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After a bullish inaugural day of 2012 trading, the market has been essentially flat. So far this year, stocks in the S&P 500 Index are up about 1% on relatively light trading volume. One reason for the trepidation in the market right now is Europe. In fact, you might say that Europe’s got the world on hold, as traders wait for a clear signal on what’s next for the continent’s debt issues.
I am of the opinion that the structural problems that led to Europe’s debt mess still are very much in place, and that situation means Europe is going to continue to be a major obstacle to any potential recovery in the global economy. Evidence of this economic growth obstacle was seen today, as the strongest economy in Europe, Germany, reported a 0.25% contraction in the fourth quarter of 2011.
Most economists are predicting that the German economy will continue to shrink in the first quarter of 2012, and that’s going to have a strong ripple effect in Europe, Asia, the emerging markets — and even here in the United States.
The chart below of the Currency Shares Euro Trust (FXE), an exchange-traded fund (ETF) pegged to the fortunes of the euro, shows how little confidence the market has in the European Union’s shared currency.
This lack of confidence in the euro has already spread into a lack of confidence in European equities. The real fear is that a meltdown in Europe will cause fallout around the world. If this event transpires, the very last place you’ll want your money to be is in stocks.
I currently am advising readers of my Successful Investing advisory service to remain cautious with respect to their allocations to this dangerous market. I think there is just too much potential peril here for investors, and that means cash could be your best defense against Europe’s debt threat.
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Personal Finance Exercises for the New Year, Part II
In last week’s Alert, we began a special series on personal finance exercises for 2012. The first installment was all about taking an inventory of all of your assets. Here we took a page from corporate CFOs, as they regularly are tasked with determining the precise value of their company’s assets. The result of that inventory should be that you now know how much money you actually have, and in what type of asset class that money resides (equities, bonds, real estate, gold or silver coins, checking account, certificates of deposit, etc.).
This week, we are going into Part II of the series, and that is to do an asset allocation review. Now is the time to dig down deep into precisely where your assets are, and by that I mean knowing specifically which stocks, bonds, exchange-traded funds (ETFs), mutual funds, variable annuities, etc., you currently own. You also need to know how much you own of each security. Your goal this week is to take an inventory of all of your securities holdings to let you see if there are any glaring weaknesses and/or omissions in your asset allocation.
Once you know, in percentage terms, how much of your total investment portfolio is committed to stocks, how much to bonds, commodities, cash, etc., you can make the necessary adjustments to get the desired mix of assets where you want them.
I am of the opinion that stocks are going to struggle to make headway, at least in the first half of 2012. And while there certainly could be a lot of flux in stocks going forward, I think portfolios with a distinctly risk-averse orientation will perform much better than those with a lot of equity exposure. That view means you’ll want to have more cash and bonds in your mix than equities.
If you find that you have a relatively high equity allocation, then you should think about reducing your level of exposure. If, on the other hand, you have a lot of cash in your portfolio, then I think your cautious approach will be rewarded in the months to come.
Next week, we’ll do an inventory of all of the income streams that your money is generating. If your primary goal is to capture high yield and dividend income from your existing assets, next week’s lesson is aimed directly at you.
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.
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ETF Talk: A Proven Formula is Diversification and Income
A diversified approach to investing has proven to be a wise strategy to deal with market volatility, especially during the past six months. Dividend-paying stocks also have shown their worth during that time as the market’s direction varied going into 2012. One of the best ways to enhance your portfolio with both diversification and dividend-paying stocks is the SPDR S&P Dividend ETF (SDY).
The SPDR S&P Dividend ETF seeks to match the returns and characteristics, before expenses, of the S&P High Yield Dividend Aristocrats Index. The fund’s strategy is designed to provide you with low portfolio turnover, accurate tracking and limited costs.
With more than 62 holdings and a dividend yield of 3.19%, SDY can provide investors with exposure to a basket of sectors, including consumer staples, financials, industrials, utilities, consumer discretionary, materials and healthcare. All of these sectors have an allocation ranging between 19% and 10%. The fund’s top 10 holdings, as of Jan. 10, were: Pitney Bowes Inc, 3.99%; AT&T Inc., 3.33%; Cincinnati Finl Corp, 2.89%; HCP Inc., 2.89%; Leggett & Platt Inc., 2.74%; Old Rep Intl Corp., 2.34%; Consolidated Edison Inc., 2.20%; Kimberly Clark Corp., 2.18%; Nucor Corp., 2.12%; and Sysco Corp. 2.12%.
Naturally, uncertainty causes investors to become wary about putting their hard-earned cash into the market. But such times can provide the best opportunities to find real value, if you are good at separating the winners from the losers. Doing your homework and finding solid performers amid volatility can pay off, especially when markets become highly correlated. Diversification and buying dividend-paying stocks are time-tested ways to build a successful investment portfolio, no matter which way the market is heading at a particular time. ETFs such as SDY let you invest by using a strategic approach that many professional investors and institutions follow themselves.
As always, if you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. I am happy to answer your questions, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.
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The Right Strategies for 2012
It’s 2012, and that means it’s a great time to make sure that 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 likely will be a very challenging year for the markets, having the right strategies in place both to 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. Then we have the rollover of enormous debt loads in Japan, Europe and the United States, all of which could wreak havoc on your wealth in the coming year — if you’re unprepared.
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 that 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:
• Which ETFs offer you the opportunity for steady and secure income.
• Which stock market regions are poised to show the strongest growth in 2012.
• Which sectors we believe you should be allocating to for strong returns.
• What the fallout from Europe’s debt crisis will be on U.S. investors.
• What we think will be the opportunity of the year for prepared investors.
• 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.
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Remember, it’s Still Government
“My reading of history convinces me that most bad government results from too much government.”
–Thomas Jefferson
The Republican presidential primaries are in full swing, and I know many Alert readers are following the results with keen interest. But just remember that whatever the outcome, government is still government. And the less government we have, the better. Think about that when you pull the lever at your polling place this year.
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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. Click here to ask Doug.
Sincerely,
Doug Fabian
