MONEY Ask the Expert

How to Invest an Inheritance

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’m 22 years old and inherited quite a bit of money from a parent who passed away. What is the best thing to do with the money in terms of investing and long-term growth? — Val

Step One:
Before all else, you want to look at how this money fits into your overall finances, says Ken Moraif, a certified financial planner and senior advisor with Dallas wealth management firm Money Matters.

Do you have high-interest debt, such as a car loan or credit cards? If you do, it makes sense to use some of this gift to pay off the debt, says Moraif — but don’t use it as a license to overspend.

On the other hand, if you have a mortgage outstanding, hang onto that. After factoring for low rates and tax deductions for interest on that loan, your inheritance is better put to work elsewhere. Ditto for student loans, for which interest may also be tax deductible.

Step Two:
Take a look at your cash cushion. If you don’t have one, consider tucking away a small portion of your inheritance in a savings account. Ideally, you want to set aside enough to cover three to six months of expenses. By keeping some cash on the sidelines, you won’t have to tap your investments (perhaps at an inopportune time) if you get into a bind.

Step Three:
Before you think about specific investments, you’ll want to figure out the best investment vehicle for you. If you have access to a tax-advantaged 401(k) retirement plan, bump up your contributions so you’re on track to contribute the maximum ($18,000 in 2015).

The money will need to come from your paycheck, says Moraif, but you can use some of your inheritance to supplement your income if need be. Likewise, you can also set up a Roth IRA and tuck away up to $5,500 a year.

In a Roth, you won’t be able to make tax-free contributions, but your investments will grow tax free and won’t be subject to tax when you withdraw – assuming you do so after age 59½. “You want to take full advantage of any tax breaks,” says Moraif. “Those are grand slams.”

Step Four:
With the ground work laid, then you can finally look at where exactly to invest your money. The answer will depend on how much you inherited and how much you ultimately think you need.

If you are looking for a single place to park your inheritance over the long term, look for a low-cost index fund that offers broad, inexpensive exposure. The Vanguard Total Market Index fund (VTSMX), for example, holds more than 3,700 U.S. stocks of all sizes, across virtually all sectors.

This is a good place to start, but you will eventually want to look at further diversifying with international stock fund, alternative funds and even bond funds. If your retirement plan or brokerage offers target-date funds, this is one way to get the right balance. These funds base their allocation (mix of stocks and bonds) for your target retirement age and automatically shift the allocation as you get closer to your retirement date.

Of course, depending on just how large of an inheritance you’re talking about, you may want a more tailored allocation – one that is just aggressive enough to get your nest egg to where you need it.

“Your asset allocation should be a function of your hurdle rate,” he says. “You only want to take as much risk as is necessary to accomplish your financial goals.”

Read next: Buying or Selling a Home in 2015? Here’s What You Need to Know

MONEY IRA

How to Use Your Roth IRA to Buy Foreign Stocks

Investing illustration
Robert A. Di Ieso, Jr.

Q: I would like to invest in foreign stocks and LLPs within my Roth IRA. Do I need to file any special forms at the end of the year? Are there any type of investments within the Roth that would not require a special filing? — Tom

A: Depending on what’s available in your Roth IRA or whether you have a self-directed Roth, there are any number of investments you can own beyond the usual stocks, bonds and funds. But just because you can, doesn’t mean you should.

Let’s start with the question of foreign securities. Assuming you’re able to buy stocks listed on foreign exchanges in your Roth — policies vary from brokerage to brokerage — you will need to file IRS Form 8938 to report these foreign assets, says David Lyon, CEO of Main Street Financial in Chicago.

One way to avoid having to file this paper work, among other headaches, is to stick with foreign stocks that are available to U.S. investors as American Depository Receipts, or ADRs. Most of the largest foreign companies have ADRs, which trade on U.S. exchanges and in U.S. dollars, and don’t require the additional paperwork, though there may be other tax considerations.

As always, consider how any such holdings fit into the bigger picture of your portfolio. By all means, you want exposure abroad, but buying individual securities on your own, a la carte, may not yield the best results over the long run.

To wit, a much easier way to gain exposure to foreign companies is via an exchange-traded fund or mutual fund that invests in foreign stocks on your behalf, says Lyon. For broad market exposure, he likes the Vanguard FTSE All-World ex-U.S. ETF (ticker: VEU). As the name indicates, this low-cost fund gives you broad, diversified global exposure, ranging from the developed markets of Europe and Japan to emerging markets in Asia, Latin America and the Middle East.

If you’re looking for a more targeted approach, you can find ETFs that specialize in just one sector of the global economy, or one region of the world, or even one country.

Similarly, if you hold a limited liability partnership (LLP) in your Roth IRA you will need to fill out Form 990-T for unrelated business taxable income.

That said, you probably don’t want to invest Roth IRA assets in an LLP. The reason: “Essentially you’ll be taxed twice,” says Lyon. In addition to first paying tax on the contributions you make to the Roth, he says, you will be taxed on LLP income above $1,000 a year. He adds: “Investors are typically better off focusing their investable assets in traditional investments that allow them to take full advantage of the tax deferred growth and tax free distributions.”

 

MONEY Ask the Expert

If You Only Have One Investment, This Is the One You Need

Investing illustration
Robert A. Di Ieso, Jr.

Q: Which is a better long-term investment — a Nasdaq index fund or an index fund that tracks the Standard & Poor’s 500? — James

A: A Nasdaq fund could “play a supporting role in a diversified portfolio,” says Leslie Thompson, a financial adviser and principal at Spectrum Management Group in Indianapolis. But if you’re going to pick just one index fund for the core part of your portfolio, you’re better off buying a mutual fund or exchange-traded fund that tracks the Standard & Poor’s 500,” she says.

Why?

Before getting into the details, let’s start with the basics.

Rather than picking and choosing “the best” securities to own, index fund simply buy and hold all the securities in a given market. By avoiding the stock selection process, index funds give you broad-based market exposure while being able to charge low expenses, which is a good thing.

The downside of this approach, of course, is that you won’t ever “beat the market” or finish at the top using this strategy. In fact, by owning all the stocks in a market, you will by definition get average market returns. However, this also means you will never badly lag the market either.

If you opt for this strategy, the market you choose to index is a critical decision.

The S&P 500 is considered the broadest of the best-known U.S. stock indexes.

The S&P 500 tracks the 500 largest, most liquid stocks listed on the New York Stock Exchange and the Nasdaq — and across a spectrum of industries. “For a long-term core holding, the S&P 500 better represents the economic environment providing more diversified exposures to all sectors of the U.S.,” Thompson says.

By contrast, the most popular Nasdaq index, the Nasdaq 100, tracks about 100 of the largest non-financial companies that are listed on the Nasdaq. It’s considerably less diverse, with technology companies accounting for about 60% of its weighting, says Thompson. It’s also extremely top heavy. “Just two companies, Apple and Microsoft, make up 23% of the index,” says Thompson. The top 10 stocks, meanwhile, account for about half of the entire index versus less than 20% for the S&P 500.

This tech focus hasn’t been such a bad thing over the last decade, when it comes to performance. The USAA Nasdaq Index 100 mutual fund is up an average of 10.6% a year over the last 10 years, nearly three percentage points a year more than the Vanguard 500 Index fund.

The tradeoff: potentially more volatility.

You’ll recall that when the dot.com bubble burst in 2000, Nasdaq stocks took a much bigger hit than the S&P 500. The downside for the Nasdaq 100 hasn’t been as extreme over the last decade, says Thompson, but this isn’t the norm. Keep in mind too that the Nasdaq composite index has yet to surpass its all-time peak of more than 5,000 which it reached in 2000.

The index’s strong performance of late, moreover, has been the result of outsize results from just a handful of companies. (You can probably guess which ones.) If and when these stocks tumble, so too will the index.

 

MONEY asset allocation

How Much Stock Is Too Much? Here’s a Quick Rule of Thumb

Investing illustration
Robert A. Di Ieso, Jr.

Q: My wife and I are 54 years old and we still have about 94% of our retirement savings in a variety of stock mutual funds and ETFs. Should I begin moving some of that to bond funds? — Gary Wirth, Pittsburgh

A: Assuming you and your wife are still more than a decade away from retirement, you’ll want to keep the bulk of your investments in stock funds and ETFs.

Even so, your 94% allocation to equities is on the high side at this stage of the game, says Mitch Tuchman, managing director of Rebalance IRA, a national independent investment advisory service that specializes in asset allocation.

At this point, while you’re still working and accumulating savings, adding bonds to your portfolio isn’t as much about earning income as it is giving your investments some ballast in case the stock market goes topsy turvy — as it did briefly in late September and early October.

The question then isn’t if you need some additional bond exposure, but how much more?

Most experts, including Tuchman, do not recommend relying on the old rule of thumb that says the percentage of your portfolio in fixed income should equal your age. According to that old standard, 54-year-olds ought to keep 54% of their portfolios in bonds while holding a minority of their money in equities.

That rule doesn’t apply for a couple of reasons, says Tuchman. First, people are working longer and living longer. Second, you have to consider the environment you’re in. With bond yields as low as they are, for as long as they’ve been, there is a real risk interest rates will go up.

Why is that bad?

Market interest rates move in the opposite direction of bond prices. When rates rise, prices on existing bonds in a portfolio will likely go down. In theory, this means you could lose money in bonds when this shift takes place.

Your target allocation to bonds will also depend on other factors, such as how long you and your wife plan to keep working and your emotional tolerance for market swings. If you lose sleep and make rash choices (i.e. move to cash) when the market dips, you should probably own a larger helping of bonds.

With all that said, Tuchman suggests a good target for you and your wife is about 15% in bonds. He recommends divvying that up among high-quality corporate bond funds, high-yield funds, and emerging market debt funds. “Those groups still pay a reasonable amount of interest and, for various reasons, are a better hedge in a rising rate environment,” he says.

Having 15% of your portfolio in bonds may still seem like an aggressive stance.

Keep in mind, though, that Tuchman is not saying that the rest of your investments belong in equities.

In addition to the bond holdings, Tuchman says it’s also a good idea to allocate 5% to 10% of your total portfolio to real estate — in the form of real estate investment trusts — and another 5% to 10% to dividend-paying stocks, which are considered more conservative than other types of equities.

As for the remaining 70% or so of your portfolio, make sure that’s well diversified among large-cap stocks, small-cap U.S. shares, foreign equities, and emerging-market stocks.

This mix should get you through the next several years, says Tuchman, who at 58 adheres to a similar strategy in his own portfolio.

Read more on asset allocation:

What is the right mix of stocks and bonds for me?

MONEY capital gains

How the IRS Taxes Stock You Didn’t Buy

Investing illustration
Robert A. Di Ieso, Jr.

Q: I received some shares of stock some years ago that were given to me as part of an agreement through a class-action lawsuit. Do I have to pay taxes on these shares when I sell? — Bob from Livingston, Tex.

A: In most instances, you would, says Michael Eisenberg, a certified public accountant in Los Angeles.

When you receive stock in lieu of cash for payment for services rendered or, in this case, a settlement, you’ll first owe income tax based on the value of the stock at that time. “Compensation is compensation, whether it’s cash or stock,” says Eisenberg. “It’s considered ordinary income.”

If you later sell the stock for a profit, you’ll also owe capital gains tax. How much you owe is based on the difference in value from the time you received the stock and the time you sold it, after accounting for such things as dividends, stock splits or capital distributions. This is called “basis.”

If you own the stock for less than 366 days – one year plus a day – your capital gains rate will be based on your income tax rate. If you own it longer, you’ll pay a lower rate.

Taxpayers in most brackets are taxed at 15% for long-term gains. Those in the 10% or 15% bracket may owe no long-term capital gains tax, while those in the 39.6% rate will need to pay up at 20%.

Are there any exceptions?

If for some reason this stock was given to you as a result of a class-action related to your retirement account, you may not owe tax. “If the stock settlement was applied to your IRA, it wouldn’t be taxable,” says Eisenberg, though such an example is pretty rare.

What if you receive stock as a gift or an inheritance?

In this case, you won’t owe income tax on that gift. You will, however, still owe capital gains tax when you sell.

If the stock is part of an inheritance, your capital gains rate will be based on the value of the stock at the time the original owner passed away. If your Granny gifts you stock while she’s still alive, however, your basis is based on when she bought the stock.

MONEY Ask the Expert

Knowing How Many — or Few — Funds to Own

Investing illustration
Robert A. Di Ieso, Jr.

Q: I have an $800,000 portfolio. How many mutual funds should I own? — Lynn

A: The optimal number of funds will vary depending on your time horizon, tolerance for risk, and exactly what kinds of funds you choose.

That said, if you’re looking to build and manage a diversified portfolio of exchange-traded funds (ETFs) or index mutual funds on your own, a good number is either six or 10, says Bill Valentine, president of Valentine Ventures, a Bend, Ore.-based wealth management firm. This is true, he says, whether you have $800,000 or a more modest portfolio.

Anything more than that many funds will “do nothing for diversification,” Valentine says, and will only add cost and complexity to your strategy.

Let’s start by discussing the whole notion of diversification. To get the best balance of risk and reward, you’ll want to invest in lots of securities across many different asset classes. Investing in ETFs or index mutual funds takes care of the first critical point of diversification since most such funds are composed of hundreds of different securities.

Even so, a single fund focused on a single asset class won’t provide you adequate diversification. Likewise, investing in six funds that all hold, say, large blue chip U.S. companies won’t improve returns, and may even detract from them.

“It’s important to blend asset classes than don’t act too similarly to each other, otherwise you’ll lose the benefit of diversification,” says Valentine.

If you’re young and have a long time horizon, you may not own bonds in your portfolio. Valentine says you’ll still want to spread your bets across six primary investment classes.

They include U.S. large cap stocks, U.S. small cap stocks, foreign developed-market stocks (shares of companies based in Europe and Japan), and foreign emerging-market stocks (shares of companies based in faster-growing economies such as like China and India).

And to diversify your equities, you’ll also want to consider owning a small amount in commodities and real estate investment trusts, or REITs.

Exactly how you slice the pie will depend on your specific time horizon and risk tolerance. Note: Valentine is not a proponent of owning bonds if you’re young, but most advisers recommend a small allocation to fixed income, even in a relatively aggressive portfolio.

Now, if you own bonds as part of your mix, you may want to add as many as four fixed-income funds to that mix.

Valentine recommends bond funds that give you exposure to: the broad U.S. fixed-income market (reflecting high-quality corporate and government debt), U.S. high yield bonds (which expose you to higher-yielding but lower-quality corporate debt), U.S. inflation-protected securities (to safeguard your holdings against rising consumer prices), and foreign bonds.

Again, the exact percentages will vary based on the specifics of your situation.

MONEY Ask the Expert

How to Tell if Your Broker Protects You Against Identity Theft

Investing illustration
Robert A. Di Ieso, Jr.

Q: Are there any brokerages that protect customers from unauthorized computer access or theft? I was going with Vanguard, but on page 7 of its brokerage account agreement, under liability, the company says in writing that it is not liable. — Patty

A: This is a good reminder of why it’s important to actually read brokerage account agreements, especially in light of the massive security breach at J.P. Morgan Chase.

While the details may differ slightly from one firm to the next – which is why you should always check – the wording in Vanguard’s policy is similar to that of other large brokerages. (We ran your question by Charles Schwab, Fidelity and Vanguard.)

The short answer: If someone gains access to your account through no fault of your own — a security breach, for example — the broker would be liable for your losses. If the theft, however, is a result of your own negligence (more on that in a second) then that’s a different story.

“The brokerage account agreement explains that under certain circumstances, Vanguard will not accept legal liability for certain losses in or related to an account,” notes Vanguard spokesperson David Hoffman, adding that this is consistent with Vanguard’s online fraud policy. “… If the client has taken certain appropriate steps to protect the account, we will reimburse the assets taken from the account in the unauthorized transaction.”

Fidelity and Schwab offer similar responses. Under Fidelity’s customer protection guarantee, the firm will reimburse Fidelity accounts for losses due to unauthorized activity, says Fidelity spokesperson Adam Banker. Likewise, the Schwab security guarantee says the firm will cover 100% of losses in any Schwab accounts due to unauthorized activity.

In case you didn’t pick up on it, that word “unauthorized” is key in determining who’s liable.

That’s all the more reason to be particularly vigilant about protecting your account information. Set up a unique and unpredictable password (mix numbers, characters, lower case and upper case). Change your passwords regularly and don’t reuse passwords from other accounts. Store your password in a safe place — ideally not on your computer, your phone or online — and make sure computer has up-to-date security software. Check your accounts regularly and if you see something suspicious, let the broker know immediately.

Finally, never give your account information to anyone calling or emailing and claiming to be your broker or bank.

If someone calls claiming to be from your broker, or any financial institution for that matter, hang up and call the number listed on your statement or the company’s site. Never log in to your account by clicking on a link in an email.

You should also be careful about sharing your account information with family and friends. If you give someone access to your account, that’s considered authorized use, and, yep, you’re liable.

MONEY Ask the Expert

How to Help Your Kid Get Started Investing

Investing illustration
Robert A. Di Ieso, Jr.

Q: I want to invest $5,000 for my 35-year-old daughter, as I want to get her on the path to financial security. Should the money be placed into a guaranteed interest rate annuity? Or should the money go into a Roth IRA?

A: To make the most of this financial gift, don’t just focus on the best place to invest that $5,000. Rather, look at how this money can help your daughter develop saving and investing habits above and beyond your contribution.

Your first step should be to have a conversation with your daughter to express your intent and determine where this money will have the biggest impact. Planning for retirement should be a top priority. “But you don’t want to put the cart before the horse,” says Scott Whytock, a certified financial planner with August Wealth Management in Portland, Maine.

Before you jump ahead to thinking about long-term savings vehicles for your daughter, first make sure she has her bases covered right now. Does she have an emergency fund, for example? Ideally, she should have up to six months of typical monthly expenses set aside. Without one, says Whytock, she may be forced to pull money out of retirement — a costly choice on many counts — or accrue high-interest debt.

Assuming she has an adequate rainy day fund, the next place to look is an employer-sponsored retirement plan, such as a 401(k) or 403(b). If the plan offers matching benefits, make sure your daughter is taking full advantage of that free money. If her income and expenses are such that she isn’t able to do so, your gift may give her the wiggle room she needs to bump up her contributions.

Does she have student loans or a car loan? “Maybe paying off that car loan would free up some money each month that could be redirected to her retirement contributions through work,” Whytock adds. “She would remove potentially high interest debt, increase her contributions to her 401(k), and lower her tax base all at the same time.”

If your daughter doesn’t have a plan through work or is already taking full advantage of it, then a Roth IRA makes sense. Unlike with traditional IRAs, contributions to a Roth are made after taxes, but your daughter won’t owe taxes when she withdraws the money for retirement down the road. Since she’s on the younger side – and likely to be in a higher tax bracket later – this choice may also offer a small tax advantage over other vehicles.

Why not the annuity?

As you say, the goal is to help your daughter get on the path to financial security. For that reason alone, a simple, low-cost instrument is your best bet. Annuities can play a role in retirement planning, but their complexity, high fees and, typically, high minimums make them less ideal for this situation, says Whytock.

Here’s another idea: Don’t just open the account, pick the investments and make the contribution on your daughter’s behalf. Instead, use this gift as an opportunity to get her involved, from deciding where to open the account to choosing the best investments.

Better yet, take this a step further and set up your own matching plan. You could, for example, initially fund the account with $2,000 and set aside the remainder to match what she saves, dollar for dollar. By helping your daughter jump start her own saving and investing plans, your $5,000 gift will yield returns far beyond anything it would earn if you simply socked it away on her behalf.

Do you have a personal finance question for our experts? Write toAskTheExpert@moneymail.com.

MONEY Ask the Expert

Can I Ladder Bonds Using ETFs?

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’ve heard that there are bond ETF’s that hold securities that mature on the same date. Can they be used to create a bond ladder?

A: Bond ladders are a time-tested tool for investors looking to lock in predictable streams of income. The idea is to buy bonds that mature at regular intervals. In a simple ladder, for instance, you might divide your fixed-income money evenly among securities maturing in, say, one, two, three, four and five years.

Not only does this approach spread your bets, it is particularly useful now that interest rates are expected to rise.

Why? Rising rates are a threat to bond investors. That’s because when market rates rise, the price of older, lower-yielding bonds in your portfolio fall, eating into your total returns.

However, investors who create a ladder of bonds with different maturities need not worry about short-term fluctuations in bond prices. As long as they hold all the securities in their ladder to maturity, investors will get their fixed payments and principal back (assuming a borrower doesn’t default) no matter what rates do. What’s more, as one batch of bonds comes due every year, investors will be able to reinvest that money into new, higher yielding bonds, thereby benefitting from rising rates.

“A bond ladder makes all the sense in the world right now,” says Ken Hoffman, and managing director with HighTower Advisors. “If you know what you’re doing, you can create a ladder that provides you with the interest payments and maturity that you need.”

Here’s the rub: Putting together a diversified bond ladder requires some serious dough. At a minimum, you’ll need about $10,000 to buy a single bond, and ideally you’d want more than one bond on each “rung,” or maturity date. “I typically don’t recommend a bond ladder unless someone has $500,000 to invest,” says Hoffman, adding that you can construct a ladder with Treasury, corporate, municipal bonds, and so on.

Why not turn to bond funds? Regular bond funds own hundreds of different securities that mature at different dates and that aren’t necessarily meant to be held to maturity. Therefore, it’s impossible to ladder with regular funds.

This is where exchanged-traded funds that hold bonds with the same maturity come in. Two big ETF providers, Guggenheim and BlackRock’s iShares, now offer so-called defined-maturity or target-date ETFs that can be used to build a bond ladder using Treasury, corporate, high-yield or municipal bonds.

Like traditional ETFs, they charge low expense ratios, hold a basket of securities, and trade like stocks. What makes them unique is that the portfolios are made of up a diversified group of bonds maturing at the same time. When those underlying securities come due, target-maturity ETFs liquidate and distribute their assets back to shareholders — much like an individual bond would.

Using Guggenheim BulletShares, for example, you could build a corporate bond ladder with 10 funds maturing every year from 2015 through 2024.

ETFs aren’t a perfect proxy. The coupon rate — or regular interest payment — and the final distribution rate aren’t nearly as predictable as they are with individual bonds. Still, for investors who want the benefits of a ladder but with more liquidity, more diversification, and lower minimums, they’re worth a closer look.

Do you have a personal finance question for our experts? Write toAskTheExpert@moneymail.com.

MONEY Smart Shopping

9 Ways to Score Big at a Yard Sale

Binoculars at a yard sale
Kevin Van Aelst

Use these strategies to help you find the treasures among the castoffs.

Between summer renters unloading stuff, parents clearing out space for back-to-school gear, and teens leaving behind their childhood rooms for college dorms, Labor Day weekend can be a bonanza for yard-sale shoppers. To get the best deals, though, you have to know what to look for. Here are 9 ways to shop a yard sale like a pro.

1. Know your sizes. You don’t want to discover after you get it home that your terrific new end table is three inches too wide for the spot you had in mind. Assess your spaces beforehand and carry a small tape measure in your bag to use while browsing.

2. Think frames, not art. The chances you’ll spot an original Whistler in your neighbor’s yard? Not so good. Frames, on the other hand, can often be worth more than sellers think. “I have found some that were 150 years old selling for chump change,” says artist, designer, and garage sale enthusiast Pablo Solomon. Look for intricate frames made from solid material. For more on what makes frames, art, and other antiques valuable, see the guides at eBay.com.

3. Scout out old china. Yard sales are great for nabbing just-out-of-the-box kitchenware. But vintage bowls and cups may be a better deal—and better quality—than newer items. If you’re interested in a lot of pieces, ask for a bulk discount; sellers are often willing to cut a deal to clear out a bunch of wares at once.

4. For resale, try retro. Yard-hopping for profit? Many traditional antiques are selling for half what they used to because downsizing baby boomers are flooding the market and younger buyers have a different aesthetic, says Patrick van der Vorst, a Sotheby’s veteran and co-founder of ValueMyStuff.com. Today’s hot items are appliances, functional objects, and novelties—such as movie posters or advertisements—from the 1950s, ’60s, and ’70s. Use your smartphone to check how much similar items have recently sold for on eBay before you negotiate.

5. Get goods appraised. Think you’ve found a garage sale gem? ValueMyStuff.com will give you a virtual appraisal for $10. Just submit a photo, and within 48 hours you’ll have an estimate as well as details about the item’s provenance and insight about why something is or isn’t valuable. That’s knowledge you can use to score even bigger on your next scavenger hunt.

6. Test the electronics. Those new-looking portable iPod speakers are a great deal—or are they? Pack an assortment of batteries to test electronic goods, along with a high-powered flashlight or black light to check for cracks or chips on housewares or furniture that may not be visible to the naked eye.

7. Look carefully at costume jewelry. Sellers often think that old costume jewelry made with fake stones and plated with silver or gold isn’t worth anything. Yet “vintage costume jewelry can sell for big bucks,” says Reyne Hirsch, an expert in 20th-century decorative arts and former appraiser for Antiques Roadshow. Look for sturdy settings and clasps; avoid pieces that have chipped or worn enamel.

8. Go for heavy items. Gardening tools, kids’ bikes, fitness equipment, and furniture all may be cheaper at a yard sale than online, since many sellers don’t want to go through the trouble or expense of shipping awkward or heavy pieces. To snag the best price on something mentioned in a listing, try calling the seller the day before; aficionados often circle the block hours before the official sale starts.

9. Know when to steer clear. Mattresses, upholstered furniture—forget ‘em. The risk of bedbugs is too high. Also be careful with baby gear such as car seats and cribs, since safety standards often change. Check the latest safety info on baby items at the U.S. Consumer Product Safety Commission’s website, cpsc.gov.

Adapted from “How to Spot a Yard Sale Deal” in the July 2012 issue of MONEY magazine.

Related:
How to Host a Money-Making Yard Sale
Inside the ‘Pay What You Want’ Marketplace

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