Opinion

John Wasik

How to get the best prices on ETFs

Oct 8, 2012 16:25 UTC

CHICAGO (Reuters) – Exchange-traded index funds are a bit like mobile phones — models offer an increasing array of features over time, while prices on even the plain-vanilla models keep falling.

So, in step, prices have been dropping lately on garden-variety ETF index expenses. Typically these have offered rock-bottom costs on most products, relative to actively managed mutual funds. Yet there are several components of ETF pricing, so you need to be careful. You could miss some of the nuances and pay more than you should.

The good news is that competition is forcing expense ratios down to near-institutional-pricing levels. Now you can pay roughly what big money managers do for entire baskets of stocks, bonds and other vehicles. (An expense ratio is what a money-management firm charges you every year for owning their ETFs — a percentage based on assets under management. Generally, the lower the expense ratio, the better, since more of your money is being invested and not going into the manager’s pocket.)

The latest salvo of price cuts came from the discount broker Charles Schwab, which recently reduced fees by up to 59 percent on its 15 ETFs, which hold more than $7 billion in assets. Schwab is trying to play catch-up with the three giants in the field — Blackstone/iShares, State Street’s SPDRs and Vanguard Group — which offer an even wider selection of low-cost ETFs.

Expenses on Schwab funds range from 0.04 percent for its Multi-Cap Core Fund to 0.20 percent for its International Small/Mid-Cap Growth fund. How does that compare with previous levels? Expenses on the Mid-Cap ETF were cut in half, from 0.13 percent to 0.07 percent, while others were trimmed by as little as 0.02 percentage points.

You can count on new burst of infrastructure spending

Oct 1, 2012 15:40 UTC

CHICAGO, Oct 1 (Reuters) – As global economies from Beijing
to Berlin struggle to keep their heads above water, a new wave
of stimulus spending is under way. Given that infrastructure
spending is almost always a function of population growth -
which does not seem to be slowing down in emerging markets -
this is a potent trend if you are a long-term investor.

While any nascent U.S. plan depends upon the outcome of the
November election, the agenda for other countries is full speed
ahead. The Chinese government recently announced new program of
$1 trillion yuan ($157 billion) in infrastructure spending – its
second major wave since 2008. And while most of Europe is still
in a swoon, alternative energy is a big part of the
infrastructure boom in Germany and Japan, where nuclear power is
being ratcheted down. That means more solar panels, wind farms,
biofuels and digital grid installations.

Developing countries also are surging ahead with
infrastructure spending. India, Brazil and other nations are
investing in electrical transmission systems, roads and
telecommunications. It is estimated that “investment
requirements in electricity transmission and distribution are
expected to double through to 2025-30, road construction to
almost double and to increase by almost 50 percent in the water
supply and treatment sector,” according to the Organization for
Economic Co-Operation and Development.

How to invest in prosperity after a Lost Decade

Sep 28, 2012 12:35 UTC

CHICAGO (Reuters) – While there’s some comfort in a slowly improving U.S. economic climate, the majority of Americans are still trying to close a prosperity gap that has widened in the last ten years.

There is the painful realization that a combination of stagnating wages, job loss, recessions and depletion of wealth is morphing the middle class into a “muddled class” unable to keep up with the cost of living. This decline has been most pronounced over the past decade.

The most recent Census Bureau study showed that real median household income fell eight percent from 2007 through last year, and is almost nine percent lower than the 1999 level. Can families climb back? It’s possible, but not without some financial rigor.

Why you are missing the bull market: Wasik

Sep 19, 2012 17:23 UTC

By John Wasik

(Reuters) – To most Main Street investors, the post-2008 era has been something of an epic hangover. By and large, they have continued to eschew stocks for the palliative comfort of bonds.

Was it worth sitting out the last few years? What has actually been going on here since 2009, although it has been well-disguised at times, is a bull market. While the course of the bull has been highly uneven, it may continue if corporate earnings remain solid and there are no major calamities. And it may gain even more momentum if the new round of Fed easing boosts the U.S. economy in a significant way.

Of course, the euro zone muddle, lagging U.S. employment, meager consumer confidence and unseen other crises do not bode well for stocks. They never do. Yet there is the strong possibility that U.S. stocks will continue to head higher, defying the worst headlines.

Why you are missing the bull market

Sep 18, 2012 18:44 UTC

Sept 18 (Reuters) – To most Main Street investors, the
post-2008 era has been something of an epic hangover. By and
large, they have continued to eschew stocks for the palliative
comfort of bonds.

Was it worth sitting out the last few years? What has
actually been going on here since 2009, although it has been
well-disguised at times, is a bull market. While the course of
the bull has been highly uneven, it may continue if corporate
earnings remain solid and there are no major calamities. And it
may gain even more momentum if the new round of Fed easing
boosts the U.S. economy in a significant way.

Of course, the euro zone muddle, lagging U.S. employment,
meager consumer confidence and unseen other crises do not bode
well for stocks. They never do. Yet there is the strong
possibility that U.S. stocks will continue to head higher,
defying the worst headlines.

Hedges for investing in a post-QE3 environment

Sep 14, 2012 16:17 UTC

CHICAGO, Sept 14 (Reuters) – The Federal Reserve’s new round
of quantitative easing may have sparked as much early enthusiasm
as the opening of a new fall fashion show. Yet as with other
ballyhooed events, the initial warm reception may prove
fleeting.

The Fed’s latest buying spree of Treasury and
mortgage-backed securities will keep U.S. interest rates low and
drop them incrementally lower. And Wall Street
initially cheered the Fed by propelling both the Dow Jones
industrial average and the S&P 500 Index to their
highest levels since 2007 on Thursday. The once-battered Nasdaq
Composite Index even climbed to its highest level since
November 2000.

On the employment, manufacturing and housing fronts, though,
there is only so much the Fed can do to revive those markets -
and it will do nothing to fix the euro zone – so don’t take
Thursday’s rally too seriously. By adopting a tandem strategy of
targeted hedging and global investing, you can still ride out
continuing anxieties in Washington and Europe. And there are
side effects to this stimulus, too. So if you are looking for
investing strategies, you might want to employ some of these
hedges:

Three investment strategies for QE3

Sep 10, 2012 15:52 UTC

CHICAGO (Reuters) – If there’s another round of stimulus from the Federal Reserve, as has been telegraphed by Ben Bernanke, it may end up sounding like an alarm clock that barely rings. It will be heard, but it may not be enough to rouse a drowsy U.S. economy.

The Fed’s previous bond-buying sprees – which pumped more than $2 trillion into the U.S. economy and kept interest rates near zero – put a fire under stocks as investors moved from poor-yielding bonds.

But will more bond buying morph into a fall rally? It depends on whether the economy responds. That would mean improvement in job growth, housing prices and general economic activity.

Can you still make money in the housing market?

Sep 7, 2012 15:07 UTC

CHICAGO (Reuters) – There is a nagging question to consider before you jump into home-buying after one of the worst housing slumps in American history. Will you ever make money? Based on how the market has performed in the past, there is no clear answer.

Not that there hasn’t been good news about home prices lately. Prices have rebounded in most of the largest U.S. cities over the last five months. The closely watched S&P Case-Shiller home-price index rose 0.9 percent in July on a seasonally adjusted basis.

Low interest rates provide an added bonus: With mortgage rates still at generational lows – 30-year loans still average well under 4 percent – it’s a good time to lock in a bargain.

How to find a new 401(k) strategy

Sep 6, 2012 15:41 UTC

CHICAGO, Sept 5 (Reuters) – Let’s say, after recent fee
disclosures from retirement funds, that you have discovered that
your 401(k) is a rusting beater of a plan. It’s expensive to
maintain, non-diversified and has performed poorly over the last
10 years.

You may have to do some internal lobbying to change your
plan. Yet if you can enlist the support of fellow employees,
managers and executives by explaining how poor returns eat into
their retirement lifestyles, you might gain some traction.
Changes are possible, even when employers are reluctant to do
anything.

Consider the idea of placing company stock in 401(k) plans,
an idea that became toxic after the Enron-WorldCom debacles. The
percentage of companies engaging in this practice has dropped to
under 10 percent, down from 11 percent in 2009, according to
BrightScope, a San Diego-based service that tracks retirement
plans.

Finding a haven from volatility isn’t easy

Aug 2, 2012 16:18 UTC

CHICAGO, August 2 (Reuters) – Most experienced long-term
investors know stocks are volatile and can deal with it. But
what if you want to stay in stocks and at the same time reduce
your downside risk and avoid a cyclonic year like 2008?

You might be tempted by funds that bill themselves in a “low
volatility” category, though “volatility” is a red herring. A
“low-beta” approach might be better.

Beta is a measure that portfolio managers use to determine a
portfolio’s sensitivity to a major index. A perfect match with
the index is 1.00, and stocks are measured in a percentage
against it. The lower the beta, the less a portfolio tracks a
market average, such as the S&P 500 index.

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