Lorne Marr, president of LSM Insurance in Markham, Ont., says that insurance companies won’t treat you differently if you have the regular flu, unless you end up in hospital. But underwriters are breaking down H1N1 applicants into three categories: those who currently have the flu, those who had a mild case and recovered, and those who were hospitalized. Those who have it now won’t be considered for coverage until they get better, he says, while those who have recovered from a mild case have to wait two to three months. Those unlucky enough to be hospitalized may not qualify for life insurance for a full year.

Marr’s assessment is based on feedback from insurance industry underwriters. But when contacted by MoneySense, several insurance companies denied having such rules. One spokesperson told me I could qualify for a policy even if I had the swine flu right now.

To check, I called her company’s 1-800 number and asked to take out life insurance. I pretended that I’d recently been released from hospital with a bout with swine flu. After several back and forths with an underwriter, the phone representative said the company wouldn’t consider me until two to three months after a doctor said I was cured. “They want to see some stability before they make a decision,” I was told. “Who knows if you’re more prone to getting it again.” The good news: assuming I did qualify for insurance later, I wouldn’t be penalized for having had H1N1.

To avoid such delays, Marr suggests that if you’ve been thinking about getting life insurance, you may want to do it now, while you’re still healthy. If it’s too late, and you need to get life insurance right after a bout of the swine flu, your only immediate option is a policy that doesn’t require disclosure of any medical information. The premiums on such policies, however, can be awfully steep — usually three times as much as a normal policy.

Which economic rules held up?Which ones didn’t? Which personal finance 101s did you most appreciate following? Which ones do you wish you hadn’t forgotten? Email me at rob.gerlsbeck@moneysense.rogers.com

But now is not the time to get all comfortable and trusting. As aging baby boomers try to make up for lost time, the years ahead are shaping up as prime time for con men. “There’s going to be a whole lot of vulnerable people looking for a quick fix for their retirement savings,” says Neil Boyd, associate director of the School of Criminology at Simon Fraser University in Burnaby, B.C. “These sorts of schemes are only going to get worse.”

Boyd has some particularly bad news if you’re an experienced investor. Your experience makes you the perfect victim.

To better understand the psychology of fraud, Boyd interviewed hundreds of victims of Eron, a British Columbia mortgage scam that cost investors an estimated $240 million before collapsing in 1997. He discovered that it was the people who knew their way around the world of stocks and bonds who lost the most money. In fact, the people who considered themselves to be knowledgeable about the securities industry lost 75% more money than those who admitted knowing almost nothing of the markets.

Part of the problem was overconfidence. While some of the Eron investors borrowed to invest in the company’s mortgages, only half read the prospectus or even looked at photos of the properties they were investing in.

Like Madoff and Jones, Eron promised investors a high rate of return. It told investors that they were putting their money into mortgages secured by real estate developments. But investors were actually buying into a classic Ponzi scheme in which money from new investors is used to pay earlier investors. Because early investors get money back, a Ponzi scheme can appear to be a well-functioning business, right up until the moment it collapses.

So how do you spot a Ponzi scheme or evena straightforward con job? A bit of sleuthing can help, says Michael Linthicum, a private fraud investigator in Florida. Many scam artists have left a long trail of deceit behind them. Before you hand over a big cheque to anybody, head online and find out as much as you can about them.

In particular, check out the websites of provincial securities regulators, such as the Ontario Securities Commission and the British Columbia Securities Commission, as well as regulatory organizations such as the Mutual Fund Dealers Association of Canada and Investment Industry Regulatory Organization of Canada. These groups post the names of people who have broken the rules.

While you’re at it, look for news stories that mention the key names at the top of the company or organization you’re considering investing in. It’s a bad sign if the CEO has previously declared bankruptcy or been involved in other unpleasantness. “I had a client who was going to invest $39,000 into a company supposedly working on electric cars. It turned out the person running the company was already in jail,” says Linthicum. “I found that out just by doing a Google search.”

Even if all the key people in your new investment check out, think twice before jumping in. Ask yourself if you understand—really understand—how the investment works. Yes, that means reading the prospectus and getting acquainted with how the numbers work.

If you don’t understand how the investment generates the returns that it promises, don’t hand over your money. It doesn’t matter if friends and family tell you they’ve already invested and gotten their money back—they could simply be early investors in a Ponzi scheme.

If an investment is being sold by an adviser, check out his or her professional credentials. Jones, the Montreal financial adviser now under arrest, was neither a Certified Financial Planner, nor was he registered with any professional group such as Advocis or the Financial Planners Standards Council. But don’t take the mere factof membership in such an organization as being a guarantee of high ethics. Even if a fraudulent adviser was registered, it’s almost impossible to get your money back, says Ken Kivenko, with the Toronto-based Small Investor Protection Association.

Kivenko suggests you avoid letting anyone control your investments. “Look into doing your own investing online.” If you do need help, consider using a fee-only planner. These advisers (you can see a list at moneysense.ca) charge by the hour and can focus on giving you the best advice rather than selling you products.

1. Stop buying clothes you’ll never wear. In other words, how to clean out your closet, wear stuff you own and stop buying new stuff. Click here to read.

2. Yikes! Companies are borrowing to pay dividends. Here’s a new twist on robbing Peter to pay Paul. With low, low interest rates, companies can use bond-sale proceeds to reward shareholders, says the Wall Street Journal.

3. A book we should all read. A nice litte write-up about “This Time is Different: Eight Centuries of Financial Folly,” a new book by two economics professors.

4. Life after the recession. Of course The Economist thinks it’s going to be grim. Still, it’s The Economist, so it’s worth a read.

5. What do you mean we haven’t hit the bottom? Economist Nouriel Roubini on why the U.S. housing market still has a ways to fall. (Which makes you wonder how our real estate market can keep going up). Click here.

The past year has provided an ideal test to see whether the balanced approach works in reality as well as in theory. By tracking how balanced funds weathered the recent ups and downs, we can asses whether they actually added value. Did their managers boost returns and reduce risk by adjusting their portfolios? Were these managers good at predicting which way the market would move next?

To find out, I examined the portfolio allocation of the largest 15 balanced funds in Canada that disclose this information. The funds that I scrutinized account for more than 44% of the $84 billion that Canadians have invested in balanced funds. Among them, these 15 funds reap close to $1 billion in management fees each year.

I compared the portfolios of the 15 funds at two points — the second quarter of 2008 versus the first quarter of 2009. The former was when Canadian equity values were peaking, right before the crash. The latter was when stocks were bottoming and getting ready to stage a 50% rally.

If balanced funds could have foreseen the future, they would have lightened up on stocks at the peak of the bull market and then jumped back into stocks before the recent low. This is presumably what you’re paying a balanced fund to do.

But it’s not at all what happened. The managers of these funds appear to have been asleep at the wheel. In fact, the data strongly suggest that balanced fund managers added hardly any value during the crisis. Contrary to public perception, those managers did not actively manage their asset allocation by moving from one investment category to another based on market factors. As you can see in Asleep at the wheel below, these fund managers barely budged their asset allocation, either at the recent peak or at the recent low.

The balanced funds that I examined seem to follow a very simple strategy. They stick to a stable asset allocation regardless of market direction. For example, if a balanced fund has decided that the best asset allocation is 45% stocks and 55% bonds and cash, it keeps to this split regardless of what happens in the market. If stocks plunge in price, reducing the value of the stocks below 45% of the fund’s total, the fund buys more stocks to bring its exposure back to 45% (and vice versa).

In general, there is nothing wrong with keeping to a fixed asset allocation. The strategy works because it forces you to add stocks when prices drop. It prods you in the opposite direction when stocks get expensive. In that case, a fixed allocation forces you to sell some of those overpriced stocks and buy bonds instead.

But you do not need to pay a balanced fund more than 2% a year in management fees to do something that anyone with a tad of discipline can do more cheaply.

Let’s imagine that five years ago you had placed 45% of your money in a low-cost equity index fund, 35% in a bond index fund, and the remainder in cash. Assume you rebalanced once a year to keep to those proportions. Following this simple strategy, you would have achieved an average annual return of roughly 5.1% and beat 90% of balanced funds. Not only that, but your bear market losses between June 2008 and February 2009 would have been around 18%, versus an average loss of 23.5% for balanced funds.

No magic is involved in these results. The returns from a do-it-yourself strategy are nearly sure to be better than the typical balanced fund because of your much lower fees. A typical balanced fund holds more than 50% of its portfolio in bonds and cash — two types of assets that require little if any active management. Problem is, a balanced fund still charges full management fees on those assets. In fact, you’re paying the manager to hold cash for you, which is truly senseless!

A big slice of the 2.4% or so that you pay in management fees on a typical balanced fund is wasted. Even if you’re a fan of active management, you could cut your fees by a third simply by investing in an actively managed fund for the stock component of your portfolio, buying a low-cost bond fund or an ETF for the fixed-income portion of your portfolio, and holding your cash in a high-interest bank account or money market fund.

My research indicates that only two balanced funds deserve recognition in terms of both minimizing losses and maximizing returns. The BMO Asset Allocation Fund and the RBC Monthly Income Fund (series F) outperformed the index portfolio on three important benchmarks — the extent of their bear market losses, the magnitude of their subsequent recovery between March and June of this year, and their five-year average returns.

You should give these two funds a look if you’re set on buying a balanced fund. Or you may simply decide to save money and allocate your assets on your own. One advantage of this do-it-yourself approach is that it allows you to choose an asset allocation formula that suits your personal circumstances, rather than the one-size-fits-all approach of a balanced fund.

Some people use fancy computer models to decide on a suitable asset allocation. I think a better approach is to avoid putting yourself in a situation where the worst case leaves you in a situation that is too horrible to contemplate.

Your experience during the recent market turmoil should determine your asset allocation going ahead. If you lost sleep, or couldn’t eat, at the very bottom of the bear market this past year, you should never put yourself in that position again. Never mind probabilities and standard deviations. If you are not prepared to face another 20% loss in the future, do not keep 45% of your investment in equities.

Worst cases (left) summarizes the losses that you would have suffered with different mixes of stocks and bonds during the meltdown. Let those losses be your starting point for deciding on your future asset allocation. If you want to make sure that your portfolio is not going to go down by more than 15%, you should not hold more than 40% of your money in stocks.

I acknowledge that the losses of the past year were a rare occurrence and are not likely to be repeated. But if events do surprise and you lose half of your retirement money, it’s no comfort to tell yourself that you were hit by a low probability event. Far better to plan your portfolio so you never have to face that possibility.

Asleep at the wheel

Balanced funds barely changed their asset allocation, either at the market high or low

Worst cases

How different asset allocations fared during the meltdown

But how much can you really get for your rings and necklaces? Unfortunately, very little. A jeweller or pawnshop will pay only 25% to 50% of what you bought a diamond ring for in a store. And you’ll get 10% or less of the retail price for jewelry that’s going to be melted down for its gold. “Most people assume jewelry is an investment that rises in value. But that’s an urban myth,” says Debra Sawatzky, a gemologist and estate jewelry appraiser in Toronto.

Even if you have a certificate from a professional attesting to the value of your ring or brooch, don’t expect to receive the amount on the certificate. An appraisal merely represents the retail value of your gems for insurance purposes. The price you paid includes the store’s retail markup and the labor that went into crafting the ring. Jewellers and pawnshops deduct those costs when they buy old diamond rings, says Renée Newman, a Los Angeles gemologist and author of the Gemstone Buying Guide.

If you’re still intent on selling your jewelry, follow these tips for the best deal:

Don’t accept the first offer

Diamond rings especially need to be shopped around to more than one store. A former co-worker of mine had a diamond ring appraised at $8,500. He visited several jewellers and found offers all over the map. The lowest was $900. The highest—$2,900.

Avoid the melting pot

Old necklaces, rings and earrings are usually worth more as jewelry than melted down for their gold content. Avoid shops that only offer to pay for the value of the gold. If your jewelry is not that expensive, go to a jeweller or pawn shop that specializes in reselling jewelry rather than one that sends it to a refinery. If your jewels cost you more than four figures or come from high-end jewellers such as Tiffany or Cartier, consider putting them up for auction. There are two main auction houses in Canada: Dupuis Fine Jewellery Auctioneers (Dupuis.ca) and Waddington’s (Waddingtons.ca). Dupuis’s commission is only 10% to 25% ofthe sale price at auction. The rest of the money goes to you.

Understand the value of your gold

If you do end up selling your gold for scrap, it’s important to know how much gold your jewelry has in it and what it’s worth. It’s an easy calculation. First, go to Kitco.com and find the current price of gold per troy ounce. As I write this, the price is $935 (U.S.). Convert that amount into Canadian currency: $1,030. Then multiply by 0.0311. That’ll give you the price of gold per gram, in this case $33.11. You need to know that number because when a jeweller weighs your jewelry he’ll tell you how many grams of gold it has.

An 18K wedding band might only have five grams of gold, which means the ring has $166 worth of gold. Most jewellers will offer you less than half that amount: $50 to $75 would be typical. But if you know what the gold is worth, you can haggle for more money.

1. The 7 Deadly Sins of Personal Finance. A nice summary of all the mistakes you should avoid making, from The Globe and Mail’s John Heinzl. Click here to read.

 2. The Dow at 10,000. Don’t bother opening the champagne. When the Dow hits 10,000, as it is expected to at some point in the near future (it was at 9,554 this afternoon), there will be much celebrating. Passing this magic threshold is supposed to prove that the bull is back for good. (Ahh, recession. We hardly knew ye’.) This article, though, says a 10,000 Dow is no big deal.

3. How the recession has affected dating. Hey, let’s face it. Dating isn’t just time-consuming. It’s expensive. All that money on movies, dinner, etc. But here we find that couples are finding new ways to lower the cost of courting.

4. This is your brain on money. The big problem with personal finance advice is we assume that people are rational about money and financial decisions. That’s not true, of course. This article at Get Rich Slowly nicely explains the problem, and offers some nifty tips to getting around it.

5. Who wants to be a politician? In my past life as a newspaper reporter I covered local politics – city hall, police boards, school boards, etc. It was interesting stuff. One thing that always amazed me was how few people ran for the less coveted positions, like school board trustee. That’s why I especially liked this post from someone who recently decided to run and found himself instantly elected when no one else decided to oppose him. The money apparently isn’t half bad.

Kevin Roth, the author’s son, is eight years old. He’s probably got a better investment portfolio than you do. This book reveals his secrets. Our take: Explaining how a second grader can whip most adult investors is a fun way to demonstrate the benefits of a simple indexed portfolio. Our only complaint? The U.S. orientation of the book. But don’t let that deter you from an illuminating and fun read.

Enough Bull by David Trahair ($19.95, Wiley)

Trahair is a Chartered Accountant who believes most Canadians are being played for suckers by the financial industry. In this book, he sets out to tell you how to retire well “without the stock market, mutual funds or even an investment adviser.” Our take: We don’t agree with everything Trahair says—his love for GICs, for instance, goes a little further than we think reasonable—but, man, we admire his attitude. Trahair argues his case well and deserves to be widely read.

The Little Book of Main Street Money by Jonathan Clements ($23.95, Wiley)

We’ve admired Clements since he was the personal finance columnist for the Wall Street Journal in its pre-Rupert Murdoch heyday. In this book, he sets out to deliver “21 simple truths that can help real people make money.” Our take: Clements’ book is short and simple, but its wisdom is deep and complex. From how to save more to how to invest better, this book delivers the goods on how to lead a rich life (in every sense) and does so in less than 200 pages. Yes, it’s aimed at U.S. readers, but its insights spill over the border. Highly recommended.

And Then The Roof Caved In by David Faber ($31.95, Wiley)

Faber is a correspondent for CNBC and this book about the crash of the U.S. housing market offers the print equivalent of a TV documentary. The subtitle states the book’s theme: “How Wall Street’s greed and stupidity brought capitalism to its knees.” Our take: Print journalists don’t think much of TV types, but much to our surprise, we wound up liking Faber’s book. He writes simply and well. He also uses real people to demonstrate the insanity of the housing boom. While this may not be the deepest book about the crash, it could be the most accessible.

Cash in a Flash by Mark Victor Hansen and Robert G. Allen ($27.95, Harmony)

Gosh, there’s no need to worry about this little downturn. You, too, can make millions by unleashing your Inner Winner and using High Vibration Words. Our take: We could call this silly book one of the most shameless attempts we’ve seen to cash in on people’s financial insecurity, but that would be our Inner Whiner talking. So let’s be positive: this is a great book—for anybody you truly hate. One of the co-authors (Hansen) made a mint with the Chicken Soup for the Soul series. Call this one Chicken Feathers for the Brain.