BETTY BOSTON

FAREWELL
April 20, 2006

WKMS invited me to present my first commentary on the subject of investing on November 5, 1987. That's more than 18 years ago. Since then, I've written and broadcast a commentary every two weeks, unless the time was pre-empted by WKMS for important news or for a fund raiser. I missed only once, when I unexpectedly found myself in the hospital. You really didn't need to hear what I was thinking then!

My aim has been to convey an overall understanding of investing and the positive effect it can have on people's lives. I've described kinds of investments, including who issues them and why, and the potential risks and rewards each one presents. I've described kinds of investors, and the characteristics of investments appropriate for each. There is no such thing as "one size fits all" in this business! And I tried to convey an understanding of the importance of investors in our economy.

I've made an effort to cover topics of interest to investors of all ages and stages. Some commentaries contained very basic ideas, while others described sophisticated investment techniques. Some presented overall investment philosophy, and some were the direct result of conversations with people who may or may not have been clients.

There were commentaries that were particularly timely, either appropriate to the kind of financial market existing at the time, or because my time slot happened to fall on a holiday. I especially enjoyed sharing investment thoughts related to holidays.

It's impossible to summarize all the topics I've covered. Instead, in the two most recent commentaries, I reminded you again of John Templeton's 16 principles of investing. If they're the only thing you remember, you should have enough information to be a successful investor.

It's always gratifying to hear from listeners that my ideas have been helpful. Sometimes this has been a statement such as: "I've been following your advice for years, and now I need some help with………" Or sometimes it's just been "I've listened to you for years. You seemed to make sense, so I followed your suggestions. Thanks!"
I owe much appreciation to the staff of WKMS for their help and encouragement. It's always appealed to me that WKMS wanted commentators who wrote their own original material instead of giving a canned presentation.

I also appreciate the folks at Hilliard Lyons home office in Louisville, who were not only reliable sources of information, but also checked each commentary to be sure it followed the guidelines of the Securities and Exchange Commission. And those in our local Hilliard Lyons offices have been patient and helpful as I continuously searched for new ideas.

Now it's time to say goodbye, and to express my thanks to all of you for listening. The work I did in preparing the commentaries would have been wasted without you to hear them. I hope each of you has heard things that were helpful.

I'll close with the phrase my husband suggested after listening to my very first commentary. I've closed with this tag ever since:

On WKMS, this is Betty Boston, wishing you many happy returns.

Betty Boston is a Certified Financial Planner (tm) practitioner, Vice President and Financial Consultant in the Murray office of J.J.B. Hilliard, W.L Lyons, Inc., member N Y S E and S I P C. Investments mentioned are not FDIC insured, carry no bank guarantee, and may lose value.

THE REST OF JOHN TEMPLETON'S RULES OF INVESTING

April 6, 2006

In the last commentary, I shared with you the first eight of John Templeton's 16 Enduring Principles for Investment Success. Today, I'd like to share the rest.

Principle Number 9: Aggressively monitor your investments.
You must expect and react to change. No bull market, or bear market, is permanent. There are no stocks you can buy and forget. After all, from 1978 to 1992, ten of the 30 stocks in the Dow Jones Industrial Average were changed. In just 7 years during that time, 30 of Fortune Magazine's 100 largest industrial companies dropped off the list. No investment is forever.

Principle Number 10: Don't Panic.
When you're caught in a severe downturn, it's hard not to panic. But you should ask yourself, "If I didn't own these stocks now, would I buy them after this market crash?" Chances are you would, in which case the only acceptable reason to sell would be to buy something else that you find even more attractive at the current price.

Principle Number 11: Learn from your mistakes.
This is good advice in many areas of life. We all make mistakes, but you must be wise and learn from them. Then forgive yourself, and move on. Don't take a bigger risk to try to recoup your losses. And be careful not to say, "This time is different" when in fact this time is almost identical to a previous experience. The only sure way to avoid all mistakes is not to invest, and that would be the biggest mistake of all.

Principle Number 12: If you begin with a prayer, you can think more clearly and make fewer mistakes.
Remember, the time to pray for wisdom is before you invest, not after.

Principle Number 13: Outperforming the market is a difficult task.
The real challenge is not outperforming the average investor, but outperforming professional investors. Any fund manager who regularly outperforms the averages is doing a better job than you might think, because of the costs of actually making buys and sells, and the salaries that must be paid to managers and researchers. By contrast, the performance of the measures of the market, the Dow, S&P and Nasdaq, don't allow for costs.
Principle Number 14: An investor who has all the answers, doesn't even understand all the questions.
The wise investor recognizes that success is a process of continually seeking answers to new questions, because everything is always in a constant state of change.

Principle Number 15: There's no free lunch.
We've all heard that in many different contexts. Mr. Templeton's interpretation of it for investors includes:
Never invest on sentiment.
Never invest solely on a tip, even though somehow tips seem compelling.

Principle Number 16: Do not be fearful, or negative, too often.
For over 100 years, the optimists have carried the day in the American stock markets. The growth of countries and economies is still going on, and will continue to do so.

It's interesting that after October 1987, when there was a one day drop of just over 22% to about 1700 on the Dow, Mr. Templeton had the courage to predict that the Dow would hit 6,000 by the new century, or perhaps higher. He was right. In fact, it recently went over 11,000.

But at the time, few people took him seriously. Six thousand seemed impossibly high.

On WKMS, this is Betty Boston, wishing you many happy returns.

Betty Boston is a Certified Financial Planner (tm) practitioner, Vice President and Financial Consultant in the Murray branch of J.J.B. Hilliard, W.L Lyons, Inc., member N Y S E and S I P C. Investments mentioned are not FDIC insured, carry no bank guarantee, and may lose value. Hilliard Lyons does not offer tax advice. Please consult your tax advisor before making any decision that may affect your tax situation.

JOHN TEMPLETON'S RULES OF INVESTING

March 23, 2006

I consider myself fortunate to have a tape of an interview with Sir John Templeton, done in 1992. At that time, he had had 52 years of experience in managing other people's money, through a wide variety of markets and economic conditions. In the interview, he talks about his 16 Enduring Principles for Investment Success. Since they're still as valid as they ever were, I'd like to share them with you, along with my condensed version of his comments on each.

Principle Number 1: Invest for maximum total real return.
By real return, he means return after taxes and after inflation. It's the buying power of your money that's significant. With inflation at 4%, after 10 years, $100,000 will only buy what $68,000 had bought initially. That doesn't even allow for taxes.

Principle Number 2: Invest, don't trade or speculate.
Wall Street is not a casino, but people who move in and out of the market frequently, or use techniques such as options or selling short, are subject to the same kind of risk of loss as at a casino.

Principle Number 3: Remain flexible and open-minded about types of investments.
No one kind of investment is always best, although frequently common stocks have outperformed all other types. There is no real safety without preserving purchasing power.

Principle Number 4: Buy low.
This is easy to say, but difficult to do. It's hard to go against the crowd. But if you buy what everyone else is buying, you cannot do better than the market. You must buy when everyone else is scared.

Principle Number 5: When buying stocks, search for bargains among quality stocks.
Some of the things that help define a company as a quality enterprise are highlighted by the following questions:
Is it strongly entrenched as a sales leader in a growing market?
Is it a technological leader in an industry that depends on technological innovation?
Does it have a strong management team with a proven track record?
Is it a low cost producer?
Is it well capitalized?
Does it have a trusted, well-known brand among high profit-margin consumer products?
Naturally you don't expect a company to be perfect, and to meet all these criteria. But you do want it to be superior.

Principle Number 6: Buy value, not market trends or the economic outlook.
Ultimately individual stocks determine the market, rather than the market determining the action of individual stocks. Of course there are times when stock prices get swept along by the market, but basically it works the other way. Furthermore, the stock market and the economy do not always march in lock step

Principle Number 7: Diversify.
No matter how careful you are, no matter how much research you do, you cannot predict or control the future. So diversify by company, by industry, by risk, and by nation. In stocks and bonds, as in so much else, there is safety in numbers and diversification.

Principle Number 8: Do your homework, or hire wise experts to help you.
Investigate before you invest. Study companies to learn what makes them successful. In most cases, you are buying either earnings, or assets; earnings if you expect the company to grow, or assets if you expect the company to be acquired.

These are just half of John Templeton's 16 Principles. I'll share the rest with you next time. Meanwhile, I hope you'll take these to heart.

On WKMS, this is Betty Boston, wishing you many happy returns.

BASIC FINANCIAL PLANNING
March 9, 2006

Income tax time is a good time to review your financial situation. If you haven't been doing financial planning, this is a good time to start. It's not hard if you take it a step at a time, and the benefits can be very rewarding.

Starting with your paycheck, tax return, check book and credit card statements, list your income and expenditures for last year. Try to make your list complete, but don't be too detailed. Still, you should be able to determine your total income, and where most of it went. Be sure to list credit card interest as a separate expense.

Don't forget income that's been invested, including reinvested dividends and interest, and amounts that you've asked your employer to deposit directly into a 401(k) or 403(b) or similar plan for you.

Now, list assets, the things you own. Start with your home, any valuable collections or jewelry you may have, and your investments, including retirement plans. Then list debts, such as a mortgage, car loans, and credit card balances that are carried from month to month. These are your liabilities.

Subtract the total amount of your liabilities from the total amount of your assets. This gives you your net worth, which can be a positive or a negative figure. It represents the value of all the things you've accumulated through the years.

Now, list the income you expect to have for the next year, and how you expect to spend that money. Use last year as a guide. As you go, look for expenditures you may want to change, including those that really don't mean much to you.

The usual recommendation is that you save and invest at least 10% of your income, even if you have to reduce previous expenditures. This amount is the beginning of your future financial security.

Think of this money in the light of your long-term goals, which may include buying a home, providing a college education for your children, a comfortable retirement for yourself, or even starting your own business. It's easier and more satisfying to save FOR something, than it is just to save.

One very important part of controlling spending is to pay yourself first. As soon as you get your paycheck, put aside money to pay off credit card debt if necessary, and for saving and investing. Deposit this amount into a separate account, or have your employer send it directly to your retirement plan. If it stays in your pocket, or in your checking account, the chances are you'll spend it.

Once you've eliminated any credit card debt, develop a plan for regularly converting your savings into long-term investments. Mutual funds provide a convenient way to do this, but choose carefully. Try to avoid high-risk funds, and funds with a narrow focus. Look for funds with experienced, proven managers who have the freedom to manage effectively. If you're not comfortable making these judgments for yourself, seek expert advice.

About this same time next year, prepare these statements again. Look for improvements over this year, as well as for areas where you can improve still more. After a few years, you'll be surprised at how much both your savings and your satisfaction will have grown.

On WKMS, this is Betty Boston, wishing you many happy returns.

HANDLING THE GOOD AND THE BAD
February 23, 2006

There are times when stock investors must face up to one or both of two possible frustrating situations. One is having held a stock too long; the other is having sold a stock too soon.

We've all been there. We bought a stock that seemed so promising! Surely its product was going to revolutionize how people did something that was difficult or unpleasant or awkward to do. It was just a matter of time. So we watched the price gradually go down and down, until the stock sold for pennies a share, or disappeared completely from the market.

Or we've done the opposite. We've seen a stock we owned move higher on what seemed to be flimsy news. So we took the opportunity to sell while it was at this new high. Then the company made a blockbuster announcement that sent the stock price to the moon. All we could do was watch, since we'd already sold out.

Oh, the frustration.

I don't know which is worse, missing out on a very good stock, or holding on to a very poor stock.

The important thing about such experiences is that you not let them discourage you so much that you get completely out of the market. If it was appropriate for you to be buying stocks at the time you made the original purchase of these frustrating ones, then it's probably still appropriate.

Remember that it's difficult to find areas of life where we consistently perform perfectly. When I watch ice skaters competing, I'm amazed at the imperfections that the announcers point out. It looked beautiful to me. But when they rebroadcast the mistake they're referring to, I can see what they mean. Even the best skaters are not perfect.

In the same way, we all have our imperfections in choosing stocks to buy or sell. We cannot expect that all of our choices will be perfect.

When you're investing, there are some basic principles to remember. One is that money lost on a losing stock is gone forever. It will never be available to invest in another stock. Therefore, when you're buying stocks, always keep some money in reserve, and don't put too high a percentage of your available investment cash into any one company.

There's also the opposite principle. If a stock you buy goes up significantly, it will unbalance your portfolio. You must then decide whether to leave so much invested in that one stock, or draw out some of your profit to buy something different.

These examples show both the necessity and the frustration of diversification. If one out of several stocks you buy makes a strong showing over the years, you'll wish you had put all your money into that one. But if another losses it's value, you'll be very glad you had not put all your money there.

If you're looking for a more comfortable but less exciting way to invest, find a family of mutual funds with a consistently good record over many years. Let them make the stock selections for you.

Mutual funds are not as exciting to watch as individual stocks, but they're not as worrisome either. And the end result may be as good as if you had been investing for yourself. Perhaps it will be even better.

On WKMS, this is Betty Boston, wishing you many happy returns.

INVESTMENT NEWS OVERLOAD
January 12, 2006

There are a couple of cartoons I like to share with people when we talk about how the stock markets operate. Both involve TV broadcasters.

In the first, the commentator says: "Meaningless statistics were up one-point-five percent this month over last month."

In the second, the message is: "On Wall Street today, news of lower interest rates sent the stock market up, but then the expectation that these rates would be inflationary sent the market down, until the realization that lower rates might stimulate the sluggish economy pushed the market up, before it ultimately went down on fears that an overheated economy would lead to a re-imposition of higher interest rates."

I haven't actually heard these messages coming from our TV, but some that I have heard seem close.

On the other hand, suppose the TV host said "There really wasn't anything significant happening in the financial world today. So sit back and relax while we play some lovely, soothing music." Somehow I don't think that host would last very long.

There was a time when it was difficult for the average investor to find helpful information. I'm glad that's no longer true. But now market activity and business news is reported in such detail all day long, I'm concerned about three possible unfortunate results:

One is that we're teaching people to be short term traders who follow the markets very closely and continually jump in and out. I really don't think that's a useful or helpful approach for most investors, and it can be very dangerous.

Another possible result is that people are intimidated. Because they either can't or don't want to follow the market so closely, they may be afraid to invest at all. I find that very sad.

The third is that inexperienced investors think they understand the markets much better than they really do. They may also have totally unrealistic expectations about the returns they should expect to earn.

As an example, for mutual funds, an expectation of annual growth of 8 to 10% on average is close to the historical range when measured over a period of years. If you plan on that, and then earn more, you're bound to be in good shape. But if you plan on a much higher return, and then earn less, you could be in real financial trouble.

Successful investing need not be time consuming or complicated. Once you set a plan in motion after thoughtfully considering your financial goals and how to achieve them, you should review it occasionally. But surely you have better ways of spending your time than daily worrying about the stock market.

You may know people who make a hobby of following the market. They have the time and inclination to do so, and they enjoy it. I can understand that. I think the whole world of investing is fascinating, including the stock market. But if your interests lie elsewhere, that's all right. You can be a thoughtful, successful investor and still have lots of time for other things.

On WKMS, this is Betty Boston, wishing you many happy returns.

EXCHANGE TRADED FUNDS

August 25, 2005

There are some comparatively new investment vehicles gaining attention these days. They're known as Exchange Traded Funds, or ETFs. These ETFs have usually been based on a familiar index, such as the Standard and Poor 500 or the Russell 2000. But more and more of them are being created, some based on international or foreign indexes.

By contrast, while some mutual funds are also based on indexes, many are individually managed. These funds contain stocks carefully selected to meet the objectives of the fund, and drawn from a universe that may contain thousands of stocks.

Another major difference between the Exchange Traded Funds and the more familiar mutual funds is reflected in the name of the newcomers. Exchange traded funds may be bought and sold on organized stock exchanges.

This is strikingly different from traditional mutual funds, which can only be bought or sold at the close of the market each day. Thus if you place an order any time before the close, it will execute at that day's closing price. But if you place the order after the close, it will execute at the next trading day's closing price.

Both traditional funds and ETFs may include a wide variety of stocks, or may cover only a particular industry, or part of an industry, or some other pre-defined group. But for exchange traded funds there's no limit on trading. The same fund may be bought and sold by the same individual as many times during a trading day as that person wishes.

Traditional mutual funds are not designed for such trading. Frequent buying and selling is known as churning, and is considered detrimental to the interests of the fund's long-term investors. So steps are being taken to prevent it, such as not permitting an investor who has sold a given mutual fund to buy it back for a certain number of days.

One interesting feature of exchange traded funds is that some are designed to move in the same direction as the index they track, and others are designed to move in the opposite direction. I don't know of any traditional mutual funds designed to move in the direction opposite to the market or any of its indexes.

The number and variety of exchange traded funds seem to be growing rapidly. But before you buy, be sure to check the volume of trading of the particular ETF you're interested in. Just as with stocks, it will probably be much easier to buy and sell at a satisfactory price if many shares change hands during the day than if only a few do.

Exchange traded funds are making a place for themselves in the investment world. But, as with all investment vehicles that are new to you, be sure you understand them before making use of them.

On WKMS, this is Betty Boston, wishing you many happy returns.

SAVING FOR COLLEGE

August 11, 2005

There are four major approaches to saving money to help someone you love go to college or get another kind of post-secondary education. They are 529 plans, Coverdell Education Savings Accounts, Uniform Trust for (or Gift to) Minors accounts known as UTMAs, and simply putting aside money in your own name.

The legal provisions for 529s and some areas of Coverdells are only effective through 2010. Given the popularity of these accounts, I'll be surprised if Congress doesn't extend them. But then, I've been surprised by Congress before.

A 529 is controlled by the owner, who selects the investments and may change the beneficiary to another member of the current beneficiary's extended family.

The Coverdell is controlled by a parent until the beneficiary reaches age 30. Again, the parent may change the beneficiary within the family. It's permissible to roll a UTMA account into a Coverdell, but if you do, the beneficiary assumes control at the age of majority, usually 18 or 21.
Generally I don't recommend turning a UTMA into a Coverdell.

A UTMA account is controlled by the custodian until the child reaches majority. Then control passes to the child with no restrictions on how the money is used.

Of course, if you're saving in your own name, you maintain control.

Income tax treatment varies. For 529s, earnings grow tax deferred, and can be withdrawn tax-free if used for qualified expenses. The provision for 529s disappears at the end of 2010 unless extended by Congress.

Coverdell earnings grow tax deferred, and withdrawals for higher education are tax-free. Also, now, money can be withdrawn tax free for qualified elementary and secondary education expenses, but this provision expires at the end of 2010 unless extended by Congress.

Under UTMA, earnings are taxed annually to the child.

Earnings on savings in your own name are taxable to you. But you may be able to claim a tax deduction if you pay tuition directly to a college for a specific child.

Only the Coverdell has limitations on who may contribute. For married couples, this privilege is phased out for annual incomes between $190,000 and $220,000; for individuals, it's between $95,000 and $110,000.

Overall contribution limits for 529 plans vary with the plan. They're frequently between $250,000 and $350,000. For Coverdells the limit is annual at $2,000 per beneficiary. There are no limits for UTMAs or accounts in your name.

I hope this information is useful as you select a way to help the children in your life have the opportunity for higher education. After all, that's a gift with benefits that will last a lifetime.

On WKMS, this is Betty Boston, wishing you many happy returns.

SPECIAL OCCASIONS FOR FINANCIAL PLANNING

July 28, 2005

There are special times in life that may call for new directions for your financial planning.

The first, of course, is when you get out of school and into a full time job. That's the time to start putting away 10% of your earnings in a separate savings account or, if and when permitted, in the company retirement plan. If you start saving right away, it shouldn't be too hard to keep it up throughout your working lifetime. That will go a long way toward taking care of later needs, such as college or other advanced training for your children, and a comfortable retirement for you.

The next special occasion is likely to be marriage. Now there are two of you who need to agree on your financial goals. The ideal thing to do is talk this through before you get very far with your wedding plans. If you can't agree on your financial goals and how you're going to reach them, it will be very hard to have a smooth marital relationship.

Babies are a great joy when they arrive, but they also bring financial demands, both present and future. As soon as you know that new baby's social security number, it's a good idea to start a college fund, using either a 529 or a Coverdell plan. Be sure to use an investment with prospects for good growth over the next 18 years.

As you move along through life, job changes and job promotions may bring planning opportunities with them. I remember a man who told me that he was in military service when he and his wife had married many years earlier. When he got his next promotion, his wife announced that half of his increase in pay was going into a savings account.

That set the pattern for their marriage. Every time he got a raise, half of it went into savings. It hadn't seemed like much to him at the time-just a few dollars. But now they were ready to retire, and they had a very comfortable nest egg. I think he was half bragging and half marveling at how smart his wife had been. Actually, that's a nearly painless way to build savings into your budget.

The next special time to possibly rearrange your financial plan is when your last child finishes college. All of a sudden those college bills stop. The money that's been going into paying them is available for other purposes. This may be your chance to add significant amounts to your retirement funds.

Of course the final time is retirement itself. Now you need to plan how to make your retirement money continue to grow and still give you a gradually increasing income stream. You also need to think about the best way to transfer your assets to your heirs at your death.

There are other times that may require new thinking about your finances. The death of a spouse, or the likelihood of either spouse going into a nursing home are not only very emotional times; they're also times that call for a financial review.

On most of these special occasions, money and finances can easily be pushed out of the way by other, more immediate, considerations. But taking the time to review possible financial changes may actually be easier then than at other times in life, and will certainly set you promptly on a new course when that seems wise.

On WKMS, this is Betty Boston, wishing you many happy returns.

FUNDING YOUR GOALS AND DREAMS

July 14, 2005

I've spent a lot of time in these commentaries talking about money. But I hope you realize that the money itself is really not what's important. It's the things money can help you do that matter.

A long time ago when I was growing up, Donald Duck had an Uncle Scrooge. Is he still around? Uncle Scrooge literally had piles of money, and the only thing I remember him doing with it was counting it, and, of course, protecting it from Donald and his friends. We all thought Uncle Scrooge was silly.

The really funny thing is that we were right. If the only thing you save and invest for is to be able to sit around and count your money, you're missing out on the important things in life.

Money is for providing a home and meals for your family. It's for education, and retirement, and doing special things for and with the people you love. It's for giving to help someone else with a special need, and to help fund special causes. Poor Uncle Scrooge missed the whole point.

If you haven't done so recently, sit down and decide what you really want to accomplish in the next year, and the next 5 years, and the next 25 years. Do it by yourself or with your family.

You might want to make a family project out of this. Ask all the family members to think about what they would like to see happen in the next year, and 5 years, and 25 years. Then set a meeting a week or two away, when everyone will share their goals and dreams. You may end up with some goals for the whole family, and you may not. But you'll surely end up with some family understandings.

Once goals are established, whether they're individual or family, it's important to immediately set up a strategy to fund them. Putting money aside is easier if you know what that money is supposed to accomplish. So start right away to save, even if it's only a small amount at a time.

Choose an amount that you can comfortably spare each month, then get in the habit of saving it. Devise a system that's easy to follow, such as payroll deduction if that's available to you. Or put money in a special account as soon as you get each paycheck. You may want an account that's not very convenient to get to, perhaps in a different bank from the one you usually use. Then you'll be less likely to spend it too soon.

Remind yourself on a regular basis how much is being saved, how those savings are growing, and how they'll be used. If you're saving for a family goal, talk about how much the savings are growing. Decide how often to have additional family meetings when the investment results will be reported to all, and the reason for saving will be talked about again.

While much of your savings should probably be intended for long term goals, plan for one or two comparatively small short term goals. Whether it's for your family or just for you, this will be a tangible reminder of what can be accomplished by saving money.

The financial media sometimes talk about money compounding through reinvesting interest as it's earned. Compound interest has even been called the eighth wonder of the world. It can do wonders indeed, but only if you start the process by regularly saving and investing money.

On WKMS, this is Betty Boston, wishing you many happy returns.

THOUGHTS ON INDEPENDENCE DAY

June 30, 2005

This weekend we'll celebrate the Fourth of July, a holiday we all love. Whether we celebrate by attending parades, or having picnics with family and friends, or just relaxing with no need to think about what's going on at work, it's a wonderful break from summer routine.

But there's another name for this holiday: it's also called Independence Day. That name is a reminder of what we really ought to be celebrating.

If you haven't read the Declaration of Independence recently, this is a good time to do so. You might even gather your family around and read it out loud. It's a reminder of why we don't want somebody else controlling what we can do, either as a nation or as individuals.

Both personal independence and political independence are privileges to treasure. Of course, they must be tempered with reason, responsibility, and old fashioned common sense. But the opportunities they provide for us seem limitless. It's too bad if we don't take advantage of them.

As a nation, we've proved once again how strong our economy can be. Because people are free to start businesses, and to invest in those businesses, the variety of economic activity is amazing. As entrepreneurs see needs, and set out to satisfy those needs, all kinds of businesses develop. Some flourish, some fail. Some last only a short time, some go on for many years.

The mortality rate of new businesses is high. I've heard it said that for every new business that's successfully started by someone, there were probably 2 or 3 earlier attempts by that same person that failed. If there weren't the freedom to try something that might fail, there wouldn't be the freedom to try something that might succeed.

Not all of us are entrepreneurs. But most of us are, or should be, investors. Whether you buy certificates of deposit, or the riskiest of stocks, that investment opportunity exists because there are businesses that need money in order to try to grow and prosper.

It's your savings, and the accumulated savings of all the people who have gone before, that have provided the capital that has made possible the growth of our economy.

When you make an investment, you're thinking of the benefit it may be able to provide for you. That's as it should be. Each of us has the freedom to choose the investments that we think will do us the most good. We need to plan for our own future and for that of our family. Investing wisely is an important part of that planning.

But the surprising thing is that your investments are important, not just for your future, but for our country's future. If our children and grandchildren are to have the opportunities we've had, it's up to us to provide them. One way to do that is to invest sensibly in our economy in order to help it grow.

I hope you thoroughly enjoy your Fourth of July holiday. But remember, it's your patriotic duty to invest, and to do so wisely.

On WKMS, this is Betty Boston, wishing you many happy returns.

INVESTING FOR THE LONG TERM

June 16, 2005

It seems to me that long-term investing involves less work than short term trading. Furthermore, I believe it has a better chance of being successful. So I want to try to give you a feel for what's involved in long term investment management.

There's certainly work to be done. Some people like to do it for themselves, while others rely on someone else to do it. Either way can be successful.

There are two common research approaches to use in looking for stocks to buy. One is called bottom up, and the other is top down. Those names don't seem very imaginative, but they are descriptive.

The bottom up approach starts by looking at promising companies. Frequently these are industry leaders, or companies that seem to have a special advantage over their peers. They may have especially effective research, or a new approach to doing business, or a new product that's starting to be appreciated.

Next their industries are studied to try to determine if the company operates in an environment that will nurture growth. Finally, the state of the national and international economy is considered, again to understand the environment surrounding the company and its likely effect on the company's future.

The top down approach involves starting with a look at the worldwide economy. Then industries are studied to select the most promising. Then companies within those industries are considered.

Finally, for both approaches, the price of the stock in relation to the expected future of the company must be considered. Only then can money be comfortably invested. After all, other investors may have already seen the potential for growth and bid the stock price higher than seems reasonable.

Either process should lead to a diversified group of stocks.

Of course, once you buy, you should track the progress of your investments with continued research and monitoring.

One way to have someone else do research on companies and then monitor them for you is to buy stocks indirectly through mutual funds. But even here, there's work to be done in selecting which funds to buy.

Wise investors want to see the long term records of the funds. They also want some assurance that the same management that created those records will stay around to continue the work.

There's no one magic way to guarantee success in the stock market, whether you practice short term or long term investing. But I believe long-term investing, directly by using either the bottom up or the top down approach to research, or indirectly using mutual funds, provides you with the best chance of success.

On WKMS, this is Betty Boston, wishing you many happy returns.

TAX LAWS AND INVESTING

June 2, 2005

Let me start by making it clear that I am neither a tax professional nor an attorney. I do not give personal advice in either area. But if you're going to be a successful investor, you must have a basic understanding of the effect of taxes on your investment results.

Venita Van Caspel, one of the founders of the Certified Financial Plannerâ movement, describes the tax laws as the rules of the game of investing. The interesting thing about these rules is that Congress keeps changing them.

There are three categories of bonds: corporate, U. S. Government (known simply as government), and municipal. Before you decide which makes the most sense for you, you have to understand how the tax laws affect each type.

In general, the interest income from corporate bonds is taxed by the federal government and by some states. Income from government bonds is taxed by the federal government but not by the states. Income from state bonds may be taxed by the states, but not by the federal government. In practice, many states, including Kentucky and Tennessee, don't tax income from their own municipal bonds.

To see which bond will give you the most spending power, compare income after federal and/or state income tax. In other words, which you should buy depends largely on your tax bracket.

Another area where the tax laws have a tremendous effect is retirement plans. Much of the advantage of using 403b's, 401k's, SEPs and SIMPLEs involves tax-deferral of both the money invested in the plan and its earnings. Income tax is generally not due until withdrawals are made.

There are special tax provisions for IRAs. Contributions to traditional IRAs are tax deductible unless your income is too high. You may get an additional tax bonus if your income is very low. But the money the IRA
earns is tax deferred even if you contributed after tax money.

Withdrawals after age 59½ of earnings and deductible contributions are subject to income tax. Withdrawals before 59½ may also trigger a 10% penalty unless you meet certain specified criteria.

For a ROTH, the money you invest is generally after-tax money, while the earnings are tax-deferred. But if you maintain the account for at least 5 years, and in addition wait until you're 59½ or are buying a first home, you may withdraw the earnings free of federal income tax.

Another retirement planning vehicle affected by taxes is an annuity. The amount you invest may be after tax or before tax money, but the earnings are tax-deferred. If you're at least 59½ when you withdraw money, you'll pay regular income tax on everything except the after-tax contributions. However there's generally a penalty for withdrawals before 59½.

Remember to consider the potential tax consequences of any investment decision. They can make a big difference in how much money ends up in your pocket.

On WKMS, this is Betty Boston, wishing you many happy returns.

MAINTAINING YOUR FINANCIAL RECORDS
May 19, 2005

Income tax season was a good reminder of the importance of keeping accurate and accessible financial records. Remember they're not only useful to you; someday they'll be essential to your executor. Here are some suggestions on keeping records.

Consider asking your broker to hold your stocks and bonds for you. Your brokerage statements are a legal record of your holdings, and you won't have to worry about losing certificates. Also, when bonds mature, they will automatically be redeemed. You can still change brokers if you wish by moving your account electronically to someone else.

Be sure your brokerage firm is a member of SIPC, the Securities Investors Protection Corporation. If your account is valued at more than $500,000, ask if the firm carries additional private insurance. I believe most do.

If you choose not to leave your holdings with your broker, consider using direct registration. This system can maintain a record of each stock you own, and will send you a statement that it is holding that stock. Keep those statements as a record of what you own and where it is.

Keep track of the costs of your investments. You should receive from your broker a written confirmation of each purchase. Put this in a file folder or notebook so that when you sell, you'll be able to find it. Then you or your tax advisor can figure gain or loss as well as holding period. If you have bought and sold through the same broker, that broker can probably also provide this information.

Remember if you hold an investment for at least a year and a day, it's defined as long term. You probably never knew how important one day can be. Currently the maximum federal income tax on a long term gain is 15% or, if you're in the 15% tax bracket or lower, it's 5%. But if you hold for only a year or less, the gain is taxed as ordinary income.

If you receive securities as a gift, ask the giver for the initial cost and purchase date, since that's your cost basis. If you receive securities as an inheritance, your cost basis will be the valuation in the estate, which the executor can provide.

The most awkward cost basis records to keep are those for an investment in which you frequently buy small numbers of shares, such as a dividend reinvestment plan or a mutual fund. Be sure to keep statements showing all those purchases.

For retirement plans and IRAs, the significant information is whether each contribution was made on a pre-tax or an after-tax basis. The after-tax investments will not be taxed again when they're withdrawn, but the pre-tax investments will be taxed as ordinary income, along with all the earnings.

Good record keeping may not seem very exciting, but it's very worthwhile. It can keep you from paying too much in taxes, and it can help keep your assets from getting permanently lost at your death. Furthermore, it will make your executor's job much easier, for which he or she will be eternally grateful.

On WKMS, this is Betty Boston, wishing you many happy returns.

MAKING YOUR MONEY GROW
May 5, 2005

There are three parts to successfully saving for retirement. One is putting money aside so it will be available when you retire. Another is making that money grow while it waits. The third is learning to spend only on what's important to you, not on what your neighbors or your favorite TV show think you should spend money on.

Pay attention to what happens to your income. It's a good idea to keep a detailed record of where your money goes for several months, then look closely at the results. You'll probably be surprised by some of the things on your list. Those are the places you can find money to save for the future.

It's even a good idea to repeat this process every few years. Things that are important to have at one stage in life may be unnecessary at another stage. For instance, when your children are grown and gone, you may decide you don't need as much life insurance as you did. Now may be the time to buy long term care insurance with some of that premium money.

Check your Social Security benefit statement regularly. Be sure it's accurate, and that you know how much you'll be able to count on.

Invest your savings sensibly. Avoid high risk investments, where the chance of losing your principal is very real. But also avoid the low total return investments, where the chance of losing purchasing power and your opportunity for growth is also very real. Good quality stocks offer long term potential for reasonable growth. But do keep a well diversified portfolio to help you balance risk and reward.

One of the rewards of turning 50 is that then you're permitted to put additional money into your retirement plan and your IRAs. When you're no longer furnishing a house or raising children, you may be in a position to contribute the additional amounts.

As you get older, remember that investment grade bonds offer income while preserving the principal you've accumulated. Decide when it will be time to gradually build a portfolio of bonds. But don't put all your money in bonds. You could be retired for 20 or 30 years. During that time, you'll need to have your principal continue to grow in order to provide you with a growing income.

When you get close to retirement, draw up a budget for after you retire. Then try living within it for at least a year. Are you going to be happy living that way, or do you think you should work a little longer and increase the size of your nest egg?

Remember that you probably have a significant portion of your assets invested in your home. You might decide that a smaller home, either in the community where you live now or in some other location, would suit you better in retirement. This could increase your investment capital while reducing the amount of work required to maintain a home and yard.

Another possibility would be to arrange a reverse mortgage. This would provide a steady stream of income while gradually reducing the amount of principal you own in your home. But be sure that you'll always keep some equity for as long as you want to live there.

Many people look forward to retirement. It's up to you to be sure you'll have the income you need to enjoy it.

On WKMS, this is Betty Boston, wishing you many happy returns.

Betty Boston is a Certified Financial Planner (tm) practitioner, Vice President, and Financial Consultant, and a member of the Boston-Ewing Investment Group in the Murray office of J.J.B. Hilliard, W.L Lyons, Inc., member N Y S E and S I P C. Investments mentioned are not FDIC insured, carry no bank guarantee, and may lose value.

FINDING WAYS TO SAVE MONEY
April 21, 2005

Saving money is not always an easy thing to do, especially when you're busy earning a living. But it can be done. Just remember that the money you save, and what those savings earn for you, may present you with wonderful opportunities in the future.

Saving is easier for most of us if we're saving for something. So the first step is to decide what you would like to do or have that will require saving. Saving for retirement is a major goal for most people. So is saving for college for children or grandchildren. However both of these goals may seem to be very far away.

So, while you're at it, save also for something more immediate, like a vacation or something you really want to buy. The trick is to allocate most of your savings for retirement and much of what's left for education if that's appropriate. But you may want to put aside a small percentage of your savings for something in the near future, almost like a reward for saving.

Once you have yourself motivated, consider these suggestions on how to proceed:

Start saving now, and continue to save often. If you will save 10% of what you earn first thing every time you get a paycheck, you'll find you don't miss that money. I've said that many times to many people, and gotten a lot of funny looks from them. But some of those same people have come back to me and announced, usually in a rather surprised tone, that they had tried saving 10% of earnings, and discovered they really didn't miss it!

Those announcements are very gratifying. I know that I've helped to create a lifelong saver. Furthermore, I believe someone like that will find ways to save more than 10%.

An easy way to save is to ask your employer to save for you. If you work for a company that has a retirement plan to which you can contribute, use it to save at least as much as is necessary in order to get all of the matching money your employer may offer. That's almost like getting "free" money.

Then, every time you get a raise or a bonus, put at least half into the retirement plan. Continue to gradually increase your contribution until every year, you're putting into the retirement plan as much as the law allows. Be sure to choose carefully and sensibly the investment options you use within the plan.

Take advantage of the available tax-free savings opportunities. For instance, contribute to a traditional IRA if you can deduct the contribution on your income tax return. If you can't deduct it, contribute to a Roth IRA instead, as long as you fall below the income guidelines. Although the contribution is not deductible, if you follow the rules, the money you withdraw will not be taxable.

The first rule is that the Roth has to have been in existence for at least five years. Then a withdrawal up to $10,000 will not be taxed if used to make a first-time home purchase. By the way, "first time" has an unusual meaning in this law. It means that you have not owned your own home for at least the last two years.

Also, after that first 5 years, if you take money out when you're 59½ or older, you won't pay income tax on the amount withdrawn.

Saving money is a state of mind more than anything else. Most people can save a least a little if they're determined to do so. Try it. You may find it habit-forming!

On WKMS, this is Betty Boston, wishing you many happy returns.

ASSET ALLOCATION
April 7, 2005

There's a formula for investing that seems to have become very popular in the last 10 years. It's called asset allocation. It's being made available more and more in variable annuities and elsewhere.

The basic idea is that a carefully chosen assortment of mutual funds is not only safer than just one fund, but that by maintaining the proper balance among the types of funds you have, you will go a long way toward giving youself good investment results.

A typical assortment will use various bond funds and stock funds, ranging from short, medium, and long term bonds to blue chip, growth, and speculative stocks. Sometimes even more highly specialized funds are used, such as those invested solely in real estate securities. The assortments that are available range from very conservative to very risky.

Investors may choose one of these assortments, taking into account both their own risk tolerance and how long they expect to stay invested. Then the money is divided into the pre-determined balance of funds in the selected assortment.

Each year, or sometimes each quarter, the portfolio is "rebalanced". That means the managers will sell off enough of any funds that have grown in order to add money to the funds that have not grown as much or have actually lost value. Thus the sizes of all the funds are brought back to their original relationship with each other. The object is to maintain the chosen balance.

That seems backward to me. I'd rather keep the funds that are doing well, and perhaps add money to them from funds that are not doing as well.

I admit that I'm influenced by my conviction that successful investing is a long term process that requires careful selection of investments and the patience to give those investments time to grow. I don't understand the logic of moving money away from funds that are doing well and into funds that are not doing well.

There may is another problem according to Elaine Floyd, CFPâ. She says that investment managers use asset allocation to keep the money in a pre-selected pattern of diversification. But individual investors think it means concentrating the portfolio in the asset classes that are performing best.

If she's right, we're looking at a monumental misunderstanding.

In order to apply the idea of individual investors, the money should be concentrated in the best performing asset classes. You might still want to do an annual checkup. Then, if an asset class seems to be faltering, move some of that money to those that are coming to life. Remember, it's always important when choosing the funds to look at the records of the people managing them, as well as at each fund's investment objective.

Only when you've found what seem to be well managed funds, should you allocate your assets among them. Then give these funds you've chosen so carefully time to grow.

You can make adjustments any time you wish, based on the performance of the funds, or on major changes in the economy, or on your own changing circumstances. But it doesn't make sense to me to make adjustments based solely on the calendar.

On WKMS, this is Betty Boston, wishing you many happy returns.

PLANNING FOR THOSE YOU LEAVE BEHIND

March 24, 2005

An important part of your financial planning is deciding when and how you want your assets passed on to your heirs. Once you've made these decisions, appropriate documents should be drawn up by your attorney, in consultation with your tax advisor and your investment advisor, in order to be sure your wishes are known and honored.

Furthermore, these documents should be reviewed on a regular basis, perhaps every 5 to 8 years. It's amazing how much your situation can change as time passes. Your documents can and should be amended to adjust to such changes.

A will instructs your executor how to handle your estate at your death. If you don't write a will, the state you live in has provided one for you. It's a "one size fits all" document that rarely fits anyone very well. Those instructions may give your assets to all the wrong people in your life. The thought of that should terrify you into writing a will for yourself, and doing it now.

Setting up a revocable living trust is another way to pass assets to your heirs. It lets you continue managing your money as long as you like, including spending it any way you please. However, when you die, the assets in the trust pass to your heirs more easily and quickly than they would pass by will. But here's an important warning: be sure to retitle all of your assets in order to place them in the trust once it's established.

By the way, your trust assets are not a matter of public record at your death, but your will and the assets listed in it, are.

When you're writing your will and other documents, and each time you review them, be sure to check on the names listed as beneficiaries of your IRAs, retirement plans, annuities and insurance policies. These assets will pass to the recorded beneficiaries, no matter what your will and trust may say. So be sure the beneficiaries are updated along with your will and trusts.

Remember that anything held in joint tenancy with right of survivorship becomes the property of the joint tenant at your death. Be sure that's where you want those assets to go. Again, your will has no effect on this. Yet real estate and investments are frequently held this way.

As you get older, give away the possessions that you want particular people to have. If they say "Oh I couldn't take that" make them take it anyway. Tell them you want the pleasure of seeing them own it. Tell them the family story or the special circumstances that surround it. This can be a time of warmth and love to share with special people in your life. And it will make the item much more meaningful to the recipient.

Consider reminiscing into a tape recorder, or writing down your thoughts. Talk about family history, the special events of your own life, your day to day life at various times, and why you behaved or talked or felt as you did. Record the things you'd like to share. This will truly be a living memorial.

All of these concerns should be dealt with. Ignoring them may mean leaving a job for your executor that is much harder than it has to be. I've seen first hand what a difference careful planning can make in the smooth and prompt handling of estates.

On WKMS, this is Betty Boston, wishing you many happy returns.

REDUCING NEXT YEAR'S TAX BILL

March 10, 2005

This is the time of year when we're very aware of taxes. Some taxes we can't do much about, but frequently we can do something about the taxes on investment income. Changes made now may reduce your taxes for next year. So let's review different types of investments in light of the tax consequences of each.

If you're investing in corporate bonds or in CDs, and you're in the 25% federal income tax bracket or higher, you should seriously consider using municipal bonds instead.

Remember that "municipal" is the term that applies to bonds issued by states and their political subdivisions, such as cities, counties, and school districts. Interest earned on municipal bonds is generally free of federal income tax, and if you buy bonds of the state in which you live, the interest may also be free of state and local income tax.

When you compare tax-free municipal bond interest rates with taxable corporate bond or CD rates, be sure to use what's called the taxable equivalent yield. This is the amount of taxable income you would have to earn to be able to put as much money in your pocket as you can with the tax-free income.

For instance, if you're a resident of Kentucky, and you buy a Kentucky municipal bond paying 4% interest, that interest is not taxable on either Federal or Kentucky tax returns. If you're in a 25% federal tax bracket and 6% Kentucky, you would have to earn about 5.65% fully taxable to be able to keep 4%.

If you generate capital gains by buying and selling stocks, try to make those gains long term by holding the stocks for more than a year, even just one day more. The maximum federal income tax on long term gains is 15%, or, if you're in the 15% tax bracket or lower, it's 5%. But on short term gains, you'll have to pay taxes at your highest normal rate. This can make a real difference in how much of your gain you get to keep.

If you're tired of paying capital gains tax on your stock mutual funds each year, consider buying individual stocks and holding for the long term. Then you won't pay capital gains tax until you sell the stock.

Annuities and IRAs grow tax-deferred, but money invested may or may not be tax-deductible depending on the kind of annuity or IRA you buy. Furthermore, when the earnings are finally withdrawn, they are taxed at normal rates, not at the special lower long term capital gains rates.

A good way to delay your taxes is to invest through retirement plans. Generally both money going in and earnings are tax deferred until you make a withdrawal. Ask your employer about plans that are available. Again, however, you will pay tax on withdrawals at regular rates, not long term capital gains rates.

If you're the employer, set up a plan, for your sake and your employees'. If you're a small employer, there are plans designed especially for you. Even if you employ only yourself, you may be able to use a retirement plan to good advantage.

Taxes are a fact of life, but there's no reason to pay more than you have to. After all, Congress builds tax advantages into retirement plans to encourage people to save. It's an opportunity you can't afford to miss.

On WKMS, this is Betty Boston, wishing you many happy returns.

PHANTOM ASSETS
February 24, 2004

A number of years ago, before we had computer programs to help us advise people about retirement, I realized one day that I was doing something I considered very strange.

When I was working with people who were nearing retirement, I would advise some to invest their money in a way that would preserve the principal, and hopefully make it grow to some degree for inflation protection. But I would advise others to invest primarily for growth, in spite of the added risks.

I thought about these two groups of people, trying to understand why my reaction to their situations was so different. I realized that as a group they were very similar except for one thing: some did not expect to receive income from a retirement plan, and others did.

So I began referring to retirement plans as phantom assets.

They are assets in that they will provide retirement income to their participants and usually, if desired, to the participants' spouses. But they are phantom in the sense that they will disappear at the death of the participants and spouses. They're generally not something that can be left to heirs.

They are also phantom in that the participant may have little or no control over them. Even so, they make a huge difference in how the client's other assets should be invested.

If there are no phantom assets, accumulated holdings will probably have to provide income after retirement. To preserve principal, investment grade bonds could be a significant part of the portfolio, with the interest that is earned invested in more bonds.

Where phantom assets are available, they will probably be a reliable source of lifelong income. The client's own holdings may provide additional income, or become a legacy for heirs. At least some of these assets may reasonably be invested in good quality common stocks for long term growth.

There are some lessons here for all of us. The first is to take advantage of retirement plans that are available. Start now by contributing as much as you can afford. By the way, you can probably afford more than you think. Then increase your contribution whenever possible, perhaps when you get a raise or a bonus, until you're contributing the maximum allowable amount.

If you have a choice of investments within the plan, choose the growth investments that are fairly conservative. Avoid putting more money than you're required to into the stock of the company you work for. After all, you're already dependent on that company for your job. It doesn't make sense to be dependent on it for the growth of your retirement plan, too.

When you've maxed out on the retirement plan, start investing on your own. Again choose carefully and fairly conservatively. When you're young, you should probably invest mostly in stocks. As you get closer to retirement, gradually add bonds to your portfolio.

Phantom assets will be very useful when you retire. But it may be up to you to be sure that they will be there.

On WKMS, this is Betty Boston, wishing you many happy returns.

PREPARING TO BECOME AN INVESTOR
February 10, 2005

Recently I had the good fortune to hear a presentation about Dave Ramsey and his Financial Peace University. I was reminded of the fact that before you can become a serious investor, you must get your financial house in order. Apparently Dave Ramsey has devised a very effective way to do just that.

It makes no sense to invest in a bond or a CD that pays 3 or 4 or 5% when a credit card company is charging you 13 or 15 or up to 23% interest on your debit balance. Your first investment must be geared to eliminating that expense.

Ramsey's program is one of behavior modification, adopting a life style that you then choose to maintain. He believes that managing your finances is a matter of 80% behavior and 20% knowledge. His method is apparently a very effective way to get those debts paid. Only then are you ready to start putting money to work for you through careful and sensible investing.

It's important for the whole family to agree on being determined to get out of debt. Then they can seek guidance. It may come through a series of Financial Peace meetings, or by reading Ramsey's book, or both. Don't try to figure out why you should do any particular thing that's recommended. Just carefully follow his advice, and it should work.

It took me a long time to accept the fact that some people simply don't understand about money. They can be very bright and very competent in their own field, but understanding money eludes them.

Apparently Dave Ramsey's approach does not require that you understand about money. Perhaps the experience of using his program will help you understand. But whether it does or not, I believe his program can work for you.

We all need help of one sort or another on a daily basis. If you ever