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5 New Ways to Stretch Your Money

What's next in personal finance? More options for the average investor.

For generations, wealthy investors could rely on Wall Street to come up with products and services geared to meet their financial needs. Average Americans weren’t so lucky. To much of Main Street, the financial world has long been a bewildering place with an unintelligible language of symbols, slogans, and acronyms. This wasn’t a problem years ago because employers generally paid for retirement and health benefits. Investing was something you did with spare cash.

Not anymore. In our modern “ownership society,” you’re more responsible than ever for financing your own life. So a fear of investing can be downright dangerous to your future. It’s a shift that has Wall Street developing new ways to help you reach your financial goals. We spoke to financial planners, portfolio managers, and economic-policy experts to learn what’s around the corner in personal finance. And it turns out many of the products, tools, and strategies now being rolled out or developed have been conceived specifically with you, the average investor, in mind. The bottom line: You don’t have to think like Warren Buffett anymore to make your money work for you.

1 401(k) and IRA Advice

For years, a major hole in America’s retirement system was a regulation that prevented administrators of retirement plans like 401(k)s and IRAs from advising their customers on investment strategies. Under the Pension Protection Act of 2006, enacted last summer, you’ll now be able to get detailed financial advice from the company that manages your retirement plan.

The first change you’ll likely notice is that over the next year or so your statement will start to include information on improving your portfolio’s performance or reducing its volatility. And in time, as employers renegotiate their retirement contracts, plans will come with built-in counseling services where you can get free personalized advice. For instance, we’ve all been told to diversify our retirement investments. But what does that actually mean when it comes to your portfolio? Soon you’ll be able to get answers to that question and a lot more from investment professionals at the firm that manages your plan.

2 Private Reverse Mortgages

Reverse mortgages, in which you receive regular tax-free loan payments from a bank based on the value of your house, have become a popular way for retirees to get money out of their homes without having to sell. But the arrangements are typically highly restrictive. You’re eligible only if you’re 62 or older. And the house being mortgaged must be your primary residence, not a vacation home or investment property. Plus, the fees can be quite high, depending on the value of your home.

So what if you want a reverse mortgage and don’t meet the criteria, but someone else (a child, sibling, or close friend) has a house you could use to guarantee the loan? Before, you’d be out of luck. No longer.

Last month, CircleLending, a specialty finance firm in Waltham, launched its “Family Advantage” private reverse mortgage. It’s essentially a line of credit between people who know each other that’s secured by a home or piece of property. But unlike in a standard reverse mortgage, the home doesn’t have to be a primary residence. Also, “there are no age restrictions, lower fees, and, because it takes money out of your estate, you can use it for creative estate planning strategies,” says Debra Neiman, head of Neiman & Associates Financial Services in Arlington, who was consulted on the product.

Of course, before you start filling out the paperwork you’ll want to consider all the issues tied to loans between friends and family members. Neiman advises her clients to have frank and open discussions about the money before entering into any interpersonal financial arrangements. Still, experts say that in the coming years finance firms will roll out more of these creative solutions to help families that find themselves house-rich but cash-poor.

3 Better Access to Emerging Markets

Investing in emerging markets is essential for a diversified portfolio. The easiest way to do this is through a mutual fund or an exchange-traded fund that tracks an index pegged to a stock market in an emerging economy. The trouble is, investment banks have had a hard time creating mutual funds and ETFs for some of the most important emerging markets.

In India, for instance, the benchmark index for the Bombay Stock Exchange was up nearly 47 percent in 2006 and more than 42 percent in 2005. But the market is, in essence, closed to outsiders, so it’s hard for a foreign bank to trade Indian shares fluidly enough to track an index. This creates a risky scenario called a “tracking error,” where the index can’t accurately reflect the value of the underlying market. As a result, US regulators have been leery of approving Indian products for average investors.

Enter Barclays, one of the leading global issuers of ETFs, with the iPath MSCI India Index Exchange-Traded Note, or ETN. It tracks an index of major Indian companies like a fund would. But instead of being structured as a basket of stocks, the ETN is a debt instrument backed by Barclays that guarantees investors will always receive the precise return of that index. In short, it’s much safer than a fund and more suitable for ordinary investors – though they should be aware that this market can be highly volatile.

The ETN structure isn’t exclusive to emerging markets. Indeed, Barclays also has ETNs that track the oil market and the overall global commodities market, and many others in registration with the Securities and Exchange Commission. The bank is planning to roll out new ETNs for emerging markets like Brazil, Russia, and China. And the other major issuers of ETFs, such as State Street, are expected to follow with similar products as well.

4 Holistic Financial Planning

Setting and reaching your long-term financial goals is an increasingly complex process that takes into account a seemingly limitless number of factors – income, savings, retirement investments, mortgage status, medical needs, and so forth. In addition, our wired world provides so much financial information that it’s tough to know what’s important and what’s superfluous. “There’s so much data out there now that some people just shut down,” says George Padula, president of Danforth Associates in Wellesley. “It’s like trying to drink from a fire hose.”

To help simplify things, finance companies have increasingly been offering free programs on their websites that help you run though a variety of financial permutations and see where you stand. Fidelity’s user-friendly new “myPlan” program lets you adjust multiple variables like income, savings rate, annual contributions, and investment style to give you a clear idea of what you need to do to retire comfortably.

But knowing what you have to do to reach your goals is very different from actually doing it. So many financial planners are now offering services that go far beyond the usual bar graphs and pie charts. In many instances, investment advisers say their clients have started asking questions that have more to do with psychology than economics. Danforth Associates uses a “strategic life coach” to help some clients set financial goals and then follow through on the steps needed to attain them. And many investment counselors say they’re planning similar programs. “It’s not about the return of this fund or that fund,” Padula says. “It’s about where you want to go and how you’re planning to get there.”

5 Help in HealthCare

The spiraling cost of healthcare is a major concern across the country. So in 2003 Congress created health savings accounts, or HSAs, to help Americans use tax-free money to pay for healthcare expenses. Now, the Securities Industry and Financial Markets Association, the financial services industry’s chief Capitol Hill lobbying group, wants to take the idea further. The association, which was instrumental in the creation of popular investor tools like the 529 college savings plan and the Roth IRA, is asking Congress to create more flexibility by allowing people to withdraw money from their retirement accounts in certain situations to cover healthcare costs without paying a penalty.

The association’s immediate target is people who currently fall through the gaps in the HSA plan, such as retirees who don’t yet qualify for Medicare. But depending on Congress’s reaction, it could become part of a broader solution to an entrenched problem – and add a little more cash to the wallet of the average citizen.

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