Monday, January 3, 2011

Resolutions for the Financially Fussy

6 top financial trends for 2011

By John F. Wasik (Reuters)
Author, The Cul-de-
Sac Syndrome

Trader Theodore Weisberg smiles as he wears a hat from March 1999, the first time the Dow rose above 10,000, on the floor of the New York Stock Exchange, October 14, 2009. REUTERS/Brendan McDermid  Although the old Chinese curse “may you live in interesting times” has a certain irony about it, this year will certainly not be dull for investors.

To prepare for it, you’ll need a plan, as always. I suggest you craft an investment policy statement that puts down in writing your goals and the amount of money you don’t want to lose. Then plan accordingly.

Resolutions are not on my list, nor is a budget, which doesn’t work for most people. Just stick to growing your money in a sustainable way.

And don’t pay any attention to forecasts. Stocks will fluctuate. There will always be volatility. Focus on a point in the future and figure out how to get there. Here are some trends already in motion that will help you in the coming year:

More brokers will be fired. If you have an adviser who makes recommendations based on commissions, they will never fully be in your corner. Make your own decisions. Only hire advisers and planners who are fiduciaries and will take responsibility — and can be sued — for their bad advice. (Sometime this year, the Securities and Exchange Commission will rule on whether all brokers should be fiduciaries, which will be a beneficial change.) If you need an adviser, hire a fee-only certified financial planner (

More investors will buy into auto-pilot portfolios. Wall Street has snookered Americans for years. They have conned people into believing that diving in and out of stocks and funds will boost your wealth. Well, it does increase wealth — theirs. Investing doesn’t have to be complicated. Stop investing in actively managed funds, most of which don’t beat the market over time. Figure out how much risk you can take and find a passive index portfolio at or that meets your criteria for risk. Every major fund and ETF company also offers passive funds. Automatically invest in your 401(k) and other retirement plans. Rebalance every year according to your investment plan statement and goals.

Your taxes can come down even more. Sure, the government will give you a break on payroll and income taxes, but there’s more you can do. Appeal your property taxes. Property prices are averaged over the past three years by most assessors, so you should be due a reduction in your assessed valuation. Check your payroll tax withholding. Getting a refund every year isn’t necessarily a good thing. You’ve essentially handed the government free use of your money for a year. If your withholding rate is too high, lower it and give yourself a raise.

Stocks will gain. According to data on Presidential market cycles, stocks rarely decline in the third year of a term. If you can afford the risk of being in the stock market, make sure you are invested through an all-market index fund such as the iShares Dow Jones US Index Fund (IYY). That way, all your bets are covered and you don’t get sucked into a risky single stock or sector.

Interest rates will rise. I know, pundits have been predicting this for the last three years and if the economy remains moribund this year, then they will be wrong again. If, however, demand for credit escalates and corporations start to spend their $2 trillion hoard of cash, rates will climb to reflect higher demand for credit. Just make sure you are not in long-term bond funds, because they will suffer the biggest declines. Treasury Inflation-Protected Securities or I Bonds will pay you more if inflation rises ( Of course, any secure bond that you can hold to maturity will be okay.

Commodities will gain. A rising tide lifts all boats. A robust recovery in global economies means greater demand for commodities from coal to rare-earth metals. China, India and Brazil — and a host of other developing countries — all need several commodities to grow. Invest in a basket of them through the Powershares DB Commodity Index Tracking Fund (DBC), which follows a big basket of commodities.

Of course, all my market trends are based on the economy healing itself in the coming year and no major economic catastrophes.

There are always plenty of wild cards, though. That’s why it makes sense to create a low-cost, no-worry autopilot portfolio that samples big pieces of the stock, bond, real estate and commodities markets. It may not be interesting, but dull works better than daring and you don’t get penalized for betting wrong on trends.

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