Less Is More

"SOMETIMES, YOU HAVE TO GO BACKWARD to go forward." That's my advice to financial advisors in my latest article for Financial Planning. The advice is equally applicable to the typical investor. To get the most out of your money, occasionally you may want to take steps that trim your portfolio's value in the short-term.

Examples? It often makes sense to live entirely off savings in your early retirement years, while delaying Social Security benefits to get a larger monthly check. It might also make sense to sell certificates of deposit, money-market funds and high-quality bonds, and use the proceeds to pay off debt. Your debts are likely costing you more in interest than you're earning on these conservative investments, so you'll be ahead financially, even if your investment portfolio is a tad smaller. Got a year with relatively little taxable income? You might seize the opportunity to convert part of your traditional IRA to a Roth IRA. That may trigger a big tax bill--and hence take a slice out of your savings--but you will enjoy tax-free growth thereafter.