by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: A good friend is investing $25,000 in an alternative-energy deal that looks very promising. He says he can arrange for me to get into it, but in exchange he wants 10% of whatever profit I make. I think he's being incredibly greedy, but he says that he deserves to be compensated for opening an otherwise closed door. Does he?

Answer: If the dealmaker's name is Madoff, run. And even if it's not, remember: While alternative-energy projects have a certain cachet these days, so did hedge funds and Las Vegas real estate not that long ago. In short, caveat investor.

Should you still decide you want in, however, it's not unethical in the business world to compensate someone for opening an otherwise closed door (bribes are another story). But to flip Michael Corleone's famous phrase, this isn't business, this is personal. And in the personal arena, friends don't charge their friends fees. Unless your pal is a professional financial adviser – that is, someone who earns his living finding and vetting investments – what he deserves for a favor like this is your sincere thanks and a nice bottle of wine. If the deal turns into a jackpot, then a more substantial gift – some nice green cash, perhaps – is in order. And if it goes belly up? Well, don't say we didn't warn you.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: My brother-in-law recently asked me to lend him $10,000 to tide him over till he finds a new job. He’s offered me a second mortgage as security, but I doubt there’s ten grand of equity left in his house, plus it’s a trophy property they never really could afford. Still, I don’t want my sister to lose her home. What should I do?

Answer: The first rule of family finance: Never allow your siblings and their spouses to buy houses they can’t afford. Now if only it were enforceable.

From what you say, it sounds as if your sister and her husband were living beyond their means before he lost his job. So regardless of whether the economy turns around and regardless of when your brother-in-law is able to find work, it’s hard to believe that the probability of his being able to repay you isn’t a whole lot lower than the probability that he’s going to need to borrow more money in order to stay in that home.

The bottom line? If your sister and her husband own a place they can’t afford, lending them money isn’t bailing them out, it’s only postponing the inevitable. So unless you can afford to subsidize them indefinitely while they live in their trophy property —- and unless you and your family are happy to do so -— don’t lend them the dough.

We know, it’s your sister. But that’s why you need to hang on to your money: to help her and her husband get back on their feet once they move to a home they can actually afford.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: I'm one of four good friends who rent a house together. Last fall one of us lost her job. Amy pays rent from her savings, but whenever we all go out, the other three of us always pick up her tab. Amy's not close to finding a new job, and this is getting expensive. When can we stop?

Answer: You and your roommates have been exceedingly generous with Amy. But times are tough, and now it's time for some tough love. Being unemployed doesn't make someone a charity. When cash isn't flowing, she needs to cut back on certain things. At the top of the list: new clothes, nights on the town and all but the most frugal travel. Once Amy finds a job, she can go back to hitting her favorite clubs and restaurants as her new budget permits.

Of course, telling her you're putting the brakes on the gravy train won't be easy. In our experience, those folks who are most comfortable accepting the kindnesses of others are often the most wounded – unjustifiably wounded, but wounded nevertheless – when the free-lunch window closes. You might try softening the blow by making plans to do things together that Amy can afford right now. Netflix, anyone?

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: I’ve decided to leave my husband, so I’ve begun transferring things from our home – mostly stuff from my family – to a storage locker I’ve secretly rented. Chris can be petty. Once he learns I want a divorce, he’ll try to get everything he can, even items he doesn’t care about. Am I doing anything wrong?

Answer: As the queen of heartaches Tammy Wynette once observed, D-I-V-O-R-C-E is pure H-E-Double-L hell. But that’s no excuse for behaving dishonorably. In concealing your intentions while surreptitiously raiding the roost, you’re not being fair to your husband. Since Chris assumes you’re still M-A-Double-R-I-E-D, he’s undoubtedly acting differently than he would if he knew what you knew. Were you to announce your decision, would he, say, continue to have his paycheck deposited in your joint account, accept a generous gift to you both from his parents or – on another front – fail to notice that things are disappearing from the house? We doubt it.

Don’t misunderstand. We’re all for you standing up for your own interests. And if Chris were violent, not revealing your plans until after you’d moved would be fine. But maintaining the pretense of a stable marriage in order to keep your spouse from noticing that you’re helping yourself to what’s arguably community property is cheating, and that’s true whether you’re sneaking prize possessions into a secret storage locker or funneling money into a secret bank account. The Bermuda Triangle of men, women and money has destroyed the integrity of many an otherwise honest person. Try not to let it happen to you.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: When my father-in-law learned we were planning to move to a community with better schools, he said he’d send our sons to parochial schools here. He paid for their first semester, but hasn’t paid since. Doesn’t he have an obligation to honor this commitment? He’s not hurting for money, and we stayed because of his promise.

Answer: We sure hope you’re not counting on your father-in-law to help send your boys to college (and we’re not kidding).

Breaking a promise is, of course, never a nice thing to do. But the extent to which it’s simply crummy as opposed to seriously unethical depends on two things: 1) the degree to which the promise involves a quid pro quo and 2) the degree to which the recipient of the promise is hurt when the promise-maker reneges.

So, on the quid pro quo front, did your father-in-law agree to pay the tuition in return for your agreeing not to move? If he did, he has a moral obligation to honor his commitment (assuming he hasn’t suffered a serious financial setback in the interim). He’s obligated, that is, unless his failure to pay has had no real consequences for you and your family. You make the point that your father-in-law isn’t hurting for money, but how about you? If you can afford the tuition as easily as he can but you just don’t want to pay it, then his failure to keep his word, while unequivocally dishonorable, is not such a terrible ethical breech.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: Dennis and I were hoping to retire this summer, but with the stock market slide, we now have to continue working. Until we replenish our nest egg, we’d like to cut back on giving to the local food bank, but we fear it will fold if we don’t make our annual, substantial gift. What should we do?

Answer: Tough times mean tough decisions. But this one, though unpleasant, is easy: Your first obligation is to put your own financial house in order. As deserving as the food bank is, you are no longer in a position to give them a large donation if your savings have shrunk to the point that you need to postpone your retirement. Charitable giving is an important part of the social contract, but – to paraphrase Justice Goldberg — the social contract is not a suicide pact.

What you should do, though, is tell the folks who run the food bank that they won’t be able to count on you for an anchor donation this year, and tell them now. They need as much time as possible to find replacement funds and/or to figure out how best to cut back their services.

You may find that the food bank staff isn’t that surprised to learn you’re downsizing this year’s check. The world of worthy causes has not failed to take note of what’s happening in the economy, and we assure you that belt-tightening is as much a theme of their conferences, journals and board meetings as it is a topic of your – and many other families’ – kitchen table conversations.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

Question: I recently used UPS to ship a package valued at $375. The employee at the UPS customer center filled out the shipping label for me, but never asked about the value of the package’s contents. The shipment was lost in transit, and UPS is telling me that they will only reimburse $100 (plus the shipping cost of $18.95) because I did not declare a value on the parcel. I feel they are at fault and should be responsible for the full amount. Do I have a leg to stand on? – Dave Bock, Hooversville, Pa.

Answer: Since only you and the UPS clerk were present when you shipped your package, this could have been one of those he-said-she-said situations that are never resolved. But the circumstances surrounding your dispute provided you with some extra leverage.

When I called UPS, spokeswoman Ronna Branch told me that employees at authorized UPS shipping outlets – like the one you used – are explicitly trained to let the customer fill in his or her own shipping information. In your case, the clerk filled out the information for you and never asked about the value of the package’s contents – a fault in communication that the corporate offices at UPS now acknowledges as a mistake. This didn’t guarantee reimbursement, but it gave your dispute a harder look.

Another important detail you had going for you was your own shipping history. During their dispute investigations, companies like UPS sometimes look for outliers from a customer’s usual shipping history and preferences. Your record of shipping high-value shipments with excess insurance coverage helped convince UPS to agree on reimbursing you the full $375 value of your lost package.

Tip: A few simple precautions can assure a problem-free reimbursement in the future. Just because this particular UPS clerk forgot to ask you about the package’s value – let alone have you fill out the label on your own – obviously does not mean that you shouldn’t bring it up yourself. Furthermore, creating a UPS account can help you sidestep this problem next time. Account holders can fill out label forms online (the question about insurance will come up automatically) and print the label right from home.

Reporting by: Alex Horowitz

Having a financial nightmare? E-mail Donna Rosato at money_helps@moneymail.com

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: I recently opened my own graphic design business. A prospective client is coming to my new office for a meeting, and I plan to hire two temps for the day, to give the appearance that my firm is busy. A friend says this is wrong. But since no one will get hurt, how can it be?

Answer: Do we have a great job candidate for you! He’s got one year of experience, but his resume says three because he knows that looks better.

We sympathize with your eagerness to land those critically important first few clients. Unfortunately, though, inflating the body count in your office in order to create a good impression is indeed wrong – wrong because you’re misrepresenting not only the willingness of other companies to hire you, but the size of the staff available to do the work you’re seeking. And this is precisely the sort of information prospective clients are looking for when they make a point of coming by.

You wouldn’t be the first entrepreneur – or job applicant – to rationalize a deception by insisting that no one’s getting hurt. But the people you do business with – or work for, in the case of an employee – should be able to expect more integrity from you than the “no harm, no foul” standard of a basketball referee. We realize that, when you’re confident you’re qualified to do the work, the barriers you face to being hired might seem unfair. But just because an obstacle may appear insurmountable doesn’t entitle you to cheat your way around it.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: Friends always hold a lavish holiday party, which we enjoy attending. Another regular guest is a wealthy neighbor who is facing securities fraud charges, charges that are clearly well-founded. Must we chat pleasantly with this man, or is it okay to convey by way of our frosty manner that we're disgusted by his dishonorable behavior?

Answer: Why stop with the cold shoulder? Why not a slap in the face with your glove?

Seriously, we’re as offended as you are by white collar crime and the people who commit it. But until a person stands trial – until the prosecution presents its case and the person accused of the crime has an opportunity to defend himself – you shouldn’t rush to judgment. Once the evidence is in, though, feel free to let the judgment flow. And if what you learn convinces you that this guy is a crook, there’s no reason you shouldn’t treat him as one, regardless of how your friends behave toward him.

What you mustn’t do, however, is use a friend’s party as an opportunity to act out your disapproval. When you accept an invitation to someone’s home, you have an obligation to be pleasant with all the other guests. If you aren’t willing to do this, you should decline the invitation. You might even want to tell your hosts why, in the hope they’ll reconsider before again extending their hospitality to this man. But making a friend’s guest feel uncomfortable, while not in a league with securities fraud, is still out of bounds.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.

Question: Because I haven't used my oldest credit card for a year, HSBC says it's closing the account. I'm afraid this will hurt my credit score. Help! — Nevena Georgieva, Chicago

Answer: Credit-card companies lose money on dormant accounts, and as they feel the economic pinch, they're more apt to close them. Unfortunately, as you suspected, closing your oldest card can lower your credit score. The length of time your accounts have been open is the third most heavily weighed factor in your FICO score (after timeliness of payments and the amount you owe). Plus, eliminating a card reduces your available credit, which could also lower your score.

I contacted HSBC, and after checking your credit history, the bank agreed to reopen your card. Spokeswoman Cindy Savio says HSBC will consider reopening inactive accounts, especially if the account was recently closed and the customer had been with the bank for a long time.

Tip: If you have a lot of other cards and a credit score of 720 or higher, one closure won't have much effect on your score. But if you have a slim credit history and few cards, it's wise to make sure your oldest accounts stay active. So use your card at least once every three or four months. Then be sure to pay it off every month so you're not racking up big interest charges.

Having a financial nightmare? E-mail Donna Rosato at money_helps@moneymail.com.

If you can learn from the mistakes of others, now is a great time to be an investor.

Question: I’m inexperienced when it comes to investing, but I want to build a more secure financial future. What tips or suggestions do you have for a young investor like me? —Caleb Bond, Denver

Answer: It’s a great time to be starting out as an investor. Yes, I know that might sound odd, given that the market and the economy are in shambles. But the fact that people are so fearful and the outlook is so uncertain can also have its advantages.

For one thing, much of the excess has been wrung out of stock prices over the past year or so. And while this hardly insures a quick rebound, the money you invest today is much more likely to earn a higher return than if you had invested before the meltdown.

Even more important, though, is that you now have a better sense of the real risks of investing. People who gain their investing experience during bull markets can easily be lulled into a false sense of security. They know that severe downturn occur and maybe could occur again, but the possibility of one happening to them seems remote.

Today, however, all you’ve got to do is look around you to see that risk is real, it can be devastating and it must be respected.

That said, there’s also the danger that someone surveying today’s scene might take away the wrong lessons. Already, some people are concluding that stocks, or financial assets in general, are just too risky. When it comes to important goals like retirement, they say, the experience of the last year or so shows you should stick to the most secure investments, FDIC-insured CDs and the like.

But that’s an overreaction. Risk is a natural part of investing, a part of life, for that matter. Eliminate it and you eliminate opportunity. The key is to understand how much risk you’re taking and manage it.

With that in mind, here are four lessons I think beginning investors should take from the financial crisis and apply to their investing decisions now and in the years ahead. Come to think of it, I think experienced investors should consider them as well.

Financial success isn’t just about investing.

We kind of lost sight of this fact because returns on financial assets had been so good from the early 1980s through the late ‘90s. And even after the dot-com bust we had another five-year bull run in stocks, not to mention heady gains in the real estate market. It became easy to assume that we could achieve financial goals like a secure retirement with a minimum of savings because we could count on the compounding effect of years of high returns.

That was always an unsound strategy, but it’s only now becoming clear how flawed. In fact, as a study by Putnam investments showed a couple of years ago, saving is just as important for building wealth, if not more so. We can’t be sure of the size of the investment gains we’ll earn, and we don’t have nearly as much control over them as we used to think. But we have much more control over how much we save.

And by saving more, we gain two big advantages: we don’t have to invest as aggressively to build a retirement nest egg or reach other financial goals; and, by socking more money away, we’ll have more of a cushion in the event of setbacks in the market.

Simplicity is better than complexity.

If I could ban two words from the vocabulary of investors, it would be these: “sophisticated investing.” I think more harm has been done by investors trying to boost their returns by creating arcane investing strategies or buying complicated investments they don’t understand than all the investment con men and rip-off artists combined.

I don’t want to sound like a Luddite. I’m all for using tools, calculators and software to help you create a retirement plan and an investing strategy. But you’ve also got to maintain a healthy sense of skepticism about how much fancy algorithms and intricate computer simulations can do.

Fact is, the more complicated your investing strategy is, the more things there are that can go wrong, and the harder it will be for you to monitor and maintain it. A simple mix of stock and bond mutual funds may not be the sexiest strategy around. But if you use good common sense in putting that mix together – i.e., you diversify broadly as we recommend in our Asset Allocator tool – it will serve you well over the long term.

Allow for the possibility you may be wrong.

One of the most notable features of the real estate bubble was how sure people felt that prices would continue to go up, up, up. At the peak of the housing mania, I remember getting emails from firms that were inducing individuals to open self-directed IRA accounts so that they could then invest their IRA money in real estate. I wrote a column at the time suggesting that this might be a sign that the real estate market was getting frothy and warning people about staking their retirement on the housing market.

I got a lot of feedback on that column, alas, most of it from people who wanted to know how they could get in touch with those firms that could help them get rental houses into their IRAs. And although I and others pointed out that house prices had gone down in the past and stayed down for quite a while after big run-ups, no one seemed to believe that it could happen again.

Which is why it’s always important when you’re investing to give yourself a reality check. Are your assumptions realistic? Is there something you’re overlooking? Could you be wrong? What would the fallout be if you are? And, perhaps most important, are you interested in this investment because it fits in with your overall strategy or because it’s the investment everyone is talking about?

Don’t get too euphoric during upswings or depressed during downturns.

When things are going well and the economy and the markets are on a roll, it’s easy to let the excitement cloud your judgment. After all, everywhere you look – the double-digit gains in the fund listings, the upbeat news in the newspaper’s business section, the cheerful banter on cable TV financial shows – you get positive reinforcement. You almost can’t help but believe that the good times will continue to roll.

So you begin to boost the percentage of stocks in your portfolio and put more money than you should into hot investments that now seem like good bets, such as emerging market stocks. In other words, you begin taking on more risk, although, you probably don’t see it that way. How can investing be risky when it seems the market only goes up?

This process kicks into reverse, of course, when the markets and economy change course and begin falling apart. Then the prevailing gloom and doom dominates your thinking. Everywhere you look – the double-digit losses in the fund listings, the downbeat news in the business section, the somber mood and dire pronouncements on the cable TV financial shows – you get negative reinforcement.

You become convinced that the hard times will get even harder. So you sell out of stocks and move into safe-haven investments you sneered at during boom times – bond funds, money-market funds, stable-value funds, even CDs. And you no doubt see this as a move to reduce risk. After all, aren’t you safer getting out of the market when it only seems to keep going down?

But there’s a risk here too: you may be selling at the worst time and positioning yourself to miss the recovery when it occurs.

These feelings and reactions are natural. We’re human. But it’s no news flash that markets and economies move in cycles. That we go through periods of excess on both the upside and downside. We’ve gone through such episodes before and we will again. So ideally you want to set a strategy that factors in such fluctuations, and then avoid the urge to abandon your strategy when your emotions are screaming you to do so.

I can’t guarantee that steering clear of the euphoria that leads to aggressive investing at market peaks and avoiding the despair that causes you to be too conservative after the market falls apart will assure you’ll earn the highest returns or sidestep big losses. But by doing so, you’ll probably be less vulnerable heading into downturns, and better positioned to take advantage of the upswing when it occurs.

Question: Now that the stocks in my IRA have taken a big hit, does it make sense for me to convert to a Roth IRA? I anticipate retiring in about 10 years. —Scott Bottorf, Johnston, Iowa

Answer: The decision to convert an IRA or 401(k) to a Roth IRA should be based on your overall finances today and your retirement prospects for the future (including an assessment of the tax hit you may face after retiring), not the level of the stock market at any given moment.

So, no, you shouldn’t convert to a Roth IRA just because stock prices have fallen.

Similarly, I don’t think it makes sense to try to time a conversion to coincide with a market decline. Granted, you’ll shell out less in tax if you manage to convert your IRA when its balance is lower rather than higher. But the way things have been going lately, it’s entirely possible that the market could fall farther from here, in which case you would have been better off waiting even longer to switch to a Roth. You can’t win this sort of guessing game.

That said, if you believe that converting some or all of your IRA to a Roth IRA does make financial sense you may want to consider converting before the end of the year.

Why? Well, you’ll be well-positioned to take advantage of a little-known “do over” provision in the Roth regulations that could help you lower your conversion tax bill if the market drops after you convert.

Oh, and if you’re in the unfortunate position of having converted to a Roth IRA earlier this year before the market fell apart – in which case your conversion tax bill may be higher than it would have been had you held off converting until after stock prices had fallen – you may be able to use the same “mulligan” rule to undo and then re-do your conversion and save yourself a bundle in taxes.

Do over

The technical term for it is a “recharacterization.” Basically, if you have converted money in a traditional IRA or 401(k) to a Roth IRA, a recharacterization allows you to undo the conversion and return the money (plus investment earnings, if any) to a traditional IRA. It’s as if the conversion never happened. The neat part is that you can then reconvert to a Roth IRA later on, if you wish.

Of course, as with anything related to taxes and retirement accounts, there are a few rules you’ve got to follow to get this second chance. You can recharacterize a conversion any time up to the income tax filing deadline with extensions for the tax year of the conversion. So if you convert in the 2008 tax year, you can recharacterize as late as October 15, 2009.

If you want to convert back to a Roth again, you must wait at least until the year after your original conversion (so 2009 or later if you converted in 2008) and  your re-conversion must be at least 31 days after the recharacterization. Finally, you must still meet the conversion eligibility rules when you reconvert.

So how can this “do over” work to your favor if you convert to a Roth IRA now?

Well, let’s say you’re in the 25% tax bracket and you’ve got an IRA that had a $150,000 balance at the beginning of the year that has since fallen to $100,000. You’ve also decided that a conversion makes financial sense for you. And although you can’t take credit for planning it this way, you like the fact that if you convert your IRA at today’s depressed stock prices, you’ll have to come up with $25,000 to pay the conversion tax bill instead of the $37,500 you would have had to fork over had you made the switch when your IRA was worth $150,000.

By doing the conversion before the end of the year, you also lock in the right to re-do the conversion in 2009. That can be nice option if the market continues to slide.

For example, let’s assume you convert between now and the end of the year and the market plummets again in early 2009, knocking down your Roth IRA balance to $80,000. You could recharacterize, move the $80,000 back to an IRA and then reconvert after waiting 31 days. (For that matter, if the market dives again this year, you could recharacterize this year and then reconvert anytime in 2009, assuming at least 31 days have passed since your recharcterization.) If your IRA balance is still $80,000 when you reconvert, you would pay $20,000 in tax instead of the $25,000 for your original conversion, a tidy $5,000 savings.

Of course, you do take the risk that the market could recover after you recharacterize, pushing your account balance back to its original value or higher before you can re-convert. Were that to happen, you could owe more in tax than you would have paid for your original conversion. But you can reduce that possibility by keeping the period between your recharacterization and reconversion as short as legally possible.

Which is why you might want to convert in 2008. If you hold off until next year, you would still have the right to recharacterize and undo your conversion in the event of a market decline. But since you can’t re-convert the same year of your original conversion, converting in 2009 would mean you would have to wait until 2010 to reconvert. That increases the chance that the market might rebound and that you could face a higher tax bill.

So if you believe you’re a good candidate for a Roth conversion and you would at least like to have the option of reconverting next year in the event the market continues to slide, you may want to get that conversion in before the end of the year.

Ah, but what if you’ve already converted to a Roth this year before the market fell apart? Well, you can also use the “mulligan” rule to undo your original conversion and possibly shave your tax bill. Just as in the example above, you would recharacterize, move the money back to a traditional IRA and then reconvert to a Roth in 2009 (and after waiting at least 31 days from the recharacterization). Assuming your traditional IRA’s balance hasn’t rebounded back to its level when you originally converted – and that you haven’t moved into a higher tax bracket – your tax bill will be smaller than it was with the original conversion.

Tax considerations

Clearly, taxes are a major factor in deciding whether to convert to a Roth (or re-convert, for that matter). The reason is that by converting to a Roth IRA, you pay income tax on the taxable portion of your traditional IRA today rather than postponing that hit until retirement. So, generally, it’s worthwhile to convert only if you expect the tax rate you’ll face in retirement will be the same or higher than your rate at the time of your conversion.

Taxes are always a bit of a wildcard. And now that a new president who made sweeping tax changes a major part of his campaign will be taking office in January, the tax picture is even more uncertain.

For example, while stumping for the presidency, candidate Obama said he would eliminate taxes for seniors making less than $50,000 a year. It’s anyone’s guess whether this provision will make its way into law and how it would actually work if it does. (Will all income qualify for the exemption or just earned income? How will income above $50,000 be taxed?) But if you’re nearing retirement, it raises at least the possibility that converting to a Roth IRA could be a bad deal since you would pay tax on traditional IRA dollars you might able to withdraw free of tax.

You certainly don’t want to be changing your retirement planning on the basis of every tax proposal that’s floated in DC. You would be in a state of perpetual motion, and have no coherent strategy. Besides, when it comes to the issue of tax-free Roth accounts vs. tax-deferred IRAs and 401(k)s, the very fact that tax policy can change so often suggests that it’s a good idea to have at least some money in a Roth account as well as traditional IRAs and 401(k)s to diversify your tax exposure in retirement.

But given the new administration and shift in the makeup of Congress, you definitely want to stay alert to possible changes in the tax laws that may affect your decision to convert.

And above all, remember: if you do convert but later think better of it, at least you’ll have a shot at reversing the decision.

Question: Are stable-value funds a safe investment? —Rexford, Syracuse, New York

Answer: That depends on what you mean by safe.

Stable-value funds, which are available only in 401(k)s (and currently offered by more than half of such plans), invest for the most part in high-grade short- to intermediate-term bonds. The managers of these funds also buy “wrappers” – or contracts from insurance companies and banks – that guarantee principal and accumulated interest against loss.

As a 2007 study shows, the result is an investment that provides long-term returns similar to those you would get with intermediate-term bonds, but with stability comparable to a money-market fund’s.

Would I put stable-value funds in the same category as FDIC-insured bank deposits when it comes to principal protection? No. They’re not federally insured. But given the high quality of the funds’ underlying securities and the fact that they also diversify risk by purchasing wrappers from 10 or so financial institutions on average, I think it’s fair to say that stable-value funds provide a high level of security and adequate protection against losses.

So in that sense I’d say yes, they’re a safe investment.

Playing it too safe

But when it comes to investing for retirement, I believe you should to take a broader view of safety. Specifically, you’ve got to consider whether your investments are safe in the sense that they’re likely to deliver the returns you’ll need to build a nest egg large enough to support you comfortably in retirement.

And that’s where I think people who’ve been flocking to stable-value funds lately – in September alone, 401(k) investors switched $921 million out of stock funds and moved $733 million into stable-value funds – have to be careful.

Understandably everyone is freaked out about declining balances of 401(k)s. Those losses and fears that even more may lie ahead make investments that promise security especially appealing today. But you don’t want to plow too much of your money into investments that offer a refuge from market losses.

There may be few concepts you feel you can count on in the investing world today. But here’s one you can bank on: The more secure an investment is, the lower its long-term returns are likely to be. So by focusing too intently on safety in the short-term, you could jeopardize your long-term retirement security by sacrificing growth potential.

Which is why I think you shouldn’t view stable-value funds as a haven to flee to during periods of market turmoil, but as a core part of a diversified portfolio that also includes stocks and bonds. Basically, you should consider stable-value funds an investment choice for the fixed-income portion of your 401(k), along with bond funds.

As for how much of your 401(k) you should put in stable-value and bond funds, the answer largely comes down to how far along you are in your career and how much risk you’re comfortable taking. I know everyone is wary about investing in stocks right now. But if you’re young and early in your career, you don’t have to be so concerned about falling stock prices. You’ve got decades before you’ll tap your 401(k), so you should focus on getting a competitive long-term return. And that means keeping most of your money in stocks.

Although there’s no assurance stock prices won’t fall even farther from here, history shows that you’re likely to earn the best long-term returns from shares you buy in the wake of major market declines.

As you get closer to retiring, you still need long-term growth – after all, you may spend 30 or more years in retirement – but you also want more stability. You don’t have as much time to recoup losses. So you want to gradually increase the amount going into stable-value funds and bonds as you age.

So if it’s safety you’re looking for, yes, stable-value funds can be a reasonable choice. But make sure they’re part of a long-term investing strategy. Otherwise, the price of feeling safe today could be less retirement security down the road.

Question: In the midst of the turmoil on Wall Street, I’m thinking of investing in gold, specifically bullion or gold coins. Do you think this is a good idea? —Roderick Gaerlan, Redondo Beach, Calif.

Answer: Ever since the financial markets began going haywire this year, I’ve been getting lots of emails from people who are considering buying gold as a way to weather the crisis.

That, I can understand. Investors have come to see gold as a refuge in a sea of uncertainty and volatility, an investment that will hold its value even as the world collapses around it.

What I can’t fathom, though, is how gold acquired and manages to maintain this reputation as an anchor of stability. It doesn’t make sense.

I mean, just look at a chart that tracks the price of gold so far this year. It started out at about $850 an ounce in January. As oil and gas prices started to climb and pundits began predicting that oil might hit $200 a barrel, gold quickly shot up, spiking as high as $1,011 an ounce in March.

After breaking the thousand-buck barrier, however, gold retreated and began bouncing around in a trading range of $850 to $950 in the spring and early summer. It flirted with its previous high briefly in July, hitting $986 an ounce, but then dipped back below $750 in September. It rallied again to break $900 an ounce in early October, but has since dropped below $800, closing out October at $731 an ounce.

So let’s see, that’s a 19% gain from the beginning of the year to its March peak, then a 26% drop from March to the September low, a 20% rebound to early October and then another 19% decline to the end of the month, putting gold 14% below where it began the year and 28% below its March high.

The point isn’t so much that as of the end of October gold was in the red for the year to date. It’s that if you’re looking to avoid gut-wrenching ups and downs, this isn't much of an improvement from the stock market. It’s kind of like getting off Six Flags’ Kinga Ka rollercoaster and jumping on Coney Island’s Cyclone. The drops may not be quite as steep, but you’re still in for a white-knuckle ride.

That’s not to say that you can’t make money in gold. You can if you’re able to get in and get out at the right time (although, human nature being what it is, most people are eager to buy when gold is in the news and prices have already jumped, not when it’s unpopular and its price is languishing).

And since gold prices are not highly correlated with stock prices, you can also make a case for investing a small amount of your assets (maybe 5% to 10%) in gold as a way to diversify your portfolio.

I’m not a big advocate of this approach, but if you’re going to do it, I’d say precious metals mutual funds or a gold ETF is a simpler, cleaner and better way to go than buying coins or bullion. (I’d also add that you have to be willing to rebalance your portfolio periodically for this strategy to work.)

I don’t think it’s ever a good idea to move all of your investment stash into any safe haven or, in the case of gold, putative one. As I’ve noted before, the money you’re investing for longer-term goals like retirement should be invested in a blend of stocks and bonds that’s appropriate given your risk tolerance and how long it is until you’ll need the money.

That said, virtually all of us also need to keep some portion of our assets protected from the ups and downs of the financial markets. Here, I’m talking about an emergency fund or, in the case of retirees, an account that holds 12 to 18 months’ worth of living expenses.

But the right place for this segment of your portfolio is a totally liquid and secure investment such as a high-quality money market fund, short-term CDs or savings account, not gold. For, whatever other qualities it may have to offer, stability of principal is not one you can count on from gold.

No one knows when we'll reach a bottom, but you can get a great bargain, if you shop around.

Questions: Given all the foreclosures and other problems in the housing market and the economy, do you think this is a good time for someone to buy a house? Or would I be better off waiting for the housing market to recover? —Mari, San Francisco

Answers: If you’re asking me to predict when the housing market will hit bottom and when prices are likely to start climbing again, I’m sorry, but I can’t help you. My housing crystal ball is on the blink.

I can tell you, though, that at this point we’re still looking at one bleak house scenario.

If anything, the latest price statistics suggest that the market is still falling. The Standard & Poor’s/Case-Shiller Home Price Index for 20 large metropolitan areas was down 16.6% in August compared to its level a year ago. That’s more than the index was down for the year ending in July (16.3%) and in June (15.9%). National Association of Realtor stats for September also show a decline.

On a marginally positive note, there has been somewhat of an uptick in sales of both existing and new homes. But given the fact that foreclosures and mortgage delinquencies have also been rising and the job market and the economy generally have been softening, I don’t think anybody believes that the recent improvement in sales represents an imminent reversal of fortune.

I suppose it’s possible that the various government and private efforts to help homeowners avert foreclosure could help stabilize the market. When you look at the overall picture, however, it’s hard to imagine the housing situation improving significantly before the end of next year.

Don't time the market

But I don’t think all this necessarily means that you should put off buying until certain prices have bottomed out, assuming you’re planning to live in your house for, say, at least five years as opposed to flipping it.

Why? Well, for one thing I don’t think it’s possible to time the housing market any more than it is to time the stock market. Sure, you might be able to get a somewhat better deal by postponing your purchase. On the other hand, it’s unrealistic to think that you’re going to be able to catch the market just as prices are ready to rebound.

Buying a house isn’t something you can do at a moment’s notice. You’ve got to find the house you really want, settle on a price and get your financing. Your chances of timing all this to coincide with the market trough – even if you could call it – are pretty much nil. Besides, even when prices do eventually start to rise, no one knows how quickly (or slowly) they’ll climb.

Do some legwork

That said, if you’re really serious about owning a home, you’re actually in a very good position as a buyer right now. Prices have fallen substantially over the past year or so, which should give you lots of leverage to negotiate a favorable price. And since there’s no immediate sign of a turnaround in the market, it’s not as if you’ve got to rush into a deal either.

So don’t. Use this opportunity to do plenty of research in areas where you might consider buying. You can do that online these days at sites like Zillow and Trulia.

But don’t restrict yourself to virtual legwork. Drive around a bunch of neighborhoods, talk to homeowners and business owners to get a better sense of how the area is doing and what it would be like to live there, stop by real estate offices and banks to get the current pulse of that specific market. You may even be able to pick up bargains among foreclosures or by working with sellers eager to avoid a foreclosure.

At the same time, you can start lining up your financing so you’ll be ready to move ahead should you find a home you like at a price you’re willing to pay. Remember, lenders are more picky about making loans than they were during the real estate bubble, which means they’re requiring more information about your income, assets and expenses.

You don’t want a snag in the mortgage process to hold you up when you’re ready to close a deal. So get all your financial paperwork in order ahead of time and scout out lenders offering competitive loan rates, which you can do by checking out our Real Estate section.

Bottom line: Without the benefit of 20/20 hindsight, no one can tell you when it’s the absolute best time to buy. But if you make a real effort to shop around and get a feel for the market, you can almost certainly increase your chances of getting a house at a price you can be happy with now and in the future.