John Wasik

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.

While estimates vary widely, the impact of climate change on the world economy may be at least $4 trillion by 2030, according to Mercer LLC, a global financial consultant. Countries – particularly those in the euro zone – are responding to global warming by reducing the amount of carbon dioxide and other greenhouse gases through greener energy policies and taxes.

Extreme weather has cost the United States some $67 billion resulting from 21 devastating events since the beginning of last year alone, according to the National Oceanic and Atmospheric Administration. And that does not include the total tally of losses from this summer’s drought or Sandy.

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.

The tale of two gold funds

Oct 22, 2012 17:53 UTC

CHICAGO (Reuters) – Short of stockpiling bullion in your basement, an ETF is the most cost-effective vehicle for owning gold. But you cannot just pick any fund out of the available list of seven bullion-based funds and expect it to perfectly track the price of gold and offer the lowest expense ratio.9

First of all, no exchange-traded fund will track the price of gold perfectly because returns are offset by costs — management fees and brokerage costs to buy them. Gold ETFs vary in fees, with the average annual expense ratio for the category at 0.54 percent, although you can find a fund charging as low as 0.25 percent. You need to weigh carefully what’s important to you: The size and liquidity of the fund or annual expenses. Which fund you buy depends upon how you plan to own it.

As I have mentioned in the past, gold is not a perfect investment. Many pundits legitimately claim gold is a shadow currency because major banks, traders and governments buy it to hedge against currency devaluations. When the dollar gains against other currencies or consumer confidence comes back in the United States or Europe, though, gold will not shine. Rising U.S. interest rates in the U.S. will also hurt the metal’s price.

Four ways to squeeze inflation risk from your portfolio

Oct 19, 2012 16:15 UTC

CHICAGO, Oct 19 (Reuters) – While inflation has been tame in
recent years, there are few forecasters who believe it will
remain so in the future.

But when inflation bites again is a moot question.
Predictions of its imminent return have been wrong for years.
The key is having portfolio protection in place now so that it
won’t devastate your fixed-income holdings and reduce your
future quality of life.

Because even having been forewarned, it’s not so easy to
protect your portfolio against inflation, which will erode your
purchasing power over time. The difficulty is that there’s no
perfect hedge against it. Treasury Inflation-Protected
Securities (TIPS), are the natural choice, but they are linked
to the flawed Consumer Price Index (CPI).

Why you need to join an investment club

Oct 15, 2012 17:00 UTC

CHICAGO (Reuters) – At a time of high-frequency robotic trading, market volatility and elephantine economic uncertainty, joining forces with your family and neighbors for an investment club might sound like a sucker’s game.

The truth is that most investors won’t beat the market once they subtract transactions costs, timing errors and holding onto losers. So perhaps it’s no surprise that when finance professors Brad Barber and Terrance Odean of the University of California researched returns in the 1990s at the height of the investment club boom they found that about 60 percent of the clubs failed to beat a market index.

But there’s more value to pooling your resources than just comparing your returns to the S&P 500. Investment clubs still make sense because they bootstrap fundamentals. You focus on how to analyze a company for its sales, earnings and future direction. You scrutinize management for its ability to increase profits and earnings per share.

Master Limited Partnerships worth a look for high-yield seekers

Oct 12, 2012 12:30 UTC

CHICAGO, Oct 12 (Reuters) – There aren’t too many places
left to look for higher yields these days. The usual go-to
baskets of high-yield and foreign bonds, REITs and high-dividend
stocks are pretty well picked over.

One little-known vehicle to Main Street investors is Master
Limited Partnerships (MLPs), publicly traded entities that own
assets such as pipelines. Because of their unique structure,
partnerships – which can be focused on energy holdings but may
also invest in alternatives such as timber and real estate -
generate a lot of cash that is distributed to limited partners.
Spurred by global and domestic demand for oil, refined petroleum
products and natural gas, for example, energy partnerships are
constantly expanding. In the last few years, the oil and gas
boom in North America has triggered robust growth.

Sparked by a combination of increased exploration and
recovery, indexes that track energy MLPs have outperformed
individual benchmarks representing utility companies, real
estate investment trusts and the S&P 500 index over the past 10
years, according to the Alerian MLP Index. In the decade ending
June 29, the MLP index returned 16.7 percent, compared to 5.3
percent for the S&P 500 Index and 10.7 percent for utility

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.)

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.