Opinion

John Wasik

Column: Four ways to avoid bad decisions during a bull run

May 15, 2013 12:54 UTC

CHICAGO (Reuters) – Is the Dow’s movement above 15,000 or the record close of the S&P 500 Index last week a buy signal? They may not mean anything, but most market watchers believe the rise is talismanic.

Despite the lure of recent market gains, there’s often no pattern to investment results. To avoid seeing patterns where there may be none – and acting irrationally – we often need to short-circuit our instincts and think counter-intuitively.

A go-slow approach that avoids trading on market timing can often avert losses. Here are some behavioral biases and ways to prevent bad decisions:

1. Don’t time jumps in and out of the market.

Trading decisions typically are expensive and eat into your total return.

A study released late last year by the Gerstein Fisher research center found that the S&P 500 posted a 6.66 percent annualized return from January 1, 1996, through December 31, 2010. After trading, inflation, fund expenses and taxes, however, individuals reaped a miserable 1 percent return. Investors paid a steep penalty for market timing.

2. Buy and hold works.

We tend to be overconfident in our ability to predict the future.

Let’s say you held a basket of small-company stocks from 1993 through last year. You would have reaped an 11 percent compound annual return, according to Ibbotson Associates. If you were in large stocks, your gain would have been about 8 percent on average annually if you held your position for 20 years through 2011, according to Dalbar, a Boston-based financial research firm.

Four ways to avoid bad decisions during a bull run

May 15, 2013 11:59 UTC

CHICAGO, May 15 (Reuters) – Is the Dow’s movement above
15,000 or the record close of the S&P 500 Index last week a buy
signal? They may not mean anything, but most market watchers
believe the rise is talismanic.

Despite the lure of recent market gains, there’s often no
pattern to investment results. To avoid seeing patterns where
there may be none – and acting irrationally – we often need to
short-circuit our instincts and think counter-intuitively.

A go-slow approach that avoids trading on market timing can
often avert losses. Here are some behavioral biases and ways to
prevent bad decisions:

Column: Going to alternatives for yield

May 10, 2013 12:25 UTC

CHICAGO (Reuters) – If you’re willing to take on more risk, it’s a good time to move beyond corporate and government bonds in the incredibly challenging search for yield.

While attention has been on the record-setting stock market – the Dow Jones Industrial Average closed above the symbolic 15,000 on Tuesday and kept climbing – bond yields have been heading south. The benchmark 10-year U.S. Treasury is yielding around 1.8 percent after hitting 2 percent in early March.

An “in-between” portfolio that focuses on yield from non-traditional sources while owning dividend-rich stocks is one approach to find income. This strategy is based on the reality that bond yields probably won’t rise much in the next year or so. You’ll have to venture into alternative investments if you want to boost your income stream.

Going to alternatives for yield

May 10, 2013 12:24 UTC

CHICAGO, May 10 (Reuters) – If you’re willing to take on
more risk, it’s a good time to move beyond corporate and
government bonds in the incredibly challenging search for yield.

While attention has been on the record-setting stock market
- the Dow Jones Industrial Average closed above the symbolic
15,000 on Tuesday and kept climbing – bond yields have been
heading south. The benchmark 10-year U.S. Treasury is yielding
around 1.8 percent after hitting 2 percent in early March.

An “in-between” portfolio that focuses on yield from
non-traditional sources while owning dividend-rich stocks is one
approach to find income. This strategy is based on the reality
that bond yields probably won’t rise much in the next year or
so. You’ll have to venture into alternative investments if you
want to boost your income stream.

Column: Despite risks, retirement savers plow into target-date funds

May 8, 2013 12:12 UTC

CHICAGO (Reuters) – A torrent of money flowing into target-date funds suggests many retirement investors may be ignoring the risks of this key category.

These funds now represent the second-most-popular allocation after U.S. large-stock funds within defined-contribution plans like 401(k) accounts, according to pension consultant Callan Associates. Target-date assets have climbed above $500 billion, attracting $16 billion in the first two months of 2013 alone, according to Strategic Insight.

Target-date funds combine several mutual funds within one package and are managed so that they move to less risky postures as their shareholders move closer to retirement. That movement – usually from stocks to bonds – is called the fund’s “glide path.” The funds take aim at specific future dates, and investors are expected to buy the fund that matches their own retirement date.

Despite risks, retirement savers plow into target-date funds

May 8, 2013 11:59 UTC

CHICAGO, May 8 (Reuters) – A torrent of money flowing into
target-date funds suggests many retirement investors may be
ignoring the risks of this key category.

These funds now represent the second-most-popular allocation
after U.S. large-stock funds within defined-contribution plans
like 401(k) accounts, according to pension consultant Callan
Associates. Target-date assets have climbed above $500 billion,
attracting $16 billion in the first two months of 2013 alone,
according to Strategic Insight.

Target-date funds combine several mutual funds within one
package and are managed so that they move to less risky postures
as their shareholders move closer to retirement. That movement -
usually from stocks to bonds – is called the fund’s “glide
path.” The funds take aim at specific future dates, and
investors are expected to buy the fund that matches their own
retirement date.

Two ways to play the retail rebound

May 3, 2013 15:06 UTC

CHICAGO, May 3 (Reuters) – With consumer stocks blazing this
year, it makes sense for investors to focus on retailers as the
U.S. economy continues an inchworm-like recovery. But retail is
a fickle business. And trying to guess which companies will
survive over the long-term is a dangerous game.

Instead of buying individual stocks, you’d be better off
owning an exchange-traded fund of retailers benefiting from a
revival of consumer spending, employment, home wealth and
economic growth. Two of the top three sectors in the economy
have been consumer discretionary products and staples, which
include the stock of both manufacturers and retailers. The
sectors have gained 14 percent and 17 percent year to date,
respectively, through May 1, according to Standard & Poor’s. The
other top sector was healthcare.

There are four exchange-traded funds that focus on the
retail group. I like two of them, for different reasons.

Spring cleaning for your portfolio

Apr 29, 2013 18:51 UTC

CHICAGO, April 29 (Reuters) – Whether you need to invest a
tax refund or simply want to see if you’re on track with your
investments, spring is a great time to get out the broom.

I needed to make a large contribution to my 401(k) to offset
some taxes recently, so I took the opportunity to see that my
portfolio is meeting my objectives.

In my case, I needed to do some rebalancing and check
returns of the funds I owned against benchmarks. Then I checked
to see if my funds tracked my long-term investment policy.

Column: Closed-end funds provide yield, but at a price

Apr 26, 2013 19:24 UTC

CHICAGO (Reuters) – Investors chasing yield in this low-rate environment are jumping into alternative vehicles. That’s helping closed-end income funds stage a comeback.

Such funds, which offer a fixed number of shares and are closed to new capital once they start operating, have their attractions, but investors should exercise caution. Expenses for closed-end funds tend to be higher than with exchange-traded funds, they are more complex and they usually carry more risk. Their active managers are free to use leverage and invest in a variety of assets in the hope of delivering higher returns than mutual funds with static bond mixes.

In 2008, initial public offerings of closed-end mutual funds fell off sharply, to just one, from about 30 the year before. They fell out of favor because of the market meltdown and other debacles. There were 11 in 2009, 12 in 2010, four in 2011 and 13 last year, according to Lipper, a Thomson Reuters company.

Closed-end funds provide yield, but at a price

Apr 26, 2013 19:15 UTC

CHICAGO, April 26 (Reuters) – Investors chasing yield in
this low-rate environment are jumping into alternative vehicles.
That’s helping closed-end income funds stage a comeback.

Such funds, which offer a fixed number of shares and are
closed to new capital once they start operating, have their
attractions, but investors should exercise caution. Expenses for
closed-end funds tend to be higher than with exchange-traded
funds, they are more complex and they usually carry more risk.
Their active managers are free to use leverage and invest in a
variety of assets in the hope of delivering higher returns than
mutual funds with static bond mixes.

In 2008, initial public offerings of closed-end mutual funds
fell off sharply, to just one, from about 30 the year before.
They fell out of favor because of the market meltdown and other
debacles. There were 11 in 2009, 12 in 2010, four in 2011 and 13
last year, according to Lipper, a Thomson Reuters company.

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