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The "Help Desk" Special

Aired December 29, 2012 - 09:30   ET


CHRISTINE ROMANS, CNN HOST: Thanks. See you at the top of the hour.

Good morning, everyone. I'm Christine Romans. Welcome to our "Help Desk" special.

The best way to make money is make sure your money is working for you.

Be honest. Maybe you'd rather go to the dentist than get an annual checkup of your money. Well, it is. Sit down. This doesn't hurt. I'm not going to tell you have to give up your morning latte or anything crazy like that.

There are three drivers for your wealth: your job, your house and your investment.

So, let's start with stocks. It has been a great year for the S&P 500. Did you miss it? The S&P is up around 13 percent so far this year. The Dow is above 13,000 again. Call it the Ben Bernanke rally. His Fed has been pumping billions of dollars into the company, and stocks are loving it.

But individual investors have missed it. Stock, mutual fund outflows were upwards of a trillion dollars so far this year. But don't feel bad. Hedge funds running scared, too.

What's been scaring everybody? Well, the fiscal cliff, anemic U.S. growth, Europe's financial crisis, China's slowdown. So proceed, but proceed with caution.

Carmen Wong Ulrich is co-founder and president of ALTA Capital Management, Jack Otter is the editor of, and the author of "Worth It, Not Worth It", and Walter Updegrave is senior editor for "Money Magazine".

Walter, what's your best piece of retirement investing advice for people this year?

WALTER UPDEGRAVE, MONEY MAGAZINE: It's to set a strategy and stick to it, just figure how much of your money should be in stocks, how much in bonds and that's largely determined how far it is until you retire, the further you have to go, the more should be in stocks.

And then stick to it. Don't get swayed by gloom or euphoria. This year is a perfect example. People were scared throughout the year, didn't invest much in stocks and we had a very good year. On a total return basis, S&P up about 16 percent year to date. Bonds, every thought they're going to fall apart, because interest rates were supposed to rise, they actually gain a diversified portfolio about 4 percent. So you can't outguess these things. So, don't even try.

ROMANS: Don't try to guess it. Make a strategy and stick with it.

Many viewers may be in the same spot. Here's one investor is worried about. Listen.


UNIDENTIFIED FEMALE: I should have been very aggressive, but I played very conservative. And so, how do you play catch-up?


ROMANS: So, Jack Otter, what's the best catch-up strategy?

JACK OTTER, AUTHOR, "WORTH IT, NOT WORTH IT": That is a very dangerous question.

It's a very common question, and it' understandable. But the problem is, we all tend to make our decisions based on whatever has just happened. So this woman probably got scared in the financial crisis. Her stocks plummeted and then she sold them and went conservative.

Now, of course, stocks doubled since March of '09 at the bottom. So, now, she's thinking, well, maybe it's time to get back in stocks. I mean, you pointed that people have been selling mutual funds. They will finally start buying and what will probably happen, they'll go down again.

So, she's got to break the cycle. Stick to the plan that Walter said. Good default beginning would be 60 percent stocks, 40 percent bonds.

In my book, I laid out just four mutual funds. You can get that diversified mix. Maybe a little more aggressive, 70-30, maybe 50-50 if you're conservative.

But the point, stick with it, and don't change it because what just happened in the market, you'll always get many slammed that way.

CARMEN WONG ULRICH, PRESIDENT, ALTA WEALTH MANAGEMENT: And one real way, though -- there's absolutely one tried and true way to actually get your balances up in your retirement, that's putting more money in. So, if you're playing catch-up, the just about the strategy you outline, which is an excellent one. It's about actually putting more money in in order to play catch-up, so you can actually add money and time to the right balance of risk and stick with the plan.

ROMANS: And time is your best friend. So, younger Americans also care about retirement, and they've got more time working on their side.

Here's a good question we've been asked many times. (BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: My question is, regarding a 401(k), I have one going but I'm not really sure what my target percentage I should be contributing to that. I'm 30 years old right now. So, in order to retire comfortably, eventually, what should I be trying to put away?


ROMANS: Hmm. That's a good question. He's 30. So, he's got a good 25 or, at least 25 years of investing.

Fidelity says the end goal is have eight times your last year's salary. Some financial planners say 10 to 12 times if you're a high earner.

Carmen is saying --

ULRICH: Listen, you can try to come up with a number and it's nice to have a number goal. At 30, how do you know where you'll be or what you're going to be doing for the next 30 years?

ROMANS: True. So, what do you put away?

ULRICH: So, here's what you put away. At least if you can allot 10 percent, right? Especially if there's a company match.

The trick is to actually just put stuff away. So, no hedging or hemming or hawing, put the stuff in there especially at 30, because like you mention, time is on your side. If he waits another couple years with compound interest, he'll lose multiple amounts of money than what he's putting in every year. So, at least put away 10 percent, if you feel like you need to put away more, and you can -- you can adjust.

But also think outside the 401(k). If he's young, he can access to a Roth as well. So, he can put more money in there.

UPDEGRAVE: We have very easy calculator on the Web site, and that is --

ROMANS: Walter's site makes it so easy. It makes it so easy, you have no excuse, people.

UPDEGRAVE: Yes. Just go there. You put in your age, how much money you make, how much you saved and a recommendation of what percentage of your salary you should save this year.

Carmen's right, at least 10 percent. I'd say, probably try and get it up to 15 percent.

ROMANS: You think 15, Jack?

OTTER: Absolutely. There's so many unknowns. Give to the max.

This guy, you know, he's young. He probably doesn't have a family yet. And so, he doesn't believe me, but when he's 40 and has two children he's going to say, darn, I wish I put that extra money I spent on I don't know what into my 401(k).

ULRICH: That's true.

ROMANS: You know, assuming people talk about, when they start having kids, and they say, well, now, I'm putting away for the 529, blah, blah, blah. But retirement always comes first.

Walter, thanks for joining us.

Carmen and Jack, stick around.

If you want more great advice on how to make your money work for you, like that retirement calculator, visit CNN Money. You're going to find a ton of great resources.

And, of course, all the latest news on the economy, business, and stock market.

Is there a recovery happening in your neighborhood? Coming up, we'll show you where the hottest housing markets are, and we're going to get you smart on renting, buying and refinancing.


ROMANS: The housing recovery is finally here. Take a look at the biggest gains in home prices. Demand is coming back.

This is for September, from S&P Case Shiller.

Check out Phoenix, 20 percent higher than the year before. Home prices up 20 percent year over year in Phoenix.

Detroit, up 7.6 percent. Look at Miami, up 7.4 percent. Those areas were slammed by the housing crisis.

Now, they're making solid improvements, but you know the old saying, all real estate is local. Prices in New York and Chicago in September dropped from the year earlier.

Obviously, we have a really long way to go, but the price plunge coupled with super cheap mortgage rates make houses affordable for the first time in years. Thirty-year fixed rate mortgages hovering around 3.3 percent now. Fixed year -- 15-year fix around 2.6 percent. That's according to Freddie Mac.

People who were financed a little over a year can ago are now -- well, now, they're going back wondering if it's time to do it again. People who are underwater, or who have, what, less than 720 credit score, or just don't have a down payment, they're wondering how long the rates will stay low and whether these affordable prices will last.

Carmen and Jack are back with me.

Amy Bohutinsky also joins us. She's with, a real estate Web site based in Seattle.

Paul from California sent us an e-mail. He says, quote, "I have enough money in my emergency fund right now to put a downpayment on a house. With interest rates where they are, does it make any sense to buy or to stay renting?"

Amy, what do you think Paul should do?

AMY BOHUTINSKY, ZILLOW.COM: Well, he shouldn't deplete his emergency fund. The good news, that while home values are increasing in a lot of places, in most places, they're only increasing by 2 percent or 3 percent over the next year. That's what our economists are predicting. Places like Phoenix are the outlier right now.

So, he has some time with these low prices. We also expect these really low mortgage rates to stick around for at least the next year. So, you've got to have an emergency fund, because if somebody loses a job, if something changes in your financial situation, buying a home is a big commitment, and you've got to be able to continue paying that mortgage.

So, have your emergency fund, but also have your down payment ready, and when you have your emergency fund together, that's the time to make the down payment. Don't mix the two.

ROMANS: All right. Let's listen to this dilemma, also one I think Americans struggle with.


UNIDENTIFIED MALE: My husband and I are still paying off a home loan, and we've got some credit card debt. The credit card debt is higher. Is it best to pay more on the house or to get rid of the credit card debt first?


ROMANS: I know what Carmen Wong Ulrich is going to say.

ULRICH: Well, listen, now -- well, you know, you just talked about mortgage rates, right? How low they are. This is incredibly cheap money. And also, she lives in a place where the housing market is actually going up. It's even cheaper. It's probably zero.

So, she needs to pay off those cards. Put more money towards those cards every single month, and just get that out of the way. They probably have really high interest rates compared to your mortgage and there's no intrinsic value what you bought with your credit card. Whereas your home is actually an asset, it has value.

So, it's not the same kind of debt. You can't mix up the two different kinds of loans.

ROMANS: A lot of first-time home buyers are saying that they can't -- they're not able to grasp this yet. They don't have enough money for a downpayment or the credit score isn't good. I mean, do you think rates are going to stay low enough, long enough that people have time to repair their personal balance sheets and then, and then move?

OTTER: Well, you know, the Fed says into late 2014, early 2015, but they've also pegged this to the unemployment rates. So, should the unemployment rate improve very quickly, we might see rates move higher.

I hate to mix these two up, because the problem is -- yes, we all want to seize these great rates, but if you're not ready, you could dig an even deeper hole by not preparing your personal balance sheet, jumping into a house you can't afford, and the potential problems there are much worse than, yes, having to settle for the 5.4 percent mortgage which today --


ROMANS: I know.

OTTER: But historically is great.

ROMANS: Let me ask Amy about the whole rent versus buy thing, because rents are also pushing higher this year, especially in places like here in New York City. Listen.


UNIDENTIFIED MALE: If your rent is taking up a good chunk of your salary, how in the world do you save for a house?


ROMANS: How in the world do you save for a house? I'm going to ask Amy and Jack this.

Amy, how much do you need to have a downpayment for a house at this point?

BOHUTINSKY: Well, the good rule of thumb today is 20 percent, and you also have to have really good credit to be able to get some of these really low mortgage rates.

So put the money aside over time, but, you know, as Paul mentioned before, when you buy a house is your own personal financial situation. You have to be ready for that, and don't jump into it now because of these low prices and low mortgage rates if you're simply not ready. It has to be the right time for you.

And as we learned over the last decade, really bad things can happen when people jump into this too early.

ROMANS: Jack, what's the saving plan people need to have for putting the money aside?

OTTER: Well, number one, how much it's going to cost you? So, look around when you plan to live and realize, OK, I need to raise $25,000 for a downpayment.

That does two things. One, it's realistic. You're not going to be able to do that by tomorrow.

Number two, you can have that very specific goal and do the math and know, I can do it in two years. That's $1,000 a month. Is that even possible? If so, I got to act like Congress. I'm going to act to raise revenues, I don't have to reduce my spending.

So this is what we're going to cut out of our budget, and this is how I'm going to take that extra part-time job or whatever it takes to make that money.

ROMANS: Amy, how would you characterize the housing market right now? I mean, it's a recovery, right, but it's not anywhere near where it was in 2007 and 2008?

BOHUTINSKY: That's right. It really varies by market. In most places across the U.S., the housing market has bottomed, but this is a long and slow slog to recovery. Our economists are predicting at Zillow that over the next year, across nationwide, home values are only going to rise about 2.5 percent.

It is going to take years and years for us to get back where home values were in most places at the peak. So, for people thinking about buying, you do have some time to take advantage of these low prices.

ROMANS: All right. And I know we've been -- wow. We've profiled people who were financed a couple of times, looking at it again with these low mortgage rates.

Amy Bohutinsky from Zillow, thanks.


ROMANS: Of course, most homes and investments are made possible by paychecks. Up next, we'll tell you the smartest moves you can make to get a job or get a better one right now.


ROMANS: Oh. The jobs market, it remains the biggest problem in the American economy. Three years after the recession ended the jobless rate stands it's a 7.7 percent.

But we have made progress. The Labor Department says men have gained back half of all the jobs they lost during the great recession. Women doing a little better, they've gained back 53 percent of the jobs lost.

So, where are the jobs? For men, the biggest gains are in professional services. Factories, making long-lasting goods like cars and also in retail. Women also made big gains in professional services. Education, health care have also hired a lot of women.

But many of the jobs coming back are lower-paying than the jobs lost. And we look at this thing also called the real unemployment rate, underemployment. It hit 14.4 percent in November according to the government. That includes the unemployed, those working part-time who want a full-time gig and other people marginalized attached to the workforce.

I want to bring back in, Carmen Wong Ulrich and Jack Otter. They're still here with me.

Caroline Ceniza-Levine is joining in our job discussion as well. She's a career expert at SixFigureStart. And she's here for a little bit of advice.

For people out there, Caroline, who are long-term or underemployed, how can they rebrand for a hiring boom in the next few years?

CAROLINE CENIZA-LEVINE, CAREER EXPERT, SIXFIGURESTART: The best they can do is have a story for what they are doing now, that's apart from their job search. So, employers want to see you're busy, that you're staying active and current, that you're still in and around companies and other people. And so, you want activity, whether it's projects or research that you're doing.

ROMANS: Yes. I mean, fill the gap on the resume with things and people's names who you meet.

ULRICH: And stay in those affinity groups, if it's -- whether its' professional affinity group, or, you know, you're a member of minority or women's group, even if you don't have a job, you're still a member of that group and that's a fantastic way to network.

OTTER: And find a nonprofit that can use whatever skill it is you want to be using in the private workforce. Whether it's planning parties or being their accountant or building a new web page or designing offices, then you go to the job interview and say, yes, here's the web page that I've just designed. And you've got a lot on your resume instead of I'm at home in my pajama sending out resumes.

ROMANS: We met a woman this week named Alicia and she's been out of work since I think April. I want you to listen to what her big concern is right now.


UNIDENTIFIED FEMALE: We need help. I believe that they should extend it --

UNIDENTIFIED FEMALE: Unemployment benefits?

UNIDENTIFIED FEMALE: Yes. Definitely. Give us more time to find jobs.


ROMANS: More time. She thinks things are going to get better, Caroline, next year. She think there's a job that is around the corner for her. She just needs a little more time. How does she make herself appear at an interview that I'm not long- term unemployed, I'm ready to hire and ready to work right now?

CENIZA-LEVINE: Again, part of it is staying busy. So, like Jack and Carmen has said. The second thing also is to be aware of what's going on with the company that she's targeting. So, if she knows their current news, if she knows what business they're in, it's going to make the employer feel like she can hit the ground running and hasn't been out for a long time.

ROMANS: I think people spend a lot of time looking for a job but it's not necessarily well-targeted time. You know, I hear people say I've been having answering ads, looking at Monster -- but you need a name of someone who can get you in the door.

ULRICH: Right. We know the stats. The stats are that most people get jobs through people that they know. So, you've got to stop just applying like Jack mentioned, stop sitting at the computer. Go out, shake hands, talk to people, don't be shy about letting everyone in your circle know, your Facebook friends, everybody -- hi, I'm looking for this position, you know, tell your cousins, aunts, uncles, they'll get you the job, not competing against hundreds of resumes and a computer that's sorting you.

OTTER: And the best possible reference is a former boss or even a former colleague who has seen you do good work and can get your resume to the right person and say, yes, she used to work here, and she's awesome.

ROMANS: Another concern, thousands of college students looking to get their foot in the door. For the very first time, here's one of them.


UNIDENTIFIED FEMALE: I'm wondering how I'm going to afford a minimum wage job with all the student loans I have to pay for and I just graduated from college.


ROMANS: I'm wondering what you all think about whether someone who just graduated college should take the minimum wage job and not spend more time looking for a job that might be the first step on a career ladder. What do you advice?

CENIZA-LEVINE: I don't think it's an either/or thing. So I know people who have taken a major low-paying job and then they still keep active looking more long term.

ROMANS: Right. Not mutually exclusive.

OTTER: That gives you the sense in the interview, look, I'm pouring coffee at Starbucks, but I'm also doing x and y on the side.

And, you know, the unemployment rate for college graduates is about 4.1 percent right now. So it's actually not awful. It ain't great, but it's a lot better than people without degrees.

ROMANS: But those are college graduates who have been in the labor market. If you graduated last May and have never had a job, you're not counted still.

ULRICH: And don't forget, she mentioned student loans. So, part of her question was, OK, so what am I going to do, I'm making minimum wage. How am I going to pay this off?

She's got to make sure that she knows what kind of loan she has. So, go to and go and see, do I have a federal loan? Do I have a private loan? Can I file for income-based repayment?

So if she has a minimum wage, she's not going to get a student loan bill for $500. So, she's got to match what she makes with her student loan payments and be proactive about that, even if you're not working.

ROMANS: Is the labor market going to be better for the class of 2013 you think?



ROMANS: I think it will. I really do think it will. A little better.

OTTER: Carmen's point is crucial, though. You can get your student loan payment as low as 10 percent of your discretionary income.


OTTER: If it's a federal loan.

ROMANS: Yes, income-based repayment.

OTTER: Exactly.

ROMANS: Income-based repayment. Google it, folks.

All right. Thank you. Caroline, nice to see you today.

For many students, education loans have become a de facto mortgage, taking decades to pay off. Coming up, how to make sure your kid isn't saddled with loans for years to come.


ROMANS: All right. So many parents, I know you're worried about your children graduating from college with a mountain of debt. And you've got a right to be. Student loan debt has exploded. It's now bigger than credit card or auto loan debt.

Now, there are smart ways to keep the borrowing down in the first place. You don't want to let that mountain grow over time. You want to keep it as small as possible in the first place. Here's how one grad did it.


ROMANS (voice-over): At 24, Greta Russler has her bachelor's degree. Figuring out how to pay for it wasn't easy.

GRETA RUSSLER, CURBING COLLEGE COSTS: I only applied to two schools, both in state, because those were the only ones that were really going to be a reality.

ROMANS: She chose Georgia State University, where a four-year degree costs just over $21,000. She earned a scholarship to cover tuition. Loans and a part-time job paid for living expenses and study abroad.

RUSSLER: I ate a lot more Ramen that I am proud to admit. I had a mattress on my bedroom floor. My clothes were kept in boxes on a bookshelf in my closet.

I was living the college life.

ROMANS: Russler graduated last year with $7,000 in loans, well below the national average of nearly $24,000.

(on camera): She did all the right things. You have to keep the debt down in the first place. Scour for grants and scholarships. Remember, it's cheaper to save for college than to borrow.

That $25,000 loan will likely set you back $35,000 with interest later. And get a head start earning college credit so you can graduate in three years. But make sure the school you want to attend will accept those credits.

MARK KANTROWITZ, PUBLISHER, FASTWEB.COM & FINAID.ORG: A.P. classes, CLEP classes, advanced standing exams, these are all great ways of getting college credit while you're still in high school.

ROMANS: Financial aid expert Mark Kantrowitz says don't borrow more than you can pay.

KANTROWITZ: Your total education debt at graduation should be less than your annual starting salary.

ROMANS (voice-over): And now some colleges are trying to make education more accessible. Belmont Abbey in North Carolina lowered tuition by 33 percent.

And Florida's governor is pushing community colleges to offer a $10,000 bachelor's degree.

STEVEN WALLACE, PRESIDENT, FLORIDA STATE COLLEGE AT JACKSONVILLE: I believe that we absolutely will accept a governor's challenge and develop one or more bachelor's degrees that target prices.

ROMANS: Until costs go down, it's up to students like Greta Russler to find ways to make it work. She's back in school, this time getting a master's in nursing. RUSSLER: I am living at home. I am constantly looking for new scholarships, little scholarships here and there. And trying to make the connections I can to hopefully get a grant within the next two years.


ROMANS: The college degree is an investment, and it has to be analyzed and scrutinized like an investment when you're borrowing money. Now, student loans are almost impossible to discharge during bankruptcy. You're going to have very hard time getting rid of it. To do that, to get rid of them in bankruptcy, you have to prove in court that paying them off would cause undue hardship.

And guess what? Judges rarely, rarely buy it. Just one more reason to keep your total borrowing down from the start.

Let's keep the conversation going, find us on Facebook and Twitter. Our handle is @CNNBottomline. My handle is @ChristineRomans.

"CNN SATURDAY MORNING" continues right now.