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What to do when a financial planner gives bad advice

Stocks gain
Traders on the floor of the New York Stock Exchange.
(Richard Drew / Associated Press)

Dear Liz: I personally like my fee-only financial advisor, who has been managing my portfolio (gained as inheritance) for the last six years. But she has me invested in bonds and gold only and insists that we wait until stock prices fall to get back in the stock market. We have been waiting for six years! My portfolio was not making much but now is declining with projections of interest rates increasing and the new administration’s potential financial implications. My current balance is only half of what it could’ve been had I stayed in my previous portfolio, set up by my previous advisor, of 60% stocks and 40% bonds. Is it time to change advisors again, or should I continue to trust my advisor’s advice? I’m one to five years away from retirement.

Answer: Your advisor is trying to time the market, despite ample evidence that market timing doesn’t work. You’ve missed out on a lot of growth, and your portfolio could take an outsized hit because bond prices suffer when interest rates rise. Big investments in gold are also problematic, given how volatile the prices of this commodity can be.

Increasing your stock exposure now comes with its own risks, of course, since the long-running bull market could end at any time. Still, you almost certainly will need the inflation-beating growth that only stocks can offer if you want a comfortable retirement. If your advisor isn’t willing to admit that she blew it, then you may want to start interviewing her replacement.

Will paying off collections help credit scores?

Dear Liz: I have a question about clearing up collections on my credit reports. I used a credit repair company that did help me with most of the setbacks on my credit reports, but I still had collections that were recent and my scores were going up and down. The credit repair company left me to deal with the collections. Will it hurt my scores if I pay them off, and is there a way to get them off my report for good?

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Answer: Paying off the collections shouldn’t hurt your scores, but probably won’t help them either. You can try to negotiate with the collection agency to stop reporting the collection accounts in return for payment, something known as “pay for delete” or “pay for deletion,” but debt experts say few agencies will agree to do that.

Plus paying off collections is more complicated than it may seem. Many agencies pay pennies on the dollar for collection accounts, which means virtually anything you pay them is pure profit. That means you should be able to negotiate a significant discount of 50% or more if you can pay in full.

However, not all collectors are ethical. Some pretend to own debts they actually don’t, so any payment to them is money down the drain. Other agencies will re-sell any debt you don’t pay in full to another collection agency, which means more collection calls.

Before you attempt to settle any collection account, visit DebtCollectionAnswers.com and download the free e-book written by consumer advocates Gerri Detweiler and Mary Reed.

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Bequeathing a house to a child

Dear Liz: I am 76 and own a house worth about $700,000 with no mortgage. I live on Social Security income and do not have any stocks, bonds or other investments. Can I make a simple will, authorized by a public notary, that will be valid so that my son won’t have to pay capital gains or inheritance and/or estate taxes?

Answer: Taxes probably won’t be an issue, but probate costs may be.

When he inherits your home, your son won’t owe capital gains tax on the appreciation that occurred while you owned it. He will get a “step up” in tax basis to its current value as of your death.

You can draft a simple will that leaves the home to your son, but wills don’t avoid probate, the court process that typically follows death. In most states, probate is not a big deal, but in a few — including California — probate can be expensive and protracted even for smaller estates. The usual way to avoid probate is with a living trust, but in 27 states (including California) you can use a revocable transfer on death deed to bequeath a home without probate.

You shouldn’t worry about estate taxes. Federal estate taxes aren’t owed if your estate is worth less than $5.49 million, which is the estate tax exemption limit this year. Fourteen states and the District of Columbia still have their own estate taxes, sometimes with exemption limits that are lower than federal limits, but none so low that it would apply to you.

Inheritance taxes may be an issue if you happen to live in one of the six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — that levy them on people who are given bequests. Although all six exempt spouses from inheritance taxes, not all exempt immediate relatives such as children.

Liz Weston, certified financial planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com. Distributed by No More Red Inc.

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