Everyone knows the secret to investment success is to buy low and sell high. The problem is most of us lack clairvoyance.

We weigh in on some of the most common mistakes investors make, and while it's easy to see that chasing hot stocks -- the most frequently cited mistake -- would be an exercise in futility, there are other pitfalls to watch out for on the road to retirement.

There are never any guarantees when investing, but avoiding these seven missteps will better your chances of success.

Mismatching Investment With Goal

Need that money for retirement in the next couple years? Don't put it in a hot emerging-markets fund.

Consider when you'll need access to your money. This will help you avoid unnecessary transaction fees, penalties and risk.

For some goals, such as paying for college, it may make sense to use a mix of investments, says Gail MarksJarvis, author of "Saving for Retirement (Without Living Like a Pauper or Winning the Lottery)."

"If you are saving for college and your child is within three years of going to college, you've still got seven years until that last year of college," she says.

So while the bulk of short-term college savings should probably be very safe in CDs or short-term bonds or

Starting in 2010, anyone can convert a traditional Individual Retirement Account to a Roth I.R.A. That’s great news for people who previously were shut out of a Roth because their adjusted gross income was more than $100,000.

Especially if you want to leave retirement assets to family or friends, a Roth conversion is one of the simplest, best planning tools available. You avoid the requirement to take yearly minimum distributions starting at age 70 1/2, and that can leave more for beneficiaries if you don’t use the money yourself. And subject to certain restrictions, no tax is assessed when the money is withdrawn, so income can compound tax-free.

But this technique has a hefty price tag. You owe income tax on the amount you convert, which can be the entire account balance or part of it. And some people worry about what might happen years from now if Congress eliminates the Roth.

One possibility is that those who have already converted will have their gains untaxed, said Christopher R. Hoyt, a professor at University of Missouri-Kansas City School of Law. Another is that only the investment earnings — not the amount converted — will then be taxable.

For now, many lawyers and financial advisers have put that thought aside and are strongly recommending Roth conversions to clients who can afford to pay the income tax. Yet this advice can be hard medicine to take, for it goes against the conventional wisdom that one shouldn’t pay a penny of tax sooner than necessary, and the idea of writing large checks to the Internal Revenue Service for an uncertain future

While many Americans have valid reasons for raiding their 401(k) during their working years, these early withdrawals can have dire consequences in retirement. Fees and penalties for early distributions can further eat away at your retirement account balance. About 15 percent of 401(k) participants spend some of their nest egg before they’re ready to leave the workforce, according to new Government Accountability Office report. The study identifies 3 major ways money leaks out of 401(k)s before retirement and how much each one affects your financial security.

Cashouts

When you leave your job you are given an opportunity to cash out your 401(k). American workers took about $74 billion from their retirement accounts when they job hopped in 2006. But when you cash out a 401(k), typically 20 percent of your account balance is withheld by your employer to pay for federal and state income taxes now due on the amount withdrawn and account holders under age 59.5 must also pay a 10 percent early withdrawal penalty.

401(k) participants who voluntarily cashed out their entire account balance at the time of job separation experienced a larger reduction in their retirement savings over their career than any other type of 401(k) withdrawal, GAO found. For example, a 401(k) participant born in 1970 who began saving 6 percent of his pay annually for retirement at age 21 plus a 3 percent employer match would typically accumulate $588,049 by age 65, according to GAO calculations. But if that same participant cashed out his nest egg at age 35 when he changed careers and paid the resulting tax penalties, he would have only $404,431 at retirement age. And that’s assuming he immediately gets a new job and saves the same amount with an

When you retired, you made the transition from being on a company's payroll to paying yourself with your retirement savings. If you were one of many retirees forced back into a job during the recession, don't despair. You survived the work-retirement transition and you can do it again. We provide six tips to help you make the adjustment.

1. Adjust Financial Objectives

Before retiring, you were accumulating and saving in anticipation of a future life of leisure. During retirement you were preserving and spending. If you're going back to work, your income needs may determine whether you need to continue preserving and spending or if you have enough extra money to go back to accumulating and saving.

Your choices for saving change if you're over 72.5 because of the age limits for contributing to your traditional IRA and some annuities. Instead, make contributions to a Roth, which doesn't have an age limit, but does have income limits. For younger workers who retired early, take advantage of your new employer's retirement plan.

2. Check Your Social Security Status

If you are receiving social security benefits and had to go back to work, whether or not your benefits will change depends on your age when you started receiving benefits. In some instances more of your benefits may be taxable due to the additional income. On the positive side, your social security benefits may be recalculated to reflect the additional years of work and could result in a bigger check. Consult the

Should you hold off on saving until your nonmortgage debt is paid off?

Simple math suggests it's better to get rid of debt before saving for retirement or an emergency fund. After all, if the savings rate is 1 percent and you have credit card debt at 14 percent interest, money is better spent paying down debt quickly.

But personal finance decisions are rarely so simple, and this method may not be the right choice for everybody.

"Like everything else in life, this decision is one of balance, not of absolutes," says Michael Rubin, president of Portsmouth, N.H.-based Total Candor, a provider of financial education.

Dean Barber agrees. The host of nationally syndicated talk radio program "America's Wealth Management Show" says there are pros and cons to each approach.

"You have to set your priorities ... and understand the consequences to either paying debt first or saving money first," says Barber, who is also president of the Barber Financial Group of Lenexa, Kan.

So which should come first -- paying off debt, or saving?

Paying Debt Before Saving

The notion of saving before paying high-interest debt is hard for some financial advisers to swallow, given

On the surface, the future looks bleak for baby boomers. The Center for Economic and Policy Research projects that the median baby boomer household lost 45 percent of its net worth between 2004 and 2009. So why does retirement expert Ken Dychtwald think that boomers' retirement will still have a high quality of life? Dychtwald is a psychologist and the author of 16 books on aging, including his latest, With Purpose: Going From Success to Significance in Work and Life. He argues that retirement for this generation will be so different from traditional retirement that maybe we'll need a new word to describe it.

Perhaps the big reason retirement is changing is that life spans are changing. Increases in obesity and heart disease have not gotten in the way of continual increases in life expectancy over the past 100 years. In 1950, when many of the baby boomers were born, the average 65-year-old was expected to live an additional 13.9 years, according to the Centers for Disease Control. In 2006, a 65-year-old was expected to live 18.5 years longer. Dychtwald says this doesn't mean our health is improving; it's more a shift in attitude. "When our moms and dads reached their 65th or 70th birthday, they felt like they were in the ninth inning, and they were quite happy. Now, boomers look around and see 80-year-old newlyweds and 90-year-old marathon runners," he says.

Many boomers will retire later than their parents did. To some, the delay might seem like a sign of declining living standards. Retiring early has long been a mark of success. "Now we're seeing a lot of questioning of whether 20 years of nonproductive leisure is affordable or even enjoyable. Somewhere between 60 and 65 percent of retirees don't like it at all," he says, arguing that we may see a period of semiretirement for

WASHINGTON (AP) -- The recession has eaten into people's nest eggs so the government is promoting ways to make it easier to save for retirement.

One initiative that President Barack Obama outlined in his weekly radio and Internet address Saturday will allow people to have their federal tax refunds sent as savings bonds. Others are meant to require workers to take action to stay out of an employer-run savings program rather than having to take action to join it.

"We know that automatic enrollment has made a big difference in participation rates by making it simpler for workers to save," Obama said. "That's why we're going to expand it to more people."

The new federal steps, which do not require congressional action, include:

--Making it easier for small companies to set up 401(k) retirement savings plans in which all workers are automatically enrolled unless they ask to be omitted. Employers can set default amounts of each worker's pay -- perhaps 3 percent -- to automatically be deposited into the accounts without being taxed. Workers can raise or lower the contribution levels, and they choose how to invest the money. They will pay taxes on the money only when they withdraw it as retirees, when their tax rates are likely to be lower than when they are working full-time. A similar process would apply to savings plans called SIMPLE-IRAs.

--Allowing such plans to automatically increase the amount that workers save over time unless the workers object.

--Allowing people to check a box on their federal tax returns asking that any refund be sent as a savings

Don't be happy; worry.

The Dow Jones Industrial Average is up 46% since March 9, when the world itself seemed to be coming to an end. In the entire 113-year history of the Dow, only six rebounds have been bigger and faster. But the swiftness and magnitude of this bounce-back aren't reasons to be cheerful; they are reasons to be cautious.

In March, stocks traded as low as 11.7 times their average earnings over the previous 10 years, adjusted for inflation, according to finance professor Robert Shiller of Yale University. That put the market at its lowest valuation since January 1986. Today, however, stocks are selling at 18.4 times Prof. Shiller's measure of earnings. That isn't only up hugely from March but is above the long-term average of 16.3 times earnings.

Robert Rodriguez, chief executive of First Pacific Advisors in Los Angeles, says that in March, investors feared getting crushed in a further decline. Now all they seem afraid of is missing an even greater rally.

Mr. Rodriguez is convinced that the consensus -- economic recovery by early next year at the latest -- is wrong. "People are talking about whether the shape of the recovery will be a 'V' or a 'W' or even a 'square root,' " he says, "but I think we are in what I call a 'caterpillar economy.' It will be up and then down, up and then down. We will be far from normal for a very long period of time. People deploying capital will end up destroying capital."

I am not as worried as Mr. Rodriguez, but it is at times like these, when a rising market sweeps our spirits up with it, that investors need to evaluate their emotions and consider whether their beliefs and actions

Contribution limits for 401(k)s and other plans may decrease next year

It's starting to seem like retirees and those saving for retirement can't catch a break.

First comes news that there won't be any cost-of-living increase for Social Security beneficiaries in 2010. Next we learn that beer prices are rising. And now we find that the maximum amount that you're allowed to contribute to your retirement plans may decrease next year.

"If recent inflation patterns continue into September, it's possible there will be a decrease in the statutory limits on qualified retirement-plan contributions and benefits for 2010," according to a report released by Mercer, the consulting firm, this week.

According to Mercer, the limits for defined-contribution and defined-benefit plans -- including the amount you can sock away in your 401(k) -- are adjusted each year according to a statutory formula based on inflation. And depending on actual inflation levels for August and September, Mercer said the formula could produce limits for 2010 that are lower than those currently in effect for 2009.

If that occurs, Mercer said employers will be looking to the IRS to decide whether the limits will remain unchanged or be reduced for 2010.

Presently, you can sock away up to $16,500 in your 401(k) on a pre-tax basis or $22,000 if you're age 50 and older. But given what's happened to inflation of late, Mercer said Uncle Sam could reduce the amount

Using liability-driven investing to better meet your retirement goals.

It works for the big dogs, and it might just work for you. "Liability-driven investing," a strategy that has been sweeping the world of pension-fund management, could be the next big trend in retirement planning for wealthy individuals.

LDI, as it's known, calls for matching or at least explicitly considering your future expenses when designing a portfolio, rather than focusing on asset growth alone. The idea is to assemble investments that will generate enough gains, and at the right times, to cover everything from greens fees to a bequest to your alma mater. So far, it's mostly being used for portfolios of the super-rich, but experts say it can work just as well for the merely well-off.

LDI certainly has taken hold among large U.S. pension funds, about half of which now use it or are considering doing so. The big liabilities of these funds -- future payments to retirees -- resemble long-term bonds and are extremely dependent on interest rates. If interest rates fall, it's harder for a fund to earn the money needed to make the payments. Therefore, "the heart of most LDI strategies used by pension funds is to try to take this interest-rate risk off the table, so that assets and liabilities move in lock step when interest rates change," says Mark Ruloff, the director of asset allocation at Watson Wyatt Investment Consulting.

This can mean something as simple as investing the whole fund in bonds with the same interest-rate sensitivities as the liabilities. But liability-driven investing also has more sophisticated variants. For instance, a pension fund may run two separate portfolios -- one focused on hedging interest-rate risk

New rules allow seniors to borrow more and even buy a new home.

Retirees concerned about their decimated savings should take a second look at reverse mortgages. Beginning November 1, 2008, homeowners everywhere may borrow up to $417,000. Previously, the Home Equity Conversion Mortgage program assigned various lending limits, ranging from $200,160 in rural areas to $362,790 in the most expensive housing markets. Existing reverse-mortgage borrowers may be able to refinance their loans to take advantage of the higher lending limit. Plus, the new rules cap the origination fee, previously set at 2% of the loan value, at $6,000.

And, in a major policy change, retirees will be able to use a reverse mortgage to buy a new home starting in 2009. "This provision could really transform the industry," says Peter Bell, president of the National Reverse Mortgage Lenders Association, in Washington, D.C.

How It Works

With a reverse mortgage, homeowners 62 or older can tap the equity in their home in the form of a lump sum, line of credit, monthly payout or a combination of all three. You retain the title to your property and must continue to pay property taxes, insurance premiums and home-maintenance costs. Payouts are tax-free, but the income you receive may make you ineligible for certain state and federal benefits, including

WASHINGTON (AP) -- Americans' retirement plans have lost as much as $2 trillion in the past 15 months -- about 20 percent of their value -- Congress' top budget analyst estimated Tuesday as lawmakers began investigating how turmoil in the financial industry is whittling away workers' nest eggs.

The upheaval that has engulfed financial firms and sent the stock market plummeting is also devastating people's savings, forcing families to hold off on major purchases and even delay retirement, Peter Orszag, the head of the Congressional Budget Office, told the House Education and Labor Committee.

As Congress investigates the causes and effects of the meltdown, the panel pressed economists and other analysts on how the housing, credit and other financial troubles have battered pensions and other retirement funds, which are among the most common forms of savings in the United States.

"Unlike Wall Street executives, America's families don't have a golden parachute to fall back on," said Rep. George Miller, D-Calif., the panel chairman. "It's clear that their retirement security may be one of the greatest casualties of this financial crisis."

More than half the people surveyed in an Associated Press-GfK poll taken Sept. 27-30 said they worry they will have to work longer because the value of their retirement savings has declined.

Orszag indicated the fear is well-founded. Public and private pension funds and employees' private retirement savings accounts -- like 401(k)'s -- lost about 10 percent between the middle of 2007 and the

Market turmoil leaves investors wondering whether lessons about risk still apply.

A financial crisis being described as the worst since the Great Depression has left investors thinking far beyond the realm of whether it's time to buy or sell.

No matter how close they are to retirement, many are considering getting out of the stock market entirely by shifting to cash or even gold, believing the market is so shaky they're willing to take the potential tax and inflation erosion they'll suffer from a quick pullout.

Others are staying in, even after this year's 14 percent decline to date in the Dow Jones industrial average has eaten away at what they had thought were safe portfolios.

"Right now, it is just a loss on paper. If I pull out now, it becomes an actual loss," says Deborah Allen, a 51-year-old administrative assistant at a Royal Oak, Mich., school district who's trying to protect a nest egg she's relying on to take early retirement next year.

Allen has about $50,000 in a retirement account, known as a 457 plan, that she plans to use in early retirement until she can draw pension benefits at age 55. But despite a conservative investment mix, the account has shrunk this year in a falling market.

"The money that I thought was going to be there isn't there, so I'm going to have to really look closely over how I'm handling my money for at least the next year," she said.

Many others are cutting back on expenses or considering delaying retirement -- the primary aspects of

After years of hard work, you've decided to call it quits and retire. But before waving goodbye to your colleagues, you'll want to plan an exit strategy. A smooth transition requires more than just figuring out how to survive without a steady paycheck. You'll also need to figure out how to cope with the emotional impact of forgoing a routine you've followed for most of your adult life. "One of the biggest challenges in retirement is really staying engaged," says Tom Nelson, chief operating officer of AARP in Washington. Here are some steps to pave the way to retirement:

Create a health-care fund. If you don't qualify for Medicare, set aside enough money to cover the cost of health insurance, even if your employer offers health plans to retirees, advises Drew Denning, vice president of the retiree-services division at Principal Financial Group Inc. "It's not a vested benefit like a company pension plan, meaning a company can retract that at any point in time," he says. Also, get a physical before your current health-insurance plan expires, says Mr. Denning. Since some providers deny coverage to high-risk individuals, you'll want to know if you fall into this category. If you do, consider staying on the job a little longer to "mitigate the significant risk of a huge health-insurance claim," he advises.

Develop a long-term budget. Determine how much money you'll need on a monthly basis for as long as 40 years from now, says Sandy Timmermann, director of Mature Market Institute, a research division at MetLife Inc. People "are focused on how much money we can accumulate, but not a great deal of

Seeing your portfolio shrink can be tough so close to retirement, but you should still be investing for the long term.

Question: I’m 58 years old. At the beginning of June, my 401(k) was worth $482,000 and now it’s worth $430,000. How can I stop the bleeding? —John, Tyler, Texas

Answer: If your goal is simply to staunch the bleeding, the answer is simple. Just move all your money into your 401(k)’s money-market option. That will pretty much assure that your account balance will fall no further.

But I don’t think that should be your goal.

Why? Well, if you keep your money in your plan’s money-market option (or any guaranteed-return investment, for that matter), you’ll be relegating your retirement stash to a mediocre long-term return, which means that your nest egg isn’t likely to grow very much between now and the time you retire.

Of course, you could move it to a safe haven today with the idea of switching back to a portfolio of stocks and bonds at some point in the future. But you then have to figure out when the right time is to move it back. You don’t want to switch out of the money-market fund too soon and incur more losses. Yet if you wait too long, you can miss the big gains that come in the explosive early stages of a stock rebound.

So if stopping the bleeding isn’t the right goal, what should your objective be?