We help you target the best and avoid the worst. By the editors of Kiplinger's Personal Finance November 5, 2012 Investing Initial public offerings HIT: Annie's Inc. (symbol BNNY), a distributor of natural foods, opened March 28 at $36 and now fetches $46—for a tidy 28% gain (prices and returns are through October 4). The Berkeley, Cal., company makes organic and healthier versions of comfort foods, such as macaroni and cheese, and is expected to generate robust annual earnings growth of 25% over the next few years, thanks to trends toward healthy eating. But the stock has gotten pricey, trading at 45 times estimated earnings for the fiscal year that ends March 2014.SEE OUR SLIDE SHOW: Fabulous Freebies 2012 Advertisement MISS: There were newly minted stocks that lost investors more money than Facebook (FB)—at least on a percentage basis—but none were more costly in raw dollars. After going public at $38 last May, Facebook saw its shares peak at $45 on the first day of trading, briefly giving it a market value of more than $100 billion. But insider selling and disappointing results have pushed the stock down to $22, slicing the Menlo Park, Cal., company's value by a cool $47 billion. Stocks HIT: The year's best and worst performers (not including penny stocks) were rags-to-riches and riches-to-rags stories. Arena Pharmaceuticals (ARNA), a money-losing San Diego biotechnology company, saw its stock soar 369% in 2012, from less than $2 to $9, thanks to its anti-obesity drug Belviq, which won U.S. Food & Drug Administration approval in June. But don't expect a repeat performance. The company still needs to clear hurdles before marketing the drug, and analysts expect Arena to continue to lose money through 2013. Advertisement MISS: The worst performer of 2012 was a familiar name: Groupon (GRPN). The ubiquitous Chicago-based provider of daily deals went public in November 2011 amid great fanfare, but it has since been buffeted by increased competition from the likes of Amazon, Google and Living Social. Worse, merchants are increasingly dissatisfied, saying that Groupon customers spend too little and don't come back. The stock, which traded for more than $19 in January, now trades for less than $5. Mutual Fund Managers HIT: Will Danoff has his hands full running $87 billion Fidelity Contrafund (FCNTX). But during his 22 years at the helm, he has demonstrated an agility that belies the fund’s immense size. Contra's 13.1% annualized return over the past 20 years beats the S&P 500 by an average of 3.6 percentage points per year. In the mid '90s, Danoff trailed the index for four straight years. The large-growth fund held 700 names, and critics called it fat at $20 billion. But Danoff adjusted. He now holds fewer stocks (some 337 at last word) and he lets his winners ride: Apple recently accounted for 9.9% of the fund's assets. Advertisement MISS: Then there's Henry Van der Eb Jr., the perpetually bearish manager of Gamco Mathers AAA (MATRX). His pessimism paid off in 2008, when Mathers eked out a 0.2% return while the S&P 500 plunged 37%. But in six of the past ten calendar years (including 2012), his fund spilled red ink. As a result, Mathers lost an annualized 1% over the past ten years, which puts it at the bottom of the conservative-allocation category. Online Brokers HIT: E*Trade. Its revamped Web site wows. You can customize the view of your account page by clicking and dragging windows around. For example, want your market news at the top and portfolio summary on the right? Just click a button. Plus, stock quotes update as they change, in streaming real time. The firm wins, too, because of its numerous investment offerings, including 50,000 bonds. Advertisement MISS: ING Direct ShareBuilder makes it easy to start investing—there's no minimum to open an account and you can buy individual stocks and ETFs for as little as $4 per trade. But it sank to the bottom of our latest broker survey. The biggest drawback: You can't buy or sell bonds. Newsletters HIT: Value Line Investment Survey ($598 per year) gives you access to research on 1,700 U.S.-listed stocks. Value Line's reports include pithy syntheses of analysts' opinions, plus a wealth of data on companies' balance sheets, profitability and stock-price valuation. On average, the letter's model portfolios gained 5.4% annualized over the past ten years through September. Other letters returned more, but few give subscribers more value. MISS: Had you stashed $1,000 in the picks of Doug Fabian's ETF Trader over the past decade, you would have just $76 today. Trader's whopping 22.7% annualized loss over the past ten years makes it the worst performer among all letters tracked by the Hulbert Financial Digest. Fortunately, the $995-a-year newsletter recently changed hands and is now called Chris Versace's ETF PowerTrader. Kiplinger Calls HIT: Kiplinger's began 2012 with a bullish call on stocks, predicting a 9% return—a markedly optimistic prediction at a time when volatility ruled and nearly everyone had soured on stocks. Midyear, we bumped our prediction to 15%, and worried that we might still be too conservative. Year to date through October 4, the S&P 500 stock index was up 16%, and dividends added another two percentage points to the return. MISS: We said that the yield on ten-year Treasury bonds could approach 3% by year-end—the second year in a row we forecast a rise in long-term rates. Wrong. Ten-year Treasuries now yield 1.7%. Page 2 of 11 Online Advice HIT: Financial Engines, designed by Nobel Prize–winning economist Bill Sharpe, is a useful program for do-it-yourself investors who want to know whether their retirement-savings plans are on track. Once you've provided information about your savings and investments—and in most cases, you can link the program to your accounts—you'll get an estimate of your retirement income. If you come up short, the tool offers suggestions, such as increasing 401(k) contributions or taking more risk, and shows you how the changes would affect your retirement prospects. The cost is $150 a year; it's $300 if you want to include taxable accounts. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: Smart401k will review your 401(k) plan (or other workplace plan) and make personalized recommendations. Smart401k also has financial planners available to answer questions. But it doesn't cover most IRAs, employee stock options or taxable accounts. At a cost of $200 a year, those are expensive omissions. Page 3 of 11 Retirement IRAs HIT: The best brokerage firm for your IRA—one with a wide range of investment choices and no annual fee or minimum to open an account—is TD Ameritrade. MISS: TradeStation charges $35 per year to host your IRA and $50 when you close your account. SEE THE COMPLETE LIST: Hits and Misses of 2012 Tax-Friendly States HIT: Alaska. Retirees feel toasty just thinking about the tax breaks. Alaska has no state income tax and no statewide sales tax. Real estate taxes and home prices can be high, but homeowners 65 and older get a break on property taxes. MISS: Connecticut. You can exclude Social Security benefits from state income taxes only if your adjusted gross income is less than $50,000 ($60,000 for couples). Out-of-state government and civil-service pensions are fully taxed (although half of military retirement pay is excluded from taxes). And residents pay the second-highest property taxes in the U.S., according to the Tax Foundation. Target-Date Funds HIT: Target-date funds hold a mix of assets geared to your investment time horizon. The mix gradually shifts to become more conservative as you near the target date. All 12 target-date funds at Vanguard carry shockingly low expense ratios of 0.17% to 0.19%, helping to boost nine of them to the top 20% of their categories over the past three years. MISS: The five funds in the DWS LifeCompass Target-Date Fund series stink. In nearly every calendar year since 2007, each fund has ranked well below average relative to other TDFs in their peer groups. The problem: a shortage of solid DWS funds with which to stock the target-date series. Page 4 of 11 Banking and Credit Cash-Back Cards HIT: With the American Express Blue Cash Preferred card, earn a generous 6% rebate on every dollar spent on groceries (1% on supermarket purchases above $6,000 annually), 3% on gas-station and department-store purchases, and 1% on all other spending with no limit on the amount you can earn. Charge $20,000 and you could earn more than $500, justifying the $75 annual fee. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: The Discover Motiva card pays only 0.25% on annual spending up to $3,000 and 1% after that. Rewards Cards HIT: The Chase Sapphire Preferred card gives you two points per dollar on travel and dining, one point per dollar on all other purchases, and 40,000 bonus points if you spend $3,000 in the first three months. You can use points for cash (100 points equal $1), gift cards, merchandise and travel. The $95 annual fee is waived the first year. MISS: The Capital One Sony card sounds great—five points per dollar spent when you buy Sony items (three points for restaurants and movies and one point for all other purchases), but you usually must submit a form after each purchase to receive the full five points. Prepaid Cards HIT: Newcomer Bluebird Prepaid card from Wal-Mart and American Express doesn't charge an activation or monthly maintenance fee, has online bill pay and lets you deposit checks with an app. Authorize up to four users with custom spending limits. Withdrawals are free at 22,000 ATMs, but only with direct payroll deposit. MISS: The Magic Prepaid MasterCard, endorsed by basketball great Magic Johnson, charges outsize fees: $4.95 to activate and $4.95 a month. Credit-Score Sites HIT: Go to Credit.com for a free estimate of your FICO score and the credit-bureau-designed VantageScore, along with Experian's PLUS score. The majority of lenders use FICO scores, so if you're in the market for a loan, go to www.myfico.com and pay $20. MISS: Besides assaulting TV viewers with its ads, Freecreditscore.com can quickly add up to big bucks. It gives you a free PLUS score with a trial subscription to a credit-monitoring service. But if you don't cancel in seven days, you'll pay $15 a month. Places to Stash Cash HIT: The Sallie Mae Money Market account pays 1.05% with no monthly maintenance fee and no minimum-balance requirement. MISS: Fidelity Tax-Free Money Market (FMOXX) recently yielded 0.01%, a dismal yield even for the dismal money market sector. (Even tax-equivalent yields are low, at 0.01% for the 25% bracket and 0.02% for the 35% bracket.) Interest Checking HIT: Lake Michigan Credit Union's Max Checking account has no monthly fees or minimum-balance requirement, and it pays 3% interest on balances of up to $15,000. To earn the rate, you have to have one direct deposit and make ten debit card purchases per month, plus meet a few other requirements. LMCU refunds up to $15 a month in surcharges if you use ATMs outside its network. MISS: Like most big banks, Chase is heavy on fees and light on interest. It pays a paltry 0.01% on its Premier checking accounts—and if you don't meet transaction or minimum-balance requirements, you'll pay $25 per month in maintenance fees. Online Banks HIT: A checking account at Ally Bank pays 0.4% or 0.75%, depending on the balance; the bank's savings and money market accounts offer 0.95%. None of those accounts require minimum balances or charge maintenance fees. Plus, Ally refunds all ATM fees. By the end of 2012, Ally plans to introduce remote check deposit. MISS: At 0.22% for a checking account, 0.32% for a savings account and 0.22% to 0.53% for a money market account, rates at Ascencia aren't competitive with those of top online banks. And its $29 overdraft fee rivals that of the big banks. Page 5 of 11 Budgeting Sites HIT: Ten million users have picked Mint.com as their go-to site for money-management help. You link it to your financial accounts by providing your user names and passwords (the site uses bank-level security), and Mint automatically tracks your spending. Its Trends tool uses colorful charts to show where your money goes. With the Budget tool, you limit how much you can spend on a given category each month. And with the Goals tool, you set target amounts and dates for achieving financial goals, such as paying off a credit card or saving for retirement. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: We may have mentioned MySpendingPlan.com in March 2007, as the site points out, but that doesn't mean we endorse it. Just signing up is a tedious process, starting with an interview that mostly pushes products at you. If you get through the setup, you'll find the site confusing, slow and riddled with error pages. Page 6 of 11 College Planning Savings Strategies HIT: State-sponsored 529 savings plans let your investments grow tax-free, and the earnings escape taxes if you use the money for qualified college expenses, such as tuition and room and board. Most states offer a tax break for contributions. The plans set no income limits and a high limit on contributions. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: Custodial accounts. Known as UGMAs (for the Uniform Gifts to Minors Act) and UTMAs (Uniform Transfers to Minors Act), these accounts let you hold assets in trust for your child; you manage the account until he or she reaches the age of majority. Problem: At that point, the kid can use the money for anything, including a yearlong vacation. And student assets count much more heavily than parental assets in financial aid formulas. Earning Potential by Major HIT: Of the top ten majors for salary potential in Payscale.com's most recent survey, six were in engineering, starting with the number-one major, petroleum engineering. College grads with an undergraduate degree in that field earn a median starting salary of $98,000, according to Payscale.com; mid-career professionals pull in a median salary of $163,000. MISS: Child and family studies. As worthy a calling as it is, working with kids doesn't pay much. Of the 130 majors on Payscale.com's list for salary potential, this major—which trains day-care providers and preschool teachers—comes in dead last. The median salary for college grads with a degree in the field starts at $29,300 and inches up to $37,700 after 15 years. Debt Level by Major HIT: The more you earn, the more manageable your debts. If you major in engineering, you'll likely earn enough money even as a new graduate to keep your monthly payments well below 10% of monthly income—the benchmark for manageable debt. According to TG Research and Analytical Services, based on data from the National Center for Education Statistics, engineers just out of college pull in a median monthly income, after taxes, of $3,250 and pay a median $229 a month toward their federal student loans—putting their debt-to-income ratio at 7%. MISS: Literature may be food for the soul, but humanities majors will be hard-pressed to put food on the table and still make their student-loan payments. According to the NCES survey, humanities majors just joining the workforce earn a median monthly income of $1,300 after taxes and pay 18% of that income—or $237 a month—toward student loans. Page 7 of 11 House and Home Change in Home Prices HIT: Home prices in the Phoenix metro area rose by a whopping 23.9% in the year ended July 31, 2012, topping the list of 315 cities tracked by home-price data gatherer Clear Capital. Investors drove the increase, but homeowners will also benefit after experiencing a home-price decline of 53.1% since the housing market peaked in 2006. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: Memphis earned last place, with a 12% drop in prices over the past year. Although home sales have begun to pick up, just less than half of them are foreclosures, according to Clear Capital. The local economy has been slow to recover, and unemployment slightly exceeds the national average. Mortgage Sites HIT: If you anonymously provide information (including the property's purchase price, zip code, loan amount and your FICO credit score) to Mortgagemarvel.com, it will provide several rate-and-fee quotes it draws from 230 participating lenders. Choose an offer and file a secure, online loan application. MISS: More than 300 lenders pay Lending Tree to get marketing leads. You must give contact information, and you may receive annoying sales pitches and lowball offers. Insulation HIT: If you add attic insulation (as well as seal air leaks), you can cut heating and cooling bills by an average of $202 annually. You could use more insulation if what you have now is level with or below the attic floor joists. With a job cost of $1,000 and annual energy savings of $200, you'd recoup your money in five years. MISS: A radiant barrier is sometimes sold as a miracle cure for high heating and cooling bills—even in cold climates, where it is least cost-effective. A thin layer of highly reflective material, usually aluminum, is installed under the roof trusses or over existing insulation on the attic floor to keep your attic cooler when the weather is sunny. Typical cost: $1.50 to $2 per square foot. Typical savings: 2% to 10% of the cooling portion of your electric bill, or an average of $8 to $37 a year. Lighting HIT: LED bulbs that are Energy Star–labeled are rated to last 22 years (based on three hours’ use a day) and use about 80% less energy than incandescents to produce the same amount of light. The cost is currently $15 to $40 per bulb, but it’s falling. The Department of Energy says that the average household that replaces 15 incandescent bulbs with LEDs will save $50 a year on energy bills. MISS: Incandescents convert just 10% of the electricity they use into light and radiate the rest as heat. In order to meet new federal standards for energy efficiency, manufacturers have begun to phase them out. Appliances HIT: Replacing a standard electric water heater with an Energy Star–qualified heat-pump water heater ($1,000 to $1,600 for a 50-gallon model) will save the average family $290 annually, and the savings will offset its higher cost in two to four years. MISS: Replacing a refrigerator (with top-mounted freezer and 20 cubic feet) manufactured between 2001 and 2008 will save just $14 annually. (But ditching a circa-1980s fridge in the garage will save $142 annually.) Home Improvements HIT: It's not the most exciting project, but fiber-cement siding won Remodeling magazine's 2011–12 "Cost Versus Value" comparison of 35 popular home improvements. Replacement of existing siding (1,250 square feet) with a fiber-cement product (such as HardiePlank) cost $13,461 and recouped 78% at resale. Fiber-cement siding, which can look like wood clapboard, is noncombustible, termite- and water-resistant, and typically comes with a warranty of 30 to 50 years. MISS: A home-office conversion returned the least—43% of a job cost of $27,963. The project included painting and carpeting a 12-by-12-foot room; installing custom cabinets, a desktop and a computer workstation; and rewiring. Page 8 of 11 Shopping Deals Grocery Savings HIT: Safeway's "Just for U" coupons download to your loyalty Club Card from online or the app. See something tasty on the store shelf? Search the app for an instant coupon. Available at partner chains, such as Vons and Randalls. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: Whole Foods. More like "whole paycheck," its products might be cage-free and gluten-free, but high prices and no free loyalty rewards program make this chain a no-deal. Sports Tickets HIT: StubHub helps you score deals on the secondary market, with fees mirroring competitors' and a large selection. The best deals appear a few days before game day. MISS: Leave early box-office purchases to the impatient super fans. By buying tickets 90 days before game day, you'll pay 50% more than if you bought tickets 24 hours in advance, says SeatGeek.com. Daily-Deal Sites HIT: Scoutmob doesn't require you to purchase a coupon until checkout—so you don't have to remember to use it. MISS: Groupon. We've soured on the laser-hair-removal and knitting-class deals. Delete, delete. Shoes Online HIT: Zappos offers free shipping and returns. Those in the free VIP club earn next-day delivery at no charge. MISS: Macy's charges for shipping on orders up to $99; mailed-in returns aren't free, nor are deliveries to the store. Page 9 of 11 Technology Web-to-TV Streaming HIT: The Roku box, starting at $50, streams more than 500 entertainment channels, including Amazon Instant Video, Netflix and Hulu Plus. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: Google TV lacks Hulu Plus on its lineup, and compatible streaming boxes are $100 or more. On-the-Go Internet Plans HIT: Virgin Mobile, which operates on Sprint's data network, charges $35 monthly for 2 gigabytes of 3G data or $55 for 5GB of data with a no-contract Broadband2Go plan. If you're in a 4G service area, you get unlimited 4G data. MISS: Toast.net also sells no-contract plans that run on the Sprint network—but it charges $40 for 2GB per month or $60 for 4GB, and it offers no 4G coverage. Free Office Software HIT: LibreOffice, the creation of former top developers of Apache OpenOffice, has become the front runner among free software for producing documents, spreadsheets, slide shows and more. MISS: The brain drain at Apache OpenOffice means it has lagged in development. It has more bugs and fewer features than LibreOffice. Music Streaming HIT: Songza streams playlists to its Web site and iPhone and Android apps. Best part: no audio ads. MISS: Pandora bases playlists on an algorithm but has poorly selected tracks and ad overload. Tablets for Kids HIT: For kids 5 and older, get the Kindle Fire ($159). Amazon beefed up the parental controls for this version of Fire. The $199 Fire HD version includes Kindle FreeTime, which allows you to set time limits for tasks such as reading or playing games. MISS: Any of the tablets geared for kids under 10. They cost between $80 and $200, but the range of choices for apps and books are few and far between. Page 10 of 11 Cars, New and Used Fuel-Friendly HIT: When you compare ownership costs of uber-green choices, the Toyota Prius ($24,795) is still a better bet than an electric car or plug-in EV. Vincentric, an automotive-data firm, pegs the Prius's five-year cost at $34,480. SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: The Chevrolet Volt ($39,995) has a high sticker price and costly maintenance and repairs. Plus, when the battery runs out of juice and you have to use gas, it takes premium. Its five-year cost is $40,231. Family Sedans HIT: At the top of Kiplinger's 2012 value rankings for family sedans is Toyota's redesigned Camry Hybrid LE ($26,785). It boasts high resale values and a revamped hybrid system that boosts power and fuel efficiency. MISS: Mitsubishi Galant SE ($25,094) is the lowest-ranked family sedan, with tepid power, so-so fuel economy and a tiny trunk. Midsize Crossovers HIT: A perennial Kiplinger's favorite, the best bet in this class is the Lexus RX 450h ($46,110). It features top-notch safety plus luxury and is the most fuel-efficient choice in the segment. MISS: The Nissan Murano CrossCabriolet ($45,365) sinks to the bottom spot with poor fuel economy, a cramped back seat and a price that’s hard to justify. Reliable Used Cars HIT: According to J.D. Power's 2012 study of three-year-old models, Lexus is the most dependable brand, with only 86 problems per 100 vehicles—well below the industry average of 132. MISS: Chrysler is the least dependable brand, falling far short with 192 problems per 100 vehicles. Used-Car Pricing Sites HIT: The Appraise Your Car tool on Edmunds.com lets you input options, miles and condition and gives you a customized quote based on actual transactions. MISS: At Kelley Blue Book's KBB.com, the retail price is described as "the starting point for negotiations." In other words, no one expects you to pay that much. Page 11 of 11 Airlines and Hotels Frequent-Flier Programs HIT: American AAdvantage makes it easy to earn miles through its partner airlines, credit cards and retailer relationships. Plus it’s straightforward to upgrade from low-fare economy to first class with 15,000 miles plus fees. (If American merges with another airline, AAdvantage miles would likely combine with the merger partner’s program.) SEE THE COMPLETE LIST: Hits and Misses of 2012 MISS: Delta Skymiles' unfriendly change policy wipes out the points you used for the flight when you switch or cancel within 72 hours of takeoff. Airline Baggage Handling HIT: Virgin America has logged less than one lost luggage report for every 1,000 passengers so far in 2012. MISS: Pack an extra toothbrush in your carry-on when you fly American Eagle Airlines. The Eagle racked up nearly six lost luggage reports per 1,000 flyers. On-Time Airlines HIT: Hawaiian Airlines gets you to your gate on time, with 95.5% of flights arriving on schedule and the lowest rate of canceled flights. MISS: American Airlines has you sprinting to meet your connection, with only 59.1% of its flights arriving on time. Hotel Review Sites HIT: Critics penning a review on Booking.com must purchase a room first. The site breaks down scores based on cleanliness, comfort, value and other criteria. MISS: Yelp.com lets any Tom, Dick or Harry Hotelier post reviews, which can call into question the honesty and motive behind the write-ups.