Making Money Alert
Heads in European Sand
02/01/2012
The first month of 2012 is in the books, and it was a very good one for stocks. The S&P 500 Index surged 4.4% during the month, while the Dow jumped 3.4%. The tech-heavy NASDAQ Composite also saw big gains in January, as the index vaulted 8% during the month. The gains we’ve seen in the major domestic markets also were seen overseas, as the iShares MSCI Emerging Markets index (EEM) surged 7.7% in January. Even European stocks were higher, with the iShares S&P Europe 350 Index (IEV) climbing 2.2%.
Now, with all of the upside we’ve seen so far in 2012, you might think that it’s time to feel like a bull. Well, I still don’t.
In fact, I am of the opinion that traders around the globe are taking on way too much risk right now, and the chief reason why is the still-unresolved debt issues in Europe. This week, European leaders held yet another summit to try and force debt-laden countries such as Greece
Once we start to get hard data on the size and scope of the economic slowing in Europe, that news will start to affect the entire global economy -- including the United States Europe needs is growth, not contraction. So far, I haven’t seen any real proposals coming from Europe that will enhance economic growth. Unless and until we do, we are sitting on a powder keg that’s liable to blow up investors’ wealth.
For now, traders are sticking their heads in the European sand, hoping that the region’s debt issues don’t explode into a global recession. I hope Europe ’s issues don’t severely damage the markets either, but as I’ve said many times in the past, hope is not an investment strategy.
What’s important for you, the individual investor, to understand is that despite the robust run in stocks in January, this market environment is still fraught with peril. Until that peril is gone, you need to approach this market tentatively, and always with an eye toward making sure you don’t sustain any significant loss in any one position.
If you have stocks that are up, make sure you move your stop losses up so that you don’t lose the ground you’ve gained over the past month. If you aren’t yet allocated to the market, now is not the time to chase the momentum. The better strategy is to wait for a pullback before entering. Better yet, wait until there’s more clarity in the euro zone before putting your hard-earned assets at risk.
Personal Finance Exercises for the New Year, Part V
For the past four weeks, we’ve outlined the personal finance exercises I want you to undertake for 2012. This week, we have Part V of our series, which is all about living trusts, wills and guardianships.
When it comes to preparing for the inevitable in life, many of us fail to act responsibly. I know it can be hard to think of ourselves as not being around any longer, but that’s no excuse to neglect this extremely important part of your financial life.
If you have any kind of significant net worth, you need a living trust. When you have a living trust, your desire for what happens to your money, your property, your insurance policies, etc., after you’re gone is in your hands. By setting up a living trust, you control the disposition of your assets by appointing a trustee to carry out your wishes.
If you don’t have a living trust, then everything you held dear in your life literally could be at the mercy of the courts. That situation means someone who doesn’t know you, has never met you, and has no personal interest in you or your family, will decide where your assets go after you’re no longer here. I don’t know about you, but I can’t think of anything more infuriating than having the courts determine where the products of my life’s toil will go. Yet without a living trust -- and/or without a will -- this judicial action may be precisely what happens.
Guardianships also are extremely important if you have children. Who’s going to take care of your progeny if you are no longer there to do so? Where will your assets go, and who will look after those assets for your children? Without a guardianship, the courts are in charge. Don’t let that happen.
A little proper planning is all it takes to make sure your assets go where you want after your demise. If you already have a living trust, will or guardianship, make sure you periodically review the trust to account for all of the changing circumstances in your life. A divorce, a significant change in your financial situation, or the death of a spouse, are all prime reasons for you to alter your financial plans, so make sure you have those plans in place and up to date for 2012.
Next week, we’ll conclude our personal finance series for 2012 with a discussion on insurance and annuities.
If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.
ETF Talk: Corporate Bonds Outshine U.S. Treasuries
The U.S. United States
One easy way to invest in corporate bond funds is through the iShares iBoxx Investment Grade Bond ETF (LQD). The exchange-traded fund (ETF) offers an investment vehicle to add income to your portfolio this year. The iShares iBoxx $ Investment Grade Corporate Bond Fund specifically seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the corporate bond market, as defined by the iBoxx $ Liquid Investment Grade Index
LQD consists of more than 600 different bond issues and over $17 billion in assets. The one-year performance of LQD remains strong at 7.6%, with a 30-Day SEC yield of 3.69% and 12-month yield of 4.33%. As a result, LQD provides a much stronger yield than what you will find in the U.S. Treasury market.
In what basically has become a negative real interest rate environment, it is important to protect our savings, while still producing income. With a willingness to absorb a little risk, you can invest in the corporate bond market to boost your income beyond what U.S. Treasuries currently offer. By holding higher-yielding, investment-grade bonds in your portfolio, you can mitigate the Fed’s policy of keeping interest rates at ultra-low levels.
Granted, we have to think about capital preservation in a “risk-on, risk-off” trading environment. This reality means that you can increase your risk prudently by using some higher-yielding debt. The extent that you use this strategy should be determined by your individual investment needs and risk tolerance. Capital preservation will continue to remain a major theme in the investment community going forward. So, at least for 2012, corporate grade debt may be worth checking out to help you shield your portfolio from negative real interest rates.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.
The Right Strategies for 2012
It’s 2012, and that means it’s a great time to make sure you have the right strategies in place for your growth assets, as well as the right strategies in place for your income-generating investments.
In what will likely be a very challenging year for the markets, having the right strategies in place to both preserve and to grow your capital is absolutely critical to your investment success. Now is the perfect time to decide how you should position your investment dollars to achieve your financial goals in 2012.
Make no mistake; the year ahead will be very tricky. The markets will continue to be plagued by Europe’s debt problems, as well as a global economic slowdown led by China Japan , Europe and the United States
We think that how you position your assets at the beginning of the year will be a big determining factor on whether you succeed, or whether you fail, in achieving your investing goals in 2012.
To help ensure you are on the right track for the year, Fabian Wealth Strategies has put together an audio special report titled, The Right Strategies for 2012.
In this special one-hour presentation, you will learn:
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Which ETFs offer you the opportunity for steady and secure income.
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Which stock market regions are poised to show the strongest growth in 2012.
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Which sectors we believe you should be allocating to for strong returns.
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What the fallout from Europe’s debt crisis will be on
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What we think will be the opportunity of the year for prepared investors.
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Plus much, much more.
This audio special report is FREE, and all you have to do to listen is click here.
Here’s to a fantastic year for the well-prepared investor!
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
2112 Wisdom
We’ve taken care of everything
The words you hear, the songs you sing
The pictures that give pleasure to your eyes.
It’s one for all and all for one
We work together, common sons
Never need to wonder how or why.
--RUSH, “Temples
Today’s date is 2-1-12, and for fans of the genius prog-rock trio RUSH, the date reminds us of the band’s seminal concept album “2112.” The album’s storyline is about an individual trapped in a dystopian collectivist society where big government takes care of everything, including the words you hear, the songs you sing and the pictures that give pleasure to your eyes. Of course, all of this is engineered by a group of government “priests” who proclaim that only they know what’s best for you. In 2-1-12 America
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else.