GET GOING! INVESTING FOR THE NEW YEAR (Bankrate.com)

10 top tips to beat investing inertia

Dr. Don Taylor, Ph.D., CFA, CFP, CASL

BANKRATE — 8:12 PM ET 12/24/14

This is my 16th year of writing a "Top 10" column to get you thinking about improving your finances in the upcoming year. May you benefit in 2015 from these investing tips.

1. Figure out what you're trying to reach

I encourage people to figure out what their goals are in life, and then work on a financial plan that will help them achieve those goals. However, goals that aren't well-defined -- like "I want a comfortable retirement" or "I want to save for my children's education" -- don't have numbers behind them, and that makes them harder to achieve.

I often see people financing goals they should have invested for, especially when it comes to their children's college education. With some exceptions, such as financing a mortgage, I'd rather see you earn a yield on your investments than pay a rate on a loan.

2. Insure, save, invest

Investing isn't the first step in providing for you and your family's future. Insurance is that first step. Between life insurance, health insurance, disability insurance, home, auto, liability insurance and long-term care insurance, evaluating and meeting your needs for insurance is an important first step before starting to save and invest for your future.

Financial professionals tend to differentiate between saving and investing. With saving, protecting principal is more important than increasing purchasing power. With investing, the emphasis is on building wealth and increasing purchasing power. An emergency fund, with its role of providing liquidity in times of financial need, is the place for savings. Retirement accounts, at least while you're still working, are the place to invest. Consumers with low risk tolerances tend to save money they would be better off investing.

3. Have an emergency fund

Too many people live paycheck to paycheck. They can't handle any financial setbacks in their lives. Some expect their credit cards to see them through the tough times, only to find themselves trying to dig out from under a mountain of credit card debt that may be growing at 23.99 percent interest.

As you start to build wealth in your investment portfolio, the portfolio can act as a financial backstop for at least part of the funds available in an emergency. Until then, it makes sense to have three to six months' worth of living expenses in a high-yield savings account or other liquid investment available to meet an unexpected financial need.

4. Know your income and outflow

Whether you want to do a forensic accounting of how you spent money in 2014 or decide to track spending with a financial app on your smartphone in 2015, the idea is to keep track of how you spend your income and figure out where the money goes.

While you're doing that, put together a spending plan and stick to it. I call it a spending plan instead of a budget, because like a diet, no one likes to be on a budget. Call it "planned spending" and it puts a positive spin on allocating your income to your need for current consumption, savings and investment. That's right; your spending plan should include line items for saving and investing.

I'm not a member of the "lose the latte" branch of financial planning. As long as you're not financing that latte by carrying credit card balances and you are meeting your savings and investment goals, enjoy your coffee. There's a lifestyle balance between current spending and saving for your future. All delayed gratification takes the fun out of today. Of course, if a cup of fancy coffee is the highlight of your day, you've got other things to work on besides your finances.

5. Invest in your health

What's health got to do with investing? Well, as my junior high school health teacher, Mr. Andrew Codispoti, always told his students, "health is wealth. All the money in the world can't buy health." OK, the poet Virgil said it first and better: "The greatest wealth is health." Invest in your health and the return on investment might amaze you.

6. Retirement income needs

Don't get confused into thinking that the 401(k) and IRA contribution limits, even with catch-up contributions for those 50 and older, were set by the government to ensure that you can retire comfortably. You're probably not saving enough.

Retirees wind up putting together a retirement income stream from retirement savings, Social Security and pension benefits. Pension benefits are getting rare in the private sector. Try to estimate your retirement income needs, and then work out a plan as to how you will meet those needs. Don't go ostrich on the topic; work with a financial professional if you need help coming up with a target for your retirement nest egg.

7. Maximize expected Social Security benefits

Too many seniors are in a rush to file for Social Security benefits. File before your full retirement age and there's a big reduction in benefits. For senior couples that can make it work, the higher wage earner can "file and suspend" at his or her full retirement age, earning delayed retirement credits up until age 70, while the lower wage earner files for a spousal benefit at his or her full retirement age.

When in doubt on the benefit claiming strategy that will maximize your Social Security benefits, hire a professional to review the different claiming strategies.

8. Maximize your employer's contributions to your retirement

If your employer matches any part of your contribution to their 401(k) or 403(b) plan, make sure you contribute up to the limits of the employer match. That's free money and you don't want to leave any free money on the table.

The typical plan will match 50 cents to every dollar you contribute up to 6 percent of salary. That has your employer contributing 3 percent of salary. You've made 50 percent on your money before even deciding how you're going to invest it.

9. Review and rebalance your portfolio

Over time, you'll see your asset allocations change as the investments you own go up and down in value. Reviewing your portfolio holdings lets you see if you've gotten overweight or underweight in your target asset allocation.

Portfolio rebalancing has you buying and selling investments to get your asset allocations back to your target levels or ranges. Buying and selling in tax-advantaged retirement accounts typically won't have a tax impact, while buying and selling in taxable accounts does have an impact on your taxes.

If you're working with an investment professional, you should know his or her approach to rebalancing. If you're doing it yourself, weigh your investment horizon against your risk tolerance and whether you're adding new money to the portfolio to decide on the frequency or timing of your portfolio rebalancing.

10. Track investment fees and expenses

Knowing what you're paying for in fees and expenses when investing is an important move. Managing those fees and expenses is just as important. Whether your investments are in a tax-advantaged retirement account or a taxable brokerage account, by knowing what you're paying, you can make better decisions about how you're invested, reducing the drag on your investment returns net of fees. The Department of Labor's "A look at 401(k) Plan Fees" Web page is a good place to learn about fees in that type of retirement account.

If you're working with a financial services professional, you should know how they're paid. There are several different compensation models including hourly fees, assets under management, commission-based models or a flat fee for a specific financial plan or service.

© Copyright 2014 Bankrate, Inc. All rights reserved

Your Safety Net: Disability Insurance (from WSJ)

Just in Case: The Skinny on Buying Disability Insurance

By ANNA WILDE MATHEWS
Disability-insurance benefits from the workplace and the government are getting harder to come by—and that's putting more pressure on consumers to purchase their own coverage in case a medical condition keeps them from working.

But disability insurance can be confusing. Policies may include conditions that make it tough for people filing claims to actually qualify for the benefits. And some policies may limit payouts for certain diagnoses, particularly mental illness. To protect themselves, consumers considering buying disability coverage need to read the fine print.

The percentage of companies that paid all or part of the cost of workers' private long-term disability insurance fell to 48% last year, from 59% in 2002, according to LIMRA, an association of financial-services and insurance companies. Many employers are "taking a step back in terms of what they pay and putting the onus on employees" to purchase richer benefits if they choose, says Michael Bailey, a principal at Mercer, a consulting unit of Marsh & McLennan Cos.

Vetting a Policy
If you are thinking about purchasing disability coverage, here are some things to check:

Details of what it pays: If it's a percentage of your income, does that include just your base salary, or other things like commissions?Portability: If it's being purchased through your employer, can you keep it if you leave?What triggers the benefit: Do you have to be unable to do any job comparable to your own?Limits on payouts: For long-term policies, are benefits for certain conditions, like mental illness, capped?

Here are some online sources of information:

Social Security Administration: www.socialsecurity.gov/pubs/10029.html
Council for Disability Awareness: www.disabilitycanhappen.org
Consumer Federation of America: Go to www.consumerfed.org, click on Publications, then Brochures, and scroll down.

At the same time, disability claims are pouring in to the Social Security Administration, and that's resulting in bigger backlogs. The agency expects claims to jump to 3.3 million in the current fiscal year, ending Sept. 30, from 2.6 million two years earlier. That's led to a greater number of cases pending—about 794,000 this month, up from about 557,000 in late 2008.

"With the number of cases rising and the number of claims awaiting a decision," the waiting time for claims to be processed could tick upward, an agency spokesman said. He attributed the increase in claims largely to out-of-work people scrambling to make up for lost income.

What that means is that consumers should understand what benefits they might currently be able to access, and consider purchasing additional coverage to make up any shortfall.

Government Safety Net
Start by understanding what the government can provide. Social Security is only available to those with a condition that is either expected to leave them unable to work for at least a year, or is terminal. For those who do qualify—around 36% on average on the first application, though more win benefits after appealing—the payout averages just 40% of their predisability income. For high earners, the share will be smaller.

Tom Klett, a consultant with Towers Watson & Co., says qualified applicants should count on waiting three to five months or longer to get Social Security disability benefits. And with the number of applicants growing, "if you're depending on that [benefit], you've got problems," he says. Consumers should also check if theirs is one of the few states that provide some additional disability benefits.

Buy a Policy at Work
Figure out what your employer provides. If it pays all, or even a share, of the premiums for disability insurance, that's your best option. If this is the case, make sure you have both short-term coverage, which tends to last for a few months, and long-term, which often only starts paying after a set time period, often 90 to 180 days.
Watch for a possible gap between them, since some employers' short-term policies may not stretch to when the long-term ones kick in.

Even if your employer makes disability a voluntary benefit, with the premium coming out of your paycheck, it's likely to be a better deal than purchasing an individual policy on your own. Still, particularly if you are young and healthy, you might want to check with an insurance agent.

Keep in mind that if you are buying a policy through your employer, you might be able to pay the premiums from your paycheck on a pretax basis. But this will mean you will owe taxes on the payouts you receive after filing a claim. You should also check whether you will be able to keep the coverage if you leave that company.

Ilene Sturrock, 46 years old, of Los Angeles bought a short-term disability policy in 1998, through her job as an office manager. She kept paying the $56-a-month premiums, even though she left that employer years ago and is currently out of work. She's used the benefits several times, including an eight-week break for surgery four years ago, and a three-month gap in 2007 when she broke her foot. "It pays off in the long run," she says.

If you are buying an individual long-term disability policy, the initial premiums will be set based on factors including your age, health status and occupation, according to insurer Unum Group. You may have the option of a level premium, which won't change over the life of the policy, or premiums that could rise at a fixed rate. If you're joining your employer's group disability policy, the premiums will be adjusted based on the claims history of the entire group.

A growing number of employers offer basic disability coverage and let workers buy more. But you'll have to figure out how rich a benefit you need. Long-term disability insurance will generally pay a percentage of your predisability income—60% is common—and it may not include extras such as bonuses. Also, be aware that most private disability policies require you to apply for Social Security benefits, and then subtract the government payout from what the insurer pays, a move called an "offset."

Plan for Health-Care Costs
In figuring out your likely expenses during a period of disability, keep in mind that if you are out of work for an extended period, you may lose your job, and have to start paying for health coverage. Though disabled people who receive Social Security benefits can qualify for Medicare, there is a two-year lag before the federal health coverage kicks in.

Another key thing to check is under what circumstances the disability insurance benefit will pay out. It's better if the money is triggered when you can't do your current job, says Andrew Imparato, chief executive of the American Association of People with Disabilities. But some policies say that if you can do any comparable job, you aren't truly disabled.

Write to Anna Wilde Mathews at anna.mathews@wsj.com