Investment tools for busy professionals.

OUR FULL YEARS HAVE PASSED SINCE THE first jolts of recession. But if the "R" word hasn't quite faded from your vocabulary, that's probably because folks are still struggling to keep financially afoot. Inflation continues to hover at about 3%, yet earnings over the past year have barely budged. In 1993, real wages for full-timers increased by precisely $5 per week--up to $307 from $302 in 1992.

Compounding matters is the toll of corporate downsizing. Astoundingly, roughly one in five U. S. households has faced at least one episode of unemployment over the last year. No wonder more and more families--many of them living on one paycheck--are stretching their dollars to the breaking point. Juggling bills, college costs and savings are all part of this financial balancing act. Americans are now saving less, squirreling away about 4.2% of their disposable income versus 5.3% a year ago.

Today's harsh realities demand that you not only work harder to conserve your money but also pull out all the stops to grow it, too. Towards this end, we have three simple words of advice: save and invest. Too much to ask, you say? Well, consider how even in today's push-me-pull-you economic climate, there are more tools than ever to help you shore up your assets. To show you some of your best options, BLACK ENTERPRISE takes a look at three examples of how couples and individuals are handling their finances.

Going For Brokers

When Brian Telfair made the switch from teaching to corporate law in 1987, he doubled his $26,000 academic salary. He then realized his savings account--which earned a mere 4% in interest--wasn't adequate for his newfound income.

To lessen the burden of jumping from the 28% to 31% tax bracket, Telfair began contributing 10% of his pay to the company's 401(k) retirement plan, as soon as he was eligible.

Things didn't stop there for the 32-year-old Detroit lawyer. He padded his investment portfolio with five stocks: Dow, Nike, Meritech, The Gap and McDonald's. A risk-taker, Telfair picked his own stocks by following the maxim: Invest in what you know.

While this novice investor was savvy enough to invest on his own using a discount broker, Telfair was dead set on working with a full-service brokerage house. Why? He wanted a tailor-made investment program. And since he knew that his $50,000 salary was bound to increase by more than 30% in three years, he was anxious to build a relationship with a broker. "I wanted a professional to help me manage my money over the long run," explains Telfair. Specifically, he needed advice on stocks and ways to maximize his 401(k) contributions.

For the past year, Telfair has been investing with Prudential Securities. It wasn't any snazzy sales pitch that hooked him; he had dealt with pushy brokers before. In fact, he nixed a brash broker who wanted him to invest $15,000.

Brokers don't come cheap--most charge anywhere from 3% to 10% of your assets. Telfair forked over $900 in commissions, including a 5.75% sales charge, on his $7,000 investment in a growth and income mutual fund, Investment Company of America (the three-year annualized return is 16.23%).

"I'm completely comfortable with the money I've put out," says Telfair, considering he could have easily paid as much as $100 an hour for a fee-only advisor. Although the average broker does more trading and less talking, Telfair is lucky; he spends at least 45 minutes a week consulting with Prudential's Gail Perry-Mason by phone.

This legal eagle is pretty consistent with his investing. He automatically puts $50 a month in the mutual fund, and he has upped his 401(k) contribution to 12%. Twice a year he gets a bonus check (25% of his salary), and he will probably use the money to buy more stock. His portfolio is valued at $25,000, with an annual average growth rate of 15%.

Telfair's aggressiveness is fueled by a single goal: to retire by age 50. "I want to call a travel agent when I'm 65 and say, |book me a flight to Aruba next week,' without having to worry about paying my mortgage," he says.

Getting The Most From A Broker

You don't need a stockbroker if you plan to sprinkle your portfolio with just mutual funds. But once you decide to delve seriously into the equities pool, a broker becomes a must, advises John Markese, president of the Chicago-based American Association of Individual Investors.

There are two types of brokers, full-service and discount. The latter, of course, won't tug as hard on your purse strings. A discount broker will charge roughly one-third less than a full-service broker (See "Demystifying the Role of the Stockbroker," October 1993). If you want someone to help you buy and sell securities, do research and offer advice, then you're probably better off with a full-service broker. A discount broker will merely handle the transaction.

You don't need a lot of cash to invest with a broker. Most full-service brokers charge such hefty commissions (at least $25 every time that you buy or sell) that it doesn't pay to start an account with just $100. What's more, they typically like to trade in "round" lots of 100. At that rate, you'd need a minimum ante of $25,000. Yet there are ways to get started in stocks cheaply and effectively. (See "Buying Stock on the Cheap," Moneywise, this issue.)

Question a broker about his or her choices. Never give a broker carte blanche over investment decisions. Brokers make money whenever they trade, so some tend to encourage investors to buy and sell more frequently than they actually need to.

Using A PC To Pick Up Your Finances

Like most thirty something couples, Colisa McFadden and David Fowler are trying to keep their heads above water. When their daughter, Mariah, was born last year, they sought BLACK ENTERPRISE's help to get their financial house in order. The result: a complete money makeover (see "Getting the Family Investment Plan In Gear," February 1993).

Since then, the Richmond, Calif., couple has had to shift gears again. There's a new family member, David Isaac, making David, 36, and Colisa, 34, feel financially squeezed. Tightening the money vise even more, David is the recent victim of corporate downsizing at Apple Computer.

Now the Fowlers are adjusting to living on one income, keeping track of every nickel. "We're on a very tight budget," says Colisa, a self-employed accountant who manages to net roughly $5,000 a month. "But then we've always had to monitor how much we spend."

For the last two years, the Fowlers have used an assortment of financial planning software. A household favorite: Quicken from San Diego-based Intuit Inc. ($59.95), which the Fowlers use to create their budget, balance their checking account and track their expenditures.

Have they seen a difference? You bet, says Colisa: "Whenever you have a close watch on your money, you're more careful about how you spend it. Knowing how much we owe everybody at all times, the money doesn't get away from us as easily."

To pay the bills, the techno-savvy couple also uses CheckFree (Checkfree Corp., $20), a check-writing program that offers the option of mailing ready-made checks or modeming them directly from their computer. "This is great for us," says Colisa, "because the computer automatically pays our bills," including fixed amounts that the Fowlers owe each month to utility companies and creditors. To get an even better grip on their spending, the Fowlers try to pay for everything else with cash. Credit cards are a no-no.

Every family should be able to calculate its net worth. To keep tabs on theirs, the Fowlers use WealthBuilder ($109.95) from Reality Technologies to monitor their assets and liabilities. (To date, the couple is worth about $70,000.) WealthBuilder also helps the couple follow their investments, including shares in Apple and AT&T (valued at $14,000) and The Janus Fund, a growth mutual fund into which they plow $20 each month (three-year average rate of return: 19.2%).

Although the Fowlers are pinching pennies right now, they will still rely on financial planning software to help balance their budget when David goes back to work. Thanks to their software, notes Colisa, "we're able to save about 20% of our income."

Managing Your Money On-Line

If you write more than a few checks a month, own investments, file an itemized tax return or have non-reimbursable business expenses, then you're a good candidate for personal finance software, says Pierre Dunagan, account executive, Dean Witter Reynolds in Matteson, Ill. Here are some tips:

Get at least the basic features. That means a program that can handle household budgeting, bill paying, check writing and net-worth tracking. (See Tech Watch, March 1993.)

The best way to prepare your tax return is to use a program designed specifically for that task. Turbo Tax from ChipSoft ($79.95) and Andrew Tobias' TaxCut from MECCA Software ($79.95) are two popular packages. These software programs also have updated tax-law changes.

With the right software and on-line database, your computer can help you pick stocks. ValueLine Publishing's Value/Screen Ill ($325 a year) runs on any IBM-compatible or Apple Macintosh. Stocks are ranked according to their earnings growth and safety. Dow Jones & Co. offers a complete line of software, including Market Manager Plus ($299), a customized portfolio manager that tracks securities, creates financial reports and summarizes your investment position.

If you're hooked up to such on-line services as Prodigy or Compuserve, you can access more than 4,000 stock quotes. Prodigy's Strategic Investor service costs $14.95 a month (plus $14.95 for the basic service plan). CompuServe's service ($12.80 per hour of use), also offers data on some 10,000 companies.

Crafting A Financial Plan

Just over a year ago, Edith Hodge fell victim to every employee's worse nightmare--downsizing. After working for 17 years at MH Anesthesiology Group in Houston, Texas, she got the ax. Edith left the company with 401(k) benefits totaling $100,000. Still, she knew she had some fancy financial footwork to do. "I needed someone who could help me survive being out of work and to tell me where to roll over the money," she recalls.

Like many folks who seek expert advice only when a crisis hits, Edith reached out to a financial planner. Based on a friend's recommendation, the 40-year-old medical collector signed on with The Pathway Management Group, a black-owned firm in Houston.

To help her maximize what little money she had--about $2,000 in savings and $200 a week in unemployment compensation--Edith initially paid $150 for a comprehensive financial plan that included strategies for reducing taxes and creating a personal budget. "My income ($28,500) was cut in half," says Edith. "My planner showed me where I could streamline my spending, yet still save $100 a month."

Her advisor, Patrice Wooten, also recommended that she roll over the 401(k) money into three top-performing Oppenheimer mutual funds: Strategic Income Fund, Oppenheimer Global Fund (world stock) and the Oppenheimer Fund (growth stock). Anticipating Edith's re-employment and a possible tax hike, Wooten suggested putting more than 50% of the money in an IRA to help defer her income. (Indeed, Edith jumped from the 28% to 31% bracket when she was hired six weeks later by the Memorial Neurological Association.)

Back on her feet sooner than she had anticipated, Edith didn't see the need to use her financial planner as much. But then her life crossed another turning point a few months later, when she married her high school sweetheart, Ira Hodge, a 43-year-old aircraft technician at Kelly Air Force Base and Master Sgt. in the U.S. Air Force Reserves. The upshot: She ended up moving 185 miles to San Antonio, where she had to find yet another new job while settling into her new abode with Ira.

Those tasks accomplished, Edith is now seeking advice of a different sort--how to remain financially savvy on two paychecks, or $60,000 a year. Luckily, Ira also sees the benefit of sticking with a pro--someone who can help mend their cumulative financial errors and teach them to avoid new ones.

This turned out to be a smart move, given that Ira had few other investments--namely $6,000 in U.S. Savings Bonds. Investing in savings bonds is "something the military encourages civil service employees to do," he explains. That money is now headed into growth mutual funds.

From here on out, the couple plans to count on Wooten to help mind their wallets. The only hitch: She operates on a fee and commission basis. Wooten will likely earn commissions on any products she recommends (most Oppenheimer funds, for instance, carry a hefty sales load of 5.75%). Still, the Hodges feel the trade-off is worth it: The Oppenheimer Fund, which invests mostly in blue chips, returned 15.5% last year and Strategic Income Fund yielded 12%.

The Hodges feel they make up for the outlay in mutual funds by using discount broker Charles Schwab to buy stock. They've been playing the stock game for less than a year, investing under $1,000 to purchase shares in such companies as Smith Corona, Merck and Sharp Electronics.

The most important thing, says Edith, is that they continue to diversify. "We don't want our funds tied up in one type of investment. Putting the money into different things, hopefully, will get us to where we want to be in the future." Where's that? A cozy ranch house retirement in 10 years.

Choosing A Financial Planner

Everybody needs financial planning, but whether you need a financial planner is another story, says Marv Tuttle, managing director of the Institute of Certified Financial Planners. If you want advice on investments, employee benefits, retirement, insurance or tax and estate planning strategies, a financial planner is for you. Some financial planners specialize in one or more areas--for instance, estate planning, retirement strategies or tax planning.

Some deal with a certain type of clientele, for instance, small-business owners, physicians or female executives. It's up to you to make sure a prospective planner can satisfy your special situation.

You should enter into an advisory contract or engagement letter with your planner before actually working on a plan. This way, you can document the scope and nature of services to be provided. You have the right to see more than one type of written plan.

It's important that you clearly understand how your planner expects to be compensated. You won't pay for advice from commission-based planners. They make their money by charging you anywhere from 0.5% to 2% of whatever you invest. Fee-only planners don't sell commissionable investments so their picks aren't likely to be biased. But their advice can be expensive, with hourly rates often $100 and more. Other planners offer both hourly advice and products for sale. These are called fee and commission planners. No matter who you hire, ask them to spell out how they earn the bulk of their profits, and how much you can expect to shell out over a specific period of time.

Anyone can declare himself or herself a financial advisor. This even applies to brokers, who nowadays seem to prefer this title. To protect your assets, you want a planner who is officially designated as either a CFP (Certified Financial Planner) or ChFC (Chartered Financial Consultant). Also, ask for a disclosure statement, which will tell you the planner's educational background, experience, fees and services.

Make sure your planner informs you of worst-case and middle-of-the-road investment scenarios. Feel free to ask them about track records with other investors similar to you. Be wary of promises of unusually high rates of returns.