Q. I have considered re-allocating my monthly 401(k) contributions and buying a small condo in Florida. My 401(k) account is down to breakeven (at best) and we are not getting any enjoyment from it. However, if we invested in a condo we would at least get some enjoyment. Wouldn’t such a purchase also be a form of diversification? —H.M., by email

A. If you buy it as a vacation property it would not be diversification. It would simply increase the portion of your assets and net worth devoted to real estate. Since we value home ownership so highly, all but the most wealthy people in America have the bulk of their net worth in personal real estate. Another limitation of this idea is that your Florida condo would be a “consuming” asset, not an “earning” asset. That means it would take your income rather than produce income for you.

You could, however, make this an investment by paying for it over time with the long term intention of selling your primary house and moving to your lower price condo in Florida when you retire. I've had letters from readers whose entire retirement plan was based on selling a house in a high cost, high tax area (think New York, Washington, D.C. or Chicago) and moving to a low-cost, low-tax area such as Florida, Texas, or Arizona.

How would it work? Easily. They could sell their expensive house and retire to the less expensive retirement house. Any cash remaining after paying off the less expensive condo mortgage becomes their retirement nest egg.

You can't do that, of course, if you are moving from North Dakota. But it may really compute if you live in a high cost urban area, selling your house for $500,000 and retiring to a $150,000 condo in a lower cost area.

Q. How quickly— or how slowly— should we proceed in consolidating assets now spread among three institutions, into one financial institution? My husband and I are retired and in our mid-60s. We have assets of about $2 million. Most of it (about $1.5 million) is in stocks and in tax-deferred and taxable accounts holding mutual funds with a trust company. The trust company charges 1 percent a year for management.

A second sum (about $500,000) is in 457 accounts with a second institution. The third account is with Vanguard where I am regularly investing in stock and bond mutual funds. I set up the Vanguard account to consolidate and to reduce management fees.

My questions: Are there any financial benefits (other than temporarily avoiding fees from 3 institutions) of doing the move all at once. Or should it be done more slowly— say, over a period of months, using dollar averaging? What are the advantages or disadvantages?

Second, if I take the slower approach, about how much time should I take to move about $2 million?

Other facts: The capital gains impact, I am told, of the move will be negligible since we will not sell our individual stocks. We will stay in the stock market conservatively over the long haul, or as long as our wits remain intact. —J.S., Austin, TX

A. If the assets in any account will be invested in a similar way in the new account there is no reason to delay making the change. Suppose, for instance, that your trust account is invested in a large cap domestic stock fund and U.S. Treasury securities fund. You could make the move immediately if you invested in similar funds in the new account. You'd be changing manager risk (eliminating it if you move to index funds) but you wouldn't be changing the overall risk of your portfolio.

The harder choice is when you want to invest differently in the new account, as in moving from a portfolio of CDs to a mixture of stocks and fixed income securities. This is changing your risk level and it is psychologically easier to do that over a period of time, such as a year.

It's very easy to let our investments become complicated and spread out. One advisor I know likes to call it “scattered asset syndrome.” That's when confusion sets in. So our goal should always be to simplify. Remember, the advocates of complexity are generally people who are making their living from the complexity they create for us.

By Scott Burns

In November we celebrated the 20th anniversary of Couch Potato investing, the power of sloth and the opportunities gained by undiluted investment ignorance. If you missed the celebration, you are not alone. Our friends in major investment centers also failed to take notice. So did the talking heads on TV.

All are still wringing their hands around their cloudy crystal ball. They hope for a sign that will make them rich, preferably overnight. I say invest for what’s probable, not for what’s possible.

To be sure, thinking about the future is an interesting, if idle, exercise. It also pays a lot better than working at Walmart. But the reality is that you and I can do quite well without the great prognosticators. Year after year, decade after decade, the performance figures show that you and I can do better on our own.

How? We can do it investing in very broad and very low-cost index funds. Here’s the latest proof:

Last year was not a great year for investing. But if you had invested in the most basic Couch Potato portfolio, a 50/50 mix of the Vanguard (or equivalent) Total Stock Market index and the Vanguard Inflation-Protected Securities Fund, your return for the year would have been 7.18 percent. Domestic stocks didn’t do much for us but, thanks to our worrisome friends in Washington, inflation protected securities rocked, returning 13.24 percent for the year.

The Couch Potato portfolio would have beaten 98 percent of what Morningstar classifies as “moderate allocation” funds for the year. These funds, also called balanced funds, are typically 60 percent equities, 40 percent fixed income. The basic Couch Potato portfolio would have beaten 97 percent of “conservative allocation” funds—funds that are typically 40 percent equities, 60 percent fixed income. Over the last 5 years this simple approach would have done better than 97 percent of all moderate allocation funds and 91 percent of all conservative allocation funds.

This is not an annual occurrence. But superior performance isn’t a fluke, either. If you had invested $10,000 in the original Couch Potato portfolio with the mutual funds that were available 20 years ago— the Vanguard 500 Index fund and Vanguard Total Bond Market fund— your investment would have been worth $45,796 at the end of 2011. That’s a 4-fold plus increase. It’s a compound annual return of 7.9 percent —with no heavy lifting. If you had replaced the Vanguard 500 Index Fund with Total Stock Market Index Fund and Total Bond Market Fund with Inflation Protected Securities Fund as our tools evolved, your 20-year return would be somewhat higher.

Trust me, rebalancing was worth the effort. According to Morningstar data, the Vanguard 500 Index fund returned 7.71 percent annualized for the 20-year period. The Total Bond Market index returned 6.32 percent. Rebalancing worked to increase your return. It truly added value. Did that little bit of activity put you on top of the investing heap.

Read more about Couch Potato Investing here.

No, some managed funds did better. But most did not. Here are the names, ticker symbols, annualized returns and percentage ranking in deciles of some of the best known of those managed funds:

• T. Rowe Price Capital Appreciation (PRWCX), 10.28 percent, decile 1
• Vanguard Wellington (VWELX), 9.01 percent, decile 1
• American Funds Income Fund of America (AMECX), 8.67 percent, decile 2
• Fidelity Puritan (FPURX), 8.43 percent, decile 2
• American Funds American Balanced Fund (ABALX), 8.37 percent, decile 2
• GAMCO Westwood Balanced (WEBCX), 8.09 percent, decile 3
• T. Rowe Price Balanced (RPBAX), 7.49 percent, decile 4

With only 79 moderate allocation funds surviving the 20-year period, Morningstar wisely limits ranking to deciles, so we can only estimate that the original Couch Potato portfolio would have done better than three of every four managed funds. This figure is consistent with multiple studies that have shown managed funds fail to beat their assigned index benchmark about 70 percent of the time.

Still tempted to pin your future on a rare winner? Then think a bit about the odds. When you try to select a winning manager your chance is about 1 in 4. When you take the index route you’ll come out ahead of 3 of 4 managed funds.

By Scott Burns

Q. My husband and I are putting $5,000 each in our Roth IRAs. They are with Vanguard and we are using the Couch Potato method. I also have a 401(k) account with my job and I only put enough in for the match. I put in $83 a month. My agency puts in $83. The problem is that the 401(k) plan choices are terrible, with lots of fees. I'm wondering whether I should be doing this at all. The plan is with an insurance company and the fund that I chose is the BlackRock Lifepath 2030. I've thought that it was a good thing to do, because I'm getting a 100 percent match on my $83 investment. Am I right? —A. H., Dripping Springs, TX

A. According to data in the Morningstar database, the issue with BlackRock Lifepath 2030 (institutional shares) isn't their annual expense ratio, it is their performance. The institutional shares have an expense ratio of 0.85 percent a year (other share classes have different, and higher, expense ratios). That's fairly typical for such funds, but higher than comparable funds offered by Fidelity and T. Rowe Price. The performance figures, however, have generally been in the bottom half of the category.

Even so, as long as you collect a 100 percent match, you are likely to do better staying in your plan than looking for greener pastures. Let's hope that your employer will start to realize that using match dollars to compensate for poor fund performance isn't what matching dollars were meant to do. If your plan has a brokerage window alternative you may be able to create a better option for yourself by using a lower cost index fund or exchange traded fund alternative. This would allow you to capture the match and have a better investment option, too.

Q. A number of years ago we put all our investments with Vanguard. We have been extremely happy, and still are, but with current financial situation are wondering if we should make some changes. Here is our situation: I am 80, my wife is 79, we have no debts, paid cash for our house 25 years ago, and retired 19 years ago. I guesstimate the house is worth a bit under $200,000 in today’s. Our investment portfolio with is worth about $826,500. Both of our IRAs are in Wellington fund and total about $413,300. Our taxable joint account is divided between $283,200 in Wellington and about $130,000 in Vanguard GNMA.

Given those figures, it seems that we might be too heavy in bonds at this time. We don’t have any kind of pension income. We have a good income from Social Security and the Required Minimum Distributions from our IRAs. When we want something extra we make a call and sell some shares.

The most recent withdrawal from our IRAs was about $10,000 for me and $6,000 for my wife. That money gets put back into our joint taxable account, to be spent early this year for taxes, travel and other expenses. Any comments would be appreciated. —P.C., Garland, TX

A. Vanguard Wellington fund has about 38 percent of its assets committed to fixed income. So if we do the math and add that portion to your GNMA fund holding, about 48 percent of your $826,000 in financial assets is invested in fixed income. Your two low-cost funds with 5 star ratings from Morningstar have beaten most of their competition for more than 15 years. So what you have presents a good case for "If it ain't broke, don't fix it.”

While some financial planners would suggest that you reduce the portion of your assets in equities, I doubt that the reduction would be very much. Either way, many planners would also suggest that you create a "cash cushion" by redeeming some shares in both funds and keeping some money in cash. It won't earn anything, but it would be available immediately if you had an emergency.

One of the really nice things that you've done is to keep your financial life simple. One of the biggest problems with aging is that financial management can be too complex.

By Scott Burns

Sarasota, Florida. There are, very roughly, three kinds of elderly people in America. There are the people who have already run out of money. They live on their Social Security checks. Then there are the people who are likely to run out of money and worry about it. If reader mail is any indication, they worry about it more each day.

Add the two groups and you have a lot of people. According to the Social Security Administration’s “Fast Facts” book, for instance, Social Security benefits accounted for 90 percent, or more, of income for more than a third of all retirees. Social Security benefits accounted for 50 percent, or more, of income for two-thirds of all retirees.

The numbers for these two groups may be large but they are not visible here in Sarasota for a simple reason. It costs money to leave your house or apartment. And cable TV is a very low cost way to spend time. So the elderly who live cautiously aren’t the elderly you see in affluent places like Sarasota.

Here, work crews scrub down the unused yachts at Marina Jack’s every week. Here, an acre lot on the water on Casey Key, Siesta Key, or Longboat Key is likely priced over $3 million.

In Sarasota the visible elderly are the affluent ones. Here, you’ll find people who’ve come to the giddy realization that they will never run out of money. Not now. Not ever. The sense of ease is palpable. Add a generous portion of sunshine and you are awash in an ambience of raw, joyous indolence. You can feel the spending plans ramping up.

Those spending opportunities, of course, are tilted toward the capabilities of older people, which are quite different from the capabilities of the young. In the bars on Siesta Key the live entertainment is packed up and gone by 10 PM.

Tired of cooking? No problem. Eat out. There is an abundance of restaurants, but most are nearly empty by 9. At the “Sunset dinner hour,” which starts at 4 and ends at 6, a visitor must navigate carefully between the wheelchairs and walkers.

The luxury Lexus 460 sedan is big here. The high-end mall just outside Siesta Key on Tamiami Trail offers 15-minute teeth whitening sessions for people who are more than busy; they are existentially short of time. An opportunity for Botox treatment is nearby. And you’d never have to walk more than a few blocks between pedicures.

For another, more personal, view of aging in Sarasota, read “Retirement Planning, Part 2”.

Yet it all makes me wonder: How did so many people get to be so old? Will the rest of the country feel like this as the boomers continue aging?

The answer, I think, is “No.”

Why?

One reason could be called “the Michigan Effect.” (The same effect works for any state with a long and miserable winter.) Just moving from Michigan to Florida might add a few years to your life. Fewer colds, fewer falls, fewer automobile accidents on slippery roads. And lots more sunshine. Surly New Yorkers have been known to smile here. There’s a good chance people actually live longer because life is easier. There may be some significance to the fact that 8 percent of the population is 75 or older in Florida while only 6 percent is that age nationally and only 3 percent of those in Alaska are that age.

But my bet is the big reason is money.

If you can afford to live in a place like Longboat Key you’ve probably got plenty of money. Ever since the original Whitehall studies of status, income and life expectancy— the studies that found British government employees enjoyed life expectancies that grew with their income, status and authority— evidence has been growing that affluence and social status really do add years to your life. And being poor shortens it.

The most recent examination in the United States, for instance, found that the most affluent people could expect to live 4.5 years longer than the least affluent. If that doesn’t sound like much to you, consider this— the 4.5-year difference is greater than the broad gain in life expectancy for the entire population since 1980. What might be called ‘the longevity gap’ will continue to grow as the gap between the affluent and everyone else continues to widen.

So get ready: Occupy Longevity is coming soon.

By Scott Burns

Q. Are I Savings Bonds better to have than TIPS? They are paying me about 4.5 percent. —G.F., Austin, TX

A. Although both I Savings Bonds and TIPS offer inflation protection (as measured by the increase in the Consumer Price Index) there are some important differences. TIPS (Treasury Inflation Protected Securities) are issued in 5, 10 and 30-year maturities and the yield premium over inflation is determined at auction. Today, the shorter term TIPS are priced at a large enough premium over par that the effective yield over inflation is negative. This works to reduce the benefit of the CPI adjustment to the principal value of the security. Your net yield is something less than the inflation rate. Only by going to longer term TIPS can you get a premium over the inflation rate.

Treasury I Savings Bonds are different. They enjoy the same inflation adjustment to principal but the yield premium over inflation is reset by the Treasury every six months. Since the November 2010 period, that rate has been set at zero. This means new buyers are parking their money and getting a "yield" that is equal to the rate of inflation. The income is also tax-deferred until maturity. This can be a significant benefit over the purchase of TIPS whose coupon and adjustment are both deemed taxable income each year even though one isn't paid in cash. This is why most advisors suggest that you hold TIPS in qualified accounts.

Both securities provided premiums over inflation greater than 3 percent in their first years of issuance. So if you bought your I Savings Bonds or TIPS when the yield premium over inflation was higher, you could still be getting a very nice interest rate.

 But that was then. Today new inflation-protected securities are selling with a guarantee of inflation protection… and nothing else. The big limit for I Savings Bonds is that you can only purchase $10,000 in a year. Purchases of TIPS are unlimited.

Inflation protection is better than what is currently offered on conventional coupon Treasury securities. Recently, for instance, the yield on a 5-year Treasury note was about 0.8 percent, well under the 3.5 percent trailing rate of inflation. As a consequence, even recent buyers of I Savings Bonds and TIPS are getting better yields than with conventional Treasury securities. The only way this will change is if future inflation rates fall pretty dramatically.

Q. My question concerns what is the better source of dividends from a long-term investment viewpoint. I am well diversified in my total portfolio. I am invested in Vanguard LifeStrategy Moderate Growth Fund and some fixed-income funds.

I also like blue chip dividend-paying stocks. I have some money invested in Vanguard Dividend Appreciation Index Fund and Vanguard Dividend Growth Fund (Managed).  A friend argues that I should seek dividends not by sector investing but by total market index funds.
He points out that the yield on my two sector funds is about 2 percent--similar to the yield on the LifeStrategy Moderate Growth Fund. He believes, from an investment perspective, the LifeStrategy Moderate Growth Fund is vastly superior to the two sector funds.  He acknowledges that the current tax code favors qualified dividends, but he insists that the use of the three total market index funds in the Life Strategy fund is a wiser investment strategy. —M.J., Beaumont, TX

Q. Your friend makes good points. Here's the difference between these funds. Vanguard Dividend Appreciation Index fund and Vanguard Dividend Growth fund are 100 percent equity funds. They have no fixed income holdings. They are, however, diversified across many sectors of the economy so I would not call them "sector" funds. 

The Vanguard LifeStrategy Moderate Growth fund is a traditional balanced fund. It has about 40 percent of its assets invested in fixed income securities. The equity portion is spread over three major total market indexes. The fixed income portion is why its income yield is about 2.3 percent, while the yield on the dividend funds is about 2 percent.

Over the (very) long term, the expected return of the 100 percent equity funds should be somewhat higher than the return of the balanced fund. The long term, however, is a lot longer than any of us can hold our breath. In addition, the dividend income of the dividend funds is currently taxed at no more than 15 percent while the tax rate on the balanced fund will be a mixture of 15 percent taxes on dividends and full income tax rate on interest.

There is no doubt that you will enjoy far broader diversification in the LifeStrategy Moderate Growth Fund; It will also be less volatile than the dividend oriented funds, so you'll sleep better. 

By Scott Burns

Cape Coral, Florida.  There was a time when Henry Ford and Thomas Edison looked across the Caloosahatchee River from their estates in Fort Meyers and saw Cape Coral as thousands of acres of mangrove swamp. Today, after an improbable development that was chronicled in “The Lies that Turned to Truth”, Cape Coral is everyman’s dream of Florida, retirement and the good life— sunshine, water, fishing, 400 miles of canals, and more sunshine. Not to mention golf.

And much of it is at a price people who actually work for a living can afford. In November the median price of a home in Lee County, which includes Cape Coral, was $106,300, up 20 percent from $88,500 the previous year. More important, the price is far less than the national median of $170,000. Indeed, with the notable exception of cities like Detroit, you could sell your home almost anywhere in the country, move to Cape Coral, and pocket some money.

Check the Metropolitan Area Median Home Price figures here:

http://www.realtor.org/research/research/metroprice

The change may require a few sacrifices. You won’t have the upscale shopping of old Naples or St. Armand’s Circle on Lido Key. You’ll miss the long rows manicured estates of Bonita Springs with a Mercedes CLK convertible in the driveway. You’ll suffer for want of rare unpasteurized cheeses from Whole Foods. And you’ll miss the nifty white anchovy sandwiches you can get in historic Sarasota.

But you’ll still have plenty of sunshine and access to fishing. You’ll still have Target, Wal-Mart, Walgreen’s and CVS. And you’ll still have Publix, the ubiquitous supermarket of Florida. For a few bucks more, you’ll have center console fishing boat with a Bimini— and an insulated well filled with cold beer.

And that’s why I’ve come here. Nancy Dunning, the CEO of the Cape Coral Association of Realtors, deals with what happened straight on. “You can consider Cape Coral to be ground zero for short sales,” she says, referring to the implosion of real estate values that followed the growth explosion of the now infamous housing bubble. In 2005, she points out, Cape Coral was the fastest growing area in the country.

“The staff at city hall couldn’t keep up with the (building) applications,” she says.

Then it ended. Today, lots that sold for $100,000 in 2000 and $300,000 or more in 2004 and 2005 can once again be had for $100,000. Much the same can be said for completed properties. On a recent visit to Realtor.org, for instance, I found 2,502 listings in Cape Coral. Of those, 648 were under $100,000. Many small condos were offered for less than $50,000.

Michele Deal, a realtor newly elected as President of the Association, is cautiously positive. “Cash buyers are buying now,” she says. “But those who need to finance are still waiting for a signal.” The other problem, of course, is actually borrowing money from a bank.

Henry Albrecht, a broker who has been ignoring pings from his phone during our meeting, finally answers a call. He is a self-described military brat, has a German mother, and spent much of his childhood in Germany while his father was stationed there. A good part of his client base is from Germany.

He answers his phone in German. Afterward, he says that a waterfront lot is going under contract and a German family will be building a vacation home on it.

Why build when so many houses are available?

“It’s all about the site and sunlight,” he says. “They want maximum sunlight. It’s what they come here for. They want sunlight on the pool. They will only be here 4— maybe 6— weeks a year so they want it to be right.”

And that leads me back to what I mentioned two weeks ago, the discovery of lots of German phone numbers on Home Away rental listings. According to the Lee County Visitor Bureau nearly half a million international visitors came to the area in 2010, with more expected when the count is done for 2011. Many come from places like Canada, the United Kingdom, Germany, Austria and Switzerland.

They come to vacation. And they come to buy with ready cash. According to the Florida Association of Realtors, over 80 percent of foreign investors paid cash for their Cape Coral property. It isn’t difficult to understand. If you’ve ever been to Hamburg or Berlin during the winter you know why the grass is so much greener in Florida that they will come here and pay cash. It doesn’t hurt, either, that Europe is having a banking, currency and credit crisis.

The crash may have proved that reliable sunshine isn’t priceless, but it also made us forget how treasured it is.

By Scott Burns

Q. Much has been made about how a million dollars saved for retirement is not what it used to be. It is often said that with safe withdrawal rates of three to four percent, you will have to stretch your money to live well in your later years. What I don't seem to get is this: If you have no children and just your partner to take care of so you don't need any left at the end, can't you just spend the money down faster?

Take a million in savings. Even if you had investment returns of only 3 percent per year on average, and you took out $50,000 per year starting at age 62, would that not last more than 30 years before the amount ran out? Considering that no male in my family has made it past 70 due to health issues, this seems safe to me. I also believe that I will need less at age 80 plus even if I make it that far. What am I missing here? —M.H., by email

A. The only thing you are missing is the destructive interaction of uncertain investment returns, inflation and uncertain longevity. In theory you could search for, and buy, an inflation adjusted joint life annuity and it might provide you and your partner with an income of constant purchasing power until both of you had died. But inflation adjusted life annuities are rare and most people are reluctant to hand over their life savings in exchange for a monthly income, even if it is inflation adjusted.

Failing the life annuity route we are left with trying to extract a rising annual payment from an investment portfolio that can suffer significant fluctuations in value. If the annual payment exceeds the dividend and interest generated by the portfolio, it is necessary to sell a portion of the portfolio, whatever the market price of the assets. Do that in a bear market— as happened to those who retired in 2000 or 2008— and you increase the odds that your money won’t last as long as you do. Worse, the higher your initial withdrawal as a percentage of portfolio value, the lower the odds your savings will last through 20, 25 or 30 years.

There are three under-appreciated realities that reduce this danger. You mentioned one of them— the virtual certainty that our appetite for consumption will decline as we age, particularly after reaching our 70s. A second under-appreciated reality is that in a couple, one will generally die well before the other. In a typical mid-sixties couple, for instance, actuaries will tell us that both will be alive for about 15 years and the survivor will live on, alone, for another 10 years. When that happens, living expenses decline.

The final under-appreciated reality is that across the entire population, there is only a 10 percent chance that a 65 year old will live to age 95. That’s a pretty good argument to relax and, maybe, spend a bit more.

Q. I'm an avid dividend investor. My small IRA has $65,000 in dividend paying stocks that currently produce $3,000 annually, which I immediately reinvest. I have a few blue chip stocks like Coca Cola and McDonalds, a few utilities, and I've expanded into MLP's and REITs. My plan is to continue on this path for the next 20 years and grow my dividends to $25,000 annually at which time I will begin taking the dividends in cash and drawing Social Security at age 67.

Is this a realistic plan? — K.D., Plano, TX

A. You could do a lot worse. Regular reinvestment of dividends is a great way to build your portfolio through thick and thin. Many investors in the 1970s, for instance, bought electric utilities with automatic dividend reinvestment plans. Over the decade their investment grew significantly and continued to rise in the bull market of the 1980s.

The biggest liability here is that you are buying two levels of inadequate diversification. This can happen when you fall in love with a small number of high-yield stocks and end up with much of your portfolio in one or two companies. Those stocks can turn into disasters and have major dividend cuts. (Think GE or, worse, Bank of America.)

It can also happen simply by having a preference for dividend stocks. If you put a minimum yield requirement on the portfolio you will inevitably have a major concentration in REITs and utilities. That isn’t healthy.

By Scott Burns

Sarasota, Florida. As I listened to Kristen Hertel and Deby Mascolino tell their story I kept thinking of Dr. George Vaillant. I had gone to see Ms. Hertel about her real estate business, but the underlying story is about resilience and adaptation, two human qualities that are a lot more important than money, investing or real estate. Dr. Vaillant is the curator of the only long-term studies of human development, studies that have followed several groups of people for more than 70 years. If those studies have a conclusion it is that resilience and adaptation, rather than anything else you can name, are the difference between being among the “happy-well” or the “sad,-sick.”

Here’s the story. Before the real estate crash Ms. Hertel says she was “a-well paid employee of a large real estate brokerage firm” with 24 years of experience. She did the work related to titles and closings at the firm. So when closings disappeared, so did her job.

Read here for a column about Sarasota during the boom.

She responded by getting a variety of licenses and going out on her own, but with an odd twist. Rather than try to swim against the tide of declining sales, she started four small companies that offer different services in real estate. One offers the title and closing services she did before. Another, Real Estate Assistants, LLC, is a kind of outsourcing service that provides support for busy realtors. Those businesses show her resilience.

But the other two businesses are all about adaptation. In a terrible market, she would participate in the boom that arose from the bust: short sales. She would be part of making things happen. She would provide sellers and their realtors with all the services needed to move a short sale to completion and another company would do the actual negotiations with the bank, relieving both the seller and realtor of the task. One is called Short Sale Referrals, LLC that links short sale buyers with short sales. The other is called Advanced Short Sale Negotiators, LLC. (A short sale in real estate occurs when the sale price of the property is insufficient to pay off the mortgage. When that happens, the seller must bring a check to the closing or the lender must accept a lower amount as payoff. Getting that agreement isn’t easy.)

Ms. Hertel says their success rate in short sale negotiations is close to 95 percent.

The importance of short sales is demonstrated by some of the figures provided by the Sarasota Association of Realtors. In addition to tracking monthly figures of sales volume and median sale price for single family homes and condominiums, the Association divides each category into conventional “Arm’s length” transactions, short sales and REOs, the foreclosed properties known as “real estate owned.”

In November, distressed property sales accounted for 41.3 percent of all sales, down from a peak of 51 percent in the second quarter of 2010. In the same month the inventory-to-sales ratio was about 8 months. That’s more inventory than sellers and realtors want, but way better than forever.

When I ask if there is a profile for short sellers Deby Mascolino shakes her head. “We get people who are only $10,000 short. They can be people who don’t have $10,000 but they have to move for a new job.” She also says that prices vary and go as high as $5 million.

When I ask what the hardest part of the job is, the immediate answer is “the paperwork.”

“People are often depressed. They want to throw in the towel. And it’s a lot of paperwork.” Ms. Mascolino says.

In fact, a short sale takes about as much paperwork for the seller as applying for a mortgage: 2 years of tax returns, 2 months of pay stubs, 2 months of bank statements, a listing of all other financial assets, a hardship letter explaining the reason for the short sale, all the property disclosures, a real estate listing and all the photos for an MLS listing.

Although she has handled short sales in 30 states, Ms. Hertel is aware that she isn’t alone and that banks’ ability to deal with short sales has improved significantly over the last few years. She is particularly positive about equator.com, an online system that Bank of America adopted to facilitate short sales. (If reader mail is any indication, it is a great improvement over the chaos that early would-be short sellers experienced.)

Will she be out of business when the real estate market finally recovers? Somehow, I doubt it. She’ll adapt and find a new way to help make things happen.

By Scott Burns

Q. My father is a wealthy man. He is totally risk averse. The only stocks he ever owned were the stock options he exercised at the company where he was an executive. When he retired as President of the company in 1989, he sold all his stocks. Since then he has kept his money in CDs and T-bills.

From everything I have read, this is not a good investment strategy. His theory is that he will be fine if he never loses money. Of course he is losing purchasing power if you consider inflation, but I understand his theory. His assets do not fluctuate with the market. He has enough money and he lives modestly enough that the loss of purchasing power through inflation is not really a concern to him.

But I was shocked to read that bonds have outperformed stocks over the past 3 decades. Since 1981, long-term Treasury bonds have gained 11.5 percent a year on average, beating the 10.8 percent average increase in the S&P 500. Maybe my dad is not so crazy after all. I am curious about your take on that. —E.D., Austin, TX

A. The return you experience in stocks or bonds depends very much on the particular year in which you start. It also depends very much on the length of the investment period. The longer the time period, the greater the probability that stocks will outperform assets like bonds and Treasury bills, according to data from Ibbotson Associates.

It is not surprising that long-term bonds have outperformed stocks since 1981 because in 1981 long-term Treasury bonds had yields that were greater than the average annual total return on common stocks. That made long bonds a very good bet back then. Few, however, were willing to make the bet due to the high inflation rate we were experiencing at the time, 8.9 percent.

Actually, your father didn’t do better than stocks because he wasn’t invested in bonds. He was invested in cash alternatives that seldom gain value and seldom return much more than the rate of inflation.

Most investors enjoy better returns and lower risk by having a very diversified portfolio with a balance of equities and fixed income. They also have a better shot at having their income keep up with inflation. If you were receiving $1,000 of interest income on a bond in 1981, for instance, the purchasing power of that interest income is now about $400.

So your father might have done better. Fortunately, he didn't need to.

Q. In a recent column you did a rough evaluation of Social Security benefits using an immediate annuity web site. You indicated that an inflation adjusted annuity would cost about 50 percent than a fixed annuity to compensate for inflation, as Social Security does. I can understand that an adjustment needs to be made, but 50 percent sounds high. So how did you determine that percentage, realizing it would also be a function of age, and without going into an extensive analysis? —F.E., Plano, TX

A. There are two companies that have offered inflation-adjusted life annuities. I developed the 50 percent figure by comparing the cost of a traditional fixed life annuity for a given income with the cost of an inflation-adjusted life annuity with the same starting income. Yes, intuitively adding 50 percent to the cost of an annuity seems high— but this is just more evidence that all of us tend to underestimate the real burden of inflation.

The companies providing the inflation-adjusted life annuities can't afford to underestimate and it is reflected in what they charge for inflation adjusted income.

As you suggest, the younger you are, the more you will have to pay for an inflation adjusted life annuity. On a recent visit to the Elm Annuities website, for instance, I found that a $100,000 deposit would bring a fixed life income of $420 a month for a 55 year old man. It would bring only $268 a month as a starting income if it were inflation adjusted. So it costs an additional 57 percent to get an inflation-adjusted income at 55. By age 65 inflation adjustment costs only 39 percent more.

Here's a link to the figures: http://www.principal.com/retirement/incomeannuity/elm/income.htm

By Scott Burns

Siesta Key, Florida. Our rental cottage here is part of an experiment. Found on Home Away, the global vacation home rental site, it is a lovely one-bedroom cottage with tall ceilings. It is entirely white, including the floors and furnishings, with oversize slider-doors that look out to a sun dappled jungle of greenery, heated pool and gazebo beyond, all wrapped in enormous palm trees, dense bamboo and a multitude of flowering plants.

There is a distant sound of traffic on the road that delivers people to and from the island— but we can also sit quietly and listen to the sound of leaves dropping from the jungle growth around us. A crushed shell path takes us by the owners’ house to a bit of beach and a big view of the Gulf of Mexico. Sweet.

The goal of this indulgent experiment is to answer a few questions: Can Florida replace our easy and much loved Mexico, the one lost to the drug cartel wars? Does the Florida real estate market tell us anything about the national market? Can Florida tell us anything about what the rest of the country will feel like in a few decades?

The answer to all three questions, I think, is yes.

Let’s start with the practical question first: Can Florida replace Mexico?

Here are some of the basics. It’s easy to get to Florida. In the post 9/11 travel world this is a big plus. Our flight from Austin to Tampa was 2 hours and 10 minutes, non-stop. It’s nearly as easy from many other cities. A bit over an hour later we were parking on First Street in old Sarasota for a casual lunch at the Mattison’s City Grill. An arrival margarita would have put us in the Puerto Vallarta spirit, but we substituted a quick visit to the hysteria of Whole Foods on the afternoon of New Year’s Eve. It was like a Mardi Gras for food.

Are there many places like the one we have rented? Probably not. But Home Away has 22,443 listings in Florida with “more to follow.” Some 4,311 of those listings are in the South Central Gulf coast area. That’s the vast area of beaches, canals and bays that stretches from Anna Maria Island, past Sarasota and down to Venice. Of those listings, 389 are on Siesta Key, 295 are on Longboat Key and 328 are on Anna Maria Island. So there’s a good chance you can find something you like and, equally important, can afford. And if Home Away doesn’t work for you, it’s possible to be brave and just cruise the area looking for “vacancy” signs at any of the complexes that offer apartments and villas by the week or month. It is way easier than trying the same thing in Mexico, trust me.

The other questions will take some time. But already there are hints. One of them can be found in the phone numbers for some rentals listed on Home Away— they are not in the United States. It seems Brits, Canadians and Germans like Florida enough to buy houses, with eye catching concentrations of non-US phone numbers in places like Naples, Sarasota, and Longboat Key. If Florida looks good to non-Americans, maybe we should think about what they are seeing that we locals are missing. Barring the intergalactic collapse some anticipate, it’s just possible that the time for selling is long over. (Here’s a link to what things looked like in 2004.)

Another answer can be more felt than found. Across the entire U.S. the current portion of our population that is 65 or older is 13 percent. Enter the state of Florida and the figure rises to nearly 20 percent. That’s about where the rest of the country will be by 2020. That’s also when the baby boomer retirement surge will be peaking and the aging of America will slacken a bit. There are smaller areas in Florida, however, where we can examine what might be called Extreme Aging. On Siesta Key, for instance, 44.5 percent of the population is 65 or older. On Longboat Key the figure is 67.3 percent. The rest of the country will never get this old, but we may be able to learn about our national future from such extremes.

By Scott Burns

Q. Here's my situation. I am single (divorced) and turned 61 in December. I have a decent paying job, but plan to work only about 3 to 5 more years, tops. I have only saved about $150,000 in my 401(k) account. I have a small pension (about $400 a month) with a prior retirement plan.

Here's my problem: Over time, I have stupidly and carelessly maxed out three high-interest credit cards. I have a combined credit card debt of about $40,000. I have a monthly mortgage of $1,850. I have a 2004 model car that's paid for, but I have no emergency savings at all. Although I clear about $5,200 a month at my job, I find that I routinely pay minimum payments on my credit cards. This is causing me enormous stress and worry–to the point where my health is suffering for being this much in debt.

Can I, and should I, take $40,000 from my 401(k) balance to pay off these credit cards so that I can start building up my savings again? What are the penalties and tax implications?

With my finances as they are, I am unable to save anything more than my monthly payroll deduction for my 401(k). With the interest that I'm paying each month on the credit card balances, I am not making any progress in paying the balances owed.

I am embarrassed about being in this financial position and, due to that, I have been unable to talk to friends or family about my situation. It is a big, dark cloud hanging over me. —S.S., Sachse, Texas

A. Since you are older than 59 1/2 there will be no penalties for making withdrawals from your 401(k) plan. You will, however, have to pay income taxes on any amount withdrawn. Since the withdrawn amount will be added to your ongoing taxable income, you may be paying taxes at a high rate. For 2012 the top of the 15 percent tax bracket is $35,350 and the top of the 25 percent tax bracket is $85,650. (These figures are for your taxable income— your income after deductions, exemptions, and qualified plan contributions.) As a single person you are definitely in the 25 or 28 percent income tax bracket. That means you would have to withdraw at least $53,333 to have the $40,000 in cash that you need to pay off the credit cards.

After you pay the cards off you can save an additional $800 a month— about what the minimum payment on $40,000 of credit card debt is. At that rate it will take you about five and a half years to replace the withdrawn money— but you will be earning a return, not the credit card company. You may be able to replace it faster, while lowering your taxes, by increasing your 401(k) contribution.

Fortunately, you may be able to borrow the money from your 401(k) plan rather than removing it and paying taxes. Such loans, according to the 401(k) help center website, are limited to 50 percent of your account balance or $50,000. They must be paid back while you are still working. This would reduce the time needed to restore the $40,000 quite a bit. So check with your HR department about borrowing.

Whatever you do, you need to cut up your credit cards and live an "I-pay-cash" life. The lesson most people are slowest to learn is that saving isn’t what’s left at the end of the month. What you save is the amount to put aside before any spending. Once you make that shift, you’ll be in control of your life rather than letting it happen to you. Another reward is the certainty that every step you take toward getting control of your debt and spending is a step toward a more secure life now and when you eventually retire.

Yet another year of upheaval and uncertainty bites the dust!

And not a moment too soon. I’m ready for a better year. I bet you are, too. I’m not asking for a lot.

• A year when gas prices go down— and home prices go up— would do.
• A few moments without screeching from the crumbling foundations of civilization would be nice.
• If a cable TV or cell phone offer I could understand came my way, well, it couldn’t get much better than that…
• I’d even settle for a week of news embargo on Kim Kardashian.

Alas, my crystal ball says none of that will happen.

In America we refer to years like 2012 as election years. But on a Chinese calendar they would be known as “The Year of the Clowns.” In country and western music terms it is a year whose theme song could be “Ten with a 2”— you know, Kenny Chesney’s song about going home at 2 with a 10 and waking up at 10 with a 2.

So expect that 2012 will be another year of indelicate surprises. Here are my Fearless Forecasts.

The Rise of The Replacement Party.

Tired of the Republidem and Demorep impasse, a new party will arise with no platform and a single purpose: Replace all Incumbents by voting for any candidate who is not currently in office. Bumper stickers are already available, witness “Fight Organized Crime: Don’t Reelect Anyone” on Amazon. The website Zazzle offers a broad selection: “Save America: Re-Elect No One!,” “Recycle All Incumbents”, “Stop Repeat Offenders: Just don’t re-elect them” and “Help Stop Narcissism: Re-Elect No One!”

Europe Will Be Sold To the Highest Bidder.

This won’t happen in a single transaction, of course, but as it becomes increasingly clear that Europe is destined to become an under populated theme park with a tragically low occupancy rate for its castles and palaces, there will be takeover bids and distress sales. Disney will jump start the trend by buying Monaco, inspiring nations to make larger acquisitions. Turkey, once rebuffed by the European Union, will offer to buy Greece, taking the country off the hands of frustrated German and French lenders. Germany, which has always wanted someplace warm to go, will buy Italy. Wall Street will speculate on which country Apple will buy with its ever-growing cash hoard.

The National Association of Upside Down Homeowners

will be created. With at least one home in six financed for more than its market value, the owners are one of the largest unorganized special interest groups in America. With many not paying on their mortgages and hoping for a short sale, one of the group’s first actions will be to create a short-sale home exchange program so that members can move from one area of the country to another.

The Illegal Immigration Problem Will Be Solved

when Arizona, frustrated by the federal government’s inaction, passes a law that legalizes immigration and taxes it. The tax revenue will be enough to improve state finances while suppressing illegal immigration. Border states will be delighted with their new revenue source. Non-border states will lobby Washington for a special Federal Offset for the revenue opportunity they lack. Arizona governor Janice K. Brewer will observe, “If you can’t beat ‘em, tax ‘em,” but the program will fail as rising taxes end immigration to the state.

A Radical Post Office Reorganization Plan

will be offered. Since the Postal Service has lost nearly $20 billion over the last 4 years and is planning to cut mail deliveries, an aspirant politician will recognize that we’re all tired of chicken in every pot. Instead, he will offer “a tablet in every home,” noting that $20 billion is about $177 a household— nearly enough to provide an Amazon Fire at retail for every household in America, more if they buy the weird tablets on sale for $77 at Fry’s. Small Postal Department vehicles will be auctioned off as collector items. Small post offices will become popular as retro neighborhood bars. Stamp collectors will make a killing as the supply of new stamps disappears.

Meditation Will Boom.

The new fans of meditation won’t be picky about whether it is Zen or Transcendental. Meditation (or medication) will be the only way to escape social media.

By Scott Burns

Q. My 19-year-old daughter inherited a healthy sum of money from her father's estate when he passed away. I am not very savvy with the market or investments. I’d like some help figuring out what to do with some of the funds.

First, she is in college now. We want to put about $60,000 in something that, preferably, will not lose money. It must be available to cover school and living costs for the next 3 to 5 years (if she goes to graduate school). The money would need to be available each semester. At this time we have some in a money market account, some in mutual funds, and some in CDs, but with the exception of the money market, they are losing money. Would it be advisable to put it all in a money market?

Second, I am trying to determine what type of investment to put additional funds in ($10,000) for after she gets out of school. This would help fund a move for a job, down payment on a house, new car, whatever the need at that time. This would be something that could grow for 3 to 5 years but then be available to pull out as needed.

Finally, I am looking for some help in setting up a longer-term investment ($100,000) for her retirement. It is hard to think about retirement for someone not even 20 yet, but she wants to put something away for later and not touch it for a long time. I know there is no crystal ball to show where money will be safe for 40 years or so, but perhaps you can provide some suggestions, or at least some "don't do this" help? —C. R., Austin, TX

A. Yields are so pathetically low today that you will be fortunate to get much of a yield at all if you want safety for the $60,000 she will need while completing her education. I suggest that the two of you make this a joint project. Set aside a reserve that is available immediately, then estimate when she will need specific amounts of cash. Next start hunting on a website like www.bankrate.com for term CDs that offer the best yields. You should also check local credit unions. Either way, you won't earn much, but you don't want that amount of money in a coffee can. You should include the $10,000 of after-graduation money in this fund, as the CD with the longest maturity.

That $100,000 is serious money for a young person. It is, for instance, equal to more than 2 years of starting salary for a typical college graduate. If we ever have a return to historical average returns, it could double every 9 years. That means it could double 5 times before she was in her late 60s, giving her a retirement fund of $3,200,000. (Trust me, the number will be a lot less impressive by then since there will also be 45 years of inflation.)

If you want the money managed at very low cost, Vanguard Wellington and Fidelity Puritan are good balanced funds with long and favorable histories. Still another option would be to invest in the Vanguard Balanced Index fund. This is one-stop shopping and is the best place to start. Later, when she has learned more, you can point her toward reading about the Couch Potato portfolios on my website and reading the book I recently reviewed, "The Millionaire Teacher." Both will provide basic instructions for building a self-managed but very simple and low cost diversified portfolio.

Q. My husband and I have Universal Life Insurance Policies from the early 1980s. Each has a cash surrender value of about $35,000. Currently our cost of insurance is $525 a year. That will change due to our age (65) and the premiums will rise rapidly until all the cash value is depleted. His policy is for $100,000 plus the cash value and mine is $50,000 plus the cash value.

 We have a large line-of-credit loan against our home – about $60,000. Those payments really cut into our income. I’m still working and earn about $40,000 a year. My husband is semi-retired with a small monthly pension, $1,200, and Social Security of $1,800. He works some and earns commissions which we pay taxes on at the end of the year. The house is paid off, except for this loan. Would it be prudent to cash in these insurance policies and pay off this loan and our other credit card debt? Would we owe taxes on this money? —A.L., Irving, TX

A. As a long-term decision, yes, you very likely will be better off by cashing in the policies and paying off your debt, particularly if you have the ability to save some money afterward. I’m concerned that you did not mention any other assets, such as 401(k) account balances, etc.— money that would help pay your bills later.

Some of the cash value in those policies may be interest earned— money that has accumulated over and above what you have paid in annual premiums. This will become taxable income when you redeem the policy.

By Scott Burns

Do investments and saving matter?

It’s a good question for any Christmas Day, but lots of people have particular reason to ask that question now. Barring a long awaited visit from the Tooth Fairy, it is likely the S&P 500 index— the index that represents about 74 percent of U.S. equity market value— will close the year at a loss or near loss.

This is not a new experience. If anything, it is oppressively familiar. The index, today, is barely above the 1,200 level it first reached in December 1998— all of 13 years ago. It is nearly 20 percent below its March 2000 peak of 1,500.

We’re in a new age of Endurance Investing. When Morningstar publishes the Ibbotson returns data early next year, it will be abundantly clear: the current period is close to beating the Great Depression as the longest period of negative return our stock market has ever experienced, measured in nominal dollars.

If we look deeper and measure real, inflation-adjusted returns, the current period is already as bad as the Great Depression. And it is in gunning distance of beating the 15-year loss record from 1968 to 1982. (The inflation adjusted figures include reinvested dividends.)

Should we give up? Is it time to pack it in?

No. History says that endurance investing pays.

If you gave up in the 70s— and millions of people did, putting the entire mutual fund industry into net redemption— you missed the bull market of the 80s and 90s. That’s when a simple investment in large domestic stocks provided a real annualized return of 13.3 percent and a pre-inflation-adjustment return of 17.9 percent. That return would grow $1,000 into $2,000 in 4 years and $32,000 in 20 years. Viewed in terms of a nest egg, it will turn savings equal to one year of income into 16 years of income in 16 years and 32 years of income in 20 years. Either way, that would be more than enough for most people to retire.

If you endured the 70s, the next two decades were a walk in the park.

Will we need to endure in 2012? See your local entrails reader.

What we do know is that whatever the stock market returns in the future, we can invest a lot more efficiently today than we could in 1970 or 1980. This means we get to keep more of the return on our money— when it does, finally, earn a return. Here are some of the great strides that benefited all of us:

• Small savers no longer ride at the back of the bus. In the late 1960s yields at thrift institutions and banks were regulated and limited. As a consequence, most people got lower yields on their CDs than a big saver could get on a U.S. Treasury obligation. One Boston economist was so annoyed about the gap that he titled a paper “Shafting the Small Saver.” The paper estimated how much regulation cost small savers. The gap between what small savers could earn and what big savers earned spawned the first generation of money market mutual funds, providing even the most cautious saver with access to higher yields. The same event also opened the door to no-load mutual funds.
• Brokerage commissions have almost disappeared. Until the mid-1970s brokerage commissions for the purchase or sale of common stocks were regulated, resulting in very high costs for individual investors. High commissions also prevailed in the sale of mutual funds. These often had 8.5 percent front-end commissions. Today a self-directed investor can buy individual stocks at nominal commission cost. More important, the same investor can also buy mutual funds with no commission at all.
• Index funds and exchange traded funds are now abundant. In 1970, according to Investment Company Institute data, there were only 361 mutual funds with only $47.6 billion in assets. Most were common stock funds and 40 percent were contractual accumulation accounts where the saver often experienced no accumulation even after dozens of payments. Low-cost, low-expense index funds did not exist. Today there are hundreds of index funds. We can save for our futures at about 1/10 of the cost most investors faced in the 70s and we can get better results than about 70 percent of all managed funds.

Yes, it’s hard to cheer for the idea of losing money at the greatest cost efficiency in history. But there will be a day, hopefully soon, when endurance and patience are rewarded.

By Scott Burns

Q. I retired at 55 and am now 60. I am a single woman with modest spending needs. I owe $55,000 on my home, which is worth $175,000. My annual spending budget has been steady at $30,000, but I've felt a bit pinched this year. I probably need to up that to $35,000 for 2012. My budget does not include the cost of vehicle replacement nor does it include extravagances like a $7,000 trip. Those big ticket items must come out of savings. Other than my home, my major assets are $100,000 in a taxable Vanguard account, $35,000 in a Roth IRA and $940,000 in a Vanguard Traditional IRA.

Should I withdraw as much as possible out of my Traditional IRA each year to put my taxable income at the upper limit of the 15 percent tax bracket? My projected Social Security benefit at age 66 is $2,199 a month. At age 62, it would be $1,659.

By the way, most of the women in my family live to be 90. I have no Long Term Care Insurance. I may be married a year from now, at which time our shared financial responsibilities should be mutually beneficial. —G.M., Dallas, Texas

A. With a bit over $1 million in financial assets, well-controlled living expenses, and the freedom to take Social Security benefits when it is convenient, you could stay within the 15 percent tax bracket (particularly after you are married). You could draw on your investment accounts to sustain virtually all of your standard of living. This would allow you to defer taking Social Security benefits until age 66 or later, which would be a good bet.

Drawing from qualified accounts until you hit the 25 percent tax bracket is a good idea. You will, soon enough, be facing required minimum distributions on those accounts and it could force you into the 25 percent tax bracket with some of your income.

You also have the freedom to start Social Security benefits anytime between 62 and 66, or even 70. Your benefits are likely to be subject to taxation, so the longer you defer, the more tax efficient your finances will be. If there is some kind of market meltdown, as in a replay of 2008, then you could start taking benefits and reduce your withdrawals from your investments. That's a great position to be in, so you should savor it.

Q. I have a question regarding TIPS in an investment portfolio of people who
are quite elderly. My wife and I are in our late 80's. We are quite comfortably retired, with heavy downside protection due to a large number of single premium immediate annuities purchased a number of years ago. I'm doing some reallocating now. But if I continue to reduce equities as I age, I will have a very large percentage of my portfolio in bonds. I am wondering if adding TIPS would be a wise decision. Do TIPS furnish good inflation protection? And is there anything that might be better? —F.W., by email

A. Let me start with an alternative first. Since you appear to have more than sufficient monthly income, you may not need to continue increasing your allocation to bonds. You can simply let your portfolio continue, as is, knowing that your estate will take the risk, not your immediate standard of living.

TIPS (Treasury Inflation Protected Securities) have been a good investment for many years, including a year to date return over 10 percent. That good performance also means they are richly priced today. Recently, for instance, Bloomberg listed a TIP maturing in 5 years with a current coupon of 0.125 percent selling at a premium. This means it will provide a negative real return, even when your principal is adjusted upward for inflation. With a real return of negative 0.8 percent it would be losing that amount to inflation.

You could, of course, do worse. Over the same period a traditional Treasury obligation is priced to yield 0.92 percent, indicating that it is losing to inflation, which is running more than 3 percent a year.

TIPS provide good protection from inflation as measured by the Consumer Price Index. Whether the CPI measures your personal experience of inflation is another matter. They remain, however, the best instrument available for hedging against inflation.