John Wasik

Hedging “cliff” volatility might not get you too far

Jan 4, 2013 16:57 UTC

CHICAGO (Reuters) – Once again, “fiscal cliff” mayhem has given investors a furtive look into the unsettling world of market volatility, which will not end with Tuesday’s deal. We will likely see more Tilt-A-Whirl politics in the coming two months as Congress deals with the debt ceiling and budget cuts.

Volatility has long been the enemy of the mainstream investor. It is easy enough to measure and hedge, but short-term gauges and volatility products such as exchange-traded notes can get you into trouble. They do not work effectively for buy-and-hold investors and have to be timed precisely for traders.

The skittish mass psychology of 2011 set the stage nicely for exchange-traded products that track or blunt volatility. After a rough summer of debt-ceiling and euro zone gyrations, the S&P 500 barely eked out a gain.

Despite the S&P 500 index’s rebound of some 13 percent in 2012, investors yanked more than $150 billion from stock funds during the year. This anxiety propelled sales of more than a half-dozen low-volatility stock and index funds.

The most direct way of addressing volatility is to invest in an index that tracks it. The VIX index from the Chicago Board Options Exchange is one of the most popular, and several exchange-traded vehicles are linked to it. The index tracks “implied volatility” and near-term expectations through S&P 500 index option prices. Generally, it is an inverse gauge to the S&P. When the big-stock index is down, the VIX is up, so it can act as a hedge against major stock sell-offs.

Playing the wild cards in 2013

Dec 31, 2012 18:05 UTC

CHICAGO, Dec 31 (Reuters) – At this point, most investors
are peering over the fiscal cliff and feeling like Jimmy Stewart
in the classic Hitchcock film “Vertigo.” But if you look beyond
the precipice, there is some solid ground.

For one thing, the U.S. housing market will be better than
most people expect, which bodes well for patient investors
holding onto consumer-sector stocks. Most economists are not
predicting any startling jump in home sales or prices next year,
and they largely have not forecast how a housing rebound will
spill over into the wealth effect of increasing consumer
spending and job creation.

Home foreclosures in November hit their lowest rate in six
years, a trend that is likely to continue, according to
RealtyTrac, an online marketplace of foreclosure properties.

Six ways to optimize your retirement portfolio in 2013

Dec 28, 2012 16:31 UTC

CHICAGO (Reuters) – You may be waiting to optimize your retirement portfolio, thinking that you should know what’s going on in Washington and Europe before you act.

However, there are some changes you can set in motion right now that could make a big difference down the road regardless of what happens with the fiscal cliff, tax changes and Wall Street:

1. Boost your contribution rate

The longer you wait to contribute, the greater return you will need to achieve your goals. Thanks to the compounding effect, the more your contribute, the more you can accumulate when dividends and appreciation are added.

Why you need to gauge your human capital

Dec 21, 2012 15:37 UTC

CHICAGO (Reuters) – The end of the year is a good time to illuminate your personal financial situation in a different way. Instead of focusing exclusively on financial capital – how much money you have accumulated – look at your human capital.

This calculus of human capital, which economists wonkily define as “the net present value of your lifetime earnings,” matters as much to your lifelong financial situation as the size of your nest egg.

When some people gauge their human capital, they find that they are not making enough money and decide to make some changes. That could mean starting a second or third career.

Can you really invest like Warren Buffett?

Dec 17, 2012 20:18 UTC

CHICAGO (Reuters) – For as long as I can remember, the investment maxim that most evokes a mix of adulation and performance anxiety is “Invest like Warren Buffett.”

How can mere mortals emulate an investing deity? In truth, most of us will never come close to “the Sage of Omaha.” He’s done all the things a stellar investor should do: He buys when there’s blood in the street, finds solid companies at great prices and keeps them “forever.” Lacking Buffett’s phenomenal verve and mettle, though, most of us won’t do this. But that doesn’t mean we’re doomed to failure.

Fortunately, the multibillionaire chairman and chief executive of Berkshire Hathaway Inc. has been generous with his wisdom and two recent books published in November compile and analyze it elegantly: “Tap Dancing to Work” by Carol Loomis, a long-time Fortune writer and Buffett friend and “Think, Act and Invest Like Warren Buffet” by Larry Swedroe, principal and director of research for Buckingham Asset Management, LLC.

Looking beyond emerging markets to ‘frontier’ economies

Dec 14, 2012 13:30 UTC

CHICAGO, Dec 14 (Reuters) – With China, Brazil and India
hitting icy patches on their economic growth paths, investing in
even younger emerging markets looks promising.

The so-called “frontier” economies offer diversification and
profit opportunities as big global investors look for low-cost
labor and resources. Most of these 25 or so countries won’t
appear on most individual investors’ radar screens, though. They
range from Bangladesh to Vietnam and are expanding due to
industrialization or global demand.

Vietnam, for example, benefiting from normalized relations
with the U.S. and membership in the World Trade Organization, is
one of the only Asian countries to have grown faster than China
since 2000, according to the McKinsey Global Institute. The
country’s manufacturing sector alone grew at a 9-percent annual
compounded growth rate from 2005 to 2010.

How to invest if the ‘fiscal cliff’ bears are wrong

Dec 10, 2012 17:15 UTC

CHICAGO, Dec 10 (Reuters) – Let’s assume, for a moment, that
the “fiscal cliff” bears are wrong.

Underlying pending tax increases and more debt-ceiling
battles is some fairly positive economic news. Job growth
surprisingly soared last month and U.S. home prices in October
posted their biggest increase in six years, according to
CoreLogic. Factory orders also rose unexpectedly during the
month. And the Federal Reserve’s stimulus policy is keeping
mortgage rates low.

That all bodes well for a low-growth, sustainable recovery
in which basic materials, industrials, emerging markets and even
utilities regain favor. The upswing in employment and personal
income will translate into a substantial consumer wealth effect,
and more people will be spending money on homes, autos,
appliances and consumer goods. Overseas, the rising U.S. tide
will lift emerging markets. Renewed confidence combined with
secular economic growth represents “a likely catalyst for the
next multi-year bull market,” notes the BMO Private Bank 2013
outlook for financial markets.

Investing in the New China Syndrome

Dec 6, 2012 20:17 UTC

CHICAGO, Dec 6 (Reuters) – One of the ways to globalize your
portfolio and to tap growth in emerging markets is to recognize
the new China Syndrome. The world’s most populous country is
becoming a primary buyer for resources and technologies for its
growing population.

China’s growing demand will continue to boost prices on
everything from farmland to oil. The country now consumes more
than 40 percent of the world’s base metals, 23 percent of major
agricultural commodities and 20 percent of non-renewable energy
resources, according to a recent report by the International
Monetary Fund. Those figures are up from single-digit levels in
2000, in terms of net imports as a percentage of world imports.

There are a number of ways to invest in this trend through
exchange-traded funds, but first you need to understand the
breadth of its global implications.

Why you need to sidestep Apple stock in tech investing

Dec 3, 2012 19:34 UTC

CHICAGO, Dec 3 (Reuters) – It’s easy to believe in
technology stocks again.

After a dismal recession and sluggish recovery, the sector
is up 13.3 percent this year through Nov. 30, according to
Standard & Poor’s, slightly ahead of the broader S&P 500 Index.
Expect that run to continue, since gadget-buying will be strong
this holiday season and may continue into next year.

Yet the question for tech investors is whether Apple Inc
should remain a key holding. The stock already
dominates most tech portfolios because of its mammoth market
capitalization, making it one of the most valuable companies on
the planet. Apple is still the largest holding in the S&P 500
and peaked above $700 a share back in September. It’s been
trading below $600 since late October.

Four reasons dividends won’t fall off ‘fiscal cliff’

Nov 30, 2012 16:58 UTC

CHICAGO, Nov 30 (Reuters) – With a tax increase on dividends
and capital gains looming, high-dividend paying stocks may hold
up well – even if investment income rates climb on Jan. 1.

Unless Congress acts by the end of the year, taxes on
dividends will automatically rise from the current 15 percent to
as high as 39.6 percent. While that sounds like a draconian
increase, it should not discourage investors from owning
high-dividend paying stocks nor should it trigger a lasting
market decline.

You can blame inertia, but individual investors are likely
to stick with their dividend stocks anyway. And those who do may
even be rewarded for the fear factor of higher rates. Companies
like Wal-Mart have moved up dividend payments to
December. Others like Costco, Wynn Resorts and
Tyson Foods are declaring special dividends, some of
them quite substantial.