In a quandary about credit cards, insurance, mutual funds?

NEA Today, Jan 2000 by Rowland, Mary

Q: I've run up a big balance on my credit card. Does it make sense to shift it to a low-rate card?

A:Perhaps. There is a lot of competition in this marketplace, and you should be able to got a good rate. But there are some pitfalls, too. Before you transfer your balance, promise yourself that you'll stop spending and work on paying down the balance.

If you see the low rate as a now opportunity to spend, you'll be defeating your purpose.

You should also know about the hidden fees that might be lurking behind a low interest rate. For example, some card issuers charge a fee of 2 to 4 percent on the balance you transfer. Don't accept one that does.

Check, in addition, to find out what fee you'll be charged for new purchases. The card issuer may be using the low rate as a lure, with plans to charge you 17 to 19 percent on new purchases. And be careful about penalty fees, which can be applied to a whole range of things, everything from late payments and bounced checks to charges that go over the limit.

If your payment is just one day late, some card issuers will hike the interest rate-to 20 percent or more. They use the low fee to get your business and then stick you with a high fee when you're not paying attention.

Other hidden fees: Extra charges-maybe 4 percent-and higher rates for cash advances than for other charges and a special fee for those who don't carry a balance.

Q: I rent an apartment. Do I need homeowner's insurance?

A: Yes. although it's actually called renter's insurance for you. You need it for the following two reasons.

First, for liability purposes. If people are injured in your apartment, they can sue you. Your renter's insurance will protect you. Second, you need insurance on your personal belongings.

I remember when I was working at my first job at the Kansas City Star. My friend, a travel writer, was off on a trip when her apartment was totally stripped-every knife and fork and towel and shoe and pair of sox and underwear, as well as her television, audio equipment, books, and jewelry.

My friend didn't have insurance, and she had to start from scratch.

Renter's insurance is also good because it covers most of the belongings you carry with you when you're traveling.

Q: How often should I reView my mutual fund portfolio?

A: Once a year. January is a good time. As you know, you shouldn't be looking your funds up in the newspaper every day, panicking and second guessing yourself. But January is a good time to determine how your funds have performed and to rebalance your portfolio.

Collect all your statements, including those from the end of 1998. Many statements show you what percentage of your account is in each fund and what portion is in stocks, bonds, and cash. If your statement does not, do it yourself. Then look at your actual asset allocation to see how it has diverged from your target strategy.

For example, suppose you decided on a simple allocation: 65 percent in stocks and 35 percent in bonds. Because stocks did well,last year and bonds did poorly, maybe you're now 68 percent in stocks and 32 percent in bonds.

In that case, you need to rebalance by putting more money into bonds and less into stocks until you've reset your allocations. This is one of the most difficult things for investors to do. It's much easier to buy the recent winner than the recent loser.

This is also the time to make certain each fund is doing what it is supposed to do. Calculate the overall performance of your portfolio and compare it with market indexes. Then separate your account into categories like stocks, bonds, and cash and compare each category to that market. If the value of your stock account is up 10 percent and the market is up 20 percent, you want to know why.

Examine each fund to see how it did compared to its peer group. Look at the fund's annual report to read what the portfolio manager says about performance and expectations. Was this one bad year for the fund? Or the second or third?

I believe you should be a patient and careful investor. I will hold onto a lagging fund if I believe I picked it for the right reasons. But three consecutive years of subpar performance tells me I should throw in the towel.

-Mary Rowland

Mary Rowland is a regular contributor to several major financial planning magazines.