The 3 Best Moves You Can Make With Your Money

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I admit it -- I'm not a big fan of people telling me what to do with my own money. But that doesn't mean I don't listen to what others have to say about the subject. As a former financial advisor and stock market veteran, I'd like to think that I don't need a reminder about how to manage my own money. Sadly, I think we all could use a refresher course now and then.

Later, I'll get to my suggestions for three smart moves you can make to obtain better results. But first, I want to briefly look at three of the worst moves you could possibly make with your money right now.

Worst move No. 1: Sticking your money under the mattress.
This one has always irked me. Some people take this metaphorically and allow large sums of money to sit in their checking accounts earnings 0.01% interest, while others take it to heart and literally stick money under their mattress. Either way, it's one of the worst moves you could make. As long as inflation is higher than 0% (and there's a very good chance of that, as history has shown us), your dollars are becoming less valuable over time by just sitting there.

Worst move No. 2: Overpaying on your taxes.
Even I've been guilty of this one. According to the IRS, more than 109 million taxpayers got refunds last year. That's 109 million taxpayers who overpaid their federal taxes the year before, allowing the U.S. government to borrow that money free of charge.

Nor is this anything new. Just look at the results Bankrate got when it did a survey back in 2010:


More than half of taxpayers were slated to get a refund. And even more disturbing, 71% of the participants said they would not change their filing status to avoid a large refund in the future. The prospect of receiving a check from the government is nice, but being able to invest that same money, which shouldn't have left your hands in the first place, is even nicer.

Worst move No. 3: Buying a CD.
I am fully aware there are staunchly risk-averse people out there, and I understand their compulsion to buy bank CDs. But with most CDs yielding less than 1%, they won't even keep up with inflation, yet they also allow very little flexibility. In short, if you need that money quickly, you can kiss some, or all, of your interest goodbye and may even have to pay an early withdrawal penalty.

Now let's look at three of the best moves you can make with your money...

Best move No. 1: Maximize your IRA contribution.
IRAs are fantastic -- consider them your own personal "neener neener" account that the U.S. government can't touch. Roth IRAs offer the best possible scenario in that every cent put in will grow completely 100% tax-free! For those who qualify for a Roth based on age, income, and marital status, up to $5,000 can be added annually for those under the age of 50, and up to $6,000 for those 50 or older. If you're looking for a way to compound your wealth without any tax implications, this is the smartest move you can make -- period!

Best move No. 2: Buy solid dividend-producing stocks.
I know some of you have been burned by the stock market, perhaps more than once over the past decade, and are now extremely leery about buying individual equities. But the thing to remember is that investing in dividend-paying stocks and reinvesting those dividends is the key to growing that wealth over time. By diversifying your investments across broad sectors and strong brand names, your portfolio should do just fine. Here's a conservative sample portfolio of five diverse companies I'd suggest looking further into, as they provide both dividend income and safety:



Current Yield

Coca-Cola (NYSE: KO  ) Beverages 2.80%
Johnson & Johnson (NYSE: JNJ  ) Drug manufacturing 3.50%
Annaly Capital Management (NYSE: NLY  ) Mortgage REIT 13.50%
Duke Energy (NYSE: DUK  ) Electric utility 4.70%
Microsoft (Nasdaq: MSFT  ) Application software 2.70%

 Source: Yahoo! Finance.

Coca-Cola has the strongest brand name in the world, according to Interbrand. It's raised its dividend in 49 consecutive years. Johnson & Johnson, arguably the most stable health-care company in existence, matches that 49-year performance of ever-rising payouts.

Meanwhile, Annaly provides that dividend boost that every portfolio needs. As a mortgage REIT that invests in government-backed securities, Annaly has the safety of nearly guaranteed income -- although it's vulnerable to rising rates, if they ever come.

Duke is one of the largest electric utility providers in the U.S. and provides a commodity in electricity that is in demand regardless of economic conditions. Finally, Microsoft brings a growing dividend and a strong cash balance of $50.7 billion to balance out my picks for this portfolio.

Best move No. 3: Invest for the long term.
Neither of the two prior moves will work if you don't implement a strategy that allows ample time for your investments to grow. If you allow your investments to grow untouched over a long period of time, compounding gains should allow you to earn a lot more than if you were voraciously trading. In addition, when this is combined with lower tax rates on long-term holdings (over one year) you should be able to keep more of your money.

Just as I've presented above, setting you up for the long term is precisely what our analysts had in mind with our latest special report, "3 Stocks That Will Help You Retire Rich." It's completely free to you and full of great ideas, so don't miss your chance to see which stocks our analysts feel are retirement gold.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He likes to consider his fantasy football league an investment in his future. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Coca-Cola, Johnson & Johnson, Annaly Capital, and Microsoft. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Johnson & Johnson, Annaly Capital, and Microsoft, as well as creating a diagonal call position in Johnson & Johnson and a bull call spread in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that puts its readers first.

Read/Post Comments (15) | Recommend This Article (78)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 03, 2012, at 5:47 PM, maccdw wrote:

    Pretty good suggestions. Also, take advantage of your deferred comp opportunities, especially if you can afford to defer comp into a Roth Def Comp account (taxed before it goes in, but never again). You can defer up to $16,500 or $22,000 if you're over 50.

    I have been fortunate enough to defer the max for 10 years going. It's much easier to have the contribution removed before your paycheck shos up. Much harder to have to write a check.

    Do what you can to "pay yourself first."

  • Report this Comment On February 03, 2012, at 7:24 PM, MichaelDSimms wrote:

    Pretty good common sense advise. Unfortunately it's something that's lacking a lot of time.

  • Report this Comment On February 03, 2012, at 7:27 PM, TMFUltraLong wrote:


    We all need the reminder now and then. Sometimes I wonder if I'd forget my head if it wasn't attached...


  • Report this Comment On February 03, 2012, at 9:31 PM, TMFDarwood11 wrote:

    I think worst move #2 should be putting anything besides emergency money in the bank, and that includes savings accounts. Most are today earning less than 0.3%! What a gift to others!

    I realize that you put #2 as CDs, but short term funds do need to be put somewhere to protect principal, even if it loses 2.5% annually to inflation.

    Or, should I put it all in the "market" and then when the next fiasco hits, listen to "Mad Money" Cramer on the Today Show telling everyone "Quick, sell everything; save yourselves!"

    I agree with the Roth-IRA. Shelter your earnings, before Obama and his successors take all of it. If you need the money, withdraw the full amount one has put into the account with no penalty; Sweet!

    As for the featured stocks, well the "soup du jour" seems to be chasing yield. But I think I might be better putting 50% into something such as PAUDX, and the remainder into something like VHDYX.

  • Report this Comment On February 04, 2012, at 2:54 PM, estebanlr wrote:

    Is there actually a Roth deferred compensation account? I can't find anything out there about it.

  • Report this Comment On February 04, 2012, at 3:35 PM, iamlard wrote:

    I think what maccdw meant was a Roth 401k

  • Report this Comment On February 05, 2012, at 11:17 AM, CMFSoloFool wrote:

    The content of this article is good, but general advise.

    After emergency funds, IRA and/or 401K is the best way to defer taxes, or at least shelter yourself from taxes in excess of what you should pay. In cases where you have company matching 401K contributions you even get a bonus kicker. However, I always find it challenging to figuring out how much to put towards traditional versus ROTH. There is plenty of free advise on this, but it all comes down to how much you think you will be earning in retirement, how much you think you will need from savings, and the tax rates during your retirement years. Therein lies the problem; most of these questions you simply cannot answer with any degree of certainty.

    As you put money away for retirement you will have to do some careful tax planning, not just to pay the least tax today, but to keep your taxes at a minimum in retirement as well. You have to find a personal balance between your taxable and non-taxable funds. Just remember, distributions from your traditional IRA and 401K are taxed as income, even in retirement. The general theory most are prone to quote is that your income will be significantly lower in retirement, therefore your tax rate will also be lower. But that just isn't clear enough. What I want to know is how do I structure and schedule my distributions so I pay the LEAST amount, not just a reduced amount.

    Thanks for the article. If you need ideas for a follow-up, I'd love to see more about how to structure distributions most effectively to pay the LEAST amount of tax possible.

  • Report this Comment On February 05, 2012, at 2:16 PM, gupsterhouse wrote:

    Interesting that Duke Energy is recommended in this article as a stock purchase, while being touted as a get-rid-of-stock in the "Clean Up Your Portfolio: Ditch the Dirty Stocks" article.

    A bit inconsistent.

  • Report this Comment On February 05, 2012, at 8:29 PM, TMFUltraLong wrote:


    That's what makes us Motley is the diversity of opinions. Most of the writers here will share varying opinions on companies. In this case Duke Energy is one.


  • Report this Comment On February 06, 2012, at 6:36 AM, titus103 wrote:

    I purchase Duk every mos and reinvest. I'm now looking at AT@T. lly, SO and Phil Morris Inter. Since I switched to utilities I noticed that my portfolio is much calmer and I can actually save and invest at the same time

  • Report this Comment On February 06, 2012, at 5:58 PM, Joemit wrote:

    Own both DUK and SCANA. Think I prefer SCANA. Certainly have more of it. South Carolina seems to allow modest rate increases when necessary. That MAY not be exactly true, but it is my impression. DUK is still in limbo with the CPL (Progress Energy) nerger.

  • Report this Comment On February 07, 2012, at 8:48 PM, hbofbyu wrote:

    I have a CD at a Credit Union giving 7.5 percent guaranteed. I bought 10 years ago. CD's are not the worst thing you can do with your money if you buy at the right time.. just like stocks.

  • Report this Comment On February 10, 2012, at 2:44 PM, tkujawski wrote:

    Your advice is right on target. Most of my portfolio is in energy.

  • Report this Comment On February 11, 2012, at 6:43 AM, LosDLot wrote:

    Good reminder. Bit concerned about NLY MSFT DUK JNJ & KO. I understand the bit about divis and reinvesting, but right now these shares are almost all at their historical peak. Would one normally go in at these sort of levels. Some say price is not so important becuase you're in for the long term divi accumulation etc but if your capital falls a bundle, you're not going to be smiling too broadly are you? Yes, I am quite new at this !

  • Report this Comment On February 12, 2012, at 12:44 PM, aleax wrote:

    "Bit concerned about NLY MSFT DUK JNJ & KO. I understand the bit about divis and reinvesting, but right now these shares are almost all at their historical peak."

    Nope. MSFT for example trades around 30 (a P/E of 11.04, well below that of the market overall). Split-adjusted, it's peak 12 years ago was about double (almost 60) and I believe its P/E was well over 50 (that's from memory, don't have the historical data handy). How can you say a stock trading at half its historical peak and 1/5th the back-then P/E is "at its historical peak"?! Same for DUK -- just above 20, it's about half of its historical peak (over 45, split-adjusted, same time as MSFT).

    NLY is trading at 16.54 vs repeated past peaks over 20 -- P/E looks rich but its business model is so different from normal firms that P/E doesn't mean much there. Anyway, far from historical peak.

    KO and JNJ do command premium P/E's but then they long have. KO at 68 vs historical peak at 86; JNJ at 65 vs historical peak at 73. And in both cases earnings were substantially less at the time of those peaks (so their P/E's then were well over 20, and are well under 20 today).

    So it appears your worries may be misplaced... I'll be the last to say "price is not so important" -- it always is to me, and even the best firm can be a disastrous investment if bought when very badly overpriced (MSFT at 60, INTC at 70, CSCO at 80... all top-of-the-tech-bubble peaks these three truly excellent firms did once reach, and prices now are 1/4 to 1/2 of those). But there's no sign of such an outsize bubble in these solid stocks right now -- a, say, 10%-or-so correction is the kind of price move one should mostly ignore in a long-term view...

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