Life's financial questions answered with crisp clarity

(MoneyWatch) COMMENTARY Jack Otter, executive editor at CBS MoneyWatch.com, has written a new book that provides simple answers to the most common financial questions I get asked as a financial planner. His book, Worth It...Not Worth It (Hachette, May 2012), just became available this week. And in his book, Jack arrives at the same conclusion that I did - the vast majority of financial decisions you face in life are actually very simple to analyze if you just take a step back. Here is a sample of some pearls of wisdom from the book and why I repeatedly agree with Jack's answers.

Q. Should you use a credit or debit card?

A. A credit card gives you more flexibility in disputing a purchase as well as any unpleasant holds on your checking account. Use credit cards responsively and as a charge card, avoiding high non tax-deductible interest charges courtesy of your credit card company. Personally, I also recommend finding the one that gives you the best affinity points and I personally like cash back.

Q. Should you do business with a credit union or bank?

A. Credit unions often have better rates on both deposits and loans. They also tend to charge lower fees. That's because they are non-profits and view these actions as giving back to their owners. I do far more business with credit unions than banks but note they can act against their own members.

Q. Should you buy or rent?

A. I agree with Jack that buying is likely to be better than renting. Though I wasn't nearly as sure a few years ago when the paradigm of "real estate can never go down" was in vogue, Jack is likely giving good advice here when he notes how much prices have gone down, and a house is the one piggy bank you can enjoy.

Q. Should you buy and hold investments or time the market?

A. Buy and hold. I've written extensively on this one as our human instincts make us buy high and sell low. I'm going to slightly disagree with Jack here as I consider rebalancing to be a market timing mechanism I actually believe in.

Q. Should you buy term life insurance or a permanent policy?

A. Buy term and invest the rest. The twist here is that if you don't have the discipline to invest the rest then it may not be for you. Still I think you need your money more than your insurance agent.

Q. Should we take an annual vacation or buy the new car?

A. Go on vacation. The new car only brings short-term happiness while the vacation will bring a lifetime of memories. I tell people all the time that I'm not what I drive.

Never forget that money is stored energy that allows us freedom to do what we want with our lives. The pursuit of happiness is very emotional and those emotions cause us to make a host of money mistakes.

Little Book of Main Street Money
Burying Borders

Worth It...Not Worth It is full of what I call "uncommon sense." Jack applies simple logic to demystify the complex logic that is often used by others to trick you into handing your hard-earned money over to them. And once you minimize the emotions in these decisions, they can become amazingly simple.

That's not to say I agree with everything in Jack's book. For example, he notes "a registered investment advisor is legally obligated to act in your best interests." The legal definitions and actual enforcement, however, are far too loose to place total trust in such advisors. Jack also likes the Harbor Bond Fund (HABDX), which I'd recommend staying away from. Morningstar shows the average credit quality of this fund to be BBB, which is barely investment grade and the relatively long maturity creates too much interest rate risk for my liking.

It's a delightful, quick read that is likely to give you some very profitable "ah hah's" you can implement now. You might even enjoy the couple of times Jack pokes fun at yours truly.

Author's note: As mentioned in the beginning of this piece, Jack Otter is the executive editor here at MoneyWatch.com, but had nothing to do with me writing this piece. He also did not edit this review.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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