Stern Advice: The top 10 money stories of 2011

Thu Dec 22, 2011 3:13pm EST
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By Linda Stern

WASHINGTON (Reuters) - Remember way back in January, when Washington was arguing about taxes, homeowners were having trouble getting refinanced and investors were dumping gold? Hmmm...that makes it seem like 2011 was an uneventful year.

But 2011 forever changed the way you'll manage your money. Here's an overview of the big financial stories of the past year, and their implications for your wallet.

-- Volatility achieved permanence. There were a record number of consecutive 400 point swings in the Dow Jones Industrial average. Daily index changes approaching 2 percent became the norm, and the U.S. stock market often reversed course or went dramatically in one direction or another in the final hour of trading. Call it bipolarism or computer trading, it's not going away soon. Until the euro crisis, the jobs crisis, the housing crisis, the federal debt crisis, all other crises and the 2012 election all resolve, that can be expected to continue.

That means that investors should plan for volatility. Long term investors can make money in volatile times by choosing a plain vanilla index fund and buying more shares on bad days, or by simply dollar cost averaging and investing the same amount of dollars on the same date each month. You can protect your portfolio by staying very diversified, putting stop loss orders on your stocks, or using hedging strategies.

-- Your wallet got Durbinized. Just as the Dodd-Frank financial reform bill was being passed in 2010, Senate Democrat Dick Durbin added an amendment ordering the Federal Reserve to cap the fee that merchants pay issuers for debit card transactions. That went into effect October 1, 2011, and a flurry of activity and rhetoric ensued. Banks started raising fees on other services, to make up what they were losing. Rewards for debit cards disappeared. Some merchants started planning separate prices for credit and debit card customers, but few actually implemented that.

The bottom line for shoppers? Debit cards never delivered a great advantage before, so leave them in the drawer and use a rewards credit card that you pay off every month. Watch for differential pricing that might make it worth your while to start using the debit card again.

-- Annuity sales hit record highs. New sales of variable annuities were at record highs, and fixed annuities were close to their tops. That's despite the fact that low interest rates have made the payouts on those fixed annuities historically low. Insurance salespeople are having a field day with the fear of the common investor, and pre-retirees and new-retirees rushed to lock in any kind of guarantee they could get.

There's a bonus there for investors: New, improved and less-expensive annuities keep coming to market. Annuity shoppers should compare multiple products, and consider the advice of an expert who isn't paid to sell annuities.   Continued...