Monday, July 11, 2011

SmartMoney offers 4 investment strategies for these uncertain times

To my retired 60 & Single investors. As we endure yet another week of market uncertainty tied to worries about U.S. debt limits and borrowing capacity, Europe's monetary struggles with Greece and renewed concerns about this country's jobless recovery, it is time again to examine our investment strategies.
We know there are no risk-free options for generating investment income. Only with risk comes reward.
Right now, equities provide that opportunity. But how much worry and risk can we tolerate? Frankly, I'm getting used to it. Thanks to our 24/7 media coverage, market reaction seems more acute...bad news one day has the Dow Jones dropping 100 points. Good news the next day, up 100 points.
Jonnell Marte, writing at SmartMoney.com, offers some context and perspective as we head into the second half of the year. While there are plenty of reasons to be pessismitic about world markets, there is also reason for optimism, Marte writes.
"Manufacturing in the U.S. has picked up," she said. "Commodity prices have fallen from their peaks, meaning lower costs for companies. And perhaps most importantly, U.S. companies are expected to report strong second-quarter earnings... which some investing pros say could provide a positive catalyst for stocks."
What should an investor do in these uncertain times? Marte offers these four strategies for weathering the ups and downs:
No. 1 Pass the Buck
Use a new hybrid "world allocation" fund, which can "nimbly move in and out of almost any asset class, anywhere in the world. These funds typically include a mix of stocks, bonds currencies and other assets, reports Marte. They have been growing in numbers and popularity, attracting $13.2 billion in new money so far this year. But that nimbleness, says Marte, can also backfire. "The more things you can do in your portfolio the more chance you might get it wrong," Christopher Wolfe, chief investment officer for the private banking and investment group of Merrill Lynch Wealth Management, said. For this reason, investors should cap allocation to these funds to roughly 20 percent of their overall stock portfolio.
No. 2 Bet on Quality
"In uncertain times, cautious investors should up their standards," Marte quotes investing experts as saying. "For stocks, that means large-cap, dividend-paying stocks from companies with healthy balance sheets,such as drugmaker Eli Lilly or wireless provider AT&T." Large-caps also tend to be very liquid and easy to sell. For fund investors, Todd Rosenbluth, a mutual fund analyst for Standard & Poor's Equity Research, recommends the Invesco Diversified Dividend fund, which has returned an average 8.1 percent a year for the past three years compared to an average 4 percent gain by the S&P 500 Index. The fund charges .92 percent, or $92 for every $10,000 invested.
Rosenbluth also likes the Janus Flexible Bond fund, which invests 80 percent in investment grade corporate bonds, along with Treasurys. The fund has returned an average 9.1 percent a year for the past three years, compared to an average 6.8 percent gain for other intermediate investment grade corporate bond funds. It charges .7 percent or $70 for every $10,000 invested.
No. 3 Go Big
Marte reports that even though investors bailed from emerging markets following the unrest in the Middle East earlier this year, the growth potential in developing regions such as Southeast Asia, South America and Eastern Europe remain strong as ever. "This global recovery is not being led by the U.S. and Europe, it's being led by other countries around the world," Ron Florance, managing director of investment strategy for Well Fargo Private Bank told Marte. "If you're not including emerging markets in your portfolio you're missing half the economic opportunity."
No. 4 Ride a Winner
"Mid-sized companies have been on a tear so far this year, outperforming both their smaller and larger brethren," Marte said. "The S&P MidCap 400 Index is up 11.5 percent year-to-date, compared to the the S&P SmallCap 600's gain of 10.9 percent and the S&P 500's 7.6 percent increase. Mid-sized firms also have higher potential for growth than larger caps. Earnings, reports Marte, are expected to grow by 21 percent for mid-cap companies this year, compared to 17 percent for large-caps, according to S&P.
And while smaller-caps can offer even higher growth, mid-sized firms' returns are more stable. For fund investors, Rosenbluth recommends the Vanguard Selected Value fund, which has returned an average 11.1 percent annually for the past three years compared to an average 8 percent gain for other mid-cap value stock funds. The fund charges .47 percent, or $47 for every $10,000 invested.
For the entire SmartMoney story, click here.
As for my own portfolio, which is mostly invested in U.S. equity funds or individual dividend-paying stocks, it's doing just fine, thank you very much. There was that recent six-week period that kinda took my breath away. Maybe we're in for another downward ride. But overall economies show continuing slow, steady improvement.

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