MONEY early retirement

4 Secrets of Financial Freedom

140701_HO_FinancialIndependence_1
Feng Yu—Alamy

You can shorten the path to early retirement if you start with the right strategies.

Ever since I retired at age 50, I’m often asked how I managed to reach financial security. Looking back, I see that the key factors fall into four categories—family support, career choice, money management, and personal habits and attitudes. Here’s how you can use these building blocks to reach your goals.

Start from a Strong Foundation
Some of us were fortunate to start out in families that instilled integrity, prudence, and hard work. If that’s your experience, you can be grateful. But, if not, then it’s still within your power to cultivate those qualities now. Not only will that create the conditions for your own financial success, but it will benefit everyone around you as well.

Throughout you will need patience. Typically the personal and financial decisions that will pay off in the long run require sacrificing a little today. Patience helps you live with the reality that true rewards usually require some short-term discomfort.

Choose a Career Wisely
Your choice of career is one of the most important decisions you’ll ever make. You need to love your work if you want to be great and prosper from it. So pay attention not only to your gifts, but to what makes you enthusiastic about getting up in the morning. Then, find a career path that plays to those strengths.

If you’re just starting out, and it suits you, a high-paying career in a technical or professional field will clearly advance your cause. Competence in math or technology can be a first-class ticket to building wealth. But, if that’s not possible, at least be aware of the financial implications of your college education and early career choices. A graduate in an esoteric major with five digits of student debt starts out life doubly handicapped. You can pursue your passions, integrate them with a professional track, and stay out of significant debt—but only if you make informed choices.

If you’re already in a career, look for mentors and other professional relationships that complement your skills and personality. Having been on both sides of the equation now, I can tell you that older, more experienced people generally enjoy counseling a talented and enthusiastic newcomer. It’s a relationship that pays dividends on both sides. So be open to wisdom when it’s offered. You don’t have to take every piece of advice, but it can be your starting point.

Learn to Manage Money
You might start out with a great family foundation. You might have a high-paying career that you love. But unless you live on less than you make, it won’t put you any closer to financial freedom. In fact, if you develop expensive tastes in houses and cars, and need to look as affluent as your neighbor, you could wind up worse off financially—no matter how much you make. You can start heading in the right direction by simply tracking your expenses, as well as learning about saving and budgeting. Identify the few areas where money spent truly pays off in better quality of life for your core interests. Spend there, and cut back everywhere else.

Next, find a mentor to help you become a confident investor. You need to master any fear of stocks, so you can profit from them in the long run. Offset the risk of stocks by allocating into other asset classes as well. Start small and carefully, but do start. Learn and abide by a few bedrock investing principles: diversification, patience, simplicity, low expenses. Track your net worth and your overall portfolio return each year, so you know what direction you’re going, and why.

Related: Find the right mix of stocks and bonds

Once your career and finances are on track, you can explore more entrepreneurial paths for wealth building—perhaps by owning a small business or real estate. These can leverage your time and money, getting you to financial independence years earlier. They can be fun and rewarding too!

Keep Your Perspective
Even with all these potent ingredients for success, be sure to take life one day at a time. Again, cultivate patience. You’ll need it for the long stretches.

Remember the goal—financial independence —but don’t obsess on it. Don’t sacrifice the present for the future; it won’t turn out as planned anyway. Make time for your loved ones and meaningful activities, even if you must work longer in the end. As great as it is to achieve financial freedom and retire early, you don’t want to arrive there having missed out on life along the way.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. This column appears monthly.

MONEY

6 Acronyms Every Beginner Real Estate Investor Should Know

H-O-M-E letters in wooden blocks
Image Source—Getty Images

Pretty much every time you learn something new, you also learn a whole new vocabulary to go along with it. Real estate investing is no different. Real estate investors must understand the terms and investment vocabulary. Here are some definitions of common acronyms to get you started:

1. PITI

Principal (P), Interest (I), property Taxes (T) and Insurance (I). This is basically the “bottom line” or the minimum you need to calculate when thinking about purchasing an investment property with a loan. Usually it is calculated overall and on a month-to-month basis.

The overall number is what you would potentially spend on the property over the life of the loan. Month-to-month is the portion of PITI you have to pay each month to stay in good standing. This information will help determine how much rent you should charge.

Related: Trying to Choose The Right Loan? Stop Looking at Just The Rates!

2. LTV

Loan-to-Value, also important if you’re taking out a loan on your investment property, is calculated by dividing the loan by the property’s value, then expressing that as a percentage. For example, if the loan is $200,000 and the value of the property is $250,000, the LTV is 80%.

The lower the LTV, the more equity you have in the property, which means you have more room to negotiate should you decide to sell.

3. GOI

Gross Operating Income is the actual annual income collected from the property, which includes all sources of income (laundry, parking, storage, etc.) and takes into account any vacancies.

4. NOI

Net Operating Income is the income left over from your rents after paying all your monthly operating expenses. So, subtract your expenses from your GOI to get you the property’s NOI. For example, if you take in $10,000 in rents on all the units and spent $8,000 on maintenance, janitorial duties, supplies, accounting, insurance, taxes, and utilities, your NOI for the month was $2,000.

5. DCR

Debt Coverage Ratio is a term commonly used by lenders in underwriting loans for income-generating properties. It’s calculated by dividing the NOI by the total debt. Ratios of 1.20 and higher are considered average.

Related: Understanding Debt Service Coverage Ratio

6. CCR

Conditions, Covenants, and Restrictions are promises written into contracts where the parties agree to perform, or not perform, certain actions.

CCRs can occur in several contexts. There can be CCRs written into a deed when you purchase a property. Also, your tenants could sign a rental agreement in which they agree to certain conditions (such as “no pets allowed” and “you can live here as long as you pay rent, otherwise we can evict you”).

I’m sorry to disappoint you on that last one. CCR on the radio is much more exciting than the real estate investing version of CCR. But it’s an important term, so I hope I’m forgiven. Either way, I hope the acronyms listed above will help you in your quest to invest in real estate.

More from BiggerPockets:
10 Things I Hate About Working From Home
10 Rules For Investing in Real Estate Without Looking Like an Idiot
6 Tips to Turn Bad Tenants Into Amazing Tenants

This article originally appeared on BiggerPockets, the real estate investing social network. © 2014 BiggerPockets Inc.

MONEY Pick Up Speed

Get the Most From Your 401(k) at Any Age

To get the most out of your retirement savings, put the right amount in and take the right steps at all stages of life. Here's some advice to follow, whether you're just starting out or further down your career path.

 

Millennials

Millennials Start small, then auto-escalate. Less than half of workers ages 22 to 32 are saving for retirement, despite how painless it can be. Socking away 3% of a $50,000 salary ($1,500 before taxes) costs you less than $22 a week in take-home pay. Then take baby steps by auto- escalating your savings by one percentage point a year. In plans with auto-enroll and a 1% auto-escalate feature, nine in 10 participants are able to safely generate 60% of their age-64 income, adjusted for inflation, according to EBRI.

Take the easy way out. More than two in five millennials in retirement plans aren’t familiar with their investment options. No problem: Just go with a target-date fund, which automatically adjusts your portfolio to be less risky as you age. The worst-performing target-date investors at Vanguard earned 11.8% annually over the past five years, far outpacing the worst DIYers, who gained just 2.1%.

Roll over as you go. Twentysomethings typically spend 1.3 years at each job. And Fidelity says nearly half cash out 401(k)s when leaving. That triggers income taxes and a 10% penalty, depleting the amount that can compound. The box shows what that really costs you.

Gen Xers

Gen Xers Keep the bottom line top of mind. A funny thing about investing: The more you save and the bigger your balance, the more fees you have to pay in dollar terms. So now that your account has some serious money, shifting to lower-cost options such as an index fund is an easy way to save big (see chart). If you have $100,000 saved by 40 and underlying returns average 7%, the savings by 65 of switching from a 1.2%-fee fund to 0.3% is $102,000—nearly a whole second nest egg.

Shoot for 17%. How much you need to save depends on how much you already have. But 17% is a good mental anchor. That’s the number Wade Pfau of the American College of Financial Services came up with for folks starting from scratch at 35, with a 60% stock/40% bond portfolio, to safely fund a typical retirement goal. You might be okay saving less if the markets go your way, but Pfau’s number is what it takes to get there even with poor returns. That’s far more than the average 401(k) contribution of around 6% to 7%. But take a deep breath. That number includes the contributions from your employer.

Resist the urge to borrow. About 22% of participants between 35 and 54 in plans run by ­Vanguard have borrowed from their retirement accounts. Compared with other forms of debt, a 401(k) loan isn’t the worst. But the amount that you borrow is money that’s not compounding tax-deferred.

Baby Boomers

Baby Boomers Save in bursts. Neither saving nor spending runs along a smooth path. For example, you may have to pare back savings while paying the kids’ college bills. The good news is that “after 50 is when people should be able to save the most, as their kids are moving out, they’ve paid off the mortgage, and they should be in the highest earnings years of their lives,” says economist Wade Pfau. Starting at 50, you can also make extra 401(k) contributions of up to $5,500, on top of the normal $17,500.

Prep for the spend-down phase. Once you retire, you’ll have to spend out of your nest egg regardless of market conditions. Even if stocks do well on average, a bad run early on can deplete your portfolio. So “start taking a couple percent of equities off the table every year in the five or 10 years leading up to retirement,” says financial adviser Michael Kitces.

Readjust your target. According to polls, Americans expect to retire around 66. But the actual age of retirement is 62. Things happen: You may run into health issues or be forced into early retirement. Now many 401(k) savers use target-date funds. As you gain more visibility on your own retirement date, adjust the ­target-date fund you use. As the chart shows, it can make a big difference. Notes: Cash-out growth assumes a 5% annual return. Fee calculations are based on total costs, including forgone gains. sources: Morningstar, T. Rowe Price, SEC, MONEY research

MONEY Investing

How Harvard and Yale’s ‘Smart’ Money Missed the Bull Market

Some influential investors have been on the sidelines for much of this surprising bull market.

The next time you want to give up on stocks for the long run consider this: Some of the world’s biggest investors did just that and have all but missed this bull market, proving again that the smart money isn’t always so smart and that trying to time the stock market is a fool’s game.

When the things looked bleakest in March 2009, the stock market began a torrid run that has carried into this year. That’s the way the market works. Gains come when you least expect them. You have to be there through thick and thin to consistently reap the benefits. But even big investors (or should I say especially big investors?) get scared and run.

So while the typical large stock has nearly tripled from the bottom, managers of the massive endowments at Harvard, Yale, and Stanford along with legions of corporate pension managers at places like GM and Citigroup were not there to collect. They were too busy sitting in bonds and other “safe” securities, which have woefully lagged the S&P 500’s five-year gain of 187%.

The Harvard endowment, the world’s largest with assets of $33 billion, missed the mark by the widest margin of the big universities. The stock market saw its steepest climb the past three years, a period when Harvard’s fund posted an average annual total return of 10.5%—well behind the 18.5% for the S&P 500. Yale’s $21 billion endowment returned 12.8%; Stanford’s $22 billion fund returned 11.5%. Harvard Management’s CEO recently said she would step down.

How did this happen? Well, the average college endowment has just 16% of its investment portfolio in U.S. stocks—half the exposure they had a decade ago. In the years following the Internet bust and then the financial crisis, managers steadily shifted assets to alternative investments like hedge funds, venture capital investments, and private equity. Corporate pension managers have done much the same, cutting their exposure to stocks, on average, by about a third.

Alternative investments have performed fairly well over the past decade, even outperforming the S&P 500 over that long period including the devastating collapse of 2008-2009. But there is no denying that the smart money was playing it too safe when the economy started showing signs of a rebound. Pension managers missed out on the deep value that had been created in the market.

The lesson is clear enough for individuals, who have limited low-cost access to things like private equity and venture capital anyway. Staying the course over the long pull is the best way to reach your financial dreams. Just three years after one of the worst market slides in history the average 401(k) balance had been totally restored, in part owing to the market’s recovery.

And you can give pension managers an assist. Their reluctance to bet on stocks near the bottom left prices depressed longer and allowed individuals putting a few hundred dollars into their 401(k) every month more time to accumulate stocks at the lower prices. That’s not great for those counting on a pension that, like so many, remains underfunded. It’s also not great for teacher salaries and student scholarships at major universities where endowments may fund a quarter of operating expenses. But don’t worry about all that. Just stick to your investing regimen, don’t panic, and know that you are the smart money more often than not.

MONEY Investing

The Top 5 Ways to Make More Money on Your Rental Properties

If you own rental property, be sure to maximize your profits on your current investments before rushing out to buy new ones.

Rather than just acquiring as many properties as possible, let’s take a step back and think about whether the best way to make more money is to focus on your current portfolio.

1. Decrease Vacancy

The best way to minimize vacancies is to find a long-term tenant so that you don’t have to deal with turnover. This is covered separately by my next point because it is not the only way to keep your property occupied.

In the event that your tenant must move, vacancy can also be minimized by keeping turnaround time to a minimum. A friend of mine owns a condo in the D.C. area that is rented to 3 individual roommates. Although multiple tenants have moved on, he has kept occupancy at essentially 100% by posting ads the minute he learns of the move. Demand in the area is so high that he will have immediate interest and line up a new tenant to move in on the coattails of the old one.

You might think, “how does that apply to my property in an area with lower demand?” The thing is, nearly every property in every neighborhood has solid demand at a price. If your vacancies are consistently high, you may be doing it to yourself and need to think about your price point.

Every month of vacancy costs you 8.3% of your potential yearly revenue, so you would be better off renting every property one month faster for 5% less rent, two months faster for 10% less rent, and so on.

Another way to think about vacancy is this. If a property does not have some characteristic that sets it apart from the rest and sells itself such as a prime location or a to-die-for kitchen, you can give it one by providing the best value in town.

Related: The Biggest Threats To Your Real Estate Investment Property And What You Can Do To Stop Them

2. Minimize Turnover

Turnover costs money in multiple ways. There are advertising costs, the cost of patching and painting walls and replacing flooring that your previous tenant would have lived with, and, of course, vacancy. It’s a little counterintuitive, but this is another area where relatively lower rent may have the tendency to increase revenue.

One of your goals should be to find quality tenants that take care of your property and pay consistently. When you find these people, do what you can to keep them!

Some people will inevitably leave because they are moving across the country or buying a home, but the last thing that you want is to lose your best tenants to the landlord down the street, dealing with the expense of acquiring a new tenant and lost revenue in the vacancy.

The price of rent is not the only factor involved in tenant retention. The other key is customer service. Whether you personally manage your properties or have a property manager, make sure your tenants are treated with respect and professionalism, their concerns are valued, and matters are dealt with urgently and to their satisfaction. A good tenant/landlord relationship keeps tenants from thinking about moving.

To assess whether your property manager is performing in a way that fosters good tenant/landlord relationships, send a postcard soliciting feedback from your tenants, letting them know their opinion is valued and they can contact you directly if they are dissatisfied with their manager.

3. Increase Rent Strategically

Now, after telling you that lower rents can lead to higher revenue, I will proceed to advise increasing your rents on your longer-term tenants. This is really not a contradiction at all. Rather, it is a delicate balance that requires knowledge of your property’s value relative to your competition.

As I mentioned, tenants may be more loyal if they can’t find lower rent elsewhere. But this doesn’t mean that you should never raise rents when you have good reason to do so. Moving costs tenants money too. If the value of their current rental is significantly better than the value of a new rental plus the cost of moving, you still have the upper hand.

Make sure you know the rents in the area, researching sites such as Zillow, Rentometer, Craigslist, and the MLS if you have access. You may find there is plenty of room to increase your revenue a small amount each year (1%-3%) while remaining competitive.

Two tactics I use to increase rents: Communicate an offset to new costs such as increased HOA fees, which cover utilities and amenities that they enjoy, and have them coincide with an upgrade to the rental. For instance, I may plan to paint the exterior of the home or upgrade old windows from single to dual pane anyway, but I will schedule the work to coincide with a lease renewal and the tenant feels they are getting something out of the deal.

I may even ask them if there is anything that would make them more comfortable and select items from this list that will justify rent increases while increasing the market value of the home. In other words, make improvements that are necessary for maintenance or have immediate return on investment.

4. Be Diligent on Late Fees

Showing kindness and respect to your tenants does not mean being a pushover when it comes to rent collection and late fees. Collections are not the most enjoyable part of being a landlord, but are essential to running a profitable business. Make sure your tenants understand that this is a business, they have signed a contract, and it is your job to complete this transaction, following the contract and all applicable laws (including eviction proceedings if necessary).

Related: 6 Sure Ways To Never Be The Bearer Of That “Worst Tenant” Story

If you allow tenants to get away with paying late without the appropriate fees, you are leaving money on the table. And, your tenants may try to get away with late payments several more times, causing you extra work and stress.

If your tenant sends you a late check without including the late fees, politely explain that rent is not considered paid until all fees are collected, and that unfortunately you cannot accept this payment until all fees are paid. If you hold firm, they will quickly learn that you cannot be taken advantage of and will most likely comply.

More from BiggerPockets:
Wicked Cool Ways to Finance Your Next House Flip
10 Renovation Tips That Will Save You Time and Money
Video: Protect Yourself When Purchasing a Property As-Is

5. Add Revenue Streams

In multi-family properties, look for the opportunity to add services like coin-operated laundry and vending machines, which will not only provide revenue but will add resale value by raising the property’s return on asset value, or capitalization rate.

In single-family homes, offer extra house cleaning and landscaping services to tenants when they sign the lease. They may be happy to pay extra to avoid responsibilities they’d otherwise take on. You can negotiate the rates of independent landscaping and cleaning services, contract them out, and collect a fee as the contractor. For instance, if a cleaner agrees on a $75/month fee, you may offer the service to your tenant for $85/month, increasing your annual revenue by $120.

Overall, you may find that you can reach your business goals not only through acquiring a large number of properties but by operating a smaller number of properties more intelligently.

This article originally appeared on BiggerPockets, the real estate investing social network. © 2014 BiggerPockets Inc.

MONEY retirement planning

Leave a Financial Legacy? Boomers and Millennials Slug It Out

Unlike older Americans, young adults want to leave an inheritance to future generations. Too bad they're investing in cash.

Baby Boomers like to point out that our famously self-absorbed generation advocated for many good causes as youngsters and turned the corner to greater giving in retirement. Much of it is true. But younger generations are way ahead of us, new research suggests.

Maybe it’s a case of our kids doing as we say, not as we do. Boomers are the least likely generation to say it is important to leave a financial legacy—even though they have benefited from an enormous wealth transfer from their own parents, according to a new U.S. Trust survey of high net worth individuals. How’s that for self-absorbed?

More boomers have received an inheritance (57%) than say it is important to leave one (53%). The opposite holds true for younger generations. Some 36% of Gen X and 48% of Millennials have received some type of inheritance while 59% of Gen X and a whopping 65% of Millennials say it is important to leave one.

Circumstances may account for the difference in mindset. The Great Recession struck just as boomers were preparing to call it quits. With more to lose, and little time to make it back, boomers suffered the worst of the crisis from a savings point of view. A financial legacy seems less important when you are downsizing your retirement dreams.

For younger generations, the crisis created an employment nightmare. But it drove home the need to begin saving early, and those that did have seen stock prices double from the bottom and house prices begin to rebound as well. Millennials’ problem may be that they still don’t trust the stock market enough.

Well more than half in the survey remain on the sidelines with 10% or more of their portfolio in cash. Millennials are the most likely to be tilting that direction. Two-thirds of Millennials, the most of any cohort, say they are fine carrying a lot of cash and just 13%, the least of any cohort, have plans to invest some of their sideline cash in the next 12 months. This conservative nature threatens to work against their desire to leave a financial legacy—or even retire comfortably.

Millennials are the youngest adult generation and have the most time to absorb bumps in the stock market and benefit from its long-term superior gains. Intuitively, they know that. In the survey, those holding the most cash, regardless of age, were the most likely to say they missed the market rally the past few years and are not on track to meet their goals.

In our younger days, boomers rallied around things like civil rights and workplace equality for women, among other grand moral battles. But we didn’t necessarily put our money where our mouth was. Today’s young adults are quieter about how to fix the world. But they are willing to invest for change. One-third of all high net worth individuals invest in a socially conscious way while two-thirds of Millennials do so, U.S. Trust found.

By a wide margin, more Millennials say that investment decisions are a way to express social, political or environmental values (67%). Most (73%) believe it is possible to achieve market-rate returns investing in companies based on their social or environmental impact, and that private capital from socially motivated investors can help hold public companies and governments accountable (79%). I’d say the kids are alright.

MONEY Saving

WATCH: Tips From the Pros: The Secret to Financial Success

Financial experts reveal the one thing you must do to build wealth.

MONEY stocks

WATCH: Insider Trading is More Widespread Than You Thought

According to a new study, nearly 25 percent of all public company deals involve some insider trading.

MONEY Retirement

Eco Disaster: Lessons from Greenpeace’s Currency Bet Gone Bad

The global peace and sustainability nonprofit lost a bundle betting on currencies. Here's what you can learn from the mistake.

Superstars from Tiger Woods to Warren Buffett tell us the secret to their success is keeping it simple. So why would a donor-dependent, globally recognized nonprofit take a macro-economic flyer on which way currencies will move?

More important: What can the disastrous Greenpeace International bet on the direction of the euro tell us about how we handle our own financial matters? Greenpeace, which is quite good at promoting peace and sustainability, is really bad at macro analysis. Sometime last year the organization lost $5.2 million—more than 6% of its annual budget—when it bet wrongly against a rising euro.

This large loss came to light only this week, and it’s too soon to know its full effect. The organization says a financial pro on its staff overstepped and has been fired, and that the loss will not lead to a penny being cut from its causes. Still, it’s hard to believe that at least some donors won’t bristle and hold back donations. The consequences promise to go beyond simple embarrassment.

One lesson here is that currency speculation is a tricky business and best left to hedge fund managers like George Soros. If you must engage in currency bets alone, do so with only a small fraction of your savings and through straightforward international government bond funds. These pay interest in local currency and thus represent a foreign exchange bet. You might also consider a currency ETF from leaders CurrencyShares and WisdomTree.

The bigger lesson, though, is that it really does pay to keep things simple when investing. As Buffett writes in this year’s annual letter to shareholders:

You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”

Complexity is all around us. Exotic mortgages sunk millions of homeowners in the Great Recession. Unimaginably arcane financial derivatives contributed to the demise of Lehman Bros. and downfall of Bear Stearns, among other investment banks, during the financial collapse. Even bankers didn’t know quite what they were doing—not unlike the hapless, rogue finance staffer making a wrong-way bet on the euro for Greenpeace.

Individuals can make things as difficult or as easy as they want when they save and invest. Annuities are especially hot right now. Many people shy away from them because they believe all of them to be complex, and many others end up in the wrong type of annuity (and many other insurance products) because so many truly are complex. Yet for most people just looking to lock up guaranteed lifetime income, the venerable immediate or deferred immediate annuity are a sound and simple option.

Likewise, you can prospect for the hottest stock funds, only to be disappointed once you plunk down your dollars and see them eaten away by lackluster returns and high expenses—or you can choose low-fee diversified stock index funds, or maybe a target-date mutual fund, sleep well, and check back in just once a year to rebalance. Why layer chance on top of investment risk? You are good at something else, not macroeconomic analysis.

Reports suggest that the wayward Greenpeace employee was not nest feathering but trying to do the right thing for the future of the organization. Still, it went bad—even for someone in finance. As with many endeavors, when it comes to money, better to do as Buffett says and just keep it simple.

MONEY 401(k)s

Do I Really Need Foreign Stocks in My 401(k)?

Foreign stocks are supposed be a great way to diversify and get better returns. But these days? Not so much.

It’s long been a basic rule of retirement planning—allocate a portion of your 401(k) or IRA to international stocks for better diversification and long-term growth. But I’m not really sure those reasons hold up any more.

Better diversification? Take a look at the top holdings of your domestic large-cap or index stock fund. You’ll find huge multinationals that do tons of business overseas—Apple, Exxon, General Electric. Investing abroad and at home are close to being the same thing, as we saw during the financial crisis in 2008, when all our developed global markets fell together.

As for growth, we’ve been told to look to the booming emerging markets—only they don’t seem to be emerging much lately. Even as the U.S. stock indexes have been reaching all-time highs, the MSCI emerging markets benchmark has had three consecutive sell-offs in 2012, 2013 and 2014, missing out on a huge recovery. That’s diversification, but not in the direction I want for my SEP-IRA that I’m trying to figure out how to invest. (See “My 6 % Mistake: When You’ve Saved Too Little For Retirement.”)

Some market watchers have pointed out that after two decades, the countries that were once defined as emerging—China, Brazil, Turkey, South Korea—are now in fact mature, middle-income economies. If you’re looking for high-octane growth, you should really be considering “frontier” markets, funds that invest in tiny countries like Nigeria and Qatar.

That’s all well and good. But when it comes to Nigeria, I don’t really feel confident investing in a country where 200 schoolgirls get kidnapped and can’t be found. As for Qatar, it’s awfully exposed to unrest in the Middle East. (Dubai shares just tumbled, triggered by escalating violence in the Iraq.)

Twenty years ago, I was more than game for emerging markets and loved getting the prospectus statements for funds listing then exotic-sounding companies like Telefonas de Mexico and Petrobras. But I just don’t think I have the stomach, or the long time horizon, for it anymore.

My new skittishness around international stocks may be signaling a bigger shift in my investing style from growth to value, the gist of which is this: since you can’t always predict which stocks will grow, the best thing you can do is to focus on price. Quite simply, value investors don’t want to pay more for a stock than it is intrinsically worth. (Growth investors, by contrast, are willing to spend up for what they expect will be larger earnings increases.) By acquiring stocks at a discount to their value, investors hope profit when Wall Street eventually recognizes their worth and avoid overpriced stocks that are doomed to fall.

As Benjamin Graham, the father of value investing, wrote in his 1949 classic, “The Intelligent Investor,” “The habit of relating what is paid to what is being offered is an invaluable trait in an investment.” (Warren Buffett, among many others, consider “The Intelligent Investor” to be the investing bible. ) “For 99 issues out of 100 we could say that at some price they are cheap enough to buy and some other price they would be so dear that they should be sold,” Graham also wrote. And he famously advised that people should buy stocks the way they buy their groceries, not the way they buy their perfume, a lesson in price sensitivity that I immediately understand and agree with.

Looking at the international question through a value vs. growth lens, my choice is seems more clear—at least on one level. If emerging markets are down, now is probably a good time to buy. But the biggest single country exposure in the MSCI Emerging Markets Index is China, at 17%, and it might be on the brink of a major bubble.

It seems a bargain-hunting investing approach isn’t always that much safer, and I’m wondering if it might be worth paying more at times to avoid obvious trouble. Still, I’ve only just discovered my inner value investor. I’m going to keep reading Benjamin Graham and will let you know.

Ruth Davis Konigsberg, a fortysomething journalist and consultant to Arden Asset Management, writes weekly about retirement planning.

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