Opinion

John Wasik

When safe stock funds cost you money

Apr 9, 2012 17:10 UTC

CHICAGO (Reuters) – During the financial market turbulence of recent years, fund marketers have launched a number of stock funds that boasted exceptionally low volatility. They were the equivalent of sea-sickness pills for those who still wanted to go on stock-market cruises.

Yet these exchange-traded funds (ETFs) make less sense when the stock market is bullish. You may sacrifice returns and could dampen volatility more effectively with other strategies. In a sustained bull market – if you want to be invested in stocks at all – you would be much better off in a broad-based, all-in index fund than a low-volatility ETF.

To be sure, as risk-reduction vehicles, low-volatility ETFs play it safer by investing in mature companies with steady cash flows and solid dividends. They are less likely to be sold off in a market rout such as the one experienced last year.

For example, ETFs such as the PowerShares S&P 500 Low-Volatility Portfolio focus on long-established dividend payers in consumer products and utilities. Their overall approach is to lower the risk in stock market investing by lowering the volatility.

LAGGING THIS YEAR

This strategy may have softened the swells from the stormy markets of last year, but it’s coming up a laggard this year as a recovering economy is propelling the general market.

COLUMN: When safe stock funds cost you money

Apr 9, 2012 17:02 UTC

CHICAGO, April 9 (Reuters) – During the financial market
turbulence of recent years, fund marketers have launched a
number of stock funds that boasted exceptionally low volatility.
They were the equivalent of sea-sickness pills for those who
still wanted to go on stock-market cruises.

Yet these exchange-traded funds (ETFs) make less sense when
the stock market is bullish. You may sacrifice returns and could
dampen volatility more effectively with other strategies. In a
sustained bull market – if you want to be invested in stocks at
all – you would be much better off in a broad-based, all-in
index fund than a low-volatility ETF.

To be sure, as risk-reduction vehicles, low-volatility ETFs
play it safer by investing in mature companies with steady cash
flows and solid dividends. They are less likely to be sold off
in a market rout such as the one experienced last year.

Do some spring rebalancing to reduce risk

Apr 5, 2012 20:20 UTC

CHICAGO (Reuters) – To some, spring means cleaning, renewal and yard work. For nervous Nellies like me who still see the ghost rider of 2008 in my rear-view mirror despite the market being up sharply so far in 2012, it means rebalancing my portfolio.

There’s nothing sexy about rebalancing. You simply plod through your account statements and reorient your nest egg toward your objectives while lowering risk. The crux is that if you do it right, you are purchasing less-favored assets and selling higher-valued securities. In other words, you are buying low and selling high, which is what most investors consistently fail to do. Far too many folks buy on the way up and hope that good times will continue indefinitely, thus ignoring the downside risk.

If you don’t rebalance, your portfolio gradually becomes dominated by higher-risk and potentially over-valued assets. When the eventual correction or crash comes along, the resulting fall is much steeper – if you haven’t rebalanced.

COLUMN: Do some spring rebalancing to reduce risk

Apr 5, 2012 20:12 UTC

CHICAGO, April 5 (Reuters) – To some, spring means cleaning,
renewal and yard work. For nervous Nellies like me who still see
the ghost rider of 2008 in my rear-view mirror despite the
market being up sharply so far in 2012, it means rebalancing my
portfolio.

There’s nothing sexy about rebalancing. You simply plod
through your account statements and reorient your nest egg
toward your objectives while lowering risk. The crux is that if
you do it right, you are purchasing less-favored assets and
selling higher-valued securities. In other words, you are buying
low and selling high, which is what most investors consistently
fail to do. Far too many folks buy on the way up and hope that
good times will continue indefinitely, thus ignoring the
downside risk.

If you don’t rebalance, your portfolio gradually becomes
dominated by higher-risk and potentially over-valued assets.
When the eventual correction or crash comes along, the resulting
fall is much steeper – if you haven’t rebalanced.

Green investing good for world, maybe not for you

Apr 2, 2012 18:59 UTC

CHICAGO (Reuters) – Want to vote with your dollars when it comes to environmental concerns? One way is to invest in environmentally focused mutual and exchange-traded funds, although you may be trading your green conscience for increased portfolio risk.

People who are concerned about energy prices and climate change have put more than $3 trillion into the hands of managers who target positive environmental, social and corporate governance practices, encompassing more than 250 investment funds, according to the Forum for Sustainable and Responsible Investment’s 2010 report on socially responsible investing.

Like any sector, environmental stocks are volatile. One year ethanol producers are hot, then sold off. Solar-panel manufacturers sizzle – and then fade.

COLUMN: Green investing good for world, but maybe not for you

Apr 2, 2012 16:27 UTC

CHICAGO, April 2 (Reuters) – Want to vote with your dollars
when it comes to environmental concerns? One way is to invest in
environmentally focused mutual and exchange-traded funds,
although you may be trading your green conscience for increased
portfolio risk.

People who are concerned about energy prices and climate
change have put more than $3 trillion into the hands of managers
who target positive environmental, social and corporate
governance practices, encompassing more than 250 investment
funds, according to the Forum for Sustainable and Responsible
Investment’s 2010 report on socially responsible investing.

Like any sector, environmental stocks are volatile. One year
ethanol producers are hot, then sold off. Solar-panel
manufacturers sizzle – and then fade.

In times of trouble, investors can build a bridge

Mar 26, 2012 13:20 UTC

CHICAGO (Reuters) – Having been a stock market investor during the worst downturns over the past quarter century, I’m naturally cautious about national economic shocks like recessions, inflation, bubbles and wars.

None of those threats have disappeared from my radar screen. But being a squeamish investor, as I’m watching the steady ascent of the U.S. stock market this year, I have one question: What should you be most afraid of?

I share the caution espoused by former Treasury Secretary Robert Rubin, whom I heard speak at the Chicago Council on Global Affairs on Thursday. “I’m an investor – a troubled investor – with a very deep concern,” Rubin said. “If we (the U.S.) don’t get on a sound fiscal trajectory, there will be a severe crisis in the bond and currency markets.”

COLUMN: In times of trouble, investors can build a bridge

Mar 23, 2012 20:55 UTC

CHICAGO, March 23 (Reuters) – Having been a stock
market investor during the worst downturns over the past quarter
century, I’m naturally cautious about national economic shocks
like recessions, inflation, bubbles and wars.

None of those threats have disappeared from my radar screen.
But being a squeamish investor, as I’m watching the steady
ascent of the U.S. stock market this year, I have one question:
What should you be most afraid of?

I share the caution espoused by former Treasury Secretary
Robert Rubin, whom I heard speak at the Chicago Council on
Global Affairs on Thursday. “I’m an investor – a troubled
investor – with a very deep concern,” Rubin said. “If we (the
U.S.) don’t get on a sound fiscal trajectory, there will be a
severe crisis in the bond and currency markets.”

The tech siren is calling: Should you listen?

Mar 20, 2012 13:43 UTC

CHICAGO (Reuters) – Once again the seductive siren call of technology stocks beckons investors. Especially after Apple announced a huge stock buyback Monday along with its first dividend since 1995.

Should you follow that call, or put wax in your ears the way Odysseus’s crew did when they passed the island of the seductive sirens?

There is always a safer course. Sure, technology share returns may be singing a pretty song right now. The S&P North American Technology Sector Index (Total Return) is up about 18 percent year to date through March 16, according to Standard and Poor’s. The sub-index for technology that tracks hardware has risen about 25 percent.

Column: The tech siren is calling: Should you listen?

Mar 19, 2012 21:31 UTC

CHICAGO (Reuters) – Once again the seductive siren call of technology stocks beckons investors. Especially after Apple announced a huge stock buyback Monday along with its first dividend since 1995.

Should you follow that call, or put wax in your ears the way Odysseus’s crew did when they passed the island of the seductive sirens?

There is always a safer course. Sure, technology share returns may be singing a pretty song right now. The S&P North American Technology Sector Index (Total Return) is up about 18 percent year to date through March 16, according to Standard and Poor’s. The sub-index for technology that tracks hardware has risen about 25 percent.

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