Opinion

John Wasik

Drop the S&P index fund for asset-class investing

Mar 17, 2014 15:59 UTC

CHICAGO (Reuters) – You can get most of what you want for your investments from off-the-shelf index funds, but you may have to dig deeper to make your portfolio more productive.

For most mainstream investors, a focus on S&P 500 index funds and a general bond market index serves them well. Yet what if you concentrated on a mixture of different asset classes instead of only picking the usual suspects in conventional index funds that hold the most popular stocks and bonds? You may be able to boost returns while insulating yourself from off years.

An “asset-class investing” approach still relies upon low-cost, passively managed funds as core vehicles, but it puts a greater focus on diversification, which could enhance returns. Giving yourself a piece of every corner of the market means investing in large-, medium- and small-sized companies in developed and emerging markets, plus a broad selection of U.S. and global bonds.

How does it differ? Take the standard approach to indexing the U.S. stock market. Most financial advisers would tell you to buy an S&P index fund, which holds the most popular stocks in the U.S. A good choice would be the SPDR S&P 500 ETF, which holds a mostly passive portfolio at an expense ratio of 0.09 percent annually.

Since many index funds hold stocks that investors have assigned the highest values to, you may not be getting the best prices on them.

How you can build on Warren Buffett’s investment advice

Mar 10, 2014 17:51 UTC

CHICAGO (Reuters) – While it is hard to knock the advice of Warren Buffett, whose annual letter to Berkshire Hathaway Inc shareholders recently lofted down from the mountain of capitalism, some of his tips can be tweaked.

Among the many nuggets of wisdom in the Berkshire report was a recommendation from the company’s chairman to the trustee of his estate that 10 percent of the cash be invested in short-term government bonds and 90 percent in a “very low-cost index fund (Vanguard’s).”

Buffett is spot on about holding onto an index fund and avoiding the exorbitant fees of active managers. But we should look at his advice a bit more closely.

Finding nooks of growth in a sluggish Europe

Mar 3, 2014 17:27 UTC

CHICAGO, March 3 (Reuters) – While the euro zone presents
the unalluring face of sluggish growth, that doesn’t mean it
should be neglected. There are pockets of promise that are worth
exploring.

The reason for the negativity stems from concerns over
conflict in Ukraine and reported euro zone growth at 0.3 percent
in the fourth quarter. Although inflation isn’t a problem for
now, almost no analyst is forecasting robust acceleration for
the year in the region, which is expected to expand about 1
percent in 2014.

Beneath this lackluster scenario, though, lie several layers
of companies that are part of Europe’s turnaround story. If you
focus on smaller-cap companies and those paying dividends, the
picture is a mite brighter.

Betting against the buck easier said than done

Feb 24, 2014 17:57 UTC

CHICAGO, Feb 24 (Reuters) – The U.S. dollar has been taking
it on the chin of late. Last week saw the dollar hit a
seven-week low against its rival currency, the euro. The
greenback also declined against a basket of major currencies,
hitting one of the lowest points of the year to date.

The even worse news is that there’s not much anyone can do
about it right now. Investors whose assets are denominated in
the buck can lose value relative to other currencies, and it’s
difficult to find reliable vehicles to hedge against the
decline.

Some $4 trillion is traded in foreign exchange every day,
most of it by institutions. It would be nearly impossible for an
individual to have the information or trading capability
available that large banks and hedge funds employ.

Boring might be better for fund investors in 2014

Feb 18, 2014 12:00 UTC

CHICAGO, Feb 18 (Reuters) – With U.S. stocks doing a
stutter-step after a five-year bull run, a shift into
low-volatility funds might give you a little more traction if
the market retrenches.

Low or “minimum” volatility funds have become more popular
since the 2008 meltdown. Buying mostly defensive stocks with
high dividends and modest price variations, they represent an
$11 billion market for moderately risk-averse investors.

The most popular fund in this category, the PowerShares S&P
500 Low-Volatility ETF, holds more than $3 billion in
assets. It owns brand-name stocks like McDonald’s Corp
and Johnson & Johnson, along with lesser-known companies
like Sigma-Aldrich Corp.

Column – How to deal with emerging markets volatility

Feb 10, 2014 17:46 UTC

CHICAGO (Reuters) – Since the beginning of the year, emerging markets have been like cats on a hot tin roof.

Hot money is skittering out of foreign markets as countries from Argentina to Turkey have been clawed by economic and political turmoil. But even with heightened concerns about the prospects of developing countries, emerging markets should still be a part of your larger portfolio.

A combination of currency crises and the “taper” of the Federal Reserve’s bond-buying program – possibly resulting in economic slowdowns – have triggered the exodus in emerging markets. More than $12 billion left emerging markets stock funds in January alone, according to EPFR Global, with bond funds in this sector losing nearly $3 billion last week alone.

How to deal with emerging markets volatility

Feb 10, 2014 16:03 UTC

CHICAGO (Reuters) – Since the beginning of the year, emerging markets have been like cats on a hot tin roof.

Hot money is skittering out of foreign markets as countries from Argentina to Turkey have been clawed by economic and political turmoil. But even with heightened concerns about the prospects of developing countries, emerging markets should still be a part of your larger portfolio.

A combination of currency crises and the “taper” of the Federal Reserve’s bond-buying program – possibly resulting in economic slowdowns – have triggered the exodus in emerging markets. More than $12 billion left emerging markets stock funds in January alone, according to EPFR Global, with bond funds in this sector losing nearly $3 billion last week alone.

For investors, a ‘lazy portfolio’ may be a tonic for uncertain 2014

Feb 3, 2014 23:57 UTC

CHICAGO (Reuters) – For investors concerned about increasing market volatility, a defensive position might be a savvy move if stocks continue to retreat from 2013 highs.

You can do that with a “lazy portfolio”: Simply buy and hold passive investments and rebalance then annually. There are several flavors, including one that I designed years ago, but generally they are simple, diversified and somewhat defensive.

Even the best lazy portfolio, as monitored by the online service MyPlanIQ.com, which creates risk-managed portfolios, fell well short of the stellar performance of the S&P 500 large company index, which gained 30 percent last year.

What would Keynes have done?

Jan 27, 2014 17:33 UTC

CHICAGO (Reuters) – What many people don’t realize about economist John Maynard Keynes is that he was a professional investor, not just a thinker who addressed big issues. Although Keynes did not foresee the crash of 1929 and was nearly wiped out on three separate occasions, he made money during some of the most challenging years – and pioneered some durable investing principles along the way worth following in all market conditions.

So how would the father of Keynesian economics, who died in 1946, have played 2014?

He likely would not have been swayed by the recent swoon – the S&P 500 Index is down 3 percent year-to-date through January 24. He quickly threw out conventional wisdom and stopped trading based on big economic themes in the early 1930s, instead focusing on the intrinsic value of companies. This strategy later influenced mega-investors like Warren Buffett, George Soros and John Bogle.

The portfolio rebalancing act: Feels bad, works good

Jan 21, 2014 20:30 UTC

CHICAGO, Jan 21 (Reuters) – For most investors, portfolio
rebalancing is an unnatural investment act. You sell off winners
to buy laggards – an unsatisfying move.

Over the long haul, though, rebalancing makes sense because
it lowers market risk and keeps you right with your investment
goals: You’ll reap a higher annualized return if you do it on a
regular basis.

I rebalance once a year, although I’d rather do my taxes,
which is marginally less unpleasant. This year my wife and I
have a particular need to rebalance since our main retirement
portfolio mix has drifted to nearly 60 percent stocks and 40
percent bonds away from our 50/50 allocation goal.

  •