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Personal Business Plus: Protecting IRAs

Americans age 70 1/2 and older must make annual withdrawals from IRAs—a percentage of assets based on the account's value on the last day of the previous year. IRA assets totaled about $4.7 trillion at the end of 2007, but three months later were down 4% and are likely lower now given the Standard & Poor's 500-stock index's 27% drop since Mar. 31. "Most of us are going to get killed," lamented an investor at the Baron Funds annual conference in New York on Oct. 24.

The AARP is on the case: CEO Bill Novelli wrote to Treasury Secretary Henry Paulson calling for a "temporary freeze" on mandatory withdrawals. But IRA expert Ed Slott says a halt isn't likely. So this age group, which owns about 24% of IRA assets, must either cash out large chunks from diminished IRAs by yearend—or face big tax penalties. Financial planners say to tap liquid IRA holdings first to avoid selling securities at a loss. Seniors who don't need cash for living costs can make a withdrawal "in kind" to move stocks or bonds to a non-IRA brokerage account. They'd owe tax on the distribution, but wouldn't lock in a loss. And the charitably inclined can roll over as much as $100,000 to a cause. Go to www.irahelp.com for info.

Personal Business Plus: Borrowing Against Your Art

Even the most rarefied connoisseurs have a pawn shop of sorts: The major auction houses, as well as a few commercial banks, allow collectors to borrow against their art treasures. "It's not the cheapest source of funds out there, but these days it is one of the very few options" for raising cash, says Jan Prasens, managing director at Sotheby's Financial Services (BID).

Christie's focuses mainly on consignments, with advances amounting to as much as 50% of the low estimate for an item to be put up for sale. At Sotheby's, collectors can go the consignment route, too, but the auction house specializes in loans against a particular item, without a planned sale. Such term loans, which start at $1 million and currently carry a rate of 7% to 9%, are typically paid back within a year.

More art collectors seem to have tapped their Picassos and Pollocks for cash in 2008. Sotheby's expects its 2008 portfolio of term and consignment loans to exceed the $176 million total for such loans on its books at yearend 2007.

Beware Those Booming Bear Market Funds

As of Oct. 31 the S&P 500 was down 33% for the year, and most stock mutual funds are down as much, if not more. On the flip side, bear market funds, designed to do the opposite of what the broad market does, are up an average of 40% over the same period.

While U.S. stock funds have had net outflows this year, bear funds have seen net inflows. But trying to hedge bets by moving into one of the funds now is not a good idea, says Morningstar (MORN) analyst David Kathman, who points to the risky strategies the funds often use. Many achieve their returns by short-selling futures on stock and commodity indexes, which can make the funds very volatile—especially given recent daily market swings of as much as 10%. Just three weeks ago, for example, bear funds boasted a 69% return for the year. "For most people, the best way to hedge risk is through old-fashioned portfolio construction," says Kathman. He suggests simply buying more bonds if you think the market will fall further.


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