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Balancing act: Reader’s good financial questions come in 3’s

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A few weeks ago, I sort of begged you to send me more financial questions.

Thankfully, several of you answered the call, including a reader named Sarah. In fact, she responded. And responded. And responded.

Sarah had three questions puzzling her: "In today's markets, what are the best short-term investments? What is the best way to pay off student loans? How (can you) build retirement savings on limited income?"

In order to give each question its due, let's get right to it.

For help, I contacted Jeff Salisbury, principal at Independent 401(k) Advisors, with offices in Cache and Davis counties.

Regarding Sarah's first question, Jeff started with a tongue-in-cheek response.

"Ask me in a year, and I'll tell you what the perfect short-term, high-return investment was," he says. "Hindsight is kind of like that. . . . We've all heard of folks who doubled their money in a year and bought a bigger house and lived happily ever after. But these are the same people who always find a parking place close to the entrance of the mall."

I am NOT one of those people. Assuming Sarah isn't, either, Jeff says there is no magic bullet for short-term investing. But some plans make more sense than others.

"Look at something like (certificates of deposit), bonds or bond mutual funds," he says. "Those products are really set up to be used for a set period of time. But if you need your money before that set period of time is up, you can end up paying a penalty."

Another option, Jeff says, is a money market account. "You'll probably give up a little in return compared to a CD, but there is no early withdrawal penalty."

Now for Sarah's second question, regarding student loans. Jeff says he is assuming Sarah wonders whether she should pay off her loans all at once, make extra payments to eliminate the loan early or just make her minimum payments.

"Student loans typically have a pretty fabulous interest rate," he says. "There are two ways I look at this. From a purely financial standpoint, it probably makes sense to stretch out paying it back over as long as you can, because it's really cheap money.

"But from a human nature standpoint, there is the danger that you will stretch out payments on the student loan but take the extra money (you could use to pay it off) and use it up, instead of putting it toward retirement savings."

Most people do not have the discipline to use their money wisely, Jeff says, and in such cases, they may be better off paying off the loan than blowing the money on something that won't help them in the long-run. (If this were me, I would be spending it on DVDs.)

Also, he says, Sarah should consider what other debt she is carrying. If she has some credit-card debt hanging around, she should make extra payments on that first.

"The general rule on paying off debt of any kind . . . is you generally focus on paying off most quickly the loan that has the highest interest rate," Jeff says.

He also has some good ideas for addressing Sarah's question on building retirement savings, but I don't have enough space to list them all this week. So I'll save that answer for next week's column. Stay tuned, Sarah!

On a different matter, I'd like to provide an update on a reader named Megan, who asked a couple months ago what she could do to get a lower interest rate on her credit cards.

It appears the series of tips I passed along helped her, because she recently sent me another card.

"I did check my (credit) scores, as suggested, and they are over 700," Megan wrote. "I decided to sell some stocks and pay off the (credit-card) balance. I also got a card with a lower interest, and I am changing banks. Their loss!

"Thank you for the good advice. It was very helpful."

Thank you, Megan, for letting us know how everything turned out.

If you have a financial question, please send it to me by e-mail to gkratz@desnews.com or by regular mail to the Deseret Morning News, P.O. Box 1257, Salt Lake City, UT 84110.

E-mail: gkratz@desnews.com