What the experts say

Are annuities the answer?

Many older investors have been “running for cover” with their retirement funds, and annuities are where they’re headed, said Lisa Gibbs in Money. Sales of fixed annuities jumped 74 percent in the first three months of 2009. Their main appeal is that your investment income will be tax-deferred. But there’s a catch: You’re locked in. If interest rates on comparable investments improve, you’ll either have to pay a steep surrender fee in order to take your money elsewhere or settle for a comparatively mediocre return. “If safe growth is your objective, consider short- to intermediate-term high-quality corporate and municipal bonds instead.” If it’s a steady check you’re after, consider an immediate annuity, which lets you convert a lump sum of money into a stream of income. There’s no reason to rush. “The older you are when you sign up, the bigger your payment will be.”

Breaking up with your bank

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If your bank’s sneaky fees and pathetically low interest rates are getting to be too much, consider calling it quits, said Sandra Block in USA Today. “In this tightfisted economy, there’s no reason to pay more for banking services than necessary—especially when there are so many banks and credit unions vying for your affections.” Unfortunately, ending such a long-term financial relationship can be “messy and expensive”—particularly if, over the years, you’ve signed up for direct deposit, online bill payment, or other automatic withdrawals. To make the breakup less painful, keep a small cash “cushion” in your old account for at least three months before you close it. That way you won’t get dinged by an outstanding check or automatic debits after moving on.

Don’t trust ‘historic’ stock data

Investment gurus “keep reminding us” that stocks have outperformed bonds for virtually every 30-year period since 1802, said Jason Zweig in The Wall Street Journal. The notion—first made popular in 1994, when University of Pennsylvania finance professor Jeremy Siegel published Stocks For the Long Run—is reassuring to investors who have staked much of their retirement funds on stocks. Yet such a comparison “isn’t really valid.” One reason: The economists who assembled the early stock data frequently “cherry-picked their indexes by throwing out any stock that didn’t survive for the whole period, whose share prices were too hard to find, or whose returns seemed ‘inflexible,’ ‘erratic,’ or ‘non-typical.’” That hardly provides a fair comparison for today’s investors, who don’t have the luxury of tweaking their returns by throwing out their worthless shares of AIG or General Motors.