John Wasik

CHICAGO, July 30 (Reuters) – I have a pretty good idea of
what drought looks like after recently traveling more than 1,400
miles from Chicago to Utah: Vast patches of brown where there
should be green. Cornstalks that look like desiccated
scarecrows. Wilted soybeans. Forested Colorado canyons
devastated by wildfires and pine beetles.

Whether this is the brutal impact of climate change or a
short-term cycle, I can’t say. Regardless of your scientific or
political persuasion, though, what is certain is that water is
going to be an increasingly valuable commodity and a worthwhile
long-term investment.

The short-term nightmare is that the United States is
experiencing its hottest year on record. States from Ohio to
California — 53 percent of the contiguous United States — are
in drought, according to the National Weather Service. Many
breadbasket states that have traditionally been blessed with
summer rains in the Midwest are parched.

As a result, 45 percent of the corn crop and 35 percent of
soybeans are rated “poor to very poor,” according to the U.S.
Department of Agriculture. The produce manager at my local
supermarket heard that farmers are close to plowing under their
fields and seeking crop-insurance payments as drought is
expected to intensify across America’s heartland. More than
1,200 counties have been declared disaster areas. Futures prices
on corn have already hit a record high.

As a result, look for higher prices on everything from bread
to steaks.

WIDESPREAD DISASTER

Globally, the long-term picture is worse. Rising water
demand due to population increases, industrialization and higher
standards of living in developing countries is exceeding supply.

CHICAGO (Reuters) – Do you have a lingering memory of motion sickness after last summer’s debt storm? I do.

Before another cyclone hits, it’s a good time to check your portfolio mix of stocks and bonds as a way of securing your financial ship.

A sensible portfolio review deals with your fears first.

What will be most harmful to your standard of living if your portfolio comes up short? Have you taken a look at how your portfolio performs in the worst markets?

CHICAGO, July 24 (Reuters) – While there’s some debate over
whether the U.S. residential market is in recovery mode, there’s
a stronger case for a rebound in commercial properties.

Real Estate Investment Trusts (REITs), which invest in a
variety of income properties and mortgages and are listed on
stock exchanges, often serve as a bellwether of consumer and
commercial economic activity, as they will show earnings growth
in a general recovery.

Aside from the economic recovery narrative, REITs make sense
for investors who are hunting for yield. Although REITs often
march in lockstep with stocks during recessions, they can move
in different cycles, dictated by movements in commercial real
estate. REIT managers also are able to buy more properties when
interest rates are low.

CHICAGO (Reuters) – I’ve always had mixed feelings about gold. Is it an alternative currency? A speculator’s refuge from political or fiscal instability? A reliable inflation indicator? Turns out it’s maybe all of the above.

What role should gold play in your portfolio? Certainly it’s no substitute for bonds, which held up well in 2008 and rarely lose money in low-inflation periods. As an inflation hedge, though, you may be better off holding dividend-paying stocks and inflation-protected securities (TIPS). Inflation will return eventually, which means you need to start protecting yourself now from bond-price declines.

Whatever view you take on gold, most financial savants suggest it should occupy no more than 10 percent of your portfolio; and don’t try to time its price movements. And while it can fulfill many roles imperfectly, its appeal changes with the moods of the market’s animal spirits. And here’s why:

CHICAGO (Reuters) – A friend recently asked me to vet several financial advisers he was considering to manage his retirement portfolio. As one who hates to see people getting fleeced, I’m cautious of Madoff-like malefactors, the latest of which cropped up in the case of the PFGBest brokerage in Cedar Falls, Iowa. So I curbed his enthusiasm a bit about money managers who had impressed him with their initial pitch.

Despite two years under the Dodd-Frank financial reform law, millions of investors are still highly vulnerable when it comes to advisers. Buffeted by relentless lobbying by the financial services industry, the strongest pieces of Dodd-Frank have yet to be implemented. Here are key questions you need to ask a prospective financial adviser before you sign up:

1. How are you compensated?

I have no problem with paying advisers what they’re worth, but often they are overcompensated at your expense. Most of them can’t beat the market after fees and inflation in risk-adjusted terms. Generally, advisers who hold broker-dealer licenses are paid by commission. The more transactions or products they sell, the more money they make.

CHICAGO, July 9 (Reuters) – A recent New York Times story
quoting a former JP Morgan broker who said the company urged its
financial advisers to sell its own commissioned funds over
less-expensive outside products should not have surprised any
educated investors. It has been well-known in academic finance
circles for years that when you add up the fees that brokers
layer on, the value proposition often evaporates.

I have yet to find independent evidence that shows that
broker-sold products outperform noncommissioned index funds over
time on a regular basis. There are, of course, exceptions from
year to year. And of course, some brokers may provide a useful
service if the funds they recommend can equal or top market
returns and meet investors’ needs and goals. But generally the
opposite is true over the long haul.

A comprehensive study conducted by researchers Daniel
Bergstresser, John Chalmers and Peter Tufano, published in 2007,
examined broker- and direct-sold (when no broker was involved in
the transaction) funds from 1996 through 2004. The broker-sold
funds delivered lower risk-adjusted returns – even before
“distribution” costs were subtracted. The results were
consistent across different fund objectives, with the exception
of foreign-stock funds (see).

CHICAGO, July 5 (Reuters) – Bill Bernstein is both a
neurologist and a money manager, which gives him a unique
perspective on the human impulses that he says typically
short-circuit people’s portfolio decisions. Author of six books,
including “The Four Pillars of Investing,” he says we need to
rewire our brains to do the right things at the right times.

Long a rare voice of wisdom in an increasingly bi-polar
market environment, Bernstein says the trick to smart investing
is “learning how to behave. You have to fight your worst
instincts.”

Here are some behavioral guidelines he suggests:

1. Be careful with advisers.

It’s perfectly understandable if you don’t want to go it
alone in investing because there’s a lot to know and only a few
people are experts. If you choose an adviser, make sure that
they are a fiduciary; they must put your interests above that of
their firm. They also shouldn’t overcharge you, meaning annual
fees of less than 1 percent.

CHICAGO (Reuters) – I turn 55 today. As a member of the baby boom generation who hopes he’s aging like a fine wine and not turning into vinegar, I abhor the idea of losing money again in a 2008-style meltdown.

If I’ve learned anything, it’s that I’m a lousy psychic, so I don’t try to guess what any market will be doing in the future. Having speculated in precious metals, tech stocks and bought and sold at the wrong moments, I’ve made plenty of mistakes and run off the cliff with the flock far too many times. Here are some lessons I learned along the way.

1. Being liquid is golden

Hewing to Ben Franklin’s advice, savings is my top priority. When we hit a family health crisis in 2009-2010, I was glad we had cash reserves and an investment club portfolio of established dividend-paying stocks that I could liquidate.

CHICAGO, June 29 (Reuters) – Portfolio volatility is your
sworn enemy if you’re nearing retirement or market downturns
make you nauseous. But if you’re a buy-and-hold investor – and
believe that stock market risk diminishes over time – you still
need a new course of action.

With high-frequency robotic trading, exchange traded funds
and global news hitting markets at the speed of light, there’s
no reason to believe volatility is going away.

Recent research by Lubos Pastor of the University of Chicago
and Robert Stambaugh of the University of Pennsylvania confirms
this view. In a forthcoming piece in the Journal of Finance,
they examined 206 years of stocks returns and confronted the
conventional wisdom that stock risk declines over time.

CHICAGO, June 25 (Reuters) – If there was such a thing
as a global financial uncertainty index, it would be soaring to
a stratospheric level.

The euro zone crisis still festers, 15 major banks were
recently downgraded by Moody’s and the U.S. faces a boatload of
political risk through its year-end of fiscal cliff tax
increases.

Markets are being roiled by volatility, and so bonds have
become like caves – refuges from widespread fear.