What the experts say

Stocking up on toxic assets; Retirement’s fuzzy math; The liquidation trap

Stocking up on toxic assets

The next boom in real estate investing just may be in buying troubled property loans, said Jodi Hilton in The New York Times. Billions of dollars in distressed bank loans are already trading hands, and some experts predict that the market will increase by as much as 20-fold over the next few years. Sorting out the bargains from the junk takes the “right expertise” and a “serious appetite for risk.” But a few individual investors are getting in on the action, too, thanks to such sites as LoanMarket.net and BigBidder.com, which sell residential mortgages “on a piecemeal basis.” Loans typically sell for a “fraction of their original value,” so there’s the potential for sizable yields. But investors in these loans “must essentially take over where the previous lender left off”—setting up payment plans and, if need be, foreclosing on the property.

Retirement’s fuzzy math

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Investors have long relied on “seemingly precise” calculations from financial advisors regarding retirement, said Janet Paskin in SmartMoney. You told them how much you wanted to spend each year, and they told you what number you needed to retire. But last year’s market upheaval demonstrated that these models, though useful, aren’t infallible. “Indeed, some insiders say the number crunching is just an educated guess.” While many advisors are scrambling to “refine” their models, others are “moving away from the idea that retirees can milk predictable income from a stock-and-bond portfolio.” These experts recommend that clients buy immediate-income annuities to cover the essentials, then tap their port­folios to “keep up with inflation while still affording the occasional splurge.”

The liquidation trap

For consumers, “a grim silver lining to the tanking economy has been the proliferation of going-out-of-business sales,” said Jeff Bertolucci in Kiplinger’s Personal Finance. Circuit City, Linens ’n Things, and many other retailers have seen their inventory sold off by creditors. But don’t assume that everything at a going-out-of-business sale is a great bargain, Typically, liquidators cut a measly 10 percent off the manufacturer’s price. “In the first few weeks of a liquidation sale, liquidators are fishing for suckers,”­ says Dan de Grandpre, chief executive of Dealnews.com. With most of the merchandise, the longer you wait the more you’ll save. Though buying early might make sense for products that “rarely go on sale,” such as iPods or Bose speakers, be sure the item actually works—“one major drawback of liquidation sales is that you can’t return defective merchandise.”

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