Advice About Advice

Six ways to ride through troubled waters.

Nothing like bad times to bring out the merchants of financial advice.

I won't add to their numbers. I have friends who enjoy reminding me how little I know. But I am a commenter, consumer, even a connoisseur of money advice. As calamity looms, here are some clichés from the mass media that ought to be reconsidered if not retired in these financially treacherous times.

Pay off your mortgage. Why? If you do, you will own your house outright instead of with a bank or mortgage company. You still have to pay at least a few hundred dollars each month in taxes and insurance. You can get a mortgage at less than 6 percent interest, the lowest rate in half a century. By paying off your mortgage, you are investing at 6 percent but tying up a lot of money and losing a tax deduction if you itemize. Like common stocks, the value of a house can decline significantly, as we are seeing. An alternate way to save on housing expenses is to challenge your reappraisal when it comes out in 2009. The appraisal lasts for four years. The assessor's figure will quite possibly be more than you could actually sell your house for in this market. If "mark-to-market" accounting is good enough for the big boys, it's good enough for the rest of us.

Pay off your credit cards. Nothing wrong with this advice except that it's obvious. No one with any sense would pay 18 percent monthly interest. But millions of people do it. Authors and cable television gurus will not persuade them to do otherwise.

Fully fund your 401(k) retirement plan. Suzy Orman won't like it, but if someone is under the age of 30, unmarried, and has a modest income, then it can make more sense to invest instead in a house, car, small business, or night school. Or a wedding. Granted, you lose the company match, which, at 50 cents on the dollar, could be a couple of thousand dollars a year. If you are 25 years old and put $2,400 a year into a 401(k) and your employer puts in $1,200 a year, you will have $20,000 or more in your account when you are 30 — if all goes well. But we have recently learned that retirement savings can shrink or disappear when tucked away in a 401(k) or IRA account. Those retirement "wealth calculator kits" that show savings increasing at an annual rate of 8-11 percent are based on the two decades from 1980 to 2000 when the Dow Jones average went from under 1,000 to over 12,000. If you start saving at 30, you still have 35 years to build a nest egg and a better idea of your needs, wants, and earning power.

Fire your full-service broker. Save hundreds on trading commissions with E-Trade and Ameritrade! No, hire a broker when you find a good one. The real value is not Jim Cramer-style stock-picking prowess but experience, discipline, and an honest second opinion. We know all the old saws — "the stock doesn't know you own it," "buy on the dips," "cut your losses at fixed levels of 10-20 percent," "diversify" — but knowing and acting are different things.

Set up college accounts for your children. But be prepared to pay taxes on them if they grow big enough to do any good, and be prepared for colleges and financial aid providers like the federal government's Stafford loan program to discount your award if you have sizable savings. For someone worried about money, studying hard and staying home beats saving. Go to college in Tennessee, collect a Lottery Scholarship, and keep it for four years by maintaining a B average. Attend a public college in-state versus a private college or a public college in another state, and the savings is $50,000 or more even if you haven't set aside a dollar.

Pay off student loans. Not so fast. Stafford loans come in two flavors, subsidized and unsubsidized. The subsidized loans are interest-free during school years, and the interest rate is not onerous thereafter (about 8 percent currently). Once again, a twentysomething with a diploma might well be better off investing every spare dollar in himself or herself. Carrying some debt, after all, is not exactly un-American. 

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