No Foolin': Timely Tips For Smart Money

When it comes to financial matters, April Fool's Day comes too often.

We make a decision that sounds good, only to find we may as well have signed with "OOPS."

Or we forget to sign at all - as thousands of Americans do on their tax returns each year.

And then there are the big, costly mistakes.

"Unfortunately, far too many people go through life without any overall financial plan," says Gary Schatsky, a fee-only financial adviser and attorney in Manhattan.

"Yet, we wind up with a collection of 300 financial decisions along the way. We take out a mutual fund here; we get an insurance policy there; put our money in a bank account there. We don't see that all of our financial decisions are interrelated."

The result, often, is missteps, from losing a stock certificate to using credit cards that charge outrageously high interest.

So, in the spirit of chucking the dunce cap, here is an April Guide to avoiding 10 common financial mistakes:

1. Debt. Many of us have too much of it. Experts agree on one solution: Pay it off!

2. Stock market risk. Many people invest as if the stock market will never fall, or that, if it does, it will snap right back.

History is full of poorer but wiser adherents to that approach.

In 1973-74, for example, the Standard & Poor's 500 index shed 48 percent of its value in 21 months.

"You have to diversify your portfolio" among stocks, bonds, and cash, to offset market risk, says Michael Lipper, of Lipper Analytical Services Inc. in New York.

3. Retirement accounts. "Thousands of people fail to take advantage of contributing to their company's 401(k) or 403(b) tax-deferred retirement plans," Mr. Schatsky says. If the company matches your contribution, that's free money. Try to pay in the highest amount that will be matched.

Since your contributions are tax deductible, they can also lower your tax bill. In other words, you're paying money to yourself instead of Uncle Sam.

If your company has no contributory retirement plan, see if you qualify for an individual retirement account or Keogh plan.

4. Cash. Plopping your spare cash in a low-paying bank account or bank money market fund almost ensures returns that lag inflation. Banks typically pay 2 or 3 percent on cash deposits. That's currently the inflation rate, and the earnings are taxable. A money market mutual fund will at least pay about 5 percent.

5. Deposit insurance. Beware. Federal deposit insurance does not necessarily cover all your assets held at a bank or savings and loan. Cash deposits are insured up to $100,000. But bank mutual funds and other investments are not. Check that your savings and investments have private insurance, such as that offered by many brokerage firms.

6. Year-end buying. Avoid mutual fund purchases in November and December, when the funds pay capital gains. You could find yourself getting back some of your own money as a distribution and then having to pay a tax on it.

7. Wills. Millions of you lack them, which means a probate court could decide who inherits your assets and who takes care of your children.

8. Insurance. We usually have too much life insurance and not enough disability or liability insurance. We also fail to take advantage of the largest possible deductibles in casualty-property insurance.

9. Hot tips. Look out. If your "tipster" is an investment broker or banker, you might get a sound investment suggestion. But beware of free advice, unsolicited.

10. Records. Keep them up to date, especially receipts that support tax deductions. Keep tax records at least six years.

Beat the Market! With Credit Cards

* "People fail to pay off their debt," says financial planner Gary Schatsky, either for lack of planning or lack of income.

Yet, excessive debt can lead to worse problems - loss of credit, bankruptcy - while reducing it is the best possible investment.

"Paying off your debt gives you highest possible rate of return, the most guaranteed rate of return and a return that is not taxable," Mr. Schatsky says.

Take a credit card charging 13 percent interest.

To earn 13 percent on an investment, he says, takes a 19 to 20 percent return before taxes. Stocks occasionally beat that but average about 10 percent a year.

Target credit cards that charge the highest rates, say experts.

With your credit card debt under control, switch to cards with low interest rates and fees. And pay off balances monthly.

For big-ticket items, such as a car, consider a home equity loan. The interest rate often beats a car loan and is usually tax deductible.