John Wasik

Nervous Nellies take safe road to capital preservation

Nov 26, 2012 16:56 UTC

CHICAGO, Nov 26 (Reuters) – Nervous Nellies can’t stand
losing money, so they typically hedge their portfolios with
investments seeking to preserve capital. With the fiscal cliff
looming, there are a lot more of these worriers out there who
are (temporarily) looking to put together worst-case scenario

Whether you think that the fiscal cliff crisis won’t be
resolved by the end of the year or fear inflation, a
calamity-proof portfolio can hedge against any number of perils.
This would be a prudent approach for anyone primarily focused on
capital preservation or a subset — possibly 40 percent — of a
larger portfolio in which you need to temper stock-market risk.
You can create it yourself or buy it off the shelf in the form
of a mutual fund.

When looking to safeguard your money, keep in mind that this
is not an aggressive or moderate growth portfolio. If you’re
young, can afford to take some risk or have a solid guaranteed
pension waiting for you, this is not an ideal strategy for you.


One way to go is the iShares Barclays 7-10 Year Treasury
bond fund ETF, which has returned almost 8.5 percent
during the last five tumultuous years through Oct. 30. It’s up
3.6 percent year to date. While this fund has some interest rate
risk — its value will decline if rates climb — there’s
negligible credit risk if the U.S. pays back its creditors.

Because they fear the worst in terms of the dollar’s further
decline and seek safe havens from global turmoil, conservative
investors also favor gold, best purchased through the SPDR Gold
Trust, which holds bullion in a vault in London. The
fund’s price is linked to the over-the-counter market for the
pale metal. In the event of the U.S. government falling over the
fiscal cliff — triggering some $600 billion in taxes and
possibly a recession — gold would be somewhat of a refuge.

Community loan funds mix charity with social capitalism

Nov 23, 2012 16:13 UTC

CHICAGO, November 23 (Reuters) – When you are deciding how
to allocate your charity dollars before the end of this year,
you might want to consider investing in a community development
financial institution (CDFI).

There are nearly 1,000 private-sector community development
financial institutions that operate in all 50 states, according
to the CDFI Coalition. They range from local credit unions to
community loan funds and they perform a variety of roles from
providing venture capital to funding affordable housing.

What’s compelling about CDFIs is that they can combine
innovative social missions with service to low-income
communities. They are community partners that provide financing
for projects that have social value or may be neglected by
larger institutions. They can target underserved neighborhoods
and even develop sub-specialties such as sustainable development
and green businesses that have environmental missions.

Wealth effect will drive retail stocks

Nov 19, 2012 20:13 UTC

CHICAGO (Reuters) – This holiday season may prove to be a bell-ringer for stores and producers of consumer goods and services, despite disappointing recent retail sales reports.

The 0.3 percent drop in October sales the Commerce Department reported after a three-month increase was likely due to the impact of Superstorm Sandy. Sales should pick up in coming months. In fact, there are enough positive converging trends that stocks in this sector — especially for retailers and manufacturers of consumer durable and discretionary goods — will rise well into next year.

A continued economic recovery will amplify retail spending in 2013 — what economists call a multiplier effect. Increased discretionary spending flows throughout the economy, creating even more jobs and buying more goods and services.

Picking satellites to revolve around your core

Nov 16, 2012 14:38 UTC

CHICAGO, Nov 16 (Reuters) – The “core and satellite”
strategy for portfolio management is an elegant and simple
approach that will not only help you diversify but allow you to
reduce your country and political risk.

Your core consists of broad indexes of stocks and bonds with
exchange-traded funds like the Vanguard Total World Stock Index
ETF and the Schwab U.S. Aggregate Bond ETF.

Then you can have some fun by working on satellite holdings
that include emerging markets, specialized themes and dividend
payers. These are more specialized investments that focus on
long-term global growth and help distance you from increasing
volatility and the slow-growth economies of the U.S. and Europe.

Do a portfolio risk profile to prepare for fiscal cliff

Nov 12, 2012 22:59 UTC

CHICAGO (Reuters) – If the fiscal cliff triggers an economic slowdown, you need to prepare your portfolio by lowering its risk profile. Even if you think you’re prepared, it’s good to take a detailed look at what you own.

Classic modern portfolio theory holds that diversification among stocks, bonds, real estate and other asset classes will balance the tenuous relationship between risk and return.

When the stock market tumbles 2 percent in a single day – as it did on November 7 – many pundits say that’s a sign of things to come if Congress doesn’t resolve the mother of all tax hikes by the end of the year.

Hope for unloved U.S. financial services stocks

Nov 9, 2012 17:20 UTC

CHICAGO, Nov 9 (Reuters) – U.S. financial services stocks
may be the most unloved sector in recent memory, but they may
end up prospering in the coming year.

Individual investors have had solid reasons to be sour on
financials since 2008. Earlier this year, JPMorgan Chase & Co
disclosed a $6.2 billion loss in trading as part of its
“London Whale” scandal. Bank of America Corp and
Citigroup Inc continue to struggle, and all of the
megabanks were involved in a legal settlement over the troubling
“robo-signing” of mortgage documents.

The balance sheets of the megabanks are still bruised and
hiding untold woes of bad debts; their share prices have largely
reflected uncertainty since 2008.

Running the numbers on your college education ROI

Nov 5, 2012 22:42 UTC

CHICAGO, Nov 5 (Reuters) – Despite the sourness of the
recent job market, a college degree is still a good investment.
But picking your major is akin to assembling the right portfolio
– you have to be selective to maximize your returns.

Recent studies back this up: the Hamilton Project of the
Brookings Institution shows that a college degree can yield a
more than 15-percent return. That’s better than double the
average annual return of stocks over the last 60 years (6.8
percent), and five times the return of corporate bonds through
2010 (2.9 percent).

Even a hot investment like gold has only managed a 2 percent
average return over that period.

Why you need a climate change portfolio

Nov 2, 2012 17:09 UTC

CHICAGO (Reuters) – Whether you believe in man-made global warming or not, it’s undeniable that trillions of dollars will be spent on technologies to address the collateral damage of climate change.

Superstorm Sandy has just provided a tragic and devastating exclamation mark to the ongoing discussion of climate change and its link to extreme weather.

There are a number of ways to invest in industries that are seeking solutions to climate-caused problems. Several global companies, insurers and institutional investors accepted the idea some time ago and are investing for the future. Even investors who haven’t signed on to the idea of man-made global warning may find some sectors or companies to like.

Five ways to disaster-proof your finances

Oct 31, 2012 20:16 UTC

CHICAGO (Reuters) – While we can’t control nature or the ravages of climate change, there are things you can do to safeguard your financial future. True catastrophic coverage is comprehensive and protects more than your assets; it protects your well being in the future. In addition to reviewing all of your insurance policies to see what they cover and how much your out-of-pocket expenses will be, you need to do more to prepare for the future.

There may not be an optimal time to review your catastrophic coverage, but the worst time is when something bad happens. You may want to huddle with your trusted advisers before the end of the year. Here’s what you need to know and do:

1) Review all of your estate planning before the end of the year. This is particularly essential, because Congress may be raising estate taxes when the current rates expire at the end of the year. You will need to have a plan if that happens, which may involve a shift of assets and gifts to children and relatives. Estate plans also include a will, a living trust or a living will. All three give specific directions to survivors on what you want done in the event of your passing. A living will gives medical directives if you are permanently incapacitated and on life support.

Happy-ish thoughts about investing in housing

Oct 26, 2012 14:57 UTC

By John Wasik

CHICAGO, Oct 26(Reuters) – While most of the recent news on
housing seems to indicate a modest turnaround – like yesterday’s
report that pending home sales rose but at a slower than
expected rate – you still have to be selective in how you
invest. A resurgence may not be a sustainable, nor will every
area benefit.

It would be too easy to say that the housing market has
bottomed out or that the general economy is pushing housing
along. Still some demographic trends are acting as catalysts.

Most indicators appear to be showing green when it comes to
U.S. housing in recent months. Housing starts, which have been
dismally low in the wake of the 2008 meltdown, rose 15 percent
in September – the quickest pace in more than four years -
according to the U.S. Commerce Department. Building permits grew
almost 12 percent. Construction of town homes and condos was up
25 percent for the period.