasons for vetting accounts and vetting payments,” says Adam Rust,
on average, a little over $33 when you
senior policy adviser at the National Community Reinvestment Coalition, a national
overdraw your account. In 2020,
membership group that champions fairness in lending, housing and wealth-building. “But
banks made an estimated $31.3 billion
it sounds as if Chime was advertising for this stimulus use, so it certainly raises questions
in overdraft revenue.) To attract cus-
about its preparation.”
tomers, fintechs including Chime,
The situation highlights the need to ask a neobank how it will resolve any issues that
Varo Bank, Current, Dave and a slew
arise. Will problems be handled only via chatbot or e-mail? And do you know exactly where
of others market their no-overdraft-
your money resides? For example, is your name on an account at a partner bank? With a
fee policy, and some allow you to
traditional bank, you can typically reach a customer service rep via phone or visit a branch,
access your paycheck in advance.
cutting out any middlemen. Whether you set up an account with a neobank or stick with
On the other hand, customer service
a traditional institution, report any problems you have to the institution as well as the
is a low priority. If you have a question
Consumer Financial Protection Bureau (go to www.consumerfinance.gov/complaint).
or complaint, you typically have to
communicate via e-mail or live chat
on a website. You may never be able to
talk with a human on the phone. (For ups, the costs will eventually rise. and you can only eat that cost for
a look at how Chime’s policies turned “Right now, these fintechs are so long,” he says.
into a customer service black eye, see choosing to eat the cost on these fea- Users of the savings deposit app
the box at right.) tures to gain customers,” says Eric Digit are already experiencing this
Another concern: Free can’t last Solis, CEO of MovoCash, a financial fee creep. Digit initiated a monthly
forever. The potential for fintechs technology company that offers on- fee of $2.99 in 2017. That was pushed
to add overdraft fees down the road demand mobile banking and other up to $5, and starting this fall the
is giving consumer advocates pause. services in one app. “But fee creep is fee will be $9.99 a month. That’s
Plus, as these companies begin to coming. The costs are the bottom of when Digit will debut new features,
offer more-sophisticated product line- the iceberg that consumers don’t see, including a checking account called

09/2021 KIPLINGER’S PERSONAL FINANCE 45

MONEY

Digit Direct, which employs artificial
intelligence to help customers budget,
save and invest. Customers will also
have access to 55,000 fee-free ATMs.
Current Digit users who upgrade to
Direct will continue to pay the $5
monthly fee for six months before the
$9.99 fee kicks in. Those who don’t
want to use the new banking feature
can choose not to upgrade and con-
tinue using the $5-a-month version
of the app. (New customers interested
in Direct have to join its waiting list.)
Along with fee creep, some fintechs
could chip away at their high yields, or
you may have to jump through hoops
to get them. T-Mobile customers who
sign up for T-Mobile Money, a check-
ing account provided by BankMobile,
can earn up to 4% on balances up to
$3,000 (1% on higher balances). But
to get the initial 4%, you have to be
enrolled in a qualifying wireless plan,
register for perks with your T-Mobile
ID and make 10 qualifying purchases
with your T-Mobile Money debit card
each month.
A few fintechs have entered into
partnerships with sweep account
services as an entrée into the U.S.
banking system. With this setup, the
fintech works with a network of banks
instead of one, “sweeping” deposits
into multiple FDIC-insured banks.
This arrangement, however, is more
convoluted, and it poses more risks
for consumers because they’re not
made aware of which bank has their
deposits and could have trouble ac-
cessing their money, says Tumin.
That’s what happened to Beam
Financial customers last year. Instead
of receiving transfers out of their
Beam accounts within the promised
three- to five-day window, some
customers waited weeks or months.
Customer service requests made
through the mobile app went unan-
swered. And because Beam partnered
with a sweep network, customers did
not know which bank had their money.
In response to these complaints and
others, the Federal Trade Commission
sued Beam. In March 2021, the com-
pany settled with the Federal Trade
Commission to refund customers all
funds, including interest, and Beam
can no longer accept deposits.
If you’re simply looking for a better
yield on your savings, take a look at
internet banks. Go to www.deposit
accounts.com and select “Personal
Savings Accounts” under the Savings
Accounts navigation tab. Q
TO CONTACT THE AUTHOR, PLEASE SEND AN E-MAIL TO
RIVAN_STINSON@KIPLINGER.COM.

Smart Picks

Find the Best Fintech Account for You

If you’re comfortable with all-digital banking, fin-
techs can be an attractive alternative to a tradi-
tional bank. “Savers might be attracted to some
of the high-yield accounts offered by fintechs,” says
Adam Rust, senior policy adviser at the National
Community Reinvestment Coalition, a national
membership group that champions fairness in lend-
ing, housing and wealth-building. “Yields were
sometimes above 2% as recently as a year ago and
are still above what is available at the typical
bank,” he adds.
VARO BANK offers a savings account that earns
up 3%. To get the full rate, you must receive a
monthly total of $1,000 in direct deposits into
either the savings account or the Varo Bank check-
ing account. Neither your checking nor your savings
account balance can dip below $0 for the month,
and your savings account can’t exceed a daily bal-
ance of $5,000 for any day of the month. To apply, download the
Varo Bank app from the Apple App Store or the Google Play Store.
On top of providing VantageScores, credit monitoring and tax-
prep services, CREDIT KARMA is also getting into the fintech game.
The company now offers a spending and savings account under
Credit Karma Money. The spending account is free to open, and
there’s no minimum balance to maintain. If you set
up a direct deposit into the spending account, you
can access your paycheck up to two days early. Plus,
there are no overdraft fees, and users can access
more than 55,000 ATMs. Bonus: Credit Karma may
reimburse you for a purchase thanks to its Instant
Karma program. The savings account earns 0.17%.
If you’re more concerned about collecting rewards,
the free basic checking account from CURRENT is
worth a look. The account has no overdraft fees,
no monthly maintenance fee and no minimum-
balance requirement. It also offers mobile check
deposit and access to 55,000 free ATMs. To earn re-
wards points, you activate offers from participating
retailers within the app. Current users who want
early paycheck access can upgrade to a premium
account for $4.99 a month.
Fintech is also addressing the specific needs of
gig workers. LILI, for example, offers a checking account with tax-
planning tools (in addition to charging no overdraft fees and requir-
ing no minimum balance). Gig workers can track and sort expenses
into “life” and “work” categories to generate an expense report
when it’s time to pony up taxes to Uncle Sam. The app also lets you
automatically save a portion of each gig payment in a tax bucket.

46 KIPLINGER’S PERSONAL FINANCE 09/2021

 TOP-YIELDING SAVINGS
30-day
Taxable Money Market yield as Minimum Website
Mutual Funds of June 30 investment (www.)
Transamerica Govt MMF (IATXX)* 0.13% $1,000 transamerica.com
CREDIT
Davis Govt MMF (RPGXX)* 0.10 1,000 davisfunds.com

New Perks From Our BlckRck Liqdty FdFnd Sel (BFBXX)*

RBC US Govt MMF (TUIXX)*
0.02
0.02
1
1
blackrock.com
rbcgam.com

Best Rewards Cards Mutual Funds June 28

CREDIT CARD COMPANIES HAVE
been changing annual fees
and beefing up rewards—
or plan to roll out new
cards later this year and
next. Some of the changes
affect some winners in
our annual rewards card
rankings. (Go to kiplinger
.com/kpf/cards21 for the
complete list.)
Good news for anyone
considering the ALLIANT
CASHBACK VISA , which won
silver in our Flat-Rate
Cash Back (Worth the Fee)
category: There’s no longer
a $99 annual fee. There’s
also a new tiered rewards
program with no cap on
RATE UPDATES
For the latest savings yields
and loan rates, visit kiplinger
.com/links/rates. For our
top rewards cards, go to
kiplinger.com/kpf/cards21.
rewards. Before, rewards
were capped at $250. Now
you can earn either 2.5%
cash back on all spending
up to $10,000 (with pur-
chases after that earning
1.5%) or 1.5% overall if you
don’t qualify for tier-one
rewards status. (See www
.alliantcreditunion.org
for details.) Current card-
holders have automatically
been enrolled in tier-one
rewards to give them time
to set up an Alliant high-
rate checking account,
Fidelity Muni MMF (FTEXX)*
30-day Tax eq. yield
Tax-Free Money Market yield as of 24%/35% Minimum
bracket investment
0.01% 0.01%/0.02% $1
Website
(www.)
fidelity.com
Fidelity Tax-Exempt (FMOXX)* 0.01 0.01/0.02 1 fidelity.com
Amer Cent T-F MMF (BNTXX)* 0.01 0.01/0.02 2,500 americancentury.com
which is a requirement to T. Rowe Price Tax-Ex (PTEXX)* 0.01 0.01/0.02 2,500 troweprice.com
qualify for tier-one status.
Annual
Chase now allows holders Savings and Money Market yield as of Minimum Website
of most of its co-branded Deposit Accounts July 9 amount (www.)
travel cards to sign up for Affinity Plus FCU (Minn.)&# 1.00%^ none affinityplus.org
a free one-year DashPass Workers CU (Mass.)& 0.80 § $5 wcu.com
membership that also Zynlo Bank (Mass.)†# 0.80 10 zynlobank.com
comes with some reduced ConnectOne Bank (N.J.)† 0.65 2,500 connectonebank.com
service fees. The cards Annual
on our best list eligible Certificates of Deposit yield as of Minimum Website
1-Year July 9 amount (www.)
for the deal include the
Lafayette FCU (Md.)& 0.80% $500 lfcu.org
SOUTHWEST RAPID REWARDS
NexBank (Texas)† 0.75 10,000 nexbankpersonal.com
PRIORITY VISA , MARRIOTT
Comenity Direct (Del.)†‡ 0.70 1,500 direct.comenity.com
BONVOY BOUNDLESS VISA
Puerto Rico FCU (P.R.)& ‡ 0.70 1,000 prfedcu.com
and WORLD OF HYATT VISA .
The CAPITAL ONE SAVORONE Annual
Certificates of Deposit yield as of Minimum Website
MASTERCARD, which took sil- 5-Year July 9 amount (www.)
ver in our Dining Rewards Depart of Commerce FCU (D.C.)& 1.36% $25,000 docfcu.org
category, increased cash Lafayette FCU (Md.)& 1.26 500 lfcu.org
back on grocery purchases Affinity Plus FCU (Minn.)& 1.25 500 affinityplus.org
from 2% to 3% and now pays First Peoples Comm FCU (Md.)& 1.20 500 firstpeoples.com
3% on eligible streaming *Fund is waiving all or a portion of its expenses. & Must be a member; to become a member, see
services, such as Netflix, website. #Money market deposit account. ^Must receive electronic statements and have a $500
monthly direct deposit into an Affinity Plus deposit account. §Must deposit $50 monthly. †Inter-
Hulu and Disney+. Sub- net only. ‡Merrick Bank offers a similar yield. SOURCES: Bankrate, DepositAccounts, Money Fund
scriptions and purchases Report (iMoneyNet).
from Amazon Prime, AT&T
TV and Verizon FIOS On TOP CHECKING ACCOUNTS
Demand are excluded. Must meet activity requirements* Annual
yield as of Balance Website
The AMERICAN EXPRESS High-Yield Checking July 9 range† (www.)
PLATINUM card (silver in La Capitol FCU (La.)& 4.25% $0–$3,000 lacapfcu.org
Premium Travel Rewards) Consumers Credit Union (Ill.)& 4.09‡ 0–10,000 myconsumers.org
is raising its annual fee to Liberty Financial (Ind.)& 3.30 0–20,000 liberty.financial
$695 on January 1. But card- Market USA FCU (Md.)& 3.01 0–15,000 marketusafcu.com
holders will now get an
*To earn the maximum rate, you must meet requirements such as using your debit card several times
annual statement credit of monthly and receiving electronic statements. †Portion of the balance higher than the listed range
$179 for a membership to earns a lower rate or no interest. &Must be a member; to become a member, see website. ‡Requires
spending $1,000 or more monthly in CCU Visa credit card purchases. SOURCE: DepositAccounts.
CLEAR, the airport secu-
rity clearance network. Month- Year- As of July 9.
Cardholders can also earn YIELD BENCHMARKS Yield ago ago ● EE savings bonds purchased
after May 1, 2005, have a
up to $240 a year on sub- U.S. Series EE savings bonds 0.10% 0.10% 0.10% fixed rate of interest.
scriptions to the New York U.S. Series I savings bonds 3.54 3.54 1.06 ● Bonds purchased before
May 1, 1995, earn a minimum
Times, Peacock, Audible Six-month Treasury bills 0.05 0.04 0.19 of 4% or a market-based
0.79 0.75 0.40 rate from date of purchase.
and SiriusXM, along with Five-year Treasury notes
● Bonds bought between
other perks. RIVAN STINSON Ten-year Treasury notes 1.37 1.50 0.84
May 1, 1995, and May 1, 2005,
Rivan_Stinson@kiplinger.com earn a market-based rate
from date of purchase.

09/2021 KIPLINGER’S PERSONAL FINANCE 47

MONEY Commentary
MONEY SMART WOMEN
How to Boost Your Financial Savvy
Annamaria Lusardi is a professor of
economics and accountancy at George
Washington University and academic
director of the university’s Global Fi-
nancial Literacy Excellence Center. She
has done extensive research on the topic
of women and financial literacy. Her
most recent paper is “Fearless Woman:
Financial Literacy and Stock Market
Participation.”
Based on your research, what is the current
state of financial literacy among women?
In 2017, we created the TIAA Institute-
GFLEC Personal Finance Index to
examine financial literacy among U.S.
adults across eight areas of personal
finance. Women know less in almost
each of them compared to men—and
when there isn’t a difference, men also
know very little. The areas with the big-
gest gap are investing; insuring, which
includes both insurance products and
things like emergency savings; and
understanding risk—for example, the
risk of investing in a single asset.
To what do you attribute the gap? It’s
both lack of knowledge and lack of
confidence. In every country we sur-
vey, we see the same pattern: Women
are disproportionately more likely to
answer “do not know” when we ask a
question. Then we ask the same ques-
tion several months later, take away
the “do not know” option and ask how
confident they are in their answer.
Women are less confident than men,
even when they are correct. Being cau-
tious is very, very good, but there is
a difference between being cautious
and being fearful, which can affect
investing in the stock market.
What can we do to address the confidence
gap? One important barrier is language.
Women don’t speak the language of fi-
48 KIPLINGER’S PERSONAL FINANCE 09/2021
Janet Bodnar
WOMEN NEED TO KNOW
HOW FINANCIAL KNOWLEDGE
CAN HELP THEM TAKE CARE
OF THEIR FAMILIES AND
THEMSELVES.
nance. It’s a very sensitive topic. Some
are afraid they won’t understand it,
and for others it’s taboo. Plus, people
often associate money with trouble.
We need to change that language. My
first personal finance class was mostly
men with a small group of women.
Then I changed what I do, and my
class has filled up with women.
How did you change your teaching meth-
ods? I tell them we will start with
plain English, and I use myself as an
example. As an Italian woman, I have
the lowest probability of being finan-
cially literate among the people we
survey in the G7 countries. But I have
reversed the statistics. I also use a lot
of humor. I have a funny Italian ac-
cent, which is not intimidating, so I
use that to my advantage. And I tell
them this is not just a course in invest-
ing. It is a “happiness project.” You will
learn the tools you need to achieve
your dreams.
How can we adapt this outside the class-
room? Talk about what women care
about. They care about others, so tell
them how financial knowledge can
help them take better care of their
families and themselves. It’s impor-
tant to put financial literacy in
schools, so you can reach everyone,
including those who are least exposed
at home. Girls and women often don’t
speak with each other about finance.
The workplace is also important be-
cause you have to reach women where
they are. There should be a personal
finance column in publications they
read—for example, those related to
their kids. You need a “Sex and the
City” with a financial literacy twist.
How has the pandemic affected women
financially? They were a vulnerable
group even before, and this has made
them more so. When we look at women
as a group, we find large differences
across race and ethnicity. For example,
when you look at how people face fi-
nancial shocks, white women might
be more likely to use financial instru-
ments and Black and Hispanic women
would depend more on transactions
within the family. But even controlling
for income and education, those with
higher financial literacy fared better.
So we have an opportunity not just
to respond to a crisis but to create a
stronger, more resilient group. Finan-
cial education is a response to a world
JULIE WOODFORD
that is always changing. Q
CONTACT THE AUTHOR AT JANET_BODNAR@KIPLINGER.COM.
 MANAGING DEBT of Education is considering
extending the waiver, and

Make a Plan to Start the most likely scenario is

that it would last through
the end of 2021, says Mark

Repaying Student Loans

Kantrowitz, a financial aid
expert and author of How to
Appeal for More College Fi-
nancial Aid. And even if the
The pandemic-era pause on student loan repayments is scheduled to waiver isn’t extended, rates
end September 30. If you can’t afford payments, you have options. on private student loans are
BY EMMA PATCH likely to remain low through
the end of 2022, he says,
which means borrowers in-
terested in refinancing have
IN AN EFFORT TO PROVIDE August about the date their lower rate, you may want plenty of time to consider
economic relief during the payments will resume. to wait. If President Biden their options.
pandemic, the federal gov- fulfills his pledge to forgive If you still think it’s a
ernment suspended pay- Time to refinance? In addi- up to $10,000 in student good idea to refinance to
ments on federal student tion to a notice from your loan debt, it will likely be a private loan, read the fine
loans last year, with no loan servicer, you may re- limited to federal loans. print on any offer you are
interest accrual on loan ceive fliers or e-mails from And once you refinance considering. Some plans
balances. The moratorium private lenders offering to a private loan, you can’t offer low interest rates in
was extended a couple to refinance your student refinance back to a federal the first year and hike them
of times, but now that the loans at interest rates as loan. later. But it’s important that
pandemic has subsided and low as 2.5%. Another reason to wait: you do not refinance unless
the economy is recovering, The best private-loan The suspension on federal you’re confident you can
the pause is set to expire deals are limited to borrow- student loan payments may afford payments under the
on September 30. Loan ers with excellent credit or be extended. Secretary of plan you’re considering.
servicers planned to start a co-signer. But even if you Education Miguel Cardona Options for private loans
notifying borrowers in qualify to refinance at a has said the Department for borrowers who are un-
employed or experiencing
other economic difficulties
generally aren’t as flexible
as federal loans.
However, if you already
have private student loans,
there’s no reason not to look
into refinancing to a loan
with a lower rate. Be sure
to compare the monthly
payment with the total cost
when you are considering
consolidating or refinancing
student loans, Kantrowitz
says. Simply extending your
payment period will lower
your monthly payments,
but you could pay thousands
of dollars more in interest
SHUTTERSTOCK.COM

by the time you pay off the

loan.
To avoid interest-rate
hikes down the road, look

09/2021 KIPLINGER’S PERSONAL FINANCE 49

MONEY
for a low fixed rate rather
than a variable rate. And
if you can afford it, you
may also want to consider
a shorter repayment term.
Although your monthly
payments may go up, you’ll
save on interest and get out
of debt sooner. Most lenders
offer loan repayment terms
of 10, 15 and 20 years.
Options for federal loans.
If your budget can’t handle
payments on your federal
student loans, you may be
eligible to lower them by
enrolling in an income-
driven repayment (IDR)
plan. There are several IDR
plans available through the
Department of Education,
but all base your monthly
payments on your earnings.
If you’re already enrolled
in an income-driven plan
and your income has de-
clined considerably, you
can also ask your loan ser-
vicer to recertify your in-
come and recalculate the
payment, which could dip
as low as $0. You can apply
for an IDR plan at https://
StudentAid.gov/app/ibr
Instructions.action and
select the plan that you
qualify for that will provide
you with the lowest monthly
payment. You may end up
paying more in interest in
the long run because you’re
extending the repayment
period, but after 20 years
of payments, you may be
eligible to have the balance
forgiven (see the box at
right for an example of
one IDR plan).
If you can’t afford to
make payments at all, you
may qualify for deferment
or a forbearance. There are
two types of deferments:
50 KIPLINGER’S PERSONAL FINANCE
economic hardship and un- Both of these options, as to the loan balance at the
employment deferment. You well as general forbearance, end of the deferment or
must be out of work to qual- are available for up to three forbearance period.
ify for the unemployment years, and you can use a
deferment, but you may combination of deferments Prepare to pay. Once you
qualify for economic hard- and forbearance for up to decide your path forward,
ship if you’re receiving fed- nine years. Interest may calculate your payment.
eral or state public assis- continue to accrue while For federal loans, you can
tance, you’re a Peace Corps payments are suspended, use the loan simulator tool
volunteer, you’re working depending on the type of at https://StudentAid.gov/
full-time but earn less than loan you have. A subsidized loan-simulator. If you
or equal to the federal mini- or Perkins loan, for exam- haven’t already checked,
mum wage, or you have in- ple, will not accrue interest be sure that your loan ser-
come that’s less than or during a forbearance or vicer has your current
equal to 150% of the poverty deferment. For other loans, contact information. If
line for your family size and the interest that accrues you signed up for automatic
state (about $26,000 for a while payments are sus- payments, you may be re-
two-person household). pended will likely be added quired to confirm that your
bank account information
has not changed.
Loan Relief Another step to consider
Can You Lower Your Payments? before the end of the federal
payment suspension is
whether to request refunds
Income-Based Repayment
for payments made after
(IBR) is one of several federal
March 13, 2020. Any pay-
income-driven repayment
ment you made during the
programs for borrowers who
suspension of payments can
are having trouble making
be refunded, which is useful
payments on their federal
if you need the money or
student loans. IBR payments
think you will in the future.
are based on your income and
Contact your loan servicer
family size. Depending on your income and loan balance, IBR
before September 30. The
payments may be considerably lower than standard 10-year pay-
call centers may be busy,
ments. After 25 years, you may also be eligible for forgiveness
so you may get better re-
on the balance—but if you aren’t eligible, you’ll end up paying
sults by using your lender’s
more in interest because you’re extending the repayment period.
online contact forms.
The table below shows standard and IBR loan payments for
Finally, be on guard
a single borrower with adjusted gross income of $33,000 and
against fraud. The Depart-
federal student loans issued before July 2014. There are several
ment of Education says
other income-driven plans for borrowers with federal loans. For
student loan borrowers
more information, go to https://studentaid.gov/manage-loans/
have received phone calls,
repayment/plans/income-driven.
e-mails, letters and texts
First month’s payment warning them that the sus-
pension program will end
Loan amount Original IBR
soon and offering debt re-
$35,000 $383 $186 lief. Usually, companies
offering these types of ser-
$65,000 $711 $186 vices don’t offer any relief,
and some are crooks looking
$108,000 $1,182 $186 to take advantage of vulner-
ISTOCKPHOTO.COM
able borrowers. Q
SOURCE: Student Loan Hero. Assumes an average weighted interest rate of 5.7%.
YOU CAN CONTACT THE AUTHOR AT EMMA_
PATCH@KIPLINGER.COM.
09/2021
 The quality of a private campus
with the affordability of a public university.
Academic Excellence Accomplished Alumni Find out how
Offering 63 distinct programs Over 58,000 graduates are taking Salisbury University is the
within four endowed schools, SU the lead in the boardroom, the right — and affordable — t
is one of those rare universities lab, the legislature and even on
that celebrates individual talents Broadway. SU helps put students’ for you.
and encourages big ideas. education to work, supporting job
searches and graduate school
National Recognition applications.
SU consistently ranks among
the nation’s best in U.S. News Beautiful Campus
& World Report, The Princeton Home to 8,100 students from
Review and Forbes. On the eld, 31 states and 52 countries, the
the Sea Gulls have won University, a national arboretum,
22 NCAA Division III national is situated between the Atlantic www.salisbury.edu
team championships. Ocean and Chesapeake Bay.

SU is an Equal Opportunity/AA/Title IX university and provides reasonable accommodation given sufcient notice to the University ofce or staff sponsoring the event or program.
RETIREMENT

52 KIPLINGER’S PERSONAL FINANCE 09/2021

 Plan Now for
Long-Term Care
You could buy insurance to finance future costs, but policies are
pricey. Here’s how to decide whether you need coverage.
BY RIVAN STINSON

IN early June, a 102-year-old South

Carolina woman made headlines
with her secret to a long life: minding her
own business. While most of us probably
won’t live that long (or resist the tempta-
tion to be nosy), modern medicine has in-
creased the likelihood that we’ll live well
into our nineties. But living longer also raises
a daunting question: Will you need long-
term care, and if so, how will you pay for it?
More than two-thirds of 65-year-olds will
need some type of long-term care in their
lifetime, according to the Administration
for Community Living, a division of the U.S.
Department of Health and Human Services.
The cost of long-term care can deplete
even a well-funded retirement savings
plan: According to the 2020 Genworth Cost
of Care Survey, the median cost of a private
room in a skilled nursing home exceeds
$8,800 a month. And the cost varies de-
pending on where you live. A typical private
room in New York costs about $12,930 (ac-
cording to the Genworth survey), compared
with about $7,600 in Tennessee. (To get
an idea of how much you would need in
each state, check the Genworth Cost of
Care Survey at www.genworth.com.)

ILLUSTRATIONS BY JOE ANDERSON 09/2021 KIPLINGER’S PERSONAL FINANCE 53

RETIREMENT

Many Ameri- a short period of

cans mistakenly time (see the box
believe that Med- on the next page).
icare will cover Determining
their long-term whether insur-
care. Medicare ance is right for
Part A may cover you depends on
care that is deemed whether you have
medically neces- enough money to
sary at a certified self-insure and
skilled nursing what’s best for
facility for up to your family (see
90 days, but if you page 56 for ques-
need custodial tions to ask to help
care for a condi- make the deci-
tion such as de- sion). If you can’t
mentia, Medicare afford to pay for
won’t cover the long-term care,
costs. family caregivers
Long-term- could be forced to
care insurance cut back on work
provides benefits hours or quit their
in the event you job to take care of
need help with you, jeopardizing
at least two “ac- their own retire-
tivities of daily ment security. In
living”—bathing, a recent survey
getting dressed by Fidelity Invest-
or eating, for ments, 28% of
example—for respondents left
more than 90 their job due to
days. (Some poli- caregiving respon-
cies will kick in sibilities. Of those
at 60 days or less, who eventually
but you’ll pay went back to work,
higher premiums.) more than one-
Most policies will third said their
pay for care in earnings declined.
your home or at
a long-term-care CAN YOU
facility, and some SELF-INSURE?
will pay for your If you have suf-
transportation to a doctor’s income investments, cover point decline in interest ficient assets, you may
appointment. the cost of long-term-care rates, an insurer needs to choose to self-insure, which
A long-term-care policy insurance. But many poli- raise premiums 10% to 15%, means any long-term-care
could give you peace of cies were designed 30 years he says. If rates rise signifi- needs you have will be paid
mind, but the cost is steep. ago, when interest rates on cantly, premiums could de- out of your own coffers. “If
Premiums are expensive U.S. Treasuries were much crease, but that’s unlikely someone has over $1 million
and are continuing to in- higher than they are today, anytime soon. in liquid assets, then they
crease, due in large part to says Jesse Slome, executive Costs aside, you have to could probably self-insure,
the rising cost of care and director of the American deal with the uncertainty of provided they were willing
historically low interest Association for Long-Term your long-term needs. You to spend it all for their
rates. These premiums, as Care Insurance (AALTCI). or your spouse may not re- own care,” Slome says. If
well as returns from fixed- For a single percentage quire care at all or only for you’re married, he ups the

54 KIPLINGER’S PERSONAL FINANCE 09/2021

number to $2.5 million.
When you self-insure,
you’re basically betting that
you won’t require a pro-
longed stay in a nursing
home—and it’s not a bad
bet. According to the Ad-
ministration for Commu-
nity Living, most people
who go into a nursing home
stay for less than 12 months.
Instead, you are more likely
to rely on in-home care. It
costs about $4,600 a month
for one or more caregivers
to provide 44 hours a week
of in-home care, according
to the Genworth Study.
Mari Adam, a certified
financial planner with Mer-
cer Advisors, in Boca Raton,
Fla., suggests sitting down
with a financial planner to
figure out how much you’ll
have in savings to cover
long-term care. You’ll typi-
cally include funds in your
traditional and Roth IRAs,
401(k) plans, taxable ac-
counts, Social Security, and
any pension income.
Your home is also part
of the equation when calcu-
lating whether you can self-
insure. If you’ve built a
substantial amount of home
equity, you can downsize to
a smaller place. If you even-
tually need to move to as-
sisted living or a nursing
home, you may be able to
use proceeds from the sale
of your home to cover the
costs. If you don’t want to
sell your house, a home-
equity line of credit or a
reverse mortgage is also
an option. (For more on
how to tap your home
equity, go to kiplinger.com/
kpf/tapequity.)
If you’re enrolled in a
high-deductible health in-
surance plan, you can also
harness the tax-saving
power of a health savings
account (HSA) to pay for
some of your long-term-care
costs. Contributions are
pretax (or deductible if you
set up an HSA on your own),
earnings are tax-free, and
distributions aren’t taxed
if you use them to pay for
qualified medical expenses.
Plus, you can keep your
account after you stop
working and take tax-free
withdrawals for medical
expenses in retirement,
including any long-term-
care costs. To qualify for
an HSA, your 2021 health
plan must have at least a
$1,400 deductible for self-
only coverage or $2,800 for
family coverage. You can
contribute up to $3,600 if
you have self-only coverage
or up to $7,200 if you have
family coverage. If you’re
55 or older at the end of the
year, you can contribute an
extra $1,000 in catch-up
contributions. Once you
enroll in Medicare, you’re
no longer allowed to con-
tribute to an HSA, but the
money continues to grow
until you’re ready to use it.
You can also use money
from your HSA tax-free to
pay long-term-care insur-
ance premiums, with the
maximum annual tax-free
amount based on your age.
If you’re age 40 or younger,
you can withdraw up to
$450 tax-free from an HSA
in 2021 to pay the premi-
ums; if you’re 41 to 50, you
can take out $850; if you’re
51 to 60, $1,690; if you’re 61
to 70, $4,520; and if you’re
71 or older, $5,640. If you
and your spouse both have
long-term-care policies, you
can each use money tax-free
from your HSA to pay pre-
miums, up to the maximum
for each of you based on
your ages by the end of the
year. These limits increase
slightly each year to adjust
for inflation.
THE CASE FOR INSURANCE
Once you have run the num-
bers, you may conclude that
you can handle the cost of
long-term care. However,
if you’re married, you may
still want to consider buying
a long-term-care insurance
policy, Adam says. The risks
are higher that at least one
spouse will require long-
term care, and those costs
could exhaust your com-
bined savings, leaving
the other spouse with no
resources.
A 55-year-old couple can
expect to pay $2,100 a year
for a typical policy with an
initial benefit pool (the pot
of money the insurance
company will pay out) for
each spouse of $165,000 to
cover adult day care, home
aide services, assisted living
and nursing home costs. If
that seems like a high price
to pay for something you
WHO WILL NEED LONG-TERM CARE
The probability that a 65-year-old will need long-term care—and
if you need it, for how long.
65-year-old
No conditions
Female
Cardiovascular disease
High cholesterol
No conditions
Male
Cardiovascular disease
High cholesterol
SOURCE: HealthView Services
may never use, there are
ways to trim the cost.
Married couples can re-
duce what they pay in the
long run by buying a shared
benefit plan, which allows
spouses to pool their bene-
fits. If one spouse exhausts
his or her benefits, then he
or she can tap the other
spouse’s share. To get the
best value, both spouses
need to apply for the same
amount of benefits—for
example, three years at
$200 a day—and then add
a shared benefits rider. Plus,
depending on the carrier,
both spouses can get a dis-
count of between 15% and
30% on their premiums if
both buy a policy with the
same company, according to
Bill Dyess, a long-term-care
expert and insurance broker
in Boca Raton. However,
even if just one spouse buys
a policy, the insurance com-
pany is likely to provide a
10% to 15% premium dis-
count because married
people are less likely to go
into a nursing home than
single people.
You can also save money
by skipping the inflation
Length of
LTC time care Life
probability required expectancy
56.0% 992 days 89
61.2% 946 days 88
48.4% 1,000 days 87
44.3% 660 days 87
45.1% 630 days 85
37.1% 663 days 85
09/2021 KIPLINGER’S PERSONAL FINANCE 55
 Weighing the Costs

SHOULD YOU BUY LONG-TERM-CARE INSURANCE?

Long-term-care insurance will pay for care in an assisted living facility, in a nursing home or in your own home, but premiums are expensive.
If you never need long-term care, or only need it for a few months, you may never recoup your investment. A yes or no answer to each ques-
tion below isn’t meant to be a definitive indication that you should buy a policy or self-insure, but it should help you make the decision:

DO YOU HAVE LIQUID ASSETS OF MORE THAN

NO $1 MILLION ($2.5 MILLION IF YOU’RE MARRIED)?
YES

LIQUID ASSETS INCLUDE FUNDS IN ROTH AND TRADI-

TIONAL IRAS, SOCIAL SECURITY, PENSIONS, TAXABLE
ACCOUNTS. FUNDS IN A HEALTH SAVINGS ACCOUNT
CAN ALSO BE USED FOR LONG-TERM-CARE COSTS.

YES ARE YOU MARRIED? NO

A HEALTHY 65-YEAR-OLD COUPLE HAS A 75% CHANCE

OF AT LEAST ONE SPOUSE REQUIRING SOME FORM
OF LONG-TERM CARE. IF ONE SPOUSE NEEDS CARE,
THE COST COULD DEPLETE SAVINGS FOR THE OTHER
SPOUSE.

DO YOU HAVE A SUBSTANTIAL

NO AMOUNT OF HOME EQUITY?
YES

SENIORS WITH SIGNIFICANT HOME EQUITY CAN DOWN-

SIZE, SELL, OR TAKE OUT A REVERSE MORTGAGE OR
HOME-EQUITY LINE OF CREDIT TO PAY FOR CARE.

DO YOU HAVE A HISTORY OF

YES CARDIOVASCULAR DISEASE? NO

A 65-YEAR-OLD FEMALE WITH CARDIOVASCULAR

DISEASE HAS A 61.2% CHANCE OF REQUIRING LONG-TERM
CARE, VERSUS 56% IF SHE HAS NO CHRONIC ILLNESSES.
FOR A 65-YEAR-OLD MALE, THE RISK OF REQUIRING LONG-
TERM CARE RISES SLIGHTLY, FROM 44.3% TO 45.1%.

DO YOU HAVE A HISTORY OF TOBACCO USE

NO OR TYPE II DIABETES? YES
LONG-TERM SELF-
CARE WHILE IT MAY SOUND COUNTERINTUITIVE, SENIORS INSURE
INSURANCE WITH THESE CONDITIONS HAVE SHORTER LIFE EXPEC-
TANCIES, REDUCING THE LIKELIHOOD THAT THEY’LL
NEED LONG-TERM CARE.

56 KIPLINGER’S PERSONAL FINANCE 09/2021

rider. While these riders
will help you keep up with
the rising costs of long-term
care, they can double your
premiums, Dyess says. For
example, if a 55-year-old
man bought a traditional
policy with a benefit pool
of $165,000 and he wanted
to add a 2% inflation rider,
he would pay $1,750 in an-
nual premiums, compared
with $950 for a policy with-
out a rider, according to
data from the AALTCI. A
55-year-old woman would
pay $2,815 instead of $1,500.
Buying a policy when you
are in your forties or early
fifties will also decrease the
cost of premiums (although
you’ll be paying for them
over a longer period of
time). Insurance companies
assume you’re at a higher
risk for health problems as
you age.
Slome says the sweet
spot for buying a policy is
between the ages of 55 and
65, before you sign up for
Medicare. “The first time
that people actually take
advantage of all those won-
derful free health screens
is usually after they sign up
for Medicare,” he says. “And
when they do, the doctors
tend to find something.” If
you have a health condition,
you’ll pay higher premiums,
or the insurer may decline
to cover you at all.
A traditional policy with
$165,000 in initial benefits
(and no inflation rider) that
would cost a 55-year-old
man $950 a year jumps to
almost $1,200 a year, on
average, if he waits until his
60th birthday to buy cover-
age. A 55-year-old woman’s
premiums would jump from
$1,500 to about $2,000.
If you decide to buy a back the $50,000 you ini- cialist can help you look for
policy at a relatively young tially used. This type of ways to lower the cost.
age—in your fifties, for ex- benefit is typically only
ample—you may want to good for a one-time use. CONSIDER A HYBRID POLICY
add a restoration of benefits A policy with this rider, Another alternative to a
rider. If you make a claim which not every insurer traditional long-term-care
and later recover from the offers, costs about 4% to 6% policy is a hybrid life insur-
illness that caused you to more than one without it. ance policy that includes
require long-term care, the If the numbers start to long-term-care benefits. If
rider enables the benefit feel overwhelming, keep you tap the policy to pay for
amount you used to be re- in mind that you probably long-term care, your death
stored to your policy benefit don’t need a policy that will benefit will be reduced, al-
pool. For example, suppose cover 100% of your long- though some hybrid policies
at age 60 you make a claim term-care costs, Adam says. will pay a small residual
for $50,000 to pay for your Instead, you should con- benefit even if the entire
care. If you recover and can sider whether a policy can death benefit is exhausted
show your insurance com- help you pay for some of by long-term-care costs.
pany you’ve been healthy your long-term care without Say you have a hybrid
for a set amount of time depleting all of your retire- policy with a $120,000
(usually determined by the ment assets. And if a policy death benefit that provides
insurance company when that offers the benefits you $180,000 of potential long-
the policy is written), the want is unaffordable, a long- term-care benefits. If you
restoration rider will add term-care insurance spe- spend $80,000 on long-term
care, your heirs will still re-
ceive $40,000 after you die.
If you spend the entire
Is Government Help on the Way? $180,000 on care and your
policy pays a small residual
In a recent poll conducted by the Associated Press, 60% of death benefit, your benefi-
respondents favored a federal, Medicare-like long-term-care ciaries may receive $10,000.
insurance program. Some 70% said Medicare should cover long- Such a policy may appeal
term care. While a federal long-term-care program is unlikely to you if you’re determined
anytime soon, President Joe Biden has proposed spending to leave something to your
$400 billion on home and community-based services for long- heirs, but you’ll pay more
term care (although the outlook for the proposal is unclear). for this kind of insurance. A
In the meantime, some states may look into starting their 55-year-old man can expect
own programs. In 2019, the Washington State legislature to pay roughly $4,600 a year
passed a bill to create a state long-term-care program funded (compared with $950 for a
by a new payroll tax. Starting on January 1, 2022, the state will traditional long-term-care
add an additional 58 cents to payroll taxes for every $100 of insurance policy) for a life
eligible wages reported on Form W-2. Employees can opt out insurance policy that pro-
by November 1, 2021, if they purchase a qualifying long-term- vides $180,000 in long-
care insurance policy. term-care benefits with a
If you’re thinking that Medicaid will be your golden ticket $120,000 death benefit.
for long-term care, think again. To qualify for Medicaid, you To find a long-term-care
must spend down nearly all of your assets first. Medicaid also specialist, go to www.aaltci
has a “look back” period that involves examining your finan- .org and click on “LTC Re-
cial transactions from the past five years to determine sources.” Type in your zip
whether you gave away money to qualify for Medicaid, which code to find a professional
could render you ineligible. And even if you qualify for Medic- in your area; make sure he or
aid, you’ll have to go to a facility that accepts Medicaid, and she has a “certified in long-
as the population ages, those will be increasingly hard to find. term care” designation. Q
YOU CAN CONTACT THE AUTHOR AT RIVAN_
STINSON@KIPLINGER.COM.
09/2021 KIPLINGER’S PERSONAL FINANCE 57
RETIREMENT Commentary

LIVING IN RETIREMENT Janet Bodnar

Retirement Can Keep You Busy

F
or retirees, volunteering is a working, built a harp, taught himself Bonnie Scott. Likewise, says Joanne
major source of satisfaction (see how to read music and has performed Dietrich, “I am an active 60-year-old
“Living in Retirement,” June). But at Dodger Stadium and other venues. who loves to hike, and I just became
you’re also involved in other activities Hoping to pursue acting and film- a volunteer trail management person.
that are just as rewarding. In fact, making when he retires, Steve Radley I love my life!”
many of you have found your sense of is already taking acting classes and has Ann Howard left New Jersey for an
purpose in going back to work—some- worked as an extra in feature films and active 55-plus community in Arizona,
times as an extension of a long career commercials. After 40 years in legal and “it has been such a great move,”
and sometimes in a brand-new role. education, Bob Jerry is developing his she says. “We are always involved
For some of you, entrepreneurship longtime interest in music, using pro- with something or other, and many
was the lure. After 30 years in the cor- duction software to write, record and people are there to come along.”
porate world, Matthew Werner moved produce music in his modest home On the other hand, Gloria and Arnold
from Maryland to North Carolina and studio. “I’m not scheduling a Grammy Burchianti moved back to a family
started a commercial photography nomination party anytime soon, but farm in Pennsylvania to be near their
business. Gary Wallin left a middle- I am having fun,” he says. aging parents and to “devote our time
management job and partnered with to outside projects.” More than 20
his son and daughter to invest in On the move. Many of you have struck years later, they have a reconstructed
apartment buildings. out in new directions—literally. “I 200-year-old Amish barn and exten-
Others found their calling in the keep busy staying in shape with bik- sive grounds that include an orchard,
classroom. When Wayne Kerr retired ing, hiking and backpacking,” writes a bass pond and a National Wildlife
from his dentistry Federation Certified Wildlife Habitat.
practice, he became an Larason Lambert, a self-described
adjunct associate pro- “nature freak,” purchased three
YOUR LIVES ARE
fessor at the University wooded acres near Asheville, N.C., and
of Alabama’s School FILLED WITH acquired thousands of plants, focusing
of Dentistry, and he JOBS, CREATIVE on ferns. His “mission in life” is to pre-
continues to counsel VENTURES AND serve “Fernhaven” as a private garden.
dental professionals Amid all of this activity, there are
on how to enhance INTELLECTUAL still plenty of retirees whose greatest
their practices (www ENJOYMENT. pleasure is to sit back and smell the
.kerrspeak.com). John roses—or pick up a good book. “When
Kovacs and Layne I first retired, I had grand notions of
Hansen signed on as an encore career or significant vol-
substitute teachers. “I was able to unteering,” writes Ann Symonds.
teach personal finance and an intro- But for her, she writes, those
duction to the stock market,” says paths led to limited pleasure
Hansen. “It was very exciting to see and as much stress as work-
the next generation of investors.” ing: “I have found tremen-
Some of you have found meaning dous pleasure in pursuing
in creative ventures. Esther Howell, my interests—reading,
a retired federal employee, devotes knitting, playing the
POON WATCHARA-AMPHAIWAN

her time to her passion for interior piano—for no purpose

decoration—in particular, creating other than intellectual
wreaths and table décor as fund- enjoyment.” ■
raisers for local charities. Thomas
JANET BODNAR IS EDITOR AT LARGE
Baker, a retired math and science OF KIPLINGER’S PERSONAL FINANCE.
CONTACT HER AT JANET_BODNAR@
teacher with a talent for wood- KIPLINGER.COM.

58 KIPLINGER’S PERSONAL FINANCE 09/2021

 RETIRE
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FUNDAMENTALS
PRACTICAL PORTFOLIO
Make a Shopping
List for Stocks
Identifying candidates to buy before a market sell-off can
help you execute a buy-the-dip plan.
DID YOU EVER GO TO THE
grocery store without a list
and end up spending more
than you wanted, buying
junk food you’d vowed to
avoid or succumbing to an
impulse purchase just be-
cause something was on
sale? Well, failing to com-
pile a shopping list of stocks
to buy when the next big
market drop occurs—and
shares go on sale—can also
be costly. It’s harder to exe-
cute a buy-the-dip plan
when markets plunge and
fear spikes if you haven’t
prepared in advance. “The
windows of opportunity
don’t last very long,” says
Justin White, manager of T.
Rowe Price All-Cap Oppor-
tunities. Having a list helps
take the emotion out of your
decision and allows you to
“act quicker and buy with
greater confidence when
the time comes to strike.”
Stock prices don’t go up
forever—even in bull mar-
kets. There are inevitable
downdrafts along the way.
Since World War II, pull-
backs, or drops of 5% to
9.99% for the S&P 500 stock
index, have occurred every
60 KIPLINGER’S PERSONAL FINANCE
Adam Shell
15 months, on average, ac-
cording to CFRA Research.
Corrections, or declines of
10% to 19.99%, strike about
every three years, and bear-
market downdrafts of 20%
or more (such as the 34%
slide in 2020) occur roughly
every six years.
Savvy investors take ad-
vantage of those unpleasant
market downturns to fill
their shopping carts with
stocks they covet at more-
attractive prices. Such bar-
gain-hunting frequently
pays off because the broad
market goes up more than
it goes down. The S&P 500
has been in bull-market
mode 82% of the time since
the end of 1945, CFRA data
show. Hence, a good way
to boost long-term returns
is to buy when stocks are
temporarily depressed.
“History reminds us that
investors should focus more
on when to buy than when
to bail,” says CFRA chief
strategist Sam Stovall.
Here are some strategies
to help you pinpoint stocks
to buy on weakness because
they have the potential to
rebound in a big way.
09/2021
Seek out the best of breed.
High-quality stocks don’t
often sell at bargain prices.
In good times, the stocks
that appreciate the most
and command higher price-
earnings ratios tend to be
leaders in their respective
industries and have busi-
ness models with staying
power. They possess such
bullish traits as a competi-
tive advantage over rivals,
strong management teams,
products and services
whose sales will benefit
from long-term trends, and
a track record of generating
lots of free cash flow (cash
profits left after investing
to maintain the business).
A great company doesn’t
become a lousy one just be-
cause Wall Street suffers
a steep correction or bear
market. “These best-of-
breed companies are what
you want to own long term,”
says Thomas Plumb, man-
ager of Plumb Balanced.
Plumb, for example, is bull-
ish on the long-term pros-
pects of financial companies
that are well positioned to
profit from the ongoing
shift toward digital and
contactless payment sys-
tems, including established
heavyweights such as Mas-
tercard and Visa, as well as
upstart PayPal Holdings.
After sell-offs, buying in-
dustry leaders such as these,
or dominant companies
such as e-commerce giant
Amazon.com, is a good way
to boost the quality of your
portfolio and enhance re-
turns, says Plumb.
Head for the hardest hit.
Consider adding the most
bombed-out stocks in a
market rout to your shop-
ping list. In the 25-year
period ending in 2020, the
three sectors and 10 subin-
dustries in the S&P 500 that
fell the most during market
declines of 10% or more
ILLUSTRATION BY NEIL WEBB

posted larger returns than
the broad market gauge
during the ensuing rebound,
CFRA data show. The S&P
500 was up 25.2%, on aver-
age, six months after such
declines, compared with an
average 30.6% for the three
lagging sectors and 42.7%
for their 10 subindustries.
“The groups hit the hardest
tended to rise higher from
the ashes,” Stovall says.
But there’s a major caveat
when buying distressed
shares: Often, stocks that
“explode off the bottom”
are financially strained
firms that investors take a
flier on, says Plumb. “The
perception of the company
just has to go from terrible
to bad” for the stock to
make a big move, he says.
He cites the bust-and-boom
shares of General Electric
as a prime example. GE
shares lost more than half of
their value, dropping below
$6 each. The shares, which
he doesn’t own, have since
doubled. But Plumb notes
that companies with long-
term issues to fix often stall
after their initial rebound.
GE is still challenged by
a heavy debt load, poor cash
flow, ongoing weakness in
its lending unit and a jet-
engine business hurt by the
pandemic. “At the end of the
day, you don’t want to own
companies with structural
problems,” Plumb says.
Depend on pillars of strength.
Set your sights on compa-
nies that have enough work-
ing in their favor to with-
stand temporary market
setbacks. T. Rowe Price’s
White uses a scoring system
that looks at four key as-
pects of a company, which
he dubs pillars: Is it a high-
quality company? Is it
poised to top or beat inves-
tor expectations on earn-
ings, revenues and other
yardsticks? Is the business
outlook getting better or
worse? Is the stock selling
at an attractive valuation?
“The more things tilted
in your favor, the better,”
White says. But don’t be
scared off if not all four pil-
lars are bullish, he adds. For
example, Euronet World-
wide, a money-transfer and
e-payments company that
also operates ATMs, doesn’t
currently score well on the
“getting better or worse”
pillar because of weakness
in Europe due to a slower
reopening in the wake of
the pandemic and fewer
international travelers. But
the stock is a buy in White’s
book because it scores highly
on the other three metrics.
“It could double in two to
three years,” he says.
Similarly, although Zoom
Video Communications has
seen growth in its remote-
meeting business decelerate
as the economy reopens and
people head back into their
offices, it still has three of
the four pillars working in
its favor, White says. It’s a
top-notch company that
will likely top sales and
profit expectations next
year. And the high valuation
is more reasonable when
you look out a few years. “If
a stock scores well, I move
in, and if it doesn’t score
well, I move out,” he says.
Look for investment themes
with legs. Keep an eye on
leaders in businesses with
a bright growth outlook that
are likely to generate sales
and profits well into the
future, says Daniel Milan,
managing partner at
Cornerstone Financial
Services. Themes to zero
in on include e-commerce,
cybersecurity, financial
technology (think digital
payment systems, for exam-
ple) and electric vehicles.
With a shopping list in
hand, you’ll view market
downturns in a whole new
light. Says Milan, “Getting
in at opportunistic entry
points is great.” Q
YOU CAN CONTACT THE AUTHOR AT ADAM_
SHELL@KIPLINGER.COM.
09/2021 KIPLINGER’S PERSONAL FINANCE 61
FUNDAMENTALS Commentary
MILLENNIAL MONEY EMMA PATCH
Find Health Insurance You Can Afford
O
ne of the most popular provi-
sions of the Affordable Care Act
allows young adults to stay on
their parents’ health insurance plan
until they’re 26. I’ve been fortunate
to have coverage through my parent’s
insurance plan for several years, but
I will soon switch to Kiplinger’s plan.
Some insurers allow adult children
to stay on their parents’ plan through
the month of their 26th birthday,
while others stop coverage on your
birthday. Either way, if you’re covered
by your parents’ plan, you should start
looking for alternatives well before
time runs out.
COBRA coverage. You have the option to
stay on your parents’ plan after you
turn 26 under COBRA (which
stands for the Consolidated
Omnibus Budget Reconciliation
Act). The law typically allows
someone who leaves their job
to remain on their employer’s
plan for up to 18 months, but
young adults who are about
to age out of their parents’
plan are also eligible.
You’ll have to notify
your parent’s employer
that you want to sign up
for COBRA, and once
you do, benefits will be
available to you for up
to 36 months. The one
major caveat: COBRA
is expensive. Many em-
ployers cover all or most
of the cost of employees’
health insurance pre-
miums, but when you
elect to enroll in COBRA,
you (or your parent)
will have to pay the en-
tire premium. Aver-
age premiums for
62 KIPLINGER’S PERSONAL FINANCE
COBRA plans are $600 to $700 per
month, says Karen Pollitz, senior fellow
at the Kaiser Family Foundation.
If you’re working and your employer
offers health benefits, its plan is likely
to be less expensive than continuing
coverage under COBRA. Turning age
26 and losing coverage through your
parents’ plan is a “qualifying event,”
which means you don’t have to wait
until open enrollment (which usually
occurs toward the end of the year) to
sign up for health insurance.
Affordable Care Act. If you don’t have
health insurance through your job,
your next stop should be HealthCare
.gov. The Affordable Care Act expanded
access to health care for all
THANKS TO THE
AFFORDABLE CARE ACT,
THE UNINSURED RATE
FOR TWENTY-
SOMETHINGS HAS
PLUMMETED.
uninsured
Americans,
including
young adults,
through the
online health
insurance
marketplace.
Plus, you may
be eligible for
financial assis-
tance that will
significantly
lower the cost
of premiums.
The Ameri-
can Rescue Plan, signed into law in
March, significantly expanded ACA
subsidies, lowering premiums for
individuals at every income level and
eliminating them entirely for some
households. If your estimated modi-
fied adjusted gross income for 2021
is between 100% and 150% of the fed-
eral poverty level ($12,880 to $24,135
for a one-person household), you’ll be
able to purchase enhanced silver-level
plans at no cost. Visit HealthCare.gov
and select your state to access the
health insurance marketplace. You
can also use this tool to determine
whether you’re eligible for Medicaid,
which provides health insurance cov-
erage to low-income households.
Coverage for students. If you’re
attending graduate school or any
educational institution, you may
qualify for student health insur-
ance. Student health insurance
is often very good, but the quality
of coverage varies, says Mina
Schultz, ACA outreach and en-
rollment manager at Young In-
vincibles, a young adult advocacy
group. Another option for students
who are unemployed is Medicaid,
Schultz says. If you earn less than
$16,000, you may be able to enroll
in Medicaid for a low cost or no cost
at all.
If you’re not sure which option is
best for you, consider consulting with
an ACA Navigator. ACA Navigators
are a network of health care experts
who can help you apply for health
insurance and may provide assis-
tance even after you’ve enrolled in
a plan. You can find one in your area
RYAN KETTERMAN
at GetCoveredAmerica.org. Q
TO SHARE THIS COLUMN, PLEASE GO TO KIPLINGER.COM/
LINKS/MILLENNIALS. YOU CAN CONTACT THE AUTHOR AT
EMMA_PATCH@KIPLINGER.COM.
 X ES N G
TA S T I N G
V E D I
IN E N
SP I N G
T E N D
E N & L
R E M I T
E T I R E D
R C SS
I N E
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REWARDS
How to Win in a
Red-Hot Housing Market
Whether you’re a buyer or a seller, these strategies
will help you get the best deal. BY DANIEL BORTZ

Laura Gross knew that she’d be facing fierce competi-

tion this spring when she was getting ready to bid
on a four-bedroom house in Troy, Mich., a suburb of
Detroit. So she pulled out all the stops: She waived
an appraisal contingency, offered $30,000 above the
home’s $285,000 list price, wrote a letter expressing
why she loved the home (it reminded her of the house
she grew up in a mile away), and offered the seller a
free 60-day rent-back.
The seller chose Gross’s offer over seven others.
“I knew I had to offer above list price and waive con-
tingencies to even have my offer considered in this
market,” says Gross, an accounting manager at a
manufacturing company.
Gross is just one in a tsunami of house hunters
who have flooded the housing market since the coro-
navirus pandemic began. She experienced firsthand
how tough today’s housing market is for buyers.
The U.S. is facing a nationwide housing shortage
amid strong demand, fueled partly by super-low mort-
gage rates (see the box on page 67). “Homes are get-
ting snatched up because there’s simply not enough
supply,” says Jeff Tucker, senior economist at Zillow,
the housing marketplace and data tracker. Unsold
inventory sat at a 2.5-month supply in May, according
to the National Association of Realtors (six to seven
months of supply is considered a balanced market).
Properties stayed on the market for just 17 days that
month, on average, down from 26 days in May 2020.
New homes are also hard to find, with new-home
sales sinking to a seasonally adjusted annual rate
of 769,000 in May, down 5.9% from April. “For a

64 KIPLINGER’S PERSONAL FINANCE 09/2021 ILLUSTRATION BY IKER AYESTARAN

09/2021 KIPLINGER’S PERSONAL FINANCE 65
REWARDS
while during the pandemic, you
couldn’t buy a brand-new house even
if you wanted to, because builders had
such a severe shortage of labor and
materials,” says Ali Wolf, chief eco-
nomist at Zonda, a housing data and
consultancy firm.
Tight supply and continued strong
demand from buyers has caused home
prices to skyrocket, says Alexander
Hermann, a research analyst and one
of the lead authors of the Harvard
Joint Center for Housing Studies’ 2021
State of the Nation’s Housing report.
U.S. home prices saw a 15.4% annual
gain in May, according to the S&P
CoreLogic Case-Shiller Home Price
Index. Among the largest metro
areas tracked, Phoenix, San Diego
and Denver experienced the highest
year-over-year price gains.
The takeaway: Buyers have to be
strategic to nab a home in today’s red-
hot market. And though it’s a seller’s
market, there are steps sellers can take
to get top dollar and sell quickly.
SMART MOVES FOR HOME BUYERS
Buyers will have to be aggressive—and
creative—to defeat their competition.
Before you begin your home-buying
journey, you’ll need to wrap your head
around three things.
Number one: Be prepared to offer
more than the asking price. More than
half of homes (54%) sold above their
list price in May, according to Redfin,
up from 26% a year earlier. Number
two: You may have to bid on a number
of homes before you have an offer
accepted. And number three: You
may not be able to find a home that
has everything you’re looking for.
“Homes that are totally updated and
move-in ready are receiving a ton of
offers,” says Jeff Checko, a real estate
agent at RE/MAX Advantage in Nash-
ville. “If you’re willing to make an in-
vestment in a home that requires some
renovations to get what you want, you’ll
be in a much better buying position.”
Hire an in-tune agent. With homes
flying off the shelves, choosing a real
66 KIPLINGER’S PERSONAL FINANCE 09/2021
estate agent who is plugged in to your
local market is more important than
ever. Look for an agent who has com-
pleted a large number of recent trans-
actions in your target neighborhood,
suggests Hal Hovey, a real estate agent
at Coldwell Banker 360 Team in Oak
Harbor, Wash.
Working with an agent who knows
which homes are about to hit the mar-
ket is crucial, Hovey says. When inter-
viewing potential agents, ask them
how they keep their ear to the ground.
For example, they may be a member of
Facebook groups for real estate agents
in your area where agents promote
their upcoming listings and buyer
needs, says Hovey.
Online reviews of agents from past
clients can be a source of valuable intel,
says Judith Weiniger, the founder and
broker of Weiniger Realty, in Warren,
N.J. “Look at the content of the review
and not just how many stars the per-
son received,” she says. “Is the agent
accessible? How well do they know
your market? Do they do a good job of
guiding buyers throughout the home-
buying process?”
Get your financial ducks in a row. Cash
is king in any market, but right now
an all-cash offer nearly quadruples
a buyer’s chances of winning a bidding
war, a recent Redfin study found. But
if you are planning to get a mortgage,
line up your financing before you
start shopping for a home, advises
Pete Boomer, a mortgage executive
at PNC Bank.
Boomer recommends getting preap-
proved for a mortgage—however, “not
all mortgage preapprovals are created
equal,” he says. He recommends get-
ting a fully underwritten preapproval,
in which a lender collects all of your
financial information and underwrites
a loan up front. That means your loan
approval is only subject to an appraisal
and title insurance. Submitting this
kind of preapproval letter when you
make an offer on a home “gives the
seller peace of mind that you’re a highly
qualified buyer,” Boomer says.
A fully underwritten preapproval
also gives buyers the ability to waive
a financing contingency, because
they’ve already cleared many of the
major hurdles in the mortgage ap-
proval process, says Rob McGarty,
the founder of Bushwick Real Estate
Services, in Seattle. McGarty also
recommends that buyers use a local
mortgage lender “because big banks
operate within a very rigid frame-
work that puts the bank’s timelines
ahead of the contract’s deadlines,
which results in delayed closings and
potential loss of the buyer’s earnest
money,” he says.
Check your phone often. Being the first
one to tour a new listing can enable you
to make an offer before other buyers
do, says Daniel Gyomory, a real estate
agent at Keller Williams Advantage in
Novi, Mich. Have your agent sign you
up for instant notifications through
your local multiple listing service
(MLS) so that you get pinged when a
home that meets your criteria goes on
the market. Because homes are selling
at warp speed, “you have to be ready to
drop everything to go look at a house
at a moment’s notice,” Hovey says.
Waive contingencies judiciously. Some
16% of home sellers expect buyers to
waive contingencies, a May survey by
Realtor.com found. Even though that’s
rarely a good idea, “in this crazy seller’s
market, we’ve seen instances where
buyers are waiving all contingencies,”
says Rachel Foy, broker and owner of
Hillman Homes, in Newton, Mass.
However, buyers should still protect
themselves even if they decide to waive
the home inspection or appraisal con-
tingency. One way to reduce your risk
of purchasing a home that needs major
repairs is to perform an inspection of
the property before making an offer.
“Pre-offer inspections will give you
the comfort of knowing what kind of
shape the home is in and allow you to
waive a home inspection contingency
when you write your offer,” Foy says.
Moreover, with many homes getting
 bid up significantly above their list
price, appraisal gaps—when a profes-
sional appraiser’s valuation of a home
comes in lower than the accepted
offer—have become a frequent obstacle
for buyers. As a result, partially waiv-
ing an appraisal contingency can make
your offer more attractive. (Just make
sure you have enough cash in the bank
after you cover an appraisal gap to still
qualify for a mortgage.) “A lot of times
what I do is advise buyers to say, ‘If the
appraisal comes in low, we agree to
cover an appraisal gap up to a certain
amount of money, such as a $20,000
shortfall,’ ” says Geoff Strobeck, a real
estate agent at Compass in Boston.
“It gives the seller more assurance
that the deal will close, and it protects
buyers from having to shell out more
money than they’re comfortable pay-
ing for a home.”
Chantal and Carlos Gonzalez used
that tactic when they bid on a four-
bedroom house in Maplewood, N.J.,
earlier this year. “We waived the ap-
praisal by 50%, so in the event the
home didn’t appraise we’d be on the
hook for half of the difference,” says
Carlos, a filmmaker. (The home ap-
praised for $609,000, a hair above
their contract price of $605,000.)
The Gonzalezes also tweaked their
offer’s home inspection contingency to
make their bid stand out. “We told the
sellers we’d only walk away if there
were structural issues with the house,
and thankfully we didn’t find any dur-
ing the inspection,” says Chantal, an
ad salesperson at Pinterest.
“Right now, I recommend buyers
limit home inspection repair requests
to safety, structural and environmental
defects,” such as radon or termites,
says Sarah Bandy, a real estate agent
at Jason Mitchell Real Estate, in Colts
Neck, N.J., who represented the couple.
“You can look past a broken window.”

Write a heartfelt letter to the seller. “In

a situation where there are a dozen or
more offers, there’s a high likelihood
that the top two offers are nearly iden-
tical,” McGarty says. “I find anything
that tilts the cards in your favor is
worth doing.”
Writing a letter to the seller can tip
Mortgages Will Stay Affordable the scales in your favor, but there’s a
caveat: Letters to sellers can violate
It’s irrefutably a seller’s market with respect to supply and demand, but it’s still a great Fair Housing laws that govern dis-
time to purchase a house when it comes to locking in a low mortgage rate. crimination against protected classes
The 30-year fixed mortgage rate hit a record low of 2.65% in the first week of Janu- (such as people of a certain race or
ary. Since then, rates have ticked up, to about 3% in mid July, according to Freddie Mac. religion), causing some agents to call
But 3% is still a phenomenal mortgage rate, says Sarah Bandy, a real estate agent at these so-called love letters “liability
Jason Mitchell Real Estate, in Colts Neck, N.J. letters.” Even a statement as seemingly
Joel Kan, an economist and industry analyst at the Mortgage Bankers Association, innocuous as “The house is within
forecasts 30-year mortgage rates to climb to 3.5% by the end of this year. That’s about walking distance to our church” could
what Kiplinger is expecting, with mortgage rates climbing to 3.8% by the end of 2022 raise a red flag. Your best approach?
(see “Ahead,” on page 9). Have your agent proofread your letter
Generally, conventional loan borrowers need a credit score of 740 or higher to qualify for potential Fair Housing discrimina-
for the best rates, says Pete Boomer, a mortgage executive at PNC Bank. It pays to tion violations before you submit your
ISTOCKPHOTO.COM

shop around and compare offers from several lenders: Borrowers who get five quotes offer, and “stick to emphasizing what
save an average of $3,000 over the life of their loan, says Freddie Mac. features about the home appeal to
you,” Hovey says.

09/2021 KIPLINGER’S PERSONAL FINANCE 67

REWARDS
Find out when the seller will be reviewing
offers. A lot of home sellers are setting
deadlines for offers so that they can
compare offers side-by-side instead
of reviewing them as they trickle in.
Ask your agent to find out if there’s
a deadline that you have to meet in
order to be considered.
Get in line for new construction. Although
there’s currently a shortage of new
homes for sale, builders are starting to
ramp up production. Housing starts in
May rose 3.6% from April, according
to Census Bureau data.
“Rest assured, more supply is com-
ing for new homes,” Wolf says, “but it
takes a long time to go from buying
dirt to building a home.” Therefore,
if you have your eye on a new commu-
nity, “joining a builder’s wait list is a
good idea,” she says.
SMART MOVES FOR HOME SELLERS
If you’re selling in a pricey market and
either downsizing or moving to a less
expensive area, it’s a great time to cash
out—especially if you’re willing to rent
until the market cools and supply in-
creases. That said, you don’t want to
make any costly mistakes when selling
your home.
Price your home at market value. There
are several schools of thought when
it comes to setting a listing price. You
can price your home below what it’s
worth in an effort to draw tons of
offers (and hope some bidders offer
above listing price); you can price
it at its market value; or you can price
it high, to give yourself room to nego-
tiate. Strobeck says the best pricing
strategy in today’s market is to set
your home’s listing price at, or slightly
below, its value based on comparable
properties (“comps”) that recently sold
near your home.
“The kiss of death in this market
is listing a property too high,” says
Strobeck. If you price your house above
comparable sales in your neighbor-
hood, you may not get a single offer.
“You start to lose leverage once your
68 KIPLINGER’S PERSONAL FINANCE 09/2021
home has been on the market for more
than a week, which means you may
have to make price cuts,” he says.
Hovey says flexibility is key: “I
like to wait until the day we put a
house on the market to set the listing
price because the market is changing
so rapidly,” he says. “The price I
give a seller today may be radically
different from what I gave them a
month ago.”
Do a little staging. You want to present
your home in the best light possible.
Often, that means staging your home
with furniture you rent, chosen by a
professional designer, that will appeal
to a wide range of potential buyers.
“I’m staging all of my vacant listings
right now, because with the pandemic,
buyers are being extra selective of what
homes they want to see in person,”
says Foy. She’s not alone: 31% of sellers’
agents said they staged all homes prior
to putting them up for sale, according
to a recent survey by the National
Association of Realtors.
Furnishing an entire house, though,
can be costly—staging a 2,000-square-
foot home typically costs about $2,000
per month, according to HomeAdvisor.
But a fully staged home is not a re-
quirement in a seller’s market, says
Weiniger. “For a recent listing, we
added new lighting, bedding and
simple white drapes to the master
bedroom,” she says. “It didn’t cost
a lot of money, but it made the house
look more modern.”
If you want to keep costs down,
consider virtual staging, which is
when a designer digitally adds furni-
ture and accents to photographs of
your home. “Virtual staging has come
a long way, and it gives buyers the
ability to visualize what the house
will look like when it’s furnished,”
Strobeck says. According to one Red-
fin estimate, virtual staging costs
between $39 and $199 per room.
Offer a bird’s-eye view. Nowadays,
professional listing photos are the
bare minimum. Pictures taken by
a drone can make a big difference,
“especially if your property has a lot
of land,” Foy says.
Bandy took drone photos and a
video when she listed Harris and Julie
Hafeez’s home in Freehold, N.J., this
summer. “They allowed you to see
what the whole property looked like
from an aerial perspective,” says
Harris, the owner of a health care
management company. That was
especially advantageous, he says,
because the house sits on 2.5 acres.
Additionally, 3-D walking tours are
catnip for online house shoppers, says
Bandy. Proof: From March 2020
through February 2021, for-sale list-
ings on Zillow with a 3-D tour gar-
nered 65% more views than listings
without a 3-D tour.
Set a deadline for offers. Reviewing of-
fers one by one as they trickle in can
make your head spin. Setting a dead-
line for offers and reviewing them in
one sitting can help. “I suggest listing
your house on a Thursday or Friday
and setting a deadline for offers the
following Monday,” Hovey says. “That
gives buyers a full weekend to tour
your home.”
Another reason to put your house
on the market on a Thursday: Homes
listed on Thursday typically sell faster
and are more likely to sell above list
price than those listed on any other
day of the week, a Zillow study found.
Don’t focus only on the offer’s price.
Certainly, you want to maximize your
home’s sales price, but price isn’t the
only factor to consider when compar-
ing offers. In some cases, you may
want to choose a lower offer if the
buyer is more qualified than the high-
est bidder. Paul and Jane Guse, both
teachers, accepted an offer lower than
the highest bid when they sold their
three-bedroom ranch house in West-
land, Mich., in June. “There was a
higher bid, but the offer we accepted
had zero contingencies,” says Jane. Q
IF YOU HAVE QUESTIONS OR COMMENTS, PLEASE SEND AN
E-MAIL TO FEEDBACK@KIPLINGER.COM.
CANCER DOESN’T STOP.
NEITHER DO WE.
FOR ONE NIGHT. WE STAND TOGETHER.

SATURDAY 8/21
8 ET/7 CENTRAL

American Lung Association’s LUNG FORCE, Amgen, Cless Family Foundation, Fanconi Anemia Research Fund, Farrah Fawcett Foundation,
Jazz Pharmaceuticals, Laura Ziskin Family Trust, Legacy Circle, LUNGevity Foundation, Mirati Therapeutics, Pancreatic Cancer Canada,
Sara Schottenstein Foundation, Society for Immunotherapy of Cancer, Lew, Jean, and Kari Wolff
Stand Up To Cancer is a division of the Entertainment Industry Foundation (EIF), a 501(c)(3) charitable organization.
REWARDS
STARTER HOME
Give a First-Time
Buyer a Hand
With home prices soaring, newbies may need financial help
from their family. Here’s how to do it right. BY RIVAN STINSON
THE HOUSING MARKET IS
a tough nut to crack these
days. Prices are hitting the
stratosphere thanks to low
inventory, which is sparking
bidding wars among buyers.
Landing a home can seem
impossible for younger buy-
ers, who may need help
with the down payment or
qualifying for a mortgage.
One-third of millennials
report that coming up with
the money for a down pay-
ment is the biggest obstacle
to buying a home, according
to the American Bankers
Association. In fact, it takes
10 years, on average, for
most home buyers to save
a 5% down payment.
However, buying a first
home is a lot easier if the
bank of mom, dad, grand-
parents, extended relatives
and friends can be tapped.
In a recent survey of home
buyers by ServiceLink, a
mortgage lending company,
28% of respondents reported
they inherited money or re-
ceived money as a gift from
their family and friends to
help purchase their home.
If parents or grandparents
have deep pockets, they
70 KIPLINGER’S PERSONAL FINANCE
could even finance the
entire purchase—usually
with the stipulation of being
repaid.
If you want to help your
kids or grandkids get their
first home, here’s what you
need to know about gifting
or lending money or co-
signing a mortgage.
Give a gift. If you want to
keep things simple, gifting
cash or stocks is probably
your best option. If you’re
worried about future estate
taxes, it can help you reduce
the bill. But pay attention to
the gift tax laws.
The federal estate tax ex-
clusion amount is $11.7 mil-
lion for 2021 ($23.4 million
for married couples). You
can give up to $15,000 per
person to as many people
as you’d like during the year
without having to file a gift
tax return. If you’re mar-
ried, your spouse can also
give $15,000 per person,
increasing the annual tax-
free gift to $30,000 per
person. That money offsets
the value of your estate
when you pass away.
After the money is gifted,
09/2021
when you bought it and
your child sells it for $50 a
share, your child will owe
capital gains taxes on $40
a share. But if your child is
in a lower tax bracket, he or
she may owe a lower tax bill
than you would have paid—
or avoid it entirely. In 2021,
individuals with a taxable
income of less than $40,401
(or $80,801 for couples) pay
no capital gains tax on
stocks. Above that, the rate
is 15%, and it rises to 20%
for individuals who have
taxable income of more
than $445,850 ($501,600
the mortgage company will for couples).
require a “mortgage gift
letter” from your child and Be the lender? Another
your child’s spouse (or part- option is to become what’s
ner). The letter will detail
the relationship between
the gift giver and recipient,
the amount gifted, and
where those funds came
from. (If the money is a loan
that’s expected to be paid
back, the child must let the
mortgage lender know be-
cause it is factored into the
debt-to-income ratio.) The
lender may require other
documentation, too, such
as bank statements.
You can also gift stocks.
Ideally, you’ll want to give
stocks you’ve owned for
more than a year so that
your child will qualify for
long-term capital gains
rates when he or she sells
the stocks to help finance
the home purchase.
When you give stocks
(or other investments) to
a child, your child’s basis
when he or she sells the
stock will be your original
basis (your holding period
will also transfer with the
stocks). For example, if the
stock was worth $10 a share
ILLUSTRATION BY IKER AYESTARAN
known as a non-occupant
co-borrower. In this case,
you and your child apply for
the mortgage together, and
both of you are responsible
for the payments. This is a
beefier situation than being
a co-signer. As a co-signer
(discussed below), you are
guaranteeing that you will
pick up the payments if the
primary owner can’t. As
a co-borrower, you are re-
sponsible for making pay-
ments, and you can also
add your own money to the
down payment pot. Plus,
you usually earn equity, just
like the other borrowers,
even though you don’t live
there. If the property is
sold, you may be entitled
to any profit made, depend-
ing on the loan type and the
agreement you have with
the co-borrower.
You may also be able to
deduct your portion of the
mortgage interest paid as a
non-occupant co-borrower
if you itemize deductions on
your tax return. However,
with the standard deduc-
tion nearly doubling thanks
to the 2017 tax overhaul,
many homeowners no lon-
ger realize a lower tax bill
by itemizing.
To approve the arrange-
ment, the lender may re-
quire a family connection—
typically that you are the
parent or stepparent or
grandparent. A longtime
family or personal friend
may not qualify.
If you don’t have a chunk
of money to give away—or
you would prefer not to—
co-signing the mortgage
may significantly boost your
child’s chances of approval.
You then become legally ob-
ligated to repay the loan in
the event your child can’t.
“If you feel you’re going
to regret the decision, don’t
do it. You don’t need to erode
the relationship you have
with your child or whom-
ever you’re co-signing for,”
says Douglas Boneparth, a
certified financial planner
in New York City.
If you co-sign, the lender
will take into account your
income and other assets
when evaluating the loan
application. As with being
a co-borrower, the lender
may require family ties
between the two parties.
The silver lining to both
situations is that they don’t
have to be permanent. If
the financial profile of your
child and his or her spouse
improves, they may be able
to refinance the loan on
their own. Note that if
you’re a non-occupant co-
borrower, things may get
tricky in a refinance. You
may or may not decide to
negotiate a buyout for your
stake in the property—simi-
lar to when couples end up
divorcing—and the share of
profits you get may depend
on any agreements you
made beforehand.
Whether you give cash
or stock, lend money, or
co-sign the loan, all parties
involved need to have real-
istic expectations. For in-
stance, certified financial
planner Felicia Gopaul says
her father stipulated that
his cash gift be used to
buy a home that she could
afford and not necessarily
the home she wanted,
pointing out that she and
her husband could always
upgrade to a bigger home
later.
Boneparth agrees with
the sentiment. “If the rea-
son they don’t qualify for
a mortgage is pandemic-
oriented—the market is just
frothy and ridiculous—but
you know they’re a good
borrower, that’s one thing,”
he says. “But if they can’t
afford it in normal times,
they can’t afford it.” Q
YOU CAN REACH THE AUTHOR AT RIVAN_
STINSON@KIPLINGER.COM.
09/2021 KIPLINGER’S PERSONAL FINANCE 71
 MAKING IT WORK
Tying the Knot Post-Pandemic
This wedding planner is gearing up for a full fall season amid continuing concerns about safety.
PROFILE
WHO: Elisabeth Kramer, age 30
WHAT: Wedding planner
WHERE: Portland, Ore.
How has the pandemic complicated your
work? In early March 2020, I had a wedding
the same week that Portland shut down,
which meant that we went into quarantine.
For that couple, their whole plan completely
blew up. That was the beginning. In April
through September of last year, I was just
taking my entire client load and trying to
figure out what the heck we were doing.
Every wedding I had changed plans.
What about this year? Entering 2021,
I had an in-box filled with leads, which is
not abnormal for a wedding vendor. In the
wedding industry, it’s called engagement
season, from Thanksgiving to St. Valentine’s
Day. They were for weddings with a minimum
of 50 guests, often 75, 100 or 150 guests, for
the next four to five months. Those weddings
could legally not happen in January.
You have been educating people about
the rules? I’ve been trying to answer
the question, Can I have a legal wedding
in Oregon right now? That is also the
title of a blog post I have on my website
(www.elisabethkramer.com). I also
created a suite of 33 resources about
pandemic wedding planning, includ-
ing a variety of communication tem-
plates for how to create a COVID safety
policy for a wedding in 2021 and how to
share it with the two groups of people
that are at a wedding in person—guests
and vendors.
Has there been a crush of weddings
this summer? There is this sense that
everybody who wanted to get married is
now getting married, and couples are out
72 KIPLINGER’S PERSONAL FINANCE 05/2021
09/2021
of luck if they didn’t book anyone. This is the
narrative right now. I don’t believe it’s true.
Yes, lots of people are busy because this sum-
mer there are a lot of legacy clients—people
who moved their plans from 2020 to 2021. But
I get e-mails every day from couples for whom
this isn’t over. They’re immunocompromised,
they have children under the age of 12, they
have family members who are refusing to
get the vaccine, and they’re asking what they
should do. So, as much as I feel that things are
getting better, we have to continue to talk
about this stuff, even when it’s not fun.
You must have taken a big financial hit.
This has been the hardest year of my
professional life. I have seen revenue
losses between 80% to 90%, and I
am on unemployment. I’m not work-
ing with clients in person until Sep-
tember. That’s when my season
officially starts. Vendors are just
completely wiped; they are enter-
ing a season completely drained.
Do you think the wedding industry
will change post-COVID? The wedding in-
dustry is a very unregulated space. Through
my work as the cofounder of Altared, an event
for wedding coordinators who want to change
the wedding industry, I speak regularly with
people who are in the industry all over the
country and internationally. Regulations for
weddings have been very unclear through-
out the pandemic. And of course, as we have
all learned during COVID, what is legal (if
there are even any regulations, which some-
times there are not) is not always what is
safe. But COVID has taught us a lot about
boundaries. And that is a long overdue con-
versation in the wedding industry. In a lot
of the conversations I have with wedding
professionals, people are much smarter
now about what works for them financially,
emotionally, for their families and for their
health. EMMA PATCH
PHOTOGRAPH BY SUSAN SEUBERT
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