John Wasik

CHICAGO, May 25 (Reuters) – Despite saving for the past
decade and a half, I know I’m nowhere near covering projected
college bills for my daughters, who are now teenagers. So I’ve
been employing an investment strategy to try to make up the
difference so that tuition doesn’t sink my kids into a loathsome
amount of debt.

The basis of our plan is that we invest our college funds in
an age-adjusted 529 college savings plan that reduces market and
interest-rate risk the closer the girls get to matriculation.
Every state offers these funds with major mutual-fund companies
managing them.

In our case, we started investing in the Upromise plan that
links my business credit-card purchases to contributions to
college-savings accounts for both of my daughters. Depending
upon the item purchased, the company, owned by Sallie Mae, will
contribute from 1 to 5 percent of the purchase price into our
college accounts. There is a similar program called
BabyMint.com, which is also worth exploring.

Of course, any credit-card purchasing program is designed to
get you to use your card and purchase from specific companies.
But we were more interested in the linked savings accounts,
which have received more than $2,000 in purchase-related
contributions since we opened them – in addition to other money
we have added. (Note: I am not specifically endorsing this plan.
I originally signed up when the low-cost Vanguard Group was the
manager. State Street Corp’s State Street Global
Advisors took over management earlier this year.)

I have little quibble with the management of our college
funds, which can serve as a workable model for anyone doing this
on their own. The accounts are invested in low-cost SPDR College
Date exchange-traded fund portfolios managed by SSgA.

Since they are automatically rebalanced every year between
stock, bond and money-market funds, I don’t have to do a thing -
except put more money in them. My older daughter’s account, for
example, is in the 2015 portfolio (she is 15 now). The
annualized rate of return over the past year has been 4.2
percent. While that does not sound impressive, it is roughly
four times what I could earn in an insured certificate of
deposit. Keep in mind that our portfolio is still exposed to
some risk, but it is very low at this point. Her portfolio is
now 81.25 percent in global fixed-income funds and 18.75 percent
in a money-market fund.

Two major drawbacks of 529s are that you generally have only
a few choices of fund managers within state plans, and the
layered expenses are higher than what you would find in non-529
funds or ETFs. While the costs of State Street’s funds are lower
than average because they are ETFs, you should generally avoid
plans that are sold by brokers, which may charge you commissions
and higher management fees.

Most states offer similar age-adjusted plans. While you can
do this yourself by investing in individual mutual funds or
ETFs, it can be a risky hassle. If you neglect the annual
rebalancing, you could be overexposed to market risk and
needlessly lose money. Unless you are a sophisticated investor
or working with a fiduciary adviser or money manager, don’t even
try to invest on your own.

Another option – one that doesn’t get as much attention as
529 plans – is a certificate of deposit linked to college costs.
The CollegeSure CD, offered by the College Savings Bank, is
available in maturities from 1 to 22 years. The yields of the
variable-rate CDs are indexed to the College Board’s College 500
Index and are federally insured up to $250,000 per account
owner.

Of course, like most investments, the true cost of college
is not what you paid yesterday, it is what you will pay in the
future. So the biggest key to successful investing for college,
especially as your kids approach the age of using the money, is
to keep pouring money into the funds. In this regard, regular
savings is a bit like homework or learning a language -
consistency is the key to success.

CHICAGO, May 21 (Reuters) – What if, despite conventional
wisdom, the United States and Eurozone economies “decoupled?”
This suggests that no matter what happens in Greece, Spain and
the rest of the beleaguered European nations, the U.S. economy
wouldn’t be linked to those woes and would continue its mild
recovery relatively unimpaired.

There’s growing evidence to suggest that this has been
happening and may manifest itself more in coming months. That
means Europe and America could be more like two ships passing in
the night rather than on a collision course.

As most of Europe struggles with austerity programs,
political shifts and debt woes, U.S. stocks have generally been
staging a rebound. The MSCI All Country World Ex USA Index
finished April 2.5 percent below the level of October
2009, “when foreign stocks established their relative strength
peak against the U.S.,” according to a May report from Leuthold
Weeden Institutional Research.

In contrast, the S&P 500 Index, a popular gauge for large
U.S. stocks, moved up 29 percent over that period. That suggests
Europe and the United States are not moving in lockstep.

Why the inverse relationship in a global economy in which
the fortunes of continents are often closely linked?

The U.S. economy is modestly rebounding while Europe muddles
through deleveraging. Stateside, industrial production, housing
starts and overall economic activity are up, according to recent
reports. Even housing starts were up almost 3 percent in April,
according to the U.S. Commerce Department.

Although this story is often buried when Europe and Facebook
Inc devour business headlines, the S&P 500 beat all but
eight countries in global performance measured by Leuthold
Weeden.

None of the countries that did better than the United States
were in Europe. They were Thailand, the Philippines, Colombia,
Indonesia, Chile, Sri Lanka, Malaysia and Korea – yet another
reason to hold emerging markets as a hedge against Western debt
dramas.

One inverse proxy for U.S. economic health (and the dollar)
has been the price of gold. Since 2007, gold prices have
generally soared, acting as a fear index when U.S. economic news
has been sour. But over the past year, the SPDR Gold Trust
, an exchange-traded fund that tracks gold prices fairly
closely, was off about 17 percent from its 52-week high through
May 18.

None of this means that the U.S-Europe decoupling will
continue or that the United States will remain on its recovery
course. Unemployment is still stubbornly high, and it will take
years before the housing market is back to normal.

Housing has typically been the truck that hauls the U.S.
economy out of slumps, but it’s been sputtering in the wake of
the Great Recession. U.S. home prices were down 3.5 percent in
February from a year earlier, according to the S&P/Case-Shiller
20-city composite index, and are at their lowest point since
late 2002.

Foreclosures are slowing, but continue to depress prices.
Although foreclosures filings in April dipped to the lowest
level since 2007, according to the data firm RealtyTrac, the
company expects that number to rise to 6 million by 2014.

PATIENCE REWARDED

If you’re a patient, long-term investor, there’s no harm in
betting on an eventual European recovery, although there’s
little optimism that it will happen soon. Many European-based
companies are global players that are still worth owning. For
example, the Vanguard MSCI Europe ETF holds power-houses
like Royal Dutch Shell, Nestle and Novartis
.

Your stronger position, barring any mammoth surprises, may
be a broad-based U.S. portfolio such as the iShares S&P 500 fund
.

Speaking of surprises, if you want to be cautious, your
biggest fear at this point should be U.S. political risk. The
White House and Republicans appear to be at loggerheads again
over spending cuts and tax increases. If the two major parties
begin playing a game of chicken over the U.S. debt ceiling
toward the end of the year – repeating last year’s puerile
spitting match – U.S. stocks will get clobbered again.

No matter how the political rhetoric trends now, though,
it’s sure to heat up as Congress faces down a “fiscal cliff” of
the expiration of the Bush-era tax rates and more than $1
trillion in automatic budget cuts.

If Congress does nothing by the end of the year, its
inaction may scorch the decoupling theory as the frail U.S.
economy could sink back into recession. If we were talking about
tango dancing, it would be the equivalent of one partner
slamming the other to the floor.

CHICAGO (Reuters) – If you were betting on a big rebound for any one sector this year, you probably would have put your money on banking instead of manufacturing.

The more glamorous rebound story has been banking and the financial services sector, but with the revelation of a $2 billion trading loss at JP Morgan Chase & Co, it’s clear some of the biggest banks may have not taken the lessons of 2008 seriously. They continue to bad-mouth and fight reforms and engage in risky derivatives trading, and there is likely more dirt under the carpet in that sector.

Megabanks are difficult to divine. The economy might be rebounding, but they might not lend widely and focus instead on making more money from their trading desks, which are still largely a black box to investors.

“Investors should stay away from financials,” says Lee Munson, a money manager with Portfolio LLC in Albuquerque, New Mexico, and author of “Rigged Money.” “I can’t figure out what’s in them. There are more time bombs out there.”

U.S. manufacturing, in contrast, is a warts-and-all comeback kid story that doesn’t get much attention. Many of the industries left for dead in the wake of the Great Recession have undergone massive restructuring and are much more productive than they were five years ago. Industrial production posted its fastest growth in a year in April, according to the Federal Reserve.

Provided the U.S. doesn’t slip back into recession, manufacturing could be the long-term investment that offers some durable profits over the next few years.

Industrial production is forecast by the Federal Reserve Bank of Chicago to rise at a “solid pace” over the next year, says William Strauss, senior economist for the Chicago Fed.

Light-vehicle sales are set for improvement this year and next. Industrial output in manufacturing has risen 6.7 percent over the past 33 months and has recovered almost 74 percent of its loss from the recession trough.

When an economy rebounds, more cars, appliances and durable goods are made. Basic industries buy more materials to produce them. It’s a rising tide that lifts all boats, particularly in the global market for manufactured goods and materials, which has been expanding due to increasing wealth and demand from emerging economies such as China, India and Brazil.

Manufacturing is also remarkably transparent. Companies often make things because they have orders in hand. They adjust inventories based on the business climate, then ramp up production accordingly. That’s why capacity utilization, a measure of how much producers are using their resources, rose to 79.2 percent in April, the highest since April 2008.

Yet it makes little sense to pick single stocks and hope for the best. There’s too much volatility and it’s too easy to make the wrong bet. It’s worth considering a broader approach such as the iShares Dow Jones US Industrials Index Sector ETF, which holds the major U.S. manufacturing companies.

For a more focused play, the iShares DJ US Energy, buys oil, gas and pipeline companies. As the U.S. once again becomes a major energy exporter because of the huge natural gas and oil reserves discovered in recent years, this is a reasonable vehicle for growth.

You also may consider a stake in the companies that make or produce the basic materials of industrial expansion. The Vanguard Materials ETF owns everything from chemical to steel companies.

Of course, not every manufacturer is rebounding and the comeback road is steep. The overall loss of output in the recession was the worst since the 1930s, according to the Chicago Fed’s Strauss. Home construction and sales are perking up, but still limping along and won’t come back until excess home inventories are reduced and employment recovers.

You should also keep in mind that, while recent reports are positive, the long-term picture for the U.S. economy is muddy at best. A recent report from the Federal Reserve Bank of Philadelphia showed that factory activity in the mid-Atlantic region contracted in May to its weakest level in eight months.

And it’s still uncertain how Europe’s economic problems will affect North America. That saga is far from over.

(The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see link.reuters.com/syk97s)

(Follow us @ReutersMoney or here; editing by Beth Pinsker Gladstone and Andre Grenon)

CHICAGO, May 14 (Reuters) – One of the best investments I
made in my home this year was to hire somebody to prove that its
value had fallen.

I know this sounds daft, but it resulted in a lower property
tax bill. In our case, our taxes dropped by $1,000 to around
$10,000 for the 2011 tax year. But we didn’t challenge our taxes
ourselves – we will pay a specialized property-tax consultant
$250 – 25 percent of our tax savings – to appeal for us.

If you owe more than your home is worth and you want to stay
in your home – or just can’t sell – taxes are the one fixed cost
you can have some success in reducing. (You can also try to
refinance to a lower mortgage rate, but that can be difficult
or impossible when you haven’t any or enough home equity.)

To begin your home-assessment challenge, you can either hire
a consultant to appeal your assessed valuation locally as my
wife and I did, or do it yourself.

Part of this story is hardly satisfying. We knew our home
value declined by at least $50,000 in the housing bust. Our
estimated market value now is roughly what we paid for it more
than a dozen years ago when we built it. Fortunately, due to a
large down payment, we are not under water, although that equity
value probably will not be coming back soon.

It’s never made more sense to challenge your home assessment
than it does now, although relatively few do. Some 11 million
properties are underwater, meaning due to equity loss, the
mortgages on these homes exceed the value of the properties,
according to CoreLogic. Taxes will not necessarily track the
depleted equity values, so you have to see if your local
assessor has valued your property correctly.

Adding salt to homeowners’ wounds is the ongoing,
disheartening erosion of home prices in most cities: Over the
past year, 15 of the 20 largest markets have experienced
declines year-over-year through February, according to the S&P
Case-Shiller Index. U.S. home prices are now at their lowest
level since 2002.

The disparities between what homes are worth on the open
market now and what they are assessed at for tax purposes can
often be huge. The National Taxpayers Union estimates that from
30 to 60 percent of U.S. properties may be over-assessed, though
only 5 percent of property owners challenge their assessments.

The gap between assessed and market value is even larger in
some areas where assessors haven’t accurately marked down home
values due to the housing bust. That is one reason why there
were more than 25,000 assessment appeals in my county in
Northern Illinois last year, compared to 17,000 the previous
year. You will have to do the research on your own to tell if
you’re properly assessed since each property is assessed
differently depending upon home type and local market
conditions.

Should you choose to go solo on your assessment challenge,
you will need to find three comparable properties that have
declined in value. Also check the property description with your
assessor to see if it’s correct. If the assessor erroneously
included in your property record a finished basement or more
living space or amenities than you actually have, you can
correct it by contacting the assessor directly. That could
result in an immediate assessment reduction.

Are you a senior citizen or a veteran? There’s another way
you might be able to save on property taxes. Check to see if you
qualify for a special exemption. You also should have a
homestead exemption for living in your home. You also may
receive a break on recent improvements or energy-producing
appliances like solar panels. While this is not part of the
appeals process, it might be another way of saving you money.

Having tried appealing on my own in past years with meager
success, I would recommend you hire a consultant. Assessors are
really in the business of pooling money for taxing bodies; many
of them are not homeowner friendly and assessors may guard the
data and methods they use to value homes zealously. I discovered
this years ago the hard way, and helped set up a nonprofit group
in my area to inform homeowners on how to deal with assessors.

Most private consultants will take a percentage of your tax
savings or a flat fee, or both. They should be experienced
assessment professionals (mine worked in a township assessor’s
office) or a professional appraiser. You can find these
consultants through a search engine. Enter “property tax
consultants” for your county. We found ours through a
neighbor’s referral.

Keep in mind that an appraisal for a bank is not the same
thing as a valuation for the assessor. It’s a different animal
and your assessor may not accept a current real-estate
appraisal.

If you cannot reach an agreement with your local government
assessor on a lower home value, then you can appeal at the state
and county levels, although that typically involves more time
and paperwork. Many appeal boards are incredibly backed up and
if you miss their deadlines, you’ll have to wait another year.

Here is another misconception you need to avoid: While you
can lower your home’s assessed value, it does not always
translate into a lower tax bill. The other side of the equation
is what rates local taxing bodies such as schools, fire
districts and counties charge you. They can – and will – raise
their rates to cover their budget shortfalls. So you can have
situations where home values have plummeted, but tax rates go up
to cover revenue shortfalls.

Begin planning your assessment challenge now. You will not
only lower your total ownership expenses, but make your home
more marketable. A lower tax bill than your neighbors adds
considerably to curb appeal when it comes time to sell.

Editing by Linda Stern and Phil Berlowitz)

CHICAGO, May 11 (Reuters) – You may be smitten with the
Facebook story and debating whether or not to buy stock
when the company goes public. But if you haven’t studied the
history of IPOs, you may be jumping into the purchase with
unrealistic expectations and flawed biases.

While many of those allocated shares early on will likely
prosper – or be able to sell quickly at a profit after an
immediate run-up – the rest of us might not fare as well.

The company may raise up to $10.6 billion, an amount that
would beat the debuts of tech giant Google Inc while
giving it a total stock market value that exceeds Amazon.com
. Facebook has indicated an initial public offering
(IPO) per-share range of $28 to $35, pegging the potential value
of the company at $77 billion to $96 billion.

But when an IPO scores big on its first day, data shows
that’s not a leading indicator as to how it performs in the
future.

“With the exception of IPOs from 1999-2000, there is no
reliable relation between first-day returns and the subsequent
three-year return,” says Jay Ritter, a professor of finance at
the University of Florida who has been studying IPO results and
updates a database on their performance.

Even if Facebook soars immediately to a market cap of $150
billion or more, there are warning signs ahead, says Ritter:
“further upside potential is severely limited.”

And if Facebook grows significantly over time, like Apple
? Just based on the historical record of IPOs, there are
no guarantees.

Looking at three-year buy-and-hold periods, and comparing
them to the larger market, IPO investors made a meager
market-adjusted total return of 2 percent from 2001-2010,
reports Ritter.

Going back even further, the buy-and-holders did much worse
with IPOs when compared to the larger market, as measured by the
S&P 500 index including dividends and capital gains. They lost
almost 32 percent from 1999-2000; dropped 34 percent from
1995-1998; and declined almost 23 percent from 1980-1989.
Remember, these were the golden-fleece days of IPOs, which
peaked at 675 offerings in 1996. All told, IPO holders lost
about 20 percent in market-adjusted returns from 1980 through
2010, Ritter found.

That then brings us into the realm of behavioral economics,
an emerging science that examines how irrational and
overconfident we can be. We all love a good story – especially
about the stocks that we buy. That hard-wired predilection,
though, may prevent us from analyzing past history and accepting
the reality that many tech stocks are duds down the road
(Pets.com ring a bell?).

I asked Prof. Daniel Kahneman, Nobel laureate in economics
and author of the classic “Thinking Fast and Slow” about how
investors should regard a new stock like Facebook. While he
declined to predict how the company will fare, he suggested
looking at the histories of previous stock offerings and their
competitors.

In his research, Prof. Kahneman, one of the godfathers of
behavioral economics, has discovered that not only do investors
tend to be overconfident about their investment choices, they
make decisions too quickly based on intuition, which is often
wrong. We may fixate upon a number – such as a stock price – and
“anchor” it in our minds as something that’s obtainable, even
though it may be unrealistic. Then we may fool ourselves into
thinking that we can predict how well a stock or the general
market may do. On top of that, most of us are born optimists.

“People don’t know the boundaries of their expertise,”
Kahneman said. “We live in a subjective world and can’t separate
what we can forecast from what we can’t.”

To make our decision making even more complicated, a part of
our brains Kahneman calls “System One” creates a “coherent” view
of an event that suppresses any ambiguities or other
interpretations.

In the case of Facebook, the story of a Harvard undergrad
creating a tech colossus has a satisfactory sweetness to it.
There’s no question that Facebook is one of the most-anticipated
public offerings in recent memory. With 900 million signed up to
the service and growing – I’m an avid user – it’s undeniably one
of the most powerful and addictive forms of social media on the
planet. Founder Mark Zuckerberg may be our era’s Alexander
Graham Bell.

But what about the competition? Can the company sustain its
growth and gain advertising? Skepticism often gets sidetracked
when System One is ruling.

Ultimately, though, despite their magical powers, tech
stocks are subject to the laws of supply and demand, earnings,
competition and ever-fickle market sentiment. If we can look
ourselves in the mirror and admit that, then having honest face
time with a Facebook purchase may erase some future worry lines.

CHICAGO, May 7 (Reuters) – If this weekend’s elections in
France and Greece do nothing else then they should remind
investors that these are individual countries, despite being
members of the euro zone. The 17 current countries in the
currency bloc might have thrown in their lot together in an
economic sense, but for investing purposes, you don’t want to
treat the members – and surrounding countries that are waiting
to join – as a single entity.

I break up the continent into four distinct blocks that have
nothing to do with geography, but instead with economic risk
profile and political dynamics.

JUST LIKE US

I consider Portugal, Ireland, Italy, Greece and Spain to be
“Yankee” Europe. Although their fiscal problems are all slightly
different from each other, these countries all over-borrowed or
got nailed by a housing bubble, emulating American missteps.
Most have imposed devastating austerity measures that are
roiling their political systems and triggered double-digit
unemployment. Their short-term prognosis has been sour.

Investors have been selling shares of Yankee Europe of late.
Spain has led the list of losers with a 14.4 percent loss in the
iShares MSCI Spain Index Fund. Italy hasn’t been hit as
hard, with a 0.36 percent loss in the iShares MSCI Italy Index
exchange-traded fund. All returns are year-to-date
through April 30, compiled by Lipper, a Thomson Reuters company.

The one exception in the Yankee group could be Ireland,
where there’s a hint of a turnaround. The iShares MSCI Ireland
Capped Investable Index, rose 17.4 percent in the
period. Several Irish-based companies such as Elan, a
biotech firm, have growth prospects in global markets, so the
Emerald Isle is worth watching as a rebound candidate.

JUST SLIGHTLY BETTER

Middle Earth Europe – Belgium, the Czech Republic, Denmark,
the Netherlands, Portugal, Slovenia and the UK – includes some
countries that are in recession, but not in such dire straights.
Nearly all have felt the pinch. Will Greece be their bellwether?
Greeks repudiated the center-right’s agenda in Sunday’s
parliamentary elections, so it’s not known if the country will
adhere to its previous bailout measures. Possibly more countries
will follow.

DOING OK

Prudent Europe, on the other hand, is relatively stable and
didn’t get embroiled in overleveraging to the extent that Yankee
Europe did. Led by Germany, which has insisted on austerity
measures for its sicker euro zone neighbors, these countries
include Finland, Norway, Sweden and Switzerland. They’ve not
only held their extensive social safety nets together, they
managed their economies fairly well and created strong export
businesses.

Germany, not surprisingly, has led the pack, with a 17
percent return in the iShares MSCI Germany Index fund.
Other considerations include the Global X FTSE Norway 30 ETF
, up 14 percent; the iShares MSCI Sweden Index,
up 12.5 percent, or the iShares MSCI Switzerland Index,
up 9.2 percent. If you just wanted to stick with the
northern-most – and perhaps healthiest – members of this group,
then the Global X FTSE Nordic Region ETF would be a
worthy choice. It rose 15.3 percent.

ON THE WAY UP

The fourth region on my modified European map is the New
Kids from the Bloc – emerging markets that would include former
Soviet bloc countries like Poland, Bulgaria, Slovakia and
Romania. As many of the companies from these countries have
little history operating in a capitalist environment, they are
much less established than corporations based in Western Europe
and much higher risk for now. They’re bundled in ETFs such as
the iShares Eastern Europe 10/40 USD fund.

None of these countries, though, can be viewed as insulated
from the general fiscal anxieties of the euro zone or the world
economy at large. A deepening recession in Europe or a
double-dip recession in the U.S. (unlikely at this point)
doesn’t bode well, even for prudent Europe. In addition, China’s
economic health impacts Europe, and since European politics are
often as complex as a Samuel Beckett play, last year’s winners
may not hold up.

Yet with political tides turning against European
governments that imposed austerity, it’s hard to tell how euro
zone countries will fare in the near future. Will they take hard
turns away from center-right agendas and start pushing growth
measures? Will the euro zone come apart? It’s still too soon to
tell, but you can still find some decent companies if you’re
willing to be patient and invest for the long term.

CHICAGO, May 4 (Reuters) – Troubles may dog the euro zone,
but in the U.S., stocks are on an ascent, with the S&P 500 up
about 12 percent in the first quarter. Apart from employment and
housing, there’s plenty of evidence that the U.S. is in a meek
recovery, which means that most of the hot money for short-term,
high-yield investments may be headed in the wrong direction.

Some $70 billion flowed into bond mutual and exchange-traded
funds from the start of the year through April 25, according to
Lipper, a Thomson Reuters company. That’s 10 times the amount
invested in large-company stock growth funds over those several
months, during which the exodus from stock funds was the largest
since 1996, according to EPFR Global. (More details here:).

This signals to me that either investors who were burned by
the 2008 financial crisis are still staying away from stocks, or
they don’t believe the stock rally is sustainable. That would
explain the continued retreat into corporate junk bond funds,
emerging market debt, U.S. mortgage securities,
intermediate-maturity bonds and all other forms of bonds.

Solely from a diversification perspective, these income
investors were doing the right thing. Yet, if interest rates
rise when the U.S. economy heats up even more, they are sitting
ducks for losses, as the value of many of these bond funds will
fall.

While the Federal Reserve said recently it doesn’t expect to
raise interest rates until 2014, there are signs that its policy
could change. In its April 25 Open Market Committee report, Fed
governors noted that “the economy has been expanding moderately.
Labor market conditions have improved in recent months; the
unemployment rate has declined but remains elevated. Household
spending and business fixed investment have continued to
advance.” (More details here:)

Only one Fed governor – Jeff Lacker – voted against the
current low-interest-rate stance. The statement said Lacker
“does not anticipate that economic conditions are likely to
warrant exceptionally low levels of the federal funds rate
through late 2014.”

It’s a good idea to give Lacker the benefit of a doubt if
you’re interested in not succumbing to the lemming effect, but
should you be concerned about inflation now?

RISKS

In the last five years, if we’ve learned anything, it’s that
big institutions like the Fed can be blindsided by tsunamis in
the credit markets. It’s probably too soon to fret, but
long-term it’s something to watch: Inflation still could pick
up.

One way to counter interest-rate risk is to ladder a bond
portfolio with single bonds. Stagger maturities from short-term
Treasury Bills or municipals to 10-year bonds. As the
shorter-term bills mature, replace them with similar maturities.
That way, you’ll capture any increased yields of newer issues.

As long as you’re buying and holding U.S. Treasury bonds to
maturity – and Congress doesn’t default on them – you won’t have
to worry about default, credit or interest-rate risk. You can
buy them directly through Treasury.gov.

The Treasury also offers I-bonds and Treasury Inflation
Protected Securities that pay a premium to standard Treasury
yields when the Consumer Price Index rises. These bonds can
offset losses in conventional bond funds – if you choose to hold
onto them.

Cash kept in federally-insured money-market deposit accounts
for bills and short-term needs is a still a safe haven, although
the yields are awful. You can find competitive yields on
certificates of deposit at bankrate.com, although “competitive”
these days tends to equate with paltry.

Should you want to take some more risk with a small part of
your income portfolio, consider the SPDR Barclays Capital High
Yield Bond ETF, currently yielding 7.3 percent or the
iShares J.P. Morgan USD Emerging Markets bond fund,
yielding about 4.7 percent.

It’s also a good time to look at the average duration of
your portfolio. This is a measure of how much money you’ll lose
if interest rates rise 1 percentage point. Your highest-duration
funds tend to be in longer-maturity bonds. If you’re concerned
about this kind of risk, then make adjustments now while
interest rates are relatively flat. The worst time to make a
move is when you see the edge of the bond promontory looming.

CHICAGO (Reuters) – The worst advice on emerging markets is to go out and buy the best-performing funds or countries of last year. In most cases, the hot money has come and gone and you can’t buy yesterday’s gains. But you can invest in a wide basket of developing countries to build a more robust portfolio foundation.

That’s not to say that emerging markets aren’t worthwhile. For global investors in the past decade, it’s been accepted wisdom that investing in the BRIC countries of Brazil, Russia, India and China is the basis of a strong strategy. While that’s still somewhat true, it’s not monolithic. Russia has had its setbacks and India is slowing down. China’s economy has increasingly raised the concern of international analysts.

But what’s left? Jim O’Neill, the chairman of Goldman Sachs Asset Management who coined the BRIC acronym a decade ago, suggests expanding your horizons to include Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.

Global wealth seems to be moving to locales that have not been traditionally seen as bastions. While London and New York are still holding their own, high-net-worth individuals are investing in off-the-beaten track cities like Nairobi, Jakarta, Vancouver, Tel Aviv, Kiev and Cape Town. That’s according to a recent Wealth Report prepared by Knight Frank and Citi, which tracked global residential and commercial property hotspots (link.reuters.com/jav87s).

Countries that have benefited from money moving from first-tier developed nations into emerging economies include Thailand, Colombia, Indonesia, Malaysia and Singapore. According to an analysis by Lipper, a Thomson Reuters company, exchange-traded funds that invested in those countries easily trounced the BRIC strategy over the past three years through April 20.

Single-country targeted funds include the iShares MSCI Thailand Investable Market Index ETF, which led the pack of emerging markets ETFs with a 47-percent three-year return, Lipper found. The Global X FTSE Colombia 20 and Market Vectors Indonesia Index returned 42 percent and 41 percent, respectively, for the period.

How did these developing countries compare with a BRIC fund such as the Guggenheim BRIC fund. The exchange-traded fund returned a respectable 18 percent for the period, although it was less than half of the performance of the high flyers. Broader, more conservative portfolios make more sense. Consider the PowerShares FTSE RAFI Emerging Markets Portfolio if you want to slightly underweight China, which dominates most ETFs specializing in emerging markets. The WisdomTree Emerging Markets Equity ETF has more than three quarters of its holdings in Latin America and Greater Asia.

O’Neill insists that the BRICs are still headed for explosive growth long term. In terms of relative GDP growth and size, “China produces another India every 18 months or another Italy every 15 months,” O’Neill said at a meeting of the Chicago Council on Global Affairs on April 26. O’Neill’s likely right about BRIC growth – if current trends continue.

But a global economic retrenchment is still possible, especially when you watch the debilitating euro zone austerity measures and the inability of the U.S. Congress to cut its growing budget deficit. And China is actually one possible weakening link in the BRIC strategy. The world’s most populous country is still on track to become the world’s largest economy in the next two decades or so, but its ascent may not be a clean, straight line.

A recent report by BlackRock, Inc., which manages more than $3 trillion in assets, suggests that China may encounter some rough patches, although it didn’t predict how these gremlins will slow the burgeoning Chinese economy (link.reuters.com/hav87s).

BlackRock’s analysts pointed to China’s real estate slump as the “biggest threat to economic growth and confidence in 2012.” The firm said research from the Peterson Institute showed that real estate accounted for some 40 percent of urban household wealth in 2010 – double what it had been in 1997.

Did China overbuild and create a bubble? The BlackRock report isn’t definitive, although it noted “we struggle to find a precedent in history where the bursting of the bubble did not lead to financial distress.” The researchers also highlighted other red flags such as an explosion in credit growth, its undervalued currency relative to the dollar and the slow move toward a consumption economy.

Slower global economic growth, though, remains the major roadblock to BRIC countries. Energy-rich Russia felt a big pinch as its gross domestic product growth rate slowed to 3.2 percent year-over-year in March, down from 4.8 percent in February.

Brazil, which is still expanding due to its natural resource wealth, recently cut benchmark interest rates in an attempt to revive its sluggish economy, which once was keeping pace with China’s 7-percent-plus rate. India is faring even worse with the credit ratings agency Standard and Poor’s downgrading India from “stable to negative” in light of the country’s growing deficit and diminishing growth.

So to truly internationalize and balance your portfolio, you need to move beyond the BRIC strategy to find robust growth in smaller, overlooked countries. A broader-based approach, which is what I employ in my portfolio, will net you more growth.

(Editing by Beth Pinsker Gladstone and Andrew Hay)

CHICAGO, APRIL 30 (Reuters) – The worst advice on emerging
markets is to go out and buy the best-performing funds or
countries of last year. In most cases, the hot money has come
and gone and you can’t buy yesterday’s gains. But you can invest
in a wide basket of developing countries to build a more robust
portfolio foundation.

That’s not to say that emerging markets aren’t worthwhile.
For global investors in the past decade, it’s been accepted
wisdom that investing in the BRIC countries of Brazil, Russia,
India and China is the basis of a strong strategy. While that’s
still somewhat true, it’s not monolithic. Russia has had its
setbacks and India is slowing down. China’s economy has
increasingly raised the concern of international analysts.

But what’s left? Jim O’Neill, the chairman of Goldman Sachs
Asset Management who coined the BRIC acronym a decade ago,
suggests expanding your horizons to include Bangladesh, Egypt,
Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines,
South Korea, Turkey and Vietnam.

Global wealth seems to be moving to locales that have not
been traditionally seen as bastions. While London and New York
are still holding their own, high-net-worth individuals are
investing in off-the-beaten track cities like Nairobi, Jakarta,
Vancouver, Tel Aviv, Kiev and Cape Town. That’s according to a
recent Wealth Report prepared by Knight Frank and Citi, which
tracked global residential and commercial property hotspots ().

Countries that have benefited from money moving from
first-tier developed nations into emerging economies include
Thailand, Colombia, Indonesia, Malaysia and Singapore. According
to an analysis by Lipper, a Thomson Reuters company,
exchange-traded funds that invested in those countries easily
trounced the BRIC strategy over the past three years through
April 20.

Single-country targeted funds include the iShares MSCI
Thailand Investable Market Index ETF, which led the pack
of emerging markets ETFs with a 47-percent three-year return,
Lipper found. The Global X FTSE Colombia 20 and Market
Vectors Indonesia Index returned 42 percent and 41
percent, respectively, for the period.

How did these developing countries compare with a BRIC fund
such as the Guggenheim BRIC fund. The exchange-traded
fund returned a respectable 18 percent for the period, although
it was less than half of the performance of the high flyers.
Broader, more conservative portfolios make more sense. Consider
the PowerShares FTSE RAFI Emerging Markets Portfolio if
you want to slightly underweight China, which dominates most
ETFs specializing in emerging markets. The WisdomTree Emerging
Markets Equity ETF has more than three quarters of its
holdings in Latin America and Greater Asia.

O’Neill insists that the BRICs are still headed for
explosive growth long term. In terms of relative GDP growth and
size, “China produces another India every 18 months or another
Italy every 15 months,” O’Neill said at a meeting of the Chicago
Council on Global Affairs on April 26. O’Neill’s likely right
about BRIC growth – if current trends continue.

But a global economic retrenchment is still possible,
especially when you watch the debilitating euro zone austerity
measures and the inability of the U.S. Congress to cut its
growing budget deficit. And China is actually one possible
weakening link in the BRIC strategy. The world’s most populous
country is still on track to become the world’s largest economy
in the next two decades or so, but its ascent may not be a
clean, straight line.

A recent report by BlackRock, Inc., which manages
more than $3 trillion in assets, suggests that China may
encounter some rough patches, although it didn’t predict how
these gremlins will slow the burgeoning Chinese economy ().

BlackRock’s analysts pointed to China’s real estate slump as
the “biggest threat to economic growth and confidence in 2012.”
The firm said research from the Peterson Institute showed that
real estate accounted for some 40 percent of urban household
wealth in 2010 – double what it had been in 1997.

Did China overbuild and create a bubble? The BlackRock
report isn’t definitive, although it noted “we struggle to find
a precedent in history where the bursting of the bubble did not
lead to financial distress.” The researchers also highlighted
other red flags such as an explosion in credit growth, its
undervalued currency relative to the dollar and the slow move
toward a consumption economy.

Slower global economic growth, though, remains the major
roadblock to BRIC countries. Energy-rich Russia felt a big pinch
as its gross domestic product growth rate slowed to 3.2 percent
year-over-year in March, down from 4.8 percent in February.

Brazil, which is still expanding due to its natural resource
wealth, recently cut benchmark interest rates in an attempt to
revive its sluggish economy, which once was keeping pace with
China’s 7-percent-plus rate. India is faring even worse with the
credit ratings agency Standard and Poor’s downgrading India from
“stable to negative” in light of the country’s growing deficit
and diminishing growth.

So to truly internationalize and balance your portfolio, you
need to move beyond the BRIC strategy to find robust growth in
smaller, overlooked countries. A broader-based approach, which
is what I employ in my portfolio, will net you more growth.

CHICAGO, April 27 (Reuters) – Ugly duckling stocks are
surprises in small packages that turn into great performing
swans later on down the road. Nearly every large company started
out as a “small cap,” which generally refers to a stock with
under $1 billion in market capitalization. Most small companies
do unsexy things such as make pumps or generic drugs. You’ll
rarely hear them touted by big-name analysts or firms.

When business and economic cycles favor them, though, small
caps soar relative to big-cap stocks, especially because they
are usually priced at a bargain. Over the past three years
through April 25, for example, the Vanguard S&P 500 Fund
rose 19.4 percent. In contrast, the DFA US Small Cap
Value fund climbed 22.7 percent ().
Note: The DFA fund, representing an index of small companies,
is only available through investment advisers.

Long-term, exhibiting what investment analysts call “the
small company effect,” these pint-sized stocks produced a
compound annual growth rate of almost 12 percent from 1925
through 2011, according to Ibbotson Associates’ 2012 Classic
Yearbook (). That compares to
about 10 percent for the S&P 500 index of large stocks,
typically over $2 billion, and about 6 percent for long-term
government bonds. Small caps are generally stocks from $300
million to $2 billion in market capitalization; mid-caps from $2
billion to $10 billion; and large caps from $10 billion on up.
Much of the small-company/value effect has been documented by
academics Kenneth French, Eugene Fama and Rolf Banz
().

Small-cap companies are rarely in the spotlight. Companies
like Lifepoint Hospitals, Westlake Chemical and
Esterline Technologies, for example, are unlikely to
steal the headlines from Exxon-Mobil and AT&T.

Do small caps always outperform large caps? No, there are
periods of time when small caps waddle along and fall on their
face – witness 2008 – but they eventually pick themselves up
again and prove their mettle. Most recently, when euro zone
anxieties jolted the market again on April 23, the S&P Small Cap
Index fell 1.6 percent in a day, compared to 0.8 percent for the
S&P 500.

Overall, small caps tend to be more volatile and pay fewer
dividends than their big brothers, so buying individual issues
always entails much more risk. Younger companies are also often
struggling to become consistently profitable.

The best way to hold small caps is through index funds,
which hold hundreds of them at low cost. Consider the Guggenheim
S&P SmallCap Pure Value ETF, which attempts to replicate
the S&P SmallCap 600 Pure Value Index. Another consideration is
the relatively new Bridgeway Omni Small-Cap Value Fund
, which follows the Russell 2000 Value Index. Want more
exposure to small-cap companies overseas? Look at the iShares
MSCI Emerging Markets Small Cap Index, which focuses on
small companies in developing countries.

When adding a small-cap fund to your portfolio, it’s best to
hold it for at least a decade, preferably longer. They should
never dominate your portfolio if you can’t afford to take much
market risk. That means if you’re retiring soon or need money
for a short-term goal such as a home down payment, don’t put
your money in a small-cap.

My wife and I, for example, are long-term investors, and we
have small-cap value funds in our core individual retirement
account portfolio. We won’t need the money for at least two
decades, so we don’t trade these funds, we just let them grow.
They are not a part of our daughters’ college-savings funds,
which we’ll begin to tap within a few years.

Small caps may get you where you need to be over time, but
they may run in a number of different directions over short
periods of time. So be mindful that swiftness and smallness are
not the same thing as safety.