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What the experts say

Bad ‘swaps’ lurking in funds?; Letting the boss pay for college; Unlimited cell plans aren’t worth it

Bad ‘swaps’ lurking in funds?Problems with the financial instruments known as credit-default swaps have “roiled” bond insurers recently, said Lewis Braham in BusinessWeek. Some big hedge funds have already hit the rocks because of them, and mutual funds may be next. Credit-default swaps are supposed to be, essentially, an insurance policy for bonds, allowing investors to place a small “bet” against the creditworthiness of a company. But credit-default swaps aren’t the safe investment everyone thought they were, and investors have since lost confidence that insurers actually will have enough cash to repay all those debts. “If you think exposure to these derivative securities is limited only to insurers and investment banks,” think again. Even among conservative mutual funds, 12 of the 30 largest bond funds use such derivatives. So “take a good look at your seemingly bland” bond fund. But be warned: It’s almost impossible to know if a fund holds swaps, much less whether they’re covered by cash.

Letting the boss pay for collegeAt first glance, an employer-sponsored college-savings plan may sound like a “no-sweat college kitty,” said Thomas Anderson in Kiplinger’s Personal Finance. Under such plans—now offered by an estimated 10,000 employers—workers can sign up to be enrolled in a state-sponsored 529 plan, whose proceeds later can be applied to education costs for you or your children. “If you’re looking for convenience, nearly all 529 plans let you set up automatic monthly contributions” deducted from your paycheck. But investing in 529s via your employer may actually be more expensive than doing it yourself. An Ohio resident, for instance, who invests through an employer will likely pay a 5.75 percent sales charge and 1.5 percent annual fee. A “nearly identical portfolio” bought directly through the state’s CollegeAdvantage 529 would carry no sales charge and cost less than 1 percent in fees.

Unlimited cell plans aren’t worth itThe four major U.S. wireless carriers recently rolled out the industry’s first unlimited calling plans, said Kelli B. Grant in SmartMoney. The upside of the plans, now offered by Sprint Nextel, Verizon, AT&T, and T-Mobile, is the “simplicity” of not having to keep a tally of minutes or worry about extra charges. But “as alluring as a predictable phone bill might be, these plans, which start at $99.99 a month, aren’t for everyone.” For now, most cell phone customers should stick with their regular plans, according to Dan Havlik, editor of DemystifyingDigital.com, “unless you’re routinely exercising your gift of gab for 1,000-plus minutes each month.” Until carriers get a grip on the economics of how consumers use unlimited calling or begin competing with one another on pricing for the plans, the math “is unlikely to work in your favor.”

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