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American Morning

Help Getting Personal Finances in Order in New Year

Aired December 26, 2001 - 09:18   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CNN ANCHOR: 2002 is just around the corner. Many of us no doubt will make resolutions to get our personal finances in order. Terry Savage, who writes a column on personal finance for "The Chicago Sun-Times" is with us again today from Chicago with some timely guidance. She's in Miami. She's obviously a very smart person for being in Miami at this juncture. So we're going to listen to here and talk to her about some of her dos and don'ts for the upcoming year, financially speaking.

Good to have you back.

TERRY SAVAGE, "THE CHICAGO SUN-TIMES": Good to be back with you, Miles.

O'BRIEN: All right, what's at the top of the list? Now we might be tempted to overspend a little bit right now with all these sales, and you know, with all these savings, and you if you keep buying so much, you are going to be saving so much money that you're going to be broke. I assume one of the dos and don'ts is to watch your retail spending.

SAVAGE: Absolutely. Isn't amazing how we lost 50 percent off sale at the department store, and we hate a 50 percent off sale on stocks, and that's what we've had for many companies this year. And one of the lessons investors learned this year was the importance of diversification in your portfolio. All of a sudden we have 42 million Americans who are supposed to be managing their own retirement accounts inside 401(k), and they found out the hard way that they don't know always know what they own.

So if you are making a make new year's resolution about spending, we could another New Year's resolution, and that's about looking inside your mutual funds and stocks to see what you really own and making sure you're diversified.

O'BRIEN: You know, we get those things in the mail, those thick prospectus, or is it "prospecti?" when it's plural, I don't know, but it's really not exactly scintillating reading, and I think we tend to chuck them aside. We'll get to it, and we really don't know what we own, but the flip side of that is, too, you know, in a lot of 401(k) plans, you don't have a lot of flexibility on choosing things. That's true, the Labor Department just said this week said it will now allow independent investment advisers to work with 401(k) plan providers to give you advice. But for many people, this is a new task. They found out when they owned five different mutual funds that many of them owned the same top growth stocks. As we saw just recently in the bankruptcy of Enron, we found that many people are overconcentrated in the company's stock, maybe because the company matches their investment in stock. So let me take you to a way to do this over the holidays. This is Something you can do today or tomorrow if you're not out shopping. You can go to a Web site that will help you diversify your plan, look inside your mutual funds. It's morningstar.com, and the Web site is www.morningstar.com. You see that little box there marked "portfolio." Well, if you click on that, it will take you to a place where -- this is my sample portfolio -- you can input all your mutual funds and stocks and you don't even have to know the symbols. They'll help you do that.

And then instantly, you'll X-ray your portfolio and see your asset allocation. That's the Morningstar style box, large cap, small- cap. What do you really own? They will tell you that. And they'll compare your portfolio to the S&P 500 stock index. So you can see whether the groups you have, financials, retails, tech stocks match the S&P 500. They'll even show you how much you're paying in fees compared to what you should be paying.

So Morningstar.com, the portfolio X-ray service, is the first place to start, and that is all free. You don't have to be smart about stocks to do it; you just have to go there and take a listen to your stocks and mutual funds. That's one way to find out what you own, and if you are too concentrated. And then there will be some other places you can go to get financial advice.

O'BRIEN: Well, why don't you take us there? Because that is logical question, once you go there and you realize you've six few mutual funds just loaded with Enron and you know you're in deep trouble, what do you do next?

SAVAGE: Well, Morningstar has service called "clear future." That portfolio analysis is completely free. You can go there online and do that. It's secure also. You put in your portfolio and log in, create a portfolio.

Their clear future cost a little bit of money for advice. There is some other places you can go. Empower has a service on MSN Money that's free that gives you allocation advice. Fidelity has a portfolio planner service that's free to fidelity customers. Another Web site, financialengine.com, will take your personal goals and financial situation. They are using a very sophisticated computer modeling tool.

By the way, you'll find links to all of those Web sites at my Web site, Terrysavage.com, and you can read the article explaining how they work.

But this is your resolution for new year: go to morningstar.com for a starter. Put in your portfolio. See what you own. And then if you don't have one of these services provided by your employer, Financial Engines, or Empower or Fidelity portfolio planner, ask the people at your company who run your retirement plan, who set it up, the benefits department, even the compensation committee. If you're too concentrated in company stock, you have a right to go in and say, wait a minute, we know this isn't sound. We need to have more choices, we need to be able to diversify out of the company's stock. That's the way first way to get started for the New Year.

O'BRIEN: No one wants to get Enron, right?

SAVAGE: Absolutely not.

O'BRIEN: Terry Savage, we appreciate your insights. Thank you for joining us. As always, terrysavage.com is a good place to start for all those locations. Morningstar.com being another location, and get to it now. Thank you very much, and we'll see you soon.

SAVAGE: See you tomorrow, Miles.

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